Shadbolt v Invercargill City Council
[2021] NZHC 2363
•9 September 2021
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2020-425-9
[2021] NZHC 2363
UNDER Section 43 of the Local Government Act 2002 BETWEEN
TIMOTHY RICHARD SHADBOLT
Plaintiff
AND
INVERCARGILL CITY COUNCIL
Defendant
CIV-2021-425-29 BETWEEN
TIMOTHY RICHARD SHADBOLT
Plaintiff
AND
LOCAL GOVERNMENT MUTUAL FUNDS TRUSTEE LIMITED
Defendant
Hearing: 19 August 2021 Appearances:
P V Cornegé for Plaintiff (CIV-2020-425-9)
P J Radich QC and S K Lennon for Defendant (CIV-2020-425-9) P V Cornegé for Plaintiff (CIV-2021-425-29)
C J Hlavac and M E Gall for Defendant (CIV-2021-425-29)
Judgment:
9 September 2021
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Application for consolidation and for security for costs in CIV-2021-425-29)
[1] There are three applications for consideration across the above two proceedings.
SHADBOLT v INVERCARGILL CITY COUNCIL [2021] NZHC 2363 [9 September 2021]
[2] The plaintiff in each case is Sir Tim Shadbolt (Sir Tim), Mayor of Invercargill. The proceeding against the Invercargill City Council (the ICC proceeding) was commenced on 25 February 2020 and on 21 April 2021 was set down for a three day hearing commencing 8 February 2022. The hearing date originally allocated was 19 July 2021 but the hearing could not be retained.
[3] The second proceeding is against the Local Government Mutual Funds Trustee Ltd, known as Riskpool (the Riskpool proceeding), and was filed on 13 April 2021. Riskpool is the trustee of the New Zealand Mutual Liability Riskpool Scheme (the Riskpool Scheme), of which ICC was a member. The ICC and Riskpool proceedings have their origins in the same events.
[4]Sir Tim seeks an order that both proceedings be consolidated or heard together.
[5] The ICC seeks an order that the proceeding against it be stayed pending determination of the Riskpool proceeding. Riskpool seeks security for costs in its proceeding and a stay if security is not paid.
Background
[6] Sir Tim was sued in defamation by Ms Karen Arnold, then an ICC councillor, in a proceeding commenced in 2015 which was ultimately dismissed in 2018 following a lengthy trial. Sir Tim incurred legal expenses in defending the defamation proceeding of approximately $448,000. The majority of those costs remain unpaid by Sir Tim and under the Terms of Engagement between Sir Tim and his legal advisors, the unpaid costs are attracting interest. A costs award in favour of Sir Tim against Ms Arnold proved to be unrecoverable as Ms Arnold was subsequently adjudicated bankrupt.
[7] When Ms Arnold commenced her proceeding in 2015, Sir Tim sought an indemnity from Riskpool under the Riskpool Scheme, of which the ICC was a member at the time. Sir Tim relied on a defamation extension to the relevant protection wording under the Riskpool Scheme on the basis he was a “member” as defined in the protection wording. Riskpool declined cover under the wording on the basis that while Sir Tim was a “member”, it considered Ms Arnold was therefore also a “member” and
that Sir Tim’s claim to be indemnified was excluded by the proviso to the defamation extension. This proviso provided: “this extension shall not cover liability in respect of any Claim brought by a Member party”. The interpretation and application of this proviso is the key issue in the Riskpool proceeding.
[8] In the ICC proceedings, Sir Tim seeks an order that he be indemnified by the ICC for his costs incurred in defending the defamation proceeding pursuant to s 43(1) of the Local Government Act 2002 (the Act) which provides:
43 Certain members indemnified
(1)A member of a local authority (or a committee, community board, or other subordinate decision-making body of that local authority) is indemnified by that local authority, whether or not that member was elected to that local authority or community board under the Local Electoral Act 2001 or appointed by the local authority, for—
(a)costs and damages for any civil liability arising from any action brought by a third party if the member was acting in good faith and in pursuance (or intended pursuance) of the responsibilities or powers of the local authority (or committee, community board, or other subordinate decision- making body of that local authority); and
(b)costs arising from any successfully defended criminal action relating to acts or omissions in his or her capacity as a member.
[9] At the time the defamation proceedings were issued, Sir Tim sought confirmation from the ICC that s 43(1) would apply. The ICC advised Sir Tim it did not consider Sir Tim was protected by the section. When Sir Tim failed to recover costs from Ms Arnold he re-approached the ICC seeking payment of his costs under s 43(1). The ICC re-affirmed its decision to decline indemnity.
