Yelich v Davies & Co Solicitors Nominee Company Limited
[2013] NZHC 433
•7 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2012-404-007331 [2013] NZHC 433
BETWEEN LOIS JEAN YELCICH Plaintiff
ANDDAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED
Defendant
Hearing: (On the papers)
Counsel: JAR Cox for the Plaintiff
S Judd for the Defendant
Judgment: 7 March 2013
[COSTS] JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie on 7 March 2013 at 12.30 pm
Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Distribution:
JAR Cox: [email protected]S Judd: [email protected]
YELCICH V DAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED HC AK CIV 2012-404-007331 [7 March 2013]
Introduction
[1] In my oral judgment given on 25 February 2013, I struck out proceedings brought by the plaintiff, Ms Yelcich, against the defendant nominee company. I noted that the nominee company holds a mortgage over a property in Mangawhai, granted by Sandhills Development Limited as mortgagor. I struck out the proceedings for the following reasons:
(a) Ms Yelcich is an undischarged bankrupt;
(b) Sandhills Development Limited has been struck off the Register of
Companies;
(c) Ms Yelcich was not herself a party to the mortgage documentation.
Rather, she was a shareholder in Sandhills Development Limited, and she was formerly a director of the company;
(d) Ms Yelcich had no standing to bring the proceedings in her own name.
As an undischarged bankrupt, she had no power to recover any property that was part of her estate and the Official Assignee had not commenced or consented to the proceedings.
[2] Mr Judd, appearing for the nominee company, sought costs. He sought costs on a 2B basis against Ms Yelcich’s solicitors, who had filed the proceedings. He observed that a costs order against Ms Yelcich would be pointless. Mr Judd expressed concern that the proceedings had been brought at all in the circumstances. He noted that Ms Yelcich applied ex parte for an interlocutory injunction to stop a proposed sale of the property by the nominee company as mortgagee. In the event, that application was declined by Potter J, but Mr Judd recorded concern that Ms Yelcich had not disclosed that she was an undischarged bankrupt in the papers filed in support of the application. Rather, she had filed an undertaking as to damages. Mr Judd expressed concern that the interlocutory application without notice for interlocutory injunction had been certified as complying with the High Court Rules by a solicitor and partner in the firm Blomkamp Cox.
[3] Mr Cox for his part submitted that any order for costs against the firm was inappropriate. He accepted that costs should properly be determined on a 2B basis, but submitted that the appropriate party for any award of costs was Ms Yelcich. He told me that counsel certifying the application was personally unaware that Ms Yelcich is an undischarged bankrupt, and that he had not made any inquiry when he certified the without notice application as complying with the High Court Rules. He did not know whether or not the solicitor dealing with the matter in the solicitors’ offices was aware at the time of filing the proceedings that Ms Yelcich was an undischarged bankrupt.
[4] I declined to deal with costs immediately, and requested that Mr Cox should make inquiry of the solicitor involved, and file a memorandum in relation to the matter.
[5] I have since received a memorandum from Mr Cox. He advised that he has reviewed the files held by the firm and made inquiry of the solicitor involved. The solicitor was aware at the time of filing the proceedings that Ms Yelcich was an undischarged bankrupt. Mr Cox explained that the solicitor did not realise that this was a matter of material significance to the proceedings.
Jurisdiction to award costs against a practitioner
[6] The High Court Rules only deal primarily with costs orders between parties to proceedings. That is in contrast to the position in a number of other jurisdictions.[1]
[1] For example in the United Kingdom, jurisdiction to award costs against a legal practitioner is contained in the Supreme Court Act 1981, s 51. There is also express provision in the Australian Federal Court Rules 2011, r 40.07, in the Supreme Court Rules 2000 in Tasmania, rr 60 and 61, in the Australian Capital Territory Court Procedural Rules 2006, r 1753, and in the Supreme Court Rules in the Northern Territory, r 63.21.
