Baker v Baker
[2019] NZHC 666
•2 April 2019
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2018-470-125
[2019] NZHC 666
UNDER the Companies Act 1993 IN THE MATTER
of an application pursuant to sections 174 and 221 of the Companies Act 1993
BETWEEN
LLOYD JOHN BAKER AND PETER DOUGLAS BAKER
Plaintiffs
AND
VALERIE JEAN BAKER
First Defendant
FLORENCE VALERIE BAKER
Second DefendantGLENVILLE PROPERTIES (KATIKATI) LIMITED
Third Defendant
Hearing: 18-20 February 2019 Appearances:
M D Branch and J K Matena for the Plaintiffs M Paddison and M B Beech for the Defendants
Judgment:
2 April 2019
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 2 April 2019 at 2.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Harkness Henry, Hamilton
Jackson Reeves, Tauranga
Counsel:M Paddison, Tauranga M B Beech, Tauranga
BAKER v BAKER [2019] NZHC 666 [2 April 2019]
[1] The plaintiffs, Lloyd Baker and Peter Baker, and the defendants, Valerie Baker, Florence Baker and Glenville Properties (Katikati) Ltd (Glenville), all apply for costs.1
[2] Lloyd, Peter and Valerie are siblings. Glenville was incorporated by their now deceased parents in 1984. Lloyd, Peter and Valerie all hold shares in Glenville. Valerie and her daughter, Florence, are the two directors of Glenville.
[3] Lloyd and Peter brought a claim under the Companies Act 1993 (the Act) seeking orders that the Court place Glenville in liquidation pursuant either to s 174(2)(g) or s 241.
[4] Alternatively, they sought an order that Valerie, Florence and Glenville purchase their A shares and B shares (and the shares of any other shareholder that wished to exit Glenville) at a fair value as set by an independent accountant.
[5] On the afternoon of the third day of the hearing, during the course of the defendants’ case, the parties were able to resolve all matters save for the question of costs. A consent order was made, and the proceeding was settled on terms as agreed. The parties were unable to agree as to costs but agreed that the Court should determine costs and that the Court might do so on the papers.
[6]Submissions have now been filed.
Plaintiffs’ position
[7] Mr Branch, appearing for the plaintiffs, submits that on a practical assessment the plaintiffs were successful in the proceeding, and therefore as a starting point are entitled to costs.
[8]Mr Branch submits that the essential terms of the settlement require that either:
(a)the plaintiffs’ shares are purchased either at the nominated value or at the fair value determined by an independent accountant; or
1 I will refer to the individuals by their Christian names as they all have the same surname.
(b)Glenville is placed into liquidation.
[9] It follows, Mr Branch submits, that settlement was therefore a win for the plaintiffs and a loss to the defendants. On that basis, Mr Branch submits that the plaintiffs are entitled to costs on a 2B basis, plus reasonable disbursements.
[10] Mr Branch further submits that the evidence clearly showed that relief under s 174 was appropriate. He submits the offending conduct was that of the directors/shareholders and at least the first defendant should be responsible for the costs incurred in unsuccessfully defending the claim. Glenville is a nominal defendant and was only a party as s 174 requires it to be named. If Glenville bears the costs, the successful parties are effectively paying for more than half the costs and the other shareholders will also be penalised. Mr Branch submits that s 174 of the Act confers a wide discretion to the Court to make the orders sought. Those orders are:
(a)the first and second defendants pay the plaintiffs’ 2B costs and disbursements totalling $53,944.32;
(b)the first and second defendants reimburse Glenville for any actual costs and disbursements of and incidental to these proceedings incurred by Glenville;
(c)the first and second defendants are not entitled to an indemnity from Glenville for the costs and disbursements incurred in defending the claim; and
(d)interest on the judgment sum in (a) above pursuant to s 10 of the Interest on Money Claims Act 2016 from the date of judgment until the date of payment.
Defendants’ position
[11] Ms Paddison, for the defendants, submits that the principle that costs follow the event applies when the Court has adjudged a party liable. Where there is no finding by a court, it is not appropriate for the Court to then determine a winner. Instead, the
principles that apply to a discontinuance are more applicable. She refers to the presumption in HCR 15.23, namely that on the plaintiffs’ filing a discontinuance the defendants are entitled to costs. This provision provides the only proper framework for determining costs when, due to a settlement, the issues do not fit squarely within a win/loss situation.
[12] Ms Paddison submits that, based on the factors that the Court would consider under r 15.23, it was not reasonable for the plaintiffs to bring the proceedings. It was, however, reasonable for the defendants to oppose the proceeding which sought liquidation of a solvent company.
