Gair v Liddle
[2023] NZHC 1246
•25 May 2023
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2022-441-79
[2023] NZHC 1246
UNDER Section 266 of the Companies Act 1993 and Part 19 of the High Court Rules IN THE MATTER OF
Liddle Builders & Construction Ltd
BETWEEN
HEATH LESLIE GAIR
Applicant
AND
ROBERT JAMES LIDDLE
First Respondent
AMANDA ELIZABETH LIDDLE
Second Respondent
Hearing: On the Papers Counsel:
J D Haig and P H Surridge for Applicant
J B Orpin-Dowell, T J G Allan and K M Wakelin for Respondents
Judgment:
25 May 2023
JUDGMENT McQUEEN J [COSTS]
[1] This proceeding has now been discontinued. The remaining issue is costs. Mr Gair, the liquidator of Liddle Builders & Construction Limited (LBCL) and the applicant in this proceeding, seeks costs against Mr Robert Liddle and Ms Amanda Liddle, who are the respondents. Mr Liddle is the director and majority shareholder of LBCL, and Ms Liddle is the minority shareholder.
[2] Mr Gair sought an order by way of originating application that the respondents be directed to attend an examination on oath by him, pursuant to ss 261 and 266 of the
GAIR v LIDDLE [2023] NZHC 1246 [25 May 2023]
Companies Act 1993. Subsequent to the filing of his originating application, and prior to its determination, the respondents attended an examination before him.
[3] The issue is whether Mr Gair is entitled to costs on the basis that he achieved substantive success in his application, or whether the respondents are entitled to costs on the basis that Mr Gair’s application has been discontinued and was in any event unnecessary.
[4]For the reasons below I consider costs should lie where they fall.
Background
[5] On 28 September 2021, Jason and Victoria Roebuck applied for without notice orders ancillary to a prospective freezing order over LBCL. Those orders were granted by Churchman J on 1 October 2021, on the basis that it was seriously arguable that LBCL had engaged in a process of transferring assets to other entities to judgment proof itself against prospective claims by creditors.1
[6] On 26 October 2021, Mr Gair was appointed by consent as interim liquidator to LBCL. He was subsequently appointed liquidator by an order of the High Court on 9 December 2021.
[7] Upon appointment, Mr Gair found that the shareholders had applied the sale proceeds of the company’s assets to repay their own shareholder advances to the company. A voidable preference notice was issued in December 2021. The respondents repaid the sum to the company in January 2022. In June 2022, Mr Gair wrote to the respondents raising his concern that the transaction to sell the company’s business and assets may have been at undervalue and therefore in breach of their duties as directors. Counsel for the respondents rejected this concern, raising various matters in response.
[8] As part of his investigation into this matter, Mr Gair served notices on the respondents pursuant to s 261 of the Companies Act on 31 August 2022, requesting
1 Roebuck & Ors v Liddle Builders & Construction Ltd [2021] NZHC 2619 at [12].
that they attend his office to be examined on oath by him. Those notices proposed that the examination take place at 10:00 am on 20 September 2022, or as agreed between the parties within five working days of the notice, at a date and time between 19 and 24 September 2022. Section 261(3)(c) provides a liquidator with the power to, by notice in writing, require a director and/or shareholder:
to be examined on oath or affirmation by the liquidator or by a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company.
[9] Mr Gair received no response within five working days, and then further corresponded with the respondents on 12 September 2022 to confirm the 20 September 2022 date. With apologies for the delayed response, counsel for the respondents then contacted Mr Gair on 14 September, indicating that the proposed date was not acceptable, as the respondents were then out of New Zealand, and were returning at a time that would not allow sufficient time for him to obtain instructions. Counsel for the respondents also sought a response to several preliminary queries.
[10] Mr Gair responded on 20 September 2022, accepting the need to change the date, and asking the respondents what date and times would suit them during the week commencing 10 October 2022. He requested a response within three working days and noted that an application pursuant to s 266 of the Companies Act 1993 to compel the respondents’ attendance was contemplated if the respondents did not cooperate.
[11] There was then further correspondence between the respondents’ counsel and Mr Gair’s counsel, including over whether Mr Gair’s counsel had authority to act and with whom communications should properly be made. This continued through the end of September 2022, with the respondents not attending to be examined in the week of 10 October 2022. Mr Gair then wrote to the respondents and their counsel on 26 October, noting that he still had not received a substantive response, and indicating again that a s 266 order would be sought if the respondents’ approach continued to impede the orderly progress of the liquidation, with costs sought. Counsel for Mr Gair wrote in similar terms on 1 November 2022.
[12] Having received no response at that time, Mr Gair filed his application pursuant to s 266 of the Companies Act on 8 November 2022, together with a without notice application to proceed by way of originating application.
[13] Section 266 of the Companies Act provides that the court may on the application of a liquidator, order a person who has failed to comply with a requirement of the liquidator under s 261 to comply with that requirement. Specifically, the court may order a person to whom s 261 applies to:2
…attend before the court and be examined on oath or affirmation by the court or the liquidator or a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company.