[10] In addition to seeking an order that Sir Tim is entitled to be indemnified pursuant to s 43(1), Sir Tim alleges the ICC was negligent either in failing to pursue a claim under its policy with the Riskpool Scheme (on the basis that Riskpool was wrong to reject the original claim) or alternatively, by failing to ensure that the ICC had in place adequate insurance to cover Sir Tim in the exercise of his role as Mayor.
[11]The ICC does not seek security for costs.
[12] The question arises as to the correct order to deal with the applications. I had initially considered it necessary first to determine whether security for costs are appropriate. If they are, then it would not be appropriate for the proceedings to be consolidated where one defendant has the benefit of security which may well result in the Riskpool claim being stayed, such would defeat the purpose of consolidation. Further, if security is ordered then the application by the ICC that its proceeding be stayed pending determination of the Riskpool proceeding may also fall away given security may result in the Riskpool proceeding being stayed.
[13] However, the day before the hearing, Mr Hlavac, counsel for Riskpool, sought to adjourn the application for security for costs as Sir Tim had advised he intended to apply for legal aid. Mr Cornegé, counsel for Sir Tim, did not oppose the adjournment application. Accordingly, the application for security was adjourned to allow the legal aid application to be made. Mr Cornegé is to liaise with Mr Hlavac as to when Sir Tim can give discovery as previously directed and to advise as to progress with the legal aid application. Assuming an agreement in respect of the timing of discovery can be reached, a consent memorandum in that regard should be filed failing which a telephone conference is to be requested. Further Mr Cornegé is to request a telephone conference once the outcome of the legal aid application is known.
Consolidation
[14] Sir Tim’s application for consolidation and the ICC’s application for a stay both rely on r 10.12 of the High Court Rules 2016, which provides:
10.12 When order may be made
The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied—
(a)that some common question of law or fact arises in both or all of them; or
(b)that the rights to relief claimed therein are in respect of or arise out of—
(i)the same event; or
(ii)the same transaction; or
(iii)the same event and the same transaction; or
(iv)the same series of events; or
(v)the same series of transactions; or
(vi)the same series of events and the same series of transactions; or
(c)that for some other reason it is desirable to make an order under this rule.
[15]Counsel were agreed on the applicable principles.
[16] Rule 10.12 vests in the Court a wide discretion.1 The purpose of the rule is to encourage efficiency in court proceedings and to avoid conflicting findings and/or inconsistent decisions.2 In determining whether and how to exercise its discretion the Court must balance considerations of justice, convenience and expense.3
[17]Where r 10.12 applies, the Court may:4
(a)order the proceedings be consolidated and if so, on such terms as the Court thinks just; or
(b)order the proceedings to be tried at the same time without consolidation; or
(c)order them to be tried one immediately after the other; or
(d)order one of them to be stayed until the determination of the other; or
(e)make no order.
1 Medlab Hamilton Ltd v Waikato District Health Board (2007) 18 PRNZ 517 (HC) at [8], approved in Regan v Gill [2011] NZCA 607 at [10].
2 Medlab Hamilton Ltd, above n 1, at [8], citing CallPlus v Telecom NZ Ltd (2000) 15 PRNZ 14 (HC) and Amalgamated Finance Ltd v Wyness HC Wellington CP156/86, 30 November 1987.
3 Gair v Newnham [1974] 1 NZLR 662 (CA) at 665.
4 Regan v Gill, above n 1, at [9].
Common questions of fact?
[18] The background facts to each case are not in dispute. The circumstances leading to Ms Arnold’s defamation claim and its outcome, that Sir Tim could not recover any of the costs awarded to him, the circumstances surrounding Sir Tim’s prior request to be indemnified, and the ICC’s prior applications to Riskpool for cover, are all matters of record.
[19] Accordingly, while each proceeding has background context in common there are not common questions or issues of fact for the Court to determine. Mr Cornegé, in making his submissions for consolidation, submitted the absence of common factual issues was at worst neutral to Sir Tim’s application for consolidation and was not a negative factor.
[20] Had the factual history common to each proceeding been disputed, such would have favoured consolidation as it would have removed the risk of inconsistent factual findings in relation to that background.
[21] Given the background of each claim is not in dispute (indeed Mr Radich QC, counsel for the ICC, advised that an agreed statement of facts existed in draft), in my view something further is required to outweigh the negative consequences of consolidation.
Common questions of law?
[22]In fairness to Mr Cornegé, his primary focus was on the overlap in legal issues.
[23] Mr Radich in his written submissions identified the legal issues relating to s 43 of the Act as including:
whether Ms Arnold could have been said to have been a “third-party” in the defamation case in circumstances in which she was, at the time, a Councillor of the ICC.
