Fankhauser v Strongline Buildings Ltd - [2014] NZHC 2629

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2014-470-154 [2014] NZHC 2629

IN THE MATTER of section 241 of the Companies Act 1993

BETWEEN

MARK LINDSAY FANKHAUSER HILARY ANNE FANKHAUSER LP TRUST CO LIMITED

Plaintiffs

AND

STRONGLINE BUILDINGS LIMITED Defendant

Hearing: On the papers

Counsel

W G Manning for Plaintiffs
H L Thompson for Trustees for M W & D J Keaney Family
Trust (Non-Party)

Judgment:

24 October 2014

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 24 October 2014 at pm
Pursuant to Rule 11.5 of the High Court Rules

………………………………………….
Registrar/Deputy Registrar

Solicitors: Legal People, Auckland , for plaintiffs
McMahon Butterworth Thompson, Auckland, for defendant

Counsel: W G Manning, Auckland

FANKHAUSER & ORS v STRONGLINE BUILDINGS LIMITED [2014] NZHC 2629 [24 October 2014].

[1] The plaintiffs apply for costs against the non-parties in this liquidation proceeding, including increased or indemnity costs.

[2] They are 50 per cent shareholders in Strongline Buildings Limited. The non- parties, the trustees of the MW & DJ Keaney Family Trust, hold the other shares. On 15 September 2014 the plaintiffs applied for an order that Strongline Buildings Limited be put into liquidation. They relied on the just and equitable ground1 and non-compliance with s 10 of the Companies Act 1993 (because the company lacked a director).2 At the same time they applied on notice for the appointment of interim liquidators. On 17 September 2014 I gave directions for that application. Later that day counsel for the non-parties filed a memorandum advising that they consented to the company being put into liquidation. On 18 September 2014 I ordered the company to be put into liquidation and appointed liquidators. I gave directions for submissions on costs.

[3] For their costs application against the non-parties, the plaintiffs rely on the principles established by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2).3 The plaintiffs seek indemnity costs under r 14.6(4)(f) of the High Court Rules or increased costs under r 14.6(3)(d). If indemnity costs are awarded, they seek $28,969.87 (GST inclusive). If increased costs are awarded, they seek a 50 per cent uplift.

[4] Before dealing with the principles that apply in costs applications against non-parties, it is helpful to consider how costs are normally ordered in liquidation applications. In run of the mill undefended cases (for example, creditors’ applications against insolvent companies), the court awards costs to the plaintiff when making a liquidation order. The plaintiff’s costs rank third in the list of preferential claims under Schedule 7 of the Companies Act. The plaintiff is entitled
to its actual and reasonable costs under clause 1(1)(c) of Schedule 7:

1      Companies Act 1993, s 241(4)(d).
2      Section 241(4)(c).
3      Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR
145.

The reasonable costs of a person who applied to the court for an order that the company be put into liquidation, including the reasonable costs incurred…

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: [2014] NZHC 2629
Decision Date: 24 October 2014

CaseChat Overview and Summary

In Fankhauser v Strongline Buildings Ltd, the plaintiffs, Mark Lindsay Fankhauser and Hilary Anne Fankhauser, sought costs against the non-parties, the trustees of the MW & DJ Keaney Family Trust, in a liquidation proceeding brought against Strongline Buildings Limited. The plaintiffs, who are 50% shareholders in the company, applied for the company to be put into liquidation on the grounds of just and equitable conduct and non-compliance with s 10 of the Companies Act 1993. The non-parties consented to the liquidation, and the court ordered the company to be liquidated and appointed liquidators.

The plaintiffs sought indemnity or increased costs against the non-parties, relying on the principles established in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2). They argued that the non-parties acted unreasonably by not accepting their proposal to resolve under s 241(2)(a) of the Companies Act to put the company into liquidation. The non-parties, however, promptly advised the court and the plaintiffs that a liquidation order could be made immediately.

The court considered the principles for ordering costs against non-parties, including that costs orders against non-parties are exceptional and that the discretion should not be exercised against pure funders. The court found that the non-parties did not act unreasonably and that the costs incurred in putting the company into liquidation should come out of the company's assets. The court also noted that the plaintiffs had not shown a basis under the Dymocks principles to require the non-parties to pay their costs.

The court concluded that the plaintiffs were entitled to an order for their actual and reasonable expenses, including their legal fees, against the company. However, the court would not make a costs order against the trustees of the MW & DJ Keaney Family Trust. The court would make a costs order for the plaintiffs' actual costs, as set out in their memorandum, upon the plaintiffs clarifying their GST position.

This case highlights the principles for ordering costs against non-parties in a liquidation proceeding and the importance of considering the financial position of the party through whom the proceedings are brought or defended and the likelihood of it being able to meet any order of costs. It also emphasises that costs orders against non-parties are exceptional and should not be exercised against pure funders.

Orders