Exterior Building Care Goleman Limited v AFO Industrial Limited (in liquidation) (Formerly Air Fluid Otago Limited)
[2014] NZHC 1555
•4 July 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-000046 [2014] NZHC 1555
BETWEEN EXTERIOR BUILDING CARE
GOLEMAN LIMITED Plaintiff
AND
AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) Defendant
AND
TREVOR EDWIN LAING AS LIQUIDATOR OF DEFENDANT COMPANY
Associated Respondent
Memoranda: From Plaintiff - 6 June 2014
From Defendant - 16 June 2914
Judgment:
4 July 2014
COSTS JUDGMENT OF GENDALL J (Dealt with on the papers)
Background
[1] On 12 June 2014 I delivered the substantive judgment in this proceeding.1 In that proceeding the plaintiff (Goleman) was largely successful. Accordingly, I directed that as costs would follow the event an order was made in Goleman’s favour on a 2B basis, (plus disbursements) including certification for two counsel.2
[2] However, as a result of the manner in which the proceeding unfolded from a procedural standpoint, Goleman has now filed submissions seeking, in relation to an
1 Exterior Building Care Goleman Ltd v AFO Industrial Ltd (in liq) [2014] NZHC 1322.
2 At [95] – [96].
EXTERIOR BUILDING CARE GOLEMAN LIMITED v AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) [2014] NZHC 1555 [4 July 2014]
earlier unsuccessful application to have this proceeding stayed, to have the Court address whether:
(a) Costs on that application should be awarded and an award made against the liquidator personally; and
(b) Whether any costs order should be on an increased basis.
[3] In response the defendant (AFO) denies that there should be any costs award against the liquidator personally, or that there should be increased costs, and further submits that any costs should be less than 2B scale costs.
Events leading to this application
[4] In my 12 June 2014 judgment I traversed the procedural history which has ultimately lead to this application, and now replicate it below:3
[9] Goleman commenced this proceeding against AFO (then known as Air Fluid Otago Limited) on 14 June 2013. An initial statement of defence was filed and then an amended statement of claim issued by Goleman.
[10] On 19 April 2013, AFO filed a statement of defence to the amended statement of claim together with an amended counter claim. The counter claim was responded to by Goleman on 20 May 2013.
[11] In the meantime, on 11 March 2014, AFO was placed into voluntary liquidation and Trevor Edward Laing (Mr Laing) was appointed liquidator.
[12] Subsequently an application under s 248(1)(c) Companies Act 1993 was brought by Goleman seeking an order granting leave to it to continue this proceeding against AFO, a company now in liquidation.
[13] On 28 April 2014 an order was made by this Court granting leave to Goleman to continue the proceeding against AFO. This decision and the reasons for the decision given on 1 May 2014, are the subject of an appeal to the Court of Appeal which is yet to be heard.
[14] On 16 May 2014 Mr Guest, counsel for the liquidator Mr Laing, filed in this Court an application for a stay of the judgment which had granted leave to Goleman to proceed against AFO, on the basis the appeal to the Court of Appeal noted at [13] above was still to be heard. That application was dismissed on 26 May 2014 and the hearing of this substantive proceeding against AFO took place. At that substantive hearing, Mr Webb and Mr McCrea appeared for Goleman. There was no appearance
at the substantive hearing for AFO nor for the liquidator Mr Laing. This is despite the fact that on several occasions prior to 26 May 2014, I had indicated to all parties, including counsel for Mr Laing and AFO, that if the attempts being made to stay or adjourn the hearing of this proceeding were unsuccessful, without question the substantive hearing would proceed on 26
May 2014. This 26 May 2014 five day hearing date had been originally scheduled for some considerable time.
[15] Given my decision refusing the stay and adjournment application noted in paragraph [14] above, the hearing of the substantive proceeding against AFO did take place, this occurring on 26 and 27 May 2014. Evidence and submissions were provided for Goleman. There was no evidence before me on behalf of AFO or Mr Laing, nor as I have noted was there any appearance on behalf of the company or the liquidator.
