THE OFFICIAL ASSIGNEE v HAINES HOUSE REMOVALS LIMITED CA492/2013 [2013] NZCA 480 [11 October 2013]

THE OFFICIAL ASSIGNEE v HAINES HOUSE REMOVALS LIMITED CA492/2013 [2013] NZCA 480 [11 October 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA492/2013[2013] NZCA 480BETWEEN THE OFFICIAL ASSIGNEEAppellantAND HAINES HOUSE REMOVALS LIMITEDRespondentHearing: 3 October 2013Court: Randerson, Stevens and Venning JJCounsel: G A D Neil for AppellantR C Mark for RespondentJudgment: 11 October 2013 at 12 noonJUDGMENT OF THE COURTA The appeal is allowed.B The costs order made on a 2B basis in favour of the respondent in relation to the proceedings in the High Court under s 86 of the Insolvency Act 1967 is quashed.C The respondent must instead pay the appellant indemnity costs of $50,000 plus disbursements in relation to the s 86 proceedings in the High Court.D The respondent must indemnify the appellant for his actual costs reasonably incurred in respect of this appeal plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Venning J)Introduction[1] The Official Assignee (OA) appeals against a decision of Duffy J in which she declined to grant him indemnity costs based upon a deed of indemnity (the deed) executed between the OA and Haines House Removals Ltd (Haines) and Rodney Haines as guarantor.1Background[2] On 5 September 2007 a Ms Kathleen Jamieson was adjudicated bankrupt onHaines' petition. Upon investigating the property and affairs of Ms Jamieson, the OA considered that two trusts associated with Ms Jamieson (the Castello and Spearhead Trusts) were indebted to her in sums totalling in excess of $240,000. On the basis that Haines agreed to fund the proceedings and to indemnify the OA against costs, the OA agreed to take proceedings against the trustees of the trusts.[3] The OA, Haines and Mr Haines executed a deed in April 2011 to record the arrangement and the terms upon which the OA was prepared to take proceedings against the trustees.[4] The OA filed proceedings against the trustees in August 2011. In February 2012 the claim against the trustees of the Castello Trust was struck out. A three dayhearing was scheduled for 11 June 2012 in relation to the OA's claim against the trustees of the Spearhead Trust. In preparation for the hearing the OA reviewed the claim and, in consultation with his solicitors, decided to discontinue the proceedings against the trustees of the Spearhead Trust. On 24 May 2012 the OA advised Haines of his decision.[5] Haines did not agree with the OA's decision to discontinue and brought anappeal under s 86 of the Insolvency Act 1967 seeking to have the Court reverse the1 Haines House Removals Ltd v Jamieson [2013] NZHC 1597.OA's decision. In a decision delivered on 28 March 2013 Duffy J found for the OA and dismissed the appeal.2[6] The parties subsequently exchanged memoranda as to costs. The OA sought an order requiring Haines to pay costs on an indemnity basis. In doing so he relied on the provisions of the deed. The OA sought to be indemnified for:(a) the solicitors' fees incurred by the OA on Haines' appeal under s 86;(b) the solicitors' fees incurred by the OA in relation to Ms Jamieson'sinterlocutory applications to search the file and to be heard on the s 86 appeal. (Both the OA and Haines had opposed Ms Jamieson'sapplications); and(c) the solicitors' fees in relation to the costs application.[7] The OA sought $62,843.25 (including disbursements) for the first two matters together with a further $4,127.32 for preparation of the memorandum for the costs hearing.The High Court costs decision[8] Duffy J referred to the relevant provisions of the deed, and set out cl 1 as follows:1. 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; andb) 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 omitted.)2 Haines House Removals Ltd v Jamieson [2013] NZHC 653.[9] "The Proceedings" were defined in the deed as the proceedings to be takenagainst the trustees of the trusts in respect of the debts owed by the trusts to Ms Jamieson.[10] Duffy J rejected the OA's claim for indemnity costs and found in favour ofHaines. She set out her reasons as follows:[30] First, the Official Assignee's interpretation would lead to the resultthat, if Haines had been successful in its appeal against the OfficialAssignee's decision to discontinue the Spearhead claim, Haines wouldnevertheless have been liable under the indemnity to pay for the OfficialAssignee's costs on the appeal. Secondly, although at first glance thelanguage of clause 1 appears expansive enough to encompass these costs, I do not think that overall the wording of the indemnity can be said to support the Official Assignee's interpretation over Haines'. A literal reading of "relating to, incidental to or consequent upon the Proceedings" does notprovide a clear answer as to whether appeal costs of a discrete proceeding like a s 86 appeal are included. The words "whether arising directly orindirectly out of the Proceedings" arguably support Haines' interpretation.The appeal costs did not arise out of the claim against the Spearhead Trust; they arose out of the proceedings brought by the Haines against the Official Assignee, by a separate proceeding. Obviously there would have been no s 86 appeal if it were not for the fact the Spearhead claim was commenced and later discontinued, but otherwise the two sets of proceedings were unconnected.