[13] Ms Paddison submits it was also reasonable for the directors to oppose being made to personally purchase the shares and that the company itself was not in a position to purchase the shares with its current reserves. Ms Paddison refers to various written communications between counsel in the latter part of 2018, sent on an open basis, which she says show that the defendants took steps to resolve the matters.
[14] She submits that the agreement reached reflected a step that was available to the plaintiffs (to issue a transfer notice for the shares) which they had chosen not to exercise.
[15] As a result, Ms Paddison submits that the defendants should be awarded costs of $28,757 together with disbursements of $110, being a total of $28,867.
[16] Alternatively, Ms Paddison submits that if the Court finds that both parties acted reasonably in respect of the steps they have taken, then costs should lie where they fall.
[17] Ms Paddison goes on to submit that in the event the Court were to consider it necessary to determine whether there was a winner or loser, then the defendants were the winners and so would be entitled to the costs as claimed. Ms Paddison makes this submission on the basis that, although the relief claimed by the plaintiffs was for their shares to be purchased, in his opening submissions Mr Branch confirmed that the plaintiffs sought liquidation. She therefore submits the defendants were successful in
that Glenville will not be liquidated unless a buyer cannot be arranged for the shares. Additionally, the settlement enables the defendants to look to a wider group to buy the shares, including other shareholders and outside parties, which is wider than the relief sought in the statement of claim.
[18] Ms Paddison submits it is unnecessary to address the merits of the case, but for completeness submits that the plaintiffs’ case fell well short of showing that relief was appropriate under s 174.
[19] In respect of Mr Branch’s submission that the first and second defendants should be personally liable for the plaintiffs’ and Glenville’s costs based on s 174, Ms Paddison submits that the Court is not making a costs order under that section, but under its costs jurisdiction under the High Court Rules.
[20] As to the allegations against the first defendant justifying the costs being made against her personally, Ms Paddison points to evidence that would count against such an award.
[21] Ms Paddison therefore submits that, if costs are awarded in the plaintiffs’ favour, it is not appropriate that an order be made that the directors personally pay for those costs, or that the directors personally pay for Glenville’s costs in defending the action. If any costs order is made against the directors personally, the Court, in exercising its costs discretion, does not have the jurisdiction to amend the company’s constitution. If, on the other hand, the Court does have such jurisdiction, there are no actions by the directors which justify making an order that the company cannot indemnify the directors for their costs.
Principles
[22] Costs are at the discretion of the Court.2 The High Court Rules provide guidance as to how the discretion might be exercised.3
2 High Court Rules 2016, r 14.1(1).
3 Rules 14.2–14.7.
[23] Ultimately, the general principle is that the party who fails with respect to a proceeding should pay costs to the successful party.4
[24] Contrary to the submission made by Ms Paddison, I consider it is possible to determine a winner.
[25]The plaintiffs’ prayer for relief sought remedies in the alternative as follows:
(a)an order that Glenville be placed into liquidation either under s 174(2)(g) or s 241 of the Act; or
(b)an order that the defendants purchase the A shares and B shares of the plaintiffs (and any other shareholder wishing to exit Glenville) at a fair value as set by an independent accountant.
[26] The terms of the settlement reached set out in my minute recording settlement in essence require that the plaintiffs’ shares (and the shares of any other shareholder wishing to exit) are purchased either at the nominated value or at the fair value determined by an independent accountant or, if Glenville does not find a purchasing party or, if the purchasing party does not settle, Glenville will be placed into liquidation.
[27] The plaintiffs will therefore realise the value of their shares. That is what they were seeking in their claim, whether by purchase by the directors or the company or by liquidation. The settlement was a win in that sense.
[28] The submissions that Ms Paddison makes that Glenville will not be liquidated unless the defendants are unable to arrange a buyer for the shares, and that the settlement enables the defendants to look to a wider group to buy the shares other than the directors or the company, do not detract from the fact that the plaintiffs have achieved the overall outcome they were seeking, namely realising the value of their shares.
4 Rule 14.2(1)(a).
[29] I therefore do not consider it is appropriate to apply the factors the Court would consider in relation to costs upon a plaintiff filing a discontinuance. The outcome fits within a win/loss situation. The plaintiffs are entitled to costs on a 2B basis in the sum of $35,234 being the total of the individual costs items in their schedule, a copy of which is annexed to this judgment.