The Court can, however, order costs against a practitioner, in the exercise of its inherent jurisdiction. The jurisdiction was confirmed by the Privy Council in Harley v McDonald.[2] The Court there held as follows:
[2] Harley v McDonald [2001] UK PC 18, [2002] 1 NZLR 1 (PC).
[45] The undoubted inherent jurisdiction of the courts in New Zealand to make a costs order against a client's solicitor rests upon the principle that, as officers of the court, solicitors owe a duty to the court, while the court for its part has a duty to ensure that its officers achieve and maintain an appropriate
level of competence and do not abuse the court's process. The court's duty is founded in the public interest that the procedures of the court to which litigants and others are subjected are conducted by its officers as economically and efficiently as possible. In New Zealand barristers also are officers of the High Court. This being so, there would seem to be no reason in principle why the court should not exercise the same jurisdiction over them as it does over solicitors.
[7] The inherent jurisdiction enables the Court to design its sanction for breach of duty in a way that enables it to provide compensation for the disadvantaged litigant. Its purpose is, however, to punish the offending practitioner for a failure to fulfil his duty to the Court.[3] An indemnity order can be appropriate.[4]
[3] Ibid at [49] and [50].
[4] Ibid at [50].
[8] The facts that justify the order must be readily available to the Court. A costs order against a practitioner is not a substitute for disciplinary proceedings, or for a suit based on negligence.[5] Thus, the Privy Council commented:
[50] As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed…
[5] Ibid at [51].
[9] Mere negligence or errors of judgment will not justify an order for costs against a practitioner. Rather, there has to be a serious dereliction of duty. The Privy Council commented that the standard can be expressed in numerous ways:
[55] Then there is the question as to the kind of conduct that can be regarded as involving a serious breach of duty to the court… A simple mistake or oversight or a mere error of judgment will not, of itself, be sufficiently serious to fall into that category. Something more is required. In Myers v. Elman [1940] AC 282 at pp 291-292 Viscount Maugham indicated that the test was whether the conduct amounted to a serious dereliction of duty, and that negligence could be so described if it was at a sufficiently high level. At p 304 Lord Atkin described the kind of negligence that could lead to an
exercise of the jurisdiction as gross negligence. At p 319 Lord Wright said that, while a mere mistake or error of judgment is not generally sufficient, a gross neglect or inaccuracy in a matter which it was a solicitor's duty to ascertain with accuracy, such as whether he had a retainer to act, might suffice. A more precise definition of the level of seriousness is not appropriate. But where negligence or incompetence is alleged the conduct must be put into its proper context.
[10] The Privy Council also cautioned that a Court must be cautious not to punish
a practitioner for doggedly following his or her client’s instructions.
[57] …a duty rests on officers of the court to achieve and maintain appropriate levels of competence and care and that, if he is in serious dereliction of such duty, the officer is properly amenable to the costs jurisdiction of the court. But care must be taken not to assume that just because it appears to the court that the case was hopeless there was a failure by the barrister or solicitor to achieve the appropriate level of competence and care. As Sir Thomas Bingham Mr said in Ridehalgh v Horsefield [1994] Ch 205, 234C-E:
"Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is... for the judge and not the lawyers to judge it.
It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court. ... It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it."
The essential point is that it is not errors of judgment that attract the exercise of the jurisdiction, but errors of a duty owed to the court.
[11] Thus, the focus is on whether the practitioner seriously failed in his or her duty owed to the Court. The conduct need not be so serious that the practitioner
would be struck off.[6]
Application Without Notice
[6] Myers v Elman [1940] AC 282 at 288-289.
[12] In the present case, there was a failure by the practitioner concerned to check the position before certifying that the without notice application complied with the rules.
[13] Rule 7.23 provides as follows:
7.23 Application without notice
(1) If the applicant wishes the application to be determined without any other party being served (in these rules referred to as an application without notice), the applicant must use form G 32.
(2) An application without notice must contain a certificate that—
(a) uses the words “I certify that this application complies with the rules”; and
(b) is personally signed by the applicant’s lawyer.