[16] This is despite the fact that counsel and representatives of AFO have
had Goleman’s briefs of evidence for the substantive hearing since 4 and 5
November 2003 but as noted, no evidence of any kind had been provided by
AFO. Many opportunities to provide this evidence were given, and even following liquidation of the company on 11 March 2014, a number of discussions took place both with the liquidator Mr Laing, his counsel and counsel for AFO about the forthcoming hearing on 26 May 2014 and the opportunity for AFO to provide its evidence and defence. I repeat nothing was put before the Court for or on behalf of AFO, other than its earlier statements of defence and counter claim filed over one year ago on 20
February 2013 and 17 May 2013.
[5] It is in this context that the present application is made by Goleman. It is an application for costs only on that earlier stay application. This costs claim is put on the basis that:
…the liquidator acted unnecessarily in filing an application for a stay on 19
May 2014, and that the liquidator should be personally responsible for the costs and that an uplift in costs should apply.
[6] This decision therefore relates solely to Goleman’s application for costs on
AFO’s stay application dated 19 May 2014.
Submissions
[7] In this matter Goleman accepted from the outset that costs awards against liquidators personally are only made in exceptional cases, such as those involving a liquidator taking litigious steps that lead to unnecessary costs.4 The submissions from Goleman in respect of costs against the liquidator consisted of a series of
propositions, while the submissions from AFO consisted of a series of rebuttals. The points and counter points are set out below:
(a) Goleman claims AFO was essentially making an application for a stay pending appeal of an earlier refusal to grant a stay. It claims that this was doomed from the outset as there were no new facts which meant the application was without merit. AFO denies this and suggests it was an application for a stay of a decision rather than a statutory stay, and was supported by two affidavits which did in fact constitute new facts.
(b) Goleman submits that the 19 May 2014 stay application brought
nothing new to the Court’s attention that was not before it on 28 April
2014 when leave was granted by this Court to continue the proceeding against AFO in liquidation. The only circumstance which had altered was that AFO had lodged an appeal to the Court of Appeal. AFO repeats that there were new facts before the Court and asserted that the lodging of the appeal amounted to a material change in circumstances.
(c) Next, Goleman contended that the evidence established that the liquidator had not conducted the liquidation in a diligent manner and had not properly taken account of the plaintiff’s interests. AFO responds to this allegation with the simple submission that there have been no concessions to this effect, and that there is no evidence to support such a claim.
(d) Goleman further claims that the application for stay of judgment was
not brought in good faith but rather to “thwart the hearing on 26 May
2014 and distract the attention and energies of counsel from the pressing preparation for trial.” AFO responds firmly by stating that this “extraordinary statement” is “denied absolutely”. AFO claims that a request for stay of a judgment is common pending the resolution of an appeal.
(e) The next submission advanced by Goleman is that there is no evidence that AFO have funds to pursue the appeal and that what evidence there is suggests that there are no current assets in the liquidation. Goleman asserts that this is supported by the fact that AFO did not appear and provide any defence at the substantive trial. AFO contends this statement is not supported, that there was previously affidavit evidence to the contrary, and that the liquidator has now received $30,000 on account of a voidable preference.
(f) Goleman contends AFO’s grounds of appeal are weak. AFO responds by simply stating that this is not an appropriate forum to ventilate the likelihood of success on appeal.
(g)Goleman has made an allegation that there is “considerable and proper concern” that the liquidator has conducted the liquidation in a manner which wrongly prefers the interests of the shareholders of AFO to the interests of genuine creditors. Examples are given by Goleman. AFO responds by stating that there “is no evidence that the Liquidator has conducted the liquidation inappropriately, and indeed the evidence is to the contrary.” The examples provided are riposted.
(h)Goleman submits that a further stay would have “stymied the pursuit by the plaintiff of its rights against the defendant, and its shareholder.” AFO responds that this is incorrect and that the submission “may evidence a misunderstanding of the effect of the Defendant being put into liquidation.”
