Miramar Consolidated Limited v USC Investments Limited
[2023] NZHC 1532
•20 June 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-277
[2023] NZHC 1532
BETWEEN MIRAMAR CONSOLIDATED LIMITED
Plaintiff
AND
USC INVESTMENTS LIMITED
Defendant
AND
LIANNA-MERIE HAGAMAN
Second Defendant
AND
FJB TRUSTEES LIMITED, GILBRALTAR TRUST LIMITED, LIANNA-MERIE HAGAMAN
Third Defendants
Hearing: On the papers Counsel:
E D Peers for Plaintiff
M C Smith and R A D’Silva for Second and Third Defendants
Judgment:
20 June 2023
COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 20 June 2023 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
MIRAMAR CONSOLIDATED LTD v USC INVESTMENTS LTD [2023] NZHC 1532 [20 June 2023]
[1] Miramar Consolidated Ltd (Miramar) brought this proceeding seeking summary judgment against the defendants alleging oppressive conduct in breach of s 174 of the Companies Act 1993. The dispute arose out of the failure by the Board of the first defendant, USC Investments Ltd (USC), to register the transfer of Miramar’s shares in USC to Keith Hagaman.
[2] Very shortly before Miramar’s application for summary judgment was to be heard, the defendants agreed the shares could be transferred to Keith. The parties were unable to agree on costs and have referred that issue to the Court to decide.
[3] Miramar seeks either 50 per cent of its indemnity costs or 2B costs with a 100 per cent uplift to reflect what it says was the defendants’ unreasonable and tactical conduct in refusing to transfer the shares and then in defending the summary judgment application to a very late stage.
[4] The defendants argue they are entitled to 2B costs on the basis that the proceeding was always unfounded. Alternatively, they say costs should lie where they fall.
Background
[5] USC is a property investment company set up by Keith and his late father, Earl Hagaman. Lani Hagaman was Earl Hagaman’s wife. The relations between Keith and Lani are not cordial and since Earl’s death they have been involved in other litigation concerning his estate.
[6] Lani and Keith are also the directors of USC. There was another director, Bruce Irvine, who resigned as a director in February 2022 as a result of the dispute concerning the transfer of the shares by Miramar to Keith.
[7] Miramar is a company associated with Keith. It has one director, Bruce Gemmell, and the sole shareholder is Ora Fiduciary (Cook Islands) Ltd as trustee for the Balboa Trust. The Balboa Trust is a discretionary trust registered in the Cook Islands.
[8] Miramar held half of the shares in USC and the other half of the shares are owned by Lani, FJB Trustees Ltd and Gilbraltar Trust Ltd (collectively the third defendants) as trustees of the Classic Trust.
[9] On 4 May 2020, Miramar issued a notice, as required under USC’s constitution, advising that it wished to transfer its shares for $850,000 subject to certain adjustments. Under its constitution, USC had three months to find a shareholder willing to buy the shares or Miramar could sell them to any person who was not a “prohibited person” under the constitution.
[10] Mr Irvine and Lani, as directors of USC, questioned whether the transfer notice was valid. Despite maintaining that the transfer notice was valid, Miramar issued a new share transfer notice on 21 May 2021. This notice stated Miramar wished to sell the shares for $800,000.
[11] The third defendants confirmed on 18 August 2021 that they did not wish to purchase the shares. As a result, Miramar was free to sell or transfer the shares to any person (other than a prohibited person) provided it did not do so at a price lower than the value specified in the transfer notice.
[12] On 17 November 2021, Miramar submitted a share transfer form to USC’s directors for registration recording that Miramar was transferring its shares to Keith for the price of $2,500,000.
