Jones v IBC Japan Ltd

[2024] NZHC 3442

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-002070

[2024] NZHC 3442

UNDER

the Companies Act 1993 and Part 19 of the High Court Rules

IN THE MATTER

of the liquidation of Autoterminal New Zealand Ltd (in Liquidation)

BETWEEN

KIERAN MICHAEL JONES, STEVEN KHOV and THOMAS LEE RODEWALD

(as liquidators of Autoterminal New Zealand Ltd)
Applicants

AND

IBC JAPAN LTD

First Respondent

KEVYN BOTES

Intervener

Judgment:

(On the papers)

19 November 2024

JUDGMENT OF BREWER J

(Costs)

This judgment was delivered by me on 19 November 2024 at 11.30 am pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

TWA Legal (Auckland) for Applicants Kensington Swan (Auckland) for IBC Grant & Co (Auckland) for Intervener

JONES & ORS v IBC JAPAN LTD [2024] NZHC 3442 [19 November 2024]

Introduction

[1]    On 30 August 2024, I allowed, with modifications, an application under s 284 of the Companies Act 1993 (the Act) made by Messrs Khov, Jones and Rodewald (the liquidators), the liquidators of Autoterminal New Zealand Limited (ATNZ).1 The liquidators sought orders for remuneration of $1,232,801.41 plus GST and disbursements of $618,706.15 plus GST. The respondent, IBC Japan Ltd (IBC), the major creditor of ATNZ, opposed the s 284 application (the Application) on the ground that the liquidation of ATNZ had been carried out inefficiently and, consequently, the remuneration and disbursements claimed by the liquidators were excessive. Mr Botes, who replaced the liquidators as liquidator, intervened to support IBC.

[2]    On a global assessment, I determined that the liquidators had, to an extent, over-worked and over-resourced the liquidation. Because of this, I fixed the liquidators’ remuneration at $1,064,429 plus GST and disbursements at $618,706.15 plus GST. In the judgment I said:

[160] I am sure there will be a dispute about remaining costs. The applicants are to file their memorandum by 27 September 2024. IBC and Mr Botes are to respond by 18 October 2024.

[3]This judgment determines costs.

Submissions

Liquidators’ submissions

[4]The liquidators seek orders that:

(a)their remuneration of $100,936.67 plus GST and their costs of

$243,586.08 plus GST (made up of $190,246.95 plus GST for solicitor and client costs, and $53,339.13 plus GST for disbursements), incurred from the date of filing their Application be paid from funds held in the liquidation of ATNZ; and

1      Jones v IBC Japan Ltd [2024] NZHC 2454.

(b)to the extent the funds held in the liquidation of ATNZ are insufficient to satisfy that award, the remuneration and costs be paid by IBC.

[5]    In the alternative, the liquidators seek orders that ATNZ and IBC are jointly and severally ordered to pay the liquidators’ costs and disbursements incurred since filing the Application, which total $243,586.08.

[6]    The liquidators say that the remuneration and costs incurred in relation to the Application are remuneration and costs in the liquidation of ATNZ, as ordered by Associate Judge Taylor in his minute of 26 October 2023.2 In particular, the liquidators refer to orders (a), (c), and (i), which respectively provide that:

(a)the retention fund may be applied to the liquidators’ remuneration and costs incurred in pursuing the application;

(c)in seeking approval of their remuneration and costs, the liquidators are not limited to the amount of the retention fund; and

(i)the liquidators’ entitlement to be paid  pursuant to  the orders  are fees and expenses properly incurred by them in carrying out the duties and exercising the powers of the liquidator and rank equally with the entitlement of the current liquidator, Mr Botes.

[7]    In the alternative, the liquidators say they should be awarded remuneration and costs incurred in pursuing the Application, pursuant to r 14.11(3) of the High Court Rules 2016 (the Rules).3 In determining the quantum of those costs, the liquidators seek to rely on r 14.6(3) and (4), which provide that the Court may award increased or indemnity costs if a party has failed, without reasonable justification, to accept an offer of settlement or has acted vexatiously.

2      Re the liquidation of Autoterminal New Zealand Limited (In Liq) HC Auckland CIV-2023-404- 2070, 26 October 2023 (Minute of AJ Taylor).

3      I note that “remuneration”, as referred to in the liquidators’ submissions, is not payable under the Rules. As such, for the remainder of this judgment, “remuneration” will be taken to relate to expenses incurred in relation to the liquidation and recoverable under the Act. “Costs” will be taken to mean costs recoverable under the Rules.

[8]    The liquidators submit that, had IBC (and ATNZ) accepted the liquidators’ settlement offer of $230,862.02 plus GST, made by email on 4 July 2023, they would have benefited by an additional $92,453.01 plus GST. They note that, rather than accepting the offer, IBC made a counter-offer which would only settle part of the dispute and would have required the liquidators to provide value totalling $448,252.33 plus GST. This, the liquidators submit, triggers r 14.11(3).

