Rodgers v Advanced Creative Technologies Limited

[2013] NZHC 1095

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-005863 [2013] NZHC 1095

BETWEEN  WAYNE CHARLES RODGERS AND FISHER LAMBERG TRUSTEE SERVICES LIMITED

Plaintiffs

ANDADVANCED CREATIVE TECHNOLOGIES LIMITED First Defendant

ANDMICHAEL JOHN LUST AND DAVID ROBERT PEACH AND WOLFGANG WRIGHT

Second Defendants

ANDJAMES FISHER AND SVETLANA FISHER Third Defendants

Hearing:         (On the papers)

Counsel:         A H Waalkens QC for the Plaintiffs

First Defendant appeared through the Second Defendants
Second Defendants in Person
Third Defendants in Person

Judgment:      15 May 2013

[COSTS] JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie on 15 May 2013 at 9.30 a.m.

Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

RODGERS V ADVANCED CREATIVE TECHNOLOGIES LIMITED HC AK CIV 2011-404-005863 [15 May

2013]

Introduction

[1]      In a reserved judgment issued on 25 March 2013, I made an order pursuant to s 91(2)(a) of the Companies Act 1991 requiring that the share register of Advanced Creative Technologies Limited be rectified, to record that 286,229 shares held as at the date of judgment in the names of a Mr and Mrs Brown, be transferred to the plaintiffs.

[2]      I also found that, as a result of the second defendant directors’ actions, the plaintiffs had been deprived of 73,771 shares in Advanced Creative Technologies Limited,  which  should  have  been  transferred  to  them  had  the  directors  acted promptly and in accordance with their duties.  It is no longer possible to direct that those shares be registered in the plaintiffs’ names.  The parties had not raised before me how compensation for the loss of those shares should be assessed.  I gave them the opportunity to do so.  I have now received their submissions in that regard.

[3]      I also invited the parties to file memoranda as to costs.  Those memoranda have also been filed.

[4]      In my judgment, I indicated that I would deal with the issues of compensation and costs on the papers, unless  I required the assistance of the parties or their counsel.

[5]      Having considered the memoranda, I do not require any assistance.   I deal with the various matters raised as follows:

Recall of my decision

[6]      In a supplementary memorandum dated 8 May 2013, the first and second defendants asked me to recall my decision, pursuant to r 11.9 of the High Court Rules.

[7]      Such a request should not have been made by way of memorandum.   It should have been made by way of separate application.

[8]      Nevertheless, Mr Waalkens QC on behalf of the plaintiffs has responded to the memorandum.   It is appropriate to deal with the issue on the papers that have been filed.

[9]      The request that I should recall my judgment is declined.

[10]     Recalling a judgment is a serious step, only to be taken in reasonably well identified situations.  Those situations are identified in Horowhenua County v Nash (No 2).[1]   A judgment, not perfected, can be recalled in the following situations:

[1] Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.

(a)       Where there has been an amendment to the statute, or regulations referred to in the judgment;

(b)Where  counsel  have  failed  to  direct  the  Court’s  attention  to  a legislative provision or a decision of relevance;

(c)       Where  for  some  other  special  reason,  justice  requires  that  the judgment be recalled.

[11]     Here,  the  first  and  second  defendants  say  that  the  judgment  should  be recalled, because share transfer agreements between the plaintiffs and Mr Brown, which  were  included  in  the  common  bundle,  were  not  made  available  to  the company, and were only sighted by the defendants when the common bundle of documents was prepared prior to trial.

[12]     This is not an appropriate ground on which to recall a judgment.  Discovery and inspection were undertaken.  The defendants must have seen the documents in the course of that process.  Further, counsel for the plaintiffs will have liaised with all parties when finalising the common bundle.   The documents in question were

incorporated into the common bundle.  There is no record of any objection to the

same being placed in the common bundle.   The issue was not raised during the course of the hearing.

[13]     There is no proper basis for the judgment to be recalled, and I decline to accede to that request.

