Levin v Merlo

[2014] NZHC 2176

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-864 [2014] NZHC 2176

UNDER	Section 266 of the Companies Act 1993
IN THE MATTER	of Wenztro Co-Operation Limited (in receivership and in liquidation)
BETWEEN	HENRY DAVID LEVIN AND VIVIEN MADSEN-RIES AS LIQUIDATORS OF WENZTRO CO-OPERATION LIMITED (in receivership and in liquidation) Applicants
AND	ROBERT LAURIE MERLO Respondent

Hearing:

27 August 2014

(on papers)

Appearances:

N H Malarao and K M Wakelin for applicants
C T Patterson and S R J Hamilton for respondents

Judgment:

9 September 2014

COSTS JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

09.09.14 at 4 .30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

LEVIN AND Anor AS LIQUIDATORS OF WENZTRO CO-OPERATION LIMITED (in receivership and in liqudation) v MERLO [2014] NZHC 2176 [9 September 2014]

[1]      Following the examination of Mr Merlo on 24 July 2014, the liquidators who had successfully obtained an order that Mr Merlo appear for examination in the High Court have now sought costs relating to the conduct of that examination.

[2]      Mr Merlo in turn is seeking compensation for the time that he was involved in appearing in the High Court for examination.   He also seeks an order for costs which  he  incurred  in  earlier  complying  with  a  direction  under  s  261  of  the Companies Act 1993 to supply documents to the liquidators.

[3]      I intend to give brief reasons in deciding the costs applications.

[4]      The original order directing that Mr Merlo attend for examination in the High

Court pursuant to s 266 of the Companies Act was made by Cooper J on 18 June

2014.  Not unexpectedly, detailed reasons for making the order were not provided.

[5]      It is stating the obvious to say that the Judge clearly considered that an order was required.   No application was made under r 7.49 of the High Court Rules (“HCR”) to vary or rescind the order subsequently.  Mr Merlo never challenged the making of the order.

[6]      The  applicants  now  seek  a  costs  order  in  regard  to  their  (successful)

application which Cooper J heard.

[7]      Mr Merlo opposes the making of the order on a number of grounds.   He raises questions about whether an order was necessary for his examination.  He asks why information was not sought from the company officers.  He makes complaints that notices served upon him under an earlier s 261 direction were invalid.   He is critical of the way that the liquidators failed to work with him to reduce a stock of milk powder which the company owned.   He further criticises the way in which counsel for the applicants conducted the examination alleging that she wasted time and questioned him about irrelevant matters.

[8]      I do not accept that it is correct in principle that a respondent who has an interlocutory order made against him or her can resist an order for costs on the basis

that the order was not necessary.  Because the making of the order was discretionary, and the order was not challenged it has to be assumed that it was properly made.

[9]      Further, actions taken subsequently to the making of the order – albeit linked to the making of the order in that they relate to events that follow on and are consequential on the making of the order – do not, in principle, appear to be relevant. The requirement of the costs rules is that the fixing of costs should be expeditious and prompt.  It would be inconsistent with such an approach to accede to arguments that  the  Court  can  carry  out  an  enquiry  about  matters  of  the  kind  which  the respondent raises in this case to assist in the determination of the costs application. Whilst one cannot categorically rule that events occurring subsequent to the making of the order will never be relevant, it would require an unusual case, in my view for the Court to take such matters into account.  By their nature, they did not affect the processes of the Court when making the order because they had not occurred at the time  the  application  was  dealt  with.     Further,  the  HCR  themselves  do  not contemplate such a potentially wide-ranging enquiry into the merits of the case when deciding whether to make a costs order and the incidence of thereof.

[10]     In conformity with r 14.2(a) the incidence of a costs order in this case should rest with the respondent.

[11]     The next point that I deal with that is the contention that it was not necessary for the liquidators to draft and file separate applications, being the application itself and a without notice application for leave to commence by originating application. While I agree that such an approach is cumbersome it does appear to be mandated by the HCR.  The applicants should not of course be penalised for a step that the HCR required them to take by withholding costs.

[12]     Mr Merlo himself applies for costs in relation to the hearing under section

266.  I agree with the submission for the applicants that there is no jurisdiction to make an order for the costs of the respondent under s 266, even though there is apparently jurisdiction to make an order in the different circumstances where the respondent has been required to comply with a notice under s 261 of the Companies

Act1.   In the latter case, the Court has power to order that the person who was required to deliver the documents referred to in section 261 be paid remuneration of travelling and other expenses.

[13]     It can only be assumed that the omission to provide for such costs in s 266 was deliberate.   Counsel for Mr Merlo did not identify any statutory basis upon which I could make an order granting his client costs for attending before the Court. The liquidators were prepared to accept that they had no entitlement for that reason and I consider that the concession was correct.  Unless there was a statutory basis upon which such an order could be grounded, it is difficult to see what jurisdiction the Court might have to make an order of the kind that Mr Merlo sought.

[14]     I have given consideration to the question of whether the costs jurisdiction of the Court under Part 14 could be invoked as a basis for making payment of costs incurred by a party who has taken part in a s 266 examination.   The problem is however that a hearing convened under s 266 is not a proceeding or interlocutory application by which a party seeks to have the Court make orders in exercise of its civil jurisdiction.  The making of an order under s 266 directs a person to attend for a hearing and brings about the hearing which takes the form of an examination that occurs pursuant to s 266.  The steps that occur after the making of the order under s 266 do not have as their object the exercise of still further aspects of the Court civil jurisdiction.  I consider therefore that Mr Merlo is not able to invoke the cost rules in Part 14 to achieve his objective of obtaining compensation for his time in appearing before the Court or a contribution to the costs of his counsel who represented him at the hearing.

[15]     The outcome therefore is that the only costs order that the Court can consider making is the costs relating to the application for an order under s  266.  There is little question in my view that the liquidators are entitled to costs on that step because they saw the relief which they were seeking.  Mr Merlot for these purposes

is to be regarded as the party who was unsuccessful.

1      Section 261(5) of the Companies Act 1996.

[16]     I agree that costs as sought by the applicants are appropriate.   Although Mr Merlo through his counsel, Mr Patterson, disputed other aspects of the costs submissions, there was no opposition to the making of a costs order under category

2B.   The costs order which the applicants seek is based upon that category and appears to be in order as do the disbursements which have been claimed.

[17]     There will be an order that the respondent pays to the applicant’s costs in the

sum of $8756 and disbursements of $1583.50.

J.P. Doogue

Associate Judge