Beverley v DC One H1 Limited

[2025] NZHC 1618

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-157

[2025] NZHC 1618

BETWEEN

ANTHONY AND WENDY BEVERLEY & ORS
Plaintiffs

AND

DC ONE H1 LIMITED & ORS

Defendants

CIV-2023-485-47

BETWEEN

DRYLANDCARBON GP ONE LIMITED & ORS

Plaintiffs

AND

WILLIAM JAMES WATERHOUSE LECKIE & ORS

Defendants

Hearing:

16 June 2025

Counsel:

M G Colson KC, K J Dobbs, M R M Gale and C B M Enright for Plaintiffs

J B M Smith KC, A S Olney, O C Gascoigne and C J Houlahan for Defendants

Judgment:

16 June 2025

ORAL JUDGMENT OF RADICH J

(Adjusted orders for costs of derivative proceeding)

[1]    The issue for consideration is whether orders made under s 166 of the Companies Act 1993 about the payment of the plaintiff companies’ costs in the derivative action should be adjusted. Currently, the orders provide for the costs to be

BEVERLEY v DC ONE H1 LTD [2025] NZHC 1618 [16 June 2025]

met by the plaintiff companies. The various orders that have been made under s 166 of the Companies Act for the costs of the derivative action to be met by the companies are described in my judgment of 17 May 2024 and these few paragraphs provide a brief recap in order to provide context for this decision.

[2]    In December 2022, the High Court granted leave to Anthony and Wendy Beverley to bring this derivative proceeding under s 165 of the Companies Act and ordered, under s 166, that the reasonable costs of the proceeding be met in the first instance by the first, second and third plaintiffs (the original costs order).1

[3]    The Court of Appeal upheld that decision in November 2023, finding, among other things, that a prudent business person acting in their own interests would pursue the claims and that it would not be unjust or inequitable for the plaintiffs to meet the costs of the proceeding at that stage.2

[4]    On 21 December 2023, an interim varied costs order was made by consent by Cooke J in the following terms:

(a)The Beverleys will meet the plaintiff companies’ costs in the derivative proceeding (that is, the costs of Bell Gully, Mike Colson KC, Wilson Harle and McGrath Nicol (the Derivative Proceeding Costs)), which are invoiced in the period from the date upon which this order is made, until 23 February 2024 (the Interim Funding Period) (at which point, absent further order of this Court, the original costs order shall resume its effect);

(b)Subject to the parties’ differing views as to the meaning of the qualifier “in the first instance”, the Beverleys will be entitled to recover from the plaintiff companies any Derivative Proceeding Costs which they meet during the Interim Funding Period, save that the Beverleys will only be entitled to recover such costs as and when the plaintiff companies (or any one of them) have the means to pay them; and

(c)Derivative Proceeding Costs invoiced to the plaintiff companies prior to commencement of the Interim Funding Period (that is, to the end of November 2023) remain payable by the plaintiff companies, unless, following provision of up-to-date balance sheets and supporting information for the plaintiff companies, it is apparent that the plaintiff companies cannot meet the invoices in question, in which case such

1      Beverley v Drylandcarbon GP One Ltd [2022] NZHC 3606 [High Court derivative decision].

2      Leckie v Beverley [2023] NZCA 570 at [73] and [76] [Court of Appeal derivative action decision].

Derivative Proceeding Costs are deemed to be treated as if they had arisen in the Interim Funding Period.

(d)Leave is reserved to the parties to apply to further vary the Original Costs Order prior to the expiry of the Interim Funding Period.

[5]    The duration of the varied costs award was extended through to May 2024. By April 2024, the defendants’ position was that the original costs order and the varied costs order should be rescinded because of a view that the plaintiff companies were insolvent and no long-term funding solution had been secured. The plaintiff companies resisted rescission and sought, instead, that the interim costs orders made by Cooke J be extended until the end of August so that a long-term funding solution could be found and put in place.