[24] Mr Cornegé submitted this issue is similar to whether Ms Arnold was a “member” for the purposes of the defamation extension to the protection wording. He went further and submitted that Ms Arnold’s bona fides, which are relevant to
whether she was a “member” as defined in the defamation extension, might also be relevant to whether Ms Arnold could be said to be acting as a counsellor in bringing her proceedings. Mr Cornegé noted there is no definition of “third party” in s 43. For Sir Tim to be entitled to indemnity under s 43, it was argued he must have been acting in good faith. Consideration of whether Sir Tim was acting in good faith may overlap, Mr Cornegé submitted, with whether Ms Arnold was acting bone fides. In short, Mr Cornegé argued the motivations and intentions of both Sir Tim and Ms Arnold would need to be considered.
[25] I put to Mr Cornegé that the matters that Sir Tim pleaded as indicating Ms Arnold was not acting bona fide in connection with her duties, are all matters of record and not open to dispute. Mr Cornegé accepted that but submitted there was the risk that one court may give different weight to those factors.
[26] The extent to which good faith may play a role in the interpretation of the term “third party” in s 43(1)(a) is unclear. Mr Cornegé realistically acknowledged that it was possible the reference to “third party” may simply exclude the possibility of the indemnity applying when a claim was brought by a councillor. However, if that was not the case, Mr Cornegé submitted the Court may look to whether a councillor acted in good faith to determine whether they should be treated as a “third party”.
[27] One area of apparent overlap that does not arise is that, under s 43(1)(a), Sir Tim must have been acting in good faith before that section can apply, and in order for him to be a “member” under the defamation extension, he must have been acting bona fide. As Riskpool accepts, Sir Tim is entitled to the benefits of being a “member” whether he was acting bona fide will not be in issue in the Riskpool proceeding.
[28] Given the way Mr Cornegé foreshadows he will argue the meaning of “third party” under s 43 in the ICC proceedings, there is the scope for an overlap in evidence in relation to whether Ms Arnold was acting in good faith (in relation to Mr Cornegé’s argument under s 43) and whether she acted bona fide before which is an issue in the Riskpool proceeding). However, I return to the point I put to Mr Cornegé, referred to above, that the matters pleaded as showing Ms Arnold was not acting bona fide in the Riskpool proceeding are matters of record rather than for cross-examination. The risk
that different Judges may place different weight on those factors is recognised. It is not, however, certain that the overlap will in fact arise.
Justice, convenience and expense
[29] Sir Tim, in addition to his claim under s 43, has brought alternative claims in negligence. Sir Tim pleads if he is not entitled to an indemnity under s 43, then the ICC was negligent in failing to arrange insurance cover that would have indemnified him or, in the alternative, negligent in failing to challenge Riskpool’s initial rejection of the insurance claim made by the ICC.
[30] Mr Radich submits the decision in the Riskpool proceeding will determine these alternative causes of action. This is because if there is no cover under the Riskpool policy then the ICC cannot have been liable for not pursuing a claim that did not exist. If there is cover under the Riskpool policy then the ICC will not have failed to arrange satisfactory cover. However, I note if there is cover under the Riskpool policy, that will not necessarily be an answer to the claim that the ICC should have challenged the earlier insurance declinature by Riskpool.
[31] Riskpool has no direct role in these alternative causes of action. However, Sir Tim’s first alternative claim of negligence assumes cover is not available under the Riskpool policy. In the absence of consolidation, or of the Riskpool proceeding being determined first, or of the ICC proceeding being limited to the first cause of action when heard, the possibility of inconsistent outcomes as to whether cover from Riskpool was available, does arise. Indeed, Sir Tim’s counsel would be faced with arguing in the ICC proceeding that cover under Riskpool was not available, but then arguing in the Riskpool proceeding that cover was available.
[32] In recognition of the possibility that counsel for Riskpool would be unnecessarily involved in these alternative causes of action and in recognition of the practical issue just outlined, Mr Cornegé suggested that consolidation could proceed on the basis that only the first cause of action in the ICC proceeding be heard, leaving the negligence claims for another day.
[33] Further, Mr Radich submitted Sir Tim cannot recover the legal expenses incurred in defending the defamation proceedings twice. Accordingly, Mr Radich submitted Sir Tim cannot be successful in a material sense in both proceedings and Sir Tim will necessarily lose one of the proceedings. That means if proceedings are consolidated (and subject to the issue of security for costs) each defendant will be involved in a longer hearing where one and possibly both will be exposed to the need to recover costs against an impecunious plaintiff.
