ETB Realty Ltd v Eastlight Asset Trading No 3 Ltd

[2016] NZHC 609

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-000682 [2016] NZHC 609

UNDER

the Companies Act 1993

BETWEEN

ETB REALTY LIMITED Applicant

AND

EASTLIGHT ASSET TRADING NO 3

LIMITED Respondent

Appearances:

S M Hunter and O de Pont for Applicant

B R Young for Respondent

Judgment:

8 April 2016

(Determined on the papers)

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

on costs

Introduction

[1]      On 18 August 2015, the respondent (Eastlight) served a statutory demand on the applicant (ETB).  The demand stated that ETB was indebted to Eastlight in the sum of $142,000 “in respect of refunds due for deposits … in respect of the unit titles properties at … Fenton Street”.

[2]      ETB applied within the required 10 working days for an order setting aside the demand.  It supported its application with an affidavit of its sole director, Glenn Austin, who exhibited the voluminous historical documents (comprising three bound volumes) pertaining to the Fenton Street transactions.

[3]      The Registrar allocated 6 October 2015 as the first call date.

ETB REALTY LIMITED v EASTLIGHT ASSET TRADING NO 3 LIMITED [2016] NZHC 609 [8 April 2016]

[4]      The statutory demand had been prepared and executed on behalf of Eastlight by its director, Mr Kooiman.   Upon receipt of the setting aside application, Mr Kooiman took legal advice from Mr Young.  Mr Young has advised the Court that Mr Kooiman, upon receipt of that advice, immediately instructed him to withdraw the statutory demand.

[5]      Mr  Young  confirmed  the  withdrawal  of  the  statutory  demand  to  ETB’s

solicitors some days in advance of the first call.

[6]      The Court then vacated the hearing and made directions for the filing of submissions as to costs, ETB having signalled its intention to seek indemnity costs.

[7]      The application itself was not formally dismissed, a matter which  I will attend to in the order to be made below.

ETB’s application for costs

[8]      ETB applies for orders as to costs against both Eastlight and Mr Kooiman. [9]           Submissions have been filed both for and against the costs application.

[10]     Although Mr Young’s costs memorandum is entitled as a memorandum of counsel for “the respondent”, it is clear that his memorandum was filed not only on behalf of Eastlight but also on behalf of Mr Kooiman.   Mr Young concluded his frank memorandum with the following plea:

As previously stated, Mr Kooiman accepts that there will be a cost to what he now knows to be his ill-advised actions but asks that the Court considers his plea in mitigation in the assessment of the sum.

ETB’s precise claim

[11]     Despite its earlier anticipation of an application for indemnity costs, ETB has elected to pursue increased costs.  ETB seeks increased costs through a 50 per cent

uplift on a 2B1  calculation.  Counsel for ETB confirms that the increased costs, if awarded, will be less than ETB’s actual costs as between solicitor and client.

[12]     ETB also seeks an order for costs against Mr Kooiman as a non-party.

Application for increased costs

[13]     While costs are always matters ultimately within the discretion of the Court, the primary principle is that costs follow the event.2   Rules 14.3 to 14.5 High Court Rules provide for the categorisation of proceedings and the determination of reasonable time for costs purposes.  Both counsel appear to accept that the steps in this proceeding would appropriately be viewed as “2B”.

[14]     Under r 14.6(3) High Court Rules, the Court may award increased costs in specified circumstances.   The most relevant in the present case is the taking or pursuing of an argument which lacks merit.3    In the initial memorandum for ETB, counsel included submissions as to why the Court might have ordered indemnity costs, pursuant to r 14.6(4).  While I recognise the force of those, it is unnecessary that I take them further.  Indemnity costs are no longer sought.

[15]     Mr Young, in his memorandum for Eastlight, has responsibly accepted that the issuing of the statutory demand was ill-advised and an error of judgment on the part of Mr Kooiman.   The background which led to that concession is fully documented in the affidavit of Mr Austin filed in support of the application.   His evidence established that:

(a)       ETB raised a substantial dispute as to the claimed debt;

(b)the existence of a previous judgment of this Court setting aside a statutory demand issued by Eastlight in relation to the same deposits

as are the subject of ETB’s recent demand;4

1      High Court Rules: Category 2 under r 14.3(1) and band B under r 14.5(2).

2      See High Court Rules, r 14.2(a) and the commentary in A C Beck and others McGechan on

Procedure (online looseleaf ed, Thomson Reuters) at [HR 14.2.01(1)].

3      High Court Rules, r 14.6(3)(ii).

4      ETB Realty Ltd v Eastlight Asset Trading No 3 Ltd [2014] NZHC 2041.

(c)      Eastlight did not appeal the previous judgment; and

(d)a covering letter provided  by Eastlight  with  the statutory demand relied upon a clearly flawed argument (based on s 42(5) Property Law Act 2007) that the previous judgment was flawed and ignored the doctrine of issue estoppel.