[13] On 17 December 2021, the third defendants wrote to the directors of USC expressing concern about “the context, valuations and regulatory compliance aspects of the proposed sale” because the proposed transfer price was more than three times the amount at which the shares had been offered to the third defendants on 21 May 2021. They said the valuation of $800,000 was “a good indication of the market value of the shares as it anticipated an arms length sale to a third party” and:
[The third defendants] ask that the Board discusses this further and makes further inquiries into the transaction. The class A shareholders request that the Board exercises its powers under clause 4.4(a) of the Constitution to resolve to delay registration of the share transfer in order to obtain further information and obtain independent legal advice, if needed. It would assist considerably if the parties to the transaction were able to provide information as to the basis
of valuation, the significant increase in the share price within a few months and the context for the re-transfer of shares from Miramar to Keith Hagaman at this time.
[14] The directors of USC resolved to delay the registration of the share transfer to obtain further information following receipt of the third defendants’ concerns at a directors’ meeting held on 22 December 2021. Miramar and Keith were invited to provide information by 31 March 2022.
[15] Subsequent correspondence from Miramar and Keith to the third defendants explained that Miramar was within its rights to sell the shares at a price that was higher than that offered to the other shareholder, and provided an explanation for the negotiated transfer price of $2,500,000 (to which I shall return).
[16] On 25 February 2022, Mr Irvine resigned as a director of USC apparently due to the dispute over the transfer of the shares.
[17] On 8 March 2022, a barrister employed by the third defendants, Gary Hughes, wrote to USC to outline further the third defendants’ concerns. Mr Hughes said the Department of Internal Affairs has identified the difference between the declared price and the actual value of an asset as a “red flag” for compliance under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) to be investigated in its guidelines.1 He said that while USC was unlikely to be considered a “reporting entity” under the AML/CFT Act “all persons acting as trustees and directors carry reputational and professional risk if they were to become caught up in this type of compliance issue these days”. Mr Hughes advised that the third defendants invited the directors of USC to obtain further information “that would ensure transparency, and create an audit trail of proper inquiries having been made into the circumstances of a transaction value that appears, at least on the face of it, to be unusual”.
[18] On 10 March 2022, and apparently coincidentally, Lani received an email request from the client due diligence unit of the Bank of New Zealand (the Bank) as
1 Te Tari Taiwhenua | Department of Internal Affairs “Guideline: Lawyers and Conveyancers” (December 2017) Te Tari Taiwhenua | Department of Internal Affairs < of the Bank’s ongoing customer due diligence in relation to USC. The Bank requested a company extract of Ora Fiduciary (Cook Islands) Ltd, the sole shareholder of Miramar.
[19] There followed communications between Buddle Findlay on behalf of Miramar and the Bank where Buddle Findlay explained that as Miramar was transferring its shares to Keith, the due diligence information should no longer be required by the Bank.
[20] Buddle Findlay also wrote to Lani on 17 March 2022 stating that it considered the third defendants’ concerns were irrelevant and put them on notice that Miramar considered USC’s affairs were being conducted in a manner that was oppressive, unfairly discriminatory and unfairly prejudicial to it within the meaning of s 174 of the Companies Act.
[21] In an email sent to Lani and Keith on 13 June 2022, the client director of the corporate division of the Bank advised that there were two approaches the Bank could take to its request for information depending upon whether USC’s shareholding was as then recorded in the Companies Register or following the transfer of Miramar’s shares to Keith. He set out the information the Bank required in each scenario but noted that if the required information was not provided by 30 June 2022 the Bank would “be obligated to stop [USC’s] account and this account will enter the offboarding queue”.
[22] Miramar filed its statement of claim and application for summary judgment on 13 July 2022 and the summary judgment application was listed to be first called before the Court on 15 September 2022.
[23] Miramar pleaded that the affairs of USC had been conducted in a manner that was or will be oppressive or unfairly prejudicial to Miramar and that the share transfer form had not been registered in breach of the constitution and s 84 of the Companies Act. It said the reasons given by the Board of USC for not registering the transfer form do not constitute valid reasons under cl 4.4(a)–(b) of the constitution and the delay in registering the form had been unreasonable. It pleaded that it provided the
information requested by the defendants and the concerns about anti-money laundering compliance were unfounded. It therefore pleaded that Lani was exercising her powers as a director for an improper purpose and/or was acting contrary to her duties as a director of the company.
