Shannon v Shannon
[2020] NZHC 1026
•18 May 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-001381
[2020] NZHC 1026
UNDER Sections 164 and 174 of the Companies Act 1993 BETWEEN
ROSS ELLWOOD SHANNON
First Plaintiff
AND
ROSS ELLWOOD SHANNON, RUTH SHANNON and the SHANNON TRUSTEE
COMPANY LIMITED as trustees of the SHANNON FAMILY TRUST
Second PlaintiffsAND
JONNY SHANNON
Third Plaintiff
continued overleaf….
Hearing: On the Papers Appearances:
P C Murray for the Plaintiffs
First and Second Defendants in person
Judgment:
18 May 2020
JUDGMENT OF VAN BOHEMEN J
[as to costs on interlocutory application]
This judgment was delivered by me on 18 May 2020 at 1.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors:
P C Murray, Barrister, Auckland Copies to be provided to:
First and Second Defendants
SHANNON v LOWY [as to costs on interlocutory application] [2020] NZHC 1026 [18 May 2020]
continued from previous page….
AND JONATHON DAVID LOWY
First Defendant
AND
GRANT ANDREW SARGENT
Second Defendant
AND
RIPETIME LIMITED
Third Defendant
Introduction
[1] The plaintiffs and the defendants in this proceeding have filed memoranda seeking costs against each other for interlocutory steps taken to date in this proceeding.
[2] The proceeding concerns a dispute over a company called Ripetime Ltd, of which the plaintiffs are shareholders and some are directors. The first and second defendants, Mr Lowy and Mr Sargent, have also been involved in the establishment of Ripetime and also claim to be directors. Mr Lowy and Mr Sargent are also involved with another company, Salvo Ltd. Both Ripetime and Salvo are involved in the development of technology to monitor and manage the maturation of fruit and vegetables.
The proceeding so far
[3] On 12 July 2019, apparently after a breakdown in commercial negotiations between the parties, the plaintiffs filed a statement of claim seeking orders under s 164 of the Companies Act 1993 restraining Mr Lowy and Mr Sargent from holding meetings of the board of Ripetime and removing Mr Lowy and Mr Sargent from the Ripetime board. On the same date, the plaintiffs filed an interlocutory application without notice for an interim injunction seeking orders against Mr Lowy and Mr Sargent. That application was heard by Lang J who made three of the six orders sought but declined the other three on the grounds they were unnecessary.
[4] On 20 September 2019, the plaintiffs filed and served an on-notice application seeking interim injunctions:
(a)Requiring Mr Lowy to transfer to the plaintiffs or Ripetime, all access codes, keys and log-in details for Ripetime;
(b)Preventing Mr Lowy, Mr Sargent and any company associated with them (other than Ripetime) from dealing with any person who had been a customer or potential customer of Ripetime during the previous 2 months;
(c)Preventing Mr Lowy, Mr Sargent and any company associated with them (other than Ripetime) from engaging with any business that competes with the software, hardware and services Ripetime has developed or is developing;
(d)Requiring Mr Lowy and Mr Sargent to transfer certain intellectual property to the plaintiffs or Ripetime;
(e)Preventing Mr Lowy or Mr Sargent from acting as directors of Ripetime;
(f)Or, in the alternative to the injunction in (v) above, an order that meetings of the Ripetime board would be quorate without Mr Lowy or Mr Sargent attending the meetings.
That application was set down for a hearing on 14 February 2020.
[5] On 20 November 2019, Palmer J heard the plaintiffs’ application for the orders in [4](b), (c) and (f) above on an interim interim basis.1 At that hearing, Mr Lowy explained Salvo’s business which, he said was not in competition with that of Ripetime. Mr Lowy and Mr Sargent offered an undertaking not to compete with Ripetime if Ripetime kept to the scope of its business as provided for in its shareholders’ agreement.
[6] In his judgment, Palmer J said that, on the basis of Mr Lowy’s explanations about the nature of Salvo’s products and the offer of an undertaking from Mr Lowy and Mr Sargent, both of which were new for the plaintiffs’ counsel, Mr Murray, he:2
(a)Was not persuaded that the interim orders sought by the plaintiffs were justified;
(b)Had some doubt about the question to be tried,
1 Shannon v Lowy [2019] NZHC 3067.
2 At [8].
(c)On the basis of the information before him, considered the balance of convenience favoured not granting the orders in [4](b) and (c); and
(d)Considered damages were likely to be an adequate remedy.
[7] However, Palmer J granted the order in [4](f) above, noting that Mr Lowy and Mr Sargent had no intention of disrupting board meetings, were a minority on the board and did not oppose the order other than out of principle.
