Schmidt v Registrar-General of Land

[2015] NZHC 2438

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3360 [2015] NZHC 2438

IN THE MATTER	of the Land Transfer Act 1952
AND
IN THE MATTER	of a claim for compensation pursuant to s 172 of the Land Transfer Act 1952
BETWEEN	TAYLOR JADE SCHMIDT Plaintiff
AND	REGISTRAR-GENERAL OF LAND Defendant

Hearing:	(On the papers)
Counsel:	A J Woodhouse for Plaintiff J Burns for Defendant
Judgment:	6 October 2015

JUDGMENT OF BREWER J (Costs)

This judgment was delivered by me on 6 October 2015 at 4:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:        Woodhouse Law (Auckland) for Plaintiff

Crown Law (Wellington) for Defendant

SCHMIDT v REGISTRAR-GENERAL OF LAND [2015] NZHC 2438 [6 October 2015]

Introduction

[1]      On 26 August 2015, I dismissed the defendant’s application for summary judgment noting that the parties could file memoranda if costs were sought by either party.1

[2]      The plaintiff, Ms Schmidt, has submitted that costs should follow the event, should be fixed and should be paid now.  Ms Schmidt argues that costs should be fixed on a 3C basis due to the complexity and novelty of the issues involved.  The defendant, the Registrar-General of Land, argues that costs should be adjourned until the final determination of costs for the proceeding.   However, if costs are to be determined  at  this  point  the  Registrar-General  submits  that  Ms Schmidt  is  not entitled to any award of costs in relation to the application.

The Registrar-General’s application for summary judgment

[3]      Ms Schmidt is the trustee of four Trusts which, through a company which was the registered proprietor thereof, owned two properties.  These properties were transferred to a company (Ebada) incorporated by a solicitor, Mr Garrity.  Mr Garrity had advised the Trusts that the properties should be transferred to a trustee company with an independent shareholder and director.  Ms Schmidt claimed that the trustee company fraudulently transferred the property to innocent third parties.  Ms Schmidt sought compensation from the Registrar-General of Land under s 172 of the Land Transfer Act 1952 (LTA).

[4]      The Registrar-General applied for summary judgment on the basis that none of Ms Schmidt’s causes of action could succeed because of the bar in s 178(b) of the LTA.   Section 178(b) provides that the Registrar-General shall not be liable for compensation for any loss or damage arising by the breach by a registered proprietor of any trust.  I held that the determinative factor in interpreting ss 172 and 178 was s 175, which provides that the Registrar-General may pursue a fraudulent person for money it has paid out in compensation where there has been “fraud on the part of any person causing or procuring himself to be registered as a proprietor under any of

the  Land  Transfer Acts  by  virtue  of  any  dealing  with  or  transmission  from  a

1      Schmidt v Registrar-General of Land [2015] NZHC 2015.

registered proprietor.”   In my view, this section means that s 178 does not apply where the trustee has become the registered proprietor through fraud but does apply where  the  trustee  has  acquired  the  land  without  fraudulent  intention,  but  later disposed of the land fraudulently.

[5]      However, relying on the decision of the Court of Appeal in Westpac Banking Corp v MM Kembla New Zealand Ltd2 in which the Court said that summary judgment  will  not  be appropriate  where it  is  possible for  a party to  amend its pleading to remedy the defects relied on by the other party, I held that Ms Schmidt should be given the opportunity to amend her pleadings to reflect her (newly made) allegations that Mr Garrity was fraudulent from the outset.  Accordingly, I dismissed

the application for summary judgment.

Rule 14.8 of the High Court Rules

[6]      Rule   14.8   of   the   High   Court   Rules   governs   costs   on   interlocutory applications:

(1)       Costs  on  an  opposed  interlocutory  application,  unless  there  are special reasons to the contrary,—

(a)      must  be  fixed  in  accordance  with  these  rules  when  the application is determined; and

(b)      become payable when they are fixed.

