Singh-Heer v RSK Farming Ltd

[2024] NZHC 1920

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2022-419-088

[2024] NZHC 1920

BETWEEN

BALBIR SINGH-HEER and DABAU MINDHRO KAUR SINGH-HEER

Plaintiffs

AND

RSK FARMING LIMITED

Defendant

Hearing:

19 June 2024

Appearances:

FA King and MS Fyers for Sarbjit Kaur

KI Bond and JW Donald for Rupinder Singh

Judgment:

12 July 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 12 July 2024 at 4.30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

McKenna King Dempster Limited, Hamilton Braun, Bond & Lomas Limited, Hamilton

SINGH-HEER v RSK FARMING LTD [2024] NZHC 1920 [12 July 2024]

Introduction

[1]    Sarbjit Kaur and Rupinder Singh-Heer are equal shareholders and directors of the defendant company, RSK Farming Ltd (RSK).1 RSK owns a farm at Te Aroha Gordon Road in Te Aroha. Sarbjit and Rupinder were previously married but have been separated for approximately three years.

[2]    Sarbjit was granted leave to intervene on behalf of RSK to defend summary judgment proceedings brought by Rupinder’s parents, Balbir Singh-Heer and Dabau Mindhro Kaur Singh-Heer (Mr and Mrs Singh-Heer). At the same time, the Court ordered RSK to indemnify Sarbjit for the legal costs she incurred for RSK for up to

$50,000, subject to further costs being ordered by the Court.2

[3]    Sarbjit succeeded in defending the summary judgment application on behalf of RSK on the basis that Sarbjit had laid an evidential foundation to support an arguable claim for undue influence and potentially for unconscionability.3

[4]Sarbjit has applied for orders:

(a)for RSK to indemnify Sarbjit in the sum of a further $50,000 in advance for the cost of further steps in this proceeding up to a judicial settlement conference scheduled for 17 July 2024; or

(b)in the alternative, for RSK to pay an invoice rendered on 6 June 2024 in the amount of $43,437.20 (including GST and disbursements) for attendances required from September 2023.

[5]    Sarbjit has also brought proceedings against RSK in her own name, including pursuant to s 174 of the Companies Act 1993 (127 Proceedings). Sarbjit has been granted legal aid for those proceedings.

1      I refer to the parties involved in this application by their first names to avoid confusion. I intend no disrespect in doing so.

2      Kaur v RSK Farming Ltd [2022] NZHC 3330 at [77].

3      Singh-Heer v RSK Farming Ltd [2023] NZHC 2586.

[6]    Rupinder, as a shareholder and director of RSK, opposes this application on the following grounds:

(a)he ought to have visibility of the fees charged by Sarbjit’s law firm, McKenna King, to ensure they are fair and reasonable and strictly related to steps taken by RSK in defending the proceedings brought by Mr and Mrs Singh- Heer (referred to as the 88 Proceedings);

(b)$50,000 exceeds the reasonable cost for progressing the 88 Proceedings to the next major milestone, being the judicial settlement conference scheduled for 17 July 2024; and

(c)requiring RSK to make such a significant payment in advance is unnecessary and would cause substantial cashflow difficulties for RSK.

[7]    Rupinder submits that some amounts charged ought to be borne by Sarbjit personally, including in relation to this application for indemnity costs, or because they are not reasonably incurred or are costs that should properly be charged to Sarbjit’s 127 Proceedings.

[8]    Following the hearing a memorandum was filed on behalf of Sarbjit attaching timesheets that underpin the invoice issued on 6 June 2024 in the amount of

$43,437.20. In addition, the memorandum estimated the legal fees for the remaining steps to the judicial settlement conference as likely to amount to $11,500. This extends the amount sought to $55,000, rather than $50,000.

[9]    Counsel for Sarbjit submits that these fees and disbursements are reasonable in terms of Sarbjit defending the 88 Proceedings and addressing the various attempts by Rupinder to “inject himself into these proceedings” causing significant extra costs in circumstances where he then criticises the reasonableness of legal fees.