Compensation

[14]     The plaintiffs seek an order that the first defendant issue to them, within 20 working days, 73,771 new shares.  In the alternative, they request an order that the first and second defendants jointly and severally pay to them compensation in the sum of $12,295.16.

[15]     The first and second defendants agree that the most appropriate remedy is by way of an order for rectification of the share register, requiring the first and second defendants to issue 73,771 new shares.  They go on to assert that the plaintiffs have suffered no monetary or other loss as a result of their actions in refusing to register the shares.

[16]   Section 91(2) provides that, on application, the Court can order either rectification of the register, or the payment of compensation, or both rectification and payment of compensation. The Court’s power to make an order is discretionary.

[17]     Compensation may be ordered for any loss sustained.  The plaintiffs paid a total of $60,000 for the 360,000 shares which were in issue in the proceedings.  That sum was made up by assignment of a $35,000 loan, plus $5,000 cash, and a further payment of $20,000.  When the purchase price is apportioned, the 73,771 shares, at the time of purchase, were assessed by the plaintiffs, and by the Browns, to have a value of $12,295.16.

[18]     While the plaintiffs contended to the contrary, the evidence which I heard does  not  persuade me that  any greater loss  has  been  suffered  by the  plaintiffs. Advanced Creative Technologies Limited has not started trading.  Its value is totally dependent upon it achieving the rather ambitious hopes and desires of its directors

and shareholders.  No dividends had been paid, and there are no other share-based entitlements which the shareholders have received or are entitled to receive from the company.  It is highly speculative to suggest that the shares may be worth more than the plaintiffs paid for them.   The amount paid represents what the plaintiffs were prepared  to  pay to  participate in  what  is,  by any account,  a highly speculative venture.  It is the only realistic basis on which to assess the loss suffered.

[19]     Section 91(2)(b) calls for the payment of compensation.

[20]     I agree with Mr Waalkens that the word “payment” can cover many ways of discharging an obligation, and that it could, in appropriate cases, extend to a payment in kind.   Nevertheless, I am not persuaded that an order directing the company to issue further shares is appropriate in the present case.  Such an order would affect other shareholders, who were not parties to the proceedings.  While the majority of those shareholders previously indicated that they were prepared to allow further shares to be issued to settle the litigation, it cannot be assumed that they would now agree to the present proposal.   The issue of new shares would dilute existing shareholdings, and potentially advantage the plaintiffs over and above other shareholders. Accordingly, I decline to make an order directing the company to issue further shares in the plaintiffs’ name.

[21]     In my view, the appropriate order requires the payment of compensation in the sum of $12,295.16, being the pro rata apportionment of the purchase price paid by the plaintiffs to Mr and Mrs Brown for the shares.

[22]     Section 91(2)(c) provides that the Court may order payment of compensation by the company or a director of the company for any loss sustained.

[23]     Mr Waalkens submitted that the word “or” should not be construed narrowly, and that any payment of compensation should be ordered against both the company and its directors.

[24]     I am not persuaded that this course is appropriate.   Were an order for the payment of compensation to be made against the company, then that would affect

other shareholders.  The reality is that the company has done nothing wrong in the present case.  The claims made by the plaintiffs were aimed primarily at the second defendant directors, and not the company.  As I noted in my substantive judgment at [3], the company was necessarily a party to the proceedings, but there were no specific allegations against it.  It was on that basis that I allowed the company to be represented by its directors.   The position may well have been otherwise if it had been intimated to me at the outset that compensation might be sought from the company.  Moreover, in the present case, the failings and breaches of duty which I have outlined in my substantive decision were failings and breaches of duty by the second defendant directors.

[25]     Accordingly, I fix compensation in the sum of $12,295.16, such sum to be payable to the plaintiffs jointly and severally by each of them, the second defendant directors.

Costs

[26]     The plaintiffs seek costs against the first and second defendants on a 2B basis for the period to 6 February 2013, and on an indemnity basis thereafter.

