Ravensdown Fertiliser Co-Operative Limited v Hart

[2014] NZHC 2038

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2014-412-000025 [2014] NZHC 2038

BETWEEN

RAVENSDOWN FERTILISER

CO-OPERATIVE LIMITED Plaintiff

AND

WILLIAM GEOFFREY HART First Defendant

AND

NICOLA LEAH HART Second Defendant

Hearing:

3 April;  further submissions received 15 August 2014,

21 August 2014 and 26 August 2014

Representation

G T Carter for Plaintiff
N L Hart (Second defendant) in person
No appearance by first defendant

Judgment:

26 August 2014

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to costs and disbursements

Introduction

[1]      On  3 April  2014  I  granted  summary judgment  against William  Hart  for

$226,185.43 along with interest, costs and disbursements.1  After I entered judgment, Mr Hart had himself adjudicated bankrupt.  Following this, Nicola Hart had herself adjudicated bankrupt on 23 June 2014, which resulted in the plaintiff filing by leave a discontinuance against her.

[2]      When I granted leave, I reserved issues of costs against Ms Hart because the

Court had received no proof of service of the proceeding upon her.   I have since

1      Ravensdown Fertiliser Co-operative Ltd v Hart HC Dunedin CIV-2014-412-25, 3 April 2014.

RAVENSDOWN FERTILISER CO-OPERATIVE LIMITED v HART [2014] NZHC 2038 [26 August 2014]

received submissions from counsel for the plaintiff and from Mrs Hart as to costs.  It is to the determination of this matter I now turn.

Costs and disbursements

[3]      The plaintiff applies for costs on a solicitor-client basis.  It relies on the terms of trade attaching to the contract  entered  into  between  the parties.2     Under the heading “payment”, Mr and Mrs Hart contracted, inter alia, as follows:

I/We agree to pay on demand all collection costs and solicitors’ fees, charges and/or  costs  and  enforcement  costs  incurred  or  expended  in  recovering monies owed.

Similarly,  in  the  “SuperPlan  Extend  Terms  of  Trade”,  also  under  the  heading

“payment”, Mr and Mrs Hart agreed:

In the case of unpaid accounts I/we acknowledge that the above information will be passed on to an appointed agent for debt recovery.  I/we agree to pay on demand all collection costs and solicitors fees, charges and/or costs and enforcement costs incurred or expended in recovering monies owed.

[4]      There is a contractual entitlement to solicitor/client costs.

[5]      On the basis of the affidavit of Tiresa Brito filed in support, I find that the

$10,492.28 claimed against Mrs Hart is also reasonable.3   The various solicitors who had worked on the file had discounted their ordinary rates.   The various invoices making up the claim (excluding GST, which Ravensdown does not seek because of

its GST position), were as follows:

2      High Court Rules, r 14.6(4)(e), applies.

3      Rule 14.6(1)(b). See too Black v ASB Bank Ltd [2012] NZCA 384 at [77]–[99].

Date of Invoice	Type	Amount (excl GST)
27 March 2013	Costs	$840.00
27 March 2013	Disbursements	$30.00
30 May 2013	Costs	$940.00
30 May 2014	Disbursements	$35.22
28 November 2013	Costs	$3,800.00
28 November 2013	Disbursements	$114.00
26 February 2014	Costs	$1,800.00
26 February 2014	Disbursements	$1,227.91
14 May 2014	Costs	$100.00
14 May 2014	Disbursements	$750.25
26 June 2014	Costs	$830.00
26 June 2014	Disbursements	$24.90
Total		$10,492.28

Impact of Mrs Hart’s bankruptcy

[6]      A potential  difficulty  arose  as  a  result  of  Mrs  Hart’s  being  adjudicated bankrupt on 23 June 2014.  This was because of two provisions of the Insolvency Act 2006 (the Act), being:

76       Effect of adjudication on Court proceedings

(1)       On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.

