Ruthan Limited v Forsyth Barr Group Limited HC Dun CIV 2006 412 512

[2008] NZHC 2452

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV 2006 412 512

BETWEEN  RUTHAN LIMITED Plaintiff

ANDFORSYTH BARR GROUP LIMITED Defendant

Appearances: D Tobin for Plaintiff

P Churchman and B Ross for Defendant

Judgment:      31 July 2008

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN As to Costs

[1]      On 26 June 2008 the plaintiff filed a notice of discontinuance.  The defendant applies for costs to be fixed on an indemnity basis.  In a memorandum to the Court the defendant identifies a claim for $83,4233.76, inclusive of disbursements totalling

$2,600.89.

[2]      The plaintiff contends the defendant’s costs be fixed on a Category 2B basis.

Background

[3]      The plaintiff’s proceeding was filed on 30 June 2006.

[4]      The plaintiff was a shareholder in the defendant.  It held 13,365 shares which the defendant sold on 21 December 2005 for $400,950.00.  The defendant has kept the proceeds from sale.  The plaintiff claims these have been wrongly appropriated

by the defendant.

RUTHAN LIMITED V FORSYTH BARR GROUP LIMITED HC DUN CIV 2006 412 512  31 July 2008

[5]      In its statement of defence the defendant pleads that Mr S Loomans was sole owner of all but two of 100 shares in the plaintiff.  That pursuant to a deed dated 29

January 2003 he was bound the terms of the document with the defendant.

[6]      On  21  December  2005  Mr  Loomans  contract  of  employment  with  the defendant was terminated on grounds of serious misconduct.  The defendant says it has paid a sum in excess of $564,000.00 to satisfy the claims of disaffected clients. The defendant claims it was within its rights to retain the proceeds from the sale of the plaintiff’s shares.

[7]      Some months after the plaintiff’s claim was filed police charges were laid against Mr Loomans, upon the complaint of the defendant.

[8]      The defendant filed a statement of defence on 8 August 2006 and an amended statement of defence on 29 November 2006.   Earlier on 17 November 2006 the defendant applied for security for costs.

[9]      I heard that application on 13 February 2007.   By my judgment dated 15

February 2007 I directed security be fixed in an amount of $35,000.00, and to be paid  in  a  form  acceptable  to  the  Registrar.    I  further  directed  the  plaintiff’s proceeding be stayed pending security being posted.  Also I directed the plaintiff to pay the defendant’s costs on a Category 2B basis.

[10]     By my Minute  dated  26  March  2007  I noted  the  parties  were resolving payment of the costs I awarded.   I also noted the plaintiff required more time to consider how it would meet payment of security.

[11]     By my Minute dated 26 September 2007 I recorded Mr Tobin’s advice he had received firm instructions  regarding the  availability of  security.    At  that  time  I scheduled a further telephone conference for 14 November 2007 to review progress.

[12]     My Minute dated 17 January 2008 records an unopposed request for a further adjournment.  A further telephone conference was scheduled for 3 March 2008.  My Minute of 3 March 2008 records Mr Tobin’s advice that:

(a) The parties had apparently reached a compromise.

(b) Mr Tobin had forwarded a notice of discontinuance to his client for execution.

[13]     My Minute of 22 April 2008 recorded Mr Tobin’s advice:

(a) Mr Loomans had not called to his office to sign the notice of discontinuance.

(b) The plaintiff may shortly be placed into liquidation. (c) Security for costs had not been paid.

[14]     My Minute also noted that a further telephone conference was scheduled for

30 June 2008 when I would give consideration to peremptorily striking the proceeding out.

[15]     As earlier noted, the plaintiff’s notice of discontinuance was filed on 26 June

2008.

Claim for indemnity costs

[16]     Ms Ross for the defendant states counsel for the plaintiff advised the Court in January 2008 that the full amount of security had been deposited to his instructing solicitor’s trust account.  The Court has no record of that advice being given.  That claim is not challenged by Mr Tobin.

[17]     Ms Ross states that during March 2008 the defendant’s counsel was advised that the amount deposited to the plaintiff’s solicitor’s trust account had been withdrawn at some stage between January and March 2008.

[18]     Mr  Loomans  has  now  pleaded  guilty  to  the  criminal  charges,  has  been convicted and sentenced to imprisonment.  In that outcome this proceeding has been

discontinued.  The defendant submits that the plaintiff’s proceeding was filed as a “bargaining chip or a fall back position” with respect to the criminal charges.  It is believed the plaintiff never intended seeing the proceeding through to trial and, therefore, the defendant has been put to needless trouble and expense and prejudice has been caused as a result.

[19]     The  defendant  asserts  indemnity  costs  are  properly  payable  in  terms  of r 48C(4) if:

(a) A   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.

[20]     The defendant submits the plaintiff acted improperly and unnecessarily in filing this proceeding – that the proceeding was part of a wider strategy designed to establish that Mr Loomans, a director   of the plaintiff, was not guilty of criminal charges.

[21]     Further the plaintiff has ignored or disobeyed an order or direction of the Court by failing to pay security for costs, despite assurances from the plaintiff that such would be paid.

Considerations

[22]     I do not accept that the failure to provide security for costs is a breach of an order as is envisaged under r 48C(4)(b).   Although Mr Tobin for the plaintiff concedes  the  plaintiff  was  in  a  position  earlier  this  year  to  pay  that  security, eventually those funds were used for different purposes.  At that time, of course, Mr Loomans had the criminal proceedings to deal with.

[23]     It is clear that eventually security could not be provided.  At around this time the proceeding was discontinued.  Mr Loomans had by this time been dealt with on the criminal charges.

[24]     There  may be  some  doubt  about  the  defendant’s  assertion  that  the  civil proceedings were part of a strategy to protect Mr Loomans from the consequences of his unlawful actions while an employee of the defendant .  As Mr Tobin points out, the civil proceedings were issued months before criminal charges were laid.   Mr Tobin states that at no stage was it suggested to him by Mr Loomans, or his then co- director, that the civil proceedings had been brought for any reason other than to properly recover monies seized by the defendant in a self help remedy for compensation for alleged wrong doing by Mr Loomans.

[25]     Mr  Tobin  submits,  and  it  is  reasonable  to  accept,  that  as  the  criminal proceedings became closer, Mr Loomans focussed on those matters rather than the security for costs.

[26]     I accept the submission that it cannot be suggested that delay in providing security for costs is in itself an abuse of process.   Overall I am not prepared to conclude that the civil proceedings were so clearly without merit, or bound to fail, that justifies indemnity costs.  Nor is it clear just how those costs may have increased in the interval since I directed the proceeding be stayed.

[27]     Also I have concern about the level of costs claimed.  No allowance seems to have been made in the memorandum for the costs I directed to be paid on a Category

2B basis in respect of the application for security for costs.  That matter aside, the defendant’s claim for costs should be limited to attendances in relation to the preparing and filing of a statement of defence; preparing for and attending an initial telephone conference; attending to discovery and inspection of documents; attending a number of telephone conferences; and to preparing an application for strike out.

[28]     Against  that  description  of  work  for  which  costs  could  properly  be attributable, the defendant’s claim for $83,423.76 appears, to use the words of Mr Tobin, “wholly disproportionate”.

Conclusion

[29]     This is not a proper case for indemnity costs.

Judgment

[30]     I fix costs payable by the plaintiff on a Category 2B basis.  Those costs are exclusive of the work for which costs have already been awarded.

Solicitors
Sharon Start Lent, Dunedin for Plaintiff
Kensington Swan, Wellington for Defendant