MADSEN-RIES and LEVIN as liquidators of Fixed Cost Civil Limited (In Liquidation) v MAHONEY & ORS [2018] NZHC 1864

MADSEN-RIES and LEVIN as liquidators of Fixed Cost Civil Limited (In Liquidation) v MAHONEY & ORS[2018] NZHC 1864 [26 July 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2016-404-1990[2018] NZHC 1864BETWEEN VIVIEN JUDITH MADSEN-RIES andHENRY DAVID LEVIN as liquidators ofFixed Cost Civil Limited (In Liquidation)PlaintiffAND BRIAN TIMOTHY MAHONEYFirst DefendantBRIAN TIMOTHY MAHONEY, JUDITHANNE SABICH and NEILSONS TRUSTEE(2013) LIMITED as trustees of the AlbanyHeights TrustSecond DefendantSABICH ORGANIC GARDENS LIMITEDThird DefendantEARTHQUIP HOLDINGS LIMITEDFourth DefendantHearing: On the papersJudgment: 26 July 2018COSTS JUDGMENT OF DUFFY JThis judgment was delivered by me on 26 July 2018 at 10 am pursuant toRule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarSolicitors/Counsel:Meredith Connell, AucklandHucker & Associates, Auckland[1] This judgment should be read together with my judgment on granting anadjournment of the trial of this proceeding as a result of the first defendant,Mr Mahoney, being permitted to amend his statement of defence (the adjournmentdecision). The trial was to commence on 20 November 2017, but was adjourned on6 November 2017.[2] The reasons for the adjournment are already set out in the adjournmentdecision. In short, a report prepared by Staples Rodway accountants relevant to theliquidity of Fixed Cost Civil Ltd (FCCL) only came to the attention of Mr Mahoney'scounsel Mr Hucker shortly before the trial was due to commence. Once he read theStaples Rodway report Mr Hucker saw a benefit in pleading, by way of affirmativedefence, Mr Mahoney's reliance on that report.[3] The effect of the late amendment to the statement of defence was that theplaintiffs, who did not oppose the amendment of Mr Mahoneys' statement of defence,then sought the adjournment.[4] The parties were given leave to file memoranda on costs if they were unable toreach agreement, which they have been.[5] The plaintiffs seek wasted costs in the sum of $22,017.00 being: $14,829.50legal costs and $7,187.50 for expert witness fees.[6] The plaintiffs also seek costs on a 2B basis of $1338.00 for their efforts inpursuing the wasted costs award.[7] A key feature in this matter is that Mr Mahoney was aware of and able to obtaina copy of the Staples Rodway report some time before his counsel Mr Hucker.Seemingly he never drew Mr Hucker's attention to the existence of the report. InsteadMr Hucker only learned about the existence of this report around 22 September 2017when he received the plaintiffs' briefs of evidence. These included a brief of evidenceof one of the plaintiffs Mr Levin, who referred to the Staples Rodway report. At thattime, the plaintiffs had been unable to obtain a copy of this report.[8] Around 20 October 2017, when Mr Mahoney was due to file his briefs ofevidence Mr Hucker managed to obtain a copy of the Staples Rodway report, whichhe then used as a basis for the new affirmative defence that he included inMr Mahoney's amended statement of defence[9] The plaintiffs were supplied with a copy of the Staples Rodway report whenthey received Mr Mahoney's briefs of evidence. They have not received copies of theunderlying material on which the report was based.[10] It is surprising that Mr Mahoney never informed Mr Hucker about the StaplesRodway report much earlier on. By way of an explanation, Mr Mahoney in affidavitdated 15 December 2017, deposed as follows:17. In preparing this Affidavit I have reviewed the transcript of theexamination. At the time I did not recall any specific discussion aboutthe Staples Rodway report but I accept that there is reference in thetranscript18. There was no further follow up to either myself or my solicitorsfollowing the transcript that I am aware of requesting the StaplesRodway report prior to the Briefs of Evidence being filed.19. I did not turn my mind to the report following the examination nor didI provide a copy of the report to my solicitors until the events referredto in paragraphs 21 to 25 below unfolded.21. It was during the period that I was having my evidence briefed by mysolicitors that they referred me to the evidence of Mr Levinconcerning what was said