Supreme Court awards indemnity costs
2015 case note - Supreme Court awards indemnity costs in relation to Trinity Scheme - provable debt, indemnity costs, collateral attack, abuse of process.
This is a costs judgment following the Supreme Court's earlier decision on 2 December 2014 to dismiss three related applications for leave to appeal. The appellants in each appeal were investors in the Trinity tax avoidance scheme.
The Commissioner of Inland Revenue ("the Commissioner") (and others) applied for indemnity costs. Those applications were complicated by the bankruptcy and liquidation of a number of the appellants.
The Supreme Court noted that the established position in New Zealand is that costs made after adjudication in bankruptcy in respect of proceedings which had been commenced before adjudication were not provable in bankruptcy. The Supreme Court (following a recent English authority) reversed that position and held that costs awards following adjudication can be provable as a contingent liability. The judgment is also notable for the fact that the Supreme Court took the unusual step of awarding indemnity against the appellants.
The impacts of the decision are as follows:
- For Trinity investors, bringing litigation that is an abuse of process or a collateral attack on the Supreme Court judgment(s) in Trinity will likely lead to an award of indemnity costs in favour of the Commissioner.
- For an individual, court costs awarded after bankruptcy, where the proceedings commenced prior to the adjudication in bankruptcy, are a debt provable in the bankruptcy.
- For a company, court costs awarded after being placed into liquidation, where the proceedings commenced prior to the appointment of a liquidator, are a debt provable in the liquidation.
This case concerned the judgment of the Supreme Court delivered on 2 December 2014 dismissing three related applications for leave to appeal. All the appellants were investors in the Trinity tax avoidance scheme.
The Judicial Conduct Commissioner, Justice Venning and the Commissioner subsequently applied for indemnity costs. Complicating the determination of those applications was the bankruptcy and liquidation of a number of the appellants.
Costs in respect of SC 90/2014 - Accent Management Ltd
Both the High Court and Court of Appeal awarded indemnity costs against the appellant. The Supreme Court considered that for the same reasons given by those courts, and by the Supreme Court in refusing leave, an award of indemnity costs is warranted in favour of the Commissioner.
Costs in respect of SC 87/2014 and SC 103/2014 - Messrs Bradbury and Peebles
Debts provable in the bankruptcy
A series of English cases had held that an order for costs made after adjudication in bankruptcy in respect of proceedings that had been commenced before adjudication were not provable in bankruptcy.
These English cases were recently overruled by the Supreme Court of the United Kingdom in Re Nortel GmbH ( UKSC 52,  AC 209) ("Nortel"). That judgment focused primarily on a rule that the New Zealand Supreme Court considered very similar in expression to s 232(1) of the Insolvency Act 2006. It was found in Nortel that an order for costs made against a company in liquidation, made in proceedings begun before it went into liquidation, is provable as a contingent liability.
The New Zealand cases proceeded on the basis that costs awarded after adjudication in bankruptcy are not provable in the bankruptcy. This has been so in relation to both s 232 of the Insolvency Act 2006 and (on a historical note) s 87 of the Insolvency Act 1967. The New Zealand courts simply followed, directly or indirectly, the English cases which have now been overruled by Nortel.
The Official Assignee accepted that Nortel should be regarded as the controlling authority and the Supreme Court was satisfied that the approach in Nortel should now be followed in New Zealand.
The Court held that indemnity costs are appropriate given what was proposed was a collateral attack on its judgment in Ben Nevis Forestry Ventures v Commissioner of Inland Revenue ( NZSC 115,  2 NZLR 289).
The Court held that the proceedings were an abuse of process and an order for indemnity costs was appropriate.
Insolvency Act 2006