McCullagh v Robt Jones Holdings Limited
[2017] NZHC 3136
•14 December 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2013-404-3475 [2017] NZHC 3136
UNDER Sections 292, 294 and 295 of the
Companies Act 1993
IN THE MATTER
of the liquidation of Northern Crest
Investments Limited (In liquidation)BETWEEN
ANTHONY JOHN MCCULLAGH AND STEPHEN MARK LAWRENCE Applicants
AND
ROBT JONES HOLDINGS LIMITED Respondent
Hearing: On the papers Counsel:
B P Keene QC and L M Van for the Applicants
D G Chesterman for the RespondentJudgment:
14 December 2017
JUDGMENT OF GORDON J [As to costs]
This judgment was delivered by me
on 14 December 2017 at 3.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Anthony Harper, Auckland
Gillespie Young Watson, Lower Hutt
MCCULLAGH v ROBT JONES HOLDINGS LTD [2017] NZHC 3136 [14 December 2017]
Counsel: B Keene QC, Auckland
D Chesterman, Auckland
Introduction
[1] In my judgment of 8 September 2017 I granted the application by Messrs McCullagh and Lawrence, as liquidators of Northern Crest Investments Ltd (NCI) to set aside payments made by third parties to Robt. Jones Holdings Ltd (RJH) as voidable transactions under s 292 of the Companies Act 1993.1
[2] The liquidators have filed an application for costs seeking the sum of
$192,683.90 together with disbursements of $23,136.81.
[3] RJH accepts that costs follow the event but submits that the appropriate quantum is $35,457.00 plus disbursements.
Costs awards in interlocutory applications
[4] There have been costs awards in interlocutory applications in these proceedings. The decisions on those interlocutory applications and costs orders are relevant to the claims as discussed below. The previous awards are as follows:
(a) On 29 October 2015, Associate Judge Bell made a costs award of
$17,064.25 in favour of the liquidators2 following RJH’s unsuccessful application in relation to (particular) discovery. 3
(b)On 24 February 2016 (confirmed on 8 June 2016) Duffy J made a costs award in favour of RJH following a decision granting RJH’s application to amend its notice of opposition.4 The parties then agreed to an award
of costs against the liquidators in the sum of $19,801.
1 McCullagh v Robt Jones Holdings Ltd [2017] NZHC 2182.
2 McCullagh v Robt. Jones Holdings Ltd HC Auckland CIV-2013-404-3475, 29 October 2015 (Costs Minute of Associate Judge Bell).
3 McCullagh v Robt. Jones Holdings Ltd [2015] NZHC 1462, (2015) 22 PRNZ 615.
4 McCullagh v Robt. Jones Holdings Ltd [2016] NZHC 263, [2016] NZCCLR 16; McCullagh v
Robt. Jones Holdings Ltd [2016] NZHC 1221.
(c) On 3 February 2017 Downs J made a costs award of $18,407.50 in favour of the liquidators following RJH’s unsuccessful application for review of the decision of Associate Judge Bell refusing discovery.5
RJH had also sought a review of the costs award of Associate Judge
Bell referred to in [4](a) above. The sum of $18,407.50 included
$12,676.30 being a reduction in the award made by Associate Judge
Bell and $5,731.20 as costs on the review application.
Categories of costs sought
[5] The liquidators’ claim of $192,683.90 is broken down as follows:
(a) $48,702 as costs of steps in the proceeding (calculated for the most part on a 2B scale basis, with the costs of preparing submissions calculated on a 3C scale basis). This sum includes additional time for preparation for the hearing in the sum of $6,690.006 and also a claim for second counsel at the hearing.
(b)$57,207.50 of wasted costs incurred in relation to changes to the notice of opposition by RJH regarding jurisdiction issues, conflict of laws and RJH’s s 296 defence.
(c) $11,774.40 being costs related to attendances on RJH’s application seeking access to the Court file on another liquidation matter. These costs have been calculated on a 2B basis with an uplift of 40 per cent.
(d)$75,000.00 being the costs of undertaking discovery, calculated on a solicitor- client basis.
Increased and indemnity costs
[6] The Court may order a party to pay increased costs under r 14.6(3)(a) of the
High Court Rules 2016 if the nature of the proceeding or the step in it is such that the
5 Robert Jones Holdings Ltd v McCullagh [2017] NZHC 70.
6 This time is said to be on a 2B basis but in fact is calculated on a 2C basis (3 days at $2230 per day).
time required by the party claiming costs would substantially exceed the time allocated under band C. Under r 14.6(3)(b) an award of increased costs may be ordered if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding by:
(i) failing to comply with these rules or with a direction of the court; or
(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 accept a legal argument; or
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; …
[7] In Holdfast NZ Ltd v Selleys Pty Ltd, the Court of Appeal provided guidance on the correct approach to an award of increased costs:7
Step 1: categorise the proceeding under r 14.3.
