Sharrock v Wedd
[2018] NZHC 603
•5 April 2018
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2016-441-107
[2018] NZHC 603
UNDER the Companies Act 1993 BETWEEN
GERALD ERRINGTON SHARROCK
Plaintiff
AND
STEPHEN CHARLES WEDD
First Defendant
JOHN BRIAN KIPPING
Second DefendantBRENTON JOHN HUNT
Third DefendantAFFORDABLE RESIDENTIAL LIMITED
Fourth DefendantREGISTRAR OF COMPANIES
Fifth Defendant
Hearing: On the Papers Counsel:
R B Hucker for the Plaintiff Second Defendant in Person
Judgment:
5 April 2018
COSTS JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by Associate Judge Smith on 5 April 2018 at 10.15 am, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Hucker and Associates, Auckland
SHARROCK v WEDD [2018] NZHC 603 [5 April 2018]
Introduction
[1] On 26 July 2017, I entered summary judgment in favour of the plaintiff (Mr Sharrock) (the July judgment).1 I made declarations that Mr Sharrock is a shareholder in the fourth defendant (Affordable) and that the second defendant (Mr Kipping) had not been validly appointed as a director, and was not a director of Affordable. I ordered the Companies Register to be rectified accordingly,2 and also declared that the third defendant (Mr Hunt) was not validly appointed as liquidator of Affordable.
[2] The relevant background to the dispute between the parties is set out in the July judgment.3 On the issue of costs, I noted in the July judgment that Mr Sharrock had sought indemnity costs and/or increased costs. I indicated that my inclination was that costs should be awarded against Mr Kipping on a 2B basis, with disbursements to be fixed by the Registrar.4 However, I allowed Mr Sharrock to file any costs submission within 20 working days of the date of the July judgment. Any submissions in opposition were to be filed within 15 working days after service of Mr Sharrock’s submissions.5
[3] On 21 August 2017, Mr Kipping filed a notice of appeal against the July judgment, contending that the first defendant (Mr Wedd) and Mr Kipping had arguable defences, and that the matters in issue should be referred back to the High Court for a full hearing. The appeal was deemed abandoned on 6 December 2017.
[4]Mr Wedd was adjudicated bankrupt after the hearing, on 27 April 2017.
The applications
[5] Mr Hucker filed a memorandum claiming costs. In it, he noted that Mr Hunt had consented to the order sought removing him as liquidator of Affordable, and that
1 Sharrock v Wedd [2017] NZHC 1739 [“July judgment”].
2 July judgment at [103](c).
3 At [7]–[31].
4 Noting that there had been no purported filing of a notice of discontinuance of Mr Sharrock’s claim; that Mr Wedd has been adjudicated bankrupt; and that neither Mr Wedd nor Mr Kipping had legal representation.
5 At [99]–[102].
the fifth defendant (the Registrar of Companies) had agreed to abide by the Court’s decision. No costs are sought from those parties. Costs are sought against Mr Kipping and Mr Wedd on a joint and several basis.
[6]In his costs memorandum, Mr Hucker seeks the following orders:
(a)under s 76 of the Insolvency Act 2006 (the Act), allowing the quantification of the costs claim in Mr Wedd’s bankrupt estate; and
(b)increased costs against Mr Wedd and Mr Kipping. Mr Hucker submits there should be an uplift of 50 per cent on scale costs, under r 14.6(3)(b)(ii) and (iii) of the High Court Rules (steps taken in the proceeding by the defendants that lacked merit, and failure without reasonable justification to admit facts, evidence or documents, or accept a legal argument).
[7]Mr Sharrock produced the following schedule of costs calculated on a 2B basis:
No
Task
Date
Time Allocation (2B at $2230 per day)
Amount ($)
1
Commencement of proceeding by plaintiff
26 August 2016
3
6,690
22
Filing interlocutory application for summary judgment
26 August 2016
0.6
1,338
22
Filing interlocutory application for order for substituted service
21 September
2016
0.6
1,338
28
Sealing order for substituted service
14 October 2016
0.2
446
12
Appearance at mentions, hearing or callover
17 November
2016
0.2
446
24
Preparation of written submissions
23 February 2017
1.5
$3,345.00
25
Preparation by applicant of bundle for hearing
23 February 2017
0.6
$1,338.00
26
Appearance at hearing of defended application for principal counsel
10 March 2017
0.5
$1,115.00
28
Sealing judgment
26 July 2017
0.2
$446.00
36
Other steps in proceeding not specifically mentioned – costs memorandum
22 August 2017
0.4
$892.00
28
Sealing (costs) order
0.2
$446.00
Total
$17,840.00
[8]With a 50 per cent uplift on scale costs, the costs claim is $26,760.
