GBR Investment Limited v Goose Bay Ranch Holdings Limited HC Christchurch CIV 2009-409-613
[2010] NZHC 815
•21 April 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2009-409-613
UNDER Section 241 of the Companies Act 1993
BETWEEN GBR INVESTMENT LIMITED Plaintiff
ANDGOOSE BAY RANCH HOLDINGS LIMITED
First Defendant
ANDMOANA INVESTMENT PROPERTY LIMITED
Second Defendant
ANDMAKURA SETTLEMENT LIMITED Third Defendant
ANDP K CONSTRUCTION LIMITED Fourth Defendant
Judgment: 21 April 2010 at 3.00 pm
JUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 21 April 2010 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Solicitors: Buddle Findlay, Solicitors, PO Box 322, Christchurch
Clark Boyce, Lawyers, PO Box 25433, Christchurch 8144
GBR INVESTMENT LIMITED V GOOSE BAY RANCH HOLDINGS LIMITED AND ORS HC CHCH CIV-
2009-409-613 21 April 2010
[1] In a judgment I issued in this proceeding on 27 November 2009:
(a)The first defendant was placed into liquidation on the application of the plaintiff and David Donald Crichton and Keiran Anne Horne (the lqiuidators) were appointed liquidators;
(b)The plaintiff’s application for orders placing the second and third defendants into liquidation was dismissed but only for reasons of jurisdiction and standing; and
(c)I noted that, if the question of costs could not be resolved directly between the parties, counsel were invited to file memoranda.
(The judgment did not relate to the fourth defendant which had previously been placed into liquidation by this Court on 2 November 2009).
[2] It appears that no agreement on the issue of costs has been reached between the parties. Memoranda from counsel have now been filed as follows:
(a) Memorandum dated 9 February 2010 from counsel for the plaintiff. (b) Memorandum dated 30 March 2010 from counsel for the defendants.
(c)Memorandum dated 12 April 2010 in reply from counsel for the plaintiff.
[3] I have now had an opportunity to consider those memoranda and give my decision on the issue of costs.
[4] In substance here the plaintiff as a minority shareholder in the first defendant was broadly successful in achieving what it intended with the applications which were before the Court. Those applications which I heard on 16, 17 and 18
November 2009 were for orders to place the first defendant, second defendant and the third defendant into liquidation, each of those companies having had interim liquidators appointed on 31 March 2009.
[5] As I have noted, in my 27 November 2009 judgment, an order was made placing the first defendant company into liquidation. While the second defendant and third defendant as subsidiary companies were not placed into liquidation this was simply because of jurisdiction and standing issues. The plaintiff’s application to liquidate all the companies in question was brought solely in its capacity as “a shareholder” in terms of s 241(2)(c)(iii) Companies Act 1993 and not as a creditor, contingent or prospective creditor, or otherwise. The plaintiff, however, was not a named shareholder of either the second or third defendants (their shares being held by the first defendant company). The plaintiff therefore had no standing to bring the application to liquidate those companies.
[6] Notwithstanding this, it seems clear that the second defendant and third defendant as subsidiary companies were insolvent and as I understand the position, the liquidators of the first defendant have now seen fit to pass appropriate resolutions as shareholders to place the second and third defendants into liquidation. Effectively, therefore, the same result has been ultimately achieved. Although technically the Court was unable to make orders liquidating the subsidiary companies, the second defendant and third defendant, I am satisfied the length of the hearing which took place before me and the preparation required for that hearing would not have been significantly shorter if the application before the Court had related only to the first defendant.
[7] Further, as I understand the position, despite the second defendant and third defendant having being placed into interim liquidation in March 2009, the issue of standing was only raised for the first time in submissions advanced by counsel for the defendant provided a matter of days before the November 2009 hearing before me.
[8] I am satisfied, therefore, that the technical inability of this Court to liquidate the second defendant and third defendant as subsidiary companies of the first defendant, should have little impact on the incidence of costs in this case.
[9] I conclude therefore that the plaintiff here is entitled to costs on what amounted to its successful application to have the first defendant placed into
liquidation. This appears to be broadly accepted in the submissions advanced by counsel for the defendants in his memorandum (even though the first defendant has now appealed the liquidation order).
