NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
https://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/	

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE	
CIV-2018-419-175
[2020] NZHC 408	

IN THE MATTER	of the Property (Relationships) Act 1976 and of an appeal from a decision of the Family Court held at Hamilton	
BETWEEN	CHERYL PENN
Appellant	
AND	ELIJAH McQUEEN
Respondent	

Hearing:	On the papers	
Judgment:	5 March 2020	

JUDGMENT OF KATZ J
[Costs of application for leave to appeal]

This judgment was delivered by me on 5 March 2020 at 4:00pm pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:	Riverside Law, Hamilton
Wynyard Wood, Auckland Counsel:	V A Crawshaw QC, Auckland
S Jefferson QC, Auckland

PENN v McQUEEN [2020] NZHC 408 [5 March 2020]

Introduction

[1]	Ms Penn1 unsuccessfully appealed a Family Court decision under the Property (Relationships) Act 1976 (“PRA”) to this Court. She subsequently applied for leave to bring a further appeal, to the Court of Appeal. When her application for legal aid was declined, however, Ms Penn withdrew her leave application. Her former husband, Mr McQueen, now seeks costs in respect of the withdrawn leave application.

Background

[2]	Mr McQueen and Ms Penn separated in May 2011 and their marriage was dissolved on 25 July 2013.

[3]	Over the course of their marriage, Mr McQueen’s mother made a series of loans to the couple that were in large part used to renovate a family home in London, prior to the couple moving to New Zealand. The balance of the loan was used for living expenses. The Family Court found that the loan was a relationship debt.2 I upheld that decision on appeal.3

[4]	The PRA provides that a New Zealand Court has jurisdiction over real property in New Zealand, and movables anywhere if one of the partners lives in New Zealand at the relevant date.4 Courts in New Zealand do not, however, have jurisdiction over foreign immovables, such as real property overseas.

[5]	In this case, the parties’ former family home in London is a foreign immovable asset. Accordingly, whether  Ms  Penn  has  an interest  in  that  property can  only  be determined by the  English  Courts.  Ms  Penn,  however,  is  impecunious  and (as far as I am aware) has not brought any proceedings in England. It was therefore not possible to set off Ms Penn’s relationship debt against any interest she may have in the London property or make any compensating adjustments to the division of

1	In accordance with the practice agreed between the Family Court Judges and the Chief High Court Judge in relation to appeals from the Family Court to which ss 11B-11D of the Family Court Act 1980 applies, I have used fictitious names for the parties.
2	Penn v McQueen [2019] NZFC 3585.
3	Penn v McQueen [2019] NZHC 2192 at [46],
4	Property (Relationships) Act 1976 s 7.

property in New Zealand.5 The result is that Ms Penn is liable to pay almost $400,000 to Mr McQueen in respect of relationship debt, but she (currently) has no entitlement to the foreign property to which much of that debt relates. Ms Penn is unable to pay the judgment debt, and Mr McQueen is now taking steps to bankrupt her.

[6]	Mr McQueen seeks costs in respect of the withdrawn leave application on a 2B scale basis (totalling $2,390) together with disbursements of $121.40.

[7]	Ms Crawshaw (counsel for Ms Penn) submitted that it is in the overall interests of justice that costs lie where they fall. In the alternative, she submitted that although category 2B is appropriate, the quantum of costs sought is incorrect, and should be lower.

Relevant costs principles

[8]	In general the unsuccessful party in a proceeding will be required to pay costs to the successful party.6 Interlocutory applications follow the general costs rules, unless there are special reasons to not do so.7 Furthermore, in general, a plaintiff who discontinues a proceeding must pay costs to the defendant.8 All awards of costs are at the discretion of the Court, but the exercise of that discretion should follow the principles in the High Court Rules unless there are special reasons to the contrary.9

[9]	Generally, however, an award of costs is not made in a test case.10 There are three requirements for a test case:

(a)	the case must relate to an issue of genuine public interest beyond the interests of the immediate litigant;

5	Samarawickrema v Samarawickrema [1994] NZFLR 912 (CA) at 489; M v B [2006] 3 NZLR 660 (CA) at [33]-[36].
6	High Court Rules 2016, r 14.2(l)(a); Manukau Golf Club  Inc v Shoye Venture Ltd  [2012]  NZSC 109, [2013] 1 NZLR 205 at [8].
7	Rule 14.8.
8	Rule 15.23.
9	Rule 14.1; clarifying that discretion is to be exercised in accordance with the rules unless special circumstances  prevail,  Mansfield  Drycleaners  Ltd   v   Quinny’s   Drycleaning   Ltd   (2002) 16 PRNZ 662 (CA) at [27].
10 Birkdale Service Station v CIR [2001] 1 NZLR 293 (CA) at [81]; Securities Commission v Kiwi Co-operative Dairies Ltd [1995] 3 NZLR 26, 36). The main exception is that normal costs rules are followed if the collateral benefit of a decision would be expected to accrue to the testing party: Birkdale Service Station v CIR [2001] 1 NZLR 293 (CA) at [86].