[31] I accept the purpose of the indemnity was "to protect Official Assignee" from any claims that could possibly be brought against him, aswas stated in the Official Assignee's letter. However, I consider that thismust be understood to mean no more than he would be protected from claims that could arise out of the decision to commence the Spearhead claim, as well as the consequences of later discontinuing that claim.[32] The s 86 appeal is a consequence of the Insolvency Act 1967allowing persons in Haines' position to challenge decisions of the Official Assignee that affect them. The connection between the incurring of costs in this context and the bringing of the Spearhead claim seems to me to be too tenuous to bring a claim for costs in the s 86 proceeding within the scope of clause 1 of the indemnity. Furthermore, the Official Assignee is responsible for drafting the indemnity. He was only prepared to make a claim against the Spearhead if Haines signed an indemnity on terms acceptable to the Official Assignee. The Official Assignee would have known his decisions could be subject to a s 86 appeal. In such circumstances, if he wanted the costs incurred by such an appeal to be covered by the indemnity, he could have made express provision for this in the indemnity. In the end, I am satisfied that the indemnity should be interpreted as not to apply to the s 86 proceedings. It follows that the Official Assignee is not entitled to indemnity costs.[11] While rejecting the claim for indemnity costs, Duffy J ordered Haines to paythe OA costs on a category 2B basis on Haines' s 86 appeal.Decision[12] We agree with Duffy J that the issue is whether, properly interpreted, theindemnity applies to the solicitors' fees incurred by the OA in the s 86 proceedings. If they do, then the Court may award the OA indemnity costs pursuant to r 14.6(4)(e) of the High Court Rules. Once it is established the indemnity is applicable and thatit extends to solicitor/client costs, there is no discretion to deny the indemnity costsother than on public policy grounds or as part of an assessment by the Court as towhether the amount of the solicitor/client costs is objectively reasonable: Beecher vMills and Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd,3 asrecently confirmed by this Court in Watson & Son Ltd v Active Manuka HoneyAssoc.4[13] The issue is whether the s 86 proceedings come within the indemnity. Inparticular, whether it can be said that the solicitors' fees incurred by the OA in thoseproceedings were "relating to, incidental to or consequent upon the Proceedings whether arising directly or indirectly out of the Proceedings".[14] In reaching her decision, Duffy J was influenced by the fact that the OA'sinterpretation would lead to the result that, even if Haines had been successful in its s 86 proceedings, it could nevertheless have been liable for the OA's solicitors' fees.That is correct, but as Mr Neil submitted, as a responsible public official, the OAmight not have exercised that right, and if he sought to do so, it would have beenopen to the Court to decline to award indemnity costs on public policy grounds. Weconsider Duffy J was unduly influenced by this hypothetical example. AsLord Hoffmann observed in Chatbrook Ltd v Persimmon Homes Ltd, the fact that acontract may appear to be unduly favourable to one of the parties is not a sufficientreason for supposing that it does not mean what it says.53 Beecher v Mills [1993] MCLR 19 (CA); and Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA).4 Watson & Son Ltd v Active Manuka Honey Assoc [2009] NZCA 595.5 Chatbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [20].[15] Further, cl 4 confirmed that the OA retained full control over the Proceedings and any ancillary matters, and expressly provided he could discontinue them:4. The [OA] will retain full control of the administration of the Estate, the Proceedings and any ancillary matters at all times. As such, the [OA] may make any decision he deems appropriate in the circumstances, including but not limited to issuing notices or proceedings, continuing, discontinuing or settling the Proceedings.(Emphasis omitted.)So the deed completed by Haines expressly provided that the OA could discontinue the Proceedings. While Haines was still entitled to invoke its statutory rights under s 86, in doing so it knew that it had agreed to provide an indemnity for the OA's solicitors' fees incurred in relation to matters arising directly or indirectly out of theProceedings and had also agreed the OA was entitled to discontinue the Proceedings. Its decision to contest the discontinuance must be considered against that background.[16] Next, Duffy J considered a literal reading of "relating to, incidental to orconsequent upon the Proceedings" did not provide a clear answer whether the costsof a discrete proceeding such as a s 86 appeal were included. With respect, we disagree. A literal reading of the clause confirms the breadth of its application."Relating to" connotes a connection or link between the two. "Incidental to" suggests something which has a casual connection. "Consequent upon" must meanfollowing as an effect, or resulting from. There was a clear connection between the Proceedings and the subsequent s 86 proceedings in that the only reason for the s 86proceedings was the OA's decision to discontinue the Proceedings. There would have been no proceedings under s 86 were it not for that decision.