FALOON v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2912

FALOON v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2912 [5 November 2013]IN THE HIGH COURT OF NEW ZEALANDTAURANGA REGISTRYCIV-2010-470-922[2013] NZHC 2912BETWEEN CLARENCE JOHN FALOONApplicantAND COMMISSIONER OF INLANDREVENUERespondentHearing: On the papersAppearances: C J Faloon in personA B Goosen and S J Leslie for RespondentJudgment: 5 November 2013JUDGMENT OF KATZ J(COSTS)This judgment was delivered by me on 5 November 2013 at 4 pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate: ...................................Solicitors: Crown Law, WellingtonCopy to: C J Faloon, TaurangaIntroduction[1] The Commissioner seeks indemnity costs against the applicant, Mr Faloon, following a judgment I delivered on 7 August 2013 ("Judgment").1 The background is procedurally complex. The Judgment followed an earlier costs judgment of Associate Judge Christiansen ("Costs Judgment"), delivered on 4 June 2013.2[2] The Costs Judgment awarded costs in favour of the Commissioner, in the sum of $19,106.98. Mr Faloon applied to stay enforcement of the Costs Judgment, pending an application for review ("first stay application"). The Commissioner opposed Mr Faloon's review application on jurisdictional grounds, namely that the Costs Judgment should be appealed to the Court of Appeal rather than reviewed in the High Court. Mr Faloon then filed a notice of appeal in respect of the Costs Judgment, together with an application for stay pending appeal ("second stay application"). Mr Faloon also pressed ahead with his original review application.[3] Woodhouse J delivered a judgment on 9 July 2013 determining (in Mr Faloon's favour) that the High Court did have jurisdiction to review the Costs Judgment. He resolved Mr Faloon's stay application on the basis that it would be dismissed unless Mr Faloon paid the costs awarded in the Costs Judgment into Court by 19 July 2013.3[4] Mr Faloon then filed an application to stay Woodhouse J's judgment, pendingan appeal of that judgment ("third stay application").Judgment[5] A hearing (by way of teleconference) took place before me on 6 August 2013 to determine the second and third stay applications. Mr Faloon advised that his primary focus was now the pursuit of the appeals. I accordingly adjourned the review application pending the outcome of the appeals.1 Faloon v Commissioner of Inland Revenue [2013] NZHC 2142.2 Faloon v Commissioner of Inland Revenue [2013] NZHC 1296.3 Faloon v Commissioner of Inland Revenue (2013) 21 PRNZ 454 (HC). Woolford J later extended that deadline to 9 August 2013.[6] I concluded that the second stay application was on all fours with the first stay application, the only difference being that it related to a stay pending appeal rather than review. Accordingly, I made orders which mirrored those made by Woodhouse J in respect of the first stay application.[7] As for the third stay application, it was effectively rendered moot, given Mr Faloon's decision to proceed with his appeals. In any event, there was no principled basis for treating it differently from the first and second stay applications. I accordingly made orders on the same terms.[8] To summarise, I ordered that the second and third stay applications would be dismissed unless Mr Faloon paid the sum of $19,106.98 into Court by 9 August 2013.[9] The Registrar has advised that such payment has not been made. The three stay applications have therefore been dismissed.Commissioner's submissions[10] The Commissioner now seeks indemnity costs and disbursements totalling $6,877.45 (inc GST) in respect of the second and third stay applications. In the alternative, the Commissioner seeks 2B costs and disbursements totalling $4,092.69.[11] Indemnity costs are sought on the ground set out in r 14.6(4)(a) of the High Court Rules, namely that "the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding". The Commissioner submits that the Costs Judgment is unassailable and notes the following statement of Woodhouse J in his 9 July 2013 judgment:4My assessment of Mr Faloon's prospects of success are such that Iencourage him to withdraw this application for review. If he persists with it and is unsuccessful there is a prospect of indemnity costs being awarded against him.4 At [18].[12] The Commissioner submits that it should have been apparent to Mr Faloon that the prospects of any successful appeal from the Costs Judgment, as well as any stay applications pending appeal (or review), were similarly hopeless.[13] The Commissioner submits that Mr Faloon has wasted the time of the Court and the Commissioner in pursuing the stay applications. The Commissioner also refers to a decision of Brewer J on 7 March 2011 awarding the Commissioner indemnity costs at an earlier stage of the proceedings. His Honour stated that:5I believe that something must be done to bring home to Mr Faloon that a litigant who files multiple applications that have no chance of succeeding because they have no basis in law will be held accountable for wasting theCourt's time.[14] A further ground on which indemnity costs are sought is that Mr Faloon acted with an ulterior motive in making the stay applications, namely attempting to re- litigate claims that had already been struck out by Associate Judge Christiansen and upheld by Peters J on review. The Commissioner submitted that these proceedings stem from grievances relating to events occurring in the 1970s which have been comprehensively investigated by the Courts. Further, the Commissioner submits that the third stay application is made to simply avoid paying the costs award into Court and is thereby an abuse of process.[15] Finally, the Commissioner sought indemnity costs on the basis that the applications were made with wilful disregard of clearly established law, and that the case was entirely hopeless. The Commissioner submitted that it should have been clear to Mr Faloon, from the Commissioner's memorandum of 2 August 2013, exactly what the law was and that the grounds for stay were not met.Mr Faloon's submissions[16] Mr Faloon submits that the costs in relation to the second and third stay applications have not been identified or distinguished from other costs incurred by the parties in this proceeding. It would therefore be unjust for the Court to make a determination of costs issues on the papers filed by the Commissioner in this case.5 Faloon v Commissioner of Inland Revenue HC Tauranga CIV-2010-470-922, 7 March 2011 at [15].