Culling v Culling - [2015] NZHC 3161

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2015-442-000052 [2015] NZHC 3161

UNDER the Companies Act 1993

IN THE MATTER

of an application to bring a derivative action and to set aside a statutory demand

BETWEEN

SHERYL KAY CULLING First Plaintiff

CULLING FARMS LIMITED Second Plaintiff

AND

MILES GARY CULLING Defendant

Hearing: 27 October 2015 (Judgment: 3 November 2015)

Appearances:

N A Ironside for Plaintiffs
T Jeffcott and D Turley for Defendant

Judgment:

10 December 2015

COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1] On 3 November 2015 the Court issued a judgment in favour of the plaintiffs. Mrs Culling was given leave to bring a derivative action on behalf of Culling Farms Limited, and the application by the company to set aside a statutory demand issued against it by the defendant was granted. Costs were reserved.

[2] On behalf of Mrs Culling and Culling Farms Limited, Mrs Ironside seeks an order for indemnity costs against Mr Culling. These costs amount to $21,960 plus disbursements and GST, a total of $25,983.75. Mrs Ironside says that costs on scale
(Schedule B Category 2) amount to $15,646, again including disbursements.

S K Culling & Culling Farms Ltd v M G Culling [2015] NZHC 3161 [10 December 2015]

[3] Section 166 of the Companies Act 1993 provides:

166 Costs of derivative action to be met by company

The Court shall, on the application of the shareholder or director to whom leave was granted under section 165 of this Act to bring or intervene in the proceedings, order that the whole or part of the reasonable costs of bringing or intervening in the proceedings, including any costs relating to any settlement, compromise, or discontinuance approved under section 168 of this Act, must be met by the company unless the Court considers that it would be unjust or inequitable for the company to bear those costs.

[4] Mrs Ironside submits that the costs are reasonable and that there is no basis on which the Court should decline to direct that the company pay the indemnity costs under s 166.

[5] Mr Jeffcott does not specifically deal with the application under s 166, devoting his entire memorandum to the further application by Mrs Ironside that Mr Culling should be directed to pay indemnity costs to the company.

[6] I see no reason on the material before the Court in this case to consider that it would be either unjust or inequitable for the company to bear the full costs incurred in bringing this proceeding. I therefore direct that the whole of the costs actually incurred ($25,983.75) will be paid by Culling Farms Limited.

[7] Culling Farms Limited also applies for an order against Mr Culling on an indemnity basis.

[8] Responding to Mrs Ironside’s application for indemnity costs against Mr Culling, Mr Jeffcott says that once Mrs Culling took the step of freezing the company’s bank accounts Mr Culling lost all means of meeting ongoing company expenses including paying existing creditors or even covering his own…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2015] NZHC 3161
Decision Date: 10 December 2015

CaseChat Overview and Summary

In Culling v Culling, the court addressed an application for indemnity costs following a derivative action brought by Sheryl Culling on behalf of Culling Farms Limited against Miles Culling. The primary dispute involved the issuance of a statutory demand by Miles against the company, which he later defended despite the company’s solvency and profitability. The plaintiffs sought to set aside the statutory demand and bring a derivative action against Miles, which the court allowed. Following this, the plaintiffs applied for indemnity costs against Miles, arguing that his actions were improper and contrary to the interests of the company.

The court needed to determine whether the costs incurred by the plaintiffs should be borne by Culling Farms Limited, as per Section 166 of the Companies Act 1993, and whether Miles should be ordered to pay indemnity costs to Culling Farms Limited. The plaintiffs contended that the costs were reasonable and that it would not be unjust or inequitable for the company to bear them. Conversely, Miles argued that his actions were appropriate under the circumstances and that he had other available remedies.

The court concluded that there was no basis to find it unjust or inequitable for Culling Farms Limited to bear the costs incurred in bringing the proceeding, and thus directed that the full costs would be paid by the company. Regarding Miles’s liability for indemnity costs, the court found that Miles had acted improperly by issuing the statutory demand against a solvent and profitable company for his personal benefit, without withdrawing it when requested and opposing the derivative action. The court held that Miles should pay the costs incurred by Culling Farms Limited.

In summary, the court ordered Culling Farms Limited to pay the costs of the proceedings and Miles Culling to pay indemnity costs to Culling Farms Limited. The decision underscores the importance of directors acting in the best interests of the company and the consequences of misapplying statutory procedures for personal gain.

Orders