100 Investments Limited v IAG New Zealand Limited

[2019] NZHC 535

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2016-409-888

[2019] NZHC 535

BETWEEN

100 INVESTMENTS LIMITED for itself and in the name of LICHFIELD VENTURES LIMITED

Plaintiff

AND

IAG NEW ZEALAND LIMITED

Defendant

On the papers

Counsel:

P W Michalik for Plaintiff

K C Francis for Liquidator of Lichfield Ventures Limited (in liq)

Judgment:

22 March 2019

JUDGMENT OF THOMAS J (COSTS)

[1]    In 2016, 100 Investments Limited (100 Investments) began proceedings against IAG New Zealand Limited (IAG) in respect of an insurance claim. The claim related to property owned by 100 Investments but previously owned by Lichfield Ventures Limited (Lichfield) which was damaged by the 2010/2011 Canterbury earthquakes (the Property). In late-2018, a settlement was reached, subject to a formal determination of this Court, as to the entitlement of 100 Investments to receive the insurance proceeds. IAG did not oppose 100 Investments’ claim in this regard and a hearing took place in November 2018, essentially on a formal proof basis as IAG did not seek to be heard.

[2]    Following the hearing, the liquidator for Lichfield (the Liquidator) requested certain information about the proceeding from IAG and filed submissions with the

100 INVESTMENTS LIMITED v IAG NEW ZEALAND LIMITED [2019] NZHC 535 [22 March 2019]

Court raising issues as to 100 Investments’ entitlement to the insurance proceeds. Judgment was eventually given for 100 Investments, who now seeks costs against the Liquidator.1

Background

[3]    The Property was owned by Lichfield, which was placed into liquidation on 16 December 2010. 100 Investments’ claim was based on its rights as the registered proprietor  of  the  Property  following  a  mortgagee   sale.   In   the   alternative,  100 Investments relied on its rights under a general security agreement, being the first registered security agreement under the Personal Property Securities Register in respect of Lichfield’s personal property. As mortgagee in possession of Lichfield’s personal property, 100 Investments also purported to bring proceedings in the name of Lichfield.

[4]    Following the formal proof hearing, the Liquidator approached IAG recording the Liquidator’s position that he did not accept that 100 Investments was entitled to exercise any rights or claims in the name of Lichfield; 100 Investments was not authorised to provide a good discharge of any obligations owed by IAG to Lichfield; no agreement was binding on Lichfield except with the Liquidator’s express consent; and that the Liquidator reserved his rights against IAG in the event any funds to which Lichfield was entitled were paid to third parties, including 100 Investments, without his knowledge and consent.

[5]    Counsel for IAG, Mr Till QC, informed the Court that IAG had previously received a notice from the Liquidator under s 261 of the Companies Act 1993, requesting certain information about the proceeding. Mr Till informed the Court that the requested information was provided on 10 September 2018. This included the relevant insurance policy and copies of the pleadings, including their current status and the fact it was scheduled for trial commencing on 5 November 2018. Mr Till noted in his memorandum that, as the Liquidator was aware of the proceeding and trial date in September 2018, IAG had anticipated, if the Liquidator intended to pursue any

1      100 Investments Limited v IAG New Zealand Ltd [2018] NZHC 3244.

issues regarding 100 Investments’ entitlement, it would have taken steps to do so before the hearing on 5 November 2018.

[6]    Counsel for 100 Investments immediately filed a memorandum with the Court objecting to the Liquidator’s actions. Mr Michalik noted that the Liquidator had not applied to be joined as a party, nor otherwise sought to become involved before the Court.

[7]The Liquidator responded by memorandum to the Court, saying:

8. The Liquidator, on behalf of creditors of [Lichfield] other than 100 Investments, wishes to have an opportunity to consider the material and determine whether to provide brief submissions to the Court as to the entitlement of 100 Investments to [Lichfield]’s property. This is particularly important as the Court does not appear to have received the views of any contradictor in relation to the orders sought.

