Commissioner of Inland Revenue v Robertson

[2013] NZHC 858

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2010-404-007526 [2013] NZHC 858

BETWEEN  COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDSTUART DOUGLAS ROBERTSON Defendant

Hearing:         By memoranda

Appearances: N H Malarao/K Kuang for plaintiff

S D Robertson, defendant in person

Judgment:      24 April 2013

COSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 24 April 2013 at 4.45pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

N H Malarao/K Kuang, Meredith Connell, PO Box 2213, Shortland Street, Auckland

Also to:

S D Robertson, 235 Royal Road, Massey, Auckland, New Zealand

COMMISSIONER OF INLAND REVENUE V STUART DOUGLAS ROBERTSON HC AK CIV 2010-404-

007526 [24 April 2013]

[1]      This proceeding arises out of the liquidation of three companies, placed into voluntary liquidation by resolutions of their sole shareholder (common to all three companies) at differing dates in April or May 2010.  The defendant (Mr Robertson) was appointed liquidator in each case.   The plaintiff (the Commissioner of Inland Revenue) is a creditor of the companies.

[2]      The Commissioner applied for a declaration that Mr Robertson had been appointed invalidly, because he had acted for the companies and had a continuing business relationship with them in the two years before liquidation.  He also alleged that Mr Robertson had a conflict of evidence and lacked independence.

[3]      Mr  Robertson  initially  defended  the  application.    The  application  was determined on 6 June 2012 after Mr Robertson’s defence had been struck out, with his consent.

[4]      This  judgment  is  given  on  the  one  remaining  aspect  of  the  proceeding, namely costs.

Background

[5]      The Commissioner brought this proceeding in November 2010 seeking a declaration that the appointment of Mr Robertson as liquidator was invalid, and orders removing him and appointing replacement liquidators.   The Commissioner alleged that the orders should be made because Mr Robertson or the entity through which he conducted his insolvency practice, Isolve Ltd or Isolve Services Trust, had provided professional services to the companies, and that Mr Robertson (or one of the Isolve entities) had a continuing business relationship with the companies or their sole shareholder, within the two years immediately before commencement of the

liquidations.1    The Commissioner also alleged as a second cause of action that Mr

Robertson should be removed for conflict of interest and lack of independence.  She sought an order for costs against Mr Robertson personally.

1 Relying on ss 280(1)(ca) and (cb), Companies Act 1993.

[6]      Mr Robertson initially defended the application vigorously, but subsequently (after one unsuccessful interlocutory application2  and with an application to strike out his defence, for non-compliance with Court orders, pending) he decided not to pursue his opposition.   He informed the Commissioner that he was prepared to resign on terms, but did not in fact resign before the Commissioner’s application came before the Court.  His counsel informed the Court that Mr Robertson consented

to the Commissioner’s application to strike out his defence.  Mr Robertson then said that he had not appreciated that the consequence of the striking out was that the Commissioner would obtain a declaration that his appointment was invalid.   He applied unsuccessfully to recall the order.3

[7]      The Commissioner’s application was then determined substantively, without opposition from Mr Robertson, by a declaration that Mr Robertson had been appointed invalidly, an order for his removal, and an order appointing replacement liquidators.4   Costs were reserved, to be determined following filing of memoranda.

The opposing positions

[8]      The Commissioner seeks costs of $18,612 (calculated on a scale 2B basis) together with disbursements of $1,191.40.  Her counsel has detailed the costs being sought in a schedule to her counsel’s memorandum.  They can be broken down as follows:

(a)      Costs of commencing the substantive proceeding, preparation for and appearance at case management  conferences,  and  discovery,  up  to

August 2011.  $10,340

(b)      Costs  of  an  interlocutory  application  by  the

Commissioner   to   strike   out   Mr   Robertson’s

defence   for   non-compliance   with   orders   for

2 Commissioner of Inland Revenue v RobertsonHC Auckland CIV 2010-404-7526, 26 May 2011.

3 Commissioner of Inland Revenue v Robertson [2012] NZHC 1215.

4 The Commissioner did not seek judgment on his second cause of action alleging conflict of evidence and lack of independence.