[16]     For these summarised reasons, Mr Young’s characterisation of the statutory demand as “ill-advised” was a plainly correct concession.

[17]     The need for ETB to make the application to set aside the statutory demand arose through Mr Kooiman’s adoption, when issuing the statutory demand, of an argument which lacked merit by a very substantial margin.

[18]     Increased costs are justified.

[19]     As to the appropriate measure of increase, I adopt my observation in Norwich

Properties Ltd v Mark Gray Architect where I stated:5

[31]     It is not uncommon for this Court, when considering an uplift over scale costs, to order a 50 per cent uplift on a 2B calculation.   The Court views such an approach as fitting well with the intention of the Rules Committee, when the daily recovery rates of the High Court Rules are revised, to reflect approximately two-thirds of what might be considered a reasonable fee between solicitor and client.

[20]     I find the uplift of 50 per cent on a 2B calculation to be a just measure of the increased costs appropriate in this case.

[21]     Applied to the relevant items of cost in this case (which total $5,352), an award of costs with a 50 per cent uplift will be $8,028.

[22]     Disbursements are additionally payable, totalling $2,264.77.

5      Norwich Properties Ltd v Mark Gray Architect [2015] NZHC 994.

Costs against Mr Kooiman

[23]     The remaining issue is whether Mr Kooiman should also be liable for the costs and disbursements to be ordered.

[24]     The thrust of ETB’s application for non-party costs is that Mr Kooiman was using, in Eastlight, a closely-held company as a vehicle for litigation for his own purposes.

[25]     Mr Kooiman is the sole director of Eastlight.

[26]     There is reason to infer he is the beneficial owner of its shares.  He personally holds 2 per cent of Eastlight’s shares, with 10 per cent held by Maximus Trustee Company Ltd and 88 per cent held by Maximus Trustee Company No 2 Ltd.  The current  sole  director  and  shareholder of both  the Maximus  Companies is  Rorie Kooiman  who  came  into  his  directorship  and  shares  from  Mr  Kooiman  on  20

February 2009, three days before Mr Kooiman was adjudicated bankrupt.

[27]     The general discretion as to costs contained in r 14.1 High Court Rules may be exercised against non-parties to litigation.6

[28]     Counsel  for  ETB  directly  referred  to  a  number  of  authorities  for  the proposition that costs may be ordered against the “real party” to litigation personally, particularly where the  company-litigant  is  insolvent  or the claim  is  hopeless  or pursued improperly.7

[29]     I adopt also, as applicable, the observations of the High Court of Australia in

Knight v FP Special Assets Ltd in which the Court recognised a general category or

6      Erwood v Maxted [2010] NZCA 93, (2010) 20 PRNZ 466 at [18].

7      Carborundum Abrasives Ltd v Bank of New Zealand (No 2) Ltd [1992] 3 NZLR 757 (HC); Kidd v Equity Realty (1995) Ltd [2010] NZCA 452; Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; [2005] 1 NZLR 145 PC.

cases in which an order for costs should be made against the non-party:8

General category of cases where appropriate:

That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.

[30]     This is not a case in which an applicant for costs relies simply on the status of the non-party as a controlling director or shareholder of the company-party.   Mr Kooiman’s substantial financial interest in the outcome is not denied.  His active role in deciding to re-litigate already adjudicated issues is evident from the covering letter which accompanied the statutory demand.  He has himself, through counsel, accepted his responsibility for his “mistake” and “ill-advised actions”.

[31]     The speed with which Eastlight’s solicitor, once involved, acted to properly advise Mr Kooiman and to have the statutory demand withdrawn dramatically highlights the hopelessness and impropriety of the issue of the demand.

[32]     The interests of justice require that Mr Kooiman be held jointly responsible with Eastlight for the payment of the appropriate costs and disbursements.

Order

[33]     I order:

(a)      Eastlight Asset Trading No 3 Ltd and Michael Edwin Kooiman are to pay to ETB Realty Ltd its costs and disbursements of this proceeding which I fix in the sums of $8,028.00 and $2,264.77 respectively;

(b)      In addition, Eastlight Asset Trading No 3 Ltd and Michael Edwin

Kooiman are to pay to ETB Realty Ltd the costs of submissions in relation to this costs application which I fix in the sum of $1,115.00;

8      Knight v FP Special Assets Ltd [1992] HCA 28 (1992) 174 CLR 178, at 192-193.

(c)       The application to set aside the statutory demand dated 17 August

2015 is dismissed.

Solicitors:

Gilbert Walker, Auckland

Sladden Cochrane & Co, Wellington

Associate Judge Osborne