BASSETT-BURR v BPE TRUSTEES (NO. 1) LIMITED [2020] NZCA 457

BASSETT-BURR v BPE TRUSTEES (NO. 1) LIMITED [2020] NZCA 457 [29 September 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA503/2019[2020] NZCA 457BETWEEN ROY BASSETT-BURRAppellantAND BPE TRUSTEES (NO. 1) LIMITEDFirst RespondentAND QUENTIN HAINES PROPERTIESLIMITEDSecond RespondentHearing: 2 September 2020Court: Goddard, Ellis and Dunningham JJCounsel: D G O Livingston for AppellantD G Dewar for First and Second RespondentsJudgment: 29 September 2020 at 11.00 amJUDGMENT OF THE COURTA The appeal is allowed.B The order for non-party costs made against the appellant is set aside.C There is no order as to costs.____________________________________________________________________REASONS OF THE COURT(Given by Dunningham J)[1] On 30 August 2019, Churchman J made an award of costs against the appellant,Mr Bassett-Burr, in respect of a successful application by the respondents to set asidefive statutory demands served on them by the trustees of Link Trust (No. 1)(the Trust).1[2] Mr Bassett-Burr was not a party to the application to set aside, but was pursuedfor costs as a non-party, having signed the statutory demands in question in hiscapacity as a director of a corporate trustee of the Trust.[3] An appeal of the decision to award costs against Mr Bassett-Burr was filed bythe trustees of the Trust, being Mr Harry Memelink and Lynx Trustees Ltd. However,following a decision of this Court on 2 June 2020, they were removed as appellantsand substituted with Mr Bassett-Burr.2[4] The appeal from the decision to award costs against Mr Bassett-Burr wasadvanced on a range of grounds including:(a) the failure to serve submissions in respect of the costs application onMr Bassett-Burr, in breach of the principles of natural justice;(b) the absence of evidence to suggest the Trust had no assets and wasunable to meet a costs award;(c) Mr Bassett-Burr was only involved with the service and subsequentrecall of the statutory demands as a "reader-writer" for Mr Memelinkwho suffers from dyslexia and other physical impairments; and(d) Mr Bassett-Burr was acting in his capacity as a trustee of the Trust andnot for personal gain or interest.[5] On 31 August 2020, shortly before the hearing of the appeal, this Court issueda minute3 which referred the parties to the decision in Easton Agriculture Ltdv Manawatu-Wanganui Regional Council, where it was held that before costs areawarded against a non-party an application on notice should be made against that1 Haines v Memelink [2019] NZHC 2169 at [47].2 Memelink v Haines [2020] NZCA 205.3 Bassett-Burr v BPE Trustees (No 1) Ltd CA503/2019, 31 August 2020 (Minute of Goddard J).party.4 It was pointed out that no such application appeared to have been made in thiscase. Counsel were asked to address that point in their oral submissions.[6] In the end, this point proved pivotal to the appeal.Principles applying to the award of costs against non-parties[7] The Court has jurisdiction to order a non-party to pay costs.5 The generalapproach to the exercise of that jurisdiction was set out in the judgment of Lord Brownin Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) as follows:6Although costs orders against non-parties are to be regarded as "exceptional",exceptional in this context means no more than outside the ordinary run ofcases where parties pursue or defend claims for their own benefit and at theirown expense. The ultimate question in any such "exceptional" case is whetherin all the circumstances it is just to make the order. It must be recognised thatthis is inevitably to some extent a fact-specific jurisdiction and that there willoften be a number of different considerations in play, some militating in favourof an order, some against.[8] A non-party costs award may be made against directors of companies (such asMr Bassett-Burr) although, because of their duty to the company, the court may requirean additional element such as impropriety or bad faith.7[9] However, the courts have emphasised that the non-party should be put onnotice of an intention to seek costs from them. Indeed, in Poh v Cousins & Associates,Associate Judge Osborne said:8[27] There has been some emphasis in case law on the importance of thegiving of notice to non-parties, before litigation is commenced, if there is laterto be an application for costs to be paid by a non-party. 4 Easton Agriculture Ltd v Manawatu-Wanganui Regional Council HC Palmerston NorthCIV-2008-454-31, 22 December 2011 at [50].5 Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 (HC);Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145;and pursuant to the discretion in High Court Rules 2016, r 14.1.6 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 5, at [25(1)].7 See, for example, de Vries v Queenstown.com Ltd HC Invercargill CIV-2003-425-86,23 December 2004.8 Poh v Cousins & Associates HC Christchurch CIV-2010-409-2654, 4 February 2011.[10] Whether or not there has been advance notice, the judgment of Kós J in EastonAgriculture Ltd v Manawatu-Wanganui Regional Council squarely identified the needfor an application to be made on notice to the potentially liable non-party, saying thefollowing:9[49] There are in this case two reasons to pause before reachinga conclusion on the issue of whether the receiver of the second plaintiff shouldwear costs.