[9]Mr Sharrock also asks for judgment for the following disbursements:
Date
Disbursement
Amount ($)
26 August 2016
Filing fee – statement of claim
$1,350.00
26 August 2016
Filing fee – summary judgment
$500.00
14 September 2016
Process server fees
557.75
10 October 2016
Filing fee – application for substituted service
$500.00
14 October 2016
Sealing fee – order for substituted service
$50.00
26 July 2017
Sealing fee – judgment
$50.00
Sealing fee – costs
$50.00
Total
$3,057.75
[10]The costs and disbursements contained in the above tables total $29.817.75.
[11]Mr Hucker submits that costs against Mr Wedd should be fixed in the sum of
$27,483.75, being $29.817.75 minus the claims of $1,784 and $550 associated with the substituted service order and its sealing (those costs did not relate to Mr Wedd). Mr Hucker submits that Mr Kipping should pay the full amount of $29.817.75.
The issues
[12] The issues are whether an uplift above scale is justified, and whether an order should be made under s 76 of the Act in respect of any costs awarded against Mr Wedd. I will address first the costs claim against Mr Kipping, and then address the claim against Mr Wedd (including the application under s 76 of the Act).
No response from Mr Kipping or Mr Wedd
[13] Mr Wedd and Mr Kipping had 15 working days to file a response to Mr Sharrock’s memorandum, but neither filed a response. I now give judgment on Mr Sharrock’s claims for costs and disbursements.
The costs claim against Mr Kipping
Mr Hucker’s submissions
[14] The following factors are relied on in support of the application for increased costs:
(1)Mr Kipping was present at the hearing of the proceeding in relation to Just Steel Framing Ltd (Just Steel),6 and he was aware from the judgment given in that proceeding7 that Mr Sharrock had subscribed for his shares and had otherwise satisfied the requirements contained in the deed concerning Just Steel. Mr Kipping persisted with substantially the same arguments that had been rejected in the Just Steel proceeding, representing an “unnecessary cost” under r 14.6.
(2)The defence of this proceeding was advanced “for a collateral purpose”, namely to delay the rectification of the Companies Office Register, to facilitate the purported liquidation of Affordable by
6 A proceeding, in which Mr Sharrock and Mr Wedd were parties, which was concerned (inter alia) with Mr Sharrock’s status as a shareholder in, and director of, Just Steel. The same deed dealt with Mr Sharrock’s agreement to acquire shares in, and become a director of, both Affordable and Just Steel. Although not a party in the Just Steel proceeding, Mr Kipping acted as Mr Wedd’s McKenzie friend at the hearing of Mr Sharrock’s summary judgment application in that proceeding.
7 Sharrock v Wedd [2016] NZHC 1477.
Mr Hunt, and to obtain records relating to Affordable that Mr Kipping would not otherwise be entitled to.
(3)Mr Kipping ought to have sought legal advice regarding his appointment as director. He should not have relied on his (unfounded) “personal belief” in the validity of his appointment.
(4)Mr Kipping initiated the process that made the filing of this proceeding necessary, by lodging an objection to an application made by Mr Sharrock for rectification of the Companies Office Register. His actions in attempting to maintain the position in light of the Registrar’s actions were unreasonable.
(5)Mr Kipping never produced in evidence any written document showing that his appointment as a director of Affordable was valid. He pursued an argument that was simply not sustainable.
(6)By his conduct, Mr Kipping made the undertaking of this proceeding difficult. He refused to make arrangements for service of documents, and threatened to take steps to issue trespass notices against process servers. His actions required an application for substituted service to be made. Mr Kipping also changed the registered office of Affordable to an address in Hastings, preventing Mr Sharrock from filing the proceeding in the Auckland Registry, thereby adding unnecessary costs.
(7)Mr Kipping made allegations of perjury and fraud against Mr Sharrock in open court. Those (unjustified) allegations required a response. Mr Kipping has also made a number of complaints to professional bodies concerning Mr Sharrock and the accountant, Mr Whitley, who swore an affidavit in the proceeding.
