Kiriwai Consultants Limited v Holmes

[2014] NZHC 2134

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-000531 [2014] NZHC 2134

BETWEEN

KIRIWAI CONSULTANTS LIMITED

Plaintiff

AND

KENNETH ANGUS HOLMES First Defendant

KENNETH ANGUS HOLMES and

BRIAN DAVID RUSSELL Second Defendant

HOLMES VENTURES LIMITED Third Defendant

Submissions filed:	26 May 2014
Judgment:	5 September 2014

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 5 September 2014 at 3.00 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date……………………….

KIRIWAI CONSULTANTS LTD v HOLMES [2014] NZHC 2134 [5 September 2014]

Introduction

[1]     Kiriwai Consultants Limited, which was successful in the substantive proceedings, seeks costs against the defendants either on a 3C basis or increased costs or indemnity costs.  The defendants oppose all three.  They say that there is nothing to justify departure from the category 2 categorisation fixed at an early stage in  the  proceeding  and  that  their  conduct  does  not  justify  either  indemnity  or increased costs.

[2]      There is no basis on which to change the costs categorisation.  The factual basis  for  the  claim  fell  within  a  relatively  narrow  scope.    The  relevant  legal principles were well established.  The issues addressed by expert witnesses were not especially complex.   Category 2 is appropriate.   The only issue is whether either increased or indemnity costs should be allowed.

Increased and indemnity costs

Principles

[3]      Under r 14.6(3) increased costs may be ordered in particular circumstances. These circumstances were generally described by the Court of Appeal in Bradbury v Westpac Banking Corp as being where there is a failure by the paying party to act reasonably.1  The relevant circumstances in this case are:2

(b)       The party imposing the costs order has contributed unnecessarily to the time or expense of the proceeding or a step in it by –

…

(ii)      taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)     failing,  without  reasonable  justification,  to  admit  facts, evidence, documents or accepted legal argument

…

(d)       Some other reason exists which justifies the Court making an order for increased costs despite the principle that determination of costs should be predictable and expeditious.

1      Bradbury v Westpac Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27].

2      High Court Rules, r 14.6(3)(b).

[4]      Under  r  14.6(4)  the  Court  may order  a  party  to  pay indemnity costs  in specified circumstances, characterised generally in Bradbury as being where the party has behaved either badly or very unreasonably.  These relevantly include:

(a)       The   party   has   acted   vexatiously,   frivolously,   improperly   or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding.

…

(f)       Some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[5]      The Court in Bradbury referred to the circumstances identified by Sheppard J in Colgate-Palmolive Co v Cussons,3as ones in which indemnity costs might be appropriate:

(a)       The making of allegations of fraud knowing them to be false in the making of irrelevant allegations of fraud;

(b)       Particular misconduct that causes loss of time to the Court and to other parties;

(c)       Commencing or continuing proceedings with some ulterior motive; (d)     Doing so in wilful disregard of known facts or clearly established

law; or

(e)       Making allegations which ought never to have been made or unduly prolonging a case by groundless contentions (the “hopeless case” test).

Relevant considerations

[6]      The circumstances I consider relevant in considering whether increased or indemnity costs are warranted are as follows.

[7]      First, although there could never have been any dispute that the first and second defendants were liable to pay Kiriwai fair value for its shares, they made no effort to do so until the proceedings were well advanced.   To the contrary, they obstructed Kiriwai’s attempts to obtain the necessary financial information to make

that assessment.   Moreover, an (unsuccessful) argument that a minority discount

3      Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

should be applied was raised very late, supported by a valuation that had not been discovered and was not put to Kiriwai’s expert witness in cross-examination.  This aspect did not take up a lot of time but it was unnecessary for it to have been raised in this very unsatisfactory way.

[8]      Secondly, it was clear that efforts had been made to dissuade Kiriwai from pursuing the claim by the threat of a counterclaim for breach of confidentiality.  But no such counterclaim was ultimately pursued and no evidence to support such a complaint was advanced at trial.

[9]      Thirdly, the defendants’ Calderbank offer of $750,000 on 16 December 2013 was made before Kiriwai had access to the defendants’ expert evidence on fair value. Given  the  defendants’  refusal  to  cooperate  over  the  provision   of  financial information to allow Kiriwai to properly value the shares I do not penalise Kiriwai for rejecting that offer.

[10]     Fourthly, although the defendants eventually acknowledged that fair value had not been paid and made an additional payment of $642,318 that payment was made less than a fortnight before trial.  Further, the total paid at that point was still

$564,274 less than the fair value as I found it to be (and significantly less than the total recovered on the breach of fiduciary duty claim).  As a result I do not penalise Kiriwai for rejecting that offer.

[11]     Fifthly,  although  Kiriwai  obtained  more on  the  fair  value issue than  the defendants offered, it did not obtain the amount it had claimed because it failed on the main argument regarding the correct approach for calculating fair value.   This aspect was the focus of the expert evidence which took up a good deal of time of attention in terms of both evidence and submissions.

[12]     Sixthly, although Kiriwai also succeeded on its breach of fiduciary cause of action for a sum well in excess of the fair value payment, and of either of the Calderbank offers, that cause of action was not at the forefront of its case.  As Mr Gray  observes  in  his  memorandum  opposing  increased  or  indemnity  costs,  the

indication from Kiriwai’s counsel in opening was that this cause of action might not

even need to be addressed.

[13]     Taking all these factors into account I am not prepared to award indemnity costs but do consider that an uplift of 20  per cent on the 2B costs that would otherwise have applied is appropriate.   This is subject to a reduction of $15,000 (suggested by Mr Dale) in recognition of Kiriwai’s abandoned application for third party discovery.

Disbursements

[14]     An initial claim for Dawson Harford’s office expenses has been abandoned.

[15]     Kiriwai’s claim for Mr Chapman’s fees of $6,391.56 is resisted on the basis that witness fees should not be recoverable as a disbursement.   However, I allow these fees.  Mr Chapman was brought from Tauranga to give evidence that was not seriously challenged.    The  cross-examination  was  minimal  and  of  no  particular assistance in terms of the issues to be determined.

Result

[16]     There are costs to Kiriwai on a 2B basis uplifted by 20 per cent and subject to a reduction of $15,000.  This will be a total of $42,586 (as per Mr Dale’s Schedule A) less $15,000, making a total costs award of $27,586.

[17]     There are to be disbursements of $61,001.01 (as per Mr Dale’s Schedule A).

P Courtney J