Kidd v Equity Realty (1995) Ltd

[2010] NZCA 452

IN THE COURT OF APPEAL OF NEW ZEALAND

CA95/2009
[2010] NZCA 452

BETWEENANTHONY JAMES KIDD

Appellant

ANDEQUITY REALTY (1995) LIMITED

First Respondent

ANDPHILLIP PURNELL ANDREWS

Second Respondent

Hearing:29 June 2010

Court:William Young  P, Chambers and O'Regan JJ

Counsel:C T Patterson and Z J Hill for Appellant

R J Katz QC for Respondents

Judgment:5 October 2010 at 10 am

JUDGMENT OF THE COURT

AThe appeal is allowed and the cross-appeal is dismissed.

BThe orders for the joinder of Mr Kidd and for the payment by him of costs are set aside.

CMr Kidd is entitled to costs in the Employment Court to be fixed by that Court (but only in relation to the application to join him as a party).

DIn relation to this appeal and the application for leave to appeal, Equity Realty (1995) Limited and Mr Andrews are to pay Mr Kidd costs for a standard application for leave to appeal and a standard appeal on a band A basis and usual disbursements.  Their liability is joint and several.

EThere is no order as to costs on the cross-appeal.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

The case

[1]        The background facts to this case are reasonably complex but those that are relevant to the present appeal lie within a comparatively narrow compass and can be shortly stated.

[2]        The appellant, Mr Anthony Kidd, ran Axiom Rolle PRP Valuations Services Ltd (“Axiom”).  Axiom sought an Anton Piller order from the Employment Relations Authority in relation to its dispute with Mr Rahul Kapadia.  The Authority dismissed the application on the merits but when Axiom challenged this determination in the Employment Court, that Court purported to make an order which permitted specified persons to search the premises of Equity Realty (1995) Ltd[1].  As it turned out these orders were not executed because Equity Realty (and its principal Mr Phillip Andrews) would not facilitate access.

[1]Axiom Rolle PRP Valuations Services Limited v Kapadia [2004] 2 ERNZ 307 (EmpC).

[3]        This led to:

(a)contempt proceedings before the Employment Court by Axiom against Mr Andrews; and

(b)an application by Equity Realty for a discharge of the Anton Piller order.

[4]        There were various attempts to settle or perhaps limit the litigation:

(a)In the immediate aftermath of the failed attempt to execute the Anton Piller order, in October 2004, counsel for Axiom apparently indicated that Axiom would not seek to enforce that order and indeed would consent to its discharge but without costs and with a reservation of rights to pursue Mr Andrews for contempt.  This proposal was rejected.[2]

(b)In an undated letter in June 2005, the solicitors for Equity Realty and Mr Andrews proposed a settlement in terms of which the Anton Piller order would be set aside, the contempt proceedings would be dismissed and Axiom would pay $38,000 in costs.

(c)This led to a response from Axiom’s solicitors on 15 June 2005 under which the Anton Piller order would be set aside and the contempt proceedings struck out but with Axiom to pay only $15,000 by way of costs.

(d)By letter of 17 June 2005, the solicitors for Equity Realty and Mr Andrews counter-offered on the basis that they would be paid $35,000 in costs, a proposal which was rejected by Axiom.

(e)On 24 June 2005, there was a further offer from Equity Realty and Mr Andrews seeking $30,000 in costs but otherwise along the lines earlier proposed.

(f)In direct discussions around this time, Mr Kidd indicated to Mr Andrews that he was only prepared to pay $5,000 in costs.

[2]Perhaps as a result of the confused way in which the case on appeal was prepared, we were unable to locate the primary documents as to this sequence of events.  What we have said is based on a fax from Mr Katz QC to Mr Patterson of 24 June 2005.

[5]        The application to set aside the Anton Piller order was heard in June and July 2005 and in a judgment delivered in August 2006, the Employment Court held that there had been no jurisdiction to make the Anton Piller order.[3]  It was duly discharged.  Axiom immediately discontinued the contempt proceedings.

[3]Axiom Rolle PRP Valuations Services Ltd v Kapadia [2006] ERNZ 639 (EmpC).

