Rocket Surgery Limited v Goodwin

[2013] NZHC 3486

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV 2013-412-000456 [2014] NZHC 3486

IN THE MATTER OF       The Insolvency Act 2006

AND IN THE MATTER     the bankruptcy of Mary Elizabeth

Goodwin

BETWEEN  ROCKET SURGERY LIMITED Judgment Creditor

ANDMARY ELIZABETH GOODWIN Judgment Debtor

Hearing:                   By memorandum

Appearances:           A C Beck for applicant

D P Robinson for respondent

Judgment:                19 December 2013

COSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 19 December 2013 at 3pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Jenny Beck Law, Dunedin
Gallaway Cook Allan, Dunedin

Counsel:

Andrew Beck, Greytown

ROCKET SURGERY LIMITED v GOODWIN [2013] NZHC 3486 [19 December 2013]

[1]      Mary Elizabeth Goodwin (Mrs Goodwin) has applied for costs in respect of an application to set aside a bankruptcy notice, after Rocket Surgery Limited (RSL) withdrew the notice.  Mrs Goodwin claims she is entitled to costs as the successful party.

[2]      RSL opposes any order and contends that in the circumstances of this case the parties should each bear her or its own costs.

[3]      For the reasons I will now give I have decided that no order for costs is warranted.

Background

[4]      To understand my decision it is necessary to give some background to the application.  Mrs Goodwin (together with her husband) was ordered to pay costs to RSL following an unsuccessful application by them to sustain a caveat over land registered in RSL’s name.1   As part of the judgment dismissing that application, Mr and Mrs Goodwin were ordered to pay costs on a 2B basis, together with disbursements as fixed by the Registrar (but expressly allowing the cost of airfares

for RSL’s counsel).

[5]      Immediately after release of the judgment, counsel for the Goodwins filed a memorandum  seeking  deferral  of  the  order  for  costs  on  the  grounds  that  the Goodwins had applied for, and were waiting for a decision on, a grant of legal aid. RSL responded,  opposing  deferral  and  submitting  a  draft  judgment  for  sealing, including a schedule of costs and disbursements.   Counsel for the Goodwins responded immediately on the request for deferral and took issue with aspects of the schedule of costs and disbursements.  The following day the Court issued a minute recalling and reissuing the judgment to clarify the reasoning in respect of the costs order (which had not been sealed at that point).

[6]      The Court’s minute (issued on 20 August 2013, the day following the last two

memoranda) did not address the issues raised on behalf of the Goodwins in relation

1      Goodwin v Rocket Surgery Ltd [2013] NZHC 2046.

to the quantum of costs, and the reissued judgment still provided for the Goodwins to pay costs on a scale 2B basis together with disbursements as fixed by the Registrar (but allowing counsel’s airfare).

[7]      Counsel for RSL assumed that the quantum issues had been determined, and requested release of a sealed judgment with the schedule of costs previously submitted.   The Registrar sealed the judgment with the schedule of costs in that form.    RSL issued  its  bankruptcy  notice  immediately  on  receipt  of  the  sealed judgment.

[8]      The Goodwins responded on both fronts.  They filed a memorandum asking for the costs aspect of the judgment to be recalled, because the issues as to quantum had not been determined.  They also applied to set aside the bankruptcy notice (given the  time  limit  for  such  applications).   The  Court  accepted  that  the  issues  over quantum of costs had not been determined.  On 4 October 2013 the Court recalled the sealed judgment in relation to the quantum of costs and entitlement to certain disbursements (for which an order had not been made expressly), and gave directions for filing of any further memoranda to address those matters.  They were determined

in a judgment issued on 19 November 2013.2

[9]      The sealed judgment as to costs had been recalled by the time that Mrs Goodwin’s application to set aside the bankruptcy notice was called.  RSL accepted that it could not proceed on the bankruptcy notice, and withdrew the bankruptcy notice. The Court gave directions for the filing of memoranda on costs.

The issue and contentions

[10]     The issue that the Court must decide is whether the unusual circumstances of this case justify a departure from the principle that ordinarily costs will follow the result.   That in turn depends on whether it was reasonable for RSL to serve its

bankruptcy notice immediately after receipt of the sealed judgment.