[8]    The Liquidator then requested copies of the material before the Court and an opportunity to consider whether he wished to make any submissions and/or bring the issue to the attention of any other secured creditors. The Liquidator sought directions accordingly. Again, Mr Michalik objected on behalf of 100 Investments, repeating that there was no application for the Liquidator to become a party and noting he had not provided an address for service.

[9]    I convened an urgent teleconference on 15 November 2018, as a result of which counsel for 100 Investments and for the Liquidator were requested to confer, with the Liquidator to file and serve a memorandum if he wished to pursue any matter.

[10]   By memorandum dated 20 November 2018, the Liquidator raised two issues, both of which, in his submission, might have impacted on other secured and unsecured creditors. The first issue was the extent of 100 Investments’ rights as an assignee of Lichfield’s mortgagee. The second issue concerned 100 Investments’ entitlement to retain the settlement proceeds.

[11]Mr Michalik filed a memorandum addressing those issues.

[12]   By my judgment of 11 December 2018, I discussed the issues raised by the Liquidator but concluded I was satisfied 100 Investments was the party entitled to the proceeds of the insurance claims under Lichfield’s insurance policies in respect of the Property.2

[13]   The settlement between 100 Investments and IAG recorded there was no issue as to costs in the proceedings. 100 Investments had requested to be heard in respect of costs incurred as a result of the Liquidator’s actions.

[14]   100 Investments now seeks costs against the Liquidator in his personal capacity on an indemnity basis. The Liquidator opposes this course, submitting that costs should lie where they fall.

[15]   Subsequent to my judgment, the second ranking secured creditor applied for, and was granted, an interim injunction preventing IAG disbursing the full settlement sum to 100 Investments on the basis it had an entitlement to any sums in excess of the first mortgagee’s priority sum.3

The law

[16]   Costs are at the discretion of the Court, qualified by the principles in the  High Court Rules (the Rules).4 The intent of the Rules is to provide reliable and expeditious costs decisions and to do justice to the parties.5 The general principle is that costs follow the event unless particular considerations indicate otherwise.6

[17]Rule 14.6 governs the awarding of increased and indemnity costs:

2      100 Investments Ltd v IAG New Zealand Limited, above n 1, at [23]–[46].

3      PVG Securities Trustee Ltd v IAG New Zealand Limited HC Auckland CIV-2018-404-002838, 21 December 2018 (Minute).

4      High Court Rules 2016, r 14.1(1)–(2); and Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7]–[8].

5      High Court Rules 2016, r 14.2(1)(g).

6      Rule 14.2(1)(a); and Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].

14.6     Increased costs and indemnity costs

(1)Despite rules 14.2 to 14.5, the court may make an order—

(a)increasing costs otherwise payable under those rules (increased costs); or

(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

…

(3)The court may order a party to pay increased costs if—

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)The court may order a party to pay indemnity costs if—

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[18]   Bradbury v Westpac Banking Corp is the leading case on increased and indemnity costs and the principles outlined in that judgment have recently been confirmed by the Court of Appeal.7 In Bradbury, the Court of Appeal described increased costs as warranted where “there is failure by the paying party to act reasonably” and indemnity costs “where that party has behaved either badly or very unreasonably”.8 Specifically, the Court identified the following circumstances where indemnity costs have been ordered:9

(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings for some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law;

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless  contentions,  summarised  in French J's “hopeless case” test.

Costs against an intervener

[19]   In Earthquake Commission v Insurance Council of New Zealand, a full Bench of the High Court addressed costs following its judgment concerning the scope of statutory cover available under the Earthquake Commission Act 1993 and the validity of a policy developed by the Earthquake Commission for dealing with claims arising out of increased flooding vulnerability.10 All parties had agreed that costs should lie where they fell. The interveners took a different position, seeking an order requiring

7      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400; and Ben Nevis Forestry v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322.

