Baker v Baker
[2022] NZHC 2058
•18 August 2022
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2018-470-125
[2022] NZHC 2058
UNDER the Companies Act 1993 IN THE MATTER
AND
of an application pursuant to sections 174 and 241 of the Companies Act 1993
IN THE MATTER
of the liquidation of Glenville Properties (Katikati) Limited (in liquidation)
BETWEEN
LLOYD JOHN BAKER and PETER DOUGLAS BAKER
Plaintiffs
AND
VALERIE JEAN BAKER
First Defendant
cont/…
Hearing: On the papers Counsel:
M Beech and L Gellert for the Applicants J Shaw for the Respondents
Judgment:
18 August 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 18 August 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Lowndes Jordan, Auckland
Norris Ward McKinnon, Hamilton Matt King Law, Tauranga
M Beech, Regional Chambers, Auckland
BAKER v BAKER [2022] NZHC 2058 [18 August 2022]
FLORENCE VALERIE BAKER
Second Defendant
GLENVILLE PROPERTIES (KATIKATI) LIMITED
Third Defendant
VALERIE JEAN BAKER and FLORENCE VALERIE BAKER
Applicants
MALCOLM GRANT HOLLIS and WENDY ANN SOMERVILLE
Respondents
Introduction
[1] In a judgment dated 31 May 2022, I granted Valerie Jean Baker and Florence Valerie Baker leave to review decisions of the liquidators of Glenville Properties (Katikati) Ltd (in liquidation) pursuant to s 284 of the Companies Act 1993.1
[2] I asked the parties to confer regarding the question of costs and file memoranda if agreement could not be reached. Costs have not been able to be agreed and memoranda have now been filed.
Costs claimed
[3] The applicants seek scale costs on a combined Category 2B/3C basis with a 50 per cent uplift for a total amount of $26,805.75 plus disbursements.
[4] The applicants submit that the appropriate category for certain steps is Category 3 as the application considered a novel issue in insolvency law which had not had the benefit of full argument before the High Court previously and was sufficiently complex and significant to require counsel to have special skill and experience in the High Court.2 They say therefore that the application and subsequent steps warranted specialist insolvency lawyers appearing, a fact evidenced by the applicants engaging specialist insolvency solicitors and the liquidators instructing counsel for the hearing.
[5] They further submit that to the extent that there has been a previous cost categorisation in this proceeding, that categorisation related to entirely different issues between the shareholder parties whereas this application related to the conduct of the liquidators of the company.
[6] In addition, the applicants say there are several factors which meant it was reasonable to spend a comparatively large amount of time compared to a more typical interlocutory application.
1 Baker v Baker [2022] NZHC 1253.
2 At [25].
[7] As well as the issue of whether reg 15(2) of the Companies Act 1993 Liquidation Regulations 1994 (Liquidation Regulations) was a time-bar to the application for leave, the evidence filed by the applicants was required to cover a number of different factual issues relevant to the review sought, in order to underpin the leave submissions. The affidavits filed by the applicants totalled 24 pages of detailed evidence and included 43 exhibits.
[8] For the above reasons the applicants say it is appropriate that 3C scale costs apply to the steps that directly related to the hearing. The applicants seek 2B scale costs in relation to other steps.
[9] With respect to the uplift sought, the applicants refer to a letter sent on 20 December 2021 on a without prejudice except as to costs basis (Calderbank letter) in which the applicants invited the respondents to withdraw their opposition to the application for leave. The applicants say the Calderbank letter provides a basis for a claim for increased costs under rr 14.6(3)(b)(v) and 14.10 of the High Court Rules 2016.
[10] An uplift of 50 per cent of scale costs is sought, worked out on a combined 2B/3C basis of $17,870.50, resulting in a costs award of $26,805.75.
[11] In addition, the applicants submit that the costs award ought to be payable immediately under reg 16(b) of the Liquidation Regulations and not treated as added to the applicants’ claims in the liquidation under reg 16(a). The applicants say the liquidation is solvent and the applicants are individuals who are detrimentally impacted by the costs of these proceedings and there is no special reason for treatment otherwise.
