Investacorp Holdings Limited v Quinn
[2015] NZHC 1498
•1 July 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-6778 [2015] NZHC 1498
BETWEEN INVESTACORP HOLDINGS LIMITED
Plaintiff
AND
CLIVE ANTHONY QUINN AND PAMELA ISABEL QUINN
First Defendants
QUINN CHARTERED ACCOUNTANTS LIMITED
Second Defendant
Hearing: On the papers Appearances:
D R Bigio and D Nilsson for plaintiff
S P Bryers for defendantsJudgment:
1 July 2015
JUDGMENT OF WOODHOUSE J [costs]
This judgment was delivered by me on 1 July 2015 at 2 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
INVESTACORP HOLDINGS LTD v QUINN [2015] NZHC 1498 [1 July 2015]
[1] Mr Bruce Thompson was granted leave pursuant to s 165 of the Companies Act 1993 (the Act) to bring this proceeding in the name and on behalf of the plaintiff (Investacorp) against the defendants.1 Proceedings were brought resulting in a judgment against the first defendants and with claims against the second defendant (QCAL) being dismissed.2
[2] When leave was granted to Mr Thompson there was an order that Investacorp pay the first $50,000 of the costs of the proceeding. That was, in effect, a provisional order. It was made on the following terms:3
Any costs over and above that sum required to bring the proceeding to conclusion are to be paid by Mr Thompson personally in the first instance. I reserve leave for him to apply for any such costs paid by him, to also be ultimately paid by the company once the proceedings are determined on their merits, if that becomes necessary.
[3] Mr Thompson now seeks an order under s 166 that the balance of the costs incurred by him be paid by Investacorp. The sum he seeks is $203,457.92.
[4] Mr Thompson’s application is opposed by the defendants.4
[5] The defendants also seek an order for costs against Investacorp, or Mr
Thompson as a third party, or both.
Mr Thompson’s claim under s 166
[6] Section 166 of the Act, so far as relevant, is as follows:
166 Costs of derivative action to be met by company
The Court shall, on the application of the shareholder or director to whom leave was granted under section 165 of this Act to bring … proceedings, order that the whole or part of the reasonable costs of bringing … the proceedings … must be met by the company unless the Court considers that it would be unjust or inequitable for the company to bear those costs.
1 Thompson v Quinn HC Auckland CIV-2010-404-8457, 6 October 2011.
2 Investacorp Holdings Ltd v Quinn [2014] NZHC 2389.
3 Thompson v Quinn, above n 1 at [71].
4 The memorandum in opposition is on behalf of all three defendants, but QCAL would not appear
to have any standing on Mr Thompson’s application. Nothing turns on the point.
[7] Mr Bigio, for Mr Thompson, submitted in effect that the terms of s 166 mean that Mr Thompson is entitled to his reasonable costs unless the defendants establish “that it would be unjust or inequitable for” Investacorp to bear the costs. Mr Bigio submitted that the costs are reasonable and advanced a number of reasons why, both in his original written submissions and in reply to Mr Bryers on behalf of the defendants.
[8] Mr Bryers advanced a number of grounds in opposition. I have concluded that Mr Thompson’s application should be granted. Given this conclusion, it is convenient to record my reasons by reference to the principal arguments advanced in opposition to Mr Thompson’s application.
[9] The first argument was directed to the effect of the costs decision when leave was granted. Mr Bryers submitted that the Court’s discretion under s 166 is exercised, and in this case was exercised, at the time when leave was granted. In conjunction with this it was submitted that at that time Mr and Mrs Quinn “succeeded in discharging the onus on them … of demonstrating that it would be unjust or inequitable for the company to bear the whole costs of the proceeding.”
[10] I do not agree with either proposition. As a matter of construction, s 166 does not mean that an order can only be made when the application for leave is granted. There is no express limitation to that effect. There is no justification for reading such a limitation into the provision. And there is good justification for applying it broadly so that the Court can deal with each case on its overall merits, the nature of which, as with all cases, is likely to vary to a considerable extent. Venning J, in the leave decision, clearly considered that s 166 was not limited in the way suggested by Mr Bryers. And this effectively answers the second limb of the argument. There is a clear onus on the defendants under s 166 and I am satisfied the onus remains on them at this stage.
[11] There were several submissions directed to the basic proposition that the costs sought by Mr Thompson from Investacorp are out of all proportion to the benefit of the judgment to Investacorp. The submission for Mr Thompson was that the “gross benefit” was “no less than $443,096.00”, with a further financial benefit
from the increased ongoing rent to be paid by QCAL. The submission for the defendants was that the “financial benefit accruing to” Investacorp is “$153,778.29 at most”.