8 At [27].

9 At [29].

10     Earthquake Commission v Insurance Council of New Zealand Inc [2015] NZHC 457.

the Commission to pay costs to them. The application was made pursuant to s 99A of the Judicature Act 1908. Like the High Court Rules, s 99A confers a broad discretion on the Court in relation to costs. In the decision, the full Bench noted the discretion must be exercised on a principled basis and the inquiry will depend upon the particular circumstances. In relation to whether an order under s 99A was appropriate, the Court outlined the following factors:11

(a)whether the case involves a matter of substantial public importance;

(b)whether the intervener represents a field of interest relevant to the proceeding beyond their private or personal viewpoint;

(c)whether the intervener provided material assistance to the Court by presenting evidence or submissions on an issue or issues not adequately covered by the other parties or at all;

(d)whether any of the principles guiding  a  costs  award  under  the  High Court Rules may be applicable by analogy.

[20]   The cases canvassed by the High Court in that decision all concerned an intervener’s application for costs against a party. In the event, the High Court declined to make an order for costs in favour of the interveners in the circumstances.

[21]   In Wallace Corp Ltd v Waikato Regional Council,12 the successful party, Waikato Regional Council, sought costs against the intervener, URS NZ Limited, on grounds including that the involvement of the intervener increased the complexity of the case.13 However, the Court of Appeal declined to award costs against the intervener, saying:

[6] As to the involvement of URS as an intervener, it had a legitimate interest in the outcome of the appeal. Its presence at the appeal did not add materially to the length of the appeal, or to the extent of the preparation required of the Council, as the submissions of the appellants and URS were

11 At [6].

12     Wallace Corp Ltd v Waikato Regional Council [2011] NZCA 350.

13 At [4].

complementary rather than repetitive. Again, URS did not raise vexatious or frivolous points.

[22]   The ultimate task of the Court is to make an assessment of overall justice as between the particular parties, in the particular circumstances. Relevant to this assessment is, inter alia, whether and in what manner the parties participated in the proceedings.

The application for costs

[23]   100 Investments’ application is on the basis that it seeks compensation from the Liquidator for the additional costs occasioned by his informal application to intervene in the proceedings. 100 Investments notes that the arguments raised by the Liquidator were unsuccessful and therefore, as the successful party, seeks costs on a full indemnity basis.

[24]   100 Investments submits that the Liquidator sought to intervene in his own name and not in the name of Lichfield. This, therefore, distinguishes the Liquidator’s conduct from a case where the liquidator is acting merely as an agent for the company in relation to litigation concerning the company’s rights or properties. This case falls into a different category where the liquidator is required or chooses to bring a proceeding or application in his or her own name.14 In such a case the liquidator is personally liable for any adverse award of costs should his or her application be unsuccessful and liability is not limited by the assets of the company.15

[25]   In support of his submission that the Liquidator sought to intervene in his own name, Mr Michalik points out that both memoranda filed by counsel for the Liquidator are described as filed on behalf of Mr Walker, the Liquidator, and not on behalf of Lichfield. The address for service was that of the Liquidator. Further, the Liquidator’s initial application for access to the Court file was presented as an adjunct to his request to IAG under s 261 of the Companies Act 1993. Such a request is pursuant to a

14 See Andrew Beck and others  Morison’s  Company Law (online looseleaf ed, LexisNexis) at  [55.23], where the learned authors contrast cases such as Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 124, [2011] 2 NZLR 25 with cases such as Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274; Asia Pacific Hotel Investments Ltd v Grant [2015] NZHC 1460; and CP Asset Management Ltd v Grant [2012] NZHC 2573.

15     Morison’s Company Law, above n 14, at [55.23], n 4.

liquidator’s rights rather than being a right of the company in liquidation. Finally, the initial justification for the Liquidator’s intervention was because 100 Investments was purporting to sue in the name of Lichfield and the Liquidator’s position was that his consent as Liquidator was required.

[26]   I accept Mr Michalik’s submissions in this regard. I also accept his submission that, as the Liquidator’s involvement progressed, the focus moved to his concern that the settlement sum might exceed the first mortgagee’s priority and that this may impact on other creditors, including secured creditors. Those issues, arguably, are not the concern of Lichfield.

[27]   I do not understand the Liquidator to take any real issue with this aspect of 100 Investments’ application for costs. He instead submitted that special considerations apply to awarding costs against a liquidator personally when acting in pursuit of his or her statutory obligations to investigate the affairs of a company and identify and collect any assets.