[24] On 6 September 2022, before the second and third defendants filed their notices of opposition to the application for summary judgment, Buddle Findlay wrote to the defendants’ solicitors, Gilbert Walker, advising that in an effort to resolve the proceeding, and while Miramar rejected any suggestion that there were in fact any AML/CFT Act concerns engaged or outstanding, it invited the defendants to provide clarification of what “their specific residual concerns or information requirements are”. Buddle Findlay also advised that Miramar would be amenable to adjourning its application for summary judgment to allow further discussions. Gilbert Walker responded by email on 9 September 2022 that they would be proceeding with filing their clients’ papers in opposition to the application that day.
[25] In opposition to Miramar’s application for summary judgment, the second and third defendants pleaded, inter alia, that USC had not refused to register the share transfer, rather the Board had resolved to delay registration to obtain further information regarding concerns that the third defendants had raised about “the context, valuations and regulatory compliance aspects of the proposed sale of Miramar’s shares”, which it said Miramar and Keith had failed or refused to provide.
[26] On 16 February 2023, Buddle Findlay advised Gilbert Walker that as far as the Bank’s anti-money laundering requirements were concerned, Miramar had met all the Bank’s requirements.
[27]On 20 February 2023, Gilbert Walker advised Buddle Findlay that:
Your letter confirms that, as requested by our clients for several months, your client has finally satisfied BNZ’s AML requirements.
Based on the receipt of this new information, as anticipated in your letter, our clients are now satisfied that the transfer of 50 per cent of the shares in USC Investments Limited (USC) from Miramar Consolidated Limited (Miramar) to Keith Hagaman can proceed.
The law
[28]The starting point is r 15.23 which provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[29] All issues of costs are discretionary but must be exercised on a principled basis.2 However, r 15.23 establishes an obligation on a plaintiff who discontinues that he or she must pay costs to the defendant, unless the defendant otherwise agrees, or the Court otherwise orders.3
[30] The presumption is designed to give a predictable outcome upon discontinuance. It avoids any requirement for the defendant to demonstrate that the plaintiff acted unreasonably in filing and then discontinuing a proceeding. In Yarrall v Earthquake Commission, Wylie J noted there were several other reasons for the presumption, namely that:4
(a)a discontinuance is ordinarily tantamount to a judgment for the defendant and a successful party in litigation is normally entitled to costs;
(b)a defendant has no choice as to whether they are sued, so where a plaintiff unilaterally discontinues litigation, it will ordinarily be just that the plaintiff should bear at least some responsibility for the defendant’s unnecessary litigation expenses; and
(c)a plaintiff who has discontinued can bring fresh proceedings against the defendant on substantially the same facts, so long as the plaintiff pays any costs ordered on the discontinuance. If there is to be a second proceeding, the defendant’s costs of defending the plaintiff’s first
2 High Court Rules 2016, r 14.1.
3 Yarrall v Earthquake Commission [2015] NZHC 1451 at [16], upheld on appeal in Yarrall v Earthquake Commission [2016] NZCA 517, (2016) 23 PRNZ 765 at [12].
4 At [18].
proceeding will usually be wasted and it would be unfair that the defendant should have to bear the wasted expenditure.
[31] In Earthquake Commission v Whiting, the Court of Appeal noted the two exceptions to a plaintiff’s obligation to pay costs under r 15.23, namely where the defendant may agree otherwise or the Court may order otherwise.5 Circumstances where the Court has been persuaded that the presumption should not apply include where the proceeding has been rendered redundant because of some intervening governmental or third party decision or where the defendant’s acts or omissions caused the litigation and then rendered it unnecessary.6
[32] Most relevantly to the present case, the Court of Appeal found that in relation to the second exception:7
The second exception [the Court ordering the plaintiff does not have to pay costs] applies when a plaintiff successfully seeks an order from the Court that the mandatory obligation to pay the defendant’s costs on the discontinued proceeding should not apply. There is no doubt that when considering a plaintiff’s application for an order of this nature, the Court has a discretion to order that costs should lie where they fall or that the defendant should pay the costs of the plaintiff in whole or in part. This discretion reflects the general rule that all matters relating to costs are at the discretion of the Court. The discretion is not unfettered, but is qualified by the specific costs rules.
