Finnigan v Ellis
[2018] NZHC 2440
•17 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-001590
[2018] NZHC 2440
BETWEEN PERI MICAELA FINNIGAN and BORIS VAN DELDEN
PlaintiffsAND
BRIAN ROBERT ELLIS
First Defendant
GERALD NORMAN WILLIAMS
Second DefendantJAMES NEIL BLACK
Third Defendant
Hearing: 12 September 2018 Appearances:
J K Boparoy for Plaintiffs
W C Pyke for First Defendant G N Williams in person
J N Black in person
Judgment:
17 September 2018
RESERVED JUDGMENT OF WYLIE J [COSTS]
This judgment was delivered by Justice Wylie On 17 September 2018 at 12.30 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Shieff Angland, Auckland
Ellis Law/W C Pyke, Auckland
Copy to:
G N Williams J N Black
FINNIGAN v ELLIS [2018] NZHC 2440 [17 September 2018]
Introduction
[1] I refer to my reserved judgment of 22 May 2018.1 I found in favour of the plaintiff liquidators and held that the first, second and third defendants, as directors – whether de jure, de facto or shadow – of Wenztro Co-operation Limited (in liquidation) (Wenztro), had breached ss 135, 136 and 137 of the Companies Act 1993. I made orders requiring them to repay to the company the amount claimed by the liquidators in the fourth amended statement of claim together with interest. Further, I recorded that the plaintiff liquidators, as successful parties, were entitled to costs and I put in place a timetable for the filing of memoranda in that regard.
[2] On 6 June 2018, the liquidators through counsel filed a lengthy memorandum with voluminous schedules seeking costs on a 2B basis, together with a 50 per cent uplift. The amounts sought were as follows:
(a)the costs of the proceeding – $134,676 (including uplift);
(b)disbursements – $19,709;
(c)costs incurred by the liquidators in the administration of Wenztro’s affairs – $236,409.84;
(d)disbursements incurred by the liquidators – $3,343.73;
(e)the liquidators’ costs in reconstructing the financial accounts of Wenztro – $1,495; and
(f)interest on the judgment debt from the date of liquidation and post- judgment – $216,682.08.
The total amount the liquidators sought to recover by way of a costs order, including interest as at 6 June 2018, amounted to $612,315.65.
1 Finnigan v Ellis [2018] NZHC 1146.
[3] Mr Pyke filed a memorandum in reply on behalf of the first defendant, Mr Ellis, on 21 June 2018. Nothing was filed by either Mr Williams or Mr Black.
[4] Given the scope of the orders sought, and some of the concerns raised by Mr Pyke, I directed a further hearing in relation to costs.
[5] The liquidators then filed yet a further memorandum through counsel, with more voluminous schedules, seeking to clarify some of the sums sought.
[6]The hearing proceeded on 12 September 2018.
[7] I deal first with the costs of the proceedings, then with the costs of the liquidation and then with interest.
Costs of the proceeding
[8] Costs of a proceeding are, of course, at the discretion of the Court – r 14.1(1) of the High Court Rules. That discretion is not unfettered. It is qualified by the specific costs rules contained in rr 14.2 to 14.10.
[9] In this case, the starting point is r 14.2(1)(a). It provides that the party who fails with respect to a proceeding should pay the costs of the party who succeeds.
[10] Here, the liquidators succeeded in their proceeding. The amount they recovered on behalf of Wenztro was only part of the sum when the hearing commenced. However, in such situations, success, even on more limited terms, is still treated as success.2 I do not consider that the liquidators are disentitled to costs as a result of the fact that they only partially achieved the result they set out to achieve.
[11] There is no dispute that costs should be fixed on a 2B basis. There is a helpful schedule setting out the amount claimed. It is Schedule 1 to the memorandum filed
2 Weaver v Auckland Council [2017] NZCA 330 at [26].
on behalf of the liquidators dated 6 June 2018. The only matters disputed in the calculation of costs set out in that schedule were as follows:3
(a)Item 3 – the liquidators claimed separately but against all defendants for the filing of replies to the statements of defences filed by each of the three defendants.