[6]        In November 2006, Equity Realty applied for orders joining it and Mr Kidd in the underlying Employment Court proceedings and Mr Andrews applied to have Mr Kidd joined as a party to the contempt proceedings.  All of this was to facilitate the making of cost orders in favour of both Equity Realty and Mr Andrews against Mr Kidd.

[7]        As it turned out, Axiom went into liquidation in August 2008 after these applications were heard (in February 2007) but before they were determined.

[8]        In the judgment now under appeal, delivered on 23 September 2008, the Employment Court made orders for joinder as sought and with retrospective effect to October 2004 (the time the Anton Piller order was obtained).[4]  It also ordered Mr Kidd and Axiom to pay costs to Equity Realty (of $65,000) and Mr Andrews (of $10,000).  

[4]Orakei Group (2007) Ltd v Kapadia EmpC Auckland AC 37/08, 23 September 2008.  By this stage, Axiom had changed its name to Orakei Group (2007) Ltd.

[9]        Axiom has taken no step to challenge the costs order made against it, but, on 10 December 2008, this Court granted Mr Kidd leave to appeal in relation to his joinder as a party and as to the making and quantum of the costs orders.[5]  Equity Realty and Mr Andrews cross-appeal as to quantum of the costs awarded against Mr Kidd: it should have been higher they say.  For reasons which will become apparent, there is no need for us to address the cross-appeal other than to dismiss it.  Nothing in this judgment affects the liability of Axiom to Equity Realty and Mr Andrews.  As noted Axiom did not challenge the costs orders and nor was it a party to this appeal.

Joinder of Mr Kidd as a party

[5]Kidd v Equity Realty (1995) Ltd [2008] NZCA 545, 6 NZELR 291.

[10]       Section 221 of the Employment Relations Act 2000 provides:

221        Joinder, waiver, and extension of time

In order to enable the Court or the Authority, as the case may be, to more effectually dispose of any matter before it according to the substantial merits and equities of the case, it may, at any stage of the proceedings, of its own motion or on the application of any of the parties, and upon such terms as it thinks fit, by order,—

(a)         direct parties to be joined or struck out; and

...

(d)         generally give such directions as are necessary or expedient in the circumstances.

[11]       Mr Patterson argued that by the time the joinder applications were made, both sets of proceedings were at an end and that all that remained to be determined were costs as between the existing parties.  He noted, accurately (as we will see) that the Employment Court has no jurisdiction to make costs orders against non-parties and he argued that it was likewise not within its jurisdiction to join someone as a party to litigation solely for the purpose of making a costs order.  He also challenged the retrospective nature of the orders. 

[12]       We accept that the authorities as to High Court awards of non-party costs are not directly applicable because the Employment Court does not have a direct jurisdiction to award costs against a non-party.[6]  This is why the respondents sought to have Mr Kidd made a party.  But given the broad and untechnical language of s 221, we consider that if an award of costs against Mr Kidd was appropriate, it was within the jurisdiction of the Employment Court to join him as a party for the purpose of making such an award.  And of course, fixing costs in these circumstances is necessarily retrospective in character.

[6]See Employment Relations Act 2000, schedule 3, cl 19 and Employment Court Regulations 2000, reg 68.

[13]       In short, we are satisfied that there was jurisdiction to join Equity Realty and Mr Kidd as parties.  That, however, leaves open the question of whether the joinder was appropriate, which in turn depends on whether orders for costs ought to have been made.

Was the Employment Court right to make an order for costs against Mr Kidd?

[14]       A general jurisdiction[7] to award costs against non-parties was a late starter in the law.  It was not successfully asserted in the United Kingdom until 1986 in Aiden Shipping Co Ltd v Interbulk Ltd.[8]  In New Zealand, in the context of a slightly different legislative scheme, the jurisdiction was not established until the 1991 judgment of Tompkins J in Carborundum Abrasives Ltd v Bank of New Zealand (No 2).[9]  The principles as to the exercise of the jurisdiction have been extensively discussed by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2)[10]  and the English Court of Appeal in Goodwood Recoveries Ltd v Breen.[11] 

[7]There have always been some circumstances in which the courts have asserted a costs jurisdiction in relation to non-parties, for instance as against solicitors.