[33] Therefore, the Court is not limited in the factors it may take into account when deciding whether the presumption in r 15.23 has been displaced. The Court may consider the parties’ conduct in the matter and the reasonableness of the parties’ respective stances, including the reasons why the plaintiff brought and continued a proceeding and why the defendant opposed it.8 Generally, however, the Court will not consider the merits of the parties’ respective cases, unless they are immediately apparent.9
5 Earthquake Commission v Whiting [2015] NZCA 144, (2015) 23 PRNZ 411 at [63] (footnotes omitted).
6 At [69].
7 At [65].
8 Earthquake Commission v Whiting, above n 5, at [68]; and Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12] and [29].
9 Earthquake Commission v Whiting, above n 5, at [71]; and Powell v Hally Labels Ltd [2014] NZCA 572 at [23]–[24].
Submissions
Miramar’s submissions
[34] Mr Peers asks the Court to consider the parties’ conduct going back to the first transfer notice. He submits the concerns raised by USC in respect of the first transfer notice were “technical quibbles” designed to delay and frustrate the transfer of shares from Miramar to Keith, and that this is evident in light of the third defendants’ conduct in relation to the second transfer notice. He points to the third defendants waiting the full three-month period available under the constitution to confirm “what [they] already knew”, that they had no intention of purchasing Miramar’s shares. Mr Peers submits this “shows the quibbles raised in respect of the first transfer notice were not genuine”.
[35] Instead of transferring the shares as required under the second transfer notice, Mr Peers says the defendants engaged in “calculated and delaying actions … which had no proper basis in law or under the constitution, and which ultimately achieved nothing other than to cause enormous cost and frustration for the plaintiff”.
[36] Mr Peers contends the defendants’ concerns about anti-money laundering requirements were not a genuine explanation for their opposition to the transfer of the shares. Instead, the defendants raised “a panoply of vague and irrelevant reasons” through correspondence, the notice of opposition and evidence for not registering the second transfer form.
[37] Mr Peers notes the defendants consented to the transfer of the shares on 20 February 2023 claiming this was because Miramar had finally satisfied the Bank’s anti-money laundering requirements but that, in truth, Miramar’s provision of information to the Bank provides no justification for the defendant’s obstruction of the registration of the share transfer.
[38] Mr Peers submits an award of increased or indemnity costs is appropriate because the defendants acted improperly in defending this proceeding and only opposed the application as part of a pattern of conduct calculated to delay and frustrate the transfer of shares. He says this was motivated by Lani’s animosity towards Keith.
He submits such tactical conduct should be discouraged by the Court and r 14.6(3)(ii)–
(iv) and (4)(a) of the High Court Rules 2016 is engaged.
Defendants’ submissions
[39] Mr Smith submits the proceedings were always unfounded as there was no basis for a shareholder oppression claim under s 174 of the Companies Act. He says there was never any refusal to register the shares, rather the defendants raised reasonable requests for further information which delayed registration. He says Miramar refused to engage constructively with those requests and instead issued this proceeding.
[40] Mr Smith says Miramar’s allegations that the defendants had ulterior motives for not registering the share transfer document are unfounded. He says the defendants were concerned with following a proper process and that as soon as the information they required was provided to them, they promptly approved the registration of the share transfer. Mr Smith says there has been no reasonable explanation as to why Miramar delayed in providing this information to the Bank.
[41] Mr Smith submits that if the Court is not minded to award the defendants scale costs, then costs should lie where they fall. Mr Smith says the defendants proposed a pragmatic solution to avoid troubling the Court with a low value costs dispute, but Miramar has pressed on regardless.