[10] The defendants’ argument against costs being awarded to the plaintiff here appears to be based on the suggestion that the plaintiff did not succeed against the second and third defendants and presumably therefore costs on those applications should be offset.
[11] As I have noted above, however, it is not correct to characterise matters in this way. The second and third defendants are now in liquidation following an appropriate Shareholders’ Resolution passed by the liquidators. In my 27 November
2009 judgment an order was made at paragraph [11] “again solely for jurisdiction and standing reasons” removing the interim liquidators of the second and third defendants, but with a comment at paragraph [55] of that judgment:
... in my view it would be entirely proper for the appointed liquidators (of the first defendant) to consider placing the subsidiary companies, Moana and Makura (the second and third defendants) into voluntary liquidation on the basis I have noted above (the liquidators appointed, if they saw fit, could pass a resolution to put the subsidiary companies into voluntary liquidation on the basis of their control as the sole shareholders).
That is precisely what has happened here.
[12] For all these reasons I am satisfied that the plaintiff as effectively the successful party here, is entitled to costs on the applications before the Court and that there is no justification for reducing the quantum of these costs payable to the plaintiff in that capacity.
[13] And, turning to the defendant’s application to remove the interim liquidators of each company, which I heard as part of these matters in November 2009, I am satisfied this application may well have been unnecessary because if the Court had decided against placing any of the defendant companies into liquidation, the interim liquidations would have automatically terminated. Similarly if the liquidation applications were successful and orders made then these would of course subsume the earlier interim liquidation orders.
[14] As I see the position, it must follow that the plaintiff should be reimbursed for its costs in presenting argument to the hearing to oppose the defendants’ application.
[15] The next issue before the Court is where the incidence of costs to be paid to the plaintiff here should lie. In this case the dispute between the parties was effectively between the plaintiff as a minority shareholder in the first defendant (and thus a party for whom a minority interest in the subsidiary companies was held on the one hand) and a majority shareholder in the first defendant which opposes liquidation on the other. The contest in this proceeding was thus effectively between shareholders.
[16] In situations such as the present Heath J in Jenkins v Supscaf Limited [2006]
3 NZLR 264 at page 288 noted:
[151] The present dispute is between two groups of shareholders. When a company is placed in liquidation at the suit of a creditor it is appropriate for the company to bear the costs of placing the company in liquidation. That is not the position when the contest is between shareholders. In my view, the Boughton interests (opposing shareholders) must pay the costs of the Jenkins/Robins interests (applicant shareholders) on the liquidation proceeding.
[17] In the present case the plaintiff’s liquidation application was opposed effectively by Mr Paul Keung’s (Mr Keung) interests as majority shareholders. GBR Trustees Limited was the majority shareholder in the first defendant company at the time this proceeding was filed and up to 5 August 2009 when, as I understand the position, all its shares were transferred to GB Management Limited. Mr Keung is the sole director of both companies and although not a party to the present proceeding nor a shareholder in his own right, it is clear that he directed the defence to the present application and it is for the benefit of his interests that this opposition was pursued.
[18] Under all the circumstances here I am satisfied that GBR Trustees Limited and GB Management Limited should be the parties who are primarily responsible for the plaintiff’s costs here. To make a costs order against the named defendants in this proceeding would be entirely unfair and against the broad interests of justice, given
that if this was to occur the successful plaintiff would itself effectively meet a portion of those costs relative to its shareholding interests in each defendant company. Like the situation that prevailed in Re North End Motels (Huntly) Ltd [1976] 1 NZLR 446 the costs of the present successful liquidation proceedings should be paid by the other opposing contributory shareholders.
[19] And although an order for costs against a non-party such as Mr Keung here is exceptional and rare, in appropriate cases this may occur – Dymocks Franchise Systems (NSW) Pty Limited v Todd (No. 2) [2005] 1NZLR 145 (PC).
[20] In the present case I am satisfied that Mr Keung, although a non-party, through his interests is likely to have funded the defence to the present application and it is clear he also clearly controlled and directed this defence and must have believed that he and his interests stood to benefit from the litigation if the liquidation application had failed. Under all the present circumstances, I take the view that it is entirely fair and proper for the costs order which is to follow in favour of the plaintiff to be made also against Mr Keung as a non-party jointly and severally with GBR Trustees Limited and GB Management Limited as shareholders.
