Hurstmere Trustees Limited v Six D Property Limited

[2021] NZHC 2505

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2478

[2021] NZHC 2505

IN THE MATTER OF

An application pursuant to section 174 of the Companies Act 1993

BETWEEN

HURSTMERE TRUSTEES LIMITED AND PAUL DOUGLAS MARSHALL AS

TRUSTEES OF THE MARSHALL INVESTMENT TRUST

Applicants

AND

SIX D PROPERTY LIMITED

Respondent

Hearing:

On the papers

Appearances:

S J Tee for the Applicants

M C Staines for the Respondent

Judgment:

23 September 2021

COSTS JUDGMENT OF MUIR J

This judgment was delivered by me on Thursday 23 September 2021 at 10.00 am

pursuant to Rule 11.5 of the High court Rules.

Registrar/Deputy Registrar Date:…………………………

Counsel/Solicitors:
S J Tee, Morton Tee Limited, Takapuna

M C Staines, McVeagh Fleming, Auckland

HURSTMERE TRUSTEES LTD v SIX D PROPERTY LTD [2021] NZHC 2505 [23 September 2021]

Introduction

[1]                 The applicants seek costs on their successful interlocutory application for freezing orders made under r 32.2 of the High Court Rules 2016.

[2]                 In their substantive proceedings the applicants claim that other shareholders of the respondent are acting in concert to use their combined 75 per cent shareholding to conduct its affairs, and those of another company, Teasol Property Limited (Teasol), in a manner which is prejudicial and oppressive towards the plaintiffs who hold a   25 per cent interest.

[3]                 This application originally came before the Court on an urgent basis predicated by the imminent settlement of a property owned by the respondent. The application was at that stage effectively for interim interim relief.

[4]                 At a hearing before me on the Duty Judge list, orders were ultimately made by consent that the sum of $273,468.75 be retained by the respondent’s solicitors pending the outcome of the interlocutory application.

[5]                 On 25 August 2021 I heard the interlocutory application. My minute of the same date records the inquiries undertaken by me to attempt to identify what sum was appropriately retained to meet the plaintiffs’ legitimate claims and the ultimate agreement of the parties to resolve the interlocutory application by way of a $315,000 retention.

[6]                 That facilitated consent orders which I made the same day. I reserved costs in the event these could not be agreed.

[7]                 Unsurprisingly given their disputatious history, the parties have not been able to resolve their costs claims. Submissions have now been received.

The respective positions

[8]                 The applicants say that they have been consistently frustrated by inadequate provision of information, had no alternative but to seek a freezing order, that the only

offer made by the respondents was to secure the sum of $225,000 and that the terms of settlement constituted substantial success for them. Accordingly, they seek 2B costs in the sum of $8,484.50 plus disbursements of $611.78. The relevant steps are reproduced in Schedules A and B of this judgment.

[9]                 The respondent says that the amount which the applicant sought to freeze on the application (the entire proceeds of sale less the costs of disposition) was

$1,094,000—a “stark contrast” to the amount ultimately agreed. It says that the applicant pursued unmeritorious arguments (including that it should be protected for the amount of its share in a property owned by Teasol) and that its claims to appointment of a receiver were similarly not reflected in the ultimate settlement.

[10]             As a result, it says that costs should lie where they fall or, if not, that they should be “reduced appropriately within the Court’s discretion” taking into account the matters identified.

Discussion

[11]             While costs lie in the discretion of the Court, that discretion is not unfettered. It is qualified by the specific rules contained in rr 14.2–14.10. Rule 14.2(1)(a) encapsulates the overriding principle. The party who fails in respect of a proceeding should pay the costs of the party who succeeds. That is “costs should follow the event”.

[12]             Where a proceeding is not adjudicated upon but rather is settled, the same principles essentially apply. This requires some determination of the parties’ relative success even though a final determination about the merits is not possible.1

[13]             In the present case the applicants sought an order directing that the “sale proceeds (apart from agreed sale costs) of the property at 60 Argus Place, Hillcrest … be frozen pending the determination of the substantive proceedings”. It is common ground that the quantum of such net proceeds was approaching $1.1 million. Whatever criticisms the applicants may make of the respondent’s disclosure, a claim

1      Morris Crock Ltd v Cycletreads Ltd HC Auckland CIV-2004-404-4764, 5 December 2005 applied in Wheeldon v Body Corporate 342525 [2016] NZHC 862 at [12].

in this amount was never tenable having regard to the applicants’ limited 25 per cent interest in the property. Rule 32.6(2) requires that if the likely maximum amount of the applicants’ claim is known, the value of the assets covered by the freezing order must not exceed that amount together with interest on that amount and costs. The applicants say that the precise amount of their maximum claim could not be calculated through want of information but in my view a maximum amount significantly less than the net sale proceeds should have been specified.