[15] In summary, Mr Hucker submits that “Mr Kipping’s conduct throughout these proceedings has been calculated to cause maximum cost, embarrassment and delay to [Mr Sharrock] without meaningful chance of success”.
Discussion and conclusions
[16] If costs were calculated on a category 2, band B basis, I am satisfied that each of the amounts claimed in Mr Hucker’s tables would be appropriate. I would allow the claim for costs of preparing the costs memorandum (item 36, which may be allowed by the Court), on the basis that the costs submissions involved additional work following the hearing and the July judgment.
[17] Increased costs may be awarded in accordance with r 14.6 of the High Court Rules 2016. That section materially provides:
14.6 Increased costs and indemnity costs
(1)Despite rules 14.2 to 14.5, the court may make an order–
(a)increasing costs otherwise payable under those rules (increased costs);
…
(2)The Court may make the order at any stage of a proceeding and in relation to any step in it.
(3)The court may order a party to pay increased costs if–
…
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by –
…
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, documents or accept a legal argument;
…
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[18] The correct approach to assessing a claim for increased costs is outlined in Holdfast New Zealand Ltd v Selleys Pty Ltd.8 Consideration is to be given to the matters in r 14.6, and if an award of increased costs is considered appropriate, the Court should consider the percentage by which the costs should be increased. The Court should consider the extent to which any failure to act reasonably contributed to the time or expense of the proceeding, and only to that extent can any percentage uplift from scale be justified.9
[19] Addressing first Mr Hucker’s factor (1), my judgments given in the Just Steel proceeding10 were concerned only with Mr Sharrock’s claimed shareholding in Just Steel, and his status as a director of Just Steel. They were not concerned at all with the shares he was to take in Affordable.11 While I appreciate that there was some overlap in the arguments relating to the different companies, particularly over the interpretation of the deed, in my view Mr Kipping was entitled to raise separate arguments in opposing the summary judgment application relating to Affordable. As noted at [70] of the July judgment, there were additional considerations in determining whether Mr Sharrock was entitled to a shareholding interest in Affordable. I do not consider that my judgments in the Just Steel proceeding were sufficient, on their own, to make opposing the summary judgment application in relation to Affordable an “unnecessary step” by Mr Kipping for costs purposes, under r 14(3)(b)(ii).
[20] Factors (2), (3) and (4) referred to by Mr Hucker all relate to Mr Kipping purporting to be a director of Affordable. There is some force in Mr Hucker’s submission that Mr Kipping should have sought legal advice on his appointment. However, the main thrust of Mr Kipping’s arguments was that Mr Sharrock did not have a valid shareholding interest in Affordable. If he had been correct in that, Mr Kipping could have been validly appointed by Mr Wedd as a director of Affordable. While Mr Kipping was ultimately unsuccessful in opposing the summary judgment application, I consider it was at least open to him to put in issue the question of whether Mr Sharrock validly acquired his shares in Affordable, and the validity of
8 Holdfast New Zealand Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
9 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].
10 Sharrock v Wedd [2016] NZHC 1477 and Sharrock v Wedd [2016] NZHC 1802.
11 July judgment at [31] referring to Sharrock v Wedd [2016] NZHC 1802.
his appointment as a director. And if he was to put that question in issue, his objection to the proposed rectification of the register was no more than a part of that process.
[21] I accept that it would be of concern if Mr Kipping pursued his defence in this case solely for the “collateral purpose” outlined in Mr Hucker’s factor (2). However, I do not think it is at all clear that Mr Kipping did not genuinely believe in the position he took in the proceeding (broadly, that Mr Sharrock never became a shareholder of Affordable, and that his own purported appointment as director was valid). Nor is it clear that any such “collateral purpose” materially added to the time or expense of the proceeding.
[22] I do not consider Mr Hucker’s factor (5) justifies an increased costs award. Certainly Mr Kipping was unsuccessful in his opposition to the summary judgment application, but as I have said, there were some differences between the claims in the Just Steel proceeding and the claims in this proceeding, and if Mr Kipping had succeeded with his argument that Mr Sharrock never became a shareholder of Affordable, Mr Sharrock’s standing to challenge Mr Kipping’s appointment as a director might have come into question. I do not see the unsuccessful pursuit of this argument as justifying, on its own, an increased costs order.
[23] On Mr Hucker’s factor (6), I accept that these matters, which have not been answered by Mr Kipping, unnecessarily added to the cost of the proceeding. A modest uplift above scale is warranted in respect of Mr Kipping’s conduct in the respects alleged.