Costs against an intervener

[28]   While the Liquidator takes issue with his memorandum being treated as an informal application to intervene, contending it was limited to seeking documents which would enable him to determine whether to take further steps, he says he is content to approach the matter broadly on this basis.

[29]   I make two observations on this comment. Although the Liquidator initially appeared to limit his request to the provision of documents, once some were disclosed and counsel had discussed the matter with Mr Michalik, the Liquidator’s approach became significantly more wide-ranging. Furthermore, the importance of hearing from the Liquidator given “the Court does not appear to have received the views of any contradictor” was raised in the first memorandum from counsel for the Liquidator.

[30]   For these reasons, I am satisfied it is appropriate (as in any event the Liquidator concedes) to consider the Liquidator’s position as analogous to that of an intervener.

Should an award of costs against the Liquidator be made?

[31]   Counsel for the Liquidator submits the key question is whether it is appropriate for the Court to award costs against the Liquidator in circumstances where the Liquidator has simply filed a memorandum with the Court, without being served with proceedings. The purpose of the memorandum was to alert the Court to the interests of other parties,  specifically  creditors  of  Lichfield,  and  potential  issues  with  100 Investments’ claimed entitlement to the exclusion of other creditors.

[32]   There is no doubt that the steps taken by the Liquidator were taken with the purpose of seeking to raise issues in fulfilment of what the Liquidator had already identified as the need for a contradictor.

[33]   The Liquidator refers to the decision of Re Osborne and submits that, unlike in that case, there was no indication here that the Liquidator would potentially be liable for costs.16 Re Osborne is not authority for the proposition that, absent any such indication from the Court, an intervener will not be liable for costs. The Liquidator is clearly a seasoned litigator and it would be disingenuous to suggest that he did not appreciate the potential of an adverse costs award.

[34]   In this case, the Liquidator was aware, on the basis of the information provided to him by IAG in September 2018, that the hearing was scheduled for 5 November 2018. He was certainly aware of the proceedings and, in any event, had the ability to check the status of them direct with the High Court. I have some disquiet about the way in which the Liquidator chose to seek to intervene in these proceedings, that is by not raising any issue until after the hearing. That is a course of conduct which is not to be encouraged, whatever the merits of the Liquidator’s intentions.

[35]   I also note that the issues raised by the Liquidator broadened rather than narrowed, as discussed above, particularly in the way in which the argument concerned potential rights of secured creditors. The Liquidator refers to what he maintains is his role of oversight. In support of this he refers to Petterson v Gothard

16     Re Osborne [2018] NZHC 546, 24 PRNZ 12.

(No 3).17 The comments in that case, however, were in the context of the Liquidator’s role as against that of a receiver.

[36]   Therefore, I do question the Liquidator’s interest in the proceedings and discuss this in more detail below, specifically when addressing the disclaimer of an interest in the Property. The Liquidator’s attempted intervention did add to the length of the proceeding, coming as it did after the hearing had closed. It also required additional research by, and submissions from, Mr Michalik, again discussed in more detail below. In light of these matters and considering the guidance of other cases discussed above, it is in my view appropriate to award costs against the Liquidator.

Which category of costs is appropriate?

[37]   Having decided that the Liquidator is liable for costs, the next issue is the level of those costs. 100 Investments applies for costs on an indemnity basis, with increased costs sought as an alternative. The application is on the basis that the Liquidator’s attempted intervention was so unnecessary it should never have been brought. Furthermore, that the Liquidator’s actions were improper.

Intervention obviously hopeless

[38]   Mr Michalik submits it should have been obvious to the Liquidator that issues between mortgagees were not relevant to 100 Investments as a bona fide purchaser of the Property for value. In response to this, the Liquidator notes that the second ranking secured creditor, via a trust to which its rights have been assigned, has been granted an interim injunction preventing IAG from disbursing  the full settlement sum to  100 Investments on the basis it has an entitlement to sums in excess of the first mortgagee’s priority sum.18     That being so, there is clearly an arguable case, in     Mr Francis’ submission on behalf of the Liquidator, and the Liquidator’s approach cannot be considered obviously hopeless. I accept that proposition.

