Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited
[2015] NZHC 2651
•28 October 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000178 [2015] NZHC 2651
UNDER the Companies Act 1993 IN THE MATTER OF
GOOSE BAY RANCH HOLDINGS LIMITED (IN LIQUIDATION)
BETWEEN
BALLANTYNE TRUSTEES LIMITED AND AVERILL NOELINE HEAD AND BRUCE RAYMOND HEAD AND CALMWATER ENTERPRISES PTY LIMITED AND SENG BOU KEUNG AS TRUSTEE OF THE GBR TRUST Applicants
AND
PAPPRILL HADFIELD & ALDOUS SOLICITORS NOMINEE COMPANY LIMITED
First Respondent
AND
DAVID D CRICHTON AND KEIRAN A HORNE
Second Respondents
Written
Submissions
Received:15 October 2015 (Respondents) and 20 October 2015 (Applicants)
Appearances:
N J Russell for Applicants
A B Darroch for First Respondent
M E Parker and A J Nash for Second RespondentsJudgment:
28 October 2015
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to costs
BALLANTYNE TRUSTEES LIMITED v PAPPRILL HADFIELD & ALDOUS SOLICITORS NOMINEE COMPANY LIMITED [2015] NZHC 2651 [28 October 2015]
Introduction
[1] The applicants were unsuccessful on an application for leave to pursue a derivative action under s 165 Companies Act 1993 and for directions under s 284 of the Act.1
[2] This judgment determines matters of costs and disbursements which were reserved.2
[3] I reserved costs because counsel indicated that there had been matters of earlier correspondence which might affect costs. I nevertheless tentatively indicated to the parties that it appeared to me that costs should follow the event and that an award of increased costs might be justified.
[4] The parties were unable to agree on costs and I have received written submissions.
The competing positions
The applicants’ position
[5] Mr Russell, who now appears for the applicants, primarily submitted that costs should be reserved until the outcome of an application which the applicants filed on 29 September 2015 seeking rescission of my judgment. It appears that the applicants, in support of that application for rescission, will place substantial reliance upon new evidence, particularly expert evidence, which they contend is available and was not presented by their former counsel despite the applicants’ wish to adduce such evidence.
The respondents’ position
[6] For the respondents, counsel submit that costs should follow the event and be fixed now. They seek in order of preference:
1 Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited
[2015] NZHC 2294 [Ballantyne Trustees].
2 At [101] to [103].
(a) an order of indemnity costs; or
(b)an order of increased costs based on proceedings brought by originating application (rather than through an interlocutory application that occurred) calculated on a 2B basis with an uplift of
50 per cent; or
(c) increased costs calculated as for an interlocutory application on a 2B
basis with an uplift of 50 per cent.
Discussion
The fixing of costs now
[7] Rule 14.8 High Court Rules requires the Court, unless there are special reasons to the contrary, to fix the costs of an opposed interlocutory application when the application is determined.
[8] There is no special reason in this case to depart from r 14.8. Mr Russell refers to the fact that the applicants have applied for rescission of the orders made. But that is something not infrequently done by unsuccessful litigants. It does not constitute a special reason. If there is a later decision of rescission or otherwise, the Court will have its power specifically provided under r 14.8(2) to reverse, discharge or vary any costs order now made.
[9] For the time being, the successful respondents should have their costs fixed which, in terms of r 14.8(1)(b), become payable when fixed.
Costs to follow the event
[10] The primary principle, encapsulated in r 14.2(a) High Court Rules, is that costs follow the event. Responsibly Mr Russell did not suggest that, in the event I decided to fix costs now, costs should not follow the event. The respondents were wholly successful and should have costs.
Indemnity costs?
[11] For the second respondents in particular, Mr Parker submitted that indemnity costs pursuant to r 14.6(4)(a) High Court Rules are appropriate. He submitted that in terms of r 14.6(4)(a) the applicants have:
… acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding.
[12] Mr Parker identified the unreasonableness of the applicants in commencing and continuing an unmeritorious application. He submits that they also failed to objectively evaluate their position and consequent litigation risk, which has caused significant unnecessary cost to the respondents.
