Eversons International Limited (in liquidation) v Stewart
[2023] NZHC 3083
•1 November 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-000192
[2023] NZHC 3083
UNDER the Companies Act 1993 BETWEEN
EVERSONS INTERNATIONAL LIMITED (IN LIQUIDATION)
First Plaintiff
AND
ELIZABETH HELEN KEENE and LUKE NORMAN
Second Plaintiffs
AND
EVAN KERRY STEWART
Defendant
CIV-2023-409-000225 BETWEEN
EVAN KERRY STEWART
PlaintiffAND
ELIZABETH HELEN KEENE
First Defendant
AND
KPMG
Second Defendant
Hearing: (On the papers) Counsel:
P C Murray for First and Second Plaintiffs in -000192 and First and First and Second Defendants in -000225
E K Stewart in Person
Judgment:
1 November 2023
JUDGMENT OF CHURCHMAN J
[Costs]
EVERSONS INTERNATIONAL LIMITED (IN LIQUIDATION) & ORS v STEWART [2023] NZHC 3083
[1 November 2023]
Introduction
[1] On 23 August 2023, I delivered a judgment in respect of two separate applications in related proceedings.1
[2] The first application, in the CIV-2020-409-192 proceedings, was an application by Mr Stewart opposing the sealing of the judgment of Nation J delivered on 22 December 2022. In that decision, Nation J had entered judgment for the company and the liquidators against Mr Stewart in the sum of $1,720,000, but reserved leave for Mr Stewart to protest the sealing of the judgment under r 15.16(5) of the High Court Rules 2016.
[3] The second application was an application by the defendants to strike out separate proceedings brought by Mr Stewart (the CIV-2023-409-225 proceedings) alleging that the defendants had “falsely” attempted to bring claims and had “attempted to create a situation of extortion”.
[4] I dismissed Mr Stewart’s application under r 15.16(5) of the High Court Rules to set aside the 22 December 2022 judgment of Nation J. I found that Mr Stewart’s claims of fraud, false accounting and extortion were misconceived, and appeared to be based on a fundamental misunderstanding by him.2 Nothing in the summary judgment decision provided any support for the allegations Mr Stewart made that the liquidators had falsified anything, fabricated evidence or attempted to extort anything by fraud.3 I found that Mr Stewart had not been able to point to any information that would support a conclusion that in entering the judgment, the liquidators or company acted fraudulently, unconscionably or in wilful or reckless disregard of Mr Stewart’s rights.4 I noted Mr Stewart’s claims involved serious allegations that should never be made without a sound evidential basis. Given they were wholly misconceived, I considered they should not have been made in this case.5
1 Eversons International Ltd (in liq) v Stewart [2023] NZHC 2325.
2 At [36].
3 At [37].
4 At [38].
5 At [40].
[5] With respect to the second application, I allowed the defendants’ application for strike out. I found that the proceedings instituted by Mr Stewart alleging fraud, perjury and extortion on the part of the defendants were an abuse of the Court’s process. In particular, I found that the doctrine of res judicata applied and Mr Stewart was prohibited from seeking to relitigate matters that were in issue in earlier proceedings and in respect of which he had signed a full admission of liability.6 I also found that the claim was an impermissible attempt to collaterally attack the judgment of Nation J and, particularly in respect of the allegations of fraud and perjury, had not been duly particularised and had not been supported by the appropriate evidential foundation.7 Moreover, Mr Stewart was prohibited under the Deed of Settlement he had signed from suing the first and second defendants, and there was no obvious cause of action pleaded against the second named defendant.8
[6] I found that the liquidators and company, having successfully opposed Mr Stewart’s application under r 15.16(5), were entitled to costs, as were the defendants in the proceedings brought by Mr Stewart, having been successful in their strike out application.9 I encouraged the parties to settle the question of costs by agreement. However, it appears agreement has not been reached and the issue of costs now falls to be determined.
[7] The liquidators, the company and the defendants, who are represented by the same counsel, seek costs on an indemnity basis against Mr Stewart in respect of both proceedings.