(b)Item 9 – the liquidators claimed separately but also against all defendants for filing responses to the amended pleadings filed by each of the defendants.
(c)Items 34 and 35 – the liquidators claimed for nine days of hearing time.
[12]I agree with the defendants in relation to these matters.
[13] Each defendant should only be expected to bear the costs properly payable by him, and each should not be jointly and severally liable for costs properly attributable to others. Items 3 and 9 claim costs jointly, where the costs are attributable to each defendant individually. By way of example, in my judgment, Mr Ellis should not be liable to meet the costs of the liquidators in filing replies to the statements of defence filed by Mr Williams and by Mr Black.
[14] I also agree with the assertion that there should be a reduction in the hearing time to reflect the significant reduction in quantum between the amount claimed at the start of the hearing and the amount in respect of which judgment was awarded.
[15] As I recorded in my substantive judgment, the amount claimed varied – starting at $773,135.26, rising to $2,778,124.80, and finally being fixed at $765,692.81.4 The background to these changes of stance by the liquidators is relevant. Initially, they sought to recover amounts said to be owed by the company, including a judgment debt which had been obtained by Wenzhou Hongliang Trading Co Ltd (WHT) of
3 In his memorandum, Mr Pyke did dispute item 1 – commencement of proceedings – as well, but this was not pursued at the hearing, and I cannot see that there can be any argument taken with this item in any event.
4 Finnigan v Ellis, above n 1, at [4].
$617,396.61. They then added in two large unsecured claims – one made by WHT and the other by Sunlucky Style NZ Ltd. These additional amounts were said to be consequential losses following on from Wenztro’s breach of contract. This took the total claim to approximately $2,750,000. It became clear in the course of Ms Finnigan’s evidence that WHT had already obtained judgment against Wenztro for its breach of contract. It seemed to me that WHT might be belatedly seeking to recover additional damages, and that the rule in Henderson v Henderson might apply.5 I raised this issue with counsel. Mr Crossland, appearing for the liquidators, filed a memorandum disputing the application of Henderson v Henderson, and arguing that there were circumstances which meant that the rule set out in that case was not applicable. The case then proceeded (although fatuitously the liquidators’ expert, who was to deal with the consequential losses claimed, was unavailable and it was agreed that he could give his evidence after the defendants had called their evidence). Sometime later, Mr Pyke opened the defence for Mr Ellis. In the course of his opening, he also referred to the rule in Henderson v Henderson and to more recent authorities upholding the rule. Shortly thereafter, Mr Crossland abandoned the claim to the consequential losses and filed a fourth amended statement of claim reducing the amount claimed to $765,692.81. The liquidators obtained judgment in this sum together with interest.
[16] Had WHT – as the party funding the liquidators – been aware that its claim was limited to this lesser sum from the outset, it may be that it would not have funded and pursued the litigation. As a matter of commercial common sense, any return from the proceedings might not have justified the outlay. The liquidators did not, however, abandon the claim. Rather, they proceeded, but they did not call expert evidence in relation to the consequential losses claimed.
[17] I consider that the change of position by the liquidators did increase the costs of the defendants. Ms Finnigan gave evidence of the consequential losses claimed. So did Ms Wang. Other than this, much the same evidence would have been required regardless of the amount claimed. The defendants, and in particular Mr Ellis, did incur
5 Henderson v Henderson (1843) 3 Hare 100 (Ch) at 115.
some cost in dealing with the Henderson v Henderson issue because they had to research the matter. Some time was taken at the hearing dealing with this issue.
[18] Pursuant to r 14.7(d), I have a discretion to refuse costs or to reduce the costs otherwise payable, given that the liquidators failed in relation to an issue, if that issue significantly increased the costs of the defendants opposing costs.
