Indemnity costs awarded to the Commissioner
2013 case note - indemnity costs awarded to CIR - decision confirms that in awarding indemnity costs, the grounds that may be considered are not closed.
High Court Rules
Summary
This was a costs decision in relation to an application by Redcliffe Forestry Venture Limited ("Redcliffe") to set aside a statutory demand made by the Commissioner of Inland Revenue ("the Commissioner"). The Commissioner requested costs on a 2B basis up until 12 September 2013 and thereafter either indemnity or increased costs. Associate Judge Faire accepted the Commissioner's submission that the arguments advanced on Redcliffe's behalf were groundless and unsupported.
Impact of decision
The decision confirms that in exercising the discretion to award indemnity costs, the grounds that may be considered are not closed. Factors such as the history of the case (ie, unsuccessful in all previous attempts, groundless and unsupported arguments) may be taken into account.
Facts
On 25 October 2013, Associate Judge Faire dismissed Redcliffe's application to set aside a statutory demand made by the Commissioner for tax avoided under the Trinity scheme. Faire AJ reserved the issue of costs and asked for the parties to agree to costs or, failing that, file memoranda addressing costs.
The Commissioner and Redcliffe were unable to agree as to the quantum of costs. Redcliffe asked for costs on a 2B basis. The Commissioner requested costs on a 2B basis up until 12 September 2013 and thereafter either indemnity or increased costs.
Decision
The Court awarded indemnity costs to the Commissioner.
A Judge has the discretion to award costs under rule 14.1 of the High Court Rules in relation to a step taken in a proceeding. This discretion is generally exercised in accordance with the specific High Court Rules contained in rules 14.2 - 14.10.
Rule 14.6 states that the Court may award indemnity costs if the party has acted vexatiously, frivolously, improperly or unnecessarily in commencing a proceeding.
Existing case law indicates that indemnity costs should only be awarded in truly exceptional circumstances (Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002 16 PRNZ 694 (HC)). This includes allegations that ought to have never been made, or unduly prolonging a case by groundless contentions (Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA)).
Associate Judge Faire accepted the Commissioner's submission that the arguments advanced on the plaintiff's behalf were groundless and unsupported. This was supported by the background evidence of "challenge after challenge" taken as part of the Trinity litigation including a recent decision on virtually identical facts in relation to two of the other Trinity disputants (Bristol Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2819).
His Honour concluded that this was a proper case for indemnity costs.