Natural Fibre Innovations Limited v Blossom Wool 2007 Limited HC Ak CIV 2009-404-005177

[2009] NZHC 2395

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2009-404-005177

IN THE MATTER OF     sections 174 and 241 of the Companies Act

1993

BETWEEN  NATURAL FIBRE INNOVATIONS LIMITED

Plaintiff

ANDBLOSSOM WOOL 2007 LIMITED Defendant

(on the papers)

Counsel:         HM Romaniuk for plaintiff

EJH Morrison for defendant

Judgment:      30 November 2009 at 3:00 pm

JUDGMENT OF ASSOCIATE JUDGE FAIRE

[on costs]

Solicitors:            Romaniuk & Associates, PO Box 105 763, Auckland for plaintiff

Kirkland Enright, PO Box 1290, Auckland for defendant

NATURAL FIBRE INNOVATIONS LIMITED V BLOSSOM WOOL 2007 LIMITED HC AK CIV 2009-404-

005177  30 November 2009

[1]      The plaintiff filed this proceeding and sought an order placing the defendant into liquidation.

[2]      The grounds pleaded in the statement of claim were expressed as follows:

a)        The  affairs  of  the  defendant  company  have  been  and  are  being conducted in a manner that is oppressive, unfairly discriminatory and unfairly prejudicial to the plaintiff in the plaintiff’s their [sic] capacity as shareholder of the defendant company;

b)        It is just and equitable to wind up the company;

c)        The company is unable to pay its debts.

[3]      The  defendant  filed  a  statement  of  defence  and  an  application  restraining publication and staying the proceeding.

[4]      At  the  call  of  this  proceeding  on  18 September  2009  I  minuted  the  file  as follows:

The proceedings are struck out.  Costs are reserved.  If counsel cannot agree memoranda  in  support,  opposition  and  reply  shall  be  filed  and  served  at seven-day intervals.

[5]      Counsel advise that they cannot agree on costs. Memoranda on costs have been filed by  the  defendant  in  support  and  by  the  plaintiff  in  opposition. The defendant’s solicitors have advised that they do not wish to file any reply.

[6]      The plaintiff accepts that it has effectively discontinued the proceedings and that  an  order  for  costs  against  it  is  appropriate.  It  contests  the  defendant’s application for indemnity costs or, in the alternative, increase costs.

[7]      In  conceding  a  liability  to  pay  costs,  the  plaintiff  is  simply  reflecting  the position  that  has  been  followed  in  a  number  of  decisions.   Where  a  proceeding is withdrawn  or  discontinued  the  position  which  arises  on  the  filing  of  a  notice  of discontinuance will often apply by analogy.  That is set in r 15.23 of the High Court

Rules.   That position is incorporated in the winding-up regime by r 31.26 save that that  Rule  requires  leave  to  discontinue.   The  reason  for  leave,  however,  does  not apply in this case.

[8]      In  Kroma Colour Prints v Tridonicatco New Zealand Ltd (2008) 18 PRNZ

973 at 975 the Court of Appeal said in referring to the relevant former Rule dealing with discontinuance:

[12]The Judge correctly stated the law on r 476C. She referred to North Shore CC v Local Govt Commission (1995) 9 PRNZ 182, noting that the presumption in favour of awarding costs to a defendant against whom a proceeding had been discontinued may be displaced if there were  just  and  equitable  circumstances  not  to  apply  it.     A  Court would not speculate on respective strengths and weaknesses of the parties’  cases. The  reasonableness  of  the  stance  of  both  parties, however,   had   to   be   considered. She   also   referred   to   Oggi Advertising Ltd v McKenzie (1998) PRNZ 535 which recognised that the discretion reposing in r 46 could override the general principles relating to discontinuance.

[9]       It is appropriate that I refer briefly to the approach which the Court must take

on an applications for costs.  Rule 14.1 provides that costs are to be in the discretion

of  the  Court.  In  Mansfield  Drycleaners  Ltd  v  Quinny’s  Drycleaning  (Dentice Drycleaning Upper Hutt) Ltd CA 296-01 29 September 2002 the Court of Appeal, in noting the Court’s over-riding discretion pursuant to r 14.1 said:

there  is  a  strong  implication  that  a  Court  is  to  apply  the  regime  in  the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council. We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.

[10]     The  general  principles  to  be  applied  in  the  exercise  of  that  discretion  are those contained r 14.2.   The first general principle there stated is that the party who fails with respect to a proceeding should pay the costs to the party who succeeds.

[11]     In  terms of  r 14.3 of the  High Court Rules this  proceeding is  a Category 2 proceeding.           That  is  because  it  is  a  proceeding  of  average  complexity  requiring counsel of skill and experience considered average in the High Court.

[12]     In  terms  of  the  Band  to  be  applied  for  the  purposes  of  r 14.5,  Band B  is appropriate.     No   specific   information   has   been   placed   before   me   to   suggest otherwise.

