Petterson v Browne

[2015] NZHC 1950

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-000469 [2015] NZHC 1950

IN THE MATTER

of Sections 292-296 and 299 of the

Companies Act 1993

BETWEEN

DAVID ROSS PETTERSON, AS LIQUIDATOR OF POLYETHYLENE PIPE SYSTEMS LIMITED (IN LIQUIDATION)

Applicant

AND

DAVID CHARLES BROWNE Respondent

CIV2014-409-000900

IN THE MATTER             of Sections 292-296 of the Companies Act

1993

BETWEEN  DAVID ROSS PETTERSON, AS LIQUIDATOR OF POLYETHYLENE PIPE SYSTEMS LIMITED (IN LIQUIDATION)

Applicant

ANDDAVID BROWNE CONTRACTORS LIMITED AND DAVID BROWNE MECHANICAL LIMITED Respondents

Hearing:	14 August 2015 (Costs determined on the papers)
Counsel:	B Gustafson and L Van for Applicant D J C Russ for Respondents
Judgment:	17 August 2015

COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Solicitors:

Kensington Swan, Auckland. Fletcher Vautier Moore, Nelson.

DAVID ROSS PETTERSON, as Liquidator of POLYETHYLENE PIPE SYSTEMS LIMITED (In Liquidation) v

DAVID CHARLES BROWNE [2015] NZHC 1950 [  17 August 2015]

[1]      By a judgment dated 29 April 2015 both these proceedings were dismissed. Costs were reserved.  Submissions have now been received.

[2]      The successful respondents seek costs.  It is convenient to deal with each of the  specific  elements  of  their  claim  in  turn,  with  reference  to  the  applicant’s response.

Category

[3]      The respondents say the proceedings were of average complexity and should be classified as within Category 2.  The applicant agrees.  Costs will therefore be in Category 2.

Allocation of band

[4]      The respondents say that comparatively large amounts of time were required for some steps in these proceedings.  For those steps, band C should apply and for procedural steps band B should apply.

[5]      The  applicant  agrees  band  C  should  apply  in  relation  to  preparation  of affidavits, and preparation for the hearing.

[6]      In my opinion band C should apply to both these categories, and for the hearing itself.  I also agree that band B should apply to the four case management conferences.

Result of assessing costs in Category 2 and in bands B and C as allocated above

[7]      Both  counsel  agree  that  if  costs  are  assessed  on  this  basis,  and  these proceedings are treated as one proceeding, a total of 13.6 days of costs should be allocated.  This would equate to an award of costs to the respondents in the sum of

$27,064.

A breakdown of this assessment is:

Filing notice of opposition and affidavits:	band C  :	6 days
Case management conferences: Preparation of written submissions: Appearances at hearing:	band B  : band C  : band C  :	1.6 days 3 days 3 days

13.6 days

Should this case be treated as one proceeding for the purposes of costs?

[8]      Two separate proceedings were filed, proceeding 469 on 14 July 2014 and proceeding 900 five months later on 17 December 2014.   By the time the  900 proceeding was filed, the respondents on the 469 proceeding had filed a notice of opposition and two affidavits in opposition.  Case management conferences had been held, directions made for a fixture, and submissions prepared and filed.   The 900 proceeding  was  foreshadowed  in  November.     At  the  first  case  management conference after it was filed an order was made by consent that all evidence on each proceeding would be read on the other.  Directions were also made for the filing and service of a notice of opposition and affidavits, together with reply evidence, on the

900 proceeding.

[9]      Once the 900 proceeding was filed, affidavits from five witnesses were filed by the respondents, in addition to a notice of opposition.

[10]   The two proceedings separately challenged certain transactions, the 469 proceeding involving a payment to Mr Browne and a charge given to him by Polyethylene Pipe Systems Limited, and the 900 proceeding involving notices given to  David  Browne  Contractors  Limited  (DBC)  and  David  Browne  Mechanical Limited (DBM) seeking to set aside payments made to those companies as voidable. They had not responded to the notices given, so in this proceeding Mr Petterson

sought orders requiring these companies to repay to him the sums they respectively received.