[12] The difference arises from the following matters. Mr Thompson’s calculation for rent and interest is $287,200.00. The defendants’ claim is $283,025.00. The difference is of no consequence. Mr Thompson includes a sum of $155,895 which, it was argued, interests associated with Mr and Mrs Quinn had been persuaded, as a consequence of the proceeding, to repay to Investacorp, or not claim from Investacorp. For the defendants it was argued that, of this sum, the Quinn interests had repaid two-thirds ($105,675) “long before the trial”, leaving the balance for determination. I do not accept the argument for the defendants. An undertaking in relation to the total sum was first given in the course of the trial and is recorded in
the judgment.5 The defendants argue that “the undertaking merely reflected the fact
that the Quinns had never had any intention of seeking to recover that sum from Investacorp”. The defendants’ contention is not borne out by the evidence. The defendants deduct from the recovery for rent and interest a sum of approximately
$79,000 for tax said to be payable by Investacorp, and $50,000 in respect of the costs already paid to Mr Thompson. Neither of those items is properly brought into account in considering the quantum of the judgment in favour of Investacorp. Some of the calculations and arguments of the defendants are similar to calculations and related arguments discussed in the substantive judgment and found to be contrived.6
There may be some room for argument as to the precise financial benefit of the
judgment to Investacorp, but I am satisfied that it is much closer to Mr Thompson’s calculation than that of the defendants. And the precise sum, having regard to the approximate quantum, does not matter.
[13] The defendants referred to the fact that although, on the leave application, the principal sum sought was calculated at $607,028, and the total sought at the commencement of the trial was a principal sum of $859,991, but the judgment was
for a principal sum of $167,002. Associated with this was a submission that the
5 Investacorp Holdings Ltd v Quinn, above n 2 at [129] and fn 28.
6 At [54]-[57].
report of the accounting expert for Investacorp “has largely been discredited”. The first point does not take the argument for the defendants much beyond the matters already discussed in relation to quantum. The second point is not correct. I did not agree with some of the opinions of the accountant called for Investacorp, but that was not at any point on the basis advanced for the defendants. The defendants’ arguments in this regard are in substantial measure directed to the fact that Investacorp did not succeed on what is described in the substantive judgment as the “professional fees claim”. The fact that Investacorp did not succeed would not in my judgment make it unjust or inequitable for Investacorp to reimburse Mr Thompson. The defendants’ argument in this regard, and in some other of the grounds advanced, is approaching the matter on the basis that it was litigation between Mr Thompson and the defendants, but that is not what I am required to consider under s 166. Venning J, in granting leave, effectively concluded that Mr Thompson had good grounds for seeking leave in respect of the professional fees claim. Having reviewed all of the evidence, and notwithstanding my conclusion on the professional fees claim, and another and relatively minor claim, I am satisfied that Mr Thompson was well justified in bringing the claim through Investacorp.
[14] There was another and related submission to the essential effect that the costs now sought are out of proportion to the financial benefit to Investacorp. It was submitted that if Investacorp is required to pay the balance of the costs sought by Mr Thompson, Investacorp will suffer a loss. Even if that were correct it would not necessarily follow that an order in Mr Thompson’s favour would be unjust or inequitable. Cost / benefit analyses of this nature are not apposite for an assessment of what may or may not be just or equitable. The more detailed submissions on cost against benefit, already dealt with, sufficiently answer this more general submission.
[15] A separate argument for the defendants was based on the fact that Investacorp, and in substance Mr Thompson, rejected an offer in a Calderbank letter of a sum of $170,000, inclusive of interest and costs. This offer was made 17 days before the hearing commenced. I am satisfied it was not unreasonable for Investacorp to reject the offer. The reasons are sufficiently contained in the discussion to this point. It follows from this conclusion that the rejection of the offer
would not make it unjust or inequitable for Mr Thompson’s costs to be reimbursed by Investacorp.
[16] The remaining arguments for Mr and Mrs Quinn were directed to the shareholding of Investacorp, with Quinn interests holding just over 50 per cent, Mr Thompson’s interests just over 36 per cent and the interests of another family shareholder being just over 13 per cent. One submission involved a different form of cost/benefit analysis. Based on the defendant’s calculation of the net benefit to Investacorp of the judgment of just under $154,000, the proposition was that over
$253,000 would be spent by Investacorp, if Mr Thompson succeeds in his application, with a benefit to Mr Thompson and the other shareholding interests of only $76,000, with a corresponding analysis for the Quinn family interests. I am not persuaded that these analyses mean that the onus on the defendants under s 166 has been met, and again essentially for the reasons discussed to this point in respect of other analyses of other submissions along these lines.