(2)       Despite subclause (1), the court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made.

(3)      This rule does not apply to an application for summary judgment.

Ms Schmidt’s submissions

[7]      Ms  Schmidt’s  first  submission  is  that  costs  for  the  summary  judgment application  should  be fixed  now.   She accepts  that  r 14.8(3) excludes  summary judgment from the general requirement that costs on an opposed interlocutory application should be fixed.  Ms Schmidt accepts also that the Court of Appeal has

said  that  costs  are  generally reserved  on  the dismissal  of a summary judgment

2      Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [66].

application by the plaintiff.   But she submits that a different approach should be taken where the summary judgment application is brought by the defendant because:

(a)      A defendant applying for summary judgment attempts to establish that none of the plaintiff’s causes of action can succeed.  This is analogous to a strike out application.  Where the defendant makes an argument that  the  plaintiff  cannot  possibly  succeed,  but  fails,  costs  should follow the dismissal of the application in the normal manner.

(b)In a strike out application, to which this is analogous, even where there is partial success costs have been ordered against the defendant.

(c)      Even if r 14.8(3) means the principle in r 14.8(1) that costs must be fixed does not apply, the general rule that the party who fails in an interlocutory application should pay the costs of the successful party still applies.   Rule 14.8(3) means only that the defendant does not need to show “special reasons to the contrary” for costs not to be ordered at the time the application is determined.

(d)The   Registrar-General   in   this   instance   has   chosen   to   take   a particularly aggressive application against a legally aided plaintiff. This is against the philosophy of the compensation provisions in the LTA. Accordingly, as a matter of policy, the Registrar-General should pay costs.

[8]      Ms Schmidt submits that costs should be set on a 3C basis because:

(a)      A number of authorities cited in McGechan on Procedure show that costs have been granted on a 3C basis due to their complexity and the time consuming preparation therefore required.3

(b)There was a lack of New Zealand authorities on the matter in dispute, which required extensive research into the Australian authorities.

3      I have checked the section of McGechan on Procedure to which Mr Chesterman has directed me and find no cases in support of this proposition.

(c)       Mr Chesterman had particular expertise in this area.4

[9]      The plaintiff notes that costs at a 3C basis, including disbursements, would come to $19,295.09.   However, as the plaintiff is legally aided the costs actually incurred (and thus the maximum payable costs) are only just over $16,000.  Costs at a 2B basis would amount to $6,447.09.

Registrar-General’s Submissions

[10]   The Registrar-General submits, first, that costs should be adjourned for determination as part of the final determination of costs when the proceeding is concluded. The Registrar-General seeks an order to this effect.

[11]     The Registrar-General also submits that even if costs are determined at this stage, the plaintiff is not entitled to any award of costs because:

(a)      The statement of claim, filed on 22 December 2014, does not contain any allegation that the transfers of the two properties were void for fraud.  It is basic law that any allegation of fraud must be pleaded with appropriate care and particularity.

(b)Ms Schmidt knows this.  She was the appellant in the leading Court of Appeal decision concerning allegations of fraud: Schmidt v Pepper New Zealand (Custodians) Ltd.5

(c)      Ms  Schmidt  made  no  allegation  of  fraud  until  the  time  of  the Registrar-General’s summary judgment application.   If Ms Schmidt wanted to assert land transfer fraud against Ebada, she was under a significant  obligation  to  plead  the  allegations  in  her  statement  of claim.

(d)Further, allegations of fraud should only properly have been made in this proceeding if the allegations had already been pleaded in the

4      The plaintiff states that he was involved in the decision in Burmeister v Registrar-General of

Land [2014] NZHC 631, (2014) 15 NZCPR 91which I cited at [8], n 3 of my judgment.

5      Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565.

Ms Schmidt’s  related  High  Court  proceedings  against  Ebada  and

Mr Garrity. They have not been.