[11]     The two proceedings raised some issues which were in common, and some issues which related only to the respective proceedings. It was appropriate that the two proceedings be heard and decided at the same time, but it is clear from the affidavits which were filed, the cross-examination which took place, the submissions which were filed, and the judgment which was issued, that these were two very different cases.

[12]     Mr Russ says that whilst scale fees should be awarded in respect of one proceeding, there should be a second award of costs of 50 per cent in respect of the second  proceeding.    Mr  Gustafson  says  this  is  not  appropriate,  noting  that  the affidavit evidence filed in each proceeding was used, also, on the other proceeding, and the result of approaching this issue as Mr Russ asks would be that 4.5 days would be allowed for the hearing, whereas in fact the hearing only occupied three days.

[13]     The approach taken by Mr Russ is not sufficiently specific, in my view, for a just award of costs to be made.  Review of the file shows that on the 900 proceeding it  was  necessary  for  all  the  pre-trial  steps  associated  with  responding  to  an originating application to be taken by the respondents, and I am satisfied that there should be a full second award of costs for preparation of a notice of opposition and supporting affidavits.  This results in a further six days of costs being appropriated to the overall assessment of costs.

[14]     This case also involved cross-examination of a number of witnesses, and no specific allowance is made in the scale for preparation of cross-examination.   As well  I sought  supplementary  submissions  after  the  fixture  for  which,  again,  no specific allowance is made.  When this occurs the Court may make an allowance for necessary steps in a proceeding which are not set out in the schedule by analogy.1   I am satisfied, overall, that allowing six full days as above for the 900 proceeding will

lead to a just result in relation to the costs of a notice of opposition, affidavits, preparing cross-examination and supplementary (post fixture) submissions.

[15]     The filing of the 900 proceeding at a point when the 469 proceeding was approaching the point where it was ready to be heard resulted in further case management.  All the conferences which were held had been allowed for by counsel in their assessments,2 and I see no reason for there to be any separate fee for the 900 proceeding, on these steps.

[16]     As noted above, it is clear from the file that as a result of the filing of the 900 proceeding it was necessary for the respondents to prepare and file further submissions for the hearing.  This was inevitable given that the second proceeding raised issues which were not covered by the first proceeding.  I have not discerned from either counsel the reason why one proceeding was not brought in the first place. However, Mr Russ does not specifically seek a further allowance of time for preparation of additional submissions.   This is included in his submission that an uplift of 50 per cent on scale costs should be made to “recognise the additional and distinct matters required for the second proceeding while avoiding duplication on matters such as hearing time”.  As I have said, this approach is too general.  If the cases had been heard separately, costs would have been awarded for the preparation of two sets of submissions, which would have given an allowance of a further three days for the second set.  In my opinion this is the correct way to approach this issue. It is clear from the file that submissions were filed on the 469 proceeding on 3

November of some 13 pages in length.  These submissions would have been put to good use in preparation of submissions for the joint hearing; I allow a further 1.5 days in respect of preparation of submissions.

[17]     The consequence of these decisions is that time allocations will be this:

As shown in paragraph [7]:  13.6 days

Further notice of opposition and affidavits               6.0 days

Additional time for submissions  1.5 days

Total             21.1 days

Should there be an uplift in scale costs?

[18]     Apart from Mr Russ’s general submission that an uplift of 50 per cent of costs should be given, as discussed above, he also says that increased costs should be allowed under r 14.6(3)(b)(ii).  This provides that the Court may order a party to pay increased costs if that party has contributed unnecessarily to the time or expense of the proceeding or a step in it by taking or pursuing an unnecessary argument that lacks merit.

