Davy v Scarrott

[2016] NZHC 2147

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-000466 [2016] NZHC 2147

BETWEEN

KAREN DAVY AND JOHN DEWAR

MARSH, DIRECTORS OF DORCHESTER APARTMENTS LIMITED

Plaintiffs

AND

GRACE NATALIE SCARROTT, PAUL RICHARD HEFFERNAN AND JULIE MARIE HEFFERNAN AND SANDY ALEXANDER THOMSON AND RICHARD NORMAN MARTIN, SHAREHOLDERS IN DORCHESTER APARTMENTS LIMITED, COMPANY NUMBER 21335

Defendants

Hearing:	(On the papers)
Counsel:	J Toebes for Plaintiffs P OʼRegan and C Matsis for Second, Third, Fourth, and Fifth named Defendants and for Ms Dimes S W Greer for Ms Scarrott
Judgment:	9 September 2016

COSTS JUDGMENT OF VENNING J

This judgment was delivered by me on 9 September 2016 at 4.00 pm, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           JTLaw, Wellington

Gault Mitchell Law, Wellington

Solv Law Limited, Wellington

Copy to:            P O’Regan, Wellington

DAVY & ORS v SCARROTT & ORS (DORCHESTER) [2016] NZHC 2147 [9 September 2016]

[1]      In a judgment delivered on 4 August 2016 the Court declined the plaintiffs’ application for an order altering the constitution of Dorchester Apartments Limited (Dorchester).1   Costs were reserved to be dealt with by an exchange of submissions.

[2]      Originally there were four plaintiffs, the board of directors of Dorchester.  Mr

Corleison and Ms Barrett either resigned or stood down as directors at the May 2016

AGM.   Their replacements were not added as plaintiffs to this proceeding.   Mr Corleison and Ms Barrett were removed from the proceedings reserving all parties’ positions as to costs.2

[3]      In  addition  to  the  named  defendants,  Ms  Dimes  was  also  formerly  a defendant.   She sold her shareholding with effect from early May 2016.   The transferee of her shares did not seek to be added to the proceedings.   Again Ms Dimes was removed from the proceeding reserving all parties’ positions as to costs.

[4]      As the application was unsuccessful, costs should follow the event in the usual way. There are two principal issues as to costs:

(a)       the quantum;  and

(b)who should bear the costs award, including whether the costs should be paid by the directors personally or by Dorchester.

[5]      The issue of who should bear the costs is complicated by the change in parties during the course of the hearing.

Quantum

[6]      Although  there  were  a  number  of  defendants  Ms  Dimes  (an  original defendant), Mr and Mrs Heffernan and Messrs Thomson and Martin were all represented by Mr Matsis of Gault Mitchell Law and by counsel Mr O’Regan at the hearing.    Ms  Scarrott  was  represented  by  Mr  Greer  during  the  course  of  the

proceedings.

1      Davy v Scarrott [2016] NZHC 1791; the application was under s 34 of the Companies Act 1993.

2      The Court reserved the issue of who should bear the costs in the course of its judgment at [11]–

[13].

[7]      The quantum of Ms Scarrott’s costs have been agreed at $6,690.  The issue in relation to the costs payable to her is whether the costs should be paid by the directors or by Dorchester.  At present, the directors have paid the agreed sum of

$6,690 from the Dorchester bank account.

[8]      The parties do not agree on the quantum for the costs sought by Ms Dimes, Mr and Mrs Heffernan and Messrs Thomson and Martin.   Mr Matsis seeks costs orders in their favour as follows:

(a)      that Mr Corleison, Ms Barrett, Ms Davy and Mr Marsh are all jointly and severally liable to pay costs on a 2B basis through to the May

2016 AGM uplifted by 100 per cent plus disbursements of $440;

(b)      that Ms Davy and Mr Marsh are jointly and severally liable for further

2B costs with an uplift of 100 per cent from the May AGM until 28

June 2016;

(c)      that Ms Davy and Mr Marsh are jointly and severally liable to the defendants for indemnity costs for all steps taken after 28 June 2016 including the hearing;  and

(d)Ms Davy and Mr Marsh are jointly and severally liable for the further disbursement of $50.

[9]      The plaintiffs accept that while costs should follow the event the costs should be restricted to a joint award of costs to the parties represented by Mr Matsis’ firm on a 2B basis but with the costs to be paid by Dorchester, not the directors personally.

[10]     To support the uplift of 100 per cent from the May AGM to 28 June 2016 and for indemnity costs after 28 June 2016 Mr Matsis submits that although his firm represented a number of defendants, additional work was required for each of them. The position of the defendants was not identical in that they each filed their own statement  of  defence.    While  one  affidavit  was  filed  it  covered  each  of  their positions.   That, however, does not support an uplift of the nature sought.   The

appropriate way to address that issue is to apply time band C to the applicable step rather than to seek an uplift of all costs on a global basis.

[11]     Next,   Mr   Matsis   submitted   there   were   errors   in   the   pleadings   and submissions which added to the defendants’ costs.  None of the matters referred to in counsel’s submissions at 14.2 or 14.3 are of sufficient moment in themselves to justify an award of increased costs in the circumstances of this case.  They do not readily fit within the categories identified in High Court Rule 14.6(3)(b) or (c). They are insufficient to justify an order for increased costs given the principle that the determination of costs should be predictable and expeditious:  r 14.6(3)(d).

[12]     The claim for indemnity costs is based on the submission that the plaintiffs improperly or unnecessarily continued with the proceeding after being put on notice there were significant defects in their claim and that “the defendants were willing to settle rather than continue to a hearing” so that the plaintiffs acted improperly or unnecessarily in continuing to a hearing.  This submission is primarily based on a letter from Mr Matsis’ firm on 21 June 2016.   The letter referred in detail to Mr O’Regan’s opinion and invited the plaintiffs to withdraw the proceedings.

