Haines House Removals Ltd v Kathleen Mary Jamieson

• Jurisdiction: New Zealand
• Judge: Duffy J
• Judgment Date: 28 June 2013
• Neutral Citation: [2013] NZHC 1597
• Docket Number: CIV-2012-404-003969 CIV-2011-404-003878
• Court: High Court
• Date: 28 June 2013

Between

Haines House Removals Ltd

Plaintiff

and

Kathleen Mary Jamieson

First Defendant

and

The Registrar General of Land

Second Defendant

Between

Haines House Removals Ltd

Appellant

and

The Official Assignee

Respondent

Between

The Official Assignee

Plaintiff

and

Kathleen Mary Jamieson as Trustee of the Spearhead Trust

First Defendant

and

Kathleen Mary Jamieson as Trustee of the Castello Trust

Second Defendant

[2013] NZHC 1597

CIV-2012-404-003969

CIV-2012-404-003287

CIV-2011-404-003878

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Application for award of indemnity costs following an unsuccessful application under s86 Insolvency Act 1967 (appeal from decision of Official Assignee (“OA”)) — application by trust for 2B costs following successful interlocutory application that it be permitted to intervene in s86 proceeding — creditor persuaded OA to bring proceedings against two trusts claiming they had received voidable preferential payments from the bankrupt prior to the bankruptcy — creditor agreed to fund the proceedings and to indemnify the OA against all costs of the proceeding — OA discontinued the proceedings and Court found that there was a reasonable basis for so doing — whether the OA was entitled to indemnity costs or no more than category 2B costs, as the costs did not come within the terms of the indemnity — whether s86 proceeding had been wrongly commenced under Part 20 High Court Rules instead of Part 18, leading to the trust to incurring needless expense.

Counsel:

R C Mark for Haines House Removals Ltd D W Grove for K M Jamieson

G A D Neil for the Official Assignee

R C Mark, Kerikeri

D W Grove, Auckland

JUDGMENT OF Duffy J

[Re Costs]

1 Haines House Removals Limited (Haines) is a creditor in the bankruptcy of Kathleen Mary Jamieson. Haines considered that there were two potential creditors of Ms Jamieson (the Spearhead Trust and the Costello Trust) from which money could be recovered for the benefit of the bankrupt estate, which in turn may have made funds available to repay Haines. Haines persuaded the Official Assignee to take proceedings against these Trusts. Some time later, the Official Assignee discontinued the proceedings against the Costello Trust. Then, at a time close to the hearing date of the proceeding, the Official Assignee discontinued the proceedings against the Spearhead Trust. Haines brought an application to this Court under s 86 of the Insolvency Act 1967 to appeal the decision to discontinue the proceedings against the Spearhead Trust.

2 The application under s 86 was unsuccessful for Haines in that this Court found that the decision to discontinue against the Spearhead Trust was well founded. The Official Assignee now seeks an award of costs against Haines. The Spearhead Trust, which was permitted to intervene and be heard in the proceeding (it supported the decision to discontinue the proceedings against it), also seeks costs against Haines.

3 One of the conditions on which the Official Assignee brought the proceedings against the Spearhead Trust was that Haines execute a deed of indemnity (the indemnity). Under the indemnity, Haines indemnified the Official Assignee for any costs incurred in bringing proceedings against the Costello Trust and the Spearhead Trust. The terms of the indemnity entitled the Official Assignee to recover indemnity costs against Haines. The Official Assignee claims that under the terms of the indemnity, he is entitled to an award of indemnity costs against Haines in relation to the s 86 application.

4 The Spearhead Trust seeks costs against Haines on a category 2B basis.

5 Haines acknowledges that the Official Assignee was successful in the s 86 application and concedes that he is entitled to costs. However, Haines contends that the Official Assignee is entitled to no more than category 2B costs, as the costs sought do not come within the terms of the indemnity. Haines opposes any award of costs to the Spearhead Trust.

6 I shall deal with the question of costs for the Official Assignee first.

The Official Assignee's costs

7 The Castello Trust and The Spearhead Trust were believed to have received voidable preferential payments from Ms Jamieson prior to her being made bankrupt.