[8]Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 (HL).

[9]Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 (HC).

[10]Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145.

[11]Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723.

[15]       The core features of the present case are routine.  Mr Kidd was the guiding mind of Axiom and in this way was responsible for the litigation strategy it pursued.  By the time costs came to be fixed Axiom was insolvent. 

[16]       We think it clear that those factors do not in themselves warrant an award of costs against Mr Kidd personally.[12]  Something more is required.  In the present context, the requirement for “something more” might be satisfied if:

(a)there was any relevant impropriety on the part of Mr Kidd;[13] or if

(b)Mr Kidd was relevantly acting not in the interests of Axiom but rather in his own interests and was thus the real party.[14]

[12]Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1997] 1 WLR 1613 (CA) at 1620 per Millett LJ

[13]As in Goodwood Recoveries Ltd v Breen.

[14]See Re North West Holding plc;  Secretary of State for Trade and Industry v Backhouse [2001] EWCA Civ 67 and Goodwood at [59].

The second of these points warrants discussion.

[17]       Where a closely held company is a litigant, those who control it necessarily control its conduct of the litigation.  Since benefits derived directly by such a company are in most instances indirectly derived by those who own and control it, it is almost always going to be possible to say that such litigation is conducted by them for their personal benefit.  Further, because such a company will almost always fund its litigation with either its own funds applied to the litigation by direction of those who control it or with advances from them, they can likewise be said to have funded the litigation.

[18]       Lloyd LJ in Taylor v Pace Developments Ltd[15] was of the view that the sort of circumstances which are routine where a closely-held company is a litigant do not warrant third-party costs awards.  New Zealand authority suggests that this is so even where the company was known by the director at the time of the litigation to be insolvent.[16] 

[15]Taylor v Pace Developments Ltd [1991] BCC 406 (CA).

[16]See for instance Carborundum at 435 and Eco Horticultural Supplies Ltd v Attwood (2001) 15 PRNZ 663 (HC) at [34].

[19]       On the other hand, in Dymocks the Privy Council held that the “exceptional” nature of the jurisdiction means no more than that the jurisdiction lies:[17]

[17]At [25].

outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. 

This, and other developments, encouraged Rix LJ in Goodward Recoveries to comment:[18]

In my judgment, … the law has moved a considerable distance in refining the early approach of Lloyd LJ in Taylor v Pace Developments Ltd.  Where a non-party director can be described as the “real party”, seeking his own benefit, controlling and/or funding the litigation, then even when he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances.  It may also be noted in Lord Brown’s comments [in Dymocks][19] “the pursuit of speculative litigation” is put into the same category as “impropriety”.

This approach was carried somewhat further in the judgment of Morgan J in PR Records Ltd v Vinyl 2000 Ltd[20] in which he observed:

It could be said that there is nothing exceptional about this case.  Vinyl 2000 was a little family company owned, run and directed by Mr and Mrs Owlett and it is not at all exceptional for a director to fund the defence of such a company for his own benefit.  That is not exceptional because such a director is really equating the company with himself and, in my judgment, it is not unjust where the company’s defence fails causing the opposing party to incur substantial costs for such a director to follow through the logic of his own thinking and be liable for the costs which have been incurred.

[18]At [59].

[19]At [33].

[20]PR Records Ltd v Vinyl 2000 Ltd [2008] EWHC 192 (Ch).

Given that there is no difference between a director contributing personal funds by way of advance to the company for legal costs and the director committing the funds of the company for the same purposes,[21] the approach favoured by Morgan J would make awards of costs against directors almost routine.

[21]See Petromec Inc v Petroleo Brasileiro SA [2006] EWCA (Civ) 1038 at [9].

[20]       Where a company litigant was insolvent at the time of the litigation, a court may well be easily persuaded that its directors were acting for their own purposes rather than those of the company and its creditors.  If so, the court will conclude that they therefore were the “real parties” and ought to pay costs accordingly.[22]  The same conclusion is likely to be reached where those promoting litigation have sought to take advantage of the insolvency of the company by taking, either expressly or by implication, a “heads I win, tails you lose” approach.  In circumstances where the claim was speculative and/or devoid of merit, a court may well conclude that this was the approach of the director or directors concerned.  But, and in respectful disagreement with the judgment of Morgan J, we consider that the sort of circumstances which are routinely present when closely held companies litigate do not in themselves warrant an order for costs against those who control them.[23] 

[22]See Dymocks at [29].