[50] The first is that an application on notice to the receiver needs to bemade for that purpose. It seems to have been assumed here (by all parties)that such costs can be dealt with in the context of the current inter-party costsapplication. That is not so. That approach fails to recognise the specialposition in which non-parties stand. An application on notice is necessary tosubject them to the Court's jurisdiction in this proceeding. And the non-partyis entitled to respond and be heard. The Court cannot simply assume that thesecond plaintiff is attending fully to the receiver's interests, despite theinherent likelihood that this is so.(Footnote omitted.)[11] In that case, Kós J simply reserved leave to the successful party to applysubsequently, and formally, for costs against the receiver of the second plaintiff(the non-party).10[12] The requirement for formal service of an application on the person againstwhom it is made is fundamental. The jurisdiction of the High Court to enter a moneyjudgment against a person is dependent on service on that person of proceedings in anappropriate form notifying them of the claim.11 The Court can no more make an orderrequiring a non-party to make a payment without proper service of notice of that claimon the non-party than it could make such an order against a defendant without properservice of the relevant proceedings on that defendant. And whether a claim is madeagainst a party or a non-party, basic principles of natural justice require that the personbe given proper notice of the claim against them, including the grounds of that claim,the steps they must take if they wish to oppose the claim, and the time within whichthey must take any such steps before being exposed to the risk of an order being madeagainst them in default of appearance.9 Easton Agriculture Ltd v Manawatu-Wanganui Regional Council, above n 4.10 At [54].11 See, albeit in a different context, Cockburn v Kinzie Industries Inc (1988) 1 PRNZ 243 (HC) at245–246.The application for non-party costs[13] The respondents' intention to seek costs against Mr Bassett-Burr personallywas set out in a memorandum of counsel for the second and third applicants (the firstand second respondents in this proceeding) dated 26 June 2019. The memorandumsaid:5. Counsel also seeks an order for costs against Mr Roy WilliamBassett-Burr, as a third party pursuant to general discretion of theCourt pursuant to HCR 14.1. It is respectfully submitted thatMr Bassett-Burr is much more than just the director of Lynx Trusteesand he has taken an active part in these causing the wastage that theapplicant companies have incurred as a result of these meritless anddisputed demands. [14] No formal application for costs against Mr Bassett-Burr was filed. Nor wasthere any evidence that this memorandum was served on Mr Bassett-Burr.[15] However, Mr Dewar argued that in the circumstances, the application had beenbrought to Mr Bassett-Burr's attention, by reference to the following documents:(a) an email dated 21 June 2019 to Mr Bassett-Burr where Mr Haines,one of the applicants in the application to set aside, advisedMr Bassett-Burr that: I am instructing the companies (sic) lawyer to seek an uplift in2B costs by 50%, as set out in my email 24 May. I am also instructingthe companies (sic) lawyer to seek those costs against you personallyas a third party, pursuant to the High Court Rules.(b) submissions on behalf of the applicants seeking costs againstMr Bassett-Burr, which were provided to Mr Kevin Smith, who wasinstructed late in the piece to represent the respondents in theapplication to set aside (indeed so late he sought an adjournment on28 August 2019 for the hearing of the setting aside proceedings on30 August 2019). Mr Dewar submitted that these submissions providednotice of the application for costs to Mr Bassett-Burr via Mr Smith,who was acting for Mr Bassett-Burr. The submission that Mr Smithwas acting for Mr Bassett-Burr was made in reliance on the followingpassage in Mr Bassett-Burr's affidavit dated 27 September 2019:6. I am Mr Memelink's brother-in-law and until recentlya trustee of Link Trust No. 1, via my company Lynx TrusteesLimited, which is now in liquidation due to the fact that mylawyer Mr Smith, did not argue the case correctly and failedto point out to the court that the two points the case was loston were in fact incorrect, highly disputed and proven (sic).(c) emails sent on 27 June 2019 and 10 July 2019 where Mr Bassett-Burrwas copied in to communications between Mr Memelink and theHigh Court Registry regarding the forthcoming hearing of theapplication to set aside.[16] However, we are not satisfied that any of these steps, either individually or incombination, were sufficient to bring the non-party costs application (and the groundsfor it) to Mr Bassett-Burr's attention or to signal to him what steps he needed to takeif he opposed the application. They did not provide a basis for the exercise ofjurisdiction to make an order against him personally, and they did not meet therequirements of natural justice.[17] The email of 21 June 2019 does no more than warn Mr Bassett-Burr that suchan application may be made. It cannot comprise notice that such an application hasbeen made. It did not set out the grounds of the application, or identify the steps thatmust be taken to oppose the making of such an order.