[6]    On 17 May 2024, I made an order, under s 166 of the Companies Act, that the reasonable costs of the proceeding were to continue to be met by the plaintiff companies through the varied costs orders until Friday, 30 August 2024.3 That order was extended to 4 September and then to 5 September, leading to my decision on     5 September in which I extended the varied costs order until an application to approve a litigation funding arrangement could be heard.4

[7]    Such an application was then heard on 4 October 2024, at the conclusion of which the parties indicated that a decision of the Court may not be needed at that stage. Accordingly, at the hearing I directed that the varied costs order should remain in place until a judgment was released or otherwise on five working days’ notice.5

[8]    In a minute of 15 November 2024, after it became clear that a judgment would be required on the application, I made a further order extending the varied costs orders for a period of six weeks following my decision on the application.

[9]    I gave a results decision on 25 November 2024, after I had received further post-hearing evidence.6 A reasons decision followed on 20 December 2024.7 I made

3      Drylandcarbon GP One Ltd v Leckie [2024] NZHC 1239 [May decision] at [72].

4      Drylandcarbon GP One Ltd v Leckie [2024] NZHC 2544 at [18].

5      As recorded in my minute of 7 October 2024.

6      Drylandcarbon GP One Ltd v Leckie [2024] NZHC 3531 [Litigation funding results decision].

7      Drylandcarbon GP One Ltd v Leckie [2024] NZHC 3974 [Litigation funding reasons decision].

orders authorising Mr and Mrs Beverley to enter into the proposed litigation funding agreement with LPF Litigation Funding No. 36 Ltd (LPF) on behalf of the plaintiff companies.8 I ordered also that the varied costs order would continue to apply in the manner I had directed in my 15 November minute for six weeks following the results decision.

[10]   Ultimately, the litigation funding agreement that was proposed with LPF was not entered into. It is understood that, after a period of negotiation, LPF sought to impose terms that were regarded as being untenable given the financial positions of the plaintiff companies and regarded as being inconsistent with the terms of my judgment approving the proposed agreement.

[11]   Mr and Mrs Beverley advised LPF that the changes were not accepted on     3 June 2025 and the substantive hearing of the case began on Monday, 9 June.

[12]   Where we now stand is that the interim varied costs order has expired and, as a result, the original costs order remains in force.

[13]   On 9 June 2025, Mr and Mrs Beverley on behalf of the plaintiff companies applied for orders under s 166 in the following terms:

(a)The plaintiff companies to contribute 95% of the free (tax-paid) cash they currently hold and able to be realised via the sale of NZUs held, towards outstanding and future costs of the proceedings. Those funds are to be transferred to the Beverleys by 30 June 2025 so that they can make payments in respect of the costs of the derivative proceedings on behalf of the plaintiff companies. The Beverleys will use those funds in the following order of priority:

(i)Payment of outstanding third party costs;

(ii)The derivative action portion of the hearing fee (i.e. 50% of that fee);

(iii)Payment of future third party costs through to the conclusion of the hearing;

(iv)To the extent there are residual funds, those will be used to pay legal fees (whether outstanding or future fees).

(b)To the extent that the plaintiff companies recover GST or any other tax in respect of invoices paid, those recoveries to be paid to the Beverleys on receipt for use in the above waterfall of payments.

8      Litigation funding results decision, above n 6, at [24].

(c)Following exhaustion of the funds available to meet plaintiff companies costs under (a) and (b) above, the Beverleys will continue to meet the plaintiff companies’ legal costs and disbursements if the companies are not in a position to do so and provided that the amounts advanced by the Beverleys shall be repaid as and when the plaintiff companies have the funds to do so (i.e. on the same basis as previously).

[14]The application is premised on:

(a)updated information which shows that as at the month’s end, the DC External Manager is forecast to have approximately $330,000 of cash and New Zealand Units (which are able to be monetised) which could be expected to yield $495,000 after tax if sold, while accounts payable, comprising both invoiced and work in progress of $1.55 million made up largely of a debt to the Beverleys, through the interim varied costs orders which is payable only “as and when the plaintiff companies have the means to pay for them”.9

(b)the fact that all of the plaintiff companies’ capital and operating costs are paid for by the partnership and that the companies receive approximately $20,000 per month as a base fee together with a performance fee comprising a five per cent entitlement of distributions made by the limited partnership.

(c)the understanding maintained by Mr and Mrs Beverley throughout the proceedings that it is critical that the plaintiff companies not be exposed to solvency risks, and hence their willingness to fund, on certain conditions, costs that are unable to be paid by the plaintiff companies.

