Dismissal of application to dispense with security for costs

Summary

The High Court dismissed Mr Musuku’s application for an order dispensing with, or postponing payment of, security for costs in accordance with High Court Rules, r 20.13.

Facts

Mr Musuku is appealing the Taxation Review Authority’s (“the Authority”) decision to dismiss his challenge to the Commissioner’s income tax assessment for 2006. In relation to the appeal, Mr Musuku made an application for an order dispensing with, or postponing payment of, security for costs relying on High Court Rules, r 20.13.

Decision

Muir J recognised the Supreme Court decision Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 (Reekie) as the leading authority on security for costs. Although Reekie concerned the application of the Court of Appeal (Civil) Rules 2005, his Honour referenced previous authorities confirming the application of the same principles to matters governed by r 20.13 (Jones v Waitemata District Health Board [2014] NZHC 3370; Skagen v Wellington Standards Committee of the New Zealand Law Society [2015] NZHC 675).

Muir J summarised the following principles from Reekie:

1. Impecuniosity does not, in itself, warrant an order dispensing with security.
2. Security for costs should only be dispensed with if it is right to require the respondent to defend the judgment under challenge without the usual protection as to costs provided by security.
3. As to whether it is right to require security for costs to be dispensed with, discretion should be exercised so as to:
   1. preserve access to the Court by an impecunious appellant in the case of an appeal which a solvent appellant would reasonably wish to prosecute; and
   2. prevent the use of impecuniosity to secure the advantage of being able to prosecute an appeal which would not be sensibly pursued by a solvent litigant.
4. Where an impecunious appellant has secured representation from non-legal aid counsel, any dispensation from security for costs will be based on whether the case is of the kind which would be appropriate for a grant of legal aid.
5. Protecting respondents from vexatious appeals is a legitimate purpose of the security for costs regime, and an appeal or its conduct may be considered vexatious for such purposes even though it does raise some points which are arguable.
6. Cost and benefit are not to be assessed in purely financial terms.
7. In terms of establishing impecuniosity, an appellant without liquid assets may be required to borrow money to provide security, or it may be appropriate to investigate whether another party (for example, a relative or family trust) might provide the necessary funding.

Muir J regarded the absence of direct evidence of Mr Musuku’s impecuniosity as decisive. His Honour further held, consistent with Reekie, that if impecuniosity had been demonstrated it would not of itself warrant an order dispensing with security.

On a preliminary basis, Muir J found that Mr Musuku’s prospects of success on appeal were not encouraging.

The first ground of appeal is that the Commissioner’s assessment did not represent an honest appraisal and a genuine exercise of judgement. His Honour referred to the Authority’s finding that there was no merit in this argument.

The second ground of appeal is that the Commissioner’s assessment is incorrect. Muir J referred to the Authority’s finding that Mr Musuku’s arguments were “completely without merit”. His Honour then referred to Mr Musuku’s argument that all payments made to him were in his capacity as creditor. In response, Muir J stated: “[t]hat seems to me a difficult argument on the facts as found by Judge Sinclair and having regard to the absence of evidence supporting the proposition”.

The third ground of appeal is that sufficient evidence was available as to the amount by which the Commissioner’s assessment is incorrect. In response, Muir J referred to the finding of the Authority that there was little benefit from the evidence adduced on Mr Musuku’s behalf, and stated that on a provisional basis the High Court was likely to come to a similar conclusion.

His Honour also found that, had it been necessary, Mr Musuku’s history of pursuing unsuccessful litigation and failing to meet costs awards would have been relevant to his exercise of judgment under High Court Rules, r 20.13.

In conclusion, Muir J held that Mr Musuku’s appeal should not proceed without security. His Honour considered that the Commissioner would otherwise be exposed to an appeal in respect of which there are only slight prospects of success and with little prospect of the Commissioner otherwise recovering costs.