Step 2: work out a reasonable time for each step in the proceeding under r 14.5.
Step 3: as part of the step 2 exercise a party can, under r apply for extra time for a particular step.
Step 4: the applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r t should do so, but any increase above 50 per cent on the costs produced by steps 1 and 2 is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding.
[8] As part of the background in considering increased or indemnity costs in the various categories below, I note at this point the nature of the liquidation. I recorded in my judgment that it was apparent from the evidence that the liquidation was a
difficult one.8 I noted the submission of Mr Keene QC, who appeared on behalf of the
7 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at 904-905, as summarised in
McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [HR14.6.02(1)].
8 McCullagh v Robt Jones Holdings Ltd, above n 1, at [19].
liquidators, that the complexity arose from two primary causes. The first being, that by the time the liquidation had started, all the records had been taken to Australia.9
[9] The second cause, Mr Keene submitted, was that anything to do with the Blue Chip Group of Companies was necessarily convoluted. The ledgers were kept in New Zealand dollars for some parts and Australia dollars in other parts. Mr Keene therefore submitted it was very hard to piece together exactly what had happened, not helped he said by a very negative attitude by the directors at the time of the liquidation.10
[10] Further, the liquidators acknowledged that the evidence in support of some of their submissions was in some places incomplete or inconsistent. One of the reasons for this situation, the liquidators said, was that a large number of documents were destroyed or otherwise disposed of by persons associated with NCI before they could be seized by the liquidators. The directors of NCI were also uncooperative and refused to provide relevant information when requested.11
[11] I turn now to consider the various categories of costs claimed by the liquidators.
Costs of steps in the proceeding
[12] The liquidators claim the following as costs of steps in the proceeding:
Item Category/Band Rate Time Total 37 (Filing application etc) 2B $2,230 2 $4,460 10 (Preparation for first
conference)
2B $2,230 0.4 $892 11 (Filing memorandum etc for
conferences)
2B $2,230 19x0.2 = 3.8 $8,474 12 (Appearance at mentions etc) 2B $2,230 7x0.2 = 1.4 $3,122 40 (Preparation of written
submissions)
3C $3,300 3 $9,900 41 (Preparation of bundle) 2B $2,230 0.6 $1,338 Additional time for preparation 2B $2,230 3 $6,690 42 (Appearance at hearing) 2B $2,230 4 $8,920 43 (Appearance by second counsel) 2B $2,230 2 $4,460 29 (Sealing of order) 2B 0.2 $446 TOTAL $48,702
9 At [19].
10 At [20].
11 At [67].
[13] RJH opposes the 3C classification for item 40 and submits 2B is the appropriate classification. It also opposes the additional time for preparation.
[14] The liquidators claim $9,900.00 as costs for preparing written submissions, calculated on a 3C basis. The time allowance for preparing submissions for band C is
3 days, as opposed to 1.5 days under band 2. The daily rate under category 3 is $3,300 as opposed to $2,230 for category 2.
[15] In support of their claim, the liquidators submit that different categorisation and banding can be appropriate for different steps in a proceeding. As to band C, the liquidators submit that this is appropriate as a comparatively large amount of time was required for this particular step, namely preparation for trial. The submissions record that the actual time spent by the instructing solicitors in preparing submissions, excluding time by senior counsel, was approximately 119 hours.
[16] As to the categorisation as category 3, the liquidators submit this is appropriate because the manner in which RJH conducted its case elevated the level of complexity. It further says in relation generally to the claim under 3C, that RJH’s conduct of its defence resulted in increased trial preparation costs and a comparatively large amount of time to prepare submissions, both opening and closing, as all issues addressed by RJH, whether pursued at trial or not, needed to be addressed to preserve the liquidators’ position.
[17] The liquidators also submit that in the usual course, originating applications do not involve cross-examination or extended preparation of submissions and that it is not usual for proceedings of this type to involve extensive cross-examination or to extend to four days. They say that as cross-examination is not a step provided for under the originating application steps, provision should be made for preparation time for trial as it would be in the usual course of a trial.
[18] The liquidators further submit that a significant portion of the cross- examination of the two liquidators was undertaken to demonstrate an abuse of process. However, that portion of RJH’s defence was rejected by the Court. They submit that
RJH should have accepted that the issuing of the voidable notice was not for an improper or illegitimate purpose. Its refusal to accept this was unreasonable.