[42] Mr Smith argues that Miramar’s claim for a 100 per cent uplift on scale costs is inconsistent with the rule in Holdfast NZ Ltd v Selleys Pty Ltd, limiting increased costs awards to a 50 per cent uplift over scale.10 He also says the fees incurred by Miramar are excessive.
Analysis
[43] Both counsel referred me to the evidence filed in support and opposition to the summary judgment application and I have read that material. I have formed the clear view that this is a case where the interests of justice require that the presumption in
10 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [46]–[48].
r 15.23 of the High Court Rules should be displaced and that Miramar is entitled to costs.
[44] The first matter of note is that Miramar has obtained the relief that it sought in the proceeding and USC and the defendants agreed to the transfer of shares from Miramar to Keith. The proceeding was discontinued because it had been rendered redundant once Miramar obtained the relief it was seeking.
[45] Second, as noted above, one instance where the presumption in r 15.23 may be displaced is where the defendants’ acts or omission have caused the litigation and then rendered it unnecessary. The defendants say they did not cause the litigation, but they acted reasonably throughout. Their contention that they should not pay costs, and indeed should be awarded costs, is founded on two assertions that:
(a)Miramar failed to engage constructively with the defendants’ requests for information pending which registration of the share transfer was delayed; and
(b)the defendants’ concerns were addressed when Miramar belatedly engaged with and satisfied the Bank’s AML/CFT requirements.
These assertions do not withstand scrutiny.
[46]The relevant clause under the USC constitution provides:
4.4Board’s right to refuse or delay registration of transfer.
(a)The board may, within 30 working days of the receipt of a form of transfer of shares, refuse or delay the registration of the transfer if:
(i)the holder of the shares has failed to pay an amount due to the company in respect of those shares;
(ii)the provisions of clauses 4.6 to 4.13 and 4.16 dealing with pre-emptive rights have not been fully complied with;
(iii)the board considers that to effect the transfer would result in a breach of the law;
(iv)the board considers that it is not in the best interests of the company to register the transfer; or
(v)clause 6.3 (transfer to be accompanied by share certificate) has not been complied with or the form of transfer has not been properly executed or does not comply with clause 4.3.
(b)A resolution of the board to refuse or delay a transfer of shares must set out in full the reason for doing so, and a copy of the resolution must be sent to the transferor and transferee within 5 working days of the date of the resolution being passed.
[47] The original concern of the defendants to the proposed share transfer raised in their letter to USC of 17 December 2021 related specifically to the fact that the transfer sum was $2,500,000 which was said to be over three times the anticipated reasonable valuation. They expressed concern generally about the “context, valuations and regulatory compliance aspects of the proposed sale”. Those “aspects” were not defined further. They asked the Board to delay registration in order to obtain further information and obtain independent legal advice if necessary.
[48] Miramar provided a response to that letter through their solicitors on 28 December 2021 which explained that the transfer price was a result of negotiation between Miramar and Keith and the matters factored into the negotiation, including the amounts invested into the assets owned by USC and the intention to wind up Miramar.
[49] There was no response to that letter for over two months until Mr Hughes wrote to the Board of USC on behalf of the defendants. He suggested three options to progress the matter, one of which was that “Miramar/Mr Hagaman might choose to provide further context and information by 31 March”. While Mr Hughes refers to Buddle Findlay’s letter of 28 January 2021, he does not discuss its contents. His suggestion that Buddle Findlay might provide due diligence or valuation information relevant to the sale seems to ignore the basis upon which Buddle Findlay had explained the share price had been determined, and he failed to say what further information not contained in the 28 December 2021 letter should be provided.
