IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-1378 [2015] NZHC 1560

BETWEEN	TERENCE MICHAEL HALL
Plaintiff	

AND	
PERCY RODERICK AND MARIE THERESE JOHNSEN Defendants	

Hearing:	6 July 2015
(On the papers)	

Counsel:	
D A Uka for Plaintiff
P Allan for Defendants	

Judgment:	
6 July 2015	

JUDGMENT OF MANDER J

Introduction

[1]       The proceeding that gives rise to this costs application has been on foot since

2010.   It resulted in both the hearing of an interlocutory application for summary judgment and a substantive hearing of the issues.   On both occasions the plaintiff was unsuccessful.  Costs have been reserved at all stages along the way.

[2]       In respect of the interlocutory application for summary judgement, Mrs Marie Johnsen, the second defendant, seeks costs on a 2B basis.  For the remainder of the proceedings, she seeks the amount of the Legal Aid grant which she is required to repay.

[3]       Mrs Johnsen’s success at both hearings ordinarily might be thought to result in an orthodox award of costs.   However, the plaintiff, Mr Terence Hall, submits
costs should lie where they fall.

HALL v JOHNSEN [2015] NZHC 1560 [6 July 2015]

Background

Background to the proceedings

[4]       The first defendant, Mr Robinson, and Mrs Johnsen were joint directors and equal shareholders in Southern Link Coaches Limited (the Company).   Mr Hall made a number of advances to assist the struggling company which ultimately went into liquidation.  The fact that the advances were made by the plaintiff was not in issue.    The  question  in  dispute  was  whether  the  advances  were  made  to  the Company, or to Mr Robinson and Mrs Johnsen in their personal capacities.

[5]       The defendants commenced operation of the Company in 2004.   It never made a profit and ran into financial difficulties.  By 2006 there was an urgent need for an injection of capital.  Mr Robinson knew Mr Hall and approached him for a loan.  Over time a series of advances were made by Mr Hall to the defendants at their request.  The first advance was made in August 2006 for $52,000, thereafter eight further advances were made, the last two in November 2007.   Varying rates of interest were payable on each of the advances.

[6]       In August 2008, a personal acknowledgment of debt for $358,000 in favour of Mr Hall was drawn up and signed by both Mr Robinson and Mrs Johnsen in their personal capacities. When the company showed no signs of improving its position, Mr  Hall  formally  demanded  repayment  of  the  advances.    When  met  with  the response that they did not have the funds to repay the loans, Mr Hall applied for summary judgment.

Summary judgment applications

[7]       In  August  2010,  Associate  Judge  Osborne  entered  judgment  against  Mr Robinson in the sum of $357,650.97 together with interest of $51,899.07.   The application was undefended.1    Mr Robinson was bankrupt.  A hearing date was set
down for the application against Mrs Johnsen who had retained counsel.2

1	Hall v Robinson HC Christchurch CIV-2010-409-1378, 2 August 2010 [Minute no 1].
2	Hall v Robinson HC Christchurch CIV-2010-409-1378, 2 August 2010 [Minute no 2].

[8]       Mrs Johnsen opposed judgement on the grounds she did not borrow money from Mr Hall, nor was she a party to the negotiations or agreements.3   After hearing the evidence, Associate Judge Doherty found there was nothing in the documentation that  was  produced  to  show  a  link  between  Mr  Hall  and  Mrs  Johnsen  bar  one document which she claimed she felt compelled to sign.  Ultimately the Judge held the plaintiff had failed to show that Ms Johnsen did not have an arguable defence.4
Costs were reserved.

Substantive hearing

[9]       In September 2013, Panckhurst J heard the substantive claim against Mrs Johnsen.5  Because the first $52,000 advance was accompanied  by an acknowledgment of debt from Mr Robinson to Mr Hall, it was found that there was no basis for Mrs Johnsen’s liability for this sum.6 Panckhurst J found all subsequent advances were made to the company.7  Critically, the Court found the August 2008 acknowledgement of debt signed by the second defendant did not create a new legal right because no consideration was provided by Mr Hall in return.

[10]     For those reasons, the claim against Mrs Johnsen was dismissed. Costs were again reserved.

Submissions on costs

[11]     The parties have been unable to come to any agreement on costs.  Mr Hall contends  that  costs  should  lie  where  they  fall  in  respect  of  both  matters. Mrs Johnsen  disagrees  and  maintains  she is  entitled  to  costs  in  respect  of both matters.

Memorandum of counsel for the defendant

[12]     Having successfully defended both proceedings, Mrs Johnsen argues she is entitled  to  2B  scale  costs.    Mrs  Johnsen  received  legal  aid  after  the  summary

3	Hall v Robinson HC Christchurch CIV-2010-409-1378, 14 December 2010.
4	At [25].
5	Hall v Robinson [2013] NZHC 2476.
6	At [46].
7	At [47].

judgment application was dismissed. She therefore seeks scale costs in respect of the interlocutory application for summary judgment up to and including the filing of a statement of defence. For the remainder of the proceeding, she seeks repayment of the legal aid grant of $9,900.35. This grant was fully recoverable against Mrs Johnsen.