[27]     Costs claimed down to 6 February 2013 are said to total $42,188.00, together with  disbursements  of  $11,864.22.   The  costs  claimed include  costs  for second counsel.

[28]     I am not prepared  to certify for second counsel.   The proceedings  were relatively straightforward.  They turned largely on factual issues, and did not require the consideration of large amounts of documentation.  If second counsel is excluded, the costs claim up to 6 February 2013 is $38,208.00.

[29]     There has been no challenge to the disbursements claimed.

[30]     I now turn to the claim for indemnity costs after 6 February 2013.  That day was of course Waitangi Day.  The hearing had commenced on 4 February 2013, and because of the public holiday, an adjournment was taken on 6 February 2013.  On

that day, the plaintiffs sent a “Calderbank” offer to the first and second defendants, offering to resolve the litigation. They suggested that 286,229 shares in the company should be transferred to the plaintiffs, and that the first and second defendants should pay costs on a 2B basis up until that date.  They also sought agreement that the first and second defendants would indemnify them against any costs payable to the third defendants, in the event that the Fishers sought and obtained a costs order against the plaintiffs consequent upon the resolution and discontinuance of the proceedings.

[31]     The offer was sent by email to the defendants at 9.23 am on 6 February 2013. It remained open for acceptance until 4.30 pm that afternoon.  The defendants did not avail themselves of the offer.   Nor did they seek an extension of time within which to consider it.

[32]     Pursuant to r 14.10, a party to a proceeding may make a written offer to another party at any time that is expressly stated to be without prejudice, except as to costs, and relates to an issue in the proceeding.

[33]     Here, that occurred.  However, it occurred very late in the day.  The later that an offer is made, the less its impact on costs, and very late offers may have little or no impact.[2]

[2] Strachan v Denbigh Property Ltd HC Palmerston North CIV 2010-454-232, 3 June 2011 at [21].

[34]     The effect, if any, that the making of such an offer has on the question of costs is in the discretion of the Court.[3]   The fact that such an offer is made, does not afford automatic protection from costs in the event of a lower recovery, nor necessarily result in exposure to full costs if a higher sum is recovered.  Any entitlement to increased or indemnity costs falls to be considered under r 14.6.  The offer is not the sole consideration, because all relevant circumstances require to be considered.    Nevertheless,  pursuant  to  r  14.11(3),  the  plaintiffs  are  prima  facie entitled to costs on steps taken in the proceeding after the offer was made, because

[3] High Court Rules, r 14.11.

the offer would have been more beneficial to the defendants, than the judgment

ultimately obtained by the plaintiffs against them.

[36]     At  the  time  the  offer  was  made,  the  hearing  was  still  on  foot,  and  the defendants still believed that they had a prospect of success in the litigation.  I do not accept the plaintiffs’ contention that the defendants acted vexatiously, frivolously, improperly, or unnecessarily in continuing with the proceedings.  They were entitled to fully test the matter in Court.

[37]     I am however persuaded that an order for increased costs is appropriate, pursuant  to  r 14.6(3)(d).   The offer was  reasonable in  the  circumstances.   The Browns could not possibly have laid a claim to the shares the subject of the offer. There was no other claimant to the shares, and the consequences of a costs order should have been obvious to all.

[38]     Costs  for  the  last  day  of  trial  —  7  February  2013  —  together  with  an allowance of a further two days (which I consider appropriate) for the preparation of written submissions, both in closing and in relation to the matters at issue in the trial, and in relation to compensation, equates to $5,970.  In my view, it is appropriate to increase these costs by one third, to recognise the Calderbank offer which was made.

[39]     For the same reasons as I have noted above, I exclude the company from any order for the payment of costs and disbursements.