[9]    The liquidators also submit that the settlement offer is relevant to the determination of their reasonable remuneration for steps taken after the filing of the Application. They say that, given the substantial sums in issue, the lack of specificity in IBC’s complaints, IBC’s litigious nature, and IBC’s unwillingness to settle for a reasonable amount, the remuneration and costs that are reasonable to incur in the circumstances may be greater than those which would otherwise be reasonable.

[10]   As to the retention fund, the liquidators note that costs and remuneration incurred prior to filing the Application were not deducted from the funds in the liquidation, but directly from the retention fund. There is no net financial impact on the liquidation arising from this, but the liquidators seek orders recording that the retention fund may be applied to the liquidators’ remuneration and costs incurred in pursuing the Application and that remuneration and costs are not limited to the amount of the retention fund.

IBC’s submissions

[11]   IBC seeks costs on a 2B basis and disbursements, and opposes the orders sought by the liquidators.

[12]   First, IBC says there is no basis for the liquidators to seek further remuneration as the Application sought recovery of, and succeeded in recovering, remuneration only to 20 August 2023. As such, the liquidators cannot use the costs process to obtain more fees. Even if the Court entertains the liquidators’ further submissions as to remuneration and expenses, IBC says the sums sought are unreasonable.

[13]   Second, IBC submits that, as IBC successfully opposed the Application, with the Court accepting the arguments that the liquidation was not particularly complex

and reducing the liquidators’ remuneration, IBC should be awarded scale costs or, at worst, costs should lie where they fall.

[14]   Third, IBC submits that the liquidators are not entitled to costs, either increased or indemnity. It says the offer made by the liquidators on 4 July 2023 was not a true Calderbank offer as it did not solely relate to the Application and was conditional on the acceptance of other matters. IBC also says it did not have sufficient information at the time the offer was made to assess its true value as, insofar as the offer related to work in progress (WIP) and handover costs, it was incapable of proper valuation. IBC submits, therefore that, if the offer is not put aside in its entirety, the WIP and handover costs should be excluded from consideration as a minimum. If this latter approach is taken, the value of the offer would be reduced to $100,000, which is lower than the reduction of $168,372.41, as ordered by the Court, and consequently, r 14.11 is not triggered.

[15]   IBC submits that, if costs are awarded to the liquidators, they should be limited to scale costs as:

(a)There is no basis for the recovery of an applicant’s own remuneration under r 14.11(3);

(b)IBC did not fail, without reasonable justification, to accept an offer, meaning there is no basis for increased costs under r 14.6(3);

(c)IBC did not act vexatiously in alleging that the liquidator had falsified timesheets and, as such, there is no basis for indemnity costs under     r 14.6(4); and

(d)The costs claimed are unreasonable and should not be allowed, even if the Court is minded to award indemnity costs.

[16]   Finally, IBC submits that there is no basis for awarding costs against IBC itself as the liquidators are estopped from doing so by my decision to decline to make an order sought by the liquidators in the Application, whereby IBC would pay

remuneration, fees and expenses incurred by the liquidators but not satisfied by the liquidation fund.

Intervener’s submissions

[17]   Mr Gustafson, for the Intervener, first submits that, as the fees of the liquidators were reduced from what they sought, IBC and the Intervener were the successful parties  in  the  Application.  As  such,  the  costs  should  follow  the  event  and,   Mr Gustafson submits, there is no rare and principled reason to depart from an award of 2B scale costs.

[18]   Mr Gustafson also submits that the liquidators’ internal fees are not awardable in a costs decision. He says the liquidators should have sought approval of their internal fees in the Application and, at this juncture, there is no jurisdiction for the sealed judgment to be reopened to approve such fees. He says ss 278 and 284 of the Act give the Court authority to approve a liquidator’s internal fees in a liquidation and, as such, pt 14 of the Rules cannot be used for that purpose. He notes that the time allocations set out in sch 3 of the Rules are for steps taken in litigation, not for the applicant’s own time in preparing for Court. Mr Gustafson says Mr Jones was given the opportunity in cross-examination to claim fees incurred but not invoiced since filing the first affidavit and the Application, but he declined. As such, the time to claim the additional fees has passed.

[19]   Mr Gustafson also submits that there was no Calderbank offer to settle the liquidators’ fees and disbursements as the 4 July 2023 offer referred to by the liquidators was not a clear, clean, and unequivocal offer to settle, as required of Calderbank offers, but sought other agreements and concessions. Rather than simply offering $230,862.02 plus GST to settle the full dispute, the offer contained a proviso regarding the retention of $425,000 to defend any claim by IBC or a replacement liquidator for breaches of any of their duties as liquidators. This requirement was an essential part of the offer and could not be severed from the term regarding fee reduction. Further, the offer was premised on the basis that the liquidators would continue to apply for the Courts’ imprimatur of their fees and disbursements. The offer

was therefore not a Calderbank offer as it required agreement on additional matters that would not be dealt with on the s 284 Application.