Memorandum of counsel for the plaintiff

[13]   The plaintiff opposes costs on the basis of what he contends are the “extraordinary circumstances” of the case as well as the defendant’s persistent non- compliance with timetabling orders.   For these reasons, it is submitted the case warrants a departure from the usual principle that costs will follow the event. The key points of Mrs Hall’s argument are:

(a)       the  ongoing failures  of  Mr  Johnsen  to  meet  timetable  orders  and requests from the court;

(b)       the conduct of the defendants, including the way the company was operated,   the   promises   made   to   Mr   Hall   and   the   lack   of documentation in respect of the loans; and

(c)       the   signing   of   an   acknowledgment   of   debt   and   supporting documentation by all parties which was intended to have legal effect, but when tested by the court, ultimately proved to be inadequate.

Discussion

[14]     The usual rule is the party who fails in the proceeding should pay the costs of the successful party.8   However, costs are subject to the overarching discretion of the court.9  The court may, if it so chooses, refuse to grant costs or make an order for
reduced costs if the successful party failed to comply with directions of the court.10

8	High Court Rules, r 14.2(a).
9	Rule 14.1.
10	Rule 14.7(f)(i).

[15]     The plaintiff ’s arguments relating to the merits of his case, particularly in relation   to   the   operation   of   the   company   and   the   intention   behind   the acknowledgment  of debt,  to  render  Mrs  Johnsen  personally liable  for  the sums advanced, largely reflects the submissions made at trial.  While it is apparent from Panckhurst J’s judgment that he had considerable sympathy for Mr Hall and the situation he found himself in, the claim against Mrs Johnsen failed.   The parties entered the litigation aware of the legal issues the matter gave rise to and Mr Hall must be assumed to have appreciated Mrs Johnsen’s defence to his claim and therefore the risk of not succeeding at trial.

[16]     However,  Mr  Hall  is  on  stronger  ground  in  respect  of  Mrs  Johnsen’s persistent and unexplained failures to comply with clear and comprehensive time tabling orders.  The question arises whether this non-compliance should affect a cost order.

[17]     In brief, the non-compliance included the following defaults:

(a)       3 December 2010 – Mrs Johnsen sought leave to file an affidavit out of time from Mr Robinson. The application for leave was on the basis Mrs Johnson could not afford the filing fee. Associate Judge Doherty addressed counsel about the steps which should have been taken and reserved costs.

(b)       19 March 2012 – Mrs Johnsen failed to comply with comprehensive interlocutory directions made by Associate Judge Matthews.

(c)       7 May 2012 – the case management officer sent an email to Mrs Johnsen notifying her of a filing direction that had been missed and set a new time requirement.

(d)	8 June 2012 – Associate Judge Osborne released a minute stating:11

[4]   The second defendant was ordered to file and serve her list of documents by 4 May 2012. There has been no explanation for her failure to do so in the five weeks since then. The unexplained delay is particularly unacceptable because the case officer has twice written to Mr Marshall noting the non-compliance and requesting the filing and service of the affidavit, without answer.

(e)       12 June 2012 – Associate Judge Osborne was required to convene a case management  conference concerning the failure of the second defendant to file and serve the affidavit of documents.

[18]     There were also numerous delays associated with setting fixture dates, often compounded by Mrs Johnsen not getting back to the registry staff to confirm proposed dates. In total, many delays can be attributed to Mrs Johnsen.

[19]     I am not satisfied that these delays, persistent as they were, should result in costs lying where they fall.   Ultimately, Mrs Johnsen successfully defended both proceedings and is entitled to some award of costs to reflect that success.  However, this matter, which in its original form was a debt collection proceeding and was relatively straightforward, has been marked by a number of delays.  The proceeding could have, and should have, been resolved much earlier. Mr Hall in the circumstances could not be criticised for pursuing Mrs Johnsen, given the liquidation of the company, the bankruptcy of Mr Robinson and the signed acknowledgment of debt, on which he believed he could rely.

[20]     In the circumstances, I consider a reduction of 50 per cent from any award that would otherwise have been assessed by applying the usual recovery rate is appropriate.12      Mr  Hall  has  disputed  some  of  the  calculations  set  out  in  Mrs Johnsen’s schedule of 16 July 2015, however, those criticisms largely relate to the period in respect of which legal aid was granted.  The claim for costs during that period is capped at the level of legal aid granted.   I do, however, reduce the time
claimed for the preparation of a statement of defence from two days to one.

Outcome

[21]     Accordingly, Mrs Johnsen is awarded 2B scale costs for work done prior to the grant of legal aid, less 50 per cent ($8,457.50 x 50%) in the sum of $4,228.75.  In respect of the legal costs incurred post that point, Mrs Johnsen is entitled to recover the cost of the work carried out under the legal aid grant in the sum of $9,900.35
This is a significantly reduced figure compared with the calculation of scale costs on a 2B basis.

[22]     This amounts to a costs award in favour of Mrs Johnsen in the amount of

$14,129.10.

Solicitors:
Taylor Shaw, Christchurch
Kenneth G Marshall, Christchurch