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James Joseph Murren as Trustee of the James J Murren Spendthrift Trust & Daniel Lee v/s Glenn Schaeffer


Company & Directors' Information:- H E DANIEL (INDIA) PRIVATE LIMITED [Strike Off] CIN = U24249MH1992PTC066599

Company & Directors' Information:- JOSEPH AND CO PVT LTD [Active] CIN = U01211KL1954PTC000507

Company & Directors' Information:- E R JOSEPH & CO PVT LTD [Strike Off] CIN = U28920WB1955PTC022404

Company & Directors' Information:- JAMES & CO PVT LTD [Strike Off] CIN = U63090WB1943PTC011213

    CA No. 363 of 2018

    Decided On, 06 March 2019

    At, Court of Appeal of New Zealand

    By, THE HONOURABLE MR. JUSTICE FRENCH
    By, THE HONOURABLE MR. JUSTICE SIMON FRANCE & THE HONOURABLE MR. JUSTICE MOORE

    For the Appellant: A.J. Horne, A.E. Simkiss, Advocates. For the Respondent: T.D. Gee for R Schaeffer (nonparty).



Judgment Text

REASONS OF THE COURT

(Given by Simon France J)

[1] This decision concerns an application by the appellants to recall the judgment and quash an order of indemnity costs in favour of a nonparty.

Introduction

[2] This proceeding involved a successful appeal against the refusal of the High Court to make freezing orders.[1] The freezing order application sought to restrain any proceeds from an anticipated sale pending resolution of the primary claim. The application recognised that security interests registered over the property to be sold would take priority before the freezing order took effect. However, the application sought to exclude from that priority secured debts owed by the defendant, Mr Glenn Schaeffer, to his former wife, Ms Renee Schaeffer. It was argued there was a basis for doubt as to the bona fides of these debts, and the applicants had not had time to resolve the matter.

[3] Seemingly alerted to all this late in the piece, Ms Schaeffer filed evidence shortly before the hearing, and Mr Gee appeared. Ultimately at the hearing the appellants modified their position to one of accepting that priority should be accorded the debts, but with leave to return to the Court if information emerged that gave substance to their suspicions.[2] The Court made the freezing orders over any sale proceeds but with priority to all registered interests including those of Ms Schaeffer and excluding any registered interests in favour of Mr Schaeffer.[3]

[4] Concerning costs, the Court noted that r 53 of the Court of Appeal (Civil) Rules 2005 conferred a broad discretion, including awarding costs to nonparties. Of the present situation, we observed:[4]

... The appellants sought to deal with [Ms Schaeffer’s] registered interests differently from other registered security holders. She was not served with the proceedings or by other means afforded the opportunity to avoid involvement. Her evidence when filed was focused, as was the appearance on her behalf. As noted, no evidence has been produced to justify singling Ms Schaeffer out, and the lack of time available to the appellants to do so is of their own making.

[5] The consequent order was that:[5]

(e) Ms Schaeffer is entitled to all her costs and usual disbursements associated with the filing of evidence and the appearance of counsel, such costs to be met by the appellants.

[6] To make intelligible what follows, it is necessary at this point to set out what the Court understood when making its indemnity costs award. The Court understood that:

(a) the appellants had learned on 22 June 2018 that Mr Schaeffer claimed that Ms Schaeffer had substantial secured debt;

(b) on 9 July 2018 (after the High Court judgment on the freezing orders application) Mr Schaeffer in an affidavit for the first time provided details of the alleged debts to Ms Schaeffer;

(c) on 11 July 2018 the appellants’ lawyers wrote to Mr Schaeffer’s lawyers expressing dissatisfaction with the evidence provided around these debts, and asking for better proof as to their genuineness;

(d) no equivalent approach was made to Ms Schaeffer for her to provide evidence as to the genuineness of the debt;

(e) shortly before this Court’s hearing of 2 August, Ms Schaeffer became aware that her security was not being accepted and would, on the appellants’ case, be excluded from priority ahead of the freezing orders; and

(f) her counsel, Mr Gee, was instructed immediately upon receipt of this knowledge, whereupon affidavits were hurriedly prepared and filed, and Mr Gee appeared on short notice.

Present application

[7] The parties could not agree on an amount payable pursuant to the Court’s order. Ms Schaeffer initially sought just over $65,000 but then discounted that to a rounded figure of $50,000. The appellants took the view that adjusted figure was both unreasonable and included work outside the scope of the Court’s orders.

[8] The main issue between them concerned costs incurred by Ms Schaeffer prior to Mr Gee being instructed, and costs incurred subsequent to the Court of Appeal hearing. To briefly explain the latter, while the parties were awaiting this Court’s judgment, it appeared that the property in issue may be sold. Ms Schaeffer incurred expenditure, including accounting fees, in establishing the exact amount protected by her securities.

[9] The appellants took the view that the scope of the Court’s orders covered only the period from when Mr Gee was instructed through to the conclusion of the hearing. They also formed the view that the Court’s decision to award full costs was the product of the Court being misled as to when Ms Schaeffer became aware of the issue. It was now obvious from the costs claimed that Ms Schaeffer’s solicitors had been aware of it for some time.

[10] The appellants’ counsel filed a memorandum asking the Court to revisit the decision to award full costs on the basis that the Court was misled in two aspects:

(a) that Ms Schaeffer had instructed solicitors in New Zealand on 16 July 2018, two weeks prior to the hearing in the Court, but those solicitors did not contact the appellants’ lawyers to seek to resolve her position before the hearing; and

(b) that Ms Schaeffer was holding assets in her name on behalf of the respondent, Mr Schaeffer, in the United States, so there was a reasonable basis for the appellants’ concern that she might also hold on his behalf her claimed interests in the assets to which the freezing order related.