[20]   Mr Gustafson submits, in the event the offer is determined to be a legitimate Calderbank offer, there is no evidence that the claimed $243,586.08 in legal fees is reasonable. He says that, in accordance with the allocations in sch 3 of the Rules, the liquidators’ costs should only amount to $46,400 plus GST, rather than the amount they claimed, which is over five times that amount. As such, the liquidators’ fees are unreasonable.

Decision

Remuneration

[21]I first address the submissions on remuneration.

[22]   The liquidators seek remuneration of $100,936.67 plus GST, for expenses incurred from the date of filing the Application, to be paid from funds held in the liquidation of ATNZ.

[23]   I acknowledge that the orders made by Associate Judge Taylor provided for funds to be applied to the pursuit of the substantive proceedings when the liquidators were in office. I have already allowed for the liquidators to be remunerated, albeit at the reduced rate of $91,115 plus GST, for the expenses related to the Application.4 That remuneration was granted to 20 August 2023. The liquidators are now seeking further remuneration for their WIP from 11 September 2023 (being the date the Application was filed) to 1 September 2024 (the day after my substantive judgment was delivered). I decline to order any further remuneration be paid to the liquidators for the following reasons.

[24]   First, from the date of their resignation, 2 November 2023, the liquidators did no work on the liquidation. From that date, any work done was the work of a party pursuing litigation, rather than undertaking a liquidation. As such, there is no basis for remuneration under the Act. Section 276 of the Act provides that every liquidator

4      Jones v IBC Japan Ltd, above n 1, at [157].

is entitled to charge reasonable remuneration for carrying out their duties and exercising their powers as liquidator. “Liquidator” in this sense does not extend to a “former liquidator”. Consequently, from 2 November 2023, the liquidators were not entitled to any further remuneration.

[25]   From 11 September 2023 to 2 November 2023, the liquidators were still in office. A spreadsheet included in the affidavit filed by Mr Jones in support of the liquidators’ costs memorandum includes several line items setting out work done in that time period, for which the liquidators claim around $20,000. I will not grant the liquidators this amount as the time for such a claim is well past. As Mr Gustafson and IBC submit, had the liquidators been so inclined they could have amended their s 284 application prior to the June 2024 hearing. They did not do so. When I asked what was the liquidators’ estimate of the charge that would ultimately be made against the retention fund for the Application, Mr Jones said:

I think the amount that we have sought in the application is as it’s set out, so my understanding is that now that we have resigned as liquidators, I don’t think that we’d have a basis on which to seek approval for any further time from the liquidator’s perspective that we have incurred in respect of the remuneration application …

[26]   It would offend the principle of finality of litigation to allow the liquidators to use a costs memorandum to seek relief beyond the orders made in the substantive judgment. I decline to grant the liquidators’ claim for further remuneration.

Costs

[27]   The parties are not agreed on who was the successful party in the determination of the Application. IBC submits that it was the successful party, relying on Weaver v Auckland Council for the proposition that “success on more limited terms is still success”.5 While the Court of Appeal’s statement in Weaver is relevant to this case, it is not relevant in the way in which IBC and Mr Gustafson submit. The Court of Appeal’s ruling concerned the plaintiff ’s award of costs which was reduced to reflect the extent of their failure. Weaver does not hold that a party is successful because it led arguments that reduced the success of the other party. In this case, Weaver can

5      Weaver v Auckland Council [2017] NZCA 330 at [25].

more accurately be applied to support the liquidators’ claim to costs as, while they did not succeed in obtaining everything sought in their application, they were still the successful party and, as such, are entitled to costs, albeit reduced to reflect the points of their application that failed.

Increased costs

[28]   The first issue to determine is whether the “Calderbank offer” made by the liquidators was indeed such an offer and, if so, whether IBC’s rejection of that offer warrants an award of increased costs against it.

[29]   Calderbank offers are provided for by rr 14.10 and  14.11  of  the  Rules.6 Rule 14.6(3)(b)(v) allows the Court to order increased costs if a party fails to accept a Calderbank offer without reasonable justification. “Reasonable justification”, while not firmly defined, will generally be deemed to be absent where a party refuses an offer that would be more beneficial to it than the ultimate judgment was.7 IBC submits it had reasonable justification to refuse the offer and, as such, there is no basis for increased costs to be awarded against it.

