MURREN AND LEE v SCHAEFFER [2019] NZCA 34

MURREN AND LEE v SCHAEFFER [2019] NZCA 34 [6 March 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA363/2018[2019] NZCA 34BETWEEN JAMES JOSEPH MURREN AS TRUSTEEOF THE JAMES J MURRENSPENDTHRIFT TRUST AND DANIELLEEAppellantsAND GLENN SCHAEFFERRespondentCourt: French, Simon France and Moore JJCounsel: A J Horne and A E Simkiss for AppellantsT D Gee for R Schaeffer (non-party)Judgment:(On the papers)6 March 2019 at 3.30 pmJUDGMENT OF THE COURTA The appellants' application for recall is granted.B We recall the judgment of this Court in Murren v Schaeffer of23 August 2018. The judgment is amended and reissued with paragraphs[52](e) and [60], and Order H of that judgment deleted and replaced.In their place we make an award in favour of the non-party, Ms ReneeSchaeffer, for a standard appeal on a band A basis, together with the usualdisbursements.C The appellants are entitled to an award of costs on the application forrecall in accordance with the costs for a standard application on a band Abasis, together with any reasonable disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Simon France J)[1] This decision concerns an application by the appellants to recall the judgmentand quash an order of indemnity costs in favour of a non-party.Introduction[2] This proceeding involved a successful appeal against the refusal of theHigh Court to make freezing orders.1 The freezing order application sought to restrainany proceeds from an anticipated sale pending resolution of the primary claim.The application recognised that security interests registered over the property to besold would take priority before the freezing order took effect. However, theapplication sought to exclude from that priority secured debts owed by the defendant,Mr Glenn Schaeffer, to his former wife, Ms Renee Schaeffer. It was argued there wasa basis for doubt as to the bona fides of these debts, and the applicants had not hadtime to resolve the matter.[3] Seemingly alerted to all this late in the piece, Ms Schaeffer filed evidenceshortly before the hearing, and Mr Gee appeared. Ultimately at the hearing theappellants modified their position to one of accepting that priority should be accordedthe debts, but with leave to return to the Court if information emerged that gavesubstance to their suspicions.2 The Court made the freezing orders over any saleproceeds but with priority to all registered interests including those of Ms Schaefferand excluding any registered interests in favour of Mr Schaeffer.3[4] Concerning costs, the Court noted that r 53 of the Court of Appeal (Civil)Rules 2005 conferred a broad discretion, including awarding costs to non-parties.Of the present situation, we observed:4 The appellants sought to deal with [Ms Schaeffer's] registered interestsdifferently from other registered security holders. She was not served with1 Murren and Lee v Schaeffer [2018] NZCA 318.2 At [40] and [56].3 At [41], [43] and [55].4 At [51].the proceedings or by other means afforded the opportunity to avoidinvolvement. Her evidence when filed was focused, as was the appearance onher behalf. As noted, no evidence has been produced to justify singlingMs Schaeffer out, and the lack of time available to the appellants to do so isof their own making.[5] The consequent order was that:5(e) Ms Schaeffer is entitled to all her costs and usual disbursementsassociated with the filing of evidence and the appearance of counsel,such costs to be met by the appellants.[6] To make intelligible what follows, it is necessary at this point to set out whatthe Court understood when making its indemnity costs award. The Court understoodthat:(a) the appellants had learned on 22 June 2018 that Mr Schaeffer claimedthat Ms Schaeffer had substantial secured debt;(b) on 9 July 2018 (after the High Court judgment on the freezing ordersapplication) Mr Schaeffer in an affidavit for the first time provideddetails of the alleged debts to Ms Schaeffer;(c) on 11 July 2018 the appellants' lawyers wrote to Mr Schaeffer'slawyers expressing dissatisfaction with the evidence provided aroundthese debts, and asking for better proof as to their genuineness;(d) no equivalent approach was made to Ms Schaeffer for her to provideevidence as to the genuineness of the debt;(e) shortly before this Court's hearing of 2 August, Ms Schaeffer becameaware that her security was not being accepted and would, on theappellants' case, be excluded from priority ahead of the freezing orders;and5 At [52].(f) her counsel, Mr Gee, was instructed immediately upon receipt of thisknowledge, whereupon affidavits were hurriedly prepared and filed,and Mr Gee appeared on short notice.Present application[7] The parties could not agree on an amount payable pursuant to the Court's order.Ms Schaeffer initially sought just over $65,000 but then discounted that to a roundedfigure of $50,000. The appellants took the view that adjusted figure was bothunreasonable and included work outside the scope of the Court's orders.[8] The main issue between them concerned costs incurred by Ms Schaeffer priorto Mr Gee being instructed, and costs incurred subsequent to the Court of Appealhearing. To briefly explain the latter, while the parties were awaiting this Court'sjudgment, it appeared that the property in issue may be sold. Ms Schaeffer incurredexpenditure, including accounting fees, in establishing the exact amount protected byher securities.[9] The appellants took the view that the scope of the Court's orders covered onlythe period from when Mr Gee was instructed through to the conclusion of the hearing.They also formed the view that the Court's decision to award full costs was the productof the Court being misled as to when Ms Schaeffer became aware of the issue. It wasnow obvious from the costs claimed that Ms Schaeffer's solicitors had been aware ofit for some time.[10] The appellants' counsel filed a memorandum asking the Court to revisit thedecision to award full costs on the basis that the Court was misled in two aspects:(a) that Ms Schaeffer had instructed solicitors in New Zealand on16 July 2018, two weeks prior to the hearing in the Court, but thosesolicitors did not contact the appellants' lawyers to seek to resolve herposition before the hearing; and(b) that Ms Schaeffer was holding assets in her name on behalf of therespondent, Mr Schaeffer, in the United States, so there was areasonable basis for the appellants' concern that she might also holdon his behalf her claimed interests in the assets to which the freezingorder related.Alternatively, the appellants queried the quantum of costs claimed on the basis thatthey cover work occurring outside the scope of the Court's order and were anywayunreasonable.