[8] On 5 February 2020, Mr Murray filed a memorandum advising that the plaintiffs discontinued their on-notice application because they considered it unnecessary as a result of the undertakings made by the defendants at the hearing before Palmer J and the order made by Palmer J, as well as subsequent developments, in particular a resolution of the Ripetime website issues. The memorandum advised that the plaintiffs did not intend to pursue the remaining order concerning the transfer of intellectual property. The plaintiffs asked that the hearing set down for 14 February 2020 be vacated and sought timetable directions for a case management conference and an application for costs.
[9] The defendants opposed vacation of the hearing on 14 February 2020, largely because of a misunderstanding on their part. As recorded in my minute of 11 February 2020, once certain matters had been clarified at a telephone conference that day, there was no purpose in continuing that hearing. Accordingly, I vacated the hearing on 14 February 2020 and made timetable directions for filing memoranda on costs if the parties wished.
The plaintiffs’ costs application
[10] In the memorandum dated 21 February 2020 from Mr Murray, the plaintiffs claim the following costs calculated on a 2B basis:
(a)$8,365 and disbursements of $729 for the without notice application granted by Lang J.
(b)$14,698.50 and disbursements of $547 for the on-notice application filed on 20 September 2019, which includes the plaintiffs’ costs incurred in relation to the application for interim interim orders heard by Palmer J on 20 November 2019, as well as the costs incurred subsequently up until the application’s discontinuance at the telephone conference before me on 11 February 2020.
[11] With respect to the without notice application, the plaintiffs say the defendants’ conduct in proposing to hold a board meeting following a breakdown of commercial negotiations was unreasonable and precipitated the application which could otherwise have been avoided.
[12] With respect to the on-notice application, the plaintiffs say the defendants refused to engage in a request the plaintiffs had made that covered most of the matters in the orders sought in the application, opposed all the orders sought, then provided new information at the hearing before Palmer J as well as the undertaking. They say that as a result of the undertaking and the order made by Palmer J, and subsequent developments, they were the successful party on the on-notice application. They also say it was reasonable for them to seek the orders in the application and unreasonable for the defendants to have opposed them, and that they have been put to unnecessary cost because of the defendants’ unreasonable conduct.
The defendants’ costs application
[13] The defendants filed a memorandum dated 2 March 2020 and headed “Memorandum of Counsel for the Defendants seeking costs” but which was signed and apparently prepared by Mr Lowy and Mr Sargent personally. In their memorandum, the defendants seek but do not specify the costs sought. Rather, they say they have identified “clearly definable costs” that are listed in a schedule to the memorandum. They acknowledge the costs are “unscaled” but rely on the judgement of the Court. The costs in the schedule include legal costs of over $35,000 incurred between 12 July 2019 and 30 September 2019, the costs of the defendants’ own time after 30 September 2019 ($60,000) when they were not legally represented, and costs incurred in preparing the evidence of expert witnesses ($3,360).
[14] The defendants’ memorandum also addresses the plaintiffs’ claim for costs. The defendants assert that the plaintiffs’ applications were unnecessary and that the plaintiffs’ claims would fail at a substantive hearing. The defendants also challenge assertions made in the plaintiffs’ applications which, the defendants say, are not supported by the evidence to which the defendants refer in some detail. The defendants propose, as an alternative to their claim for costs, that the Court should either defer a decision on costs pending a substantive hearing or order that costs should lie where they fall.
Relevant provisions in High Court Rules
[15] As set out at r 14.1 of the High Court Rules 2016, costs are at the discretion of the Court. However, as set out at r 14.2(1)(a), in principle a party who fails with respect to an interlocutory application should pay costs to the party who succeeds. In addition, r 14.8 provides that, unless there are special reasons to the contrary, costs on an opposed interlocutory application must be fixed when the application is determined and become payable when they are fixed.
[16]Other relevant general principles in r 14.2(1) are:
(a)Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in the application (r 14.2(1)(c));
(b)An appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the application (r 14.2(1)(d));
(c)What is an appropriate daily recovery rate should not depend on the skill or experience of the solicitor or counsel involved or the time actually spent by the solicitor or counsel involved or the costs actually incurred by the party claiming costs (r 14.2(1)(e)).
[17] Rule 15.23 provides that unless the defendant agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay the defendant’s costs up to the point of discontinuance.
Discussion
[18] The plaintiffs’ without notice application was not opposed because, by its nature, the defendants were not aware of it. The costs on that application, therefore, do not come within the scope of r 14.8 and are not required to be fixed now in accordance with that rule.
[19] That does not mean that the defendants may not have to pay those costs. The defendants’ liability for those costs will depend largely on whether the plaintiffs succeed on their substantive application and, in that context, on whether the Court accepts that the without-notice application was appropriately brought. That will include whether the court accepts the plaintiffs’ currently untested assertion that they brought the application because of unreasonable behaviour by the defendants following the breakdown of commercial negotiations. At present, however, I have no adequate basis for reaching a conclusion on that issue. Accordingly, I do not consider I can award costs now on the without notice application. I reserve costs on that application.