[12] Finally, counsel for the applicants confirm that the costs sought do not exceed the applicants’ actual costs, as shown in the table attached to their memorandum.
Respondents’ submissions
Costs ought to be reserved
[13] The respondents’ primary position is that costs should be reserved pending the outcome of the applicants’ substantive application for review of the liquidators’ decisions.
[14] The respondents acknowledge that r 14.2(1)(a) of the High Court Rules provides, as a general principle, that a party who fails in respect to an interlocutory application should pay the costs of the successful party and that r 14.8 further provides that costs on an opposed interlocutory application should be fixed when the application is determined. However, the respondents submit that whilst the applicants have been successful in obtaining leave to proceed with their application pursuant to s 284 of the Companies Act, that application has not yet been determined.
[15] The respondents say that the applicants, as creditors, were required to obtain leave pursuant to s 284(1) of the Act to proceed with their application and so it would be inappropriate for costs to be determined now for a step that the applicants were required to take as part of their interlocutory application.
Costs categorisation
[16] If the Court is not inclined to reserve costs, the respondents submit that costs should be awarded on a Category 2B basis. The respondents say that whilst the Court had the benefit of full argument on the issue of whether reg 15(2) acted as a time-bar, as compared to the Commissioner of Inland Revenue v Fatac Ltd (in liq) case,3 this was not complex and did not require counsel to have special skill and experience warranting an increase to Category 3 costs. Furthermore, even if it is correct to say that the hearing involved a specialised field of practice, this itself does not affect the categorisation, relying on McIlroy v New Zealand Act Party.4
3 Commissioner of Inland Revenue v Fatac Ltd (in liq) HC Auckland AP114-SW00, 22 August 2001 at [59].
4 McIlroy v New Zealand Act Party HC Wellington CIV-2003-485-174, 16 December 2005 at [8].
[17] In addition, the respondents say it is incorrect that the applicants engaged specialist insolvency lawyers as the issue was not raised until after the applicants’ instructing solicitors had been engaged and the application made. In any event the appropriate category is not determined by the seniority or expertise of the counsel engaged but by the reasonable requirements of the proceedings.
[18] The respondents say the application for leave occupied a half day hearing and was not unusually complex. The reg 15 issue was only part of that application – the substantive leave application was also determined which was not out of the ordinary.
[19] In response to the applicants’ submission that the evidence filed was required to cover a number of different factual issues relating to the proofs of debt in order to underpin leave submissions, the respondents say this evidence was for the applicants’ substantive application to review, not for the leave application. Again, the respondents say the evidence is not unusually complex and does not warrant Category 3 costs. They record the reg 15 argument required no evidence at all as it was a point of law.
[20] The respondents submit therefore that there is no reason to depart from Category 2B which the applicants otherwise accept is the appropriate scale.
Costs claimed
[21] As far as the costs actually claimed, the respondents submit that it is not appropriate for the applicants to claim the costs of filing the interlocutory application as this would allow them to duplicate recovery for filing the interlocutory application on the leave and substantive hearings. The respondents say this step properly forms part of the substantive application and should be addressed when the substantive application is determined.
[22] Nor do the respondents consider costs should be awarded for filing the memorandum for the first case management conference on 29 October 2021 or the appearance at the mentions hearing. Whilst these steps considered issues relating to the leave application, these were steps required for the proceeding as a whole and ought to be claimed once that is determined.
[23] Finally, in relation to an allowance for second counsel, the respondents say that this is not a case where an allowance should be made. The hearing occupied a half day only and was restricted to oral argument. There was no cross-examination of witnesses and no other litigation support necessary, noting that the respondents did not rely on second counsel in the hearing.
[24] The respondents therefore calculate 2B costs specifically relating to the hearing for leave as $6,214, with an allowance for disbursements of $500 for a total of $6,714.
Calderbank offer
[25] The respondents do not agree that the applicants’ Calderbank letter justifies an award of increased costs for the following reasons:
(a)Pursuant to s 284(1) of the Companies Act the applicants are required to obtain leave so this step could not have been avoided even if the respondents did not oppose leave being granted.
