Clear White Investments Limited v Otis Trustee Limited

[2017] NZHC 1854

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2504 [2017] NZHC 1854

BETWEEN

CLEAR WHITE INVESTMENTS

LIMITED Plaintiff

AND

OTIS TRUSTEE LIMITED Defendant

Hearing:	On the papers
Counsel:	J Heatlie & J P M Wood for Plaintiff D W Grove for Defendant
Judgment:	4 August 2017

JUDGMENT OF PAUL DAVISON J Re Costs

This judgment was delivered by me on 4 August 2017 at 4pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Rainey Law, Auckland

CLEAR WHITE INVESTMENTS v OTIS TRUSTEE  COSTS JUDGMENT [2017] NZHC 1854 [4 August

2017]

Introduction

[1]      On 28 June 2017 I issued a judgment in these proceedings.1   I found for the defendant and indicated that 2B costs plus disbursements were appropriate. The parties were directed to file and serve memoranda as to costs.  I also directed counsel to address the application of s 384 of the Companies Act 1993 as it may apply to Mr Chevin in relation to costs. I have now received and considered the memoranda filed by the parties.

[2]      Mr Grove, for the defendant, seeks an order recalling the judgment so as to allow the defendant to seek increased costs, an order that Mr Chevin (a non-party) pay costs pursuant to s 384 of the Companies Act, an order that Northern Investors Trustee (another non-party) be liable for the costs of the proceedings, and an order that the security for costs previously paid be released forthwith to the defendant’s solicitors.

[3]      Ms Heatlie, for the plaintiff, submits that 2B costs are appropriate and that there is no justification for any uplift. She submits that if the Court were minded to award increased costs, recall of the judgment would not be required. She submits that there is no basis upon which to extend any costs order that is made to Mr Chevin or to the Northern Investors Trustee.

Scale of costs

[4]      Mr Grove submits that an uplift of 50 per cent is justified given the open settlement correspondence. He submits that the defendant made an open offer to allow Mr Chevin to repurchase the property which was at issue in the proceedings for figures that had been suggested or agreed to by Mr Chevin. He submits that the offer was not  accepted by Mr Chevin because of his inability to  raise finance. Accordingly, he submits that an uplift pursuant to r 14.6 of the High Court Rules is appropriate. That rule empowers the Court to order a party to pay increased costs where “the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by… failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other

offer to settle or dispose of the proceeding”.2  Mr Grove submits that had the Court upheld the plaintiff’s claim, there was no possibility of it ever completing a buy-back of the property as it never had the financial ability to do so.

[5]      Ms  Heatlie disputes  the suggestion  that  the plaintiff failed  to  accept  the settlement offer without reasonable justification. She submits that the open offer was made on 14 November 2016 after a series of offers and counter-offers made on 8 and

9 November 2016. It was responded to by the plaintiff’s counsel the same day in a counter-offer on a basis that accepted most of the defendant’s terms with only minor changes suggested for timing. The parties’ positions, as set out in Ms Heatlie’s memorandum, were:

(a)       The purchase price of the property to occur on or before 20 March

2017 – Clear White wanted to settle on 24 March;

(b)       The   total   sum   to   be   paid   $2,468,567.90   –   agreed   on   its understanding that this included the sum below;

(c)       Costs of $124,720.90 to be paid on or before 28 November 2016 –

Clear White agreed the amount and wished to pay $60,000 on 25

January 2017 and $64,720.90 on 20 February 2017;

(d)        If Clear white failed to pay the sums at a) to c) on time, time being of the essence:

(i)       Any payments previously made would be forfeited;

(ii)       The agreement for sale and purchase will automatically be terminated without any further notices or correspondence;

- Agreed

(e)       If Clear White failed to complete settlement on or before 20 March

2017 the agreement will be at an end – agreed but the date to be 24

March;

(f)       Clear White to provide to its solicitors detail of all consultants in relation to this project, when they are appointed and all reports/materials that have been produced by them. If the agreement is not settled on or before 29 March 2017 Clear White’s solicitor to undertake to provide this material to Otis with the intellectual property therein vesting in Otis – agreed.