to be alleged advice22. That was the first time that I became aware that the Staples Rodwayreport may be important for the proceedings. I had not given it asecond thought since the liquidation of the Company having focussedon the business that I have been running.23. I did not have the report to hand not could I recall having it anywhere.24. On the instruction of my solicitors I had an IT person undertake asearch on my personal computer to see if there had been a copy of theStaples Rodway report retained as I could not locate a physical copyof the report.25. I then provided the report to my solicitors towards the end of thefinalisation of completing my brief of evidence as soon as the ITspecialist advised me that it had been recovered.[11] I take it from Mr Mahoney's affidavit that he did not raise the report withMr Hucker because he did not "turn [his] mind to it". It seems that this was througha possible combination of Mr Mahoney being distracted by his work, not thinking thereport was important or a simple lapse of memory. I do not think that any of thesereasons provides a reasonable justification for Mr Mahoney not bringing the report toMr Hucker's attention earlier. In circumstances like the present where a party tolitigation seeks to avoid an award of wasted costs through his counsel not beingproperly informed of all relevant information in time to properly take advantage ofthat knowledge I consider that some reasonable explanation for why counsel was notinformed earlier on by his client is required. If the party chooses instead to remainsilent or provides no reasonable explanation this Court will then approach the questionof costs on the basis it has no explanation for why Mr Mahoney did not informMr Hucker earlier on.[12] There is a further issue regarding the plaintiffs' request for an adjournment.They required the adjournment in order to be able to address more fully Mr Mahoney'sbelated reliance on the Staples Rodway report. To achieve this, they want to obtaincopies of the material on which this report is based. To date Staples Rodway hasrefused to provide a copy of their report when requested to do so pursuant to s 261 ofthe Companies Act 1993. This leaves the plaintiffs in the position where they eitheruse their powers under s 266 of the Companies Act or they apply for non-partydiscovery.[13] Mr Mahoney contends that the plaintiffs should have used their powers asliquidators under s 266 of the Companies Act 1993 earlier on to obtain copies of thereport and the underlying material on which it is based. The liquidators reject thisargument.[14] Mr Levin has provided an affidavit in which he explains the difficulties theplaintiffs have experienced obtaining relevant information. In the affidavit Mr Levinmakes complaint about Mr Mahoney's provision of relevant information. I note thatMr Mahoney has filed no evidence in response.[15] Mr Levin has provided an explanation for why the plaintiffs accepted StaplesRodway's refusal to provide the report pursuant to the s 261 request. UntilMr Mahoney decided to rely upon the report its relevance as an affirmative defencefor Mr Mahoney may not have been apparent to the plaintiffs. They cannot beexpected to second guess what are likely potential affirmative defences forMr Mahoney.[16] The short point here is that Mr Mahoney knew of the Staples Rodway reportand for reasons that are unexplained he seemingly failed to bring the report to theattention of Mr Hucker. Had Mr Mahoney raised the existence of the report withMr Hucker earlier, steps to obtain the report and its impact on the proceedings couldhave been properly addressed in a timely fashion. My view is that Mr Mahoney is theauthor of the need for the adjournment and that he should therefore bear the onus of awasted costs award. I refer to the comments of Venning J in Jeffreys v Morgenstern:1[31] I turn to consider the issue of wasted costs I accept the plaintiffs'submission that the trial was vacated because of the defendants' default. Theplaintiffs have inevitably incurred wasted costs as a result of that. This Courthas jurisdiction to make an order for wasted costs. As this Court haspreviously observed in the case Fu Hao Construction Ltd v Landco AlbanyLtd default that leads to vacation of fixtures leads to inconvenience and costsnot only to the other parties to that proceeding but to other parties awaitingfixtures in the Court. Fixtures allocated by this Court are commitments oflimited judicial and Court resources[32] That is a further reason which supports an award of wasted costs. TheCourt should apply sanctions to parties who, through their own default, causefixtures to be vacated.