[20] While the plaintiffs have discontinued the on-notice application, they have not discontinued the proceeding which remains on foot. Even so, it has been held that when an interlocutory application is discontinued the party who brought the abandoned application should pay the costs unless the parties otherwise agree.3 It has also been held that where an application is discontinued because the party applying has achieved what was being sought in the application prior to the hearing, the Court has discretion to treat it as a successful application.4 Mr Murray submits that this is such a case.
3 Commissioner of Police v Burgess [2015] NZHC 267 at [14].
4 Grant v McCullagh [2013] NZHC 2210 at [32]; Global Greenfield Ltd v MKAH Ltd [2017] NZHC 1298 at [62]-[63].
[21] In fact, three of the orders sought in the on-notice application were dealt with by Palmer J at the hearing on 20 November 2019. Those matters, therefore, were not resolved “prior to the hearing” in the sense discussed in discussed in Grant v McCullagh and Global Greenfield Ltd v MKAH Ltd, even if the formal hearing of the on-notice application was set down for 14 February 2020. Moreover, it is the costs of that hearing that form the bulk of the costs sought by the plaintiffs. It follows that the parties’ liability for those costs should be considered principally in light of the outcome of that hearing.
[22] As noted, Palmer J did not consider the plaintiffs had made out their case with respect to two of those orders which he declined to grant. The plaintiffs were clearly not successful with respect to those two orders. Mr Murray says that it is material to the assessment of success that the defendants adduced information at the hearing that was new to the plaintiffs even though the defendants had filed extensive affidavits prior to the hearing. Palmer J records that the information about Salvo and the undertaking offered by the defendants was new to Mr Murray. Whether they were new to the plaintiffs is another matter. The defendants say in their memorandum that the plaintiffs had knowledge of Salvo’s products and undertakings well before the hearing. Whether or not that is so, it is for the plaintiffs to prove their case. That they were not able to do so because of evidence and undertakings by the defendants does not constitute success and does not provide a basis for imposing costs on the defendants.
[23] The third order that was granted by Palmer was essentially procedural and was not opposed by the defendants other than in a formalistic way. I do not consider that this result constitutes success sufficient to warrant an order of costs against the defendants.
[24] As to the other aspect of the on-notice application that Mr Murray says constitutes success, namely resolution of the website issues, it is not clear whether that resolution was because of the on-notice application or the result of discussions between the parties. I do not consider it provides a sufficient basis for imposing costs on the defendants.
[25] I accept that the plaintiffs were put to some expense by the defendants not understanding the effect of the plaintiffs’ discontinuance and the parties therefore having to attend a telephone conference. However, that expense was not significant in the context of the plaintiffs’ claim and does not warrant an award of costs.
[26] For these reasons, I am not satisfied that the plaintiffs were successful in achieving what had been sought in the on-notice application and I dismiss their application for costs with respect to that application.
[27]As to the defendants’ application for costs, that application is misconceived.
[28] First, most of the legal costs claimed were incurred before the plaintiffs filed their on-notice application and cannot have been reasonably incurred in relation to that application.
[29] Secondly, the legal costs claimed appear to be actual costs and have not been calculated by reference to the principles in r 14.2(1)(c)-(e) of the High Court Rules. Nor have they been itemised with regard to the times specified in Schedule 3 of the Rules and no analogy to those times or other explanation is provided as required by r 14.5.
[30] Thirdly, the defendants appear to be seeking to recover the costs of their own time when they were not legally represented. As I explained in my minute of 11 February 2020, there is a primary rule that a lay litigant is not entitled to recover costs.5 While the Supreme Court has left open the possibility that this rule may be departed from in exceptional circumstances, the defendants make no case for such a departure. Nor could such a case have succeeded in the circumstances of this proceeding.
[31] Fourthly, while the plaintiffs may not have succeeded with their application, it cannot be said that the defendants were the successful party either. In offering the explanations and the undertaking noted by Palmer J, they may have forestalled the grant of the orders sought by the plaintiffs but they also effectively accepted that there
5 McGuire v Secretary for Justice [2018] NZSC 116 at [88].
was substance to the plaintiffs’ contentions. They also had one order made against them.
[32] For these reasons, I do not accept the defendants’ claim for costs which I therefore dismiss.
Result
[33] The costs of the without notice application for an injunction filed on 12 July 2019 are reserved.
[34] The costs applications by the plaintiffs and the defendants in relation to the on- notice application filed on 20 September 2019 are dismissed. As a consequence, the costs of that application shall lie where they fall, as do the costs incurred in relation to the costs applications.
G J van Bohemen J
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