[14] Counsel for the respondents wrote to Mr Gair on 9 November 2022 confirming that the respondents continued to be available for examination and raising concerns about the conduct of the liquidation. The s 266 application was served on the respondents on 28 November 2022. The first call of Mr Gair’s application was adjourned by consent but the respondents filed a notice of opposition in any event, as a precautionary measure.
[15] The respondents were ultimately examined on 21 March 2023. This occurred prior to the determination of Mr Gair’s application. Mr Gair accordingly sought to discontinue the proceedings.
The parties’ positions
Mr Gair
[16] Mr Gair seeks costs on a 2B basis plus disbursements in the sum of $8,198.00. He submits that the respondents did not comply with his reasonable requests to attend to be examined and that therefore his application was justified in the circumstances. He accepts that the usual position on costs where a proceeding is discontinued is that a plaintiff must pay costs to the defendant.3 However, he also notes that this rule is not
2 Companies Act 1993, s 266(2)(a).
3 High Court Rules 2016, r 15.23.
applied where a plaintiff achieves substantive success in their claim in advance of discontinuing.4
[17] Mr Gair’s submission is that as the respondents agreed to attend to be examined following the service of his application, and the examination has now been completed, he has achieved substantive success. He notes that the respondents were obliged to attend but failed to do so, having had ample opportunity prior to the application being made. He submits that it is reasonable that the respondents pay his costs, because otherwise they will be borne by LBCL’s unsecured creditors.
[18] Mr Gair accepts that liquidators are expected to act reasonably but submits that there is nothing in the Companies Act that indicates that liquidators should be constrained as to their ability to seek the Court’s assistance under s 266. He does not accept that liquidators should be required to accommodate the demands of directors or others when seeking to conduct examinations, particularly when they fail to comply with initial requests pursuant to s 261.
The respondents
[19] In reply, the respondents submit that Mr Gair’s application was unnecessary, as they have been co-operative throughout the process of the liquidation and agreed at the outset to attend an examination. Particularly, the respondents say:
(a)they have never obstructed the examination process;
(b)Mr Gair’s duties as liquidator have never been impeded; and
(c)rule 15.23 of the High Court Rules 2016 provides that the respondents are entitled to costs as against Mr Gair as a discontinuing party.
[20] The respondents submit that their behaviour can be distinguished from other examples of behaviour previously found to be uncooperative. They rely on Fatupaito v Stewart, in which the respondent had failed to cooperate with the liquidators, by
4 Carmel College Auckland Ltd v North Shore City Council HC Auckland CIV-2007-404-5894, 20 January 2009; and Whiting v Earthquake Commission [2014] NZHC 1736.
failing to respond to correspondence or attend meetings that they requested he attended.5 The respondents say that they have not refused to engage or provide information when requested by Mr Gair, and that frustration at delays occasioned by the necessity of scheduling an appropriate time for parties and their counsel does not amount to obstructive and uncooperative behaviour. In this context, the respondents say that Mr Gair’s application was not necessary and has created an unjustified expense for their creditors.
[21] The respondents say also that counsel for Mr Gair unreasonably delayed confirming that he was instructed to act. They indicate that delays were caused by this as it was entirely appropriate for such authority to be confirmed before proposing suitable dates for the examination to occur. They say this correspondence is clear evidence of their willingness to cooperate with Mr Gair, and of the lack of necessity for Mr Gair’s application, as communications to agree to a date were ongoing at the time his application was filed. The respondents submit also that examination was sought by Mr Gair when he already had much, if not all, of the information needed to perform his duties.
[22] The respondents do not accept that Mr Gair is entitled to costs. They say the ordinary position on discontinuance should apply. They say that they had already agreed to be examined at the time Mr Gair’s application was filed, and that therefore it cannot be said that Mr Gair’s success was a result of his application. They submit that Mr Gair has failed to establish that it would be just and equitable for the presumption that a plaintiff pay a defendant costs upon discontinuance to be displaced.
[23] Accordingly, the respondents seek costs on a 2B basis totalling $6,692. They also say an uplift of 30 per cent is justified on the basis Mr Gair’s application was unnecessary and required them to incur costs as a result.6 They therefore seek an uplifted sum of $8,809.60.
5 Fatupaito v Stewart [2021] NZHC 1679 at [68]–[71]; affirmed in Stewart v Fatupaito [2022] NZCA 21.
6 McCullagh v Robt Jones Holdings Ltd [2017] NZHC 3136 at [41].
Mr Gair’s submissions in reply
[24] Pursuant to a minute of Gendall J dated 2 May 2023, Mr Gair filed submissions in reply. Mr Gair submits broadly that:
(a)his application under s 266 was available and appropriate in the circumstances;
(b)he obtained the substantive relief sought in his application;
(c)costs should therefore be awarded against the respondents; and
(d)there is no basis for an award of costs against him.
