EBR Holdings Limited (in liquidation) v Levin

[2015] NZHC 2030

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-000270 [2015] NZHC 2030

BETWEEN

EBR HOLDINGS LIMITED (IN

LIQUIDATION) First Applicant

AND

HENRY DAVID LEVIN AND VIVIEN JUDITH MADSEN-RIES AS LIQUIDATORS OF EBR HOLDINGS LIMITED (IN LIQUIDATION)

Second Applicants

Hearing:	15 May 2015
Appearances:	K Kuang for the Applicants K Quinn for Non-Parties
Judgment:	27 August 2015

COSTS JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 27 August 2015 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors / Counsel: Meredith Connell, Auckland

Forest Harrison, Auckland

K Quinn, Auckland

EBR HOLDINGS LIMITED (IN LIQUIDATION) v HENRY DAVID LEVIN AND VIVIEN JUDITH

MADSEN-RIES AS LIQUIDATORS OF EBR HOLDINGS LIMITED (IN LIQUIDATION) [2015] NZHC 2030 [27 August 2015]

[1]      On 13 March 2015 I ordered that South Head Trustees Limited (Struck Off) be restored to the Register of Companies on an application made by the liquidators of EBR Holdings Ltd (in liquidation) under s329 of the Companies Act 1993.

[2]      The  application  was  necessary because  the  directors  and  shareholders  of South Head had exercised the statutory right of objection to the application the liquidators had made to the Registrar of Companies for the restoration of South Head to the Register.1 The remaining issue is as to costs.

Background

[3]      Johannes   van   Duyn   (Snr),  Johannes   van   Duyn   (Jnr),  Rene  Marinus van Duyn, and Gerarda Jacoba Maria van Duyn are the directors and shareholders of South Head.   On 23 June 2014, South Head was removed from the Companies Register while it was a defendant in a proceeding EBR had brought against it and the Van Duyns in the Waitakere District Court.2   The proceeding had been transferred to the High Court on 12 June 2014; the liquidators of EBR were joined as plaintiffs on

21 August 2014.

[4]      Subsequently, the liquidators applied to the Registrar of Companies to have South Head restored to the Companies Register. That application was met with the objection  lodged  by  Ms  Quinn  on  behalf  of  the  Van  Duyns.    The  objection effectively  blocked  the  applicants’  request  for  restoration  and  necessitated  the

application to the Court.3    The application was made on the grounds EBR was a

contingent creditor of South Head and had undischarged claims against it. Those claims were, at the time South Head was struck off, the subject of EBR’s legal proceedings.

[5]      The  Registrar  of  Companies  and  Treasury  were  each  served  with  the application.   They abided the Court’s decision.  An order was made requiring the

1      Under s 328(3) and (4) public notice of the application to restoration is required, and any person may file an objection. If the Registrar receives an objection within the statutory time frame, the company must not be restored to the Register except by order of the Court: ss 328(5), 328(7),

329.

2      EBR v Van Duyn and ors CIV-2009-090-1560.

3      Companies Act 1993, s 329.

Van Duyns to be served with the application to restore South Head to the Register. When served with the application, the Van Duyns decided to give up their objection to stop South Head’s restoration to the Companies Register, and they took no further formal steps to oppose an order, although they could have done so.

[6]      I considered that it was just and equitable that South Head be restored to the

Register, and made orders accordingly.

[7]      The applicants have filed a costs memorandum in which they seek an order for indemnity costs against the directors and shareholders of South Head on the basis that their objection was spurious.   The Court directed that the memorandum be served on four members of the Van Duyn family, as directors and shareholders of South Head, in order to afford them an opportunity to be heard.  Their legal advisor, Ms Quinn, filed a memorandum on their behalf opposing any costs order against them.

[8]      The  applicants  say  that  though  the  Van  Duyns  are  non-parties  to  the application for restoration, and did not actively oppose the application:

(a)      The very need for the application has come about because of the Van Duyns’ vexatious conduct.  The Van Duyns had no good reason to object to South Head’s restoration to the Register, and earlier secured removal from the Register for improper reasons (to thwart the District Court proceeding against South Head).

(b)The applicants were put to considerable expense in having to bring the s 329 application when that expense could have been readily avoided but for the Van Duyns’ spurious objection.

(c)       The applicants’ and the Court’s time has been unnecessarily wasted by

having to deal with the application.

[9]      Counsel for the applicants acknowledges that she has not been able to find any examples of cases where an order for costs has been made against non-parties in

an application under s 329.  However she submits that there is a basis for such an order:

(a)      The  Van  Duyns  are  in  an  analogous  position  to  “respondents”, because they were served with the s 329 application on the court’s direction and could have opposed it had they wished; and

(b)There is power to make an order against non-parties under s 51G Judicature Act 1908, which provides jurisdiction for me to make costs orders on applications not otherwise covered by specific legislation, and using the reasoning in Poh v Cousins & Associates, where the

Court said:4

the receivers had a distinct degree of control over the proceedings both as to whether it was necessary in the first place and as to how it was resolved.

