Fullarton v Awn Holdings Limited
[2021] NZHC 1873
•23 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-551
[2021] NZHC 1873
COMMERCIAL PANEL UNDER
the Securities Act 1978
the Fair Trading Act 1986
the Securities Markets Act 1988the Financial Markets Conduct Act 2013 High Court Rule 4.24
BETWEEN
FRANCES JANE FULLARTON
First Plaintiff
NEWTON PONTES
Second PlaintiffAND
AWN HOLDINGS LIMITED
First Defendant
……………………… continued
Hearing: On the papers Counsel:
LJ Taylor QC, ZG Kennedy and RA Havelock for plaintiffs DJ Friar, JWA Johnson and AM Boberg for first and ninth defendants
DJ Cooper, AIC Denton and KP Woodword for second, third, fourth, fifth and sixth defendants
BJ Upton and NM Blomfield for tenth and eleventh defendants
Judgment:
23 July 2021
JUDGMENT OF FITZGERALD J
[As to costs]
This judgment was delivered by me on 23 July 2021 at 2.30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date………………………
FULLARTON v AWN HOLDINGS LIMITED [2021] NZHC 1873 [23 July 2021]
ROBERT CHARLES FACER
Second Defendant
CHRISTOPHER MORTON KELLY
Third Defendant
CRAIG DOUGLAS McINTOSH
Fourth Defendant
JAMES ALEXANDER CHARLES TURNER
Fifth Defendant
RUSSELL JOHN WOODARD
Sixth Defendant
GLEN WILLIAM DOBBIE
Seventh Defendant
NICO ANDREW MARX
Eighth Defendant
KEVIN TSER FAH CHIN
Ninth Defendant
DAVID MALCOM KEEFE
Tenth Defendant
JOHN COLINTON MOORE
Eleventh Defendant
Solicitors: Adina Thorn Lawyers, Auckland
Bell Gully, Auckland Wilson Harle, Auckland
Simpson Grierson, Auckland
Introduction
[1] By judgment delivered on 29 April 2021, I dismissed the first plaintiff’s application for summary judgment on liability, and granted the plaintiffs’ application for leave to commence these proceedings as representative proceedings (pursuant to r 4.24 of the High Court Rules 2016).1 The plaintiffs’ claims arise out of the 2014 initial public offering (IPO) of Intueri Education Group Limited (Intueri). The defendants are sued in their respective capacities as the promoters of the IPO2 and/or as directors of the issuer.3 The plaintiffs say materials relating to the IPO and circulated to potential investors were misleading and the defendants are liable as a result.
[2] The full background to the IPO and the plaintiffs’ claims is set out in my substantive judgment and is not repeated here. At the conclusion of my judgment, I encouraged the parties to agree the costs of the two applications. They have not been able to do so and this judgment accordingly determines the competing costs claims.
[3] Before turning to the parties’ respective submissions, I record that the proceeding has, since my substantive judgment, now been categorised for costs purposes as a Category 3 proceeding.
Costs of the summary judgment application
The defendants’ submissions
[4] The defendants who appeared in opposition to the two applications are grouped into three sets:
(a)the first and ninth defendants (sued as promotors);
1 Fullarton v Arowana International Ltd [2021] NZHC 931.
2 The first, ninth, tenth and eleventh defendants.
3 The second to sixth defendants. The seventh and eighth defendants as sued in relation to alleged breaches of the Securities Markets Act 1988. Those causes of action were not the subject to the first plaintiff’s application for summary judgment.
(b)the tenth and eleventh defendants (non-executive directors sued as promotors); and
(c)the second to sixth defendants (sued as directors of an issuer).
[5]Neither the seventh nor the eighth defendant appeared.
[6] While each set of defendants has filed a separate submission on costs, they all make broadly the same points.
[7] The defendants first submit that while the costs of a plaintiff’s unsuccessful summary judgment application are often reserved into the main proceeding, costs of the first plaintiff’s summary judgment application in this case ought to quantified and awarded now. The defendants say that given the nature of the claims and issues arising in these proceedings, it was wholly inappropriate for the first plaintiff to seek summary judgment on liability.