[13]     Mr Morrison has completed a calculation based on Category 2 Band B, which

is as follows:

Category 2B proceedings = $1,600 per day

Step in Proceeding	Time Allocation (x $1,600	Amount $
Preparing statement of defence to liquidation proceedings	0.6	960.00
Preparing and filing interlocutory application for orders to stay publication and stay liquidation proceedings (24.08.09)	0.6	960.00
Appearance – Mention (04.09.09)	0.4	480.00
Appearance – Mention (18.09.09)	0.4	480.00
Total	$2,880.00

[14]     The defendant, , however, seeks either indemnity costs, for which a claim of

$12,455.31  is  made  or  increased  costs,  in  respect  of  which  a  claim  of  $5,040.00 based on a 75% uplift on 2B costs as previously calculated.

[15]     Rule 14.6 sets out the circumstances where increased or indemnity costs can

be awarded.

[16]     Rule 14.6 in relation to indemnity costs provides:

14.6     Increased costs and indemnity costs

(1)      Despite rules 14.2 to 14.5, the court may make an order—

(a)      increasing   costs   otherwise   payable   under   those   rules

(increased costs); or

(b)that  the  costs  payable  are  the  actual  costs,  disbursements, and   witness   expenses   reasonably   incurred   by   a   party (indemnity costs).

….

(4)      The court may order a party to pay indemnity costs if—

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

(b)the party has ignored or disobeyed an order or direction of the  court  or  breached  an  undertaking  given  to  the  court  or another party; or

(c)costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d)the person in whose favour the order of costs is made was not  a  party  to  the  proceeding  and  has  acted  reasonably  in relation to it; or

(e)      the party claiming costs is entitled to indemnity costs under

a contract or deed; or

(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: rr 14.2-14.10.

[17]     In Paper Reclaim Limited v Aotearoa International Limited [2006] 3 NZLR

188, the Court of Appeal considered the application for indemnity costs pursuant to the  now  r 14.6(4)(a).  The  Court  emphasised  the  need  to  examine  the  specific grounds set out in the Rule for ordering indemnity costs.

[18]     In Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [8] Goddard J said:

[8]      Such  authorities  as  there  are  indicate  that  indemnity  costs  are awarded where truly exceptional circumstances exist.

[19]     Very  little  information  is  given  to  support  the  claim  for  indemnity  costs. Short form bills of costs which simply recite the fee claim have been annexed.  That

approach to a claim for indemnity costs, for reasons which I set out in Crown Money

Corporation Ltd v Grasmere Estate Trustco  Ltd  &  Anor  HC  AK  CIV  2008-404-

3801 21 November 2008 is not satisfactory.  Had that,, however, been the reason for refusing indemnity costs in this case, I would have given the defendant’s solicitors the  opportunity  of  producing  further  information.  It  is  not  necessary  to  do  that because I do not consider that this case falls within any of the specific grounds set out in r 14.6(4) of the High Court Rules.

[20]     What is apparent from my consideration of the file and the two memoranda that have been filed in relation to costs is that there is an ongoing dispute between the major shareholders of this company.  On the defendant’s side, they proposed the way forward by a buy-out of the plaintiff’s interest in the company.  That matter will still have to be resolved.  It is not this Court’s function to go into an examination of the merits of that matter at this stage.   Suffice to say, there is a continuing dispute which will require resolution and may require the issue of further Court proceedings to  achieve  that  result. At  the  rather  early  stage  that  the  plaintiff  abandoned  the proceedings,  I  am  not  prepared  to  find  against  the  plaintiff  on  matters  of  conduct which might justify an indemnity cost award, particularly when I take into account the comments made by the Court of Appeal in Paper Reclaim Limited v Aotearoa International  Limited  and  by Goddard J  in  Hedley  & Others  v  Kiwi  Co-Operative Dairies Limited.

[21]     I consider next the question of increased costs.  In Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 the Court of Appeal provided guidance on the correct approach where an award of increased costs is sought.   Four specific steps require analysis.   The first is the establishment of the category for the proceeding.   This I have done and have fixed at Category 2.

[22]     The second step requires a consideration of the reasonable time for each step

in the proceeding under r 14.5.  Once again, I have done this and have concluded that

Band B is the appropriate allowance for each step.

[23]     The  third  step  requires  a  consideration  of  whether  any  of  the  steps  would substantially exceed the  time allocated under  Band C.   The answer to  that inquiry follows from that which answered step 2 and is clearly “no”.

[24]     The fourth step requires one to stand back and look at the costs award and determine whether any of the matters set out in subr (3)(b) can be applied.   At the early stage of this proceeding I formed the view that none can.   The position might have  been  different  had  the  matter  proceeded  past  what  were  simply  calls  of  the proceeding.

[25]     A  further  matter,  however,  requires  comment.    Counsel  for  the  defendant invited an uplift of 75%.   His submission overlooks the analysis of the position in relation to increased costs undertaken by the Court of Appeal in Holdfast NZ Ltd v Selleys  Pty  Ltd.   An  uplift  of  more  than  50%  of  the  costs,  according  to  the  High Court Rules, is not generally appropriate.   That is not to say there will not be cases where  a  greater  uplift  is  justified.  The  Court  simply  counselled  the  Court  fixing costs to exercise caution in that regard.  I am not required in this case to go into that matter, because on the analysis already carried out, I do not find a justification for awarding increased costs in this case.

Decision

[26]     The  plaintiff  shall  pay  the  defendant’s  costs  in  the  sum  of  $2,880.00  plus disbursements as fixed by the Registrar.

JA Faire

Associate Judge