[24] As for Mr Hucker’s factor (7), it is not apparent why complaints made to professional bodies should be the subject of a costs award in this Court, and nor is it clear that the allegations of perjury added to Mr Sharrock’s time or costs in conducting the proceeding.
[25] Weighing the considerations as best I can, I think some uplift above scale costs is warranted, but the proposed uplift of 50 per cent that Mr Hucker seeks is far too high. I note by way of comparison that in Baker v Waimakuku Whanau Trust Board
Inc,12 a 50 per cent uplift was ordered on an unsuccessful joinder application that was characterised as a collateral attack and an abuse of process, and which had contributed unnecessarily to the time and expense of the proceeding. In my assessment, the unreasonable conduct of Mr Kipping in this case has been at a significantly lower level, and the appropriate costs award against Mr Kipping is an award of costs as claimed on a 2B basis, with an uplift of 10 per cent, together with disbursements as claimed.
The costs claim and the application under the Act relating to Mr Wedd
[26]Section 76 of the Act provides:
76 Effect of adjudication on Court proceedings
(1)On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.
(2)However, on the application by any creditor or other person interested in the bankruptcy, the Court may allow proceedings that had already begun before the date of the adjudication to continue on the terms and conditions that the Court thinks appropriate.
[27]Section 232 of the Act provides:
232 What debts are provable debts
(1)A provable debt is a debt or liability that the bankrupt owes—
(a)at the time of adjudication; or
(b)after adjudication but before discharge, by reason of an obligation incurred by the bankrupt before adjudication.
(2)A fine, penalty, sentence of reparation, or other order for the payment of money that has been made following any conviction or order made under section 106 of the Sentencing Act 2002—
(a)is not a provable debt; and
(b)is not discharged when the bankrupt is discharged from bankruptcy.
12 Baker v Waimakuku Whanau Trust Board Inc HC Napier CIV-2010-441-581, 13 October 2011 at [20].
[28] The proceeding was commenced on 1 September 2016. The hearing was on 10 March 2017, and Mr Wedd was adjudicated bankrupt on 27 April 2017. Mr Wedd served a notice of opposition and affidavit in opposition, and he appeared at the hearing, adopting the submissions made by Mr Kipping. I have no evidence before me of the details of Mr Wedd’s bankrupt estate, and the Official Assignee has not made submissions on his behalf.
[29] In Bradbury v Commissioner of Inland Revenue,13 the Supreme Court considered that a costs award made after adjudication, in proceedings that had been commenced before adjudication, is a provable debt under s 232(1)(b) of the Act. That is on the basis that the (then contingent) obligation to pay costs arose before adjudication by virtue of the bankrupt having become a party to legal proceedings conducted under a system of rules that carried the potential for the bankrupt being made liable for costs.
[30] The effect of s 76(1) of the Act is therefore that any costs claim against Mr Wedd is halted, unless the Court makes an order under s 76(2) allowing the claim to continue.
[31] In Bradbury, the Supreme Court noted that the Official Assignee had no objection to the Court proceeding to fix costs against the bankrupts. In this case I have no such indication, and it is conceivable that there may be reasons concerned with Mr Wedd’s estate for declining to make an order under s 76(2), leaving the claim to be dealt with by the Official Assignee on receipt of an appropriate proof of debt form from Mr Sharrock.
[32] In those circumstances, I direct the Registrar to provide a copy of Mr Sharrock’s costs memorandum and this costs judgment to the Official Assignee. The Official Assignee is asked to advise by memorandum within 10 working days whether there is any objection to the Court making the order that has been sought under s 76(2) (and if so, the grounds for that objection). I will then give any further directions that may be necessary or, if it appears that the matter can be dealt with
13 Bradbury v Commissioner of Inland Revenue [2015] NZSC 80, [2015] 1 NZLR 739.
without further reference to the parties, give a separate judgment on the s 76 application and the claim for costs against Mr Wedd.
Result
[33]Taking all matters into account, I make the following orders:
[a]Mr Sharrock is entitled to costs against Mr Kipping calculated on a ‘2B’ basis, with an uplift of 10 per cent, together with disbursements as claimed.
[b]On that basis, costs and disbursements are awarded against Mr Kipping in the total sum of $22,681.00
[34] The applications relating to Mr Wedd are adjourned for further submissions and consideration in accordance with paragraph [32] of this judgment.
.…………………………….
Associate Judge Smith
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