[19] The liquidators’ argument that this proceeding should be categorised as a category 3 proceeding was rejected by Associate Judge Bell in relation to the discovery application in his costs minute of 29 October 2015.12 He adopted a 2C categorisation. Downs J agreed.13 The arguments raised by the liquidators at that time included submissions regarding NCI’s complicated company structure and the manner of RJH’s defence.
[20] I accept that a Court may recategorise in relation to one phase of the proceeding and that it may apply different bands at different steps in the proceeding.14 However, I respectfully agree with the decision of Associate Judge Bell. For the purposes of this application, the liquidators have provided no basis for the Court to depart from the categorisation in that decision and endorsed by Downs J. Accordingly, category 2 should apply for the purposes of the hearing. I also see no reason to depart from the previous banding as band C. Accordingly, the claim of $9,900 is reduced to $6,690 (being 3 days at $2230 per day).
[21] There is also the claim for additional time for preparation, which is not a step provided for in Schedule 3 to the High Court Rules 2016. The explanation given by the liquidators is that RJH’s defence “elevated what should have been a straightforward insolvent transaction case into something more complex”.
[22] However, as noted above, the liquidators’ case was itself not straightforward. It required the application of the common law extension of s 292 of the Act to third party payments. In the circumstances RJH was entitled to put the liquidators to proof of their claim. It was in significant part the nature of the case which contributed to the time it took the liquidators to prepare submissions, save in respect of the unsuccessful abuse of process argument. I accept that in order to oppose that argument extra
preparation time was required.
12 McCullagh v Robt. Jones Holdings Ltd, above n 2.
13 Robert Jones Holdings Ltd v McCullagh, above n 5.
14 J v J [2013] NZHC 1822 at [10]-[11].
[23] In my view, this was a proceeding that did call for extended preparation of submissions, albeit largely because of the nature of the liquidators’ case. There is a basis, in my view, for awarding increased costs under r 14(3)(a). The same categorisation should apply as I have applied for the filing of written submissions, i.e.
2C. As I have noted there is some confusion in the liquidators’ schedule which makes a claim on a 2B basis for extra time, but the time is calculated on a 2C basis. I consider the extra time claimed is reasonable having regard to the nature of the proceeding, including the need to prepare for cross-examination.
[24] The amount I award for additional preparation is $6,690 as claimed.
[25] There is also a claim of $4,460 for second counsel at the hearing. Again, having regard to the nature of the proceeding, I approve the claim for second counsel in the sum of $4,460.
[26] The result is an award of costs for steps in the proceeding of $45,492.
Wasted costs
[27] The liquidators claim $57,207.50 in wasted costs for attendances by counsel in relation to changes to the notice of opposition by RJH regarding jurisdiction issues, conflict of laws and RJH’s s 296 defence. It is submitted for the liquidators that RJH’s conduct meets the threshold under r 14.6(4) for indemnity costs.
[28] RJH opposes the claim for wasted costs. Mr Chesterman for RJH submits that this category of costs has already been considered and dealt with by Duffy J in the decision of 8 June 2016.15
[29] I accept that submission. I refer to the following paragraphs of the judgment of Duffy J:
[1] The applicants, who are the liquidators of Northern Crest Investments
(in liquidation) (“the liquidators”) seek recall of the judgment I delivered on
24 February 2016 insofar as that judgment makes a determination awarding costs to the respondent, Robt Jones Holdings Ltd (“RJH”). The recall
application is opposed.
15 McCullagh v Robt. Jones Holdings Ltd, above n 4.
…
[4] The liquidators’ written submissions in support of their opposition to RJH’s two applications included a request for an award of “wasted costs” by which the liquidators meant indemnity costs. They also requested that the Court set a timetable for filing further submissions on costs.
[5] The liquidators sought indemnity costs because RJH had withdrawn two of its grounds in its notice opposing the originating application. The abandoned grounds of opposition were: (a) this court lacked jurisdiction to determine if the relevant payment was a voidable transaction; and (b) the appropriate law for determining if the payment was a voidable transaction was Australian law. The liquidators never said in their submissions that they sought an award of indemnity costs even in the event that they were unsuccessful.
…
[9] The liquidators set out in some detail the onerous impact they contend they suffered through expending time and effort on addressing RJH’s now abandoned grounds of opposition to the originating application. They also contend that their wasted efforts in attempting to respond to the now abandoned grounds of opposition warrant them being awarded indemnity costs, despite the success of RJH.