[6]      Ms Heatlie submits that the parties were close to reaching settlement of the

matter and the main point of difference related to the payment of consultants’ fees –

and not the terms of the buy-back itself. She submits that the counter-offer was not unreasonable, particularly given that any delay in repayment of the consultants’ fees would result in the buy-back coming to an end and the forfeiture of any amounts paid. She further submits that the defendant’s requirement that the consultants’ fees be repaid almost immediately made it impossible for the plaintiff to agree to those terms.

[7]      Ms Heatlie submits that the plaintiff ’s position was always that it required time to raise funds for the buy-back. She says that the fact that the plaintiff may have been  unable  to  make  payment  without  having  the  opportunity  to  develop  the property and arrange funding, does not mean that it acted vexatiously, frivolously, improperly or unnecessarily by seeking to protect its interests in relation to what it considered to be a binding agreement.

[8]      In my view, although the settlement offer was reasonable, so too was the plaintiff’s counter-offer. The plaintiff responded to the defendant’s offer promptly and with what it considered were minor and not unreasonable proposed amendments. Overall, I do not consider that the plaintiff failed to accept a settlement offer without reasonable justification. Accordingly, I do not consider that the defendant has demonstrated that an order for increased costs is appropriate in this case.

Specific costs items

[9]      Ms Heatlie takes issue with three items for which the defendant claims costs: preparation for informal discovery (2.5 days), inspection of informal discovery (1.5 days), and preparation of a list of authorities and common bundle (2 days).

[10]     Ms Heatlie submits that the parties had initially agreed to forego discovery and proceed informally by requesting such documents as were considered relevant. She submits that the informal exchange was haphazard and “parsimonious”. She says that no list of documents was produced by either party and no time was spent on ensuring document identification complied with the rules. Furthermore, many of the documents came not from the defendants but as a result a subpoena being served on Mr Dawson of BBO, and the balance of the documents had already been identified and were exhibited to affidavits filed in related proceedings. She submits that as the

parties both sought to avoid the costs of completing formal discovery, no costs award should be made for it.

[11]     In these circumstances, I consider it is appropriate to award band A costs for steps 20 and 32. I consider that band B costs remain appropriate for step 21. An amended version of the defendant’s costs schedule is annexed as schedule A.

Mr Chevin

[12]     Mr Grove submits that it is appropriate that Mr Chevin be ordered to pay the costs award personally pursuant to s 384 of the Companies Act 1993. That section provides:

384 Liability for contravening sections 382 and 383

A person who acts as a director of a company in contravention of section 382 or an order made under section 383 is personally liable to—

(a)       a liquidator of the company for every unpaid debt incurred by the company; and

(b)      a creditor of the company for a debt to that creditor incurred by the company—

while that person was so acting.

[13]     Mr Grove submits that at the time that the sale and purchase agreement was signed, Mr Chevin was a disqualified director. He submits that, in fact, Mr Chevin continued to act as the director of the company even following further notification of disqualification in January 2017. Accordingly, Mr Grove submits, Mr Chevin is personally liable to a creditor, namely the defendant, for the debt incurred in the proceedings.

[14]     Ms Heatlie says that while she does not represent Mr Chevin in his personal capacity, and while Mr Chevin was not served with the defendant’s costs memorandum, she nevertheless provided him with a copy of the memorandum. Ms Heatlie says that there does not appear to be any decided case on section 384.  She submits that before an order under the section could be made it would require:

(a)       a finding that Mr Chevin was acting as a director of the plaintiff; and

(b)a finding that he was doing so at the time when the costs judgment in this matter was incurred.

[15]     Section 384 is clearly directed at situations whereby a prohibited person acts and represents himself or herself as being a director of a company, and in the course of doing so incurs a debt or debts in the name of the company. When such circumstances are shown to have occurred, s 384 provides that the prohibited person is liable to either the liquidator of the company or to the creditor of the debt incurred by the prohibited person.