17     Petterson v Gothard (No 3) [2012] NZHC 666 at [46]–[48].

18     PVG Securities Trustee Ltd v IAG New Zealand Limited, above n 3.

The Liquidator’s disclaimer in respect of the Property

[39]   Of more import is Mr Michalik’s submission that it was improper for the Liquidator to argue he should be involved in the proceedings in respect of insurance proceeds involving the Property without disclosing to the Court that the Liquidator’s predecessor had disclaimed the Property in its entirety. This occurred in January 2011.

[40]   It comes as quite some surprise that the Liquidator did not inform the Court of this disclaimer. The subject of the proceedings was insurance proceeds in respect of the Property. It was a matter of significant relevance that the Liquidator had disclaimed any interest in the Property. The Liquidator tries to absolve himself of any responsibility in this regard, disputing he had a duty of disclosure on the basis he was simply seeking access to the Court documents. Further, he maintains that it was reasonable to assume the information was already before the Court, particularly given 100 Investments was claiming in the name of Lichfield and that the disclaimer in respect of the Property did not necessarily impact on insurance rights.

[41]   At the first teleconference held following the Liquidator’s attempted intervention, it was made clear that the real basis of 100 Investments’ claim was as owner of the Property as a result of the mortgagee sale. As noted in my judgment,19 the ADLS standard form of mortgage includes an obligation on the mortgagor to insure the property, as well as providing that the mortgagor assigns to the security holder absolutely its rights in proceeds of insurance. The terms of the original liquidator’s disclaimer included:

On 22 December 2010 we disclaimed these assets as there was no equity nor income available for the creditors.

[42]   It was therefore clear that the Liquidator had no interest in the Property, including the insurance proceeds.

[43]   The Property suffered damage in  the  earthquakes  of  4  September  2010, 26 December 2010 and 22 February 2011, and was not demolished until March 2012. The original liquidator had therefore disclaimed any interest in the Property two years

19     100 Investments Limited v IAG New Zealand Limited, above n 2, at [35].

prior to its demolition and after the first earthquake damage, the cost of which was estimated at only $206,140.20 The Liquidator cannot possibly, therefore, have had any interest in the insurance proceeds.

[44]   That was a material fact which should have been brought to the Court’s attention.

Steps covered

[45]   In Mr Michalik’s submission, the Liquidator should also be responsible for the costs incurred by 100 Investments in attending and arguing the formal proof hearing. In his submission, “[i]t is now evident that the [L]iquidator’s unjustifiable claims significantly influenced [IAG] in its reluctance to confirm a “clean” settlement without involving the Court”. Mr Michalik refers to the Liquidator’s “behind the scenes campaign” which led to the need for a formal proof hearing. He points out that, prior to the hearing, the Liquidator chose to limit his attempts to become involved by corresponding only with IAG and not revealing any claim to an interest to either   100 Investments or the Court. It was only once the hearing had concluded that the Liquidator then attempted to intervene.

[46]   Mr Michalik submits that, if the Liquidator’s claim had been made openly at an earlier stage, the issue could have been resolved and the parties saved the costs of a formal proof hearing. He also says that the lateness of the Liquidator’s attempted intervention deprived 100 Investments of the chance to obtain security for costs by way of a Calderbank letter.

[47]   In submissions in reply, Mr Francis objects to these allegations, saying they are baseless. Mr Francis says the Liquidator simply requested that IAG provided relevant information. Further, in Mr Francis’ submission, increased or indemnity costs are awarded to reflect parties’ conduct in a proceeding, not to punish or reward conduct before becoming involved.

20     GST exclusive.

[48]   Mr Michalik also raises an issue as to the Liquidator’s attempt to explain his motivation, at least in part by what he describes as “concerns” about Mr David Henderson. Mr Michalik points out that Mr Henderson is neither a shareholder nor director of 100 Investments and suggests the Liquidator has embarked on something of a campaign against Mr Henderson personally. This amounts, in his submission, to bad faith.