[10]   I set out the background and then the relevant legal principles before considering whether it is appropriate to order that RSK indemnify Sarbjit for the further costs as sought.

Background

[11]   Sarbjit has been given leave to intervene in proceedings brought by Mr and Mrs Singh-Heer in which they sought summary judgment against RSK to enforce a deed of agreement to mortgage.

[12]   I adopt the background as set out by Associate Judge Gardiner in her judgment granting leave to Sarbjit to intervene to defend RSK’s position:4

[1]        [Sarbjit] was born and raised in India. [Rupinder] was born and raised in New Zealand. They married in India in 2007. The following year, Sarbjit came to New Zealand with Rupinder to live on his family farm in Te Aroha.

[2]        Rupinder’s parents, [Mr and Mrs Singh-Heer], bought the Te Aroha farm in the 1990s. Rupinder was raised on the Te Aroha farm and has worked there all his adult life. In 2007, [Mr and Mrs Singh-Heer] incorporated Sunsuraj Limited (Sunsuraj) and transferred ownership of the Te Aroha farm to that company.

[3]        RSK Farming Limited (RSK) was incorporated in 2011, with Rupinder the sole director and shareholder. In 2012, Sarbjit was made a director and 50 per cent of the shares in RSK were transferred to her. Sunsuraj, as owner of the Te Aroha farm, entered into a share milking agreement with RSK as share milker. Before that, Rupinder worked on the farm for a wage. Sarbjit also worked on the farm but says she was unpaid.

[4]        In 2016, Sunsuraj sold the Te Aroha farm, and some Fonterra shares, to RSK. The purchase price was $7,246,343, made up of $6,539,293 for the land and improvements and $707,050 for the shares. The purchase was funded by a loan from ASB secured by a first ranking mortgage, an advance from [Mr and Mrs Singh-Heer] secured by an agreement to mortgage, and an advance from Rupinder also secured by an agreement to mortgage.

[5]        In March 2021, Sarbjit and Rupinder formally separated and Sarbjit moved out of the family home on the Te Aroha farm. She now lives in rented accommodation and is on a Work and Income benefit. Sarbjit and Rupinder have two children, aged 10 and 12.

(footnotes omitted)

[13]The purchase of the farm by RSK was financed by a loan from ASB of

$2,815,931  secured  by  a  first  ranking  mortgage,  an  advance  from  Mr  and   Mrs Singh-Heer of $2,500,000 secured by an agreement to mortgage and an advance from Rupinder of $1,930,412, also secured by an agreement to mortgage.

4      Kaur v RSK Farming Ltd, above n 2.

[14]I record that Sarbjit asserts that the loan from Rupinder is relationship property.

[15]   The purchase price for the farm was based on the rating valuation at the time of $6,600,000. A registered valuer provided an expert valuation report for Sarbjit for the summary judgment proceedings valuing the farm on the date of purchase at

$5,420,000. Mr and Mrs Singh-Heer provided an expert valuation report in response valuing the farm at $6,650.000.

[16]   Associate Judge Brittain declined to grant summary judgment on the basis that RSK has arguable equitable defences. In discussing whether there was a defence of undue influence, his Honour held that it was arguable that there was a relationship of influence between Sarbjit and Mrs Singh-Heer. Associate Judge Brittain then held in response to Mr and Mrs Singh-Heer submissions that the transactions were on favourable terms to RSK:5

[61]      There is a conflict between the opinions of the valuers engaged by the parties. It is not possible to resolve that conflict on affidavit evidence. On Mr Green’s evidence, it is arguable that RSK paid approximately $1 million above market value for the farm. If Mr Green’s opinion proves to be correct, then the sale of the farm by Sunsuraj to RSK is not readily explicable.

[62]      It is reasonably arguable that the loan and agreement to mortgage are also disadvantageous to RSK because of the connection between the price of the farm paid by RSK to Sunsuraj and the amount of the loan from Mr and Mrs Singh-Heer to RSK. If RSK had paid approximately $1 million less in purchase price, then RSK could have borrowed approximately $1 million less from Mr and Mrs Singh-Heer.

