Edel Metals Group Ltd v Geier Ltd - [2017] NZHC 225

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-201 [2017] NZHC 225

IN THE MATTER
of Part 18 of the High Court Rules and the

companies Act 1993

BETWEEN

EDEL METALS GROUP LIMITED Plaintiff

AND

GEIER LIMITED First Defendant

MICHAEL JOHN JACOMB, TRENA KATHLEEN JACOMB AND PETER REGINALD RICHARDSON as trustees of the Genset Trust

Second Defendants

Hearing: 2 February 2017

Appearances:

B Gustafson for Plaintiff
N W Ingram QC and C F Foote for First and Second
Defendants

Judgment:

22 February 2017

JUDGMENT OF FOGARTY J

This judgment was delivered by Justice Fogarty on
22 February 2017 at 10.00 a.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Solicitors:
Lowndes Jordan, Auckland
Kendall Sturm & Foote, Auckland

EDEL METALS GROUP LIMITED v GEIER LIMITED [2017] NZHC 225 [22 February 2017]

The Pleaded Positions

[1] The defendants have applied to strike out the statement of claim of the plaintiff, and for orders and costs, including increased or indemnity costs, against the plaintiff company Edel Metals Group Ltd (EMG) and against Mr J A Sorenson, the plaintiff’s sole director. EMG does not oppose the application for the order of strike- out nor for an order for costs against EMG on a category 3B basis. The claim of EMG is struck out.

The Costs Dispute

[2] EMG opposes the order for costs to the extent that the order includes increased or indemnity costs. Mr Sorenson opposes the costs application against him. He disputes any liability for costs, let alone indemnity costs.

Mr Sorenson – As Director

[3] Mr Sorenson has “acted” as a director of EMG from 20 December 2013. I say “acted” because the pleadings are challenging whether he was validly appointed. Mr Sorenson succeeded Messrs Jacomb and Wikeley as persons “acting as” directors of EMG. I say “acting as” neutrally, as there is a dispute as to whether they were properly appointed. Mr Sorenson was “appointed” a director by resolutions of the first defendant Geier Ltd and Friendship Club Ltd, Rosewall Ltd, Primula Ltd, Mr Wikeley and Sundome Enterprises Ltd, purporting to do so by way of a special
resolution of the shareholders.1

The Merits of Indemnity Costs

[4] The claim for indemnity costs relies on and has to meet the test in the High

Court Rules at 14.6(4)(a), which provides:

14.6 Increased costs and indemnity costs

1 Mr Sorenson is the majority shareholder in Sundome Enterprises Ltd, the holder of the largest block of shares after the transfers by Mr Kenneth Wikeley. Mr Sorenson appears as the director of EMG after Mr Wikeley ceased as director, on 27 September 2013 and became the sole director of 2 October of that year (Mr Wikeley ceasing to be a director). The second defendant called both men “purported directors”. It is not necessary to resolve the legitimacy of their respective appointments.

(4) The court may order a party to pay indemnity costs if—

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NZHC 225
Decision Date: 22 February 2017

CaseChat Overview and Summary

Edel Metals Group Ltd (EMG) sued Geier Ltd and others for recovery of unpaid share capital. The defendants applied to strike out the statement of claim and for costs, including indemnity costs against EMG and its director, Mr Sorenson. EMG did not oppose the strike-out application or the order for costs against EMG on a category 3B basis. The Court of Appeal had criticised the steps taken by the former director of EMG, Mr Wikeley, from January 2013, as an “engineering of a call on shares” and a “device” to defeat the rights of minority shareholders. Mr Sorenson, who had succeeded Mr Wikeley as the sole director of EMG, made a new call on 20 December 2013, seeking to recover 25 cents per share from the second defendants. There was no general meeting of shareholders of the company to discuss and approve the calls. Mr Sorenson, however, argued that he was not liable for costs as he was acting within his capacity as a director of EMG. The court held that Mr Sorenson’s argument was misguided. The call on the shares by Mr Sorenson was opportunistic, deliberate, unfair, and unprincipled. It was an abuse of his fiduciary obligations as a director, as he held himself out to be. It was not a bona fide exercise of his duties as a director. The absence of a general meeting was tangible evidence that the decision to issue proceedings was taken in the absence of good faith. In that context, he could not now resist costs being ordered against him. Mr Sorenson and EMG were ordered to pay the actual costs and disbursements, being reasonably incurred by the defendants. The question of interest was reserved. The defendants were entitled to costs on these proceedings.

Orders