…
[12] I do not consider that the abandonment of two grounds of opposition to an originating application that raise questions of law going to jurisdiction and the applicable law can be equated with the abandonment of an original cause of action or pleading. So I do not find that r 7.77 is applicable to the present circumstances.
…
[15] Here the abandonment of the two legal grounds of opposition which formed part of the amendment of the notice of opposition sought by RJH saved the liquidators from having to face those arguments when the originating application comes to be heard. Had those grounds remained as part of RJH’s case, and it lost on those grounds but won on others there may well have been no impact on costs awarded to RJH.
…
[18] The liquidators’ submission overlooks the fact that RJH was successful in two applications and in my view that outcome was reasonably predictable. Nor do I consider that RJH obtained the benefit of an indulgence of the type that would see it deprived of a costs award.
[30] I disallow the claim of $57,207.50 for wasted costs.
Application to access Manifest court file
[31] The liquidators claim $11,774.40 as costs related to attendances on RJH’s application seeking access to the court file in Manifest Capital Management Pty Ltd v Lawrence.16 In the end the application did not proceed for reasons explained below. The purpose of the application was to obtain material to support RJH’s argument that the liquidators had engaged in an abuse of process and to obtain material to challenge the liquidators’ credibility. These costs have been calculated on a 2B basis with an
uplift of 40 per cent and are itemised as follows:
Item Category/Band Rate Time Uplift Total 23 (Filing opposition) 2B $2,230 0.6 40% $1,873.20 24 (Preparing submissions) 2B $2,230 1.5 40% $4,683.00 26 (Appearance at hearing) 2B $2,230 1 40% $3,345.00 11 (Filing memorandum) 2B $2,230 0.4 40% $1,248.80 12 (Appearance at
conference)
2B $2,230 0.2 40% $624.40 Total $11,774.40
[32] In the Manifest proceeding a creditor of NCI, Manifest Capital Management Ltd, successfully challenged the liquidators’ rejection of a proof of debt. It also applied to remove the liquidators. In support of that application it filed an affidavit from a Mr Michael Reeves in which he gave evidence of a discussion with Mr Lawrence, one of the liquidators. The Court granted the liquidators’ application to rule Mr Reeves’ affidavit admissible.
[33] RJH then made two interlocutory applications in this proceeding in relation to documents in the Manifest proceeding.
[34] The first of those applications sought discovery of all documents relating to the Manifest proceeding in the liquidators’ control including, in particular, Mr Reeves’ affidavit. As referred to in [4](a) and (c) above, the application (which also included other categories of documents) was refused by Associate Judge Bell, whose decision
was upheld by Downs J.17
16 Manifest Capital Management Pty Ltd v Lawrence HC Auckland CIV-2010-404-7741, 20
December 2011.
17 McCullagh v Robt. Jones Holdings Ltd, above n 3; Robert Jones Holdings Ltd v McCullagh, above n 5.
[35] In the second interlocutory application RJH applied for access to the court file in the Manifest proceeding under Part 3, subpart 2 of the High Court Rules. That application came before Heath J on 12 March 2015. Heath J considered that the preferable course was to adjourn the application, so that any residual issues arising after Associate Judge Bell’s decision on the discovery application, could then be considered. Costs were reserved.
[36] In their memorandum in support of the current application the liquidators state that:
No costs award was given in the Manifest Application, as Associate Judge Bell’s dismissal of RJHL’s request for access to the Manifest documents, in the context of the discovery application, rendered RJHL’s Manifest Application nugatory.
[37] The liquidators therefore submit that costs in relation to the Manifest application should now be awarded. The claim is made for increased costs under r 14.6.
[38] RJH opposes the application. It says that the liquidators are double counting because costs have already been awarded in respect of the Manifest discovery application.
[39] However, the discovery application was a separate application. It appears from the file that costs have not yet been considered on the application to access the Court file in the Manifest proceeding.
[40] The application sought access to documents that were irrelevant and accordingly the liquidators invested time in preparation and attending a hearing that was unnecessary and in the end did not proceed.
[41] This step was therefore without merit and unnecessary. I consider costs should be awarded to the liquidators. I also consider an uplift is appropriate but rather than
40 per cent I adopt the figure of 30 per cent. That is consistent with the 30 per cent
uplift adopted by Downs J in his decision on the review of Associate Judge Bell’s costs decision on the discovery application.18
[42] I accordingly award $10,791.30 for the claim in relation to the application by
RJH to access the Manifest court file.
