Kelstworural Limited (in liquidation) v Mounsey-Ross

[2021] NZHC 2146

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2541

[2021] NZHC 2146

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of Kelstworural Limited (In Liquidation)

BETWEEN

KELSTWORURAL LIMITED (IN LIQUIDATION)

First plaintiff

MALCOLM GRANT HOLLIS and CRAIG ALEXANDER SANSON
Second plaintiffs

AND

KELLY MICHELLE MOUNSEY-ROSS

First defendant

KELLY WILLIAM ROSS

Second defendant

Hearing:	On the papers
Counsel:	GAD Neil and S P Farnell for the plaintiffs
Date of judgment:	17 August 2021

JUDGMENT OF JAGOSE J

[Costs]

This judgment was delivered by me on 17 August 2021 at 3.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Solicitors:

Meredith Connell, Auckland

KELSTWORURAL LTD (IN LIQUIDATION) v MOUNSEY-ROSS [2021] NZHC 2146 [17 August 2021]

[1]    My 2 July 2021 judgment in the plaintiffs’ favour reserved costs.1 The plaintiffs now seek increased costs, uplifted by 50 per cent from 2B scale, in the amount of

$64,427.25 plus disbursements of $840.14.

Scale costs

[2]    I am satisfied as to the applicability of the 2B scale, no step in this averagely complex proceeding likely requiring other than a normal amount of time.2

Increased costs

[3]    However, the plaintiffs seek increased costs: predominantly on the ground the defendants contributed unnecessarily to the time and expense of the proceeding by failing, without reasonable justification, to accept an offer of settlement;3 but also on grounds of their unmeritorious defence;4 and “gross breach” of their directors’ duties.5

—unmeritorious defence?

[4]    So far as the first of the latter two grounds is concerned, I am not pointed to the defence’s unnecessary contribution to the proceeding’s time and expense. Such unnecessary contribution logically must be of steps not otherwise required to be taken in the proceeding, or materially in excess of the scale time allowed for each such step to the party claiming costs, such being how costs usually are calculated.6 Here, the defence was struck out for the defendants’ default in filing their affidavit evidence in opposition.7 The proceeding was determined on formal proof.8 From that perspective, the defence — meritorious or not — can have made no contribution to the proceeding’s time and expense. The plaintiffs bear the burden of establishing such qualification:9 “[c]lear cause must be shown to justify an increase”.10

1      Kelstworural Ltd (in liq) v Mounsey-Ross [2021] NZHC 1632 at [15].

2      High Court Rules 2016, rr 14.2(1)(b), 14.3(1) and 14.5(2)(b).

3      Rule 14.6(3)(b)(v).

4      Rule 14.6(3)(b)(ii).

5      Rule 14.6(3)(d).

6      Rule 14.2(1)(c), and see both r 14.6(3)(a) and Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]–[44].

7      Kelstworural Ltd (in liq) v Mounsey-Ross HC Auckland CIV-2018-404-2541, 20 May 2021 (Minute of Duffy J).

8      Kelstworural Ltd (in liq) v Mounsey-Ross, above n 1, at [1].

9      Corrick v Silich [2018] NZCA 221, (2018) 24 PRNZ 210 at [60].

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

—breach of directors’ duties?

[5]    On the second of the latter two grounds, I do not see breach of directors’ duties to the company alone to justify increased costs. Costs are not punitive, but the unsuccessful party’s contribution to the successful party’s legal expenses. Compensation for breach of duty is the primary substantive remedy, as awarded here.11 It may be exceptional circumstances — “exceptionally bad behaviour … the misconduct must be ‘flagrant’” — justify the company’s indemnification,12 but that is not what is proposed. And an uplift “logically” should not be more than 50 per cent.13

—failure to accept settlement offer

[6]    But qualification  for  the  former  ground  clearly  is  met  here.  Within  High Court Rules 2016, r 14.6(3)(b)’s express qualifications for increased costs is the broad expectation “increased costs may be ordered where there is failure by the paying party to act reasonably”.14 Under subpara (v), ‘reasonableness’ is to be viewed against:15

… a requirement of fairness that litigants … have some economic means of limiting their exposure to the risk of costs; and secondly the Court itself must ensure … an effective encouragement to settle.

A “steely” approach is required:16

… the scarce resources of the Courts should not be burdened by litigants who choose to reject reasonable settlement offers, proceed with litigation and then fail to achieve any more than was previously offered.

[7]    Accepting any one of the plaintiffs’ offers of settlement would have avoided the subsequent time or expense of the proceeding. No reasonable justification is offered for the defendants’ failure. The defendants thus have contributed unnecessarily to the proceeding’s time or expense. The plaintiffs are entitled to increased costs under subpara (v). I see no reason to reduce that entitlement below its maximum.

11     Kelstworural Ltd (in liq) v Mounsey-Ross, above n 1, at [6] and [14].

12     High Court Rules, r 14.6(4); and Bradbury v Westpac Banking Corp, above n 10, at [28], citing

Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC) at [6].

13     Holdfast NZ Ltd v Selleys Pty Ltd, above n 6, at [46]–[48].

14     Bradbury v Westpac Banking Corp, above n 10, at [27(b)].

15     Moore v McNabb (2005) 18 PRNZ 127 (CA) at [58], about Calderbank offers under r 14.10.

16     Bluestar Print Group (NZ) Ltd v Mitchell [2010] NZCA 385 at [20], citing Health Waikato v Elmsly [2004] 1 ERNZ 172 (CA) at [53].

Result

[8]    I order the defendants jointly and severally to pay the plaintiffs increased costs in the amount of $64,427.25 plus disbursements of $840.14.

—Jagose J