(i)Finally, Goleman contends that its position would have been adversely affected by a stay, as its position in respect of the substantive claim would have been uncertain. AFO responds by simply asserting without more that there would have been no adverse affect on Goleman if the stay was granted.
[8] For the same reasons traversed above, Goleman contends that this is a case where increased costs are warranted pursuant to High Court Rule 14.6(3)(ii). This is irrespective of whether or not its submission that costs be awarded against the liquidator personally is successful. In response, AFO’s position is that increased costs are not justified here. It further argues in favour of reduced costs, seemingly on a 2A basis, on the primary ground that a costs award should not exceed the actual and reasonable costs of the successful party.
The two applications for stay
[9] Because this costs application centres around two stay decisions, it is appropriate to set out the reasons these stay applications were declined. In the
1 May 2014 decision granting leave to permit the case to proceed, the following excerpts are pertinent:5
[26] I accept here first, that the plaintiff’s claim against the defendant company is not clearly unsustainable and secondly, that considerable time has elapsed and expense been incurred to reach this point, with a trial date only some four weeks away.
[27] Whilst the usual position upon liquidation of a company is that proceedings will be stayed and the liquidator given the first opportunity to resolve creditors’ claims under s 248(1) Companies Act 1993, in the present case in my view the interests of justice require that this approach should be departed from. I am satisfied there will be no breach here of the principle of equality amongst creditors as outlined in Fisher v Isbey if the present proceeding continues and indeed the pool of available assets for all creditors might well be increased. In particular, I reach the conclusion that the present application should be granted for the following additional reasons:
(a) This proceeding will ascertain any liability of the defendant company to the plaintiff, and it is a necessary prerequisite to the pursuit of assets that were allegedly dissipated prior to the liquidation.
(b) There are few other real creditors and therefore there is no wider prejudice or preference given to the plaintiff here over other creditors.
(c) The plaintiff has said it is currently drafting further pleadings which will seek to draw other parties into this proceeding, and their liability will rest on the liability of the defendant company.
5 Exterior Building Care Goleman Ltd v Air Fluid Otago Ltd [2014] NZHC 887.
(d) The defendant purportedly has few or no assets and therefore it cannot be said that to continue this litigation would dissipate or waste assets that should be distributed to creditors.
(e) This is not a claim which can easily be dealt with by the liquidator.
The liquidator has not yet signalled whether:
(i) He accepts this claim and abandons the counterclaim; or
(ii) He accepts this claim, reduced by the counterclaim; or
(iii) He intends to seek recovery of the assets of the defendant company which have been wrongly dissipated.
(f) The plaintiff says there are assets which may be pursued and therefore this litigation will not be fruitless.
[10] An appeal against this decision was prepared on 16 May 2014 and filed in the Court of Appeal on 19 May 2014. On 16 May 2014, the day the appeal was prepared, an application was filed in this Court seeking to stay my judgment of
1 May 2014 which had granted Goleman permission to proceed substantively. I received oral submissions on the stay application on 26 May 2014, the first day of the fixture. This hearing date of 26 May 2014 had been set down for some considerable time and all parties were aware of this. I delivered an oral judgment on that day stating:6
[5] …the application for stay pending appeal is dismissed. My detailed reasons for this decision will follow.
[6] Given that decision and in light of the directions I made in a minute I issued in this proceeding dated 20 May 2014, the substantive hearing of the plaintiff’s claim against the defendant company in liquidation in this proceeding CIV-2013-409-000046 will now proceed…
Costs
[7] With respect to the stay application, before me Mr Webb for the plaintiff sought costs in this matter against the liquidator and indeed an award of indemnity costs.