[11] The Court indicated it would treat the memorandum as an opposed applicationfor recall,6 and a timetable was put in place with the matter to be determined on thepapers.Should the judgment be recalled?[12] The material now before the Court has satisfied us that at the time we awardedMs Schaeffer full costs, the Court was operating under a significant misunderstandingof the true situation. It is apparent that Ms Schaeffer became aware on 16 July 2018that the appellants were querying the legitimacy of her secured debts. This was knownbecause the lawyers for Mr Schaeffer had provided Ms Schaeffer's lawyers with therelevant correspondence from the appellants. From that point the lawyers forMs Schaeffer were engaged in obtaining instructions on the matter and gatheringtogether the material needed to withstand a challenge to the secured debts.[13] The Court when making the award of full cost recovery was influenced by thefailure of the appellants to contact Ms Schaeffer directly. We considered the appellantscreated an unnecessary context of urgency, and prevented pre-hearing resolution.We now have a better understanding as to why that situation came about but remainof the view that there was opportunity for the appellants to contact Ms Schaeffer onceit became the firm intention to treat Ms Schaeffer's debts differently on the appeal.[14] That said, we are also now of the view that there was ample opportunity forMs Schaeffer to have contacted the appellants' lawyers to clarify the situation.Our understanding that all this was thrust upon her very near to the hearing wasmistaken. The position was far from that. We accept Ms Schaeffer did not have allthe relevant material, but the impression we were left with of a last minute scurrywithout prior notice was incorrect and was of considerable significance to our costsdecision.6 Murren and Lee v Schaeffer CA 363/2018, 28 November 2018.[15] The next issue is whether, shorn of that context, the circumstances still meritan award of full costs. If they do, then obviously there is no basis for the judgment tobe recalled. In making this assessment, the factual basis on which we proceed is thatMs Schaeffer is a non-party who had secured debts that were treated differently fromall other secured debts by the applicants for freezing orders. It was necessary forMs Schaeffer to appear, and she succeed in establishing an entitlement to the samepriority as other secured creditors.[16] The resolution achieved at the hearing was one that could have been reachedprior to the hearing. There is fault on both sides. Our change in position from thetime of the judgment is that, as is apparent on the face of the judgment, we allocatedall blame to the appellants. Now we consider each side contributed equally to thefailure to contact the other. We do not place weight on the other ground relied upon,namely the subsequent discovery that Ms Schaeffer was holding other assets in hername on behalf of Mr Schaeffer. Those assets are not the secured debts. Theappellants had leave to revisit if subsequent material cast doubt on the debts in issueand have not done so.[17] The Court has a broad costs discretion under r 53 of the Court of Appeal (Civil)Rules. Erwood v Maxted confirms this extends to awards in favour of non-parties.7Further, r 53E(3)(d) specifically authorises indemnity costs where the non-party hasacted reasonably.[18] The new information available to the Court changes our assessment of theappropriateness of an indemnity costs award. For reasons discussed, we consider thereis equal fault on both sides. More specifically, however, in terms of r 53E(3)(d) theconduct of the non-party since becoming aware of the issue on 16 July was not suchas to support an award of indemnity costs. It was not reasonable on her part to fail tocontact the appellants' solicitors and seek resolution. We therefore conclude that ifappraised of the correct situation we would not have made the costs order that we did.[19] Recall in such circumstances is only possible if the Court is satisfied that thesituation falls within the third of the Horowhenua County v Nash (No 2) categories –7 Erwood v Maxted [2010] NZCA 93, [2010] 20 PRNZ 466 at [18].namely, a very special reason justifies it.8 We recognise that it must be a rare casewhen it is exercised in relation to a costs order. That said, having carefully reviewedthe material filed for the hearing, and the submissions made at the hearing, we are veryclear the Court was misled. We do not say that was the intention, but it was the effect,and we consider an order has incorrectly been made consequent upon that. We areuncomfortable with the situation and consider justice requires it to be corrected.A replacement costs order[20] As noted, the non-party had success and is entitled to an award of costs. Theapplication at the time of the hearing was for full or increased costs. Reviewing thematerial, we accept that the non-party was at a disadvantage both because she had notbeen served, and therefore lacked all the papers, and because of her residence abroad(the United States) which created communication difficulties. However, there wasnevertheless ample time for matters to resolve had the opportunity been taken. Wedecline the application for increased costs. An award of scale costs is appropriate.[21] Finally, the appellants as applicants for recall are entitled to costs on thesuccessful recall application. It was advanced with economy and presented therelevant material in an appropriate way.Orders[22] The appellants' application for recall is granted.[23] We recall the judgment of this Court in Murren v Schaeffer of 23 August 2018.The judgment is amended and reissued with paragraphs [52](e) and [60], and Order Hof that judgment deleted and replaced. In their place we make an award in favour ofthe non-party, Ms Renee Schaeffer, for a standard appeal on a band A basis, togetherwith the usual disbursements.8 Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.[24] The appellants are entitled to an award of costs on the application for recall inaccordance with the costs for a standard application for leave on a band A basis,together with any reasonable disbursements.Solicitors:Minter Ellison Rudd Watts, Auckland for AppellantsHamish Fletcher Lawyers,Wellington for R Schaeffer