[17] The Judge then considered that the words "whether arising directly orindirectly out of the Proceedings" could be said to support Haines' interpretation, asthe appeal costs did not arise out of the proceedings against the trustees, but rather arose out of proceedings brought by Haines against the OA in a separate proceeding.However, that overlooks the plain wording of "arising directly or indirectly out of the Proceedings". The s 86 proceedings were only instituted because Haines was dissatisfied with the OA's decision to discontinue the claims against the trustees ofthe Spearhead Trust. While the Judge was strictly correct in observing they are different types of proceedings, we cannot agree with her conclusion that, apart from the fact there would have been no s 86 proceedings if not for the Spearhead claim, the two sets of proceedings were otherwise unconnected.[18] The fees incurred by the OA in responding to Haines' claim under s 86 arefees relating to, incidental to or consequent upon the Proceedings and, at the least, arise indirectly out of the Proceedings and the OA's decision to discontinue theProceedings.[19] Mr Neil referred to the email exchanges between the parties prior to entry ofthe deed and submitted they supported the OA's interpretation of the deed. We donot consider it necessary to have regard to the email exchanges. The background to the reasons for the deed is sufficiently captured in cl E of its preamble which records:E The OA is desirous of commencing the Proceedings, but the Estate has no funds to do so. Haines has agreed to fund the costs of the Proceedings and to indemnify the OA against any and all costs incurred by the OA in relation to the Proceedings. ...Further context and explanation for the OA's position is provided by reg 17 of theInsolvency (Personal Insolvency) Regulations 2007. The OA is not required to incur any expense in relation to a bankrupt estate without a guarantee from at least some of the creditors. He has a discretion whether or not to incur expenses.[20] In conclusion on this point, we do not consider it necessary to read down the effect of the very broad wording of the indemnity as the Judge did. The intention ofthe deed was that the OA would be indemnified for solicitors' fees incurred, not onlyin the Proceedings, but also in any other matters arising out of the Proceedings. The s 86 proceedings arose out of and related to the Proceedings.[21] There are no applicable public policy considerations to prevent the OArelying on the indemnity where, as here, the OA successfully opposed Haines'application and is entitled to costs. The only remaining issue is whether the quantum of the costs claimed is objectively reasonable: Black v ASB Bank Ltd.6[22] Neither counsel supported the matter being referred back to the High Court for determination of that issue. Both recognised the additional delay and cost to the parties associated with that course of action. Counsel agreed that this Court shoulddeal with the quantum on a "broad-brush" approach.[23] In Black v ASB Bank Ltd this Court identified the following criteria when assessing whether the indemnity costs claimed under a contract were objectively reasonable:[80] Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters:(a) what tasks attract a costs indemnity on a proper construction of the contract;(b) whether the tasks undertaken were those contemplated in the contract;(c) whether the steps undertaken were reasonably necessary in pursuance of those tasks;(d) whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and(e) whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.(Footnotes omitted.)[24] Mr Mark accepted that, at the least, costs on a 2B basis were appropriate. They amount to $20,895, the total amount of indemnity costs sought being$66,970.57. Mr Mark's fees to his client were $22,569.61. We accept however thatthe OA and its advisors had the onus to support the OA's decision in the s 86proceedings and were required to expend considerably more time on preparation for6 Black v ASB Bank Ltd [2012] NZCA 384 at [77].the s 86 appeal than Mr Mark's client. For example, the OA's advisors were required to draft and finalise a substantial affidavit from Mr Khan.[25] We understand from counsel that the hearing itself ran into a second day, anda further quarter day was required to deal with Ms Jamieson's applications tointervene and to access the court records.[26] Having regard to the factors referred to above, and the examples discussed inBlack, we assess a reasonable fee for solicitor/client costs of the OA in these proceedings at $50,000 plus disbursements.[27] We are also satisfied that the respondent is entitled to indemnity costs under the deed in relation to this appeal.Result[28] The appeal is allowed.[29] The costs order made on a 2B basis in favour of the respondent in relation to the proceedings in the High Court under s 86 of the Insolvency Act 1967 is quashed.[30] The respondent must instead pay the appellant indemnity costs of $50,000 plus disbursements in relation to the s 86 proceedings in the High Court.[31] The respondent must indemnify the appellant for his actual costs reasonably incurred in respect of this appeal plus usual disbursements.Solicitors:Meredith Connell, Auckland for AppellantR Mark, Kerikeri for Respondent