[19] In my judgment, the liquidators’ initial mistake as to quantum did significantly increase the costs for the defendants. It required additional pleadings. Unnecessary time was taken with witnesses who gave evidence in relation to the issue. Legal argument was required. The time taken for the hearing was extended by – in my broad estimate – one day. As a result, I reduce the number of hearing days the liquidators can seek costs for to eight days.
[20]There was no dispute about the disbursements claimed.
[21] The total costs claimed by the liquidators in Schedule 1 to the 6 June 2018 memorandum, calculated on a 2B basis, without uplift, were $100,419. I deduct from that sum the costs claimed for items 3 and 9, and reduce the number of days from nine to eight. That reduces the costs properly claimable against all defendants on a joint and several basis to $89,423. In addition, each of the defendants is liable for $2,922 individually – being the total of the item 3 and item 9 costs attributable to each defendant. The defendants will also be jointly and severally liable for the disbursements claimed – $19,709.
[22]I now turn to the claim for increased costs.
[23] I agree with the liquidators that the defendants unnecessarily contributed to the duration and expense of the proceeding. By way of example, they put the liquidators to proof of every aspect of the claim, and failed to respond to a notice from the liquidators to admit facts, most, if not all of which were non-controversial. They brought applications to increase the security for costs, even though the time for making such applications had expired. They failed to comply with discovery orders in a timely fashion. They chose not to liaise with the liquidators on the proposed index for the
documents to be included in the common bundle. Some of the matters pursued at the hearing by the defendants were irrelevant – for example, an allegation that WHT had stolen the intellectual property in the Promax brand, when the evidence was clear that that brand had never been registered in China by Wenztro. They attempted to relitigate in part matters already dealt with in WHT’s summary judgment proceedings. All of these matters put the liquidators to additional costs.
[24] In addition, there were some matters particular to individual defendants. For example, Mr Ellis attempted to belatedly lodge an amended proof of debt which he later withdrew. Some of Mr Williams’ cross-examination was not well-directed. Mr Black made various allegations against Mr Lin and Ms Taylor which were not causes of action open to him.
[25] Pursuant to r 4.6(3)(b)(i) to (iii), I can award increased costs if the parties opposing costs have contributed unnecessarily to the time or expense of the proceeding, for example by failing to comply with the Rules or directions of the Court, taking or pursuing unnecessary steps or matters that lacked merit, and failing without reasonable justification to admit facts, evidence or documents.
[26] I am satisfied that costs were increased as a result of the defendants’ conduct noted above, that r 4.6 is engaged, and that an award of increased costs is appropriate.
[27] The correct approach in such cases6 is to first categorise the proceeding under r 14.3. Here, that has been done. These proceedings are 2B proceedings. There is no longer any dispute as to what is a reasonable time for each step in the proceeding under r 14.5. No extra time for any particular step is claimed. I am satisfied that it is appropriate to award increased costs of 25 per cent of the costs for which the defendants are jointly and severally liable. I do not make any uplift for matters particular to each defendant. They were not of any great moment, they were compensated for by other matters, for example Mr Ellis acknowledged that the securities he held were voidable, and Messrs Williams and Black were by and large economical in their respective contributions to the hearing.
6 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
[28]I award costs in favour of the liquidators and against the defendants as follows:
(a)the defendants are jointly and severally liable for costs in the sum of
$111,778.75 (being the base costs award of $89,423, plus a 25 per cent uplift);
(b)Mr Ellis is liable for an additional $2,922;
(c)Mr Williams is liable for an additional $2,922;
(d)Mr Black is liable for an additional $2,922; and
(e)the defendants are jointly and severally liable for the disbursements in the sum of $19,709.
Liquidators’ claims for the costs of the liquidation
[29] Ms Boparoy, for the liquidators, acknowledged that the costs of the liquidation were not specifically sought in the pleadings. She nevertheless asserted that they fell within the prayers for relief to each cause of action. Relevantly, each of the prayers for relief sought the following:
A. An order under s 301(1)(b)(ii) of the Companies Act 1993 that [the directors] contribute to the assets of the company in the amount of
$765,692.81 or such other sum as the Court thinks just.