[8] Mr Stewart opposes the application for costs. He asks that costs be reserved pending the outcome of appeals against my decisions in respect of both applications. It seems that he intends seeking leave to appeal out of time. If costs are payable, Mr Stewart asks that they be awarded on a 2B basis.
6 At [53].
7 At [58]–[59] and [65].
8 At [60]–[64].
9 At [67].
Discussion
The r 15.16(5) application (CIV-2020-409-192)
[9] Rule 14.6(4)(e) provides that the Court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed. Clause 12 of the settlement deed between the parties expressly provides that Mr Stewart will pay the liquidators’ and company’s legal costs on a solicitor-client basis in relation to the enforcing of the admission of the claim. I accept that the entitlement here is plainly and unambiguously expressed.10
[10] However, that finding does not completely resolve this issue. A further step is required. It is necessary to consider whether the claimed solicitor and client costs are reasonable. This includes assessing:11
(a)what tasks attract a costs indemnity on a proper construction of the contract (or in this case deed);
(b)whether the tasks undertaken were those contemplated in the contract (or deed); and
(c)whether the steps undertaken were reasonably necessary in pursuance of those tasks.
[11] The “tasks” here refers to the costs of enforcing the admission of the claim. While Mr Stewart was entitled to make an application under r 15.16(5) to set aside the judgment of Nation J, it was not necessary for him to do so, and it was ultimately misguided for him to do so. Given Mr Stewart’s application, it was necessary for the liquidators to take steps in response, and the liquidators were successful in their opposition to the application. I am therefore satisfied that once Mr Stewart’s application was made, the steps taken in response were those contemplated in the deed to enforce the admission of the claim. Moreover, I am satisfied that the steps undertaken by the liquidators at each step were reasonably necessary in pursuance of
10 Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261 at [84].
11 Black v ASB [2012] NZCA 384 at [80].
those tasks, namely to enforce the admission of the claim. The liquidators and company are accordingly entitled to indemnity costs on the basis of the settlement deed and the need to enforce the admission of the claim.
[12] Mr Stewart says he has appealed my decision declining to set aside the judgment of Nation J, and accordingly asks that costs be reserved pending the outcome of the appeal. He says if the appeal is allowed, there will have been no basis to award costs against him. However, there is no guarantee that any appeal will be successful and, in any event, the costs in any appeal are a matter for the appeal court and will be fixed by them. There is no suggestion that the respondents to any appeal would not be able to meet an award of costs. The fact that Mr Stewart may pursue an appeal is no reason not to award costs at this stage.
[13] Rule 14.8 clearly stipulates that, unless there are special reasons to the contrary, costs on an opposed interlocutory application must be fixed when the application is determined, and become payable when they are fixed. There are no special reasons why costs should not be fixed at this time, the application having been determined in the liquidators’ favour. It is appropriate that costs be fixed and determined now, and payable immediately.
The strike out application (CIV-2023-409-225)
[14] The defendants also seek indemnity costs in respect of their successful strike out application. Pursuant to r 14.6(4)(a), the Court may order a party to pay indemnity costs if a party has acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding.
[15] In Bradbury v Westpac Banking Corp, the Court of Appeal considered that indemnity costs may be ordered where a party has behaved either badly or very
unreasonably.12 The Court identified the following circumstances as potentially warranting an order for indemnity costs:13
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; and
(b)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions.
[16] Misconduct justifying indemnity costs must be “flagrant”.14 However, when indemnity cost are sought in a “hopeless case” situation, it is not necessary that there be flagrant misconduct.15
[17] The defendants say this case falls squarely within the requirements identified in Bradbury for an award of indemnity costs. The defendants say Mr Stewart’s proceeding was a “hopeless case” which ought never to have been made.
[18] Mr Stewart denies that his proceeding was a hopeless case. He says his claim was not brought in bad faith but on the genuine belief that the liquidators had wronged him, both in obtaining judgment and generally, and had put false evidence before the Court. He states he still believes this to be the case, and for this reason intends to appeal the decision granting the defendants’ application to strike out his claim.
