DP Alam Horticulture Limited (in liquidation) v Sorensen

[2018] NZHC 3062

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV 2017-441-100

[2018] NZHC 3062

UNDER

the Companies Act 1993

IN THE MATTER OF

the liquidation of DP Alam Horticulture Limited (in liquidation)

BETWEEN

DP ALAM HORTICULTURE LIMITED (IN LIQUIDATION)

First Plaintiff

COLIN DAVID OWENS and DAVID

STUART VANCE as liquidators of DP Alam Horticulture Limited (in liquidation)

Second Plaintiffs

AND

DAVID GORDON HALVOR SORENSEN

Defendant

On the papers
Judgment:	23 November 2018

JUDGMENT OF MALLON J

Introduction

[1]    The plaintiffs, a company in liquidation, and its liquidators, commenced this proceeding against the defendant, who was the company’s accountant. The plaintiffs subsequently filed a notice of discontinuance. The defendant seeks costs following that discontinuance. This is opposed by the plaintiffs. They contend costs should lie where they fall.

DP ALAM HORTICULTURE LIMITED (IN LIQUIDATION) v SORENSEN [2018] NZHC 3062 [23 November 2018]

Background

[2]    Prior to liquidation the company operated a horticulture and fruit picking business. The liquidators were appointed on the application of the Inland Revenue, with the support of a creditor. As at the date of the defendant’s claim for costs on the proceeding, the liquidators had received creditors’ claims of $622,043 of which

$576,697 are taxes owing to Inland Revenue. Some realisations and distributions have occurred, but no funds are available to meet the vast majority of claims.

[3]    The plaintiffs’ claim against the defendant concerned company funds received into his bank account. The liquidators had identified $421,666.29 in payments from the company’s account to the defendant’s bank account. The liquidators asked the defendant for an explanation. He said they were used to pay company expenses such as staff wages. The liquidators were unable to identify company records to identify the purpose of the payments. Payroll records identified a total of $271,636.90 cash wage payments. The liquidators were unable to identify how those payments had been made. As this sum could have been part of the $421,666.29 received by the defendant, they considered there was an unexplained shortfall of $150,020.39. The plaintiffs’ claim was for this shortfall. The claim was for breach of trust or breach of a fiduciary duty.

[4]    The defendant was initially self-represented. After instructing counsel he applied for leave to file a statement of defence out of time. The application was granted by consent and on the basis there was no issue as to costs. The defendant’s affidavit in support of that application explained the defendant’s position that all the money in his account was company money used to pay company expenses. The defendant also said that he had kept records of all the payments he had made through his bank account. He offered to travel to Wellington to take the liquidators through those records to explain the alleged shortfall of $150,020.39. He says this offer was not taken up and instead he was served with the claim.

[5]    After the filing of the statement of defence, a joint memorandum for the first case management review was filed. Subsequently a joint memorandum seeking enlargement of the case management timetable was filed. Shortly before the parties

were due to exchange discovered documents, the plaintiffs filed a notice of discontinuance.

[6]    An affidavit filed for the plaintiffs explains the proceeding was discontinued because, after the defence was filed, it became clear the “litigation would be a protracted and expensive exercise, and would exceed the funds available”. The liquidators sought funding from Inland Revenue to continue the claim. This was declined. The affidavit claims that the defendant provided a small selection of records which did not provide a sufficient explanation in the liquidators’ view. The affidavit also says the defendant provided a letter from a company director asserting that he had authorised the payments. However, the director was said to have admitted to the liquidators that the defendant had himself written that letter for the director to sign. Further, the letter contradicted other statements made by the director. The liquidators were therefore not persuaded by the letter.

Assessment of costs claim

[7]Rule 15.23 of the Hight Court Rules 2016 provides:

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[8]    This rule has been described as providing a presumption which can be displaced if it is just and equitable to do so.1 There are a number of considerations that may be relevant to this, but the court should not consider the merits of the respective cases unless they are so obvious that they should influence the costs outcome.2

[9]    In this case, the plaintiffs essentially require me to consider the merits of the respective cases. They say the claim was justified and was only discontinued because of a lack of funds. The plaintiffs’ position, however, is not so obvious that it should influence the costs outcome. The defendant says he acted lawfully and could explain

1      McGechan on Procedure (looseleaf ed, Thomson Reuters) at [15.23.01].

2      Above.

the transactions and was intending to defend the proceeding. The plaintiffs were entitled to issue proceedings because they were unsatisfied with the defendant’s explanations but they unilaterally discontinued it without establishing their position.

[10]   The defendant claims costs on a Category 2B basis amounting to $6,244 and disbursements of $110. This is made up of:

(a)Preparing statement of defence (Schedule 3, item 2): $4,460;

(b)Preparation for the first case management conference (Schedule 3, item 10): $892;

(c)Preparation of joint memorandum for first case management conference (Schedule 3, item 11, at half the 2B rate): $446;

(d)Preparation of joint memorandum seeking enlargement of timetable (Schedule 3, item 11, at half the 2B rate): $446;

(e)Filing fee for statement of defence: $110.

[11]   The plaintiffs say the defendant should have no more than 50 per cent of the costs of filing the statement of defence. This is because it did not involve further work following the application for leave to file the statement of defence and it was agreed that the costs of the application would lie where they fall. I do not accept this submission. The agreement that costs lie where they fall related to the application for leave, which is a different item in Schedule 3. The defendant did file a statement of defence and is entitled to the allowance for that step.

[12]   The plaintiffs say there should be no claim for preparation for the first case management conference because no conference was scheduled or held. I agree. The defendant is entitled to claim the half share for his input into the joint memorandum for the first case management conference but not otherwise.

Result

[13]The defendant is entitled to costs of $5,352 and disbursements of $110.

Mallon J