(3) The lawyer who signs the certificate must, before signing it, be personally satisfied that—
(a) the application and every affidavit filed in support of it complies with these rules:
(b) the order sought is one that ought to be made:
(c) there is a proper basis for seeking the order in an application without notice.
(4) The lawyer is responsible to the court for those matters.
…
[14] In Lala v Preliminary Proceedings Committee,[7] the Court noted the importance of a practitioner making reasonable inquiries before certifying. It commented:[8]
[7] Lala v Preliminary Proceedings Committee (1993) 7 PRNZ 101.
[8] Ibid, at 105.
A solicitor certifying an application made to the Court ex parte is under a duty to make the fullest disclosure to the Court of all facts relevant to the application. See United Peoples Organisation Worldwide Inc v Rakino Farms Ltd (No.1) [1964] NZLR 737. This duty extends to all matters relevant to the application whether the solicitor considers those matters unimportant or important. In particular when moving ex parte for an interim
injunction, and the present application is similar to that situation, he has a duty to disclose to the Court the defence to the action if he knows it and the facts on which it is based. Failure to do so may in itself furnish the ground for dissolving the injunction or the order as the case may be.
The Court is entitled to rely on the certificate of the practitioner on the ex parte notice of interlocutory application. The practitioner must be satisfied that the order ought to be made…
[15] The duty can be breached even when the practitioner has acted in good faith.[9]
[9] United Peoples Organisation Worldwide Inc v Rakino Farms Ltd (No.1) [1964] NZLR 737 at
738.
[16] In the present case, there can be no question but that the duty which the certifying practitioner owed to the Court has been breached. I accept that the practitioner did not personally know that Ms Yelcich was an undischarged bankrupt. However, he made no inquiry from the staff solicitor dealing with the matter. Nor did he peruse the records held by his firm. Had he made inquiry, he would readily have discovered that Ms Yelcich was an undischarged bankrupt. Clearly, that information should have been disclosed to the Court. It was relevant to the undertaking given as to damages, and more fundamentally, to Ms Yelcich’s ability to bring the proceedings at all. The failure to disclose the information misled the Court.
[17] In similar cases where a practitioner has failed to make reasonable inquiries which he or she is obliged to make, awards of costs have been made against the practitioner. For example, in Myers v Elman,[10] a failure by a practitioner to make reasonable inquiries about the truthfulness of a client’s affidavit justified an award of costs. The client was charged with fraud, and the Court considered that this fact, in addition to the practitioner’s history with the client, should have alerted the practitioner that there was a high likelihood that affidavits filed by the client were inaccurate. The fact that the practitioner delegated the task to a clerk did not absolve
him. It was held that firms could be responsible for the totality of their actions.
[10] Myers v Elman, above n 6.
[18] In many situations costs cannot be ordered because the facts are not readily available on the evidence before the Court.,[11] In the present case, the facts are clear. The duty owed to the Court has been breached. The Court’s processes have been abused as a result, and the nominee company has been put to unnecessary costs because of the practitioner’s failure to make proper inquiry before certifying as correct the without notice application. When the application for an interim
injunction was declined, the nominee company was served. It had to file a strike out application and a supporting affidavit. Further, it was required to instruct counsel to make an appearance on its behalf to argue the strike out application because the strike out was opposed by Ms Yelcich.
[11] See for example, Dominion Finance Group Ltd (in rec & liq) v Sade Developments Ltd High Court Auckland CIV 2009-419-1556, 6 October 2011; Hart v ANZ National Bank Ltd [2012] NZHC 2291; Cash for Scrap Ltd v Canwest TV Works Ltd HC Auckland CIV 2006-404-
5175, 17 November 2008.
[19] I am satisfied that costs on a 2B basis should be awarded in favour of the nominee company.
[20] I direct that the certifying practitioner is to pay costs to the defendant nominee company, on a 2B basis, together with the nominee company’s reasonable disbursements. If there is any dispute as to the quantum of those costs, the same is to be referred to me. I will deal with the issue on the papers, unless I require the
assistance of counsel.
Wylie J