[15]If the orders were granted, the plaintiff companies would look to pay:

(a)$250,991.57 (excluding GST) less a portion met by the Beverleys already of third party costs; and

(b)$27,130 (excluding GST) for the hearing fee.

9      $1.52 million of the $1.55 million is payable to the Beverleys.

[16]   They would look also to pay third party costs through to the end of the hearing. There are presently invoiced legal costs of $154,769.35 and substantial, as-yet uninvoiced, costs in relation to both Bell Gully and Mr Colson KC. However, both Bell Gully and Mr Colson have said, in a memorandum, that any invoices rendered to the plaintiff companies for legal fees will not be regarded as being due until the companies are in a position to make payment.

[17]   The defendants oppose the underlying orders sought, at least in part. Their position is that the plaintiff companies are likely to need substantive funds to pay costs on the various earlier interlocutory applications on which they see themselves as having been successful in material ways.

[18]   Further, they say that provision needs to be made for the prospect of the plaintiffs being unsuccessful in the derivative proceeding, in which case an award – on the basis of scale costs and disbursement calculations made by Mr Leckie in an earlier affidavit – might amount to $800,000.

[19]   Accordingly, the defendants propose a compromise of sorts that $600,000 of the available funds be paid into trust as a form of security.

[20]   The plaintiff companies say that the defendants’ position could only be properly taken by way of an application for security for costs and they point to the terms of earlier decisions showing that the cash flow and balance sheet positions of the plaintiff companies are sufficient to sustain the orders that they seek.

[21]   Under s 166, once leave has been given for a derivative action under s 165, the court shall order the company to bear the costs of the proceeding unless the court considers that it would be unjust or inequitable for the company to bear those costs. Accordingly, the question here is whether it is unjust or inequitable for the orders as sought by the plaintiff companies to be made.

[22]   I do not see that the defendants would need to apply formally for security for costs in order for the position they take to be adopted. Rather, I see their proposal as falling within the Court’s broad jurisdiction under s 166 to make full or partial orders

as part of its supervisory role in derivative proceedings.10 The need for the plaintiff companies to be able to pay any costs that are ordered is relevant to, but not necessarily determinative of, the question of whether it is unjust or inequitable to make the orders sought. And it is important to bear in mind the comments made by the Court of Appeal when it upheld the original costs order:11

[73] The derivative claims have high potential value and the expected costs of pursuing them are not disproportionate to the amounts realistically in issue. We consider that a prudent businessperson acting in their own interest would pursue the claims. …

…

[75]      In terms of the Judge’s order, the liability of the derivative plaintiffs to meet the costs is joint and several. The fact that the General Partner may not have assets or income available to meet the costs does not mean a prudent businessperson in its position would not pursue the claims. In practical terms, leaving aside the possibility of assistance being available from an external funder, the General Partner has the benefit of funding from the Manager and H1 derived from income available under the Management Services Agreement.

[76]      The Beverleys and their solicitors owe fiduciary duties to the derivative plaintiffs to act properly and in the best interests of the companies in pursuing the derivative proceedings. Only the reasonable costs of pursuing the proceedings come within the scope of the order.

[23]   The complicating factor here is the financial position of the plaintiff companies. As I explained in my 17 May decision:12

[31] As the General Manager of the Manager, Mr Jacobs, has explained in evidence, the General Partner and H1 have no assets and no revenue. Accordingly, in practical terms the costs of the proceeding need to be met from the financial resources of the Manager. As he has explained, the Manager was established to provide management services to the Limited Partnership pursuant to the Management Services Agreement. It has two revenue streams: the monthly management fee, which is now approximately $22,845, and a performance fee which is five per cent of any distribution made to the Limited Partners – in NZUs. The NZUs must, under the terms of the Management Services Agreement, be retained in the first instance to meet operating costs and, to the extent that there is a surplus, distributions are made to the Limited Partners. Five per cent of that distribution then is paid to the Manager as a performance fee.

10     See my comments in the May decision, above n 3, at [25] and [28]; and Irving Baker Ltd v Baker

HC Auckland CIV-2003-488-42 16 March 2006 at [23].

