Black v Giltech Precision Castings (2004) Limited

[2012] NZHC 2117

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2010-412-000105 [2012] NZHC 2117

UNDER  The Companies Act 1993

IN THE MATTER OF     an application by shareholders under s 174 of the Companies Act 1993

BETWEEN  PAUL BLACK First Plaintiff

ANDPAUL BLACK AND GLENDA BLACK Second Plaintiffs

ANDWMC TRUSTEE LIMITED Third Plaintiff

ANDGILTECH PRECISION CASTINGS (2004) LIMITED

First Defendant

ANDP & W CONSOLIDATED LIMITED Second Defendant

On the Papers

Counsel:         D Sim for First and Second Plaintiffs

P Fee for Third Plaintiff
J Farrow and M Hayes for Defendants

Judgment:      21 August 2012

JUDGMENT OF HON. JUSTICE FRENCH

as to Costs

BLACK & Ors V GILTECH PRECISION CASTINGS (2004) LIMITED & Anor HC DUN CIV-2010-412-

000105 [21 August 2012]

Introduction

[1]      In my judgment of 25 May 2012, I dismissed the first and second plaintiffs’ claim against the defendants.  The third plaintiff, a professional trustee company, had filed a notice of discontinuance immediately prior to the commencement of the hearing.

[2]      The  case  turned  primarily  on  credibility  and  in  particular  whether  the plaintiff, Mr Black, had ever agreed to his shares being forfeited in the event of his leaving his employment.

[3]      I found on the evidence that there had been such an agreement and rejected

Mr Black’s testimony to the contrary.

[4]      As regards costs, my expectation was that these would be able to be resolved by agreement.   However, leave was reserved for the filing of submissions in the event agreement did not prove possible.

[5]      Unfortunately, the parties were not able to reach agreement on costs and I am accordingly now required to make an award.

The issues

[6]      As between the defendants and the first and second plaintiffs, it is common ground that because the defendants were successful, they are entitled to costs, and that under the scale the appropriate costs category is category 2B.  Certification for second counsel also does not appear to be controversial and because of the number of witnesses and the volume of written material, I am satisfied that it is appropriate. Also uncontested is the defendants’ disbursements claim.  These satisfy the test in r 14.12 and are accordingly approved.

[7]      What is in dispute is whether the defendants are entitled to indemnity costs or increased costs and, secondly, whether the Court should invoke its power under r 14.8(2) and revisit costs awards that were made in interlocutory applications.

[8]      For its part, the third plaintiff says it should not be liable for any costs including scale costs.

Discussion

[9]      In support of its claim for indemnity costs of $231,389.12, the defendants rely on the fact that I found Mr Black was not a credible witness and that he was lying when he said he had never agreed to his shares being forfeited.

[10]     In my view, an adverse finding of credibility does not of itself bring the case into  the  territory  of  flagrant  misconduct  and  the  hopeless  case[1].    Were  it  so, indemnity costs would be awarded as a matter of routine.   Indemnity costs are properly reserved for the most exceptional of cases which this was not.  A further point is that while the existence of the agreement was pivotal, Mr Black did raise other legal arguments as to why any agreement if it existed would not be legally

binding on him anyway.

[1] See the discussion in Bradbury & Anor v Westpac Banking Corporation & Anor [2009] NZCA

234

[11]     Where  I  consider  the  defendants  are  on  stronger  ground  however  is  in relation to their claim for increased costs on account of the plaintiffs’ rejection of settlement offers.

[12]     The defendants made three offers of settlement.  The first two offers were for

$10,000 and were made before proceedings were issued.   The third offer, a Calderbank offer, was made in May 2010, three months after proceedings had been issued.  This third offer was an offer to pay $25,000, being the value of the shares as

assessed by the defendants’ valuation expert.

[13]     The plaintiffs rejected all three offers.  The plaintiffs made a counter offer the following year in December 2011, two months before the hearing.  It was an offer to settle on the basis of the full amount of the claim plus 2B costs but foregoing part of the interest.

[14]     Counsel for the first and second plaintiffs (who was only instructed after my judgment was delivered) submits that with the benefit of hindsight, the plaintiffs would have been wise to accept one of the defendants’ offers but at the time the offers were made the disparity between what was being claimed and what was being offered was so great that it could not be said rejection of the offers was unreasonable at that time.