(b)The liquidators must act in the interests of all interested parties. In circumstances where the other shareholders opposed the application and there was a clearly expressed view by the Court that reg 15(2) operated as a time-bar, it was entirely appropriate and reasonable for the liquidators to oppose leave.
(c)It is disingenuous for the applicants on the one hand to submit that they should be entitled to increased costs because of the novelty and complexity of the arguments around leave, and then suggest that the matter was so clear that there was no reasonable justification for the respondents refusing the offer.
(d)The non-redacted portion of the Calderbank letter requests only that the respondents withdraw their opposition in relation to the reg 15(2) time- bar argument. It was not an offer to settle the proceeding. In any event the hearing dealt with the substantive leave application as well as the reg 15 argument by direction of the Court. Therefore, it cannot be relied
upon for any argument that the hearing in relation to granting leave should not have proceeded at all.
(e)It is inappropriate to consider the Calderbank letter when the redacted parts of the letter contain without prejudice material (which the respondents do not waive privilege over).
Other matters
[26] The respondents respond to the applicants’ suggestion that the liquidators are not dealing with assets of the company in a reasonable and efficient manner and say that opposing the applicants’ application is not squandering assets in the conduct of litigation, especially in circumstances where other shareholders oppose the applicants’ application.
[27] The respondents say it is also improper for the applicants to suggest that the respondents are squandering assets in relation to the question of costs simply because agreement could not be reached in circumstances where the applicants seek costs on a 3C basis and for steps relating to the substantive application which is yet to be determined. Furthermore, the respondents say it is not correct to say that the applicants agreed to resolve the substantive issues without recourse to the Court because the parties were ultimately unable to agree on the appointment of an expert.
[28] The respondents accept that whilst they initially agreed not to oppose the application being filed within a certain time, as a consequence of the view expressed by Hansen J in Fatac5, the respondents considered that they were prevented from doing so, that position was not unreasonable in the circumstances and the respondents should not be criticised because of it.
[29] Finally, the respondents submit that if the Court is minded to make a costs award at this time, it is appropriate for any costs award to be added to the applicants’ claims pursuant to Regulation 16(a) of the Liquidation Regulations.
5 Commissioner of Inland Revenue v Fatac Ltd (in liq), above n 3.
What is the appropriate costs order?
Relevant costs principles
[30] The starting point is that costs are at the discretion of the Court.6 Although the discretion is a wide one, it is not unfettered. Rule 14.2 of the High Court Rules sets out the general principles and includes:
(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:
(b)an award of costs should reflect the complexity and significance of the proceeding:
…
(g)so far as possible the determination of costs should be predictable and expeditious.
[31] Rules 14.3 to 14.5 provide for the categorisation of proceedings, appropriate daily recovery rate and the determination of a reasonable time for each step. These proceedings have previously been categorised as Category 2 but r 14.3(2) permits re- categorisation if there are special reasons.
[32] Increased costs are provided for in r 14.6 and may be ordered where the nature of the proceeding is such that the time required exceeds the time allocated under Band C, where the party opposing costs has contributed unnecessarily to the time or expense of the step, where the proceeding is of general importance to persons other than just the parties, where a party fails without reasonable justification to accept an offer for settlement or where some other reason exists.
[33] Rule 14.8 reinforces the position that costs on an opposed interlocutory application are to be fixed when the application is determined and become payable when they are fixed, unless there are special reasons to the contrary.
[34] Rules 14.10 and 14.11 apply to written offers without prejudice except as to costs (Calderbank letters), with r 14.11(1) providing that the effect (if any) that the making of an offer has on the question of costs is at the discretion of the Court.
6 High Court Rules 2016, r 14.1.
Discussion
[35] Applying the above principles and supported by the Court of Appeal’s decision in Chapman v Badon Ltd,7 I consider that costs ought to be fixed now.