(b)	the case must have merit; and

(c)	the litigant concerned must have acted reasonably.11

[10]	In essence, test cases are those in which a substantial part of the benefit of the litigation will be received by other potential litigants, and hence the pursuit of the case can be considered a social good worth incentivising.12

Application of the “test case” principles in this case

[11]	Ms Penn has acted reasonably throughout. She withdrew her application when her legal aid was refused, and hence did not put the Court or Mr McQueen to any additional cost when it became clear she could not pursue the appeal.

[12]	The proposed appeal raised cross-border relationship property issues that have only received minimal attention from the Court of Appeal. The leading case is now over 25 years old. The Law Commission has recently raised concerns regarding cross-border issues in a relationship property context and the potential injustice that can arise given the increasingly globalised nature of personal relationships:13
The distinction section 7 makes between movable and immovable property prevents the resolution of property disputes under a single legal regime. The PRA might apply to some of the partners’ property but will not apply to any immovable property the partners own outside of New Zealand. This frustrates the PRA’s policy of a just division of property when relationships end and is inconsistent with the principle that questions arising under the PRA be resolved as inexpensively, simply, and speedily as is consistent with justice. The increasingly globalised nature of relationships means that property disputes are more likely to involve cross-border issues, and the PRA should be able to respond to such issues as they arise.

[13]	The Law Commission recommended that s 7 of the PRA be altered to provide that all partners’ property (wherever located) be subject to new rules of classification and division. It further recommended that this include the power to compel one party to transfer the property or pay a sum of money to their partner to balance the situation.

11 Ratepayers and Residents Action Assoc Inc v Auckland City Council [1986] 1 NZLR 746 (CA); New Zealand Climate Science Education Trust v National Institute of Water and Atmospheric Research Ltd [2013] NZCA 555 at [11].
12 Birkdale Service Station v CIR [2001] 1 NZLR 293 (CA) at [81].
13 Law Commission Review of the Property (Relationships) Act 1976 (NZLC R143, 2019) at [19.1].

[14]	Over 25  years ago, in Samarawickrema v Samarawickrema, Hammond J    (in the High Court) interpreted the PRA as permitting a similar approach to that now advocated by the Law Commission.14 His Honour endeavoured to do justice between the parties in that case by making compensating adjustments to the New Zealand relationship property pool to reflect foreign immovable property owned by the husband. His Honour’s decision, however, was subsequently overturned by a full bench of the Court of Appeal, which held that it was not open to a New Zealand Court to make any compensating adjustments in respect of the New Zealand relationship property to try and ensure that the final division of the total asset pool reflects a   New Zealand approach.15

[15]	Judge Otene (in the Family Court) and I both acknowledged in our decisions that there is (at least) a “perception of unfairness” in the result in this case.16 In my view, however, a different approach to the key issues would likely require reconsideration of the Court of Appeal’s decision in Samarawickrema. That exercise, obviously, is beyond the jurisdiction of this Court.

[16]	For these reasons, it is my view that Ms Penn’s proposed appeal raised issues of genuine public interest to individuals beyond the litigants. It was also capable of bona fide and serious argument. The only reason the appeal has not been pursued is that Ms Penn has been declined legal aid and cannot afford to fund an appeal herself. However, if I had been required to determine her leave application, it is very likely I would have granted it, in light of the matters I have outlined.

Should costs lie where they fall?

[17]	The rationale for costs lying where they fall in test cases is to incentivise the responsible bringing of proceedings (or appeals) on matters of public interest. Litigants (particularly impecunious litigants) should not be discouraged from pursuing test cases or other public interest proceedings by the prospect of adverse costs awards.

14	Samarawickema v Samarawickema (1994) 11 FRNZ (HC) at 507.
15	Samarawickrema v Samarawickrema [1994] NZFLR 912 (CA) at 489.
16	Penn v McQueen [2019] NZHC 2192 at [60]; Penn v McQueen [2018] NZFC 3585 at [80].

[18]	Generally, the special rule for costs in test cases is applied after an appeal is heard and determined, and hence the social good of achieving legal certainty is achieved. Here the application was discontinued and no “social good” has been achieved. Further, although appellate guidance on the issues raised by the appeal may well have assisted future litigants, the person who would clearly have received the most benefit in the short term would have been Ms Penn.

[19]	Nevertheless, in my view it is in the interests of justice that costs lie where they fall. Many of the principles relating to costs awards in test cases apply here, by analogy. Ms Penn acted responsibly throughout. Her proposed appeal had merit and raised a matter of genuine public interest which was ripe for reconsideration by the Court of Appeal.

[20]	Further, declining to award costs to Mr McQueen will not give rise to any injustice in the particular circumstances of this case. I note that the costs claimed by Mr McQueen are de minimis in the overall context of this proceeding. Mr McQueen has already obtained judgment against Ms Penn for almost $400,000, which greatly exceeds her assets.

Result

[21]	I order that costs lie where they fall.

Katz J