[14]             By the time the matter came on for hearing the applicants had refined their position. They sought orders that $493,740 be frozen (that is $220,271.25 more than the sum agreed by the parties at the interim interim stage). But this adjusted sum was itself optimistic. It included projected entitlements in respect of Teasol where there was no proven risk of dissipation.

[15]             By the same token, exchanges with the Bench during the hearing of the interlocutory application quickly identified that the respondent’s offer—to hold

$225,000 subject to undertaking—inadequately protected the applicants’ “good arguable” entitlements. That is because:

(a)in the absence of written resolutions or loan agreements, the Court was always going to adopt a conservative approach to recognition of alleged sums owed to parties associated with the 75 per cent shareholders; and

(b)since a significant component of the alleged debts to third parties comprised fitout works undertaken by related party tenants of the respondent’s property, an inquiry would inevitably be necessary into the status of such fitout (i.e., whether owned by landlord or tenant).

[16]             Inevitably therefore positions on both sides moderated during the course of the hearing resulting in a final agreed sum of $315,000 being retained. This was approximately 64 per cent only of what the applicants had sought and 40 per cent more than the respondents had offered.

[17]             Although the starting point in respect of costs awards is that “success on more limited terms is still success”,2 that position is tempered by r 14.7 which states that the Court may refuse to make an order for costs or may reduce the costs otherwise payable if, among other things:

(d) although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or

…

(g) some other reason exists which justifies the Court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

[18]             Where the Court has concluded that the parties enjoyed success in equal measure it has, on occasion, regarded it as appropriate for costs to lie where they fall.3 In other cases it has made no order as to costs where the party claiming costs succeeded in part and failed in part.4

[19]             In the present case I have concluded that it is appropriate that a costs award be made in favour of the applicant (for the essential reason that it would have been inadequately protected by the sum which the respondents offered), but which reflects a significant reduction on what would otherwise be payable to recognise:

(a)what I regard as pursuit of an untenable argument that the applicants’ entitlements to the property owned by Teasol were properly reflected in the freezing order against the respondent; and

(b)pursuit of a receiver appointment not reflected in the settlement.

[20]             Significantly, the Teasol related claims were maintained up to and including the hearing and were excluded from potential settlement negotiations only after

2      Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26] as cited in Andrew Beck and others (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR 14.2.01(1)(b)].

3      See, for example, Asphalt Supply Co Ltd v Cole John Ltd [2021] NZHC 1567 at [7(b)]; and

Wheeldon, above n 1, at [13] and [15].

4      See, for example, Lai v Beem Construction Ltd [1984] 2 NZLR 278 (CA); Clyde Engineering Ltd v Russell Walker Ltd [1984] 2 NZLR 343 (CA).

indications by me that, whatever the merit of the applicants’ underlying claims against that company, it was neither a party to the interlocutory application nor was there any evidence that the plaintiffs’ investment in it was, at this stage at least, imperilled.

[21]             I assess the appropriate level of deduction from scale costs at 40 per cent. The deduction would have been greater but for my working assumption that the costs award will be paid by the respondent of which the applicants are 25 per cent shareholders.

[22]I make no similar deduction in relation to disbursements.

Result

[23]             I award costs against Six D Property Ltd and in favour of the applicants in the amount of $5,090 plus disbursements of $611.78.

Muir J

SCHEDULE A

Scale costs by reference to Schedule 2B are calculated as follows:

Item 22	Interlocutory application	0.6 days
Item 24	Submissions	1.5 days
Item 25	Preparing bundle	0.6 days
Item 26	Hearing – quarter day	0.25 days
Item 11	Memorandum	0.4 days
Item 12	First mention hearing	0.2 days
Total	3.55 days x $2,390.00 = $8,484.50	$8,484.50

SCHEDULE B

Disbursements

Filing fee interlocutory application	$ 500.00
Binding and preparing casebook	$ 111.78
Total disbursements	$ 611.78