[21] The next issue before the Court relates to the quantum of costs sought by the plaintiff.
[22] Counsel for the plaintiff in his 9 February 2010 memorandum seeks an award of indemnity costs and has provided a breakdown of those costs. They amount to a significant sum totalling $152,954.00. In addition disbursements totalling $7,142.00 are sought.
[23] In the alternative, counsel for the plaintiff seeks increased costs here based upon the scale in the High Court Rules and suggests an award of costs of no less than
$100,000.00 plus disbursements is justified.
[24] In this regard, counsel for the plaintiff has set out a scale costs calculation for the work carried out here calculated on a Category 2B basis at $26,560.00, calculated on a Category 3B basis at $39,342.00 and calculated on a Category 3C basis at
$66,360.00. These scale costs have apparently been calculated with reference to ordinary proceedings and not liquidation proceedings, given that the plaintiff contends the scope of these proceedings went substantially beyond what is usual in a liquidation proceeding, it involved complicated and difficult issues, and the defendant strongly opposed the application which had a hearing spread over 3 days and involved extensive cross-examination on both sides.
[25] On the question of quantum counsel for the defendant in his 30 March 2010 memorandum noted at paragraph 11(a) that the defendant’s costs in this matter have totalled approximately $100,000.00. The extent of these costs and the sum of nearly
$153,000.00 incurred by the plaintiff in its actual solicitor – client costs in this matter in my view clearly demonstrates that this whole proceeding was not an ordinary liquidation proceeding and that it should not be treated as such for the purpose of assessing costs.
[26] As I have noted at paragraphs [22] and [23] above the plaintiff here seeks costs against the defendants on an indemnity basis or alternatively on an increased costs basis.
[27] Rule 14.6(3) and (4) makes provision for awards of increased costs and indemnity costs respectively. On this it is clear that a party claiming increased or indemnity costs must explain why they are justified – Radfords Limited v Advertising Works New Zealand Limited High Court, Auckland, 26 April 2006, CIV-
2006-404-325, Associate Judge Faire.
[28] So far as indemnity costs are concerned it is clear from the authorities that a high threshold must be passed before an order for indemnity costs is to be made – Paper Reclaim Limited v Aotearoa International Limited [2006] 3 NZLR 188. Essentially, “truly exceptional circumstances must exist” as identified by Goddard J in Hedley v Kiwi Co-Operative Dairies Limited (2002) 16 PRNZ 694 – endorsed by the Court of Appeal in Bradbury v Westpac Banking Corporation [2009] 3 NZLR
400. As Baragwanath J summarises at paragraph [27] of the Court of Appeal decision in Bradbury v Westpac Banking Corporation:
...(a)Standard scale applies by default where cause is not shown to depart from it;
(b) Increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) Indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[29] And the Court of Appeal in Bradbury v Westpac Banking Corporation at paragraph [29] went on to endorse Goddard J’s remarks as to some general categories in which the Court’s discretion to award indemnity costs may be exercised (whilst also acknowledging that those categories are not closed) in the following way:
[29] ... While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f), it listed the following circumstances in which indemnity costs have been ordered:
(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b) particular misconduct that causes loss of time to the Court and to other parties;
(c) commencing or continuing proceedings for some ulterior motive; (d) doing so in wilful disregard of known facts or clearly established
law; or
(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[30] In the present case I am not satisfied that this is a case which fits neatly into any of the categories outlined above or is one where the “truly exceptional circumstances” referred to in Hedley v Kiwi Co-Operative Dairies Limited which are required before indemnity costs can be awarded have been made out. Whilst in my view there has been a failure on the part of the defendants and Mr Keung and his interests in particular to act reasonably over what, despite earlier denials through counsel at the hearing he finally acknowledged, was an irretrievable break down in the relationship between the parties, by a reasonably fine margin I am unable to say here that these parties have acted “badly or very unreasonably” in opposing the plaintiff’s present application.