[18] Mr Bassett-Burr's passing reference to Mr Smith as "my lawyer" in the contextof other proceedings did not, without more, indicate that Mr Smith was authorised toaccept service of a non-party costs application against Mr Bassett-Burr in the presentproceedings, or to represent him in respect of such a claim. It is evident from thebalance of Mr Bassett-Burr's affidavit that Mr Smith was appointed to act for thetrustees of the Trust on the application to set aside and there is no suggestion he hadbroader instructions.[19] Copying Mr Bassett-Burr into emails with the High Court Registry is alsoplainly insufficient to constitute proper notice to Mr Bassett-Burr that costs are beingsought against him personally and to alert him to the need to respond, and of thetimeframe within which he must do so.[20] Perhaps unsurprisingly in these circumstances, Mr Bassett-Burr was notrepresented at the hearing on the issue of costs on 30 August 2019 at which an awardwas made against him. Nor, again unsurprisingly, had he filed any documentsaddressing a claim for costs against him personally. In his affidavit of27 September 2019, Mr Bassett-Burr says:44. I was very much surprised to see the Judgment of Churchman J,30 August 2019 and even more surprised to be served witha bankruptcy notice by Mr Haines on 13 August demanding paymentfor the full amount ordered plus costs.45. I was perplexed as to how this situation had come about and why I wasunaware that Mr Haines was pursuing costs against me personally.[21] While we put limited weight on Mr Bassett-Burr's untested evidence, the factremains that the respondents did not properly notify Mr Bassett-Burr of the applicationagainst him and the grounds on which it was being advanced, nor was he givena timeframe for responding to it, or a date for hearing. Accordingly, we consider thatthe court lacked jurisdiction to make an order against him at the hearing on30 August 2019. We also consider that there was a breach of the requirements ofnatural justice.[22] The appeal is therefore allowed, and the order for non-party costs set aside.[23] It remains open to the respondents to make a formal application for costsagainst Mr Bassett-Burr in the High Court.Costs[24] At the hearing of this appeal we indicated the likely outcome and, in light ofthat, heard submissions from the parties on costs. This issue was complicated by:(a) the convoluted history of these proceedings on appeal, where they havebeen the subject of an unsuccessful strike out application, and wherethe proper party to the appeal was not identified until this Court'sdecision on 2 June 2020; and(b) the fact that the ground on which this appeal has been determined wasnot identified by Mr Bassett-Burr (save for a generalised reference toa breach of natural justice because submissions were not served onhim). Nor were the submissions and evidence focused on it, until theminute issued on 31 August 2020.[25] In these circumstances, the respondents argued that this was not a case wherecosts should follow the event. The respondents have simply responded to an appealwhere:(a) it was brought by the wrong parties;(b) the respondents "stumbled at the last hurdle" on a point not previouslytaken; and(c) it was the respondents' application to strike out the appeal whichbrought some order to the file and established the correct parties to theappeal.[26] In addition, the respondents submit that it would be inappropriate forMr Bassett-Burr to be awarded costs for steps taken before he was a party to theappeal.[27] Mr Livingston, for Mr Bassett-Burr, however, argued that the appeal succeededon a point which had been raised in their grounds of appeal (being the breach of naturaljustice) and costs should follow on a standard basis for both this appeal and on theapplication to strike out (where costs had been reserved).Discussion[28] We are satisfied that this is a case where it is proper that costs in this Courtshould lie where they fall. The identity of the appellants has changed since theproceedings were filed, at this Court's instigation, to remedy a serious defect in theway in which the appeal had been framed. We do not consider the original appellantsare entitled to costs when they had no right of appeal. Mr Bassett-Burr did not becomethe appellant until after the Court's decision dated 2 June 2020. It would beinappropriate for him to be awarded costs for the steps which occurred before he waspersonally involved in the proceedings.[29] Furthermore, the appeal raised multiple grounds, requiring considerableevidence to be filed which was not, in the end, relevant to the outcome.Mr Bassett-Burr succeeded primarily on a narrow point which was raised by thisCourt, though he did raise the related question of breach of natural justice.The respondents have been put to considerable expense addressing arguments whichin the end were moot, because the fundamental issue of jurisdiction had not beenaddressed.[30] Taking all these factors into consideration, we consider costs should lie wherethey fall and accordingly we make no order as to costs.Result[31] The appeal is allowed.[32] The order for non-party costs made against the appellant is set aside.[33] There is no order as to costs.Solicitors:Livingston & Livingston, Wellington for AppellantJ D Dallas, Wellington for Respondents