Du Val Group NZ Limited v Servsync Limited
[2024] NZHC 3265
•5 November 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-000232 [2024] NZHC 3265
UNDER Parts 19 and 32 of the High Court Rules 2016 and Senior Courts Act 2016 IN THE MATTER OF
A without notice originating application for freezing orders and ancillary orders under
rr 32.2 and 32.3 of the High Court Rules 2016
BETWEEN
DU VAL GROUP NZ LIMITED and DU VAL MANAGEMENT LIMITED
Plaintiffs
AND
SERVSYNC LIMITED
First Defendant
STUART GOODFELLOW
Second Defendant
RED CELL CYBER LIMITED
Third Defendant
On the papers Counsel:
K A Lomas and L H H Hunt for Plaintiffs
C T Patterson and E J Grove for Defendants
Judgment:
5 November 2024
JUDGMENT OF VAN BOHEMEN J
[on costs]
This judgment was delivered by me on 5 November 2024 at 3:30 pm pursuant to r 11.5 of the High Court Rules 2016.
Counsel/Solicitors:
Braun, Bond & Lomas Ltd, Hamilton C T Patterson and E J Grove, Hamilton Lateral Lawyers Ltd, Auckland
Registrar/Deputy Registrar
……………………………..
DU VAL GROUP NZ LTD v SERVSYNC LTD [2024] NZHC 3265 [5 November 2024]
[1] This judgment decides an application for costs by the defendants, Servsync Ltd, Stuart Goodfellow and Red Cell Cyber Ltd following my judgment of 22 March 2024 in which I discharged a freezing order made by Lang J on 29 August 2022 on the application of the plaintiffs, Du Val Group NZ Ltd and Du Val Management Ltd (together, Du Val) over the assets of the Goodfellow entities and held that the Goodfellow entities were entitled to costs.1
[2] As set out below, determination of the application has been delayed by administrative inefficiency within the Court administration, for which I apologise.
Relevant background
[3] In the Discharge Judgment, I recorded that I was satisfied that, at the time of the application for a freezing order, the plaintiffs had established a good arguable case on a prospective cause of action and that it was clearly arguable that Mr Goodfellow had misappropriated funds from Du Val by establishing Servsync without Du Val’s knowledge and arranging for invoices to be submitted to Du Val for payment.2 In a footnote, I also acknowledged that there were obvious weaknesses and inconsistencies in Mr Goodfellow’s account of what happened with Servsync.3
[4] However, I found there had been material non-disclosure by the plaintiffs when applying for the freezing order made by Lang J. In particular, I found that affidavits filed by Du Val in support of the application for a freezing order omitted key information that was known or ought to have been known to Du Val and conveyed to the Court the impression that Mr Goodfellow’s departure for the United Kingdom was a complete surprise to most people in Du Val and that this remained the position at the time the application for a freezing order was filed. It also conveyed the impression that Mr Goodfellow had terminated his relationship with Du Val. I held that both impressions were thoroughly incorrect.4
1 Du Val Group NZ Ltd v Servsync Ltd [2024] NZHC 650 [Discharge Judgment].
2 At [61].
3 At [74], n 20.
4 At [64].
[5] I found that the material that was not disclosed about Mr Goodfellow’s travel and work arrangements in the United Kingdom and his termination from Du Val were highly relevant to the decision that Lang J had to make; namely, whether there was a danger that Mr Goodfellow would dispose of or dissipate assets. I held that the effect of those omissions was to misrepresent the actual position to the Court.5 I also found that the omissions and misrepresentation were not inadvertent or the result of an inability to make proper inquiries and that all of the omitted material was known to John Kenyon Clarke and Charlotte Clarke. With reasonable diligence, the omissions and misrepresentation should also have been known to those who prepared the application and swore the affidavits filed in support of the application.6
[6] I also observed that it was likely that Du Val had misrepresented the position regarding Mr Goodfellow’s travel and work arrangements with Du Val in order to subject Mr Goodfellow to the rigours of the freezing order rather than out of any genuine concern that Mr Goodfellow might dispose of or dissipate his assets and that, if that was so, it was an abuse of the court’s processes.7
[7] In these circumstances, I saw no case for maintaining the freezing order over Mr Goodfellow’s worldwide assets, irrespective of the merits of Du Val’s claim against Mr Goodfellow or the merits of Mr Goodfellow’s counterclaims against Du Val.8 I also noted that the scope of the freezing order was disproportionate to Du Val’s claim against Mr Goodfellow for $76,691.60, with interest and costs, and said that, in that respect, the freezing order was not consistent with r 32.6(2) of the High Court Rules 2016 (the Rules). I noted that Mr Goodfellow’s property at St Catherines Crescent, Sherborne is a fixed asset that is likely to be worth considerably more than any judgment that Du Val will obtain in its substantive claim against Mr Goodfellow, even leaving aside Mr Goodfellow’s counterclaims.9