[16]     Here Ms Heatlie submits that a debt for legal costs is logically incurred, at the earliest, at the point when an adverse judgment is given in a substantive matter that will in the ordinary course give rise to a liability for costs. She submits that the defendant’s reliance on the fact that Mr Chevin signed the sale and purchase agreement while banned as a director is misguided, as that act itself did not cause the costs debt to be incurred. She further submits that the general allegation that Mr Chevin continued to act as a director appears to be based on his involvement in the proceedings. She submits that while Mr Chevin was the plaintiff’s principal witness, this was because he was the only person able to provide the relevant evidence. She submits that the defendant’s suggestion that Mr Chevin continued to control the plaintiff and direct its affairs is not substantiated by evidence.  In this regard I note that in his evidence Mr Chevin explained that he was no longer a director of the plaintiff, having resigned in January 2017 after receiving advice of his automatic prohibition following his convictions.

[17]     I agree with Ms Heatlie that the costs debt was not incurred at the time that Mr Chevin signed the sale and purchase agreement for the plaintiff. That being the case, and in the absence of any further evidence relevant to this issue, there is no evidential basis for a finding that Mr Chevin was acting in contravention of s 382 at the time that the debt was incurred.

[18]     Accordingly I decline to order that Mr Chevin be personally liable for the costs order made herein.

Northern Investors Trustee Ltd

[19]     Mr Grove, for the defendant, submits that Northern Investors Trustee Ltd (NITL) should be liable for the costs order in this proceeding on the basis that it promoted and funded the litigation for its own benefit.   Mr Grove refers to the decision in Asset Building M Pritchard Ltd v Hambeg Ltd in which Asher J stated, in relation to costs against a non-party:3

While a wide range of matters may be relevant to the exercise of the discretion, the following features can be usefully considered in this case:

a)        Whether the unsuccessful party is liable for costs;

b)        Whether the non-party controlled the litigation;

c)Whether the non-party stood to benefit from the outcome of the litigation;

d)The merits of the litigation under the control or influence of the non- party; and

e)The procedural steps taken under the control or influence of the non- party.

[20]     The crucial issue here is whether the non-party controlled the litigation. Mr

Grove submits:

The non-party is a company, but at all material times, Mr Chevin was the sole director of it. As such, he was directing the affairs of that company as well in breach of his banning order…

[21]     Ms Heatlie again emphasises that she does not represent NITL. However she submits that there is no basis for the allegation that the company was controlling the present litigation for its own purposes. She says that, as Mr Chevin explained in his evidence to the Court, the company provides administrative and financial support to development companies, such as the plaintiff, in the early stages of a development. She submits that it was not involved in the sale and/or buy-back which were at issue

in the proceeding.

3      Asset Building M Pritchard v Hambeg Ltd HC Auckland CIV-2008-404-3781, 21 November

2008 at [16].

[22]     I agree with Ms Heatlie that there is no evidence to support Mr Grove’s submission   that   NITL  was   controlling  the   litigation   for   its   own  purposes. Accordingly I decline to make the non-party costs order sought against NITL.

[23]     I note that memoranda were filed by Mr Grove to respond to Ms Heatlie’s concerns that the non-parties had not been served. It is not necessary to consider the issues relating to service on either Mr Chevin or NITL, as no costs order is being made against either.

Conclusion

[24]     Clear White Investments Limited is ordered to pay costs to Otis Trustee

Limited totalling $41,032 plus disbursements of $220.

[25]     Mr Grove sought an order that the security for costs paid by the plaintiff be released to the defendant forthwith. The defendant having successfully defended the plaintiff’s claim, I order that the security paid into the Court be forthwith released by

the Registrar to the defendant in part satisfaction of the costs order.

Paul Davison  J

Schedule A

Costs item	Description	Band	Units	Rate	Amount
2	Commencement     of     defence     by defendant	B	2	$2,230	$4,460
9	Pleading   in    response    to    amended statement of claim	B	0.6	$1,338
11	Filing of memorandum for first and subsequent case management conferences (3)	B	1.2	$2676
12	Appearance  at  first  and  subsequent case management conference (3)	B	0.9	$2007
20	Preparation of informal discovery	A	0.7	$1561
21	Inspection of informal discovery	B	1.5	$3,345
30	Preparation of the defendant’s briefs of evidence	B	2.5	$5,575
32	Defendant’s   preparation    of   list    of authorities and common bundle	A	1	$2,230
33	Preparation for hearing	B	3	$6,690
34	Appearance at hearing for sole counsel	B	5	$11,150
Total:					$41,032