Kelstworural Limited (in liquidation) v Mounsey-Ross

[2020] NZHC 1902

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2541

[2020] NZHC 1902

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
Judgment:	31 July 2020

JUDGMENT OF KATZ J

(Costs)

This judgment was delivered by me on 31 July 2020 at 2:30 pm pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Meredith Connell, Auckland

Victorian Lawyers, Auckland

KELSTWORURAL LIMITED & ORS v MOUNSEY-ROSS & ANOR [2020] NZHC 1902 [31 July 2020]

Introduction

[1]                  Kelstworural Limited is in liquidation. Mr Hollis and Mr Sanson are the liquidators. They, and the company, issued this proceeding against the defendants, Ms Mounsey-Ross and Mr Ross, who are shareholders and directors of the company.

[2]                  The liquidators applied for summary judgment in respect of their first cause of action, which relates to a current  account  debt  owed by Ms Mounsey-Ross  and  Mr Ross to the company. Summary judgment was not sought in respect of the second cause of action, which seeks compensation for alleged breaches of directors’ duties.

[3]                  The proceeding, together with the application for summary judgment, was filed on 14 November 2018. On 21 November 2018, the statement of claim and other documents were served on the defendants. The statement of defence was therefore due to be filed by 17 January 2019. No defence was filed. However, at the first call of the summary judgment application on 12 February 2019, counsel for the defendants appeared. A notice of opposition was filed to the summary judgment application and a hearing was scheduled for 9 April 2019. At that hearing the company obtained summary judgment against the defendants in the sum of $326,219.86 plus interest, as well as costs and disbursements totalling $8,323.25.

[4]                  The company then took various enforcement steps against Ms Mounsey-Ross and Mr Ross. This was followed by attempts between the parties to reach settlement on the judgment and the second cause of action. Settlement negotiations foundered, however.

[5]                  On 10 June 2020 the company applied for formal proof in respect of the second cause of action. On 22 June 2020 Davison J allocated a half day fixture for the formal proof hearing, to take place on 24 July 2020. The Registry reminded both parties of the upcoming hearing on 29 June 2020.

[6]                  On 3 July 2020, counsel for the defendants filed an application seeking leave to file their defence out of time, together with a copy of the proposed statement of defence. The application was not opposed by the liquidators and leave was granted by Moore J on 9 July 2020. The formal proof hearing was accordingly vacated.

[7]                  The liquidators now seek wasted costs in respect of the formal proof application and hearing preparation in the sum of $3,585, together with disbursements of $50. Costs are claimed on a 2B scale basis for the following steps:

(a)Filing a memorandum dated 10 June seeking allocation of a formal proof hearing (item 11, 0.4 days).

(b)Commencement of affidavit evidence (item 30, 0.5 days; the relevant step provides for 2 days, the liquidators say that they had only spent

0.5 days by the time the formal proof hearing was vacated).

(c)Preparation of the costs’ memorandum (0.4 days, item 11).

(d)Appearance at the mention of 9 July (0.2 days, item 12).

[8]The claim is therefore for 1.5 days on a 2B basis ($3,585). A disbursement of

$50 is claimed for the sealing of the costs order.

[9]The defendants submit that no costs award should be made.

Approach to wasted costs

[10]              Jurisdiction to order wasted costs is not expressly addressed in the High Court Rules but is nonetheless well established.1 Only the amount of costs actually wasted is awarded. If the relevant work would need to be undertaken for trial in any event, then those costs will not generally be treated as wasted.2 The assessment is a matter for the court’s judgment.3

[11]              In East Coast Aluminium v Perry, the defendant filed an application for leave to file a statement of defence two days before the formal proof hearing.4 Muir J awarded 2.5 days for preparing the plaintiff’s affidavit and 0.5 days for other general

1      Jeffreys v Morgenstern [2013] NZHC 1361 at [31].

2      Jeffreys v Morgenstern [2013] NZHC 1361 at [37]; also relevant is Highley Ltd v Vodafone   New Zealand Ltd HC Auckland CIV-2006-404-2870, 6 September 2011 at [11].

3      Jeffreys v Morgenstern [2013] NZHC 1361 at [34].

4      East Coast Aluminium Ltd (in liq) v Perry [2016] NZHC 2019.

wasted costs. In Gao v Cao, the defendants applied for leave to file a statement of defence the day before the formal proof hearing.5 Venning J awarded 0.4 days for filing the memorandum for case management, 2.5 days for preparing submissions and affidavits for the formal proof hearing, 1 day for general costs, and 0.25 days for appearance at mention.

Should wasted costs be ordered?

[12]              Ms Mounsey-Ross and Mr Ross suggest that the COVID-19 pandemic prevented them from reaching a settlement with the liquidators. They submit that this means that the vacated formal proof hearing was not their fault and they should not be required to pay costs in respect of it. They say that the reason they did not file a statement of defence is that they were still hoping to settle the matter.

[13]              The statement of defence was required to be filed by 17 January 2019, more than a year before the COVID-19 lockdown. Parties are obliged to comply with the requirements of the High Court Rules and to seek extensions or variations to time limits if that is seen as necessary. No such extensions were sought in this case. The existence of settlement negotiations (however they are progressing) does not entitle a party to disregard their obligations under the Rules.

[14]                   The defendants’ delay in filing a statement of defence has put the liquidators to unnecessary expense. The liquidators are entitled to be compensated for that. It is therefore appropriate to award wasted costs.

What is the appropriate quantum of wasted costs?

[15]              Ms Mounsey-Ross and Mr Ross suggest that the High Court costs scale is inappropriate, as the claim is only for $330,731.99, which is within the District Court’s jurisdiction.6 The liquidators point out that the Companies Act 1993 does not confer jurisdiction on the District Court, but rather (pursuant to s 2) confers it on the High Court. Pursuant to s 74(1)(b) of the District Court Act 2016, the District Court does not have original jurisdiction, but rather only has jurisdiction to hear cases for which

5      Gao v Cao [2015] NZHC 1609.

6      District Court Act 2016, s 74.

jurisdiction is conferred under another enactment. Where the District Court is to be given jurisdiction in the Companies Act 1993, as for example in dealing with pre-incorporation contracts, the Act expressly so provides.7 There is therefore no District Court jurisdiction, and so it was appropriate for this claim to be filed in the High Court. The High Court costs scale therefore applies.

[16]              The defendants filed their statement of defence three weeks before the formal proof fixture. In East Coast Aluminium and Gao v Cao the relevant statements of defence were filed only a day or two before the hearing, and counsel had therefore already completed all or most of the preparatory work. That is not the case here. Some reduction is therefore appropriate, as the liquidators acknowledge. I accept their submission that the costs award should be pro-rated to reflect the actual time spent preparing the affidavit evidence (half a day) rather than the full two day allocation allowed by the Rules.

[17]              I have not been persuaded, however, that the liquidators should be awarded costs for preparing their costs memorandum. Such a course is relatively unusual and is not warranted here where the quantum claimed is small and the issues straightforward.

[18]              The disbursement of $50 which is claimed for sealing the costs order is not contested and is, in my view, appropriate.

Result

[19]              I award costs to the first plaintiff in the sum of $2,629, together with disbursements of $50 (totalling $2,679).

Katz J

7      Companies Act 1993, s 185A.