(c)      Costs against third parties require causation to be shown, and the case must be “exceptional” in the sense of being outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Whether a case is exceptional depends on whether in all the circumstances it is just to make an order, as per Mana Property.5

(d)This was an exceptional case because the objection was in bad faith and was an abuse of process.

[10]     Counsel submits that in the circumstances indemnity costs under r 14.6(4) (totalling $6,660 and disbursements of $687.12) are warranted.  She further submits such costs are warranted because the applicants are a company in liquidation and its

liquidators, and the application has diminished the funds available to the liquidators

4      Poh  v  Cousins  & Associates  HC  Christchurch  CIV-2010-409-2654, 4  February 2011;  see also Hamilton  v  Papakura  DC (1997)  11  PRNZ  333,  at  pp  338-339  (parties  financially supporting the  plaintiff ’s  proceeding); Carborundum Abrasives Ltd  v  BNZ  (No  2) [1992] 3

NZLR 757; (1992) 5 PRNZ 418, at p 763; p 424 (costs awarded against the directors of the plaintiff).

5      Mana Property Trustee Ltd v James Developments Ltd [2011] 2 NZLR 25 at [10].

for the distribution to the company’s creditors.   She submits in the alternative that

2B costs of $4,776 plus disbursements would be appropriate. [11]     The Van Duyns submit in opposition that:

(a)       They did not act in bad faith;

(b)      The Companies Act is inflexible and it circumscribed their options.

They had to make an immediate choice of whether or not to exercise their right of objection.  The alternative was to run the risk of being out of time when they needed to minimise their own costs;

(c)      If the court were to award costs, this would be out of step with the other situations in which the Courts have been prepared to grant costs orders against non-parties.

(d)Any award would, in any event, be nugatory, because the company is a bare trustee with no assets.

[12]     Counsel for the applicants rejects the Van Duyns’ arguments.   She submits that:

(a)      Until the third amended statement of defence in the District Court was filed in February 2015, the Van Duyns have alleged the subject payments  were  for  the  benefit  of  one  of  the  associated  trusts, including South Head. That would indicate the company does have some assets.

(b)As in Thornton Estates, South Head’s financial position is not so plainly before the Court that it can be satisfied South Head has no assets to meet a costs judgment, and so there is no reason to decline to award costs.6

(c)      In  any  case,  the  mere  fact  that  a  company  has  no  assets  is  not necessarily determinative of costs decisions.7

(d)The   Van   Duyns   belatedly   changed   their   approach   to   one   of non-opposition.  Such a change should not be taken as negating the need for costs.

(e)      The suggestion that the Van Duyns’ objection could not be withdrawn once it was lodged, even if true, has no impact on costs. Once the objection was filed, the Van Duyns should have known they were putting the applicants to the costs associated with it. The attempt to hide behind the statutory procedure is an illegitimate attempt to retrospectively justify their actions.

Discussion

[13]     I am not satisfied that this is an appropriate case in which to award costs against the Van Duyns. It is not so exceptional as to warrant the imposition of costs against a non-party.

[14]     The Van Duyns have taken no steps in this present application. This is not a case  where  the  Van  Duyns  have  effectively  been  the  driving  force  behind unnecessary or unmeritorious litigation brought by another, as was the case in Poh, Hamilton or Carborundum.8  It seems to me that in a situation where they have exercised their statutory right of objection, but taken no further steps, it would be unusual and inappropriate to impose on them costs of ensuing litigation to which they are not parties.  An award of third party costs is an unusual step, even more so

when the award is for increased or indemnity costs.

7      See the list of factors for consideration in Re Saxpack Foods Ltd [1994] 1 NZLR 605. See also Re Trade Indemnity NZ Ltd HC Auckland CIV-2003-404-6684, 12 December 2003, in which Heath J  observed that it  was difficult not to draw an inference that the opposition to the application to restore the company was actually an attempt to seek a collateral advantage in the litigation. The applicants submit the same inference can be drawn in this case. Though the parties’ motivations did not matter in the decision whether or not to restore the company, it is their submission that motive is relevant to the determination of costs.

[15]     The real point is that the liquidators have had to make this s 329 application in order to continue the proceeding that was already on foot against South Head in the District Court (later transferred to the High Court).9 I granted that application, so that proceeding is live. The Van Duyns are parties to it. This issue can properly be seen as subsidiary to that substantive proceeding.  If costs are to be sought against the Van Duyns for taking an unnecessary step which has unreasonably prolonged that litigation, it seems to me that it is appropriate to do that in that proceeding in which they are parties. I note that it is at least arguable that, by creating the need for a Court

order restoring South Head, the Van Duyns took an unnecessary step or created an unnecessary delay in determining that proceeding.

Result

[16]     The application for costs is declined.  The question of costs is one that may be raised at the conclusion of the substantive proceeding against South Head and the Van Duyns.

[17]     Costs are reserved following the conclusion of the proceeding against South

Head.

Associate Judge Sargisson