HOUCHENS v RUSCOE [2023] NZHC 3427

HOUCHENS v RUSCOE [2023] NZHC 3427 [29 November 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2023-485-431[2023] NZHC 3427UNDER Parts 4 and 19 of the High Court Rules 2016and the Trusts Act 2019BETWEEN RYAN MARSHALL HOUCHENSFirst ApplicantAND GIA THANH PHANSecond ApplicantAND TRISTEN ANTHONY ROBINSONThird ApplicantAND JOSHUA DAVID STEVENSONFourth ApplicantAND DAVID IAN RUSCOE AND MALCOLMRUSSELL MOORERespondentsHearing: On the papersCounsel: E B Moran for the ApplicantsM A Corlett KC and S A Barker for the RespondentsMinute: 29 November 2023JUDGMENT OF PALMER J(Costs)Counsel/SolicitorsJ S Cooper KC, AucklandP G Watts KC, AucklandM A Corlett KC, AucklandBuddle Findlay, WellingtonBuddle Findlay, ChristchurchDLA Piper New Zealand, WellingtonJudgment[1] On 24 October 2023, I issued a judgment declining an interlocutory applicationby the applicants to appoint a special trust adviser and independent representative ofaccount holders/beneficiaries of Cryptopia.1 I held:(a) There was no evidence of anything approaching a breach of trust.2 Theapplication seemed not to be based on an existing problem but was ameans to find a problem – a fishing expedition. There is an insufficientevidential basis of a practical problem to make the sort of appointmentssought.(b) The appointments sought would not be an effective means of protectingthe interests of account holders.3 I was not satisfied a representativecounsel or special trust adviser would be able to reconcile the interestsof account holders. It would seem inevitable that the proposal ispractically unworkable.(c) The appointment of counsel to assist the Court is a more effectivemeans of protecting the interests of account holders.4 If an accountholder has a significant issue they wish to pursue, they are able to applyto the Court to appear and be heard.(d) In any case, the identified High Court Rules 2016 (the Rules) orprovisions of the Trusts Act 2019 do not provide the Court with thejurisdiction to make the appointments sought or confer upon a specialtrust adviser the powers sought.5 If there was any jurisdiction to makethe orders sought it would be found in the Court's inherent equitablejurisdiction.6 But no problem of fairness affecting the interests of1 Houchens v Ruscoe [2023] NZHC 2969.2 At [20].3 At [21].4 At [22].5 At [23]–[24].6 At [25].account holders, which they could not reasonably be expected toaddress, has been identified.(e) "Costs follow the event".7Relevant law of costs[2] Rule 14.6 of the Rules provides for increased and indemnity costs. It provides,relevantly:(3) The court may order a party to pay increased costs if—(b) the party opposing costs has contributed unnecessarily to thetime or expense of the proceeding or step in it by—(i) failing to comply with these rules or with a directionof the court; or(ii) taking or pursuing an unnecessary step or anargument that lacks merit; or(iii) failing, without reasonable justification, to admitfacts, evidence, documents, or accept a legalargument; or(d) some other reason exists which justifies the court making anorder for increased costs despite the principle that thedetermination of costs should be predictable and expeditious.(4) The court may order a party to pay indemnity costs if—(a) the party has acted vexatiously, frivolously, improperly, orunnecessarily in commencing, continuing, or defending aproceeding or a step in a proceeding; or(f) some other reason exists which justifies the court making anorder for indemnity costs despite the principle that thedetermination of costs should be predictable and expeditious.7 At [26].[3] The Court of Appeal in Bradbury v Westpac Banking Corp said "increasedcosts may be ordered where there is failure by the paying party to act reasonably"8 and"indemnity costs may be ordered where that party has behaved either badly or veryunreasonably,"9 including pursuing a hopeless case or pursuing a case for an impropermotive.10Submissions[4] The liquidators now seek an order that the applicants pay costs on an indemnitybasis of $85,561, a 2B basis with an uplift of 50 per cent of $22,764.75, or on suchbasis as the court thinks just, together with the liquidators' disbursements of $95.65and costs on a 2B basis for the costs memorandum of $956. Mr Corlett KC submits:(a) The application was brought for an ulterior purpose. The applicantseach have an agreement with Mr Victor Cattermole for him to paycounsel's fees. It is plainly not the case that he was not receiving anyfinancial or other benefit, as the applicants say. Mr Cattermole isseeking assignment of account holders' claims in exchange for aworthless token in his Cogito Metaverse. The appropriate inference isthat the purpose of the application was to delay progress with thedistribution application and to inform Mr Cattermole of the liquidators'actions at all times. Neither is a proper purpose. The application wasa fishing expedition. The appointment applied for could have beenraised when the liquidators proposed appointing Mr Watts KC asamicus.