Ruscoe v McKeown Group Limited
[2015] NZHC 1447
•25 June 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-908 [2015] NZHC 1447
UNDER the Companies Act 1993 IN THE MATTER OF
the liquidation of Peninsula Quarries
Limited (in liquidation)BETWEEN
DAVID IAN RUSCOE AND RICHARD GRANT SIMPSON Applicants
AND
MCKEOWN GROUP LIMITED Respondent
Hearing: 25 June 2015
(On the papers)
Appearances:
JWA Johnson and C Webber for Applicants
B Russell and C Mills for RespondentJudgment:
25 June 2015
JUDGMENT OF MANDER J
[1] On 21 April 2015, I delivered judgment in favour of the applicant liquidators (the liquidators) in the amount of $30,976.88. That award represented sums paid by Peninsula Quarries Limited (PQL) to the respondent, McKeown Group Limited (McKeown), but for which PQL received no value.
[2] The liquidators of PQL succeeded in establishing transactions at undervalue in terms of s 297 of the Companies Act 1993 (the Act), and that McKeown could not rely on the defence of good faith. The liquidators, however, did not succeed in two important respects.
[3] Firstly, they did not make out their claim that the transactions were voidable under s 292 of the Act. Secondly, they did not pursue at trial the balance of their
RUSCOE & ANOR v MCKEOWN GROUP LIMITED [2015] NZHC 1447 [25 June 2015]
original claim, representing some $165,000. Thus, of the original claim totalling
$196,021.39, they recovered approximately 19 per cent of the sum that had been in contest between them until shortly before the commencement of the hearing.
[4] The parties have been unable to agree on the issue of costs. The liquidators seek interest on the judgment sum and costs on a 2B basis up until the date on which a Calderbank offer was made. From that date, they seek increased costs. McKeown, in turn, also seeks costs on a 2B basis, discounted by 50 per cent. Alternatively, it submits costs should lie where they fall. As to interest, it says an award of interest would be unjust.
[5] There is essential agreement on the background facts. In a letter dated 9 July
2014, the liquidator observed that McKeown’s first ground of objection in its notice of 10 March 2014 was the “running account exception”. By that letter, the liquidators requested McKeown provide them with the material on which its notice of objection relied. McKeown declined to do so.
[6] The liquidators then filed its originating application on 27 November 2014. This application was not served on McKeown until 5 January the following year. The application sought the sum of $196,021.39. Evidence in support of the “running account exception”, in the form of invoices, were provided as annexures in an affidavit provided on 31 January 2015. The liquidators submit it was only at this point they were able to assess the validity of McKeown’s defence.
[7] After receipt of this information, the liquidators wrote to McKeown, offering to settle the case, on a without prejudice basis save as to costs, for the sum of
$30,976.99. No response was received to this letter. In submissions dated 25 March
2015, filed three working days before the hearing, the liquidators conceded only the
$30,976.88 remained in contest.
[8] McKeown considers there are further facts relevant to the issue of costs. It notes that PQL was placed into liquidation on 15 November 2010, however, the first letter it received from the liquidators was not until 10 May 2013, some two years and four months after the liquidation. Secondly, that McKeown had denied the
transactions were voidable as early as 19 June 2013, when it corresponded with the liquidators. Thirdly, that the liquidators’ notice to set aside a voidable transaction of February 2014 included no claim to recovery under s 297 of the Act. It should be noted, however, that McKeown had, in earlier correspondence of 10 September
2013, put it on notice that if their was no debtor/creditor relationship such payments would still be the subject of challenge pursuant to s 297, being transactions at undervalue.
[9] McKeown filed its notice of objection to set aside the voidable transaction on
10 March 2014. However, the liquidators did not commence the proceeding until seven and a half months later, on 27 November 2014, which, as previously noted, was not served on McKeown until after Christmas on 5 January the following year.
The relevant principles
[10] Costs are at the discretion of the Court.1 That discretion must, however, be exercised in both a judicious manner and in a way that is consistent with the rules. The relevant principles are these:
(a) the prima facie position is that the successful party in a proceeding is entitled to a reasonable contribution to its costs from the other party;
(b)costs should be resolved as predictably, consistently and expeditiously as possible;
(c) provision is made for increased and indemnity costs, as well as reduced and no costs, in appropriate circumstances.
[11] Identification of the successful party in this proceeding is contested. The liquidators submit they are entitled to an award of costs because they achieved partial success on the hearing of their application. McKeown submit that while the liquidators achieved some success, in the context of the original claim seeking recovery of $196,021.39 it achieved the greatest success by defending that claim.
The liquidators’ claim to recover on transactions totalling $165,044.51 was only
1 High Court Rules, r 14.1.
abandoned shortly before the hearing when the liquidators served and filed their submissions of 25 March 2015.
The appropriate costs award
[12] The fact that judgment was entered for the liquidators entitles them, at least nominally, to be described as the successful party. The circumstance of that success, however, requires critical assessment of whether it should be entitled to an award of costs in the ordinary way, and whether there is a basis for disturbing either the right to, or quantum, of costs, particularly if the proceeding is considered as a whole (as it must). McKeown achieved success in resisting the bulk of the original claim. Essentially, the liquidators conceded, near the eve of the hearing, that the largest component of their claim could not succeed.