[31] The contention advanced by counsel for the defendant that liquidation orders were not appropriate here but a voluntary administrator should have been appointed in terms of s 239L(2)(b) had little merit. Before me all parties appeared to accept that there was little chance of the first defendant in particular continuing in business here. A telling factor which I noted at paragraph [90] of my 27 November 2009 judgment which lent towards a liquidator being appointed was the real need, as I saw it, for a thorough and independent investigation of the first defendant’s affairs to be undertaken to achieve some finality between the parties. The questionable actions taken in the past by Mr Keung in particular with regard to the entire group of companies made this essential.
[32] Although, I conclude that an award of indemnity costs is not appropriate in this case, because of the conduct of the unsuccessful parties here, the plaintiff has clearly been put to considerable trouble and expense in bringing the liquidation application and presenting its arguments before the Court over what turned out to be an extended period of hearing of 3 days. That said, in my view, it is appropriate for an order to be made here for increased costs in favour of the plaintiff in terms of r
14.6(3) High Court Rules. This case has demanded an allocation of time that has far exceeded that contemplated by the scale and the Keung interests as the unsuccessful parties have in my view unnecessarily contributed to increasing those costs. And as I see the position, at the very least in terms of r 14.6(3)(d) other reasons also exist here which justify the Court in making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[33] In the present case, as I noted above, the defendant shareholders and Mr Keung have substantially increased the costs incurred by the plaintiff once its proceeding was issued. The extensive evidence required, substantial cross- examination needed, the length of the hearing and the pursuit by the defendants of what I saw as arguments of little merit have added to the costs incurred by the plaintiff here.
[34] I conclude that an order for increased costs is appropriate. And on this, the authorities establish that the correct approach is for the Court to provide an uplift on scale costs.
[35] As to the question of scale costs, although most liquidation proceedings will only justify an award of costs on a Category 2B basis, in my view the r 14.3 categorisation of these proceedings which requires complexity and significance to be assessed objectively based on what a case really involves and how important it is to the parties (McGechan on Procedure paragraph HR14.2.01(2)), supports the position that this is an appropriate proceeding to be categorised as Category 3. I am satisfied here that given the nature of the dispute between the parties, the requirement for extensive cross-examination and the issues involved, for costs purposes this matter can be seen as one requiring counsel to have special skills and experience in the High Court. As I see it this is in part reflected by the fact that both the plaintiff and the defendants in this matter were represented by two counsel throughout the 3 day hearing.
[36] I conclude therefore that this is to be categorised as a Category 3B
proceeding, the total scale costs for which as assessed by counsel for the plaintiff are
$39,342.00. No issue appears to be taken with the calculation of this amount by counsel for the defendants.
[37] For the reasons I have outlined above the circumstances here justify an uplift of 50% on this Category 3B calculation The $39,342.00 Category 3B scale costs are therefore to be subject to an uplift of $19,671.00 which makes a total amount for costs payable to the plaintiff of $59,013.00.
[38] On this counsel for the defendant did raise one issue. This was a concern as to whether a claim by the plaintiff for second counsel at the hearing should be allowed. As I have noted above, both parties including the defendant had two counsel at the hearing before me. In doing so, clearly the defendant considered this was a matter which required two counsel. That said, the defendant’s argument that the plaintiff should not be entitled to costs at the hearing for two counsel must fall away.
[39] Finally, the plaintiff seeks disbursements here totalling $7,142.00 which are itemised in the memorandum from counsel for the plaintiff dated 9 February 2010.
[40] Counsel for the defendant has raised only one issue on this concerning a disbursement of $3,641.24 claimed for an investigative accountant’s report on the position of the companies. In my view there is nothing in this objection. This report proved of considerable help in considering the application before the Court and in my view it was properly obtained. Its cost is fairly claimed as a disbursement. Total disbursements of $7,142.00 are therefore approved.
[41] For the reasons outlined above, the plaintiff’s application for costs on the matters before the Court is successful.
[42] An order is now made that GBR Trustees Limited, GB Management Limited and Mr Paul Keung are jointly and severally liable to pay the plaintiff’s costs in this matter on an increased Category 3B basis which costs total $59,013.00 together with the plaintiff’s disbursements which total $7,142.00.
‘Associate Judge D.I. Gendall’
0
0
1