[50] Importantly, there was further correspondence from Buddle Findlay to Cameron & Co, then acting for the Board of USC, dated 12 April 2022 in which
Buddle Findlay again explained the basis upon which the share transfer price was determined. They wrote:
In relation to the increase in the share price, your client appears to be missing the point here. Miramar’s two separate offers to transfer its shares in USC (one to the class A shareholder (the first offer) and one to Mr Hagaman (the second offer)) were commercially driven rather than being related to USC’s market value. As we have previously advised, the price of the second offer should be of no concern to the class A shareholder, or indeed, the directors of USC , provided it is not less tha[n] the price of the first offer. There is no requirement that the price represent market value and in fact, there is likely no or a very limited market for the USC shares, particularly given the ownership structure of USC and the ownership of the landlord entity. From Miramar’s perspective, the first offer was generous to your client, but one which Miramar’s director was prepared to make in the hope that Miramar would be able to quit its shares in USC. When the first offer was rejected, Miramar’s director determined to make the second offer to [Keith], who he knew was a willing buyer, at a price he considered was fair as between [Keith] and Miramar, given it allows Miramar to settle all debts owed by Miramar to [Keith]. This is of no consequence to USC nor is it relevant to the first offer.
[51] Lani says that this explanation raised more questions than answers and that it was the final correspondence before Miramar issued proceedings, but the proceedings were not issued until 13 July 2022, that is three months later, and in that time the defendants did not raise these “questions”.
[52] Further, Lani says the evidence of Keith and Mr Gemmell did not provide an explanation for why the share transfer needed to be at $2,500,000 and so her questions remained unanswered. This is important for a reason I shall come to.
[53] I therefore do not accept the first pillar of the defendants’ argument that Miramar failed to constructively engage with requests for information concerning the sale transfer price. The basis upon which Miramar and Keith arrived at that figure was explained. Importantly, the defendants did not respond to Buddle Findlay’s letter of 12 April 2022, despite Lani saying she continued to have questions.
[54] At around the same time an issue arose concerning the Bank. In March 2022, the parties became aware of the Bank’s “Ongoing Customer Due Diligence” AML/CFT requirements. The first relevant correspondence from the Bank was an email to Lani dated 10 March 2022. The Bank asked for information concerning the directors and shareholders of Ora Fiduciary (Cook Islands) Ltd. In response, Buddle
Findlay emailed the Bank on 22 April 2022 to advise that as Miramar had transferred its shares in USC to Keith, the Bank had no need for that information.
[55] This then takes me to the second pillar of the defendants’ argument, that the defendants’ concerns were addressed when Miramar belatedly engaged with and satisfied the Bank’s AML/CFT Act requirements following which it immediately agreed to transfer the shares. I do not accept that submission for several reasons.
[56] First, the Bank advised Lani by email of 20 June 2022 that Keith had responded promptly to it and was providing the Bank with the necessary information it required.
[57] Second, the Bank’s request had nothing to do with the transfer of shares from Miramar to Keith and the information that was requested simply related to the details of the shareholder of Miramar. The information the Bank required could not possibly shed any light on any matters that the defendants say were concerning them.
[58] Third, as Mr Peers correctly submits in my view, the Bank was indifferent as to whether the share transfer was registered or not. As the Bank’s email of 13 June 2022 demonstrates, if the transfer was registered with the Companies Office the Bank would not require information concerning the shareholding of Miramar. The position adopted by the Bank that the information it requested had to be provided could never have been a legitimate basis for the defendants to delay the transfer of the shares because it was acknowledged the information would no longer be required if the shares were transferred. It was the second defendant’s failure to register the transfer that was forcing the Bank’s hand when it threatened to stop USC’s account.
[59] Fourth, it is acknowledged by the defendants that USC was not likely to be a reporting entity under the AML/CFT Act but it was said there were reputational concerns arising for those associated with the company in professional capacities if they were caught up in “this type of compliance issue”. However, given the very limited nature of the Bank’s information request, satisfying the Bank’s requirements would in no way resolve reputation concerns.
[60] Fifth, as I noted earlier, Lani says that Buddle Findlay’s letter of 12 April 2022 raised more questions than answers and those questions remained despite the evidence that Miramar filed in the proceeding. When the defendants finally agreed to the transfer of the shares it was on the basis that the Bank’s requirements had been satisfied, yet the defendants had been provided with no further information to answer questions that Lani said she had about the share transfer price and such questions could not have been answered by advice that the Bank’s information request had been satisfied.