[13] Mr Parker referred to the judgment of the Court of Appeal in Bradbury v Westpac Banking Corporation.3 The Court endorsed five categories of conduct identified by Sheppard J in Colgate Palmolive Co v Cussons Pty Limited as circumstances in which indemnity costs have been ordered.4 Of the five categories, Mr Parker submits that the present case falls within both the fourth and fifth categories being:
(a) commencing or continuing a proceeding in wilful disregard of knowing the facts or clearly established law; and
(b)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in the “hopeless case” test.
[14] I accept Mr Russell’s submission to the effect that there is a danger in coming to the recognised categories in which indemnity costs have been awarded previously as the first step. There is inevitably potential overlap between the prerequisites for an increased costs order under r 14.6(3) and for an order of indemnity costs under
r 14.6(4). The categories of cases in which indemnity costs have been ordered
3 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.
4 At [29] – [30], citing Colgate Palmolive Co v Cussons Pty Limited [1993] FCA 801, (1993) 46
FCR 225 at [24].
should not of themselves dictate whether a proceeding justifies increased costs or indemnity costs. The Judge needs to stand back in the light of knowledge of the proceedings as a whole to first reach a view of the overall character of the unsuccessful case. This is reflected in the observations of the Court of Appeal in Bradbury v Westpac Banking Corporation in which the Court, before moving to
particular categories, identified the overarching approach to indemnity costs:5
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”.6
[15] Having heard the application, I do not find flagrant misconduct in the conduct of the application. I did not conclude that the applicants’ intended proceeding was hopeless. Rather I concluded that it had an extremely limited likelihood of success. That was one of the factors which weighed with the Court in dismissing the applications. Some of the language used in the judgment may have also led counsel for the respondents to detect a conclusion that this was a “hopeless case” situation. That was not my finding.
[16] Rather, I found that on the evidence the proposed proceedings did not have the significant likelihood of success which could justify the likely level of expenditure when measured against the possible relief.
[17] I do not find this to be a case which justifies indemnity costs.
Increased costs
[18] Counsel for the respondents submitted, in the alternative, that this is a case for increased costs. They particularly rely on r 14.6(3)(b)(ii), asserting that the applicants pursued an application which lacked merit.
[19] In urging this approach to costs the respondents are on much sounder ground. By the nature of the interlocutory application before the Court, the Court had as a
5 At [28].
6 The Court cited the Supreme Court’s judgment in Prebble v Awatere Huata (No. 2) [2005] 2
NZLR 467 (SC) at [6].
central part of its task a merit-based assessment of the proposed litigation. It was, for instance, for the applicants to satisfy the Court that a prudent business person in the conduct of their own affairs would commence the proposed claim. On the evidence submitted I concluded that he or she would not. Mr Russell, in his submissions for the applicants, has referred to the “unavailability of expert evidence” which is a ground of the rescission application which the applicants are now pursuing; But the present assessment of costs must be in relation to the case presented by the applicants on the application which has been determined. There was a lack of merit in that application when assessed against the evidence adduced.
[20] Upon that basis there is justification for an award of increased costs in this case.
On what basis to assess costs?
[21] I begin with the categorisation of proceedings under r 14.3 High Court Rules. The interlocutory application was appropriately in category 2. All counsel accepted that.
The nature of the proceeding
[22] As indicated in my judgment there was a hiccup in the commencement of the application in that the applicants in 2014 purported to file a Statement of Claim seeking the relief which I ultimately refused.7 As my judgment indicates, the former proceeding was subsequently regularised through the applicants filing a form of an interlocutory application following agreement between the parties on that course and a consent direction.
[23] It transpired that the evidence filed became much more extensive than on a normal interlocutory application. That occurred precisely because of the nature of the application which calls for a reasonably detailed examination of the merits of the
applicants’ proposed claims.
7 Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited, above n 1, at [4] to [6].