[13] It was not until some two years and four months after PQL was placed into liquidation, in November 2010, that the parties first entered into correspondence. The focus initially related to the issue of voidable transactions, although, by September 2013, the relevance of s 297 of the Act had been flagged to McKeown by the liquidators. While McKeown, in resisting an award of costs, has placed emphasis on the centrality of the liquidators’ claim being based on being able to establish voidable transactions which it ultimately successfully resisted, I am satisfied that, as early as September 2013, the alternative basis on which the liquidators sought to recover under s 297 of the Act was in play between the parties.
[14] The issue of the Calderbank offer on which the liquidators place some reliance needs to be addressed. The offer was made on 3 March 2015, by which time the proceedings were well advanced, with the hearing set down for the end of that month. The offer to settle was for the sum of $30,976.88, and was clearly informed by the evidence it had by then received from McKeown of invoices relating to the balance of the original claim. It essentially represented an offer to settle for what the liquidators considered was the sum it could realistically continue to seek on its application, being the sum for which McKeown had furnished no value to PQL. This was subsequently borne out by the abandonment of the greater amount when submissions were filed by the liquidators.
[15] It should be noted that in the letter to McKeown containing the settlement offer, the liquidators expressly stated that the full claim was still being pursued. In particular, it was recorded that the liquidators did not resile from the pleadings in their originating application of November 2014. The liquidators maintain that, as at the date the offer was made, the offer to settle remained far less than their claim, which at that time it was still pursuing to its full extent. In my view, however, the settlement offer amounted to little more than an invitation to McKeown to pay the amount that had been assessed as realistically likely to be recovered and which was ultimately pursued at the hearing.
[16] For the purposes of determining the issue of costs, the circumstances in which the Calderbank offer was made needs to be considered in all the circumstances as they are now known, and the subsequent approach taken by the liquidators to the prosecution of their original claim at hearing. Having made that observation, the settlement offer proved to be the same amount which the liquidators were ultimately successful in recovering. Had McKeown elected to accept the offer, the costs of the hearing, at least, would have been avoided. However, having regard to the arguable defences sought to be aired by McKeown, I do not consider its decision to continue to contest the liquidators’ claim was unreasonable.
[17] Having regard to the relative success and failure of the parties and the ultimate resolution of the matter, I entertained allowing costs to lie where they fall. However, there was the opportunity for further costs associated with the hearing of this matter to be avoided had the liquidators’ settlement offer of 3 March 2015 been accepted. It was on that sum that the liquidators succeeded.
[18] The liquidators are entitled to an award of costs incurred in respect of their preparation for the hearing to reflect their success. The recovery of those costs, however, is on a 2B basis. I therefore grant costs in favour of the liquidators, in respect of cost items incurred for that purpose. These are the items listed in the schedule annexed to counsel for the applicants’ memorandum as to costs with the exception of item 37. This amounts to an award on a 2B basis of $5,671.50 (2.85 x
1,990). There will be no uplift of those costs as contended for by the liquidators under r 14.10 of the High Court Rules. Disbursement for the scheduling fee and
courier fee for filing and service of submissions, amounting to $653.04 is also allowed.
Question of interest
[19] The liquidators advance a claim to interest, originally on the strength of s 295(c) of the Act and various authorities in support. As subsequently acknowledged by the liquidators, such a claim is limited to orders made under s 294 (procedure for setting aside voidable transactions). As payments were not set aside under s 294 of the Act, s 295 does not have application.
[20] Section 87(1) of the Judicature Act provides the Court with a discretion to grant interest, it is on that alternative basis which the liquidators have ultimately relied. Whether interest will be granted is dependent on the exercise of the Court’s discretion, as the justice of each case requires.2
[21] There have been significant delays in bringing this proceeding. PQL was placed into liquidation on 15 November 2010, and it was not for some two and a half years before contact was first made with McKeown by the liquidators seeking to set aside the transactions under s 292 of the Act. The liquidators sought to rely upon the Canterbury Earthquakes as a contributing factor to the delay, which resulted in disruption to the liquidators’ workplace. There is some debate as between the parties as to the extent to which the liquidators operations may have been affected. Counsel for the liquidators advised that the Christchurch office was where the “groundwork” for PQL’s liquidation was being undertaken, and that hard copy files regarding the exercise were lost. Be that as it may, the resulting delay should not be visited upon McKeown.
[22] McKeown has identified further delay by the liquidators after it was first contacted in respect of these issues. It notes that, following its response denying the transactions as being voidable on 19 June 2013, it was a further seven months before the notice to set aside as voidable transactions was issued, in February 2014. After
McKeown’s notice of objection of 10 March 2014, it was another 10 months before
2 Worldwide NZ LLC v NZ Venue and Event Management Limited [2014] NZSC 108, [2015]
1 NZLR 1.
it was served with the originating application on 6 January 2015. McKeown submits such delay cannot reasonably be justified and should not attract an award of interest.
[23] In my view, it was not unreasonable for McKeown to resist the claim, and the liquidators succeeded only in relation to the undervalue claim. There were delays in the way the liquidators advanced their claim. On balance and in the exercise of my discretion, I do not consider the justice of the case requires an award of interest to be made.
[24] Accordingly, there will be an award of costs in favour of the liquidators on a
2B basis in the sum of $5,671.50, together with disbursements in the sum of
$653.04.
Solicitors:
Wynn Williams, Christchurch
Lane Neave, Christchurch
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