Alexander v Wetherell HC Auckland CIV 2009-404-7781
[2010] NZHC 1281
•28 July 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-7781
IN THE MATTER OF CEDENCO FOODS LTD (IN RECEIVERSHIP) AND CEDENCO OHAKUNE LTD (IN RECEIVERSHIP)
BETWEEN NEAL LIONEL ALEXANDER AND ORS Applicants
ANDMAYNE WETHERELL AND ORS Respondents
Hearing: (on the papers)
Counsel: D J Chisholm and J P Nolen for Applicants
R J Hollyman for First Respondents
M R Crotty and S P Pope for Second Respondents
T G J Allan for Third Respondent
P J Wright for Fourth and Fifth Respondents
Judgment: 28 July 2010
JUDGMENT OF HEATH J
This judgment was delivered by me on 28 July 2010 at 4.00pm pursuant to Rule 11.5 of the High
Court Rules
Registrar/Deputy Registrar
Solicitors:
Mayne Wetherell, PO Box 3797, Auckland
Russell McVeagh, PO Box 8, Auckland
Lowndes Associates, PO Box 7311, Auckland 1141
Grove Darlow, PO Box 2882, Auckland
Counsel:
R J Hollyman, PO Box 4338, Shortland Street, Auckland 1140
D J Chisholm, PO Box 2629, Shortland Street, Auckland 1140P J Wright, PO Box 4338, Shortland Street, Auckland
ALEXANDER AND ORS V MAYNE WETHERELL AND ORS HC AK CIV 2009-404-7781 28 July 2010
The application
[1] Mayne Wetherell (a firm of solicitors), Messrs Gibson and Stiassny (the receivers of Cedenco Foods Ltd (in receivership) and Cedenco Ohakune Ltd (in receivership))[1], Mr Lawrence (a former Executive Director of the Cedenco NZ companies), Mr Chrisp and Mr Frankish (Executives of the Cedenco companies in New Zealand), seek costs on the discontinuance of (what was, in effect) an application for pre-proceeding discovery made against them by Mr Alexander (a director of Cedenco companies in Australia) and others having similar interests. Mr Alexander also purported to act in his capacity as a director of the Cedenco NZ
companies.
[1] For convenience, I refer to Messrs Gibson and Stiassny as “the receivers” and the two companies in receivership as the “Cedenco NZ companies”.
[2] The application was filed on 25 November 2009. The applicants sought permission to commence the proceeding by way of originating application,[2] as well as orders requiring the five respondents to make available for inspection by Mr Alexander (on behalf of all applicants) specified documents and records of the two Cedenco NZ companies. Other documents evidencing communications between those companies’ financiers and one or more of the respondents were also sought.
[2] High Court Rules, r 19.5(c).
[3] The application was first called before Allan J, on 30 November 2009. The Judge indicated there was “an underlying question as to the entitlement of the applicants to gain access to the documents to enable them, as directors of the companies concerned, to promote a buy-out of the companies in receivership”.[3] The Judge also recorded a preliminary submission that the application was not one suitable for the originating application procedure.
[3] Alexander v Mayne Wetherell HC Auckland CIV 2009-404-7781, 30 November 2009 (Allan J) at para [1].
[4] The application came before Woodhouse J, on 9 December 2009. Having regard to the nature of the allegations raised in Mr Alexander’s affidavit (including suggestions of breach of fiduciary obligations), the Judge considered there were
“some serious issues raised” about whether the originating application procedure was appropriate.[4] The Judge adjourned the procedural question for a hearing of one half day early in the 2010 judicial year.
[4] Alexander v Mayne Wetherell HC Auckland CIV 2009-404-7781, 9 December 2009 (Woodhouse J)
at para [2].
[5] A fixture was allocated for 9 March 2010 but vacated by consent on 2 March
2010, with the Registrar being directed to allocate a further date after 16 April 2010. A further hearing date was fixed for 13 May 2010. Shortly before that date, Hugh Williams J gave leave to discontinue the proceeding, save as to costs. The Judge made timetabling directions with regard to the filing and service of memoranda on costs.
[6] Costs have been sought by all respondents, albeit on different bases. The Registrar has referred the memoranda to me to determine questions of costs. No submissions have been filed on behalf of Mr Alexander, Mr Collins and SK Foods International Ltd, being those parties against whom costs have been sought.
What costs have been sought?
[7] The presumptive position is that costs will be awarded in favour of a defendant/respondent when a proceeding is discontinued.[5] While the Court will not usually embark on a consideration of the merits of the substantive proceeding, the presumption may be displaced if there are circumstances that render it just and equitable not to apply it.[6]
[5] High Court Rules, r 15.23.
[6] Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (2008) 18 PRNZ 973 (CA) at [12].
[8] The grounds on which Mayne Wetherell seek costs are:
a) The proceedings are of average complexity requiring counsel of skill and experience considered average in the High Court, with a comparatively large amount of time for each particular step being considered reasonable. The costs sought at $18,240.
b) A 50% uplift from the usual scale is needed to reflect the applicants’
conduct of the proceedings.[7]
[7] See High Court Rules, r 14.6.
c) The application lacked merit.
d)The proceedings were inappropriately commenced by way of originating application; because to grant this application for leave would not have served the “interests of justice”.[8]
[8] Ibid, r 19.5(1).
e) The applicants were slow to engage in negotiations to dispose of the proceedings.
f) The proceedings were improperly brought in the name of the Cedenco
NZ companies.[9]
In summary, the receivers seek costs in the sum of $27,360 ($18,240 + 50%).
[9] While it is unnecessary to determine this point, there is some authority for the view that Mr Alexander was entitled to exercise residual powers as a director for that purpose: see Paramount Acceptance Co Ltd v Souster [1981] 2 NZLR 38 (CA) at 43.
