Dalton v Osmond

[2023] NZHC 2257

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1382

[2023] NZHC 2257

UNDER

the Companies Act 1993

IN THE MATTER OF

the liquidation of DELTA SHARED

SERVICES LIMITED (IN LIQUIDATION)

BETWEEN

SIMON DALTON

and

BENJAMIN FRANCIS as liquidators of DELTA SHARED SERVICESLIMITED (IN LIQUIDATION)

Applicants

AND

MURRAY ATHOL OSMOND

Respondent

Hearing:	On the papers
Appearances:	James Cochrane/Amelia McLuskie for the Applicants Respondent is self-represented (in person)
Judgment:	21 August 2023

COSTS JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

This judgment was delivered by me on 21 August 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Lane Neave (JRF Cochrane/A McLuskie), Auckland, for the Applicants

Copy for:

Murray Athol Osmond

DALTON v OSMOND [2023] NZHC 2257 [21 August 2023]

Introduction

[1]    On 24 February 2023 the Court issued a judgment granting the applicants’ application for orders in respect of the respondent under s 266 of the Companies Act 1993 (the Act) (the Judgment).1

[2]    Included in the Judgment was a direction that if costs could not be agreed within 20 working days of the date of the Judgment, counsel for the applicants would file a memorandum as to costs within five working days of the expiry of the 15 day period referred to above. It is noted that there was an ambiguity in whether the period to agree costs was 15 or 20 working days and counsel for the applicants took a conservative approach by treating the 15 working days period as applicable. During the 15 working days period, counsel for the applicants engaged with the respondent in relation to costs by:

(a)an open letter to the respondent dated 15 March 20233 inviting him to make a costs proposal; and

(b)a “without prejudice”, except as to costs, email dated 17 March 2023 offering to settle the matter of costs for increased costs and disbursements.

[3]    Counsel for the applicants advise that no response regarding costs was received from the respondent. The respondent filed an appeal against the Judgment with the Court of Appeal but this appeal has been abandoned as at 21 June 2023 pursuant to r 43 of the Court of Appeal (Civil) Rules 2005.

Indemnity costs sought by the applicants

[4]    The applicants seek indemnity costs or, in the alternative, increased costs in relation to the originating application, for orders in respect of the respondent under   s 266 of the Act (the originating application). As at the date of counsel’s

1      Dalton v Osmond [2023] NZHC 282.

memorandum of 24 March 2023, the costs and disbursements were quantified by the applicants as follows:

(a)indemnity costs of $39,497.07 (inclusive of GST);

(b)increased costs, being 2B costs with 100 per cent uplift, calculated as

$31,070.00;

(c)disbursements of $476.00.

Applicable law

[5]    The general rule is that costs in proceedings follow the event, and ordinarily a successful party is entitled to a reasonable contribution towards costs. Rule 14.6 of the High Court Rules 2016 provides the Court with the power to order increased or indemnity costs.

[6]The Court may order increased costs if:

(a)the party proposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it by taking or pursuing an unnecessary step or an argument that lacks merit or failing, without reasonable justification, to admit facts, evidence, documents or accept a legal argument;2

(b)the proceeding is of general importance to persons other than the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected;3

(c)some other reason exists which justifies the Court making an order for increased costs despite the principle that determination for costs should be predictable and expeditious.4

2      High Court Rules 2016, r 14.6(3)(b)(ii)-(iii).

3      High Court Rules 2016, r 14.6(3)(c).

4      High Court Rules 2016, r 14.6(3)(d).

[7]The Court may order indemnity costs if:

(a)the party has acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a proceeding or step in the proceeding;5 or

(b)some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.6

[8]    Counsel for the applicants submits that in this situation the Court should exercise discretion to grant indemnity costs, or in the alternative increased costs.

Basis for indemnity or increased costs

[9]    Counsel for the applicants submits that costs have been incurred by the applicants because the respondent failed to comply with his obligations under s 261 of the Act, then defended the originating application on grounds which lacked merit. Counsel expands on this submission as follows:

(a)Prior to issuing then notice under s 261 of the Act, the applicants attempted to contact the respondent but received no response. Once then notice was issued the respondent failed to comply with the notice, he did not provide the required documents, nor did he make himself available for examination. As a consequence of non-compliance, the applicants were required  to  make the  originating  application  under s 266 of the Act and incurred costs, which would otherwise have been unnecessary, as a result.

(b)The respondent’s submission that s 261(2) of the Act did not apply to him lacked merit. The respondent’s own evidence demonstrated that he is a person with knowledge of the affairs of Delta Shared Services

5      High Court Rules 2016, r 14.6(4)(a).

6      High Court Rules 2016, r 14.6(4)(f).

Limited (In Liquidation) (the Company) and the Judgment found that there was sufficient evidence that the respondent had considerable involvement in the Company’s affairs7 and it was not really plausible that the respondent did not have knowledge of the matters.