discovery and costs made on 30 November 2011, which application was determined by consent on

8   March   2012   (save   for   costs   which   were

reserved).  $2,820

(c)      Costs of appearing at a hearing on 9 March 2012 that was scheduled to make orders to determine the substantive application in light of the order striking out the defence made the previous day, but at which further steps in the proceeding were suspended  pending  the  bringing  and determination of an application by Mr Robertson

for recall.  $376

(d)The  costs  of  opposing  (successfully)  the application brought by Mr Robertson for recall of the   order   made   on   8   March   2012,   which

application was dismissed on 31 May 2012.  $4,324

(e)       The costs of appearing at a mention hearing on 6

June 2012 where the substantive application was determined,5 together with the costs of sealing the

orders.  $752

[9]      The Commissioner’s schedule does not include the steps in the proceeding in respect of which Mr Robertson has already been ordered to pay costs: two interlocutory applications that were determined in May 2011,6  a case management conference on 18 October 2011, and an interlocutory application by the Commissioner for further and better discovery that was determined on 30 November

2011.    Costs  on  Mr  Robertson’s  application  for  recall  were  included  because

5 The appointment of Mr Robertson as liquidator was declared to be invalid, replacement liquidators were appointed, and costs of the substantive proceeding were reserved with directions made for the filing of memoranda.

6 An application by the Commissioner for directions as to service and an application by Mr Robertson to strike out, both of which were determined on 26 May 2011.

although the Court indicated an intention to fix costs on a scale 2B basis, leave was reserved to the parties to seek an order on some other basis (or raise any issue over quantum) within a further 10 working days,7 and this aspect of costs was overtaken by further directions given on 6 June 2012 to file memoranda as to costs generally.

[10]     Mr Robertson opposes any order for costs against him personally, and says that the Commissioner should both carry his own costs and also meet costs incurred by Mr Robertson from January 2012 onwards, when he offered to resign to resolve the proceeding.  He contends that he has incurred legal costs of $19,187, comprising legal costs incurred in the liquidation generally (researching possible claims against third parties), together with costs incurred in instructing counsel first to represent him in the proceeding from July 2011 until determination of the Commissioner’s application to strike out his defence, and secondly to represent him on his application for recall.   Mr Robertson has not provided any detail of these accounts and, in particular, has not indentified the costs incurred since January 2012 which he appears to be claiming on an indemnity basis.

The legal principles

[11]     In the ordinary course, the Court will award costs to the successful party in accordance with the principles set out in Part 14 of the High Court Rules.8    In the ordinary course the costs are calculated by reference to steps in the proceeding, and applying daily recovery rates and time allocations set out in the schedule 2 and 3 to the Rules.   The Court will determine a time band according to the complexity of proceeding and the level of skill required to conduct proceedings of that nature. However, the Court also has an overriding general discretion, to be exercised in the

particular circumstances of the case.9

7 Above, n 3 at [47].

8 R 14.2, High Court Rules.

9 R 14.1, High Court Rules.

The matters in issue

[12]    If the Court were to consider only the outcome to the application, the Commissioner would have to be considered the successful party.   However, the Court must also consider whether there are any factors which required a different outcome.  Mr Robertson has advanced two matters:

(a)      He was appointed validly, and there is no proper reason for awarding costs against him personally (rather than directing that any costs be costs in the liquidation).

(b)The  Commissioner  acted  improperly in  continuing  the  proceeding after Mr Robertson offered to resign in January 2012.

[13]     Mr  Robertson  advanced  the  following  matters  in  support  of  his  two propositions:

(a)       He was properly appointed by a shareholder’s resolution under the

provisions of the Companies Act 1993 (the Act).