[25] Mr Gair submits that all that is required by s 266(1) is that a person fails to comply with a requirement of the liquidator. He says that the respondents failed to comply with his requests to attend for examination pursuant to s 261 and that therefore his application was available. He submits that the respondents did not comply until after the filing of his application, and rejects their suggestion that examinations were not warranted.
[26] Mr Gair submits that he acted reasonably in the circumstances, advising the respondents on four occasions in advance of his application that such an application would be made. He says that in the face of the respondent’s continued non-compliance as evidenced in their failure to agree to a time and date to be examined, his application was reasonable. He submits that this is particularly so because s 261 does not mandate a bi-lateral approach in which the person to whom a liquidator’s request is directed to, make respond and interact at their own convenience. Instead, it is a directive power, with which failure to comply is an offence pursuant to s 261(6A).
[27] As to the respondents’ application for costs, Mr Gair reiterates that his s 266 application was necessary in the circumstances, and submits that the respondents’ opposition was instead unnecessary, given Mr Gair’s willingness to adjourn the first call of the matter. He says that if the respondents are entitled to costs, they should be reduced by 75 per cent, as no affidavit was filed with their opposition. Further, he
submits that there are no grounds for an award of increased costs, as his application was an available and reasonable step.
Discussion
[28]As noted, r 15.23 of the High Court Rules provides that:
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.
[29] This creates a presumption in circumstances of discontinuance that the plaintiff pays costs to the defendant, thereby supporting the expectation that so far as possible the determination of costs be predicable and expeditious.7 Therefore, in the present circumstances there is a presumption that the respondents are entitled to costs. However, as accepted by the parties, this presumption can be displaced in circumstances in which it is just and equitable to do so.8 This, on the other hand, reflects the principle that costs are a matter at the discretion of the court.9
[30] Displacing the presumption as to costs on discontinuance is a case dependent analysis, and the court is typically reluctant to embark on an assessment of the merits of the parties’ respective cases.10 Nevertheless, the onus is on Mr Gair to displace the presumption.11 In exercising the discretion, the court can take into account all of the circumstances, including why the parties either brought or defended the proceedings, and whether the steps taken in it were reasonable.12 Ultimately, a plaintiff can displace the presumption if it can be shown that they have substantially succeeded notwithstanding their discontinuance.13
7 See High Court Rules 2016, r 14.2(g).
8 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].
9 High Court Rules 2016, r 14.1.
10 Kroma Colour Prints, above n 9, at [12]; and Earthquake Commission v Whiting [2015] NZCA 114, (2015) 23 PRNZ 411 at [71].
11 Earthquake Commission v Whiting [2015] NZCA 114, (2015) 23 PRNZ 411 at [66] and [68].
12 See Earthquake Commission v Whiting above n 11, at [68]; and Powell v Halley Labels Ltd [2014] NZCA 572 at [22].
13 Whiting v Earthquake Commission [2014] NZHC 1736 at [49]–[51]; and Earthquake Commission v Whiting above n 11, at [70].
[31] It is apparent that Mr Gair was successful in that the examinations took place, thereby making it unnecessary for him to pursue his application further. However, this in itself is not a complete answer to the question of whether the application was necessary to achieve the outcome sought. There has been no disagreement that Mr Gair was entitled to examine the respondents. The parties also accept that liquidators must act reasonably. At the heart of the parties’ disagreement is whether the arrangements for the examinations to take place progressed quickly enough in the face of the respondents’ expressed concerns.
[32] I accept that the respondents indicated their willingness to proceed with the examinations on 14 September 2022. From this point onwards there was correspondence between the parties regarding the details of the examination, whether Mr Gair’s counsel had authority to act, and the time, date and location of examination that might be suitable. There appears to have been significant conflict in relation to Mr Gair’s counsel, with the respondents attempting to confirm with him that he had authority to act for Mr Gair. Mr Gair in turn was attempting to obtain the respondents’ confirmation that they would attend for examination on a particular time and date.
[33] I conclude that, as events unfolded, it was not unreasonable for Mr Gair to make the application. But nor was it unreasonable for the respondents to raise the concerns they had about counsel acting for Mr Gair or the progress of the liquidation including how the examinations were to occur. I am not satisfied that the respondents were meaningfully uncooperative. My reading of the correspondence between the parties suggests that neither communicated with the other as effectively and efficiently as would have been desirable. Both Mr Gair and the respondents must bear some responsibility for the delays in achieving the examinations. I am not inclined to go further than this in assessing the merits of the parties’ positions, wary as I am of undertaking a disputed merits review.14
[34] In the circumstances, I am satisfied that Mr Gair has displaced the presumption that the respondents are entitled to costs on discontinuance of the proceeding. It would not be just and equitable for a costs order to be made against him. Nor do I consider,
14 Earthquake Commission v Whiting above n 11, at [71].
however, there to be a proper basis for an award of costs against the respondents. I consider that the proper approach in this matter is to let costs lie where they fall.
Result
[35] Both applications for costs are declined. Costs in this matter are to lie where they fall.
McQueen J
Solicitors:
Mana Law, Wellington for Applicant
Grove Darlow and Partners, Auckland for Respondents
0
8
0