[49]   The Liquidator’s response is to point out that Mr Henderson was a former director of Lichfield and its parent company and other entities in the group and “is associated” with 100 Investments. He notes there are separate proceedings whereby Mr Henderson and others have applied to have the Liquidator removed as liquidator of Lichfield and several other companies. He submits these issues will appropriately be resolved in those separate proceedings.

[50]   I have no knowledge of the separate proceedings or any detailed knowledge of Mr Henderson. As such, I put the Liquidator’s submissions about Mr Henderson to one side when he first raised them and continue with that approach.

[51]   A total of $6,746, excluding GST, is claimed in respect of costs for the formal proof hearing. Pursuant to the settlement agreement, 100 Investments and IAG each agreed to bear their own costs. The Liquidator says, as he was neither involved in nor party to the formal proof, nor provided with the papers, nor given an opportunity to be heard, there is no authority which could justify costs being awarded against the Liquidator in respect of the formal proof hearing. I agree.

[52]   It cannot be more than speculation to say that the Liquidator influenced IAG in respect of the settlement. I also note that 100 Investments and IAG asked the Court to approve and make orders in connection with the terms of settlement. That included asking the Court to confirm 100 Investments’ entitlement to the insurance proceeds. In the absence of evidence, I was not prepared to make that order and a formal proof hearing was required.

[53]   For these reasons, 100 Investments is not entitled to costs against the Liquidator in connection with the formal proof hearing.

Role of the Liquidator

[54]   Mr Michalik submits that any oversight role the Liquidator might have cannot be allowed to become an excuse for him to seek to involve himself in matters which cannot benefit those whom it is the Liquidator’s duty to represent – the unsecured creditors and shareholders of Lichfield. He submits that, to allow the Liquidator to pursue issues affecting only secured creditors when those secured creditors have not pursued those issues themselves, risks converting the Liquidator’s potential oversight role into “an excuse to churn fees at the expense of the general body of unsecured creditors, through involving himself in additional litigation, where that additional litigation cannot result in any advantage to that general body of unsecured creditors, although they will inevitably bear the expense … ”.

[55]   I have already briefly referred to the Liquidator’s claim of having a general oversight role. A costs decision, in the absence of detailed submissions on this aspect, is not the appropriate forum for an analysis of a liquidator’s duties. I therefore confine myself to the observations made already on this aspect, made even more relevant given the disclaimer of the Property.

Consent to use of the name of Lichfield

[56]   Mr  Michalik notes the issues first raised by the Liquidator in his letter of     8 November 2018 to IAG included the submission that the Liquidator had the right to control the use of the name of Lichfield in litigation and he should have been given notice of the proceeding involving its name. He then points out that that matter was not pursued.

[57]   The Liquidator stresses what he says is a clear and understandable interest in the use of Lichfield’s name to recover sums potentially owing  to it.  He refers to  100 Investments’ alternative claim that it was entitled to sue on Lichfield’s rights and therefore in its name, thereby engaging s 248 of the Companies Act.

[58]    Mr Michalik submits that s 248(1)(c) of the Companies Act applies to ensure that a liquidator’s consent or leave of the Court is required to commence or continue

legal proceedings “in relation to the property of the company”. He then says, given the Liquidator’s disclaimer of the Property, no consent or leave was in fact required.

[59]   Mr Michalik points to authority to the effect that a receiver appointed by a security holder who takes action in the name of a company to realise its security has been held to be taking action in respect of the security-holder’s own secured property. The receiver continues to enjoy the power to litigate in the company’s name as a means of enforcing the rights of a secured creditor but, unless an order in respect of the litigation has been obtained, any liabilities incurred are claimable as against the receiver rather than the company.21

[60]   As with my observations on the role of a liquidator, this is not the appropriate forum for a detailed analysis of the effect of s 248 of the Companies Act. It can fairly be said that a liquidator would want to know about any litigation commenced in the name of the company in liquidation. The question, though, is whether, having received appropriate information, the Liquidator should have pursued his concerns. In the circumstances as discussed, I am not satisfied he should have.

Indemnity or increased costs?