(b)The Act provides that his actions are valid even if he was not qualified to act.10

(c)      In general, the expenses and remuneration of a liquidator are payable out of the assets of the company;11 any costs awarded in this proceeding are costs associated with the liquidation and hence an expense of the liquidation.

(d)      He has no personal interest in the liquidation, and has charged no fees.

10 Companies Act 1993, s 281.

11 S 278.

(e)      An application to replace a liquidator will usually be made by the majority of creditors,12 but the Commissioner did not take this path as the majority of the creditors did not support his removal.

(f)      The  Commissioner  brought  the  application  without  spelling  out  a detailed factual basis for the alleged disqualification, and he had rebutted the general allegations which the Commissioner had made in a letter “seeking clarification”, prior to the commencement of the proceeding.

(g)He initially defended the application as he did not wish to be tainted by the false accusation that he had taken appointment when he knew he was not qualified to do so, and withdrew his opposition because he decided that it was in the interests of creditors to do so.

(h)There is no factual basis for the allegations of conflict of interest and lack  of independence,  and  the core issue (the alleged  relationship between himself and the shareholder of the companies) has been explained adequately in affidavits.

(i)He offered to resign (through counsel) in January 2012, and the Commissioner acted unreasonably in refusing to accept that offer (the Commissioner had insisted that Mr Robertson account for funds received and payments made in the liquidation and a refund of money paid out of the company as part of settlement, but he had answered this by advising that no funds had been received, no payments had been made, and hence there was nothing to be refunded as part of a settlement).

(j)His   offer   was   not   an   acknowledgment   of   the   merit   of   the Commissioner’s allegations, but rather a desire to end “unwanted acrimony”: he continues to maintain his position on the allegations,

and to dispute the Commissioner’s contention that he did not comply

12 S 243(7).

with Court orders (particularly the orders for discovery) and any claim for costs.

(k)      His counsel “may have erred” in the way that his position was put to

the Court at the hearing at which his defence was struck out.

(l)The Commissioner had an ulterior motive in pursuing the application against him (to obtain a judgment for use in possible objections to Mr Robertson’s appointment as liquidator in future liquidations), and was using the present proceeding inappropriately to obtain his replacement (because it did not have the support of the general body of creditors).

Discussion

[14]     I will deal with Mr Robertson’s contentions in reverse order, thus starting with the submission that the Commissioner abused the process of the Court by continuing the proceeding after Mr Robertson had offered his resignation.

[15]     The  offer  to  resign  was  made  in  a  without  prejudice  email  from  Mr Robertson’s counsel on 10 January 2012.  Privilege was waived when that email and subsequent correspondence about the offer was produced by Mr Robertson’s counsel at the hearing of the Commissioner’s application on 8 March 2012.

[16]     It is clear from the correspondence that Mr Robertson’s offer was on terms that he did not have to pay existing cost awards and that there would be no further costs.

[17]     The  Commissioner  did  not  accept  those  terms,  at  least  not  before  Mr Robertson provided further information as to funds received, payments made, and if any payments had been made whether they would be refunded as part of the settlement.  Mr Robertson did not respond to that request until 23 February 2012 (the day following filing and service of the Commissioner’s application to strike out the defence).  His response, given through counsel, was the very brief statement:

Mr Robertson received no funds in relation to the three liquidations and he made no payments.

The Commissioner found that response to be unsatisfactory and did not accept Mr

Robertson’s offer.

[18]     I do not find any merit to Mr Robertson’s argument that it was an abuse of process for the Commissioner to proceed with her interlocutory application (the background to that application was set out in detail in a substantial memorandum of counsel filed with the application), or subsequently, with the substantive application. A different view might be possible had Mr Robertson resigned without terms, but he did not do so.

[19]     In  his  memorandum  in  respect  of costs,  Mr Robertson  has  said  that the

Commissioner’s stance against him in this proceeding is part of:

... an emerging pattern of challenging independent Liquidator appointments...using intimidation and or illegal challenge, and in this case the claim of costs against a properly appointed Liquidator for defending his appointment against unjust accusation.