(2)       However,  on  the  application  by  any  creditor  or  other  person interested in the bankruptcy, the Court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the Court thinks appropriate.

231     Meaning of provable debt

(1)       A provable debt is a debt or liability that a creditor of the bankrupt may prove in the bankruptcy.

…

(3)      A debt is proved when it is admitted by the Assignee.

[7]      The prima facie operation of s 76(1) of the Act is to halt proceedings to the extent that they relate to “any debt provable in the bankruptcy”.   The provision operated upon this proceeding.

[8]      On the basis that the plaintiff was contractually entitled to indemnity costs, and on the basis that the majority of invoices had been rendered prior to Mrs Hart’s adjudication, I find that those invoices rendered prior to 23 June 2014 were debts provable in the bankruptcy.

[9]      For the plaintiff, Mr Carter referred to the decision of Associate Judge Abbott in Re Westpac New Zealand Ltd, ex parte Jacob.4   It was there stated:5

An award of costs can be made against a bankrupt – it does not fall within the category of a provable debt for the purposes of s 76 of the Insolvency Act

2006.

[10]     Ex  parte  Jacob  is  distinguishable  because  the  case  did  not  concern  a contractual indemnity in respect of costs.

[11]     The decision of Associate Judge Gendall in TEA Custodians (Bluestone) Ltd v Barnett,6 appears more on point.  In that case the principles applicable to awarding indemnity costs were discussed at length.7     His Honour also discussed the inter- relationship between insolvency and costs awards.8  This led him to conclude:9

I am satisfied, therefore, that a costs award, in this case, may not be a provable debt as it arises from the exercise of my discretion and was not a contingent liability at the date of bankruptcy and so is not barred by s 76(1).

[12]     I have reached the contrary view.  Where a person is bound to pay indemnity costs, the liability to pay arises from the contract, not from a judgment of this Court. The Court retains “a discretion” in the sense that it may refuse to award any claimed

element to the extent it is unreasonable.  This simply reflects the Court’s imputation

4      Re Westpac New Zealand Ltd, ex parte Jacob [2012] NZHC 729.

5 At [34]. See too Rakich v Rakich HC Auckland CIV-2010-404-1654, 28 October 2010 at [3].

6      TEA Custodians (Bluestone) Ltd v Barnett HC Wellington CIV-2011-485-17, 6 December 2011.

7      At [4]–[16].

8      At [23]–[31].

9 At [31].

of an implied term into any agreement as to solicitor/client costs (or similar) that they be reasonable.

[13]     I adopt in this regard the observation of Fisher J in Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd,10 where his Honour (in a judgment adopted by the other members of the Court of Appeal) said:

The object is not to exercise a discretion but rather to assess whether the solicitor–client costs sought are properly attributable to the exercise contemplated in the original contract and are charged for at a level which would be regarded as acceptable in a costs revision under the Law Practitioners Act.

[14]     The plaintiff has not sought to continue proceedings against Mrs Hart (in fact it has expressly discontinued them) so s 76(2) of the Act is inapplicable.

[15]     What remains outside the debts provable in Mrs Hart’s bankruptcy is the final invoice for costs and disbursements of 26 June 2014 for $854.90 as it was not rendered until after Mrs Hart’s adjudication.  As this was not a debt provable in the bankruptcy, it falls outside s 76(1) of the Act.  It is therefore payable by Mrs Hart personally. To that extent, Mrs Hart’s bankruptcy does not halt the proceeding.

Orders

[16]     I order –

(a)      The second defendant is to pay to the plaintiff the sum of $854.90.

(b)The remainder of the costs, being $9,637.38, were debts provable in the bankruptcy of the second defendant and are therefore subject to s

76(1) Insolvency Act 2006.

Associate Judge Osborne

Solicitors:

Chapman Tripp, Christchurch

Copy to: N L Hart, Balclutha (Second defendant) in person

10     Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887 per Fisher J, as adopted by the Court of Appeal in Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35].