[63]      Mr and Mrs Singh-Heer argue that the agreement to mortgage was on favourable terms. For example, they say that the interest rate was effectively nil.

[64]      However, cl 3 of the mortgage deed provides that interest is payable if demand is made in writing by 31 March of any year, and interest is payable at the rural floating rate charged by ASB on 31 March in the year of demand for interest. Clause 1 of the mortgage deed gives Mr and Mrs Singh-Heer the power to demand payment of the outstanding principal by written notice.

[65]      These type of loan terms are not unusual in the context of transactions within a family. However, I reject Mr and Mrs Singh-Heer’s argument that the terms are necessarily favourable to RSK. If Mr and Mrs Singh-Heer elect not to demand interest in a particular year, then obviously that is favourable to RSK. It is not the term itself that creates the favour, but the manner in

5      Singh-Heer v RSK Farming Ltd, above n 3.

which Mr and Mrs Singh-Heer choose to exercise it. Mr and Mrs Singh-Heer are now choosing to demand interest.

[66]      The same can be said of the contractual right given to Mr and Mrs Singh-Heer to call up the entire principal on demand. That confers on Mr and Mrs Singh-Heer significant commercial power. RSK is a closely held family company operating a single dairy farm. Receiving notice that a loan of $2.5 million is called up and repayable immediately would be a daunting prospect.

[67]      Counsel for Mr and Mrs Singh-Heer confirmed that if the agreement to mortgage is enforced and a mortgage is registered, Mr and Mrs Singh-Heer intend to enforce their rights under the mortgage, by mortgagee sale if necessary. Mr and Mrs Singh-Heer are seeking to do so to provide impetus to settlement negotiations between the parties. In my view, they seek to exercise their contractual rights to advantage their son in his negotiations with Sarbjit.

[68]      Often in these family situations, there is an expectation that the party transferring property and providing funding will not expect or demand repayment, irrespective of legal rights. However, RSK has not raised an estoppel defence.

[69]      In any event, I consider that Sarbjit has laid an evidential foundation to support an arguable case for a presumption of undue influence. …

[17]   Associate Judge Brittain went on to consider whether Sarbjit, as the influenced party, had an opportunity to take fully informed and competent legal advice and held that it was arguable she did not.

[18]   In terms of the equitable relief that would be available if RSK’s claim succeeds, Associate Judge Brittain held the Court will be required to take a flexible approach to the remedy but that it might involve disgorgement of the inequitable benefit from the transaction, being the amount paid by RSK for the farm above market value (if RSK brought a claim against Sunsuraj Ltd), or a declaration that the mortgage deed was void, reducing the amount that RSK was required to pay Mr and Mrs Singh-Heer pursuant to the loan, either by way of set-off or equitable compensation or as a direct remedy equivalent to disgorgement of an inequitable benefit. The difference between the two valuations is approximately $1 million.

Relevant legal provisions

[19]   Section 165(1) of the Companies Act provides that the Court may on the application of a shareholder or a director of a company, of which Sarbjit is both, grant leave to either:

(a)bring proceedings in the name and on behalf of the company; or

(b)intervene in proceedings to which the company is a party including for the purpose of defending the proceedings on behalf of the company.

[20]   Section 165(2) records that without limiting s 165(1), in determining whether to grant leave, the Court shall have regard to:

(a)the likelihood of the proceedings succeeding;

(b)the costs of the proceeding in relation to the relief likely to be obtained;

(c)any action already taken by the company or related company to obtain relief; and

(d)the interests of the company in the proceeding being commenced, continued, defended or discontinued as the case may be.

[21]   Section 165(1) is subject to s 165(3) which provides that leave may be granted only if the Court is satisfied that either:

(a)the company or related party does not intend to bring, diligently continue or defend, or discontinue the proceedings as the case may be; or

(b)it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

[22]   Section 166 provides that the costs of a derivative action are to be met as follows:

The court shall, on the application of the shareholder or director to whom leave was granted under section 165 to bring or intervene in the proceedings, order that the whole or part of the reasonable costs of bringing or intervening in the proceedings … must be met by the company unless the court considers that it would be unjust or inequitable for the company to bear those costs.