[8] Counsel each refer to the Court of Appeal’s observations in NZI Bank Ltd v Philpott, in which the Court held that costs of an unsuccessful summary judgment application should usually be reserved pending final determination of the proceedings, but note that the Court recognised there will be exceptions:4
There will be other cases where the plaintiff has embarked on summary judgment proceedings erroneously in the sense the rules do not allow the summary judgment procedure, or in the certain knowledge that there is a bona fide question of fact or law which can be determined only after a trial. In those circumstances the Court should be able in its discretion to deprive the plaintiff of costs in those unsuccessful and abortive proceedings and award costs to the defendant.
[9] Counsel for each set of defendants also refer to Emmons Developments New Zealand Ltd v Mitsui Sumitomo Insurance Co Ltd, in which Associate Judge Matthews said: 5
It was a bold move, in my view, to bring an application carrying with it an obligation to prove that the insurers did not have a defence when the elements of the claim included points on which there was inevitably considerable scope for argument.
4 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 405.
5 Emmons Developments New Zealand Ltd v Mitsui Sumitomo Insurance Co Ltd [2016] NZHC 1244 at [10].
[10] The defendants note that I made similar observations in my judgment dismissing the first plaintiff’s application, including that the application for summary judgment on liability was “novel; some may even describe it as bold.”6
[11] Counsel for the tenth and eleventh defendants also refer to Katz J’s observation in Mason v Dodd that “where a summary judgment application was plainly inappropriate, costs may be fixed immediately”.7 Counsel also refer to her Honour’s observation that “where it should have been clear to the plaintiff there was an arguable defence, costs will generally be fixed immediately”.8
[12] In the context of this case, counsel all refer to the fact that the summary judgment application was brought on a complex claim under the Securities Act 1978 (the Act), and that summary judgment on liability had never before been granted on such a claim in either this jurisdiction or Australia. Counsel submit that summary judgment on liability in a case like this was particularly unlikely. The first plaintiff needed to persuade the Court that none of the defendants had an arguable defence to the claim that the IPO documents contained misleading statements. Furthermore, they needed to show no arguable defence on reliance and causation, to exclude the so called “due diligence defence”, and demonstrate that none of the defendants ought to be excused from liability pursuant to s 63 of the Act. Counsel submit that claims of this nature are inherently unsuitable for summary judgment, because the issues giving rise to liability inevitably require significant factual and expert evidence at trial.
[13] The defendants further submit that the application for summary judgment was also misconceived from an evidential perspective, given it relied on plainly inadmissible hearsay (and sometimes double hearsay) evidence (in particular, reports by Deloitte and the Tertiary Education Commission).
6 Fullarton v Arowana International Ltd [2021] NZHC 931 at [13].
7 Mason v Dodd [2020] NZHC 2005 at [8], citing Emmons Developments New Zealand Ltd v Mitsui Sumitomo Insurance Co Ltd [2016] NZHC 1244.
8 At [10], citing Vision Aluminium Ltd v McLaughlan HC Christchurch CP123/90, 8 June 1990.
[14] In these circumstances, each set of defendants seeks costs on a 3C basis. They also seek certification for second counsel for each set of defendants (noting that I had indicated I would likely certify for second counsel if costs could not be agreed).
The first plaintiff ’s submissions
[15] Counsel for the first plaintiff submit that there is no reason to depart from the normal approach that costs on an unsuccessful plaintiff’s application for summary judgment are reserved into the substantive proceedings.
[16] Counsel submit that there is nothing in my judgment or otherwise to suggest that the first plaintiff’s application involved an abuse of the summary judgment process. Counsel note that while I described the application as novel, I also recognised that “there is a first time for everything”.9 Counsel also note that I recognised there was no impediment as a matter of principle to making declarations on a summary judgment application. Counsel also note that I made observations that the summary judgment application being declined simply reflected that the threshold for entry of summary judgment had not been met, and did not say anything about the merits of the first plaintiff’s claims.