[11] My more detailed reasoning followed on 29 May 2014.7 From that judgment the following passages are relevant:
[17] It is my view here that the defendant has not discharged the burden on it to persuade this Court to grant a stay. The plaintiff contends that the
6 Exterior Building Care Goleman Ltd v AFO Industrial Ltd (in liq) [2014] NZHC 1129.
7 Exterior Building Care Goleman Ltd v AFO Industrial Ltd (in liq) [2014] NZHC 1163.
present application is mischievous and entirely unfounded. It seems also that the effect of granting the stay sought would be to allow a windfall benefit to Mr Andrews who it is claimed has dishonestly manipulated the affairs of the defendant company in an endeavour to avoid the present claim. Mr Andrews might also further benefit through his family trust which is the only other substantial creditor of the defendant. Before me, Mr Sim for the defendant went so far as to acknowledge that to a significant extent the actions of Mr Andrews leading up to this litigation can only be regarded as entirely inappropriate. And further, Mr Sim also acknowledged that it does seem the liquidator is likely to accept that some claim against the company is properly due to the plaintiff and the only real question here relates to the quantum of such claim.
[18] In my view there is also some substance in the submissions advanced for the plaintiff. I am satisfied that the appeal here would not actually be rendered nugatory by the lack of a stay if indeed that appeal is prosecuted. Should the appeal succeed then it seems that it is only the plaintiff (and perhaps this Court) which would have been put to additional cost in pursuing the trial scheduled for 26 May 2014.
[19] And, in the circumstances of this case, in my view there must also be questions as to the bona fides of the defendant as to the prosecution of the appeal. I find too that, given the delay which has occurred in this matter to date, bearing in mind that the original claim was brought in this Court in January 2013, the plaintiff here as the successful party could well be injuriously affected by a stay. The liquidator and indeed all parties can benefit from a proper hearing in this Court of the plaintiff’s claims and the counterclaims.
[20] The liquidator and indeed Mr Andrews’ interests have had some time to consider providing evidence in opposition for the scheduled substantive hearing. Indeed, the plaintiff’s briefs of evidence were provided over six months ago in November 2013. Mr Andrews and his interests, as effectively the only other substantial competing creditors, could well fund a defence and a proper resolution of this dispute. They have chosen not to do so it seems and in my view it is wrong to restrict the plaintiff in pursuing its claim before this Court when it effectively has no other means of doing so. The overall balance of convenience and the interests of justice in this case require that the stay sought should be refused.
Costs against liquidator personally
[12] Turning first to consider Goleman’s application to seek an order that whatever costs may be awarded here should be against Mr Laing the liquidator personally. The leading decision in this area is that of the Supreme Court in Mana Property Trustee Ltd v James Development Ltd where it was stated:8
[10] A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside
8 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 124, [2011] 2 NZLR 25.
the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. In the case of a liquidator that is a principle of very long standing. There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order will not be made unless there has been some relevant impropriety on the part of the liquidator. The courts recognise that the other party can protect its position, should it be successful, through its ability to seek in advance an order for payment of security for costs. In Metalloy Supplies Ltd (in liq) v MA (UK) Ltd Millett LJ summarised the position:
“The court has a discretion to make a costs order against a non-party. Such an order is, however, exceptional, since it is rarely appropriate. It may be made in a wide variety of circumstances where the third party is considered to be the real party interested in the outcome of the suit. It may also be made where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him. It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified.
The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. … If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay their costs as well as his own if the proceedings fail. It may be commercially unwise to institute proceedings without the means to provide any security for costs which may be ordered, since this will only lead to the dismissal of the proceedings; but it is not improper to do so. Nor (if he considers only the interests of the company, as he is entitled to do) is it necessarily unreasonable.”
[11] That passage has the approval of the Privy Council in what is now the leading case in this country on costs orders against a non-party, Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2). The Privy Council recognised that in some cases where a non-party may have both controlled the proceeding and funded it, or is to benefit from it, justice will require that if the proceeding fails, the non-party will pay the successful party's costs:
“The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.”