[34] Accordingly, to the extent that consolidation might create efficiencies for Sir Tim as he will only have to run one hearing, it creates costs risks for the defendants for which there is every reason to believe they will not be compensated for by an award of costs.
[35] In support of the ICC’s application for a stay of the ICC proceeding, Mr Radich submitted the only issue in the Riskpool proceeding will be whether Ms Arnold was a “member” as compared to the ICC proceeding with its additional negligence claims. Mr Cornegé submitted the additional costs incurred by the defendants in a consolidated proceeding would not be significantly greater than they would incur in dealing with their respective proceedings separately. Against that, Mr Cornegé submitted that if the proceedings are not consolidated Sir Tim would potentially be exposed to the costs of two proceedings, while the two defendants would still each incur substantially the same costs as they would for a consolidated hearing.
[36] The potential exists for a further hearing against the ICC even if Sir Tim succeeds in the Riskpool proceeding. For instance, a potential result in the Riskpool proceeding is that Sir Tim recovers only part of the amount claimed, given the amount for which he seeks to be indemnified includes a substantial interest component. Further, even if Sir Tim was entirely successful in the Riskpool proceeding, Mr Cornegé says Sir Tim is intent on pursuing a declaration in the ICC proceeding that he is entitled to be indemnified under s 43.
[37] Against that is the unanswered question of why Sir Tim did not include Riskpool in his original claim against the ICC. During the hearing, Mr Hlavac advised
that Sir Tim had previously sought and been granted cover under the defamation extension. Clearly, Sir Tim was aware of the terms of the defamation extension.
Decision
[38] I am not persuaded that the degree of overlap between the two claims is as substantial as it is submitted to be on behalf of Sir Tim. As I have said, the background facts, while overlapping, are not in dispute. The extent to which there is an overlap in the legal/factual issues relating to the meaning of “third party” in s 43 and the meaning of “member” in the defamation extension remains to be seen but whatever general overlap may exist will not mean that there is identity of issues. Just how Ms Arnold’s good faith/bona fides will be tested beyond the matters pleaded by Sir Tim in the Riskpool proceeding was not developed by Mr Cornegé (albeit I accept he has only recently been instructed).
[39] But for the prospect of the Riskpool proceeding being stayed should legal aid not be granted and security for costs sought and granted, I would have stayed the ICC proceeding and directed that the Riskpool proceeding be heard in the three days presently allocated for the ICC proceeding commencing early 2022. However, counsel require certainty. To direct that the Riskpool claim be heard in the beginning of 2022 would be to commit Sir Tim to full preparation for that proceeding with the prospect of legal aid being declined, leading to the risk that the security for costs application would be brought on and granted, and in turn resulting in the resources he had put into the Riskpool proceeding being wasted upon that proceeding being stayed. However, to decline the application for consolidation and require only the first cause of action of the ICC proceeding to go ahead is consistent with what both Sir Tim and the ICC committed to in agreeing to their proceeding being set down. While this course requires Sir Tim to complete discovery in the Riskpool proceedings, his counsel advises he has a very limited number of documents in relation to that proceeding in any event.
[40] Ultimately, the application for consolidation has come late in the life of the ICC proceeding which, but for counsel’s unavailability, would have been heard in July 2021. Consolidation would mean a loss of the February 2022 hearing date set
down last April. Assuming the consolidated proceedings would take, say, four days, such would not be available as a firm fixture until well into 2022.
[41] I am conscious that this is not a result advocated for by any party. However, it is an outcome that:
(a)preserves the February 2022 hearing date;
(b)limits the scope of the February 2022 hearing to the key issue of the meaning of s 43;
(c)does not commit Sir Tim to extensive preparation for the Riskpool proceeding that may be lost if the security for costs application is granted; and
(d)is consistent with Sir Tim having elected to sue the ICC alone at the outset and agreeing in late 2020 to the ICC proceeding being set down.
Orders
[42] Accordingly, the application for consolidation is declined. I direct that only the first cause of action of the ICC proceeding be heard on the allocated hearing date of 8 February 2022. Mr Cornegé is to liaise with Mr Hlavac regarding giving discovery and progress with the legal aid application. If agreement in respect of the timing of discovery can be reached, a consent memorandum in that regard should be filed. If agreement cannot be reached, a telephone conference is to be requested. Further, Mr Cornegé is to request a telephone conference once the outcome of the legal aid application is known.
Costs
[43]Costs are reserved.
Associate Judge Lester
Solicitors:
P V Cornegé, Barrister, Christchurch Simpson Grierson, Wellington
P J Radich QC, Barrister, Wellington Young Hunter, Christchurch
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