Disbursements
[30] Disbursements of $18,710.32 are claimed for the various items listed in the plaintiffs’ schedule. The plaintiffs had out of town counsel, but the costs of accommodation and mileage are not sought for counsel. However, Mr Branch submits that in addition to an order for the usual disbursements there should be an order to cover the costs for Robert Braithwaite, an independent expert chartered accountant.
[31] Under r 14.12(2) a disbursement must be specific to, and reasonably necessary for, the conduct of the proceeding, and reasonable in amount. The narrations in the three invoices describe Mr Braithwaite’s attendances as: “Assistance re Glenville Properties including analysis of financial statements and reporting to you with initial findings. Summarising findings into report and completion of affidavit”; “Attendances regarding Glenville Properties (Katikati) Limited including review of affidavits and preparation of affidavit in reply”; and “Professional services, including preparation for and attendance at Court, including meeting during weekend 15 Feb and attendance on 18 Feb”.
[32] I accept that Mr Braithwaite’s evidence was specific to the conduct of the proceeding. It was also reasonably necessary for the conduct of the proceeding having regard to the issues involved. Although there are no details as to Mr Braithwaite’s hourly rate or hourly rates charged by others of similar skill and experience for comparable work, overall I consider the amount claimed is reasonable. It is approved.
[33] The two claims for service fees are both supported by appropriate invoices. Those amounts are approved.
[34] The remaining disbursements claimed are standard disbursements and they are approved.
[35] I therefore make an order for disbursements in the sum of $18,710.32, bringing the total of costs and disbursements I award to the plaintiffs to $53,944.32.
Who is to pay the costs award?
[36] The plaintiffs seek an order that the first and second defendants pay the plaintiffs’ costs.
[37] As noted, Mr Branch invites the Court to make findings under s 174 of the Act for that purpose. I do not propose to do so. At the time the proceeding was settled, there was discussion between the Court and counsel (as noted in my minute recording the terms of settlement) which includes a reference to the fact that not all of the defendants’ witnesses had been cross-examined at that point (but that that would be an issue for concern, if any, for the plaintiffs rather than the defendants). The minute then records my view indicated to counsel that although the proceeding had settled, I would be in a position to determine costs.
[38] I consider that any factual findings I make on the issue of who is to pay should be restricted to factual findings relating to the bases which the plaintiffs relied on for such an order as set out in the exchange of solicitors’ correspondence during the course of the hearing (on an open basis) and produced as exhibits.
[39] In a letter dated 19 February 2019 from counsel for the plaintiffs to counsel for the defendants there was a settlement proposal which included that Florence Baker and/or Valerie Baker will pay the plaintiffs the costs of the proceedings on a 2B basis, plus disbursements (and the defendants’ costs of the proceedings are to be met by Florence Baker and/or Valerie Baker personally and are not to be borne by Glenville
– which issue I will come to shortly). The letter then states:
The bases on which the plaintiffs request [these two orders] are that, had the Defendants:
(a)Put the Plaintiffs on notice that they were going to rely on cl 4.7 of the Constitution in their defence; and/or
(b)Provided the plaintiffs with a copy of the recording of the 2016 AGM and/or the transcript of the AGM when requested some months ago, the plaintiffs would have already issued a transfer notice.
[40] Some explanation is necessary. Schedule 1, cl 4 of Glenville’s Constitution deals with the transfer of shares by various methods. As summarised by Mr Branch (which summary I adopt) the clause provides:
a.A mechanism where notice of a desire to sell, and the required requested sale price, can be given to the Company and then:
i.The Company will be the seller’s agent for the purposes of offering the shares to a shareholder;
ii.The shareholders can elect to buy the shares at the offered price or elect to purchase at the “fair value”;
iii.If no price is stated in the transfer notice then it is deemed to be an offer to sell at “fair value”;
iv.If “fair value” is relevant that has to be set and any dispute is settled by arbitration with both sides sharing the cost. That said, the seller can withdraw if the “fair value” price is lower than the asking price.
[41]The plaintiffs had not given a transfer notice.
[42] Less than one working day prior to the hearing commencing it became apparent to counsel for the plaintiffs that the defendants intended to rely on cl 4.7 to say that the plaintiffs’ application was premature and should be dismissed regardless of any breach of s 174. I ruled on a pre-trial basis that the defendants could not rely on that as an affirmative defence as the plaintiffs had not been given fair notice of the defence.
It had not been adequately pleaded.5
[43] Although I did not permit an affirmative defence to be run, there was, nevertheless, evidence on the issue.
[44] Mr Branch submits that, had the plaintiffs been put on notice of the cl 4.7 defence when the statement of defence was filed on 18 September 2018, the plaintiffs would have issued a transfer notice without delay and the matter would not have been set down for trial. There was no downside for the plaintiffs in issuing a transfer notice other than delay. I accept that submission.