[23]As to this, a comparison can usefully be made with the approach taken in Sims v Hawkins [2007] EWCA (Civ) 1175.  The approach taken by Morgan J is flatly inconsistent with the remarks of Millett LJ referred to in fn 12.

[21]       The reasons why the Chief Employment Court Judge decided to join Mr Kidd so as to make an order for costs against him were as follows:[24]

(a)He was the primary person behind Axiom, its only director and, for practical purposes, its only shareholder.  Accordingly, he made the relevant litigation decisions on behalf of Axiom and was “personally very instrumental” in the prosecution of the proceedings.

(b)Axiom is unable to pay its debts and unless Mr Kidd is liable, Equity Realty and Mr Andrews will not receive any recompense for the costs they have incurred.

(c)There was a change in stance on the part of Axiom in that although in October 2004 it signalled to the Court and to Equity Realty that it would not oppose the application to set aside the Anton Piller order, it later opposed the application.

[24]See Orakei Group (2007) Ltd at [27]–[34].

[22]       It is unfortunate that the reasons for the order were not closely related to the principles established by the cases.

[23]       There is no finding that Axiom was insolvent either in 2004 (when the order was obtained) or in 2005 (when it defended the application to set aside the order).  As to this we note that by the time Axiom was placed in liquidation in August 2008, nearly four years had elapsed since the events giving rise to the dispute.  Given this, we do not think it realistic to assume that Axiom was insolvent either when the Anton Piller order was obtained (October 2004) or when the application to set it aside was heard (June and July 2005). 

[24]       Significantly, in fixing the quantum of the costs, the Chief Judge was not critical of the decision to seek an Anton Piller order.  He did however, as we have noted,[25] refer to the position taken by Axiom in October 2004.  What he meant by this reference is unclear.  It is difficult to treat it as a finding of impropriety.  The offer apparently made by Axiom in October 2004 was conditional upon no costs being sought against it and it being entitled to pursue the contempt proceedings.  Given that those conditions were not acceptable to Equity Realty and Mr Andrews, the conduct of Axiom in defending the application to set aside the order did not represent an unreasonable change of position.  In this context, we think it unrealistic to regard the orders for costs against Mr Kidd as being founded on misconduct (consisting of unreasonable conduct of the litigation) on his part.

[25]See above at [21](c).

[25]       That leaves in contention the question of whether Mr Kidd was conducting the litigation for his own interests rather than the interests of the company.  Again there is no explicit finding as to this.  If Axiom was not insolvent at the relevant time – and there is no evidence that it was – it is difficult to see why Mr Kidd’s actions should not be seen as intended to be for the benefit of the company. 

[26]       We are accordingly satisfied that the reasons given by the Judge did not warrant the making of the eventual orders for costs (and thus the joinder of Mr Kidd for this purpose). 

Disposition

[27]       Accordingly:

(a)The appeal is allowed and the cross-appeal is dismissed.

(b)The orders for the joinder of Mr Kidd and for the payment by him of costs are set aside.

(c)Mr Kidd is entitled to costs in the Employment Court to be fixed by that Court (but only in relation to the application to join him as a party).

(d)In relation to this appeal and the application for leave to appeal, Equity Realty (1995) Limited and Mr Andrews are to pay Mr Kidd costs for standard application for leave to appeal and a standard appeal on a band A basis and usual disbursements.  Their liability is joint and several.

(e)There is no order as to costs on the cross-appeal.

[28]       Costs in the Employment Court should be modest to reflect not only the limited scope of the argument as to Mr Kidd’s liability for costs but also the reality that Mr Patterson was representing Axiom as well.  We express the hope that this issue can be settled directly between the parties given the protracted and unfortunate history of this litigation in the Employment Court.

Solicitors:

Lovegroves, Auckland for Appellant

Callaghan & Co, Auckland for Respondents