[17] In response to the defendants’ submissions on the inadmissible hearsay evidence and its relevance to costs, counsel submit that the findings of inadmissibility should be understood in their proper context. Counsel note that the defendants’ objection to the admissibility of certain documents was only notified on 16 November 2020, being some five months after the summary judgment application had been filed and a matter of days before the hearing of the application. Counsel submit that there were reasonable grounds to object to that (very late) admissibility challenge. Counsel submit that in reality, the admissibility issue was strongly contested and its determination required the exercise of evaluative judgment by the Court. Counsel submits that “hindsight as to the result should not be used against the plaintiffs as a reason to award costs against the first plaintiff, rather than to reserve these in the usual way”.
9 At [13].
[18] Counsel also submit that it is significant that none of the defendants put up any evidence as to what they say the correct early withdrawal numbers were, so as to make it obvious there was a clear factual dispute.
[19] In the event the Court considers it appropriate to make an award of costs at this time, counsel for the first plaintiff accept that costs categorisation of 3C is generally appropriate, but take issue with some of the steps for which the defendants claim costs. Counsel also submit that due to the application of r 14.15, two of the three sets of defendants (being the first and ninth defendants on the one hand, and the tenth and eleventh defendants on the other), should be awarded one set of costs rather than a separate costs award each. Counsel suggest that when looking at this issue in a realistic way, those two sets of defendants had common or overlapping interests on the summary judgment application and as matters transpired, the tenth and eleventh defendants to a substantial extent did join in the defence of the first and ninth defendants. Counsel note that these two sets of defendants faced the very same claim (all being sued in their capacity as promoters), no conflict of interest was likely or indeed arose from the way the summary judgment application was both prosecuted and defended, and the tenth and eleventh defendants’ written and oral submissions relied heavily on the first and ninth defendants’ written and oral submissions.
[20] In these circumstances, the first plaintiff submits there is no good reason to allow separate costs to both these sets of defendants, and doing so would do nothing to incentivise efficiency in the defence going forward.
Discussion
[21] I am satisfied it is appropriate to fix and determine costs of the first plaintiff’s summary judgment application now, rather than to reserve costs into the substantive proceedings. I say this for the following reasons.
[22] First, the nature of these proceedings meant that an application for summary judgment on liability was extremely challenging and ought to have been recognised as an unsuitable vehicle for determining that issue.
[23] I agree with counsel’s submission, above at [12], that the reason why summary judgment on liability on a claim of this type has never before been granted in this jurisdiction or in Australia is because claims like this are inherently unsuitable for summary judgment. Claims like these inevitably involve consideration of much factual and expert evidence. Further, overseas authorities suggest that issues such as whether a defendant ought reasonably to be relieved of liability are not appropriately dealt with by way of summary judgment.10
[24] The difficulties inherent in the first plaintiff’s application for summary judgment on liability were highlighted by the fact that an amended application was filed on the last day of the (three day) hearing, in which the first plaintiff no longer sought summary judgment on the Fair Trading Act 1986 claim, and declarations as to misleading statements were sought as a potential alternative on the Securities Act claim. It is correct that I noted that, as a matter of principle, declarations could be granted on a summary judgment application. But acceptance of that as a matter of principle does not itself suggest that the declarations were appropriately sought in this case by way of summary judgment.
[25] Second, the first plaintiff’s application relied to a significant extent on inadmissible hearsay evidence, and in a number of respects, on what was really “double hearsay”.11 The content of the reports in question was not relied on “around the margins” of the application, but was the key evidence in support of the first plaintiff’s application for summary judgment on liability.
[26] It was somewhat surprising, in my view, that the first plaintiff placed such significant reliance on materials which were plainly inadmissible for the truth of their contents. This was not a marginal call on admissibility. I also do not accept the fact that the defendants’ formal objection to admissibility was made relatively close to the hearing alters the position. While the summary judgment application had been filed some months prior, it only became apparent from the first plaintiff’s written submissions – filed on 9 November 2020 – that she proposed to rely to a significant extent on those reports for the truth of their contents. The admissibility objection
10 See [146] and [147] of my substantive judgment.
11 See, generally, the discussion at [107] to [117] of my substantive judgment.
was then made reasonably promptly following the defendants’ receipt of the first plaintiff’s submissions. Moreover, given the fundamental difficulty in relying on these reports for the truth of their contents, it is no defence to the costs claim to point to the suggested “lateness” of the defendants’ opposition. Ultimately, it was for the first plaintiff to be satisfied when making her application for summary judgment on liability that her application was supported by suitable and admissible evidence.