Such a person is the real party to the litigation. But that is not ordinarily the position of a liquidator, although it may be the position of a creditor or shareholder who funds a liquidator. As the Privy Council remarked, where
the non-party is a liquidator, he or she can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his or her own interests. The reluctance of courts to make awards against liquidators who are non-parties is for the very good reason that otherwise they may not be prepared to take on the role and enter into litigation that may be beneficial for the company and thus for creditors.
(citations omitted)
[13] This statement of principle establishes a high threshold that is, such that in my view Goleman here would need to adduce compelling evidence of significant impropriety before I would exercise my discretion to make an award of costs against the liquidator personally. Whilst the circumstances prevailing in this case might raise certain questions as to the stance taken by the liquidator to date, Goleman has however failed to both adduce sufficient evidence of impropriety, and to meet the requisite threshold. Moreover, the evidence that does exist which might go some way to suggesting a degree of impropriety is far from uncontested.
[14] Similarly, the plaintiff has not advanced any submission sufficiently compelling that would warrant me finding that the application for stay of my earlier stay judgment was effectively an abuse of process, or brought for an ulterior purpose. The liquidator was acting within his statutory mandate when so applying. The fact that the application was similar to the first stay application is of no moment. The ground there advanced was that the appeal to the Court of Appeal had altered the landscape such that a stay was now warranted pending the outcome of that appeal. Arguably this was not an improper step to be taken on AFO’s part.
Increased costs
[15] Goleman do not appear to have applied for indemnity costs. Its submissions only confront increased costs. I will therefore not address any issues as to indemnity costs here. The application for increased costs falls to be considered pursuant to r
14.6(3) High Court Rules. However, for the reasons that follow I am satisfied that increased costs are not warranted in this case.
[16] In terms of increased costs, it is common ground that the procedure to be followed by an applicant seeking increased costs is that set down by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd which can be summarised as follows:9
(a) Categorise the proceedings in terms of category;
(b)Work out a reasonable time for each step in the proceeding (which involves reference to the daily recovery rates and the time allocations);
(c) Apply for extra time for a particular step as necessary; and
(d)Only after the preceding three steps have been complied with should the applicant step back and consider the amount of costs it would receive by this process, and then argue for additional costs if it is considered such can be justified.
(e) In only the most exceptional of circumstances would an increase of
50% above scale costs be warranted.
[17] Mr Webb for the plaintiff does not appear to have undertaken this process. This absence of submission means that this Court is not in a position to assess whether any increased costs would be justified either for any particular step or for all steps taken in relation to the second stay application. On this basis alone increased costs would be declined.
[18] In any event, in terms of the claimed opprobrious conduct said to justify increased costs against the liquidator personally, or generally, I am satisfied that no grounds exist here that would warrant increased costs. The application for stay of my earlier judgment was, in my view, a legitimate step taken in this proceeding, and cannot reasonably be categorised as a waste of time, brought for an ulterior purpose,
or in any other way improper.
9 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43] – [45] and [48].
[19] As to AFO’s submission that category 2A costs are justified in this proceeding, I reject that. This argument was not strongly advanced before me and, given that the rest of this proceeding has been categorised on the usual 2B basis, I see no reason to now depart from that position.
Result
[20] In this case I am satisfied that 2B scale costs are appropriate. An order to this effect is to follow. Goleman’s application for increased costs and/or that costs be awarded against the liquidator personally fails. AFO’s application that the costs awarded be reduced to 2A scale costs also fails.
[21] Counsel for Goleman has set out a quantum claim for category 2B costs here but some of the amounts claimed appear to be disputed by AFO. In my view however the 2B costs claim at $4676.50 made by Goleman is justified and appropriate here.
[22] An order is now confirmed that Goleman is entitled to an award of category
2B scale costs totalling $4676.50 on this stay application plus disbursements (if any)
as approved by the Registrar.
...................................................
Gendall J
Solicitors:
Lane Neave, Christchurch
Rodgers Law, Dunedin
Donnie Stewart, Dunedin
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