(e)      Ms Schmidt took no steps to provide any evidential foundation for an allegation of fraud in the five months between the Registrar-General filing the summary judgment application and the hearing.  There was simply an allegation made orally at the hearing.

(f)      On the statement of claim as actually pleaded, the application for summary judgment would have been granted.

[12]     Accordingly,  the  Registrar-General  submits  that  its  application  was  in substance wholly successful and none of the causes of actions as pleaded could succeed on the law.  This means that Ms Schmidt’s application for costs lacks merit and should be declined.

[13]     Finally, the Registrar-General avers that if Ms Schmidt had not been legally aided he would have sought an order that the plaintiff pay costs.

Issues

[14]     I see the issues to be:

(a)      Should I fix costs now or reserve them?

(b)      If I should fix them, is Ms Schmidt entitled to costs?

Should I fix costs now or reserve them?

Legal principles

[15]     The rationale behind r 14.8 is that:6

Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the

6      Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 at [12].

outcome of the proceedings is known. This reflects the fact that the merits of particular  applications and the merits  of the  substantive  proceedings  are different matters.

[16]     But r 14.8(3) preserves the Court’s traditional approach to costs following a summary judgment application.   The Court of Appeal explained that approach in NZI Bank Ltd v Philpott and made the following observations:7

(a)      If the defendant succeeds in resisting an application for summary judgment because the defences he raises, by their nature, cannot be resolved as a matter of summary judgment, but the plaintiff ultimately succeeds in the final determination of the proceeding, then the defendant should generally pay costs for both proceedings.

(b)If the defendant succeeds in resisting an application for summary judgment due to some question of fault on the part of the plaintiff, but the plaintiff ultimately succeeds in the final determination of the proceedings, then it may be appropriate to reduce or eliminate the plaintiff’s entitlement to costs for the summary judgment proceedings.

(c)      If   the   plaintiff   embarks   on   summary   judgment   proceedings erroneously in  the sense  that  the rules  do  not  allow the summary judgment procedure, or with the knowledge that there is a bona fide question of fact or law which can only be determined after a trial, then the Court is able to deprive the plaintiff of costs in those unsuccessful proceedings and award costs to the defendant.

[17]     It can be seen from these comments that it is often difficult to determine who should pay costs in relation to summary judgment proceedings until the litigation is determined.  This led the Court of Appeal to reach the conclusion that “the incidence of costs is best settled when the result of the litigation is known.”8    The Court of Appeal did stress that its judgment “does not mean that a defendant who feels he is

entitled to costs is prevented from bringing the matter before the Court and having

7      NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 406.

8      Above.

the question argued and obtaining an order if necessary”.9   The Court acknowledged that “[i]n the exceptional cases involving abuses of the procedure then, as with all abuse of the process of the Court, an order for costs can be made against plaintiffs at the summary judgment stage”.10

[18]     Although NZI Bank Ltd v Philpott was decided when there was no equivalent rule to r 14.8, it has continued to be followed since the rule’s deployment, and, where a plaintiff’s application for summary judgment is unsuccessful, costs are usually reserved pending the substantive determination.11

[19]     The decision in NZI Bank Ltd v Philpott primarily addressed situations where it is the plaintiff who brings the action for summary judgment.   There is some support  for  the  proposition  that  an  application  for  summary  judgement  by  a defendant  should  be treated differently.    In  Suharnan  v Brookfields,12  Associate Judge  Faire  (as  he  then  was)  had  to  decide  the  issue  of  costs  relating  to  an application to strike out a claim and for summary judgment against the plaintiff.  His

Honour discussed the application of NZI Bank Ltd v Philpott:

[11]      Counsel's submission drew attention to a number of passages from the Court of Appeal judgment, which I have carefully considered and taken into account when determining costs in this case. It is appropriate to record that this was an application by a defendant for summary judgment, unlike the position that was before the Court of Appeal in NZI Bank Ltd v Philpott. It is also appropriate to record that the actual resolution of the application was finally determined on the strike out application.