[23]As Winkelmann J (as her Honour then was) held in Presley v CallPlus Ltd:6

Part of that section bears repetition. Leave having been granted, the Court must order that the company meets the costs unless it considers it unjust or inequitable for the company to do so. The section creates a clear onus on the respondent to satisfy the court that it would be unjust or inequitable for the company to bear the costs.

[24]   In Presley v CallPlus, Ms Presley sought leave to commence proceedings in the name and on behalf of CallPlus in respect of alleged breaches of fiduciary duty by two other shareholders and directors of CallPlus.

[25]   Ms Presley alleged that they improperly diverted a business opportunity of CallPlus to a new entity set up by them, 2Talk Ltd, in which they were beneficially interested. The defendants to the proposed proceedings were Malcolm Dick and Martin Wylie, 2Talk Ltd and the shareholders of 2Talk Ltd.

[26]   The application was opposed by CallPlus on the basis that Mr Dick and     Mr Wylie had not breached their fiduciary duties because no assets of CallPlus were used and no business opportunity open to CallPlus was diverted to them. CallPlus said 2Talk Ltd was formed outside the CallPlus Group for good business reasons associated with CallPlus.

[27]   It was further submitted that the intended proceedings would not provide relief for CallPlus which was more favourable than the commercial arrangements already in place and for those reasons and because of the likely costs and adverse effect of such proceedings, it was not in the interests of CallPlus that leave be granted.

[28]   Relevantly to this case, the application was made in the context of a shareholder dispute between Ms Presley and Mr Dick which in turn had its genesis in the breakdown of their marriage and relationship. It was argued that in the context of that shareholder dispute it was inappropriate for Ms Presley to have control over how the 2Talk business opportunity was pursued for the benefit of CallPlus.

6      Presley v CallPlus Ltd HC Auckland CIV-2007-404-4098, 19 November 2007 at [62].

[29]   CallPlus submitted that should the Court hold that the derivative action ought to proceed then it should be conditional upon Ms Presley personally meeting the costs of the action. Counsel relied on two cases, Frykberg v Heaven,7 and Needham v EBT Worldwide Ltd.8 In both those cases leave to intervene was granted but on the basis that the costs be paid by the intervener.

[30]   Winkelmann J did not accept those submissions and made orders granting leave to Ms Presley to bring the proceedings in the name of CallPlus together with an order under s 166 of the Companies Act that the reasonable costs of the intended proceedings be met by CallPlus. In addition, her Honour ordered that the costs of the application for leave itself be met by CallPlus.

[31]    Winkelmann J pointed to the fact that in Needham the requirement to pay costs personally was against the background of the judge’s assessment that a prudent business person might consider the potential return from the litigation would not justify the costs of proceedings and his later observation that if costs were being paid by another, a prudent business person would issue proceedings at least to the stage of full discovery to satisfy themselves whether the proceedings should be resolved or continued.

[32]   In relation to Frykberg, counsel for CallPlus had submitted that Mr Dick was in a similar position to Mr Heaven in Frykberg and would effectively be funding proceedings against himself. However, Winkelmann J said in response:

[66]      It is true that CallPlus is a closely held company and that Mr Dick has a substantial shareholding in it. But I have expressed the preliminary view that on the evidence before the Court, there are real issues to be tried as to whether a breach of fiduciary duty has occurred and that it is in the interests of CallPlus to pursue those issues.