[24] The extent of required attendances led counsel for the respondents to submit that it would be more appropriate to assess costs as if the application had been brought as an originating application. Such an approach would have added an additional time allocation of 1.4 days to the cost calculations if band B is adopted for determination of reasonable time under r 14.5 High Court Rules.
[25] The reality is that what counsel are seeking to address is the time-consuming nature of the preparatory steps in particular.
[26] The approach I prefer is to begin the assessment, on the appropriate Category
2 classification, with an application of band C, in order to understand the costs which would flow. This approach, in my view, fits well with the provisions of r 14.6(3)(a) which provides, as the first basis of an order for increased costs, the situation where:
(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.
[27] While the respondents are also able to rely on the “lack of merit” test under r 14.6(3)(b)(ii), the test of “excessive time” under r 14.6(3)(a) directly addresses the legitimate concerns raised by counsel as to the extent of evidence in particular filed and dealt with on this application.
[28] The difference between a 2B approach and a 2C approach, applied to this application, would result in the following tables:
Table 1 (2B approach)
Schedule Item Time and Days Cost 11 – filing memorandum for case
management conference
0.4 (x2)
$1,784.00
13 – appearance at first or
subsequent case management conference
0.3 (x2)
$1,338.00
23 – filing opposition to
interlocutory application
0.6
$1,338.00
24 – preparation of written
submissions
1.5
$3,345.00
26 – appearance 0.75 $1,672.50 Total $9,477.50
Table 2 (2C approach)
Schedule Item Time and Days Cost 11 – filing memorandum for case
management conference
0.4 (x2)
$1,784.00
13 – appearance at first or
subsequent case management conference
0.3 (x2)
$1,338.00
23 – filing opposition to
interlocutory application
2.0
$4,460.00
24 – preparation of written
submissions
3.0
$6,690.00
26 – appearance 0.75 $1,672.50 Total $15,944.50
[29] The evidence filed in this case was extensive. The case book for the hearing ran to 429 pages. To prepare the respondents’ opposition, counsel for the respondents had to digest the applicants’ material and respond to it. A substantial body of reply evidence was also filed by the applicants which called for additional response from the respondents. I am satisfied that in the general conduct of the opposition to the application the time required would substantially exceed the time allocated under band C. I do not consider that an uplift of 50 per cent (which is often taken to lift the costs award to notional equality with reasonable fees) would fairly reflect the particular time needs of this litigation. An uplift of 75 per cent is more appropriate.
[30] Table 3 sets out the consequences of imposing a 75 per cent uplift on a 2C
award:
Table 3 (75 per cent uplift on 2C award)
Calculations Costs 2C Calculation (Table 2 above) $15,944.50 Uplift 75 % $11,958.38 Total $27,902.88
[31] Mr Russell submits that any award of costs to the second respondents should reflect the fact that the substantial burden of affidavit response was borne by the first respondent. I do not consider that a distinction between first and second respondents should be drawn on that basis. The respondents’ major task was in dealing with the case of the applicants and in then establishing a viable basis of opposition, culminating in submissions. There might have been some difference in the amount of time likely to be spent by one respondent as against the other in the whole exercise through the drafting of different levels of affidavit response but I do not regard it as material.
Outcome - Costs
[32] It is appropriate that costs follow the event and that the applicants pay to the respondents increased costs on the basis of a 75 per cent uplift on partly 2B and partly 2C assessments.
[33] Costs having been resolved by written submissions on a contested basis it is also appropriate that each respondent have the costs of those submissions (which I fix at $932 by analogy to item 11 on a band B basis).
[34] Having regard to the figures I have identified, the total costs payable to both the first respondent and the second respondents should be $28,834.99, for each set of respondents.
Outcome – Disbursements
[35] The respondents are each entitled to the disbursement incurred in relation to the filing fee on their Notice of Opposition ($110).
Orders
[36] I order that the applicants pay to the first respondent and the second respondents respectively the costs and disbursements of each set of respondents which I fix in the sum of $28,834.99 (costs) and $110 (disbursements).
Associate Judge Osborne
Solicitors:
Malcolm Wallace, Christchurch
Darroch Forrest, Wellington
Parker Cowan, Queenstown
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