Fong v Wong HC Auckland CIV 2008-404-5547

[2010] NZHC 705

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-005547

BETWEEN  NEVILLE FONG AND JUNE CHONG Plaintiffs

ANDCHRISTOPHER SHANE WONG AND ANGELA KIM FONG

Defendants

Hearing:         Dealt with on the papers

Judgment:      13 May 2010 at 4:00 pm

JUDGMENT OF ASHER J [COSTS]

This judgment was delivered by me on 13 May 2010 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules

………………………………………..

Registrar/Deputy Registrar

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Date

Solicitors:

Morrison Kent, PO Box 222 Auckland

Glaister Ennor, PO Box 63, Auckland

Copy:

A Grant, Barrister, PO Box 2185 Shortland Street, Auckland

FONG & ANOR V WONG & ANOR HC AK CIV-2008-404-005547  13 May 2010

[1]      The plaintiffs, Mr Fong and Mrs Chong, have discontinued this proceeding. The defendants, Mr Wong and Ms Fong, seek costs.   The plaintiffs argue that no costs should be directed to be paid to the defendants, and indeed seek an order for costs in their favour.

Background

[2]      An outline of facts is set out in [3]-[15] of the judgment Fong & Anor v Wong & Anor.[1]   The proceedings were filed on 27 August 2008.  The plaintiffs filed a summary judgment application in which they sought orders that the defendants should transfer their shares in Pavé Capital Limited (“Pavé”) to the plaintiffs at “fair market value”.

[1] Fong & Anor v Wong & Anor HC Auckland CIV-2008-404-005547 4 December 2008, Asher J.

[3]      The defendants opposed the summary judgment application primarily on the basis that the contemplated transfer of shares in Pavé contravened s 149(1)(a) of the Companies Act 1993.  It was argued by the defendants that the transfer had to be at a “fair value” and that the proposed price was less than such a fair value, and involved a discount for a minority shareholding.

[4]      In a judgment delivered on 4 December 2008 I held that the defendants had an arguable case that the “fair value” payable for the shares could not include a discount for a minority shareholding.  I declined to order the transfer of the shares.

[5]      After  the  summary  judgment  application  was  determined,  the  plaintiffs continued to take the position that the settlement should proceed on the basis they proposed.  The defendants ultimately settled at the price demanded by the plaintiffs, resolving to sue for the difference between the amount paid and the “fair value”. This position was recorded in a letter that the defendants’ solicitors sent to the plaintiffs.  They asked the plaintiffs to settle the transaction and advised:

If your clients do not agree to pay the difference between the “fair value” and “fair market value” our clients will issue proceedings for the recovery of that  sum  pursuant  to  the  power  given  by  s 149(4)  and  s 149(5)  of  the Companies Act …

[6]     Settlement took place and the defendants paid the plaintiffs the amount demanded, and then issued proceedings requiring the payment back to them of the difference.      Those   proceedings   were   filed   on  30 April 2009   and   heard   on

23 September 2009.  In the decision Wong v Fong,[2] on 16 December 2009 Keane J

concluded that no minority discount should have applied to the value of the shares and held that the defendant shareholders were entitled to settle on the basis of the full assessed “fair value” of its 32 per cent shareholding.  The defendants were awarded costs in those proceedings.

Effect of the filing of the notice of discontinuance

[2] Wong v Fong HC Auckland CIV-2009-404-002469 16 December 2009, Keane J.

[7]      Rule 15.23 of the High Court Rules provides:

15.23   Costs

Unless  the  defendant  otherwise  agrees  or  the  court  otherwise  orders,  a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

The rule creates a presumption that costs are payable by the discontinuing plaintiff.

[8]      A notice of discontinuance was filed in this proceeding by the plaintiffs on

29 March 2010.  It relevantly stated:

1.        The plaintiffs discontinue this proceeding against the defendants.

2.Such discontinuance is without prejudice as to costs (as agreed in the joint memorandum of the parties to the court dated 25 March 2010).

The joint memorandum as to costs recorded at paragraph 2(a) that the plaintiffs were going to file a notice of discontinuance and were doing so on the basis that this was without prejudice to their claim to be entitled to an award of costs.

[9]      The plaintiffs rely on the decision of Tennant v Simes[3] for the proposition that the presumption that costs are to be awarded against the plaintiff is displaced if the discontinuance is expressed to be on a “without prejudice” basis.  I am not persuaded

[3] Tennant v Simes HC Hamilton CIV2004-419-1366 20 May 2005, Simon France J.

that it is correct that the adding of the words “without prejudice” can, without more, alter the presumption in r 15.23.   The presumption, after all, does no more than reflect the unsurprising proposition that if a plaintiff issues proceedings against a defendant and then terminates them, it follows as a prima facie proposition that the proceedings should not have issued in the first place.   But there may be another explanation, and that is why the presumption is rebuttable.   As has been noted in the Court of Appeal, the presumption in favour of awarding costs to a defendant against whom a proceeding has been discontinued may be displaced if there are just and equitable circumstances not to apply it: Kroma Colour Prints v Tridonicatco NZ

Limited.[4]     It may be displaced whether or not the words “without prejudice” are

added.   However, it is undoubtedly good practice to add the words “without prejudice” to signal that the presumption will be contested.