[67]      I cannot rule out that the extent of the shareholding interest of a proposed defendant in a company might be a relevant consideration in some cases. However where as here, the only matter raised is the significant shareholding of the proposed defendant, the proposed defendant cannot call in aid his own shareholding as a means of placing further obstacles in the way of an applicant in the way of costs. There are good policy reasons why the Act provides that once leave has been granted the onus is on the respondent to satisfy the court that it would be unjust or inequitable for the company to bear

7      Frykberg v Heaven (2002) 9 NZCLC 262, 966.

8      Needham v EBT Worldwide Ltd (2006) 3 NZCCLR 57.

those costs. Here CallPlus has failed to satisfy me that it would be unjust or inequitable for costs to be paid by [CallPlus]. Accordingly, the reasonable costs of the proceeding are to be paid by CallPlus.

[33]   In Thompson v Quinn, Venning J agreed with the approach taken by Winkelmann J in Presley, holding that the fact that the respondents may have a larger share of equity should not prevent an order being made under s 166.9 His Honour held however that with the relationship of the parties in that case there was a risk of injustice if Mr Thompson, who had applied to bring proceedings on behalf of InvestaCorp Holdings Ltd against two of its other directors (apart from Mr Thompson) and two other companies, was effectively given a blank cheque to pursue the respondents.10 Venning J went on:11

In my judgment the answer lies in providing for the company to pay part of the reasonable costs of the proceeding but it would be unjust for the company to have to fund the entire costs of the proceedings. There is no suggestion Mr Thompson would be unable to fund part of the litigation himself.

[34]   Venning J ordered that the company was to pay the first $50,000 of the costs associated with the proceeding and that any costs over and above that sum were to be paid by Mr Thompson personally in the first instance. Venning J reserved leave for Mr Thompson to apply for any such costs paid by him to ultimately be paid by the company once the proceedings were determined on their merits.

[35]   These cases make it clear that the appropriate order under s 166 depends on the particular circumstances of each case. Furthermore, the order is not restricted to the costs of the proceedings themselves, with Winkelmann J in Presley ordering that CallPlus pay the costs of the application to intervene.

[36]   Section 167 reinforces this by providing a broad power for the court to “at any time, make any order it thinks fit” in relation to proceedings brought with leave pursuant to s 165, including the power to (and without limiting its generality):

(a)make an order authorising the shareholder or any other person to control the conduct of the proceedings:

(b)give directions for the conduct of the proceedings:

9      Thompson v Quinn HC Auckland CIV-2010-404-8457, 6 October 2011.

10 At [70].

11 At [70].

(c)make an order requiring the company or the directors to provide information or assistance in relation to the proceedings:

(d)make an order directing that any amount ordered to be paid by a defendant in the proceedings must be paid, in whole or part, to former and present shareholders of the company or related company instead of to the company or the related company.

Is it unjust or inequitable that RSK pay the further reasonable costs of intervening in the 88 Proceeding?

[37]   Associate Judge Gardiner initially ordered RSK to indemnify Sarbjit for the legal costs she incurs for RSK in defending the summary judgment application, up to

$50,000, subject to further order of the Court.

[38]   Associate Judge Brittain declined Mr and Mrs Singh-Heer’s summary judgment application on 15 September 2023. RSK effectively paid the initial $50,000 following the issuing of an invoice for $49,874.06 on 2 October 2023 after the summary judgment application was declined.

[39]Associate Judge Brittain recorded in a minute on 16 February 2024:

[5]       The $50,000 limit on the indemnity has now been reached, and [Sarbjit] will need to apply for an increase in the limit of the indemnity if RSK is to continue to defend Mr and Mrs Sing-Heer’s substantive claim, and bring a counterclaim against Mr and Mrs Sing-Heer and their company, Sansuraj Ltd, for damages as a result of RSK’s alleged payment of purchase price to Sansuraj in 2016 above the Farm’s market value.

[6]        Given my findings in my judgment dated 15 September 2023, that RSK has an arguable defence and set-off for equitable compensation, and given the findings of Associate Judge Gardiner when she granted the application to intervene and ordered the indemnity, it seems inevitable that the indemnity limit of $50,000 will be increased if [Sarbjit] makes an application, unless the financial position of RSK will not allow it.

[7]        Therefore, I invite the parties to consider this issue further, to endeavour to agree on an increase in the limit of the indemnity. My preliminary view is that an increase from $50,000 to $100,000 is appropriate.