…
C. Costs and disbursements.
[30] I do not accept Ms Boparoy’s argument. Nowhere in the statement of claim is there any express reference to the costs of the liquidation. Nor was any evidence adduced in the course of the hearing detailing the liquidators’ costs. Rather, the liquidators have belatedly sought to recover their costs from the defendants by filing voluminous schedules to memoranda filed on their behalf and by making factual assertions as to those costs through counsel. The end result is that the defendants were not on notice of the claim for the liquidators’ costs at the relevant time. They did not
know that they had to meet a claim for the liquidators’ costs. They did not call evidence in relation to the issue. They did not cross-examine on the issue.
[31] Ms Boparoy referred me to various authorities where liquidators have been awarded either in whole or in part the costs of liquidations under either ss 300 or 301 of the Companies Act.
[32] I have considered the various authorities. They do not assist her. In each, it is clear that the liquidators’ costs in the liquidation were sought as part of the substantive proceedings.7 There is no dispute that the costs of a liquidation can be recovered as compensation under ss 300 or 301, although the position is not straightforward,8 but only where they are sought as part of the substantive proceedings. Ms Boparoy could not point me to a single case where the liquidators’ costs of a liquidation have been ordered as part of the costs of the proceedings, in situations where the liquidators’ costs of the liquidation were not sought in the substantive proceedings.
[33] I do not consider that the liquidators can now properly claim the costs of the liquidation as part of the costs of the proceeding. To hold otherwise would be unfair to the defendants and a breach of the rules of natural justice because the defendants have not been heard on the quantum of those costs. I observe that the position is not altogether lost for the liquidators. They can still recover their costs – not as against the defendants by way of compensation, but rather from the company, pursuant to ss 276 to 278 of the Companies Act and pursuant to the Companies Act 1993 Liquidation Regulations 1994. That may be scant comfort for WHT, but any complaint it may have as a consequence should not be visited on the defendants. The position is not of their making.
7 Hansa Ltd (in liq) v Hibbs [2017] NZHC 2014 at [3](a), [8], [61], [67] and [69](b); Grant v Gifford [2018] NZHC 26 at [5], [28], [42]; TGM Trading Ltd (in liq) v Drever [2018] NZHC 1788 at [1], [5], [9] and [25]; GL Investment & Development Ltd (in liq) v Gao [2018] NZHC 868 at [7], [52] and [66]; EBR Holdings Ltd v van Duyn [2017] NZHC 1698 at [171]; Madsen-Ries v Petera [2015] NZHC 538 at [3] and [110]-[114]; Madsen-Ries v Twine [2015] NZHC 227 at [1], [9] and [10]; Shaw v Owens [2017] NZCA 315 at [8], [9], [16] and [17]; Willburn Furniture & Restorations Ltd (in liq) v Gledhill [2016] NZHC 331 at [16](d)(iii) and [78]; Central Tyres Waipukurau Ltd (in liq) v Pallesen [2016] NZHC 146 at [2], [3], [4](d) and [45]; Grant v Guo [2015] NZHC 2480 at [2] and [55]; Richard Geewiz Gee Consultants Ltd (in liq) v Gee [2014] NZHC 1483 at [7](d)(v) and [122].
8 Shaw v Owens, above n 7, at [18].
[34] Accordingly, I make no award in respect of the costs of the liquidation or in respect of the disbursements incurred by the liquidators in the course of the liquidation. Nor do I make any award for the costs of reconstructing the financial accounts of Wenztro.
Interest
[35] I have already made orders in the substantive judgment in respect of interest. The calculation of interest is a matter for the parties. The Court will only become involved if the parties cannot agree. Interest on the judgment should not be put in issue in the context of a costs application.
Conclusion
[36] I award the costs of the proceedings to the liquidators in the sums set out above at [28].
Wylie J
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