[27] Third, that the defendants did not advance evidence of the numbers of early withdrawal does not alter the position on costs. As noted in my judgment, an application for summary judgment must first and foremost be based on admissible evidence. The fact the defendants did not advance their own evidence of early withdrawal numbers may also reflect that they did not have that material in their possession (it presumably being in the possession of the liquidators), or it may simply have been a tactical decision.
[28] Fourth, the fact that my judgment recorded that the dismissal of the summary judgment application did not suggest the first plaintiff has a weak (substantive) case, or correspondingly that the defendants have a strong (substantive) case (or vice versa), does not say anything about the appropriateness of the summary judgment procedure being deployed.
[29] Finally, the rationale for reserving costs of an unsuccessful plaintiff’s summary judgment application, as explained by the Court of Appeal in NZI Bank Ltd v Philpott, does not weigh in favour of reserving costs in this case. It is correct that it is difficult to determine questions of fact or law until the case itself is decided, so an order for costs is often best determined at the conclusion of the proceedings.12 The Court in NZI Bank Ltd v Philpott also noted that the introduction of the summary judgment procedure had been observed to accelerate the passage of commercial litigation through the courts and promoted earlier settlement of disputes. The Court accordingly stated that the risk of a large order for costs would act as a deterrent to plaintiffs using this “quick and effective” means of obtaining relief where at the outset, in any event, there seemed to be no defence to the claim.13 But in the present
12 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 405-406.
13 At 406-407.
case, there has been no particular benefit, as far as I can see, from the use of the summary judgment procedure. The issues have not narrowed. All heads of the liability inquiry remain “at large”. The use of summary judgment in this case has unfortunately only injected several months’ delay into the progress of the plaintiffs’ proceedings. A costs order on the present application is also highly unlikely to deter others with claims more suitable for summary judgment from seeking judgment on that basis.
[30] There will accordingly be an award of costs on the summary judgment application against the first plaintiff in favour of the defendants.
[31] As noted, the proceedings have recently been categorised for costs purposes as Category 3. All parties agree that costs on the summary judgment application ought to be determined by reference to the Band C time allowances. I make an order accordingly. There is also no dispute that there should be a separate costs award in favour of the second to sixth defendants. As to the challenges made by the first plaintiff to the quantum of the second to sixth defendants’ costs claim:
(a)I agree that costs for case management generally should not be awarded on this application. While the early case management conferences will no doubt have included some scheduling for the summary judgment application, that can be said for many interlocutory applications, and costs for case management conferences are not usually included in a costs award for a defended interlocutory application. The costs award is accordingly to exclude those costs claimed by the second to sixth defendants and set out in Schedule 1 to the plaintiffs’ costs memorandum dated 27 May 2021.14
(b)While I consider a costs allowance ought to be made for the submissions filed on the admissibility objection, I do not agree that a full three day allowance ought to be made (as if it had been dealt with as a formal application). One day is allowed.
14 A reduction in the costs claimed of $3,883.00.
(c)I agree that the total hearing time was 2.5 days, and 0.25 of a day is an appropriate reflection of the r 4.24 application. The appearance for principal and second counsel is therefore to be calculated by reference to 2.25/1.125 days respectively.
(d)I consider it appropriate to make a costs award for the further submissions made on the first plaintiff’s amended application for summary judgment on liability; simply because Category 3C “contemplates complex matters” does not mean that that costs categorisation anticipates amended applications being filed during the hearing itself. It was appropriate for the second to sixth defendants to have an opportunity to respond to that amended application and the submissions were of assistance to the Court. Again, however, I consider an allowance of one day, rather than three days, is appropriate.
(e)The costs arguments have not been particularly straightforward, it was not unreasonable for the first plaintiff to submit costs ought to be reserved (given that reflects the usual approach on an unsuccessful plaintiff’s summary judgment application) and I have not accepted some of the claims made by the second to sixth defendants. Costs on the costs application are accordingly to lie where they fall.15
[32] In terms of the costs awards to the first and ninth defendants and the tenth and eleventh defendants, I agree with counsel for the first plaintiff that there should not be a full award of costs to each of those sets of defendants. Rule 14.15 provides that a court “must not” allow more than one set of costs, unless it appears to the court that there is good reason to do so, if several defendants defended a proceeding separately and “it appears to the court that all or some of them could have joined in their defence”. When determining whether separate costs awards against multi-defendants ought to be made, the court will often take in to account:16
15 This applies to all parties and across both applications.
16 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR14.15.02].