[13]     Again High Court Rule 14.6(4) does not apply on the facts of this case. While the letter in issue referred to Mr O’Regan’s opinion which ultimately the Court, for the reasons given in the judgment, agreed with, there was a strong counter argument which Mr Toebes advanced.   This is not a case of a party unreasonably pursuing proceedings. The point was properly arguable.

[14]     The applications for increased and indemnity costs are declined.  However, as noted, I accept that it is appropriate that time band C apply to the preparation of the defence to recognise that the defences were filed on behalf of the three parties represented by Mr Matsis.  While they all opposed the application, their reasons and interests differed.  Taking instructions from all three parties would have taken more time than taking instructions from one.   To apply time band C to that step also recognises the additional work in dealing with three parties during the course of the proceeding.

[15]     Mr Toebes also challenged the inclusion of the claims for:

-     An  initial  attempt  by  the  plaintiffs  to  set  the  process  for  further constitution changes;  0.1 days

-     Proposed further constitution changes;  0.6 days

-     Costs submissions  0.4 days

[16]     As to the above, I agree with Mr Toebes’ submission that the attempt to settle the process of further constitution changes was a matter dealt with at a case management conference for which a costs award is already claimed and conceded.  I also  accept  Mr  Toebes’  submission  that  the  claim  for  the  proposed  further constitution changes is not claimable.  Those changes were proposed at the outset of the hearing.  Counsel had not seen them before.  They were not the subject of any detailed submissions at the hearing and did not add to the substantive length of the hearing.  The hearing was completed within a half day and a full half day has been claimed for it.

[17]     However,  I  do  not  accept  Mr  Toebes’  submission  that  the  claim  for preparation of costs submission should be restricted to 0.2 days, the same allocation as for Ms Scarrott.  The submissions made for the defendants are more extensive and while not successful on the applications for increased or indemnity costs, were of assistance to the Court.   0.4 days is often provided for preparation of costs memoranda.

[18]     On that basis the costs payable to the parties represented by Mr Matsis are as follows:

Step	Description	Time allocation
38	Filing notice of opposition and supporting affidavits, originating application	6.0 days
10/39	Preparation for first case management conference	0.4 days
11/39	Filing memorandum for case management conference 15 September 2015	0.4 days

13/39	Appearance   at    case    management    conference    15 September 2015 and urgent judicial teleconference 10 February 2016	0.6 days
40	Preparation of written submissions	1.5 days
42	Appearance at a hearing for sole or principal counsel	0.5 days
29	Sealing order or judgment	0.2 days
36(a)	Correction   of  parties’  names   and   applications   to remove certain parties	0.2 days
Costs submissions	0.4 days
Total:	10.2 days

[19]     At the daily recovery rate of $2,230 a day the costs figure in total is $22,746 together with disbursements of $490.  The costs figure to the May AGM is $16,502 with disbursements of $440.

[20]     That leaves the issue of who should bear the costs.  The plaintiffs submit the costs ought to be borne by Dorchester on the basis they brought the proceedings in the  best  interests  of  the  company  and  in  accordance  with  their  obligations  as directors of the company.  The defendants submit that it would be unreasonable for the  company  to  bear  the  costs.    The  consequence  of  that  would  be  that  as shareholders of the company they would be effectively having to pay a contribution towards the costs awarded to them in addition to having to pay the balance of the costs they have had to incur with their legal advisers.

[21]     In Smith v Butler, a case considered in the substantive judgment, the Court had held it was impracticable to convene and hold a company meeting to consider a resolution for Mr Butler’s removal.3   At first instance, the Court made an order for costs against Mr Butler.4    The Court confirmed that where, in substance, a dispute was between two groups of shareholders there was a general principle of company

law  that  the  company’s  money should  not  be  expended  on  such  disputes.   An

3      Smith v Butler [2012] EWCA Civ 314.

4      Smith v Butler [2011] EWHC 2301.

important issue was whether the issue of the proceedings had been authorised by resolution.

[22]     Mr Toebes submitted forcefully at the substantive hearing that the plaintiffs were the board of Dorchester and that they pursued these proceedings in good faith and in their role as directors.

[23]     Despite  Mr  Toebes’ submissions,  as  the  plaintiffs  were  the  unsuccessful parties before the Court the order must be made against them.  Dorchester was not a party to the proceeding.   It could not be, as the application has to be made by a director or shareholder.   Whether the plaintiffs are entitled to be indemnified by Dorchester will be dependent on their authority to bring these proceedings, and perhaps on application of s 162 of the Companies Act 1993.  It is not clear from the material I have whether they would be entitled to be indemnified.

[24]     I leave the matter on the basis that in the first instance the orders for costs are as follows:

(a)      Mr Corleison, Ms Barrett, Ms Davy and Mr Marsh are jointly and severally liable to pay the defendants represented by Mr Matsis’ firm the sum of $16,502 together with disbursements of $440.

(b)      Ms Davy and Mr Marsh are jointly and severally liable to pay the

defendants  represented  by  Mr  Matsis’ firm  the  additional  sum  of

$6,244 together with disbursements of $50.

(c)       Mr Corleison, Ms Barrett, Ms Davy and Mr Marsh are jointly and

severally liable to pay Ms Scarrott’s costs of $6,690.

[25]     For the avoidance of doubt I record that I leave open whether the plaintiffs

(including  Mr  Corleison  and  Ms  Barrett)  are  entitled  to  be  indemnified  by

Dorchester.

Venning J