[17] There was a final submission, again going behind the corporate veil, referring to the fact that $300,000 had been set aside from the sale of one of Investacorp’s properties as an agreed security against claims for costs. The submission was that Mr Thompson’s family interests will be entitled to approximately $109,000 of this sum, given the shareholding, so that the Thompson interests will, to that extent, be reimbursed for the costs they have incurred. That proposition is quite unpersuasive on the question as to whether it would be unjust or inequitable for Mr Thompson to be reimbursed for the balance of the costs he has incurred. If he is entitled, he is entitled to be reimbursed by Investacorp. The fact that a particular cash sum may have been set aside is irrelevant. It is simply one of the assets of the company. The extent of different shareholdings can have a bearing on the question whether leave should be granted under s 166, but I do not consider that it is relevant at this stage to an assessment of what is just and equitable.
[18] Considering justice and equity in the round, I am in no doubt that Mr Thompson was fully justified in having Instacorp bring the claims and that he is entitled to be reimbursed by Investacorp in full.
[19] There was no substantial argument for the defendants directed to the quantification of the costs sought by Mr Thompson (except in respect of matters already dealt with). There is, therefore, an order that Investacorp pay to Mr Thompson for costs (which includes experts’ fees and disbursements) a sum of
$203,457.92.
The defendants’ claims against Mr Thompson and Investacorp
[20] Given the conclusion in respect of Mr Thompson’s claim, and the reasons for it, I am satisfied that there are no proper grounds for exercising the Court’s discretion on costs by making an order that Mr Thompson pay any part of the defendants’ costs.
[21] In respect of the defendants’ claim for costs against Investacorp there is a preliminary question as to whether the defendants are entitled to bring the application after the date specified in the substantive judgment. The defendants were
13 days late. They made their claim in response to the first claim for costs which was Mr Thompson’s claim under s 166. Investacorp, and Mr Thompson, in respect of the claim against him personally, argued that leave should not be granted because the defendants’ claim amounted to retaliation. This was on the basis of advice from the defendants that they would not have brought a claim had there been no claim by Mr Thompson. The defendants’ approach in this regard was not unreasonable and I am satisfied that, to the extent that leave is required, it should be granted.
[22] The claim by the defendants against Investacorp is to be determined in accordance with the High Court Rules and the principles developed in the cases in respect of the rules. The defendants’ grounds for seeking costs were those advanced in opposing Mr Thompson’s claim, with some added points which I have taken into account but which do not need to be outlined.
[23] QCAL has joined in this claim. All of the claims against QCAL failed. The general rule is that costs follow the event. In this case, however, I agree with the submissions for Investacorp (and Mr Thompson) that it is not apparent that QCAL incurred any costs of any consequence in addition to costs incurred by Mr and Mrs Quinn in defending the claims against them. There was a short argument as to whether QCAL was a de-facto director. There is no indication as to the quantum of
costs in that regard. In any event, this is a case where I consider it appropriate to exercise the ultimate discretion on costs to decline any award in favour of QCAL. This is the defendant which enjoyed the direct benefit of paying no rent, and no operating expenses, for a long period, and below market rent for a further period. There is a judgment against Mr and Mrs Quinn in this regard, including interest, but no judgment against QCAL. Had Investacorp brought a direct claim against QCAL for liability as the occupier, it would have succeeded. In exercise of the ultimate discretion available to the Court on costs, I decline any award in favour of QCAL.
[24] I am also satisfied that there should be no order in favour of Mr and Mrs Quinn. Investacorp, having secured judgment, would be entitled to costs in accordance with the general rule that costs follow the event. That does not necessarily follow. There are numerous cases discussing circumstances in which a successful party may not be awarded costs, with costs being left where they fall, and other cases where costs have been awarded to an unsuccessful party. Having regard to the relevant principles, and taking account of the further submissions made for the defendants under this heading, I am satisfied that these costs should remain where they fell and that there should be no order one way or the other.
[25] The applications by the defendants are accordingly dismissed.
Woodhouse J
Solicitors:
Lee Salmon Long, Auckland
McVeagh Fleming, Auckland
Davd Bigio, AucklandStephen P Bryers, Auckland