5 At [67].
6 At [68].
7 At [73].
8 At [74].
9 At [75].
[8] I held that the defendants were entitled to costs and said I would ordinarily set those at a 2B basis but gave leave to the defendants to file a memorandum if they wished to make submissions on costs.10
Costs memoranda
[9] On 19 April 2024, counsel for the defendants filed a memorandum in which they set out the reasons why they consider costs should be set higher than on a standard 2B basis. They seek indemnity costs of $30,158.33 and disbursements of $495.56 or, in the alternative, 2B costs of $11,950 uplifted by 60 per cent to reflect the seriousness of the plaintiffs’ non-disclosure, which would result in a costs order of $19,120 and disbursements of $495.56.
[10] On 23 April 2024, Du Val appealed the Discharge Judgment. On the same date, counsel for the plaintiffs filed a memorandum seeking an order that costs be deferred pending determination of the appeal and the timetable for filing submissions on costs be paused.
[11]These memoranda were not referred to me.
[12] On 10 May 2024, counsel for the plaintiffs filed a further memorandum submitting again that costs should be deferred pending the outcome of the appeal or, if costs were to be ordered, that they be fixed on a 2B basis with no uplift or, if there was to be an uplift, it should be modest and certainly less than 60 per cent.
[13] On 19 June 2024, counsel for the defendants filed a further memorandum in which they submit that there are good grounds for indemnity costs but that if costs are to be deferred pending the outcome of the appeal, the Court should require the plaintiffs to pay into court the sum of $19,120 plus disbursements as security.
[14]Again, these memoranda were not referred to me.
10 At [77].
[15] On 21 August 2024, the Du Val group of companies, which includes the plaintiffs, were put into statutory management.
[16] On 4 September 2024, the plaintiffs abandoned their appeal of the Discharge Judgment.
[17] On 9 October 2024, I was made aware of the costs memoranda and was provided with copies. I write this judgment in order that the defendants may seek recovery of the costs ordered from the statutory managers.
[18] With the abandonment of the appeal, questions of deferral and security fall away. The plaintiffs do not dispute that 2B costs at least are appropriate. The only issue is whether indemnity costs or an uplift of scale costs should be ordered.
Applicable principles on costs
[19] As stated by the Supreme Court in Manukau Golf Club Inc v Shoye Venture Ltd, and by the Court of Appeal in Bradbury v Westpac Banking Corp, and as reflected in the Rules, it is a fundamental principle that costs follow the event.11
[20] While all matters relating to costs are at the discretion of the Court,12 that general discretion is qualified by the specific costs provisions in the Rules and is exercisable only in situations not contemplated or not fairly recognised by the Rules. Ordinarily, the unsuccessful party pays the successful party costs according to the scale set out in the Rules.13 The scale reflects the complexity and significance of the proceeding and is assessed at two-thirds of the daily rate considered reasonable in relation to the proceeding.14
11 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8]; Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [6]; and High Court Rules 2016, r 14.2(1)(a).
12 High Court Rules, r 14.1(1).
13 Rule 14.2(1)(a).
14 Bradbury v Westpac Banking Corporation , [2009] NZCA 234, [2009] 3 NZLR 400 at [6]; and High Court Rules, r 14.2(1)(d).
[21] Rules 14.6(1) and (2) provide that the Court may make an order for increased costs or indemnity costs and may make the order at any stage in the proceeding and in relation to any step in the proceeding.
[22] Under r 14.6(3)(b)(v), the Court may order a party to pay increased costs if the party has contributed unnecessarily to the time or expense of the proceeding by failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding.
[23] Under r 14.6(4), the Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing, or defending a proceeding.
[24] In Bradbury, the Court of Appeal summarised the circumstances where scale costs, increased costs, and indemnity costs might be ordered as follows:15
(a)standard scale applies by default where cause is not shown to depart from it;
(b)increased costs may be ordered where there is 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.
Submissions of counsel for defendants
[25] In their memorandum of 19 April 2024, counsel for the defendants say that two general practices have emerged when costs are awarded after a freezing order has been procured by way of material non-disclosure of relevant facts. These are:
(a)if the non-disclosure was neither deliberate nor reckless, costs are generally uplifted by 25 per cent above scale; and
(b)if the material non-disclosure was deliberate, or the result of conduct akin to recklessness in relation to the accuracy or completeness of the provided disclosure, costs are generally awarded on an indemnity basis.
