Birchfield v Birchfield

[2022] NZHC 124

IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE

CIV-2019-418-29

[2022] NZHC 124

UNDER

Part 18 of the High Court Rules and the Companies Act 1993

AND

IN THE MATTER

of an application under s 174 of the Companies Act 1993

BETWEEN

ALLAN JOHN BIRCHFIELD, LEIGH ELLEN BIRCHFIELD, CHRISTOPHER PAUL BIRCHFIELD, PAULETTE

MICHELLE BIRCHFIELD and NGAIRE

ELIZABETH BIRCHFIELD, as trustees of the PLC Trust

First Plaintiff

AND

ALLAN JOHN BIRCHFIELD

Second Plaintiff

AND

BIRCHFIELD HOLDINGS LIMITED

First Defendant

continued …

Hearing:

(Determined on the papers)

Counsel:

K G Davenport QC and A M Cameron for Plaintiffs

S O Munro and A L Davidson for First to Fourth Defendants
R J Hollyman QC and G K Riach for Fifth to Ninth Defendants

Judgment:

9 February 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Costs)

BIRCHFIELD v BIRCHFIELD HOLDINGS LIMITED [2022] NZHC 124 [9 February 2022]

AND

BIRCHFIELD COAL MINES LIMITED

Second Defendant

AND

BIRCHFIELD ENERGY AND RESOURCES LIMITED

Third Defendant

AND

NORTH WEST COAL COMPANY LIMITED

Fourth Defendant

AND

GARY PAUL BIRCHFIELD

Fifth Defendant

AND

KAREN ANNE BIRCHFIELD

Sixth Defendant

AND

EVAN RAYMOND BIRCHFIELD

Seventh Defendant

AND

JOELENE ANNE JAMIESON, KAREN ANNE BIRCHFIELD and STEFFAN

NIGEL JAMIESON, as trustees of the SJC Trust

Eighth Defendants

AND

DONNA JOYCE BIRCHFIELD, EILISH PAULINA BIRCHFIELD and GARY PAUL

BIRCHFIELD, as trustees of the EMB Trust Ninth Defendants

[1]                 In this proceeding, the plaintiffs claimed, pursuant to s 174  of  the Companies Act 1993, that the affairs of Birchfield Holdings  Limited, along with   the affairs of the  second,  third  and  fourth  defendants,  were  being  conducted  in a manner that was oppressive, unfairly discriminatory or unfairly prejudicial to their interests.

[2]                 The defendants successfully applied for summary judgment against the plaintiffs on the basis that even if the matters complained of by the plaintiffs were established, such were cured by the defendants’ offer to purchase the plaintiffs’ shares. Costs on the defendants’ successful application for summary judgment were reserved.

[3]                 The plaintiffs’ appeal against the judgment of 30 June 20201 was dismissed by the Court of Appeal on 2 September 2021.2

[4]                 The defendants now seek costs in respect of the summary judgment application on a 2B basis on the grounds there is no reason to depart from the usual rule reflected in r 14.2(1)(a) of the High Court Rules 2016, that costs should follow the event. The defendants say they were successful in obtaining an order for summary judgment and that is not altered by the fact the offer to purchase the plaintiffs’ shares, upon which the application for summary judgment was based, was amended during the hearing.

[5]                 The plaintiffs resist an order for costs, submitting that, while the defendants are correct to say they were granted summary judgment, it was only during the hearing that the defendants’ offer was amended to become capable of curing any and all prejudice complained of by the plaintiffs. The offer developed during the submissions at the hearing and the plaintiffs say was in any event deficient as it did not include costs up to and including the hearing.

Discussion

[6]                 The Court of  Appeal  judgment,  in  particular  paras  [52]  and  [53],  draws a distinction between a buy-out offer that has material defects which cannot be cured by amendments at a summary judgment hearing and a buy-out offer with defects of less substance. The example given of the latter is in respect of a disagreement as to the date to which costs should be paid.3

[7]                 In this case, offers to purchase the plaintiffs’ shares were made before the proceedings were issued. The Court of Appeal at para [81] said:4

We have some sympathy for Mr Hollyman’s [counsel for the defendants] submission that the offers made by the respondents to purchase the PLC Trust’s shares before the proceedings commenced were sufficient to address any arguable claims of unfair prejudice. On that basis, the further refinements of the offer were not strictly speaking necessary to justify the entry of summary judgment, and no offer of costs was required ...