2      Goodwin v Rocket Surgery [2013] NZHC 3052.

[11]     Mrs Goodwin contends that it was not reasonable for RSL to do so, as it knew that the Goodwins had disputed the calculation of costs, yet did nothing to clarify the position before sealing the order.  She says that by doing so, RSL assumed the risk that the judgment might be irregular, in which case the notice would be set aside ex debito justitiae.   Mrs Goodwin also relies on the fact that RSL issued its bankruptcy notice without making demand on the Goodwins for payment, and noted that the Court draws a clear distinction between execution processes and bankruptcy

processes:3

The Insolvency Act indeed may be seen as an enactment which strengthens the dichotomy between insolvent debtors and solvent debtors – creditors of the latter have their remedies in execution, remedies which are not to be used against insolvent debtors.

[12]     Counsel for Mrs Goodwin submitted that she has been put to substantial expense by the use of a procedure which has proved to be inapplicable, and she should not have to bear those costs.  She acted reasonably in raising the issue over the judgment  immediately,  and in making her  application to set the bankruptcy notice aside in view of the statutory timetable for doing so.

[13]     RSL in response says that it acted in good faith after receiving the sealed judgment (believing that the issues raised by the Goodwins had been dealt with by the  Court  on  20 August  2013),  and  relies  on  the  comment  of  the  Court  when recalling the sealed order as to costs:4

[7]       I accept that the Registrar fixed the quantum of costs in terms of the claim submitted by the respondent.  I suspect that is because the Registrar assumed that all points in the memoranda filed to that point had been determined by my minute and the re-issued judgment.  As will be apparent from the above, that is not the case.  Equally, I omitted to reserve, and deal with the points raised by counsel for the applicants separately, or inform the Registrar that I would need to do so.

[14]     Counsel  for  RSL submitted  that  the  issue  of  the  bankruptcy  notice  was entirely appropriate given the lengthy history to this dispute and several factors

indicating that Mrs Goodwin was insolvent:

3      Re Stirling [1991] NZLR 569 (HC) at 12.

4      Court minute dated 4 October 2013.

(a)      Mrs Goodwin had defaulted on her obligation to acquire a substantial property.

(b)Mr and Mrs Goodwin have not been able to settle the purchase the property due to their impecuniosity.

(c)      Mrs  Goodwin  applied  for  legal  aid  in  respect  of  the  various proceedings to which she was a party evidencing impecuniosity.

(d)      Mr Goodwin is bankrupt.

(e)      Mr and Mrs Goodwin sought a stay in respect of proceedings before the Court of Appeal (CA748/2012).  In that proceeding they did not disclose any assets of substance, and relied upon support of family to meet obligations arising under the stay ordered in that Court.

(f)      Mrs Goodwin is insolvent.  She has not paid the undisputed part of the costs order relating to the caveat and no payment has been received in respect of the Court’s judgment on the summary judgment.

(g)Demand or use of other enforcement processes are not prerequisites to use of the bankruptcy process.

(h)Bankruptcy was an appropriate course given that adjudication would determine Mrs Goodwin’s claimed beneficial interest in the property and allow the Official Assignee to enquire into Mrs Goodwin’s affairs.

Discussion

[15]     Generally speaking there would be merit to a contention that the party issuing a bankruptcy notice should carry the risk that the notice is not properly founded where  the  judgment  creditor  knows  that  there  is  an  unresolved  issue  over  the quantum of a judgment, and issues the notice in disregard of that issue.  However, in this case RSL knew that the judgment had been sealed after the Goodwins had raised their issues over quantum, and I accept that it issued the notice believing that the

issues had been determined.  It could be argued that the fact that the Court did not address the quantum issues expressly, either in its minute of 20 August 2013 or the reissued judgment, should have alerted RSL to the fact that those matters remained outstanding.   Equally, however, many aspects of the claim for costs were not in dispute, and there was no suggestion that Mrs Goodwin would not have to meet them, or that she was prepared to do so while the disputed aspects were being determined.

[16]     I do not see that RSL was acting improperly by issuing its notice without first making demand.  The history of this dispute is such that it was highly unlikely that Mrs Goodwin would pay in response to a demand (making any demand or execution process futile), and I accept that RSL had reason to believe that Mrs Goodwin may be insolvent (having regard to the matters set out in paragraph [14] above).

[17]     Although the Court is guided by the principles set out in r 14.2 of the High Court Rules (including the principle that ordinarily the unsuccessful party will meet the costs of the successful party) when determining costs, those principles are subject to the Court’s general discretion in respect of costs.5

Decision

[18]     Weighing all of the factors, I come to the view that the appropriate order, in the somewhat unusual circumstances of this case, is that costs should lie where they

fall.  I order accordingly.

Associate Judge Abbott

5      High Court Rules, r 14.1.