15 Bradbury v Westpac Banking Corporation , above n 14, at [27].
[26] Counsel for the defendants refer to the decision in Commissioner of Inland Revenue v Dymock as an example where indemnity costs have been ordered.16 Counsel submit that the plaintiffs’ conduct in this proceeding was more worthy of criticism than that in Dymock given my findings as set out above and say the conduct falls squarely within r 14.6(4)(a) as justifying an award of indemnity costs because the plaintiffs have acted “improperly” in relation to the obtaining of the freezing order.
[27] In addition, counsel for the defendants refer to additional exacerbating factors, which include that:
(a)the defendants had expressly advised the plaintiffs in writing of specific matters that had not been adequately disclosed; and
(b)the plaintiffs had rejected the defendant’s offer to pay $86,691.60 into a solicitor’s trust, a sum greater than the amount of $76,691.60 claimed by the plaintiffs, in return for the discharge of the freezing order made by Lang J and a parallel order made in the United Kingdom.
[28] Counsel for the defendants also refer to the plaintiffs’ conduct since the Discharge Judgment. They say the plaintiffs have refused to give notice of the discharge of the freezing order to third parties whom the plaintiffs had notified of the order when made and have refused to consent to the discharge of the United Kingdom freezing order.
[29] The defendants provide evidence in support of these submissions in an affidavit affirmed by Amanda Bragg on 19 April 2024 and filed with the memorandum.
[30] For these reasons, counsel for the defendants submit that indemnity costs or scale costs uplifted by 60 per cent should be ordered.
16 Commissioner of Inland Revenue v Dymock [2013] NZHC 3346, (2013) 26 NZTC 21-060.
Submissions of counsel for plaintiffs
[31] In their memorandum of 10 May 2024, counsel for the plaintiffs say that, notwithstanding the findings of material non-disclosure, my findings that the plaintiffs had established a good arguable case and that there were obvious weaknesses in Mr Goodfellow’s account of what had happened with Servsync go to the core of the plaintiffs’ substantive claim and are a basis for distinguishing Dymock, where the Court held there was no risk of dissipation and no need for a freezing order.
[32]Counsel for the plaintiffs also say that the plaintiffs’ refusal of the offer to pay
$86,691.60 was not unreasonable because the defendants misinterpret r 32.6 of the Rules which, the plaintiffs say, allows provision to be made for costs incurred in the substantive proceeding. They also point to correspondence in the material exhibited to Ms Bragg’s affidavit as showing that the parties had almost reached an agreement in November 2022 which would have allowed for the discharge of the freezing order but Mr Goodfellow refused to accept the plaintiffs’ reasonable conditions. They also said that events post the Discharge Judgment are not relevant to costs.
[33] For these reasons, counsel for the plaintiffs say costs should be fixed on a 2B basis as calculated by the defendants, that there should be no uplift or, if there is to be one, it should be modest.
Discussion
[34]I accept the present case has some differences from the circumstances in
Dymock. But I do not consider those differences to be significant.
[35] While I found that the plaintiffs had a good arguable case and that there were weaknesses in Mr Goodfellow’s account of what had happened with Servsync, I did not find that the freezing order was necessary or appropriate. To the contrary, I found that the scope of the order was disproportionate to the plaintiffs’ substantive claim, inconsistent with r 32.6(2) of the Rules and that there was a fixed asset, the value of which is likely to be worth considerably more than any judgment that Du Val would obtain in its substantive claim. In other words, there was no real risk of dissipation and no need for the order.
[36] For the reasons set out in the Discharge Judgment and summarised above, I am satisfied that the plaintiffs’ conduct in failing to disclose obviously relevant material to the Court was at least as improper as that of the Commissioner of Inland Revenue in Dymock. I am also satisfied that it warrants an equivalent order for indemnity costs, irrespective of the positions of the parties in relation to the offers made in November 2022 and irrespective of the post-judgment conduct of the plaintiffs.
[37] In terms of the guidance of the Court of Appeal in Bradbury, I am satisfied that the plaintiffs acted very unreasonably.17
Result
[38] I order the plaintiffs to pay the defendants’ actual costs of $30,158.33 and disbursements of $495.56.
G J van Bohemen J
17 Bradbury v Westpac Banking Corporation , above n 14, at [27].
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