[19]     The issue relied on by Mr Russ for this submission is the contention by the applicant that the solvency of the companies should be assessed taking into account a claim made by McConnell Dowell Constructors Limited (McDowell). At the time at which the solvency was to be assessed, and for a reasonable period thereafter the claim had not been quantified, and liability for the claim was denied on reasonable grounds.  It was not until some months after the relevant period that liability for a fixed  sum  was  established.   These  issues  are  comprehensively discussed  in  the judgment.   After cross-examination the proposition that the unquantified claim constituted a debt which was both due and owing was abandoned by the liquidator. However, this is discussed in the judgment at paragraphs [23] to [30] and was a relevant factor in the findings of the Court in proceeding 900 – see paragraphs [150] to [159].   Further, this issue was the subject of evidence given by affidavit, and cross-examination.

[20]     I am satisfied that it should have been obvious to the liquidator and his legal advisors that the claim made by McDowell, in respect of which liability had not been established (nor quantum alleged initially) was  not a due debt to be taken into

account in assessing the solvency of the respondent companies in proceeding 900. The liquidator finally accepted this, but not until the third day of the hearing, after the close of cross-examination.   Mr Gustafson says that it was necessary for the nature of the McDowell claims to be examined in evidence because even if the liquidator had not contended that the McDowell claims were due debts, their effect on the mind of Mr Browne, and why he maintained a belief that the claims had no chance of success, were relevant to what a reasonable person would have thought in Mr Browne’s position.

[21]     I do not accept that submission. The conduct requiring examination included, as context, that there was an unquantified claim by McDowell for breach of contract, which was both denied in terms of liability, and thought to be covered (on reasonable grounds) by insurance.   Categorising the McDowell claim as a due debt, when it manifestly was not, coloured the liquidator’s presentation of his case, even to the point where he pressed on with a claim for repayment of funds because the notices issued to the companies had been automatically set aside, even though the fundamental underlying basis of those notices was insolvency which, in the absence of the McDowell claims being due debts, was not established – quite the reverse.

[22]     In my opinion it is appropriate to award an increase of costs on this ground.  I assess this at 10 per cent.  I regard this as a modest uplift in costs in respect of this issue, but have decided on this figure by taking into account the significant range of issues which were brought before the Court, and the fact that there was room for argument whether, under s 295, the Court had a discretion on whether or not to make an order.3

Decision on costs

[23]     Costs  will  be assessed  in  Category 2  band  C  for  a total  of 23.21  days, amounting to $46,187.90.

3      Discussed in paragraphs [137] onwards of the judgment.

Incidence of cost award

[24]     In RFD Finance Ltd v Sol Management Ltd (in liquidation) and Walker, Associate Judge Osborne said:4

The particular position of the liquidator of a company in an insolvent liquidation has been dealt with authoritatively and consistently both in New Zealand  and  England.   The  English  Court  of Appeal  dealt  with  such  a situation in Metalloy Supplies Limited v MA (UK) Ltd Millett LJ recognised that  directors  involved  in  company  litigation  are  not  rendered  liable  to awards of non-party costs in the absence of some impropriety or bad faith. His Lordship continued:

The position of a liquidator is a fortiori.   Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets.  This may require him to bring proceedings.  If he does so in his own name, he is personally liable for the costs in the ordinary way, though he may be entitled to an indemnity out of the assets of the company.   If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not.  He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay his costs as well as his own if the proceedings fail.

(emphasis added)

[25]     Application of this principle directs that Mr Petterson has personal liability for this costs award, as he is in each case the plaintiff.

[26]     In  this context  I have also considered whether it is appropriate to  order Mr Petterson to pay the costs personally, given that the costs to be awarded involve an uplift from scale for the reasons which  I have given.   Increased costs were awarded against an unsuccessful liquidator in Grant v IL Forno Limited.5   I am not aware of any reason in principle why a liquidator who sues in his own name should not be liable for an adverse award of costs in an increased sum, if proper grounds for

an increase are made out, in the event his claim is unsuccessful.

4      RFD Finance Limited v Sol Management Limited (in liquidation) and Walker [2014] NZHC

2983 at [11].

5      Grant v IL Forno Limited [2014] NZHC 1847.

Outcome

[27]     I award costs against the applicant in each proceeding costs in the sum of

$46,187.90 together with such disbursements as may be fixed by the Registrar, in the absence of agreement.

J G Matthews

Associate Judge