[19] A “hopeless case” is one that is “totally without merit” and “bound to fail”.16 In my judgment, I found that the allegations of fraud were false and irrelevant. I considered they ought never to have been made.17 I found that the allegations of fraud brought in Mr Stewart’s proceeding were wholly misconceived and unsupported by the appropriate evidential foundation.18 Given the context leading to these
12 Bradbury v Westpac Banking Corp [2009] 3 NZLR 400 (CA) at [27].
13 At [29].
14 At [28].
15 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322 at [27].
16 TheCircle.co.nz Ltd v Trends Publishing International Ltd (in liq and in rec) [2021] NZCA 235, (2021) 25 PRNZ 766 at [34].
17 Eversons International Ltd (in liq) v Stewart, above n 1, at [40].
18 At [36], [40] and [59].
proceedings brought by Mr Stewart, I am satisfied it was a “hopeless case” in the sense that his claim was “totally without merit” and “bound to fail”. Although indemnity costs are to be awarded only in exceptional circumstances, bearing in mind that they represent a departure from the ordinary principle that the determination of costs is to be predictable and expeditious, I consider it is appropriate in this case to order indemnity costs against Mr Stewart to the defendants.
Quantum of indemnity costs
[20] I turn to address the quantum of costs claimed. Counsel has attached to their memorandum seeking costs a schedule of their actual costs. This includes a breakdown and analysis of their actual costs and disbursements and a chronology of steps taken in both proceedings between February 2022 and the hearing on 16 August 2023. The total actual costs claimed in respect of both proceedings amounts to
$47,470, plus disbursements of $1,488.73.
[21] Indemnity costs are determined with reference to actual costs, but may be less if the court considers the actual costs are unreasonably high. Costs are reasonably incurred if a reasonable observer would expect those costs be incurred. Such costs are calculated from a “reasonable allocation of actual costs”, based on the appropriate time taken, the significance and complexity of the work, and a median hourly rate reasonably applicable.19 They are not necessarily calculated by the costs rules. However, in this case, I have found the comparison of the amount of actual costs as taken against the calculation of costs on a 2B basis to be helpful in determining whether the amount of actual costs claimed appears unreasonably high.
[22] I note that Mr Stewart filed a significant amount of material in this case. Although the schedule of costs does not delineate invoices in full detail or provide a breakdown of time entries, it does set out each of the steps that were taken in respect of the two proceedings. I am satisfied that each of the steps claimed in counsel’s schedule of costs was necessary and appears to be appropriately claimed.
19 Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204] and [209].
[23] In determining the reasonableness of the actual costs claimed, as noted I have found comparison with the calculated scale costs helpful. Counsel’s schedule of actual costs includes a comparison against scale costs on a 2B basis. As noted, the total actual costs amount to $47,470. Scale costs on a 2B basis would amount to $29,158. Rule 14.2(d) provides that an appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application. Scale costs are designed to represent this. The comparison of the actual costs in this case against scale costs on a 2B basis demonstrates that scale costs would amount to just less than two-thirds of the total actual costs claimed in this case.20 I am satisfied, therefore, that the total amount of actual costs claimed does not appear to be unreasonably high. They are awarded in full to the liquidators and defendants as claimed.
[24] There is no issue taken as to the disbursements of $1,488.73 and they are awarded in favour of the liquidators and defendants.
Outcome
[25] The liquidators and defendants’ claims for indemnity costs are allowed. I make an order awarding indemnity costs against Mr Stewart in favour of the liquidators, the company and the defendants in the sum of $47,470, plus disbursements of $1,488.73.
Churchman J
Solicitors:
Martelli McKegg, Auckland for First and Second Plaintiffs/First and Second Defendants
Copy to:
Defendant/Plaintiff
20 Scale costs on a 2B basis amount to 61.42 per cent of the total actual costs claimed, which is a bit less than two-thirds (or 66.66 per cent).
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