[12]      It follows, therefore, that the reservation contained in r 14.8(3) does not specifically apply in relation to the strike out portion of the application. That, for all intents and purposes, covers the entire application and was the foundation for the orders that were sought by the first defendant.

[13]      A plaintiff's  summary  judgment,  even  if  unsuccessful,  can  have considerable benefits in relation to the overall disposal of the litigation. The same does not necessarily apply where a defendant seeks summary judgment and, in fact, founds its claim on principles that are those pertaining to strike out  applications. The  appropriateness  of  a  defendant's  application  is  the subject of comment by the Court of Appeal in Westpac Banking Corp v MM Kembla New Zealand Ltd and by the Supreme Court in Body Corporate

207624 v North Shore City Council. Both emphasise the position that an application for strike out or summary judgment is appropriate only in cases

9      Above.

10     Above.

11     See, for example, Johnstone v R B Road 391 Ltd [2011] NZCA 393 at [48].

12     Suharnan v Brookfields [2013] NZHC 586.

where  there  is  clear  legal  impediment  to  liability,  or  where  there  is  a complete and incontrovertible answer on the facts.

[14]     In this case, there was initially some doubt as to whether the first plaintiff would be able to provide a foundation to bring his position within the exceptions to Brownie Wills v Shrimpton type of cases. Be that as it may, I am of the view that there is no justification for not ordering costs in favour of the successful party on this strike out and defendant's summary judgment application. The considerations that support a different view on a plaintiff's summary judgment application simply do not apply in this case.

[20]     Similarly, in Judge v Dempsey Associate Judge Osborne granted 2B costs to the plaintiffs following an unsuccessful application for summary judgment by the defendant, noting that “[i]t is usually appropriate on an unsuccessful defendant’s summary judgment application that costs follow the event.”13

[21]     But in contrast to Suharnan and Judge, costs have still been reserved in a number of applications for summary judgment brought by defendants.  For example, in  EBS  v  CAS  Dobson J  declined  to  order  costs  following  the  defendant’s unsuccessful application to strike out or stay two new causes of action, or alternatively for summary judgment in respect of them, stating: “I am not prepared to determine costs on this application on a self-contained basis reflecting the immediate outcome.   It is more appropriate that costs be reserved, pending the substantive determination of the issues raised by the two causes of action that have been the

subject of challenge.”14     Similarly, in Rhodes v Shaw Associate Judge Matthews

noted that “costs are reserved, in accordance with the principle in NZI v Philpott.”15

Decision

[22]     I have pointed to dicta suggesting that where the defendant brings a summary judgment application it is possible to depart from the ordinary rule that costs are reserved until after the litigation is determined.  However, in this case I think that the Registrar-General’s submission that costs should be reserved is plainly correct.

[23]     The summary judgment application related to a self-contained issue of law.  It

was based on the plaintiff’s pleadings.  I found in the Registrar-General’s favour on

13     Judge v Dempsey [2014] NZHC 2864 at [57].

14     EBS v CAS [2014] NZHC 2929 at [90].

15     Rhodes v Shaw [2015] NZHC 1530 at [31].

that issue.   I declined to give summary judgment in order to give Ms Schmidt a chance to amend her claim to include the new allegation of fraud which was raised at the hearing.

[24]     If the claim is amended, and Ms Schmidt ultimately succeeds, she might or might not be entitled to costs on the summary judgment application.   I see some force in the Registrar-General’s submissions as to his justification for bringing the application.

[25]     If Ms Schmidt ultimately fails, she would almost certainly not be entitled to costs on the summary judgment application.

[26]     It would be premature for me to decide the issue of costs now.

[27]     I direct that the question of costs on the Registrar-General’s application for

summary judgment be reserved for determination as part of the final determination of costs at the conclusion of the proceeding.

Brewer J