He also contends that the liquidator pursued the application for the ulterior motive of obtaining a judgment for use in possible objections to Mr Robertson’s appointment as liquidator in future liquidations, that the Commissioner had used this proceeding inappropriately to obtain a replacement liquidator, and that his opposition to the application had merely been part of the carrying out of his duties as liquidator.

[20]     I find no merit in any of these contentions.  Mr Robertson has produced no evidence to support a case for abuse of process for intimidation or an ulterior motive. Further, an application under s 284 of the Act for a declaration whether or not the liquidator was validly appointed is specifically provided for under s 284(1)(g) of the Act.  Lastly, by his own admission, Mr Robertson opposed the application to defend his reputation as an insolvency practitioner: in the absence of any unusual circumstances (which do not exist in this case) that cannot be considered an act in the conduct of the liquidation.

[21]     This takes me to Mr Robertson’s second point, namely that costs should not be awarded against him personally.  It will be apparent from my last finding that I consider that any award of costs lies against Mr Robertson personally, rather than against the assets of the company.  He was sued personally.  His reliance on ss 278 and  281  of the Act  does  not  help  him:  the opposition  was  for Mr Robertson’s personal reasons, rather than being necessary for the conduct of the liquidation, so the costs of the proceeding are not an expense of the liquidation.   The saving in respect of acts of an unqualified liquidator is clearly not intended to extend to costs ordered against him for accepting an appointment for which he is not qualified.   I find no reason in these arguments to deny the Commissioner costs, against Mr Robertson personally, or to award costs to Mr Robertson.

[22]     This takes me to the last point for consideration, namely how to exercise my discretion in respect of the costs sought by the Commissioner.   I consider it is appropriate to take into account in this respect the following history of the proceeding:

(a)       Mr Robertson was fully entitled to oppose the application.

(b)The application was determined eventually on an unopposed basis, rather than on its merits in the usual way for a defended application. Although the Commissioner established a prima facie case, by reason of the steps that Mr Robertson took (or, perhaps, failed to take) the merits  of  his  contentions  in  opposition  could  not  be  taken  into account.   He may have had substantial grounds for defending the application: he has produced some evidence to support his position that neither he nor the Isolve entities through which he practised had a professional association with the companies, or a continuing business relationship with them, at material times.

(c)      Ultimately Mr Robertson chose not to pursue his opposition.  I have previously found13 that he did so deliberately but, I accept that he may

have done so without taking into account the consequences in terms of

13 Above n 3.

a substantive determination.    In the unusual circumstances of this case, the successful party cannot now be determined.

[23]     In  the  unusual  circumstances  of  this  case  I  consider  it  appropriate  to determine costs on the basis that the substantive case has not been determined on its merits.  On that basis I consider that costs of the substantive case14 should lie where they fall.  However I consider that the Commissioner is entitled to have her costs on the matters that have been determined, namely the application to strike out and opposition to the application for recall, as well as the incidental attendances after 8

March 2012 that flowed from Mr Robertson’s decision to withdraw his opposition.15

I  also  consider  it  appropriate,  as  part  of  the  balancing  exercise,  to  order  Mr Robertson  to  pay the  disbursements  incurred  in  issuing  the  proceeding,  and  on issuing the application to strike out and sealing the judgment (in other words, all the disbursements sought by the Commissioner).

[24]     In coming to this view I take into account that Mr Robertson also has a liability under previous costs orders in relation to interlocutory steps in 2011.  When these costs are included, Mr Robertson will have paid a little over 50% of the Commissioner’s overall costs, calculated on a scale 2B basis.

Decision

[25]     Mr Robertson is to pay costs to the Commissioner of $8,272 (as identified above in paragraph [8](b) to (e), together with disbursements of $1,191.40.

Associate Judge Abbott

14 As identified above in paragraph [8](a).

15 In other words, all the remaining components of the Commissioners’ claim – set out above in paragraphs [8](b) to (e).