(Citations omitted)[17] Mr Mahoney also makes more general complaints about how the discoveryprocess has been handled by the liquidators. I do not consider these complaints to berelevant to the issue at hand. The same applies to the issues regarding the extent towhich Mr Mahoney has supplied boxes of information as part of his discoveryobligations.[18] Mr Mahoney then challenges the quantum of the costs sought. The breakdownof this quantum is as follows.1 Jeffreys v Morgenstern [2013] NZHC 1361.[19] The sought legal costs of $14,829.50 is broken down into two parts. First, it iscalculated that $26,760 was incurred in preparation of the hearing prior to theamendment to the statement of defence. The plaintiffs seek 50 percent of this amountin wasted costs, namely $13,380. I consider this to be an appropriate scale.2[20] The remaining $1,449.50 is calculated as the costs accrued from the stepsnecessarily taken in reaction to the amended statement of defence. 100 percent ofthese costs is sought. Again, I take no issue with this.[21] Similarly, 50 percent of the actual expert witness fees is sought as wasted costs,namely $7,187.50. It follows that I also consider this to be an appropriate scale.3[22] Mr Mahoney contends that the plaintiffs' expert witnesses and the plaintiffs'trial preparation has not been wasted. Work done to date can in Mr Mahoney's viewsimply be carried forward and used for the new trial date. The plaintiffsunderstandably reject this argument. First their experts did not have the benefit ofconsidering the Staples Rodway report or the underlying material on which it is based.They will no doubt have to revisit their expert opinion in light of this new information,once everything relevant has been obtained. Secondly, there is an element of trialpreparation by counsel that cannot be carried over to a new trial date. Memoriesnecessarily fade and so everything has to be looked at afresh for the new hearing. Iconsider it unrealistic to think preparation for one hearing means that will not requirere-visiting if the trial of the proceeding is to be heard sometime later on. JusticeToogood said as much in Total Air Supply Co Ltd v Total Air Supply Co (2007) Ltd:4[36] While it might be said that such work is not "wasted", because thefruits of it can be applied when the matter comes to trial next year, it isunrealistic to expect counsel and witnesses to remain in the state of readinessthey would have been in in the week or so leading up to the start of the trialwhen the matter is not likely to be heard for another years or so. Furthermore,now that the creditors issue is squarely before the Court for argument, counseland expert witnesses for the defendants and the third party will necessarilyhave to revise their positions in the light of new pleadings and, potentially,new evidence.2 See Jeffreys v Morgenstern at [37].3 See Jeffreys v Morgenstern at [39]; see also Fu Hao Construction Ltd v Landco Albany Ltd HCAuckland CIV-2004-404-6608, 23 May 2008 at [9].4 Total Air Supply Co Ltd v Total Air Supply Co (2007) Ltd HC Auckland CIV-2008-404-7627, 29July 2011.[23] The general principle is that costs follow the event. Here the event generatingcosts is the need for an adjournment which was brought about by Mr Mahoney'sunexplained failure to issue his counsel with full instructions in a timely fashion. Thatfailure resulted in the plaintiffs losing the fixture. I am satisfied that the plaintiffs areentitled to wasted costs. I am also satisfied that the costs award the plaintiffs seek isreasonable in the circumstances.[24] Accordingly, I find the plaintiffs are entitled to the award of costs which theyseek. This is: $14,829.50 for wasted legal costs and $7,187.50 for wasted costs fortheir experts. The total costs award being: $22,017.00.[25] I also award 2B costs of $1,338.00 to the plaintiffs for their efforts in pursingthe wasted costs award.Duffy J