The costs of undertaking discovery
[43] Finally, the liquidators claim $75,000 which they say represents the reasonable costs of undertaking discovery, calculated on a solicitor-client basis. They note that although senior counsel maintained a watching brief and dealt with some of the complex issues which arose in the discovery process, senior counsel’s costs are not included in this figure. The liquidators say the costs should be met on an indemnity basis, having regard to the following:
(a) Discovery is not provided in the usual course of these kinds of proceedings.
(b) The liquidators voluntarily disclosed a large volume of material.
(c) The liquidators clearly indicated there was likely to be little of significance arising out of the discovered materials.
[44] The liquidators say that despite the level of disclosure, RJH persisted with particular requests for discovery. Although it ultimately lost on this issue, it was still necessary for the liquidators to ascertain whether or not there was documentation to disclose and, if so, the nature of that documentation. They say a large amount of the cost was incurred as a result of:
(a) The fact that documents were both in New Zealand and Australia. The documents in Australia are held under warrant pursuant to an order of
the Federal Court which prevented the removal of the documents from
18 Robert Jones Holdings Ltd v McCullagh, above n 5.
the jurisdiction. This necessitated travel to Australia for review, discovery and inspection preparation.
(b) The volume of documents in Australia.
(c) The state of the documents when they were obtained by the liquidators once secured under warrant.
(d) Specific requests made by RJH for particular discovery.
[45] They say finally, that discovery costs were increased as discovery was undertaken on the basis of the notice of opposition which included the ground that RJH was running a defence under s 296 of the Companies Act. That was withdrawn in November 2015, well after discovery had been undertaken and costs incurred.
[46] Some context is required before addressing the liquidators’ submissions.
[47] On 22 November 2013 RJH sought discovery orders in respect of licence agreements between NCI and the two companies which had made third party payments to RJH, as well as other documents which went to the relationship between those and other related entities (licence agreements discovery application). That application was made after the liquidators had not responded to a request for discovery, including a letter to the liquidators dated 20 September 2011.
[48] The licence agreements discovery application was resolved by agreement between the parties. A minute of Associate Judge Christiansen dated 20 February 2017 annexed the agreement which provided that the liquidators would:
(a) List any relevant documents in Australia; and
(b) Facilitate RJH’s access to the Australian documents. Costs were reserved.
[49] The main focus of the licence agreements discovery application was the licence agreements between various entities, including the third parties and NCI, and supporting documents. All of those agreements were produced in evidence before me.
[50] In those circumstances, not only does RJH oppose the application for indemnity costs but seeks costs itself of $5,373 for making the licence agreements discovery application in respect of which costs were reserved by Associate Judge Christiansen.
[51] In order to obtain costs of discovery it must be “manifestly unjust” for a party to have to meet the costs of complying with an order made under Part 8 of the High Court Rules. Where that threshold is met, a Judge may order that another party meet those costs, either in whole or in part. It is highly relevant whether the discovery exercise turned up a document that later proved to be of significance at trial.19
[52] I accept that some of the discovery sought by RJH in the course of the proceeding was unnecessary, the application for discovery of documents relating to the Manifest proceeding being one such example. Nor, however, were the liquidators faultless. Prior to RJH’s licence agreements discovery application, there was only one licence agreement in the liquidators’ possession. It was only after that application that the licence agreements with the third parties were discovered. Not only were those additional licence agreements obtained by the process of discovery relied on by the liquidators, but an analysis of all the agreements formed a part of the judgment. I stated that:
The outcome of this application turns in part upon licence agreements that were in force between NCI, MSH2 and Columbus at the relevant times.
[53] In my view, the licence agreements were of significant benefit to both parties and the Court. Indeed, but for the discovery of the licence agreements the liquidators may not have succeeded at all.
[54] For that reason, I do not consider this is a case where it is manifestly unjust for a party to have to meet the costs of complying with an order for discovery.
19 Southland Building Society v Barlow Justice Ltd [2013] NZHC 61125 at [48].
[55] I am also required to consider RJH’s application for costs, Associate Judge Christiansen having reserved costs on the licence agreements discovery application. RJH was the successful party in that application. Although as noted above, some of the discovery sought by RJH was unnecessary, for the reasons referred to in [52] and [53] above, I award costs as claimed in the sum of $5,373 to RJH.
Result
[56] The liquidators have succeeded in the following claims for costs:
(a) $45,492.00 (steps in the proceedings); and
(b) $10,791.30 (application to access Manifest court file).
[57] RJH has succeeded in its claim for costs in the sum of $5,373.00.
[58] The net result is costs of $50,910.30 in favour of the liquidators.
Orders
[59] I award costs in the sum of $50,910.30 to the liquidators together with disbursements of $23,136.81.
Gordon J
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