[4] Kroma Colour Prints v Tridonicatco NZ Limited (2008) 18 PRNZ 973 at [12].

[10]     Thus, if a plaintiff discontinues without explanation and takes no steps to oppose an order for costs, the costs order in favour of the defendants will usually follow the discontinuance, whether or not it is expressed to be “without prejudice”. Where, as here, the plaintiff opposes a costs order and submits that there are circumstances that make a different costs outcome just and equitable, the court will consider those circumstances and make a decision whether or not the words “without prejudice” are used.  In such circumstances it will apply the general costs principles set out in rr 14.1 – 14.2 of the High Court Rules.

[11]     The starting position that follows from a plaintiff discontinuing is that in terms of r 14.2(a) the plaintiff has failed with respect to the proceeding, and the defendant has succeeded.   That consideration is tempered by the fact that the plaintiffs’ failure is a consequence of a unilateral act, rather than any decision by the court.  A plaintiff who discontinues may not have failed at all, but may have chosen to discontinue because it has achieved its end by other means, or for reasons not connected to the strengths or weaknesses of the plaintiff’s case.  Thus, as Venning J

observed  in  Carmel  College  Auckland  Ltd  v  North  Shore  City  Council,[5]   the

reasonableness of the stance of the parties has to be considered.

[5] Carmel  College  Auckland  Ltd  v  North  Shore  City  Council  HC  Auckland  CIV-2007-404-5894 20 January 2009, Venning J.

[12]     I accept that given the complexity of the situation it is appropriate that costs be considered on the merits, without placing any particular onus on the plaintiffs.

The submissions on the merits

[13]     Mr Grant for the defendants submits that the defendants were the successful party in the proceeding, both on the face of the discontinuance and on the merits. They were successful in opposing the summary judgment application.  The essential point of their opposition, that fair value rather than the greater amount demanded by the plaintiffs had to be paid, was upheld at the subsequent trial.

[14]     The  plaintiffs  submit  that  they  acted  reasonably  in  commencing  the proceeding.     They  say  that  the  defendants  ultimately  elected  to  settle  their obligations under the Deed and transfer the shares, and for that reason there was no longer   any   practical   reason   for   the   proceedings,   which   were   discontinued accordingly.  Having achieved what they set out to achieve, namely settlement, the plaintiffs submit that they are prima facie entitled to costs as successful parties.  It is submitted that the success in the separate proceedings does not indicate a proven defence to the claim in this proceeding.  All that this court should recognise is that the defendants refused to settle and then chose to settle.

Discussion

[15]     The consequence of the decision of Keane J in Wong v Chong,[6] in favour of the defendants, is that the stance taken throughout the dispute by the defendants was correct, and that of the plaintiffs wrong.  With one adjustment, the defendants were entitled to have the shares valued at a “fair value” and not at the valuation figure fixed by the plaintiffs.   Although the immediate outcome sought in the summary judgment proceedings, namely settlement, was achieved by the plaintiffs, the effect of that decision of Keane J was the price paid was ultimately on the basis always put forward by the defendants.  Given the summary judgment decision, and the decision on the merits by Keane J, it can be anticipated that if this proceeding had gone to

trial (and there had been a counterclaim), that the defendants would have achieved settlement on the terms they put forward.

[6] Wong v Fong HC Auckland CIV-2009-404-002469 16 December 2009, Keane J.

[16]     Rather   than   counterclaim,   separate   proceedings   were   issued   in   the Commercial List to obtain an earlier fixture.  Whatever the reason for the separate Commercial List proceedings, the fact that success was achieved in different proceedings from these by the defendants, should not disguise the fact that the defendants’ position was right and the plaintiffs’ position was wrong.  The plaintiffs cannot rely on one outward symptom of success, namely achieving settlement on the basis they proposed, but ask the court to ignore other symptoms of failure, in particular the discontinuance in this proceeding, and their failure in the substantive proceedings.  The award will follow the substance rather than the form of the result.

[17]     In my view it is just and equitable that the plaintiffs pay the defendants’ costs in this proceeding.  This is because they lost the summary judgment application in this proceeding, and on an overview, given Keane J’s decision, they were wrong on the merits.

Result

[18]   The plaintiffs will pay the defendants’ costs, together with reasonable disbursements calculated on a 2B basis.

…………………………………… Asher J