Increased costs

[10]As to the basis for increased costs, counsel for the applicants submits that:

(a)The respondent has contributed unnecessarily to the time and expense of the originating application by taking or pursuing an argument that lacks merit, and failing without reasonable justification to admit facts, evidence, documents, or accept a legal argument. The respondent drew the proceedings out across three hearings on 26 August 2022,

9 September 2022 and 21 November 2022. At the first hearing the respondent filed a last-minute memorandum dated 25 August 2022 seeking a filing extension and objecting to the filing of the originating application in the Auckland High Court. The second hearing then dealt with the respondent’s objection to the registry which was unsuccessful. At the third hearing the respondent’s position was that s 261(2) of the Act did not apply to him and was found to lack plausibility, given the evidence showed the respondent had considerable involvement in the Company’s affairs.

(b)The proceeding was of general importance to persons other than just the parties, and it was reasonably necessary for the applicants to bring it in the interests of those affected. The orders sought in the originating application were necessary for the applicants to discharge the statutory duties as liquidators and progress the Company’s liquidation in the best interest of the creditors.

(c)As to the percentage of uplifts, counsel for the applicants submits that the 100 per cent uplift is appropriate and refers to the decisions of

7      Dalton v Osmond [20223] NZHC 282 at [47](a) and (b).

Wayne Graham Realty Ltd v Brook, Diamond Hostel Limited (In Liquidation) v Jaeyearn Kim, and T A O’Brien and McCaw Lewis Trustees (T A O’Brien) Ltd v Modern Built Investments Ltd.8

Indemnity costs

[11]As to indemnity costs, counsel for the applicants submits that:

(a)The respondent acted vexatiously, frivolously, improperly or unnecessarily in defending the originating application across three hearings. In particular, the respondent defended the proceeding despite knowing facts and clearly established law. Accordingly, the respondent’s defence can be categorised as a hopeless case situation, given that it was “totally without merit” and “bound to fail”.9

(b)The Judgment recognised the applicants’ requests were necessary, and it was not really plausible that the respondent did not have the relevant knowledge.

Analysis

[12]   It is clear from the authorities that a high threshold must be passed before an order for indemnity costs is to be made. In Bradbury v Westpac Banking Corp the Court of Appeal summarised the distinction between the three broad approaches to costs as follows:10

(a)a standard scale applies by default where cause is not shown to depart from it;

8      Wayne Graham Realty Ltd v Brook [2016] NZHC 1135, Diamond Hostel Limited (In Liquidation) v Jaeyearn Kim [2021] NZDC 22563 at [18], and T A O’Brien and McCaw Lewis Trustees (T A O’Brien) Ltd v Modern Built Investments Ltd [2021] NZHC 1203 and [19] to [25].

9      TheCircle.co.nz Limited v Trends Publishing International Ltd (in liq and in rec) [2021] NZCA 235 at [34].

10  Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400; (2009) 19 PRNZ 385 at [27].

(b)increased costs may be ordered where there is a failure by the paying party to act reasonably; and

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[13]   In Bradbury, the Court of Appeal endorsed Goddard J’s remarks as to some of the categories in which indemnity costs have been ordered:11

(a)The making of allegations of fraud, knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings with some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law; or

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions summarised in French J’s “hopeless case” test.

[14]   In my view the respondent’s conduct does not meet the threshold of behaving badly or very unreasonably, which would justify the imposition of indemnity costs. However, due to the respondent’s failure to comply with the notice under s 261 of the Act, and stretching the proceedings out over three hearings and opposing the originating application on grounds that ultimately were found to have lacked merit,   I am of the view that the applicants are entitled to increased costs and it is appropriate that scale costs calculated on a 2B basis with a 100 per cent uplift be awarded. I make an order below accordingly.

11     Bradbury, above n 10, at [29].

Further costs

[15]   This judgment only deals with the applicants’ costs in respect of the originating application as sought in counsel for the applicants’ memorandum of 24 March 2023. Given the ongoing failure to the respondent to comply with the orders made in the Judgment, the applicants will no doubt have incurred, and be incurring, further costs.

[16]   Leave is granted to the applicants to apply to the Court for further costs orders in relation to enforcement of the orders granted in the Judgment as may be required.

Legal Aid

[17]   It is noted in counsel for the applicants’ submissions at [20] that in his appeal the respondent had made application for legal aid. There is no evidence before the Court as to whether the respondent was granted legal aid, but I accept counsel for the applicants’ submission that if s 45 of the Legal Services Act 2011 applies, due to the factors discussed above which justify indemnity costs or increased costs, then “exceptional circumstances” apply for the purposes of s 45(2) and (3) of the Legal Services Act.

Orders

[18]   I order that the respondent is to pay the applicants 2B costs, with a 100 per cent uplift, of $31,070 plus disbursements of $476, totalling $31,546.

…………………………….. Associate Judge Taylor