[17] Mr Faloon further submits that he has been successful in his three interlocutory applications for a stay. Mr Faloon says that Woodhouse J granted his first stay application, and subsequently that the second and third stay applications were granted in the Judgment. Mr Faloon submits that he is therefore the successful party in terms of r 14.2.[18] Mr Faloon also refers to r 14.8(2) of the High Court Rules which provides: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.[19] Mr Faloon submits that the Costs Judgment is not unassailable. He furthersays that he is not wasting the Court's time. He says that he is a trustee of the "1997-year Diversion of the Kawau Stream" and is required by tax law to provide correctinformation.[20] Mr Faloon further says that the Court should not entertain a number of the submissions of the Commissioner without a hearing. He says that if the Commissioner wants to issue him with offences under the Tax Administration Act, then he is required to issued a charging document.[21] Overall, Mr Faloon submits that no award of costs should follow in this case.Discussion[22] First, the Commissioner succeeded in her opposition to the second and thirdstay applications. Mr Faloon's submission that he was the successful party is misguided. The orders made by Woodhouse J and in the Judgment amounted to a pre-condition before the three stay applications would be considered by the Court. The stay applications were not determined on their merits. Mr Faloon did not therefore succeed in the three applications. It necessarily follows that the Commissioner is at least entitled to category 2B costs. The real issue is whether indemnity costs should be awarded[23] The threshold to be met for an order for indemnity costs is a high one.6Rule 14.6(4) of the High Court Rules provides relevantly as follows:(4) The court may order a party to pay indemnity costs if—(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or...(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.[24] The leading judgment on awards of indemnity costs in New Zealand is theCourt of Appeal's decision in Bradbury v Westpac Banking Corporation.7 In that case Court set out the three approaches to costs:8(a) standard scale applies by default where cause is not shown to depart from it;(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.[25] The Court then listed the circumstances (although not exhaustively) in which indemnity costs have been ordered:9(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;(b) particular misconduct that causes loss of time to the court and to other parties;6 Paper Reclaim v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).7 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA).8 At [27].9 At [29].(c) commencing or continuing proceedings for some ulterior motive;(d) doing so in wilful disregard of known facts or clearly established law;(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions.[26] Mr Faloon proceeded with the second and third stay applications despite a clear warning from Woodhouse J that his grounds for attacking the Costs Judgment were weak and that he was risking an award of indemnity costs if he continued. The second and third stay applications were, in effect, a collateral attack on WoodhouseJ's judgment. Mr Faloon's aim was clearly to avoid paying the costs that had been awarded in the Commissioner's favour into court, as ordered by Woodhouse J in relation to the first stay application.[27] Mr Faloon must have known, or at the very least ought to have known, that the second and third stay applications were unmeritorious. Any attempts to avoid paying the disputed costs into court would almost certainly be doomed to failure inlight of Woodhouse J's judgment. The pursuit of the second and third stay applications was therefore unreasonable in the circumstances. It caused the Commissioner to incur costs unnecessarily. I therefore conclude that r 14.6(4)(a) has been satisfied and that the Commissioner is entitled to indemnity costs.[28] The issue then becomes one of quantum. Rule 14.6(1)(b) entitles the Commissioner to an award of costs and disbursements "reasonably incurred".[29] I have had the benefit of reviewing the Commissioner's submissions on thesecond and third stay applications and associated documentation. In my view, the costs claimed by the Commissioner are reasonable relative to the work undertaken. If anything, they appear to be on the modest side.[30] As a cross-check, I adopt the methodology applied by Associate Judge Gendall in Tea Custodians (Bluestone) Ltd v Barnett:1010 Tea Custodians (Bluestone) Ltd v Barnett HC Auckland CIV-2011-485-17, 6 December 2011 at [21].I must also consider whether the rates charged are reasonable. As was the case before Williams J in Apatu v Apatu HC Napier CIV-2007-441-823, 3 November 2011 at [32] in order to determine whether costs are reasonable, where there is no breakdown of hours, a necessary approach will be to compare the claim against scale costs. As noted above, the total costs claimed here are $12,347.34...Applying the principle that scale costs are designed to represent roughly two-thirds of average actual costs, thatindicates that the plaintiff's actual costs are within the range of what is considered reasonable for a case such as this. Indeed, I consider that $10,528.00 would reflect a proper quantum for category 2B costs on these proceedings...[31] In this case, 2B scale costs would equate to $3,980.00. Applying the formula that this roughly represent two-thirds of actual costs, the figure would be $5,970.00. Actual costs sought here are $6,764.76. They are, in my view, within the appropriate range for the work undertaken.Result[32] I order that the applicant pay the costs of the respondent in the sum of $6,764.76 plus disbursements of $112.69...............................................Katz J