(b) The applicants unnecessarily contributed to the time and expense of theproceeding by pursuing unnecessary steps and unmeritoriousarguments. There were no jurisdictional or evidential bases for theorders sought. The application was unsupported by evidence, onlyallegations of breach of trust that were without merit. The applicantsrequested a later date for the hearing, pursued service as an issue,8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].9 At [27].10 At [29] and see also [81].continually filed additional late evidence without leave or notice, andrefused to file the application as an originating application untildirected by the Court. The liquidators instructed senior counselbecause of the serious and repeated allegations of breach of trust whichwere abandoned and unsubstantiated.(c) The legal costs of this proceeding will be borne by the account holdersof Cryptopia. They ought not to do so when the application wasmeritless and brought for an improper purpose.[5] Ms Moran, for the applicants, submits there is no basis to depart from theordinary approach to costs being awarded on a 2B basis, of $12,308.50 plusdisbursements of $95.65:(a) Many of the liquidators' concerns relate to Mr Cattermole, rather thanthe applicants. The Court did not find the application was brought foran ulterior motive or for Mr Cattermole to obtain information. Counseldid not act for Mr Cattermole.(b) There is no evidence to support the proposition that the applicants haveacted in breach of their duties to use Court processes for a properpurpose, which unfairly impugns the proposed independent counsel.(c) The application was signalled before the applicants knew of theintended timing of the distribution. The Court found there wasjurisdiction to make the application but there was insufficient evidence.(d) Mr Barker, for the liquidators, asked the Registry to allocate the hearingdate without advising the applicants. The application for directions asto service followed an unanswered letter. Leave was sought to file twolate affidavits and granted for one. The applicants had no influenceover the liquidators' choice of counsel. It is incorrect to allege theymade and abandoned unsubstantiated allegations of breach of trust.(e) The applicants dispute some of the details of the costs claimed.What costs should be awarded?[6] I do not consider I am in a position to make finding about any ulterior purposefor bringing the proceedings. Inferences based on potential interests are anunsatisfactory basis to do so. I made no such finding in the judgment and there is nomore evidence to found such a finding now. In the context of the lack of evidence tosupport anything approaching a breach of trust, I did find the application was a fishingexpedition.11 But that alone does not justify awarding increased or indemnity costs.[7] I accept that there were procedural deficiencies with the application and that Ifound there was a lack of jurisdiction to make the orders sought. But the proceduralthicket of originating applications in relation to these issues made deficiencies likelyto arise. The orders sought were novel, but the circumstances meant that counselassisting the Court considered they might not be radical.[8] The lack of evidence of allegations that were initially put in terms of breach oftrust was undesirable. It put the liquidators to additional time and the expense ofengaging senior counsel. For that I consider there should be an uplift in costs of 25per cent.[9] I do not award costs for the costs memorandum. The liquidators have not beensuccessful in what they sought so it was reasonable for the applicants not to agree.[10] Regarding more points of detailed disagreement:(a) Costs are not awarded for appearance at a case management conferenceof 24 July 2023, or filing a memorandum dated 8 August 2023 for theconference on 9 August 2023, because they concerned differentproceedings.11 Houchens v Ruscoe, above n 1, at [20].(b) The appearance at the hearing is for a half day because it was set downfor two hours.(c) I certify for second counsel.Result[11] I award costs on a 2B basis of $13,503.50, increased by 25 per cent to$16,879.38, plus disbursements of $95.65, to the liquidators.Palmer J