[61] Sixth, it is instructive that before the defendants were required to file any papers in opposition to the application for summary judgment, Buddle Findlay sought clarification as to what the defendants’ specific residual concerns or information requirements were and what further information they required, and offered an extension of time for the filing papers in opposition. If all that was preventing USC from registering the transfer of the shares was compliance by Miramar with the Bank’s information request, that could have been easily stated. However, the defendants did not respond to Buddle Findlay’s proposal, except to say that they would be filing papers with the Court.
[62] Drawing these threads together, Miramar did respond to requests for information concerning the basis upon which the share transfer price was determined well before Miramar commenced this proceeding. Following Buddle Findlay’s 12 April 2022 letter, there was no further information sought by the defendants or USC. While the defendants now say their concerns remained, they did not seek such information, nor could the Bank’s information request ever have been a proper basis to further delay the share transfer. Further, the defendants’ case that their concerns remained is incongruous given the decision to agree to the transfer of the shares without further information being provided to address any concerns.
[63] Another argument advanced for the defendants was that by Keith recusing himself as a director of USC in matters involving the share transfer (due to his conflict of interest) he frustrated progress towards a resolution. I do not see how that can possibly be the case when there was no suggestion that this was an impediment to settlement and the shares have been transferred.
[64] I therefore do not accept the arguments now advanced by the defendants as to the reasons why they defended Miramar’s application for summary judgment until shortly before the hearing.
[65] The next issue is whether Miramar should be awarded indemnity costs or an uplift on scale costs. As far as scale costs are concerned there does not appear to be any dispute that this proceeding is category 2 for costs purposes.
[66] Rule 14.6(4)(a) provides that the Court may order a party to pay indemnity costs if “the party acted vexatiously, frivolously, improperly, or unnecessarily in … defending a proceeding or a step in a proceeding”. Rule 16.6(3)(b)(ii) provides that the Court may order the payment of increased costs if a party opposing costs has contributed unnecessarily to the time or expense of the proceeding by “taking or pursuing an unnecessary step or an argument that lacks merit”.
[67] Miramar argues that USC was motivated by Lani’s antagonism toward Keith arising out of unrelated litigation and that Miramar’s application was opposed for tactical reasons to delay and frustrate the transfer of the shares.
[68] While in the present context the Court will not usually consider the merits of the parties’ respective cases unless they are immediately apparent, this is such a case. Nowhere in the material advanced by the defendants have I seen a cogent argument identifying any of the grounds set out in cl 4.4(a) of the constitution of USC that justified the decision to delay the transfer of the shares, and certainly not beyond 12 April 2022 when Buddle Findlay explained again the basis for the share transfer price.
[69] I consider that the defendants’ defence to the summary judgment application was weak and it would not have been successful in opposing summary judgment. For the reasons given above, I consider the lack of merit in the defendants’ position is reflected in their decision to agree to the transfer of the shares immediately before the hearing of the summary judgment application.
[70] That said, while an inference might be drawn that the defendants’ intention was entirely tactical, designed to delay and frustrate Miramar, to my mind the evidence does not take me quite that far. There is antagonism between Keith and Lani that influenced the manner in which both approached this dispute and which prevented an earlier resolution.
[71] I do, however, consider the defendants’ defence of the claim was unnecessary and lacked merit and substantially added to Miramar’s costs such that an award of increased scale costs should be made. Standing back and looking at the matter as a whole, I consider a just result is that Miramar be awarded costs of the proceeding on a scale 2B basis (in accordance with the schedule attached to Mr Peers’ memorandum) with an uplift of 50 per cent. I note that this is significantly less than 50 per cent of Miramar’s actual costs.
Result
[72] The plaintiff is entitled to costs of the proceeding on a scale 2B basis with a 50 per uplift in the total amount of $20,793 plus disbursements as fixed by the Registrar.
O G Paulsen Associate Judge
Solicitors:
Buddle Findlay, Christchurch Gilbert Walker, Auckland
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