[9] Mayne Wetherell seek costs on much the same basis as do the receivers. They claim total costs of $13,440 and seek an uplift of 50% from scale. In summary, Mayne Wetherell submits that an award of costs in the sum of $20,160 ($13,440 plus a 50% uplift) is appropriate.
[10] Mr Lawrence seeks costs of $8,640, calculated on a 2B basis, with a 50% uplift for the reasons given by the receivers. The lesser scale rate is sought because, as a director and employee, he was unlikely to have in his possession documents which were not held by either or both of the Cedenco NZ companies.
[11] Mr Chrisp and Mr Frankish seek costs on a 2B basis. In passing, their counsel submits there may be grounds for an award of increased or indemnity costs. I am not prepared to entertain those alternative possibilities, given the more limited involvement each of those parties had in the proceeding.
Analysis
[12] In the absence of any submissions from counsel for the applicants, I am not persuaded that the presumption should be displaced. That leaves only quantum to be determined.
[13] The precise jurisdictional basis for the inspection orders sought is confused. In the originating application, reliance was placed on ss 179(1) and 191 of the Companies Act 1993 and s 34 of the Receiverships Act 1993.
[14] Section 179(1) of the Companies Act permits a “shareholder or creditor of a company” to apply for an order authorising a named person to inspect and to make copies of, or take extracts from, specified records or other documents of the company. Of the five applicants only SK Foods International Ltd, the sole shareholder of the Cedenco NZ companies, has standing to bring an application of that type. On the face of s 179(1), the only parties who could be subjected to such an order are the Cedenco NZ companies. The reasonable costs of a s 179 inspection
must be met by the company concerned “unless the Court orders otherwise”.[10]
[10] Companies Act 1993, s 179(6).
[15] Section 191 of the Companies Act 1993 entitles a director, on reasonable notice, to inspect the records of a company in written form, without charge and at a reasonable time specified by the director.[11] While the Court has jurisdiction to prevent a director from inspecting records, it has no express authority to order that he or she do so.[12] While it is possible that other enforcement provisions of the Companies Act[13] might be available, no reliance was placed on any of those provisions, other than s 179.
[11] Ibid, s 191(1).
[12] Ibid, s 191(2).
[13] Ibid, ss 163-179.
[16] Section 34 of the Receiverships Act 1993 deals with Court supervision of receivers. It is doubtful whether any order of the type sought by Mr Alexander and his co-applicants could be made under that provision.
[17] The content of the originating application suggests that what was sought was something more akin to an order requiring discovery of particular documents before a proceeding is commenced.[14] Had such an application been made under that procedure, a Judge of this Court has power to order an intended defendant to make discovery of documents and to make them available for inspection.[15] An order may not be made under r 8.25 unless the Court were “satisfied that the order is necessary at the time when the order is made”.[16] It would have been necessary for the documents (or classes of documents) to be identified with greater specificity than was done in this case.
[14] High Court Rules, r 8.25.
[15] Ibid, r 8.25(2).
[16] Ibid, r 8.25.
[18] Almost inevitably, if an order had been made under r 8.25(2), a Judge would have ordered that the parties expenses be paid, possibly including solicitor and client costs.[17]
[17] Ibid, r 8.35.
[19] Viewed in the analogous context of a pre-proceeding discovery application, the costs sought by each of the respondents are reasonable. I am satisfied that costs should be awarded on the basis sought by each.
[20] In respect of Mayne Wetherell and the receivers, I am satisfied that the proceeding should be categorised on a 2C basis and that an uplift should be required in respect of additional work caused by the unreasonable way in which the proceeding was brought.[18] The uplift of 50% from scale is justified by the confusing way in which the application is drawn, the lack of any clear jurisdiction for the orders sought and the time and effort required by each of the parties from whom documents were sought to respond both to the application and to the lengthy and voluminous (as to exhibits) affidavit of Mr Alexander in support of the application.
[18] Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]. See also r 14.6(3)(b)(ii) of the High Court Rules and Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [27].
[21] To those factors can be added the use of the originating application jurisdiction, in a case in which substantive allegations were made to justify production of a large number of documents, of five different parties, in the course of
(what I regard as) a “fishing” expedition to gather information on which either to bring proceedings or, more likely, to obtain some leverage for commercial negotiations.
Result
[22] For the reasons given:
a) Costs are awarded in favour of Mayne Wetherell on a 2C basis together with an uplift of 50%. The total costs awarded are $20,160. In addition, that firm is entitled to disbursements to be fixed by the Registrar. The costs are awarded to be paid jointly and severally by Mr Alexander, Mr Collins and SK Foods International Ltd.
b)Costs are awarded in favour of the receivers on a 2C basis, with an uplift of 50%, a total of $27,360. Those total costs are awarded, jointly and severally, against Mr Alexander, Mr Collins and SK Foods International Ltd. The receivers are entitled to reasonable disbursements, to be fixed by the Registrar.
c) Costs are awarded in favour of Mr Lawrence on a 2B basis with an uplift of 50%. The costs total $8,640. An order in that sum is made, on a joint and several basis, against Mr Alexander, Mr Collins and SK Foods International Ltd. Mr Lawrence is entitled to reasonable disbursements, to be fixed by the Registrar.
d)Costs are awarded in favour of Mr Chrisp and Mr Frankish, on a 2B basis, together with reasonable disbursements. The order is made against Mr Alexander, Mr Collins and SK Foods International Ltd, on a joint and several basis. Both costs and disbursements are to be fixed
by the Registrar.
Delivered at 4.00pm on Wednesday 28 July 2010.
P R Heath J
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