[40]     Accordingly,  I  fix  costs  in  favour  of  the  plaintiffs  against  the  second defendants jointly and severally as follows:

(a)       Costs on a 2B basis to 6 February 2013 — $38,208.00; (b)           Disbursements — $11,864.22;

(c)       Increased costs from 6 February 2013 — three days at $1,990 per day plus 33.3 percent — $7,958.01.

Total — $58,030.23.

[41]    In a memorandum filed on 10 April 2013, the third defendants sought disbursements of $1,218.00 plus GST.   They claimed for four days travel and accommodation of $250 per day, plus a search of case law undertaken by their solicitors, at a total cost of $218.00.

[42]     In a further memorandum dated 11 April 2013, Mr Fisher claimed travel costs for 1,044 kilometres at 70 cents per kilometre.  This totalled $730 plus GST — a total of $840.42.  He also claimed four days accommodation, meals and transport at

$1,150 (GST included), solicitors costs for undertaking research, and four days loss of income, totalling $1,354.24.  The total disbursements claimed were $2,208.  The memorandum included the following comment:

These costs are brought about by your client.  If you wish to nitpick I can add on total office and stationery costs dating back to the first correspondence.

[43]     The plaintiffs filed a memorandum in response.   They did not dispute the claimed travel costs, nor the research costs undertaken by the Fisher’s solicitors. They argued that other costs had not been adequately verified, and that they were not supported, and that in  any event, were not reasonable.   They noted that in the Fisher’s first memorandum, there was no verification of the amounts claimed.  They also noted that there was subsequent email correspondence between counsel for the plaintiffs, and the third defendants, where the Fishers were asked to provide receipts for the claimed disbursements.   Copies of the emails were attached.   In an email response to a request for receipts, Mr Fisher commented as follows:

Are you shure [sic] about this nitpicking, because if you want to get into it I can ask for loss of income at builder’s rates of $35 per hour as well as getting receipts from the individuals who put us up and transported us to and from the  courthouse.    Four  days  in  total  as well along with any petrol receipts I can find.  I can assure you that the bill will get larger.

[44]     Rule 14.12(2) requires that claimed disbursements be verified.

[45]     Here, there is no adequate verification for the accommodation costs, meals and  transport  costs,  which  the  Fishers  claim  they  incurred  when  they  were  in

Auckland.  I agree with counsel for the plaintiffs that the receipt is unorthodox, and that it appears to be suspicious.  That suspicion is fuelled because while Mr Fisher responded by email to a request for receipts, at 8.52 am on 11 April 2013, he referred to “getting receipts” from the individuals who put them up.  One and a half hours later, at 11.35 am, he forwarded a revised memorandum of disbursements with the receipt attached.   Further, the receipt purports to be for four nights, which other documentation forwarded by the Fishers suggests they spent a total of seven nights in Auckland.   The receipt does not appear to have been issued by a commercial accommodation provider.   It discloses no GST number, no trading name, or any other details consistent with a commercial operator who provides accommodation services. The signature on the receipt is indecipherable.

[46]     I am not persuaded that the amount claimed relates to a genuine transaction. I decline to allow the disbursement claimed in this regard.

[47]     Nor is the loss of income claimed a disbursement.  Most litigants face a loss of income when they are required to attend in Court.  Such loss is not a disbursement which can be recovered.

[48]     Accordingly, I hold that the Fishers are entitled to disbursements as follows: (a)       Travel costs — $840.42;

(b)      Case law research costs — $218. Total — $1,058.42.

[49]     The plaintiffs sought a direction that the second defendants should be ordered to pay those disbursements.  I am not persuaded that this is appropriate.  The third defendants were joined to the proceedings by the plaintiffs.  The plaintiffs alleged that the third defendants were on notice of their prior claim to the shares.  That claim failed.   There were no allegations or claims as between the first, second or third defendants.  There is no good reason to require the first and second defendants to meet Mr and Mrs Fisher’s disbursements.

[50]     Accordingly, I make an order for the payment of disbursements totalling

$1,058.42 to Mr and Mrs Fisher by the plaintiffs.

Wylie J