[36] I accept the applicants’ submission that costs ought to be awarded on a combined 2B/3C basis as I consider the application was relatively complex in relation both to the reg 15(2) argument and the necessary analysis of the facts for the purposes of the substantive leave application. This evidence needed to be filed in support of the leave application as one of the steps for determining leave is to assess whether there is a credible factual basis for the applicants’ claim. I allow the costs of second counsel as this is usual in a Category 3 case. I record that I did not rely on a need for particular expertise in insolvency as justifying an increase to Category 3, as counsel are expected to be acting within their areas of expertise as set out in McIlroy v New Zealand Act Party.8
[37] I note that the applicants, although stating that they claim costs on a 3C basis for step 24, only include a time allowance on a 3B basis. I consider that 3B is appropriate for this step and so award costs on that basis below.
[38] I do not accept that increased costs ought to be awarded. In his case management minute, Associate Judge Paulsen reviewed the approach on whether the leave application ought to be heard together with the substantive application. His Honour recorded there was a divergence of approach but held there was force in the view that the leave requirement is intended to act as a filtering mechanism so that the leave application ought to be determined first.9 The Court of Appeal has also made it clear that leave applications ought to be determined as a prior step.10
[39] It appears therefore that even if the respondents had not opposed the leave application, a separate hearing is likely still to have been required.
7 Chapman v Badon Ltd [2010] NZCA 613 at [12].
8 McIlroy v New Zealand Act Party, above n 4.
9 Minute of Associate Judge Paulsen, 5 November 2021 at [71].
10 Stephens v Barron [2014] NZCA 82, (2014) 21 PRNZ 734 at [13].
[40] As far as the steps that are appropriate, whilst the application filed is a combined application for leave and for review, I consider it is appropriate to include an allowance for an interlocutory application for leave. I do so however on a 2B basis rather than 3C as proposed by the applicants. If the applicants are successful on the review application, then costs on that application can be considered, including for step 22 and whether a further costs order is appropriate.
[41] I agree with the respondents that steps 11 and 12, the filing of a memorandum for the first case management conference and the appearance at the case management hearing, ought to be claimed once the substantive application has been determined. Whilst both these steps included consideration of the leave application, it was in the context of making directions for the proceeding as a whole. I consider therefore it is appropriate for costs in respect of these steps to follow the determination of the substantive hearing.
[42] The following table summarises the steps and category that I consider are appropriately awarded for the leave application:
Item
Daily Rate
Days
Amount
22 Filing interlocutory application (2B)
$2,390
0.6
$1,434
24 Preparation of written submissions (3B)
$3,530
1.5
$5,295
25 Preparation by applicant of bundle for hearing (2B)
$2,390
0.6
$1,434
26 Appearance at hearing of defended application for sole or principal counsel (3C)
$3,530
0.5
$1,765
27 Second and subsequent counsel if allowed by Court (3C)
$3,530
50% of principal counsel
$882.50
Subtotal
$10,810.50
Disbursements
Interlocutory application filing fee
$500
Sealing fee (not yet incurred)
$50
Total
$11,360.50
[43] I hold that costs are payable pursuant to reg 16(b) of the Liquidation Regulations so that costs are payable out of the assets of the company, being deemed to be expenses of the liquidator, rather than being treated as added to the applicants’ claims in the liquidation in accordance with reg 16(a).
[44] The liquidators chose to oppose the application for leave. I do not accept that they were obliged to do so because other shareholders opposed the application. The liquidators would be expected to take a neutral position in an application such as this. In circumstances where it was clear the comment in Fatac was obiter11, I do not consider these are grounds for saying it was entirely appropriate and reasonable for the liquidators to oppose leave.
[45] This, in my view, supports an order under reg 16(b) rather than 16(a) as being appropriate. Furthermore, the liquidation is solvent and there are no other special reasons why the costs ought not to be payable immediately.
[46] As I have discussed above, the hearing appears likely still to have been necessary irrespective of whether the liquidators opposed leave and so I do not consider this view ought to lead to an uplift of the amount of costs awarded.
Result
[47]I order:
(a)the respondents are to pay costs on a combined 2B/3B/3C basis to the applicants in the amount of $10,810.50 plus disbursements of $550 for a total of $11,360.50; and
(b)costs are to be paid to the applicants pursuant to reg 16(b) of the Liquidation Regulations out of the expenses of the liquidator.
Associate Judge Sussock
11 See Baker v Baker, above n 1, at [25].
0
2
1