1      Birchfield v Birchfield Holdings Limited [2020] NZHC 1516.

2      Birchfield v Birchfield Holdings Ltd [2021] NZCA 428.

3      Birchfield v Birchfield Holdings Ltd, above n 2, at [53].

4      Birchfield v Birchfield Holdings Ltd, above n 2.

[8]The Court of Appeal quoting Lord Hoffman from O’Neill v Phillips said:5

… [the] parties ought to be encouraged, where at all possible, to avoid the expense of money and spirit inevitably involved in such litigation by making an offer to purchase at an early stage.

…

[9]                 In my opinion, costs should follow the event as the plaintiffs failed to recognise the defendants’ offer in substance would cure their complaints. While the offer was developed/amended during the summary judgment hearing, as held by the Court of Appeal, the modifications to the offer, including in respect of costs, were minor.

Costs claimed by companies

[10]             Ms Davenport QC, counsel for the plaintiffs, submits there should be no separate costs allowance for the companies’ written submissions for the summary judgment hearing on the grounds those submissions were not directed at the pleaded basis for summary judgment. For the reasons set out at paras [11] – [14] of my judgment of 30 June 2020, I agree with Ms Davenport’s submission. The written submissions filed by the companies were in effect not read at the hearing, and the costs claim for those submissions by the corporate defendants is disallowed.

[11]             Further, given the limited role of the companies in the summary judgment hearing where the key issue was the offer by the defendant shareholders to buy the plaintiffs’ shares, the extent to which the companies had to be involved in the summary judgment does not warrant an allowance for second counsel for the hearing.

Costs on counterclaim

[12]             I also agree with Ms Davenport that costs arising from the summary judgment hearing should not include costs arising from the defendants’ counterclaims. The counterclaims  survive  the  demise  of  the   original   action   exactly   as  though the counterclaim were an independent proceeding.6

5      O’Neill v Phillips [1999] 1 WLR 1092 (HL) at 1106.

6      Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HRPt5 Subpt 11.01(2)].

[13]             Accordingly, the counterclaims remain alive and undetermined. No costs are allowed for them in this context.

[14]             The defendants are to file a memorandum within 15 working days from the date of this judgment, stating whether they intend to pursue their counterclaims. If so, I will allocate a telephone conference to address how they are to be dealt with. If they are not pursued, they are to be discontinued.

[15]             Accordingly, all costs and disbursements claimed which are linked to the counterclaims are disallowed.

Remaining items

[16]             I agree with Ms Davenport that only one claim for the joint memorandum of 29 April 2021 is appropriate. As that memorandum was drafted by the shareholders’ solicitors, the claim by the corporate defendants for this memo is disallowed. The claim by the shareholder defendants for this item is allowed. The memorandum was not limited solely to changes of position or the like by the defendants. It reflected that counsel had agreed between themselves that the plaintiffs could defer filing documents in opposition to the summary judgment until the defendants’ position on the plaintiffs’ amended statement of claim had been clarified. The revised timetable reflected that fact and accordingly reflected arrangements for the benefit of all parties.

Second counsel

[17]             I have already disallowed the corporate defendants’ claim for second counsel but I allow the shareholder defendants’ claim. While Ms Davenport says the shareholders adopted a “Rolls Royce approach”, I note the plaintiffs engaged second counsel.

January 2020 memorandum – first case management conference

[18]             Ms Davenport submits that costs arising from the defendants’ memorandum of January 2020, preparation for the case management conference and attendance at the telephone conference, have already been the subject of a costs determination. She refers to para [63] of my 30 June 2020 judgment where I recorded an application for

consolidation of this proceeding with another proceeding between the parties, was resolved by agreement with costs to the plaintiffs fixed at $1,000.

[19]             I do not accept that submission. The January 2020 memoranda filed by the parties were filed for the first case management conference and dealt with a full range of issues – the joinder issue being only one item. The costs arrangement reached between the parties was limited, on the material I have before me, to the consolidation application. However, I accept Ms Davenport’s submissions that only one costs allowance for the defendants’ 29 January 2020 memorandum filed is appropriate. Again, this was prepared by the shareholders’ solicitor and the corporate defendants’ claim in this regard is disallowed but allowed for the shareholder defendants. If there is material that shows that the costs agreement referred to by Ms Davenport was intended to be more wide reaching then I reserve leave for that to be referred to me.

Conclusion

[20]             Counsel for the defendants are to prepare amended cost schedules reflecting the above matters and table them for Ms Davenport’s consideration. If any issues remain following that exercise, they may be referred back to me.

Associate Judge Lester

Solicitors:

Connors Legal, Greymouth Anderson Lloyd, Christchurch (for First to Fourth Defendants) Harmans, Christchurch (for Fifth to Ninth Defendants)

Copy to counsel:

Kate Davenport QC, Barrister Auckland R J Hollyman QC, Auckland