[30]For clarity, I set out the offer made by the liquidators:

1.the offer is made on a Calderbank (without prejudice save as to costs) basis;

2.the offer remains open for acceptance until 4:00pm on Friday, 7 July 2023, at which time it shall automatically lapse;

3.the liquidators shall proceed with their applications notwithstanding that the offer remains open for acceptance; and

4.unless expert evidence substantiates that the liquidators’ fees ought to be reduced by an amount greater than the total value of the offer, the offer is final.

6      Bushline Trustees Ltd v ANZ Bank New Zealand Ltd [2018] NZHC 454 at [20]; David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [3.57].

7      Wealand International (New Zealand) Ltd v Safe Kids in Daily Supervision Ltd HC Auckland, CIV-2008-404-004658, 24 February 2009 at [7]–[8]; Bullock and Mullins, above n 6, at [3.56].

Offer

1.   In full and final settlement of the dispute relating to the reasonableness of the fees charged by all three liquidators, Kieran Jones and Steven Khov of Khov Jones Limited (the ‘Current Liquidators’) will:

(a)    waive their work in progress in relation to all matters in the administration and conduct of the liquidation accruing since 1 March 2023, amounting to $93,905.50 plus GST;

(b)  provide up to $50,000 at current rates of their and their staff’s time to facilitate a handover to the replacement liquidator and to assist the liquidator if required; and

(c)  credit fees totalling $100,000 (including GST), which amount shall be added to the funds to be transferred to Mr Botes upon resignation of the Current Liquidators.

For the avoidance of doubt, the waiver of work in progress excludes the work in relation to Mike Tyler which has been requested by James MacGillivray on behalf of IBC and recorded in e-mails between Mr MacGillivray and the Current liquidators on 30 June 2023. That work shall be charged to the liquidation in the normal manner.

2.     The Current Liquidators shall resign as  liquidators  of  Autoterminal New Zealand Limited in favour of Kevyn Botes of i-Business Recovery Limited within five working days after acceptance of this proposal.

3.   IBC shall not encourage, finance or otherwise assist, directly or indirectly in any way, any other party (including but not limited to a successor liquidator) to challenge the quantum or reasonableness of the liquidators’ fees charged in the liquidation prior to the resignation of the Current Liquidators.

4.  IBC agrees that the Current Liquidators may retain $425,500 to cover their time and expenses defending any other claim made by IBC or any replacement liquidator in respect of a breach of the Current Liquidators’ duties including, but not limited to, any claim arising out of the four ‘serious concerns’ identified in IBC’s email of 4 April 2023.

5.  If IBC and any replacement liquidator confirm that neither will pursue the claims identified at point 4 above, the Current Liquidators will release the retention to the replacement liquidator. Additionally, the Current Liquidators will keep under review the retention sum with a view to returning any amount if it becomes apparent that it will not be required.

[31]   I note IBC’s reliance on Rapana v McBride Street Cars Ltd, in which Asher J stated: “A party wishing to have the benefit of a Calderbank offer should make a

monetary offer without significant conditional terms.”8 Asher J’s ruling has been repeatedly affirmed.9

[32]   It is plain that the liquidators’ offer was not a monetary offer without significant conditional terms. The conditions extended to matters not covered by the Application. I do not consider the offer to be a Calderbank offer, and I find that its refusal was reasonably justified. I decline to award increased costs.

Indemnity costs

[33]   The liquidators provided very little detail in support of their claim for indemnity costs. The award of indemnity costs arises only in exceptional circumstances and only where a party has exhibited “exceptionally bad behaviour”.10 There is nothing before the Court to suggest that IBC’s conduct meets this high threshold.

Who should pay?

[34]   The final matter to determine is who pays the liquidators’ costs award. The liquidators seek costs against both ATNZ and IBC. IBC says costs cannot be awarded against it as I did not grant an order sought by the liquidators in the Application, which would have provided that, to the extent the funds held in the liquidation of ATNZ were not sufficient to satisfy remuneration, the shortfall would be paid by IBC. But this clearly related to remuneration, not costs. As such, the liquidators are not, to use IBC’s term, “estopped” from seeking costs directly from IBC.

[35]   To the extent the $98,973.38 remaining in the retention fund is insufficient to satisfy the costs award, IBC is liable for costs.

[36]   ATNZ is also liable for costs since Mr Botes, as the current liquidator, intervened to support IBC.

8      Rapana v McBride Street Cars Ltd HC Dunedin CIV-2007-412-118, 1 May 2007 at [22].

9      Wilding v Te Mania Livestock Ltd [2018] NZHC 1506 at [78]; and Lough v Taupo Residential Ltd

[2018] NZHC 1603 at [20(k)].

10     Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [28].

Result

[37]   I award costs to the liquidators against IBC and ATNZ, jointly and severally, on a 2B basis. If the parties cannot agree on quantum, costs may be set by the Registrar in the first instance or memoranda may be referred to me if disagreement goes beyond steps and mathematics.

Brewer J