Alternatively, the appellants queried the quantum of costs claimed on the basis that they cover work occurring outside the scope of the Court’s order and were anyway unreasonable.

[11] The Court indicated it would treat the memorandum as an opposed application for recall,[6] and a timetable was put in place with the matter to be determined on the papers.

Should the judgment be recalled?

[12] The material now before the Court has satisfied us that at the time we awarded Ms Schaeffer full costs, the Court was operating under a significant misunderstanding of the true situation. It is apparent that Ms Schaeffer became aware on 16 July 2018 that the appellants were querying the legitimacy of her secured debts. This was known because the lawyers for Mr Schaeffer had provided Ms Schaeffer’s lawyers with the relevant correspondence from the appellants. From that point the lawyers for Ms Schaeffer were engaged in obtaining instructions on the matter and gathering together the material needed to withstand a challenge to the secured debts.

[13] The Court when making the award of full cost recovery was influenced by the failure of the appellants to contact Ms Schaeffer directly. We considered the appellants created an unnecessary context of urgency, and prevented pre-hearing resolution. We now have a better understanding as to why that situation came about but remain of the view that there was opportunity for the appellants to contact Ms Schaeffer once it became the firm intention to treat Ms Schaeffer’s debts differently on the appeal.

[14] That said, we are also now of the view that there was ample opportunity for Ms Schaeffer to have contacted the appellants’ lawyers to clarify the situation. Our understanding that all this was thrust upon her very near to the hearing was mistaken. The position was far from that. We accept Ms Schaeffer did not have all the relevant material, but the impression we were left with of a last minute scurry without prior notice was incorrect and was of considerable significance to our costs decision.

[15] The next issue is whether, shorn of that context, the circumstances still merit an award of full costs. If they do, then obviously there is no basis for the judgment to be recalled. In making this assessment, the factual basis on which we proceed is that Ms Schaeffer is a nonparty who had secured debts that were treated differently from all other secured debts by the applicants for freezing orders. It was necessary for Ms Schaeffer to appear, and she succeed in establishing an entitlement to the same priority as other secured creditors.

[16] The resolution achieved at the hearing was one that could have been reached prior to the hearing. There is fault on both sides. Our change in position from the time of the judgment is that, as is apparent on the face of the judgment, we allocated all blame to the appellants. Now we consider each side contributed equally to the failure to contact the other. We do not place weight on the other ground relied upon, namely the subsequent discovery that Ms Schaeffer was holding other assets in her name on behalf of Mr Schaeffer. Those assets are not the secured debts. The appellants had leave to revisit if subsequent material cast doubt on the debts in issue and have not done so.

[17] The Court has a broad costs discretion under r 53 of the Court of Appeal (Civil) Rules. Erwood v Maxted confirms this extends to awards in favour of nonparties.[7] Further, r 53E(3)(d) specifically authorises indemnity costs where the nonparty has acted reasonably.

[18] The new information available to the Court changes our assessment of the appropriateness of an indemnity costs award. For reasons discussed, we consider there is equal fault on both sides. More specifically, however, in terms of r 53E(3)(d) the conduct of the nonparty since becoming aware of the issue on 16 July was not such as to support an award of indemnity costs. It was not reasonable on her part to fail to contact the appellants’ solicitors and seek resolution. We therefore conclude that if appraised of the correct situation we would not have made the costs order that we did.

[19] Recall in such circumstances is only possible if the Court is satisfied that the situation falls within the third of the Horowhenua County v Nash (No 2) categories – namely, a very special reason justifies it.[8] We recognise that it must be a rare case when it is exercised in relation to a costs order. That said, having carefully reviewed the material filed for the hearing, and the submissions made at the hearing, we are very clear the Court was misled. We do not say that was the intention, but it was the effect, and we consider an order has incorrectly been made consequent upon that. We are uncomfortable with the situation and consider justice requires it to be corrected.

A replacement costs order

[20] As noted, the nonparty had success and is entitled to an award of costs. The application at the time of the hearing was for full or increased costs. Reviewing the material, we accept that the nonparty was at a disadvantage both because she had not been served, and therefore lacked all the papers, and because of her residence abroad (the United States) which created communication difficulties. However, there was nevertheless ample time for matters to resolve had the opportunity been taken. We decline the application for increased costs. An award of scale costs is appropriate.

[21] Finally, the appellants as applicants for recall are entitled to costs on

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the successful recall application. It was advanced with economy and presented the relevant material in an appropriate way. Orders [22] The appellants’ application for recall is granted. [23] We recall the judgment of this Court in Murren v Schaeffer of 23 August 2018. The judgment is amended and reissued with paragraphs [52](e) and [60], and Order H of that judgment deleted and replaced. In their place we make an award in favour of the non-party, Ms Renee Schaeffer, for a standard appeal on a band A basis, together with the usual disbursements. [24] The appellants are entitled to an award of costs on the application for recall in accordance with the costs for a standard application for leave on a band A basis, together with any reasonable disbursements. --------------------------------------------- [1] Murren and Lee v Schaeffer [2018] NZCA 318. [2] At [40] and [56]. [3] At [41], [43] and [55]. [4] At [51]. [5] At [52]. [6] Murren and Lee v Schaeffer CA 363/2018, 28 November 2018. [7] Erwood v Maxted [2010] NZCA 93, [2010] 20 PRNZ 466 at [18]. [8] Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.
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