[61]   The Liquidator claims any costs should be on a 2B basis for the steps of attendance at a (less than) 30-minute judicial telephone conference on 15 November 2018 and filing a four page memorandum dated 26 November 2018. This would amount to $1,338.00.

[62]   I have outlined my concerns about the approach of the Liquidator in this case. The test for indemnity costs requires a person to have acted “vexatiously, frivolously, improperly, or unnecessarily”.22 This requirement is informed by the case law which generally involves a level of what might be described as outrageous or egregious conduct, for example unsupported allegations of fraud, wilfully disregarding known facts or clearly established law.23 I am not satisfied the Liquidator’s actions met this

21 Sowman v David Samuel Trust Limited [1978] 1 All ER 616 (Ch) and Peter Blanchard and Michael Gedye The Law of Private Receivers of Companies in New Zealand (3rd ed, LexisNexis, Wellington, 2008).

22     High Court Rules 2016, r 14.6(4)(a).

23     Bradbury v Westpac Banking Corp, above n 7, at [29].

test. In saying this, the Liquidator claims his intervention was only to seek access to relevant facts, evidence and submissions. That might have been the case initially but the memorandum of 20 November 2018 did significantly more than that, as already discussed.

[63]   While indemnity costs are not appropriate, I am of the view that increased costs are appropriate. The reasons for this include that the intervention took place after the hearing, the fact the Liquidator had disclaimed an interest in the Property before the demolition of the buildings but did not reveal this to the Court, and that the real focus of the Liquidator’s submissions sought to protect the interests of secured creditors. That was a failure to act reasonably.

[64]100 Investments says its costs in respect of the Liquidator’s intervention total

$9,900 excluding GST. It also seeks $3,825 excluding GST in connection with the application for costs.

[65]   The Court has a discretion to award costs in relation to the preparation of memoranda in support of costs.24

[66]   The Liquidator criticises the costs incurred by 100 Investments as plainly excessive and not relating to any hearing before the Court. In his initial memorandum, Mr Michalik had incorrectly referred to 22 hours of preparation, travel and attendance for a one day hearing. He explained in a later memorandum that that was incorrect and an error made as a result of copying and pasting a previous entry. He confirmed, however, that the application was for 22 hours’ preparation and attendance time. I am not persuaded that this was excessive. Mr Michalik explains that:

… The time spent arises from the need to understand what was going on, advise the client, take instructions, prepare the 3 memoranda filed on behalf of [100 Investments] (two before and one following the telephone hearing) and to prepare for and appear at the telephone hearing itself.

[67]   Mr Michalik notes that the steps required as a result of the Liquidator’s attempted intervention were unique to this matter. I consider that a fair observation.

24     Harley v Registrar-General of Land HC Wellington  CIV-2009-485-2167, 23 September 2010  at [6]; and Bloor v IAG New Zealand Ltd HC Rotorua CIV-2004-463-425, 3 February 2011 at [29].

[68]   The matters raised by the Liquidator changed during the course of his attempted intervention and, I accept, would have required a considerable amount of work by counsel. This occurred after having been somewhat blindsided by the Liquidator’s approach. Given the formal proof hearing had already taken place, and given the amount at stake, counsel would have been required to research thoroughly and address the issues raised by the Liquidator. In those circumstances, I do not consider 22 hours excessive. The application for costs was as a consequence of the Liquidator’s unexpected attempt to intervene. As is evident from the submissions, Mr Michalik put quite some effort into them, including addressing the Liquidator’s disclaimer of the Property, researching personal liability for costs of a liquidator, as well as the law around the power to conduct legal proceedings during a liquidation. I take all of this into account when assessing the level of increased costs.

[69]   Increased costs are warranted when there is a failure by the paying party to act reasonably. As already articulated, I do not consider the Liquidator acted reasonably in this matter. Costs of $8,000 excluding GST are awarded to 100 Investments.

Result

[70]   For the reasons given, costs of $8,000 excluding GST are awarded to 100 Investments.

Thomas J

Solicitors:

Canterbury Legal, Christchurch for Plaintiff Young Hunter, Christchurch for Defendant Meredith Connell, Auckland for Liquidator