[15]     I accept that reasonableness is to be determined at the time the offers are made[2].  However, in my view, at the time the offers were made the plaintiffs must have known, or ought to have known, they had a very significant litigation risk, such that it was irresponsible and unreasonable not to accept.  On anyone’s view of it, the chances of success were low.  As my judgment records, Mr Black’s evidence was inherently     implausible,     inconsistent     and     contrary     to     contemporaneous

documentation, including his own solicitors’ correspondence.   Further, it was not

supported by any other corroborating witness.  All of those things were known in

2010.  The rejection of the defendants’ offers, particularly that of May 2010, were in my assessment without reasonable justification for the purposes of r 14.6(3)(b)(v).

[2] New Zealand Sports Merchandising Ltd v DSL Logistics Ltd, HC Auckland, CIV-2009-4045548, Priestley J, 19 August 2010

[16]     I am satisfied that in all the circumstances rejection of the offers does warrant an uplift of 50 percent on scale 2B costs, dating from the commencement of the proceeding.

[17]     I am not, however, prepared to revisit the costs decision made in interlocutory proceedings.   The merits of substantive and interlocutory proceedings are two different things[3], and the mere fact the substantive claim fails is not in itself enough.

Something more is required to trigger the application of r 14.8(2).

Position of third plaintiff

[3] Chapman v Badon Limited [2010] 20 PRNZ 83

[18]     The third plaintiff is the corporate trust vehicle of a firm of solicitors who were acting for the first and second plaintiffs prior to November 2010.   It is the corporate trustee for approximately 350 other clients of the firm. It is a bare trustee. It undertakes no trading activity and has no assets.

[19]     When Mr Black created a family trust to hold the shares, the trustees were himself, his wife and the third plaintiff.

[20]     In submitting that no award of costs should be made against it, the third plaintiff advances the following arguments:

(i)The third plaintiff was only a titular plaintiff and had nothing to gain from the litigation.  The litigation was directed and controlled by Mr and Mrs Black.

(ii)There are two “perfectly good” parties to bear the costs implications, namely Mr Black in his own right and Mr and Mrs Black in their capacity as trustees.

(iii)Had the third plaintiff resigned much earlier, the defendants would have been in the same position

(iv)In the event the third plaintiff is required to pay costs from its own resources, there is a high risk liquidation will follow with all the consequences that would entail for the 350 clients whose assets are held by the third plaintiff

[21]     I do not accept those arguments.   Nor am I minded to direct that the third plaintiff be liable on a one third basis as also suggested by its counsel.

[22]     As trustee, the third plaintiff was under an obligation to take an active part in the decision making.  It should have considered the merits of the claim and the offers of settlement, seeking further information if required, not just mindlessly rubber

stamp the wishes of its  co-trustees. As Mr Farrow submits, the third plaintiff’s apparent failure to carry out any analysis has not only had consequences for the trust but also for the defendants.

[23]     It is also in my view irrelevant that the other plaintiffs may be of good means.[4]    Nor it is appropriate for me to speculate about what might have happened had the third plaintiff resigned earlier. The fact of the matter is that it did not.

[4] In fact, information provided by the defendants suggests they may not be.

[24]     Similarly, I do not consider that concerns about the consequences of possible liquidation is a relevant factor for me to take into account in a costs decision.  The case cited by the third plaintiff,  Commissioner of Inland Revenue v Newmarket Trustees Limited[5] has since been overturned.

[5] Commissioner of Inland Revenue v Newmarket Trustees Limited (2011) 25 NZTC 20-030 (HC).

Overturned Commissioner of Inland Revenue v Newmarket Trustees Limited [2012] NZCA 351.

[25]     In short, I consider there are no grounds to displace the usual rule that a discontinuing party is liable to pay costs up to and including the date of discontinuance  and  that  in  the  circumstances  of  this  case  the  costs  are  to  be calculated on the basis of a 50% uplift on scale.

Outcome

[26]     Liability for costs as between the three plaintiffs is that they are jointly and severally liable.

[27]     The calculation is to be on a 2B basis with an uplift of 50 percent on costs from the commencement of the proceedings.

[28]     I certify for second counsel.

[29]     Disbursements  of  $43,516.75  are  approved  in  terms  of  the  defendants’

schedule.

[30]     The  third  plaintiff  is  liable  for  the  costs  and  disbursements  up  to  and including the date on which it discontinued.

[31]     The first, second and third plaintiffs are jointly and severally liable to pay costs on the application for costs on a 2B basis.

[32]     In the event counsel are unable to agree on the calculation of the costs and disbursements applying the above rulings, leave is reserved to any party to come back to the Court.

Solicitors:

Downie Stewart, Dunedin - [email protected]

Webb Farry, PO Box 5541, Dunedin

Jones Fee, Level 13, 51-53 Shortland Street, Auckland