8 The bankrupt estate had no funds to bring proceedings to recover these payments: see clause E of the indemnity. Haines agreed to fund such proceedings (hereafter the Spearhead claim) and to indemnify the Official Assignee against all costs incurred by him in relation to the proceedings.

9 The word “proceedings” is defined in clause D of the indemnity as proceedings “commenced against the trustees for the time being of The Castello Trust and The Spearhead Trust in respect of the debts owed to the Bankrupt”.

10 Clause 1 of the indemnity states:

In consideration for the OA issuing the Proceedings, Haines agrees to indemnify the OA against:

• a) All fees (including but not limited to solicitors fees on a solicitor-client basis), expenses, costs, disbursements and charges relating to, incidental to or consequent upon the Proceedings whether arising directly or indirectly out of the Proceedings; and

• b) All costs, including but not limited to any order for security for costs, which may be awarded against the OA in respect of the Proceedings. (emphasis added)

The Official Assignee's submissions

11 According to the Official Assignee's submissions, he incurred legal costs in the process of:

• a. Responding to the interlocutory application of Ms Jamieson, a trustee of the Spearhead Trust. She made an application on 26 July 2012 to search the Court file in the appeal proceeding and to be heard at the substantive hearing. Her application was opposed by the Official Assignee and Haines. Ms Jamieson succeeded in part. No order as to costs were made.

• b. Responding to the s 86 appeal.

12 The Official Assignee submits that the legal costs he incurred in resisting the s 86 application and the interlocutory matters that formed part of this application are “relating to, incidental to or consequent upon” the Spearhead claim, and therefore they fall squarely within clause 1 of the indemnity. The Official Assignee submits that Haines was informed of the purpose and breadth of the indemnity prior to its execution, and refers to an email chain between the Official Assignee and Haines (Exhibit R of the affidavit of Mohammed Azam Khan).

13 The Official Assignee submits that there is no contractual principle precluding an award of indemnity costs. These costs should be awarded, otherwise his contractual rights will be eroded.

Haines' submissions

14 Haines submits that clause 1 of the indemnity properly construed does not include costs associated with the challenge to the decision by the Official Assignee to discontinue the Spearhead claim. Haines contends that the definition of “Proceedings” in clause 1 of the indemnity does not expressly extend to decisions of the Official Assignee which are subject to appeal rights under the Insolvency Act 1967. Furthermore, clause 1 should be construed contra proferentem.

15 Haines argues that that it cannot have been the intention of the parties that the indemnity would extend to separate proceedings issued by Haines to invoke a statutory right to review a decision of the Official Assignee, which he made without consultation, to discontinue the proceedings.

16 Furthermore, Haines submits, the indemnity envisages that Haines would not be a party to the Spearhead claim. For that reason, the indemnity expressly provides for how costs may be claimed back from Haines (clause 2 provides that the Official Assignee shall make a written demand containing sufficient details). Thus, this is a strong indication that the terms of the indemnity were never intended to apply to a separate proceeding that involved Haines and the Official Assignee as opposing parties.

The law on indemnity costs

17 Under r 14.6(1)(b), the Court may make an order that “that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party ( indemnity costs)”.

18 Rule 14.6(4)(e) states that the Court may order a party to pay indemnity costs if “the party claiming costs is entitled to indemnity costs under a contract or deed”.

19 In Black v ASB Bank Ltd [2012] NZCA 384, the Court of Appeal summarised the principles around indemnity costs under a contract (at [77] – [80]):

• (a) Where there is a contractual right to indemnity costs the question for the Court asked to make an order is: for the necessary steps, are the costs claimed reasonable in amount? Indemnity costs may be less than the actual costs if the Court considers the actual costs were not reasonably incurred.

• (b) The word reasonable in r 14.6(1)(b) does not import a discretion in the usual sense: Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA). The principle that one party may contractually bind itself to pay the others full solicitor/client costs is established: ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA). The Court of Appeal in Beecher v Mills [1993] MCLR 19 (CA) stated:

  “… In the case of a contract [giving an indemnity for costs] it must in the end be a matter of determining what recovery is expressly or impliedly intended. In principle, anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible ( Simpson and Miller v British Industries Trust Ltd (1923) 39 TLR 286, 289). In the absence of a contrary indication it is not to be assumed that the parties intended such a result. Nor can there ordinarily be any room for the exercise of a judicial discretion to order...