11     Court of Appeal derivative action decision, above n 2.

12     Drylandcarbon GP One Ltd v Leckie, above n 4.

[24]   I concluded, on balance, that the plaintiff companies’ cash flow and balance sheet positions were both positive when the value of the litigation funding that Mr and Mrs Beverley had provided to date is seen for what it is: funding that they are only entitled to recover as and when the plaintiff companies had the means to pay for them.13

[25]   However, any costs ordered to be paid would not fall within that same category. It could be a debt that could affect the solvency of the plaintiff companies – although this consideration should be offset by the performance fees the companies expect to receive on an ongoing basis, at least to some extent.

[26]   The conclusions that I have reached previously on the Manager’s cash flow and balance sheet positions remain on point, but there are two differences now. The first lies in the proposed use of the funds that the company now has in hand, in the first instance and before the fall-back funding from the Beverleys would come into play.

[27]   The second is that the case is now at trial and costs are mounting rapidly. The solvency conclusions I have reached previously accounted, in broad terms, for adverse costs awards but, at this point in the process and with an understanding now of funds in hand, it is in my view only appropriate for the defendants’ exposure to costs in the event of their success to be hedged to some degree.

[28]   I am not making provision for costs through the security for costs provision in r 5.45 of the High Court Rules but, rather, through the Court’s supervisory jurisdiction under ss 165–167 of the Companies Act – although the relevant considerations do overlap. Moreover, I factor in the fiduciary duties that Mr and Mrs Beverley owe to the plaintiff companies in the pursuit of this proceeding and the position that they have taken, later last year, to the effect that while it would be challenging for them, they could provide or arrange funding for the continuation of the proceeding.

[29]   Accordingly, I see it as appropriate to make the orders the plaintiffs seek but to place in trust $400,000 of the available funds in the first instance. That, in my view,

13 At [66].

is an appropriate sum having regard to the nature and amount of relief claimed, the nature of the proceeding and the probable costs payable if the plaintiffs are unsuccessful.

[30]I make the following orders:

(a)Of the cash-at-hand and the funds from the sale of the NZUs on hand to the Manager:

(i)$400,000 is to be placed on interest-earning deposit in Mallett Partners’ trust account or in an account otherwise agreed between the plaintiffs and the defendants to be set aside on account of any future award of costs that might, in the derivative proceeding, be made in favour of the defendants.

(ii)A float of $50,000 is to be retained in the accounts of Drylandcarbon One Management Ltd.

(b)The balance of the cash-at-hand and the funds from the sale of the NZU available to the Manager is to be transferred to Mr and Mrs Beverley so that they can make payments in respect of the costs of the derivative proceedings on behalf of the plaintiff companies. Mr and Mrs Beverley will use those funds in the following order of priority:

(i)payment of outstanding third party costs;

(ii)payment of the derivative action portion of the hearing fee;

(iii)payment of future third party costs through to the end of the hearing; and

(iv)to the extent that there are residual funds, payment of legal fees, (whether outstanding or future fees).

(c)To the extent that the plaintiff companies recover GST or any other tax in respect of the invoices paid, those recoveries are to be paid to Mr and Mrs Beverley on receipt for use in the waterfall payments as set out in (b).

(d)Following exhaustion of the funds available to meet the plaintiff companies’ costs under (b) and (c) above, Mr and Mrs Beverley will continue to meet the plaintiff companies’ legal costs and disbursements if the companies are not in a position to do so and provided that the amounts advanced by Mr and Mrs Beverley will be repaid as and when the plaintiff companies have the funds to do so, on the same basis as that provided for in the interim varied costs orders.

(e)In order to determine, for the purposes of subpara (d), if the plaintiff companies are not in a position to meet the plaintiff companies’ legal costs and disbursements at any point in the future, and following the transfer referred to in subpara (b), the parties may, in the absence of agreement on the point, come back to the Court for a further decision.

(f)In order to give effect to the transfer referred to in (b) above, the NZUs on hand are to be sold on 1 July 2025 or on one of the remaining working days in that week. And the transfer to Mr and Mrs Beverley is to be made within two working days of the sale proceeds being available.

Radich J

Solicitors:

Bell Gully, Wellington

Mallett Partners, Wellington