(a)whether, in a realistic way whether parties have common or overlapping interests and if so, to what extent;
(b)whether a conflict of interest was likely in terms of the way the plaintiffs ran their case;
(c)where defendants’ reputations are at stake, it is more likely to be reasonable to have separate representation; and
(d)the extent to which one party could have or did rely on the evidence or submissions of another.
[33] While I agree that the individual reputations of the defendants were at stake, the remaining factors tend to point either to one set of costs being awarded, or at least a reduced costs award to each. There was nothing to suggest on the plaintiff’s summary judgment application, or these defendants’ response to it, that a conflict of interest was likely. Further, it was evident from both the written and oral submissions that there was a significant degree of overlap between the submissions being made on behalf of each set of defendants.
[34] Nevertheless, in a claim of this type, made against individuals in their role as promoter, the fact that individual reputations are at stake perhaps attracts a greater degree of importance than in some other cases. I also take into account the nature of some of the issues arising on the question of liability, including the “due diligence defence” and how that applied to particular defendants, and whether any individual defendant ought to be relieved of liability pursuant to s 63 of the Act. In addition, and given the potentially dispositive nature of the summary judgment application on liability, I do not consider it unreasonable for these two sets of defendants to have separate legal representation and to make separate submissions on the summary judgment application.
[35] But to recognise the fairly large overlap in these two sets of defendants’ positions, and reflecting the evident policy behind r 14.15 (that a court is to exercise
some caution in awarding costs in favour of multiple parties),17 the costs award in favour of the first and ninth defendants and the tenth and eleventh defendants for step 24 (preparation of written submissions) is to be reduced by 50 percent of what would otherwise have been ordered.18
[36] As to the first plaintiff’s challenge to the quantum of costs claimed by the first and ninth defendants and the tenth and eleventh defendants:
(a)the same comments as to steps for case management, submissions filed on the admissibility objection, the time of the hearing, the submissions on the amended application and costs of the costs application (at [31] above) apply to these defendants (noting that the tenth and eleventh defendants do not claim costs for some of these steps); and
(b)I agree that the costs claimed by the first and ninth defendants for preparation of a bundle (step 25) should be calculated on a 3B basis.
[37]I award disbursements as claimed by each set of defendants.
[38] Finally, both the first and the ninth, and the tenth and the eleventh defendants claim the cost of sealing the costs order. One award for sealing the costs order is appropriate. Each set of defendants is awarded $253.33 for this step.
The r 4.24 application
[39] As it transpired, the plaintiffs’ application pursuant to r 4.24 effectively became something of a “non-event” at the hearing. However, the application was made and was formally opposed (in part) by each set of defendants. Written submissions and bundles of authorities were required and produced. Nevertheless, the defendants’ key points of opposition effectively melted away at the hearing.
17 Independent Māori Statutory Board v Auckland Council [2017] NZHC 678 at [8].
18 Other than for the costs memorandum, the tenth and eleventh defendants have in fact only claimed costs for steps 23, 24, 26 and 27.
[40]In these circumstances, I do not consider it is appropriate for costs on the r
4.24 application to lie where they fall as the defendants suggest. The plaintiffs were the successful party overall in relation to the application and costs ought to follow the event in the ordinary way.
[41] I agree, however, that costs on this application should be awarded on a Category 3B basis (rather than 3C), given the application was relatively straightforward and the legal principles well settled. This was ultimately reflected in the fact that the hearing of the application occupied less than half a day.
[42] There will accordingly be an award of costs against the defendants (on a joint and several basis) in favour of the plaintiffs on the r 4.24 application, on the basis of Schedule 2 to the plaintiffs’ costs memorandum dated 27 May 2021, save that costs for each step are to be calculated by reference to scale 3B.
Fitzgerald J
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