5 I gave the defendants the opportunity to make an application to amend the pleadings and to apply for an adjournment for that purpose. However, the defendants elected to continue with the hearing.
[45] I also accept that the plaintiffs had formed a view that issuing a transfer notice would be a waste of time and that was a reasonable view based on:
(a)reliance they placed on the independent accountant’s report (which had been commissioned by the company) that said it was pointless getting a valuation if the other shareholders did not want to purchase the shares. The report also stated that there was a low likelihood of finding a third- party buyer;
(b)the evidence of Lloyd which was that he gained a clear impression from the company lawyer that if any money was to be obtained then Lloyd had to use the court processes; and
(c)the lawyer representing the company having failed to advise the shareholders that it was not necessary to put a figure in the transfer notice and the effect of putting no figure was simply an offer to sell at fair value.
[46] I also accept that any reliance on the part of the defendants on cl 4.7 was essentially technical. The evidence was that the first and second defendants were not in a position to purchase the shares.
[47] I also accept that the defendants knew, at least as early as the 2016 AGM that the plaintiffs wished to see their shares purchased at fair value, and that they had been on formal notice since at least September 2018.
[48] I also accept that the late disclosure of the transcript of the 2016 AGM by the defendants on the morning of the first day of the trial meant that the plaintiffs’ solicitors did not have knowledge that, arguably, the plaintiffs had been invited to issue a transfer notice.
[49] For completeness I record that the plaintiffs’ letter of 19 February 2019 proposing settlement and setting out terms and conditions proposed, had as the first
step that the two plaintiffs and their sister, Susan Baker-Wilson, would issue a transfer notice.
[50] I therefore accept the submission Mr Branch makes as a reasonable one, namely that had the defendants disclosed their technical constitutional defence and produced the transcript at an earlier date, the proceedings may not have advanced to a trial.
[51] However, while I make the findings I do, all in favour of the plaintiffs, the conduct complained of was conduct on the part of all defendants and not simply conduct by the first and second defendants. I will therefore not make the order in the form that is sought as set out in [10](a) above. For the same reason I will not make the orders as sought in [10](b) and [10](c).
Interest on the judgment sum?
[52]The plaintiffs seek interest on the costs award.
[53] Section 10 of the Interest on Money Claims Act 2016 provides that in every money judgment a Court must award interest under the section as compensation for delay in payment of money. “Money judgment” would include an order for costs.6 I therefore award interest on the amount of $53,944.32 from the date of this judgment until the date of payment, calculated as a combination of the standard base rate and
0.15 per cent premium in accordance with s 12 of that Act.7
Result
[54]The defendants are to pay:
(a)The plaintiffs’ 2B costs and disbursements totalling $53,944.32; and
6 Interest on Money Claims Act 2016, s 6(a) “money judgment” means a judgment or an order given or made by a court in a civil proceeding that requires the payment of money”.
7 Section 12(3)(i) defines the base rate as the average of the 6 observations for the retail 6-month term deposit rate most recently published by the Reserve Bank of New Zealand before the given day. Section 13 provides for the establishment of an online calculator which can be used to determine the amount of interest payable over any given period, which is available at align="left">(b)Interest on the above sum from the date of this judgment until the date of payment.
Gordon J
SCHEDULE 1
Coets and Disbursements
Costs Item Description Allocation Amounts 1 Commencement of proceeding by Plaintiff 3 $6,690.00 3 Reply 0.8 $1,784.OOH 22
Flllng Interlocutory appllcatlon for
directions
0.b
$1,338.00
10 Preparation for first case management
conference
0.4 $892.00 30 Preparation of PlalntiWs’ affidavlts 2,5 $5,575.00 31 Plalntiffs' preparatlon of authorities and
common bundle
2.5 $5,575.00 33 Preparatlon for hearing 3 $6,690.00) 34 Appearance at hearing - senior counsel 3 $6,690.00 Subtotal $35,234.00) Disbursements: Description Am ount Flllng fee statement of claim $1,350.00 Fillng fea interlocutory application for dlrectlons $200.00 Service on First an Second Defendants (attached) $238.05 Service fee on shareholder (attached) $211.37 Hearing fee $8,000.00 Expert witness involves (attached)' - 31 July2018 $2,242.50 30 November 2018 $3,363.75 28 February 2019 $2,616.25 Photocopying expenses - common bundles $488.40 Subtotal $18,710.32 Total ’costs and disb\Jrsements . . ,“ ’$53 944.37
0
0
0