[40]   Associate Judge Brittain further recorded that there is the potential for the parties to incur legal fees equalling the amount in dispute so it is in all parties’ interests to consider settlement of all issues arising between them.

[41]   Following this, a judicial settlement conference was allocated by consent scheduled for next Wednesday, 17 July 2024. When the conference was allocated, the parties were encouraged to propose an extension to Associate Judge Gardiner’s order for RSK to indemnify by consent but agreement could not be reached. As a result, Sarbjit filed this application on 6 April 2024.

[42]   It is accepted by Rupinder that an extension ought to be granted. However, Rupinder disputes whether a significant portion of the costs ought to be indemnified.

[43]    Firstly, Rupinder submits that Sarbjit is unable to claim the costs of her application for leave to intervene or this application to extend the indemnity. I do not consider that this is correct as the only reason that Sarbjit needs to intervene is because the company was not intending to defend the proceeding. Associate Judge Gardiner determined that it was appropriate for the application to be defended by RSK, granting leave to Sarbjit to do so and that has been reinforced by Associate Judge Brittain declining summary judgment. Section 166 mandates that the company is to pay the costs of “intervening” unless that would be unjust or inequitable for the company.

[44]   Counsel for Rupinder relies on Parkinson v O’Brien, to submit that the costs of obtaining leave and the associated indemnification are not “costs of bringing or intervening in the proceedings”.12 But in Parkinson the Court of Appeal was considering a different point. In that case, Ms O’Brien submitted that Mr Parkinson needed leave to appeal on the basis that the s 165 application for leave was an interlocutory application. The Court held leave to appeal was unnecessary because the leave application was not interlocutory in nature as it was not a matter of procedure or ancillary or collateral to the decision in the proceeding itself.

[45]   The Parkinson case does not, in my view, comment on whether a s 166 order for reasonable costs to be paid ought to extend to the application for leave itself and any applications for further indemnifying following. The fact the leave and indemnity applications are not ancillary or collateral to the proceedings in which the company is involved (in this case Mr and Mrs Singh-Heer’s proceedings to enforce the deed of agreement to mortgage) does not mean the costs of that proceeding do not fall within

12      Parkinson v O’Brien [2021] NZCA 309.

“the reasonable costs of bringing or intervening in the proceedings”. It would defeat the purpose of allowing leave on the basis of a presumption that the company will pay if the costs of applying in the first place, and then for extensions to any indemnity payable, did not fall within s 166. For completeness, I consider such an order could be made under s 167 in any event, which provides a very broad power for the Court to make any orders the Court thinks fit.

[46]   I therefore consider that it is appropriate for Sarbjit’s reasonable costs for applying for leave to intervene in the first place and for extending the order for RSK to indemnify to be included in the indemnity ordered. These are costs that have only had to be incurred following Sarbjit successfully defending the summary judgment proceedings on behalf of RSK. Section 166 mandates that these costs will be covered unless it is unjust or unequitable for RSK to do so. The question for the Court at this stage is whether there is anything that would make it unjust or inequitable for RSK to indemnify Sarbjit for these costs now.

[47]   Rupinder submits that it would be unjust and inequitable for RSK to meet Sarbjit’s costs for the following reasons:

(a)Sarbjit’s estimate of costs for the total proceedings appears to be approximately $350,000, including $100,000 of hearing costs based on a five-day hearing (increasing to $450,000 for the now allocated 10‑day hearing). Rupinder says this needs to be compared against Sarbjit’s case that the Te Aroha Farm was overvalued by $986,293 and says that while that is disputed, the highwater mark for her case then would be that she receive her half share of that sum, being $493,146.

(b)It appears to be accepted by Sarbjit that RSK has already been charged for costs incurred by her in progressing the 127 Proceedings and the present application.

(c)There is substantial overlap of issues and relief sought between Sarbjit’s 127 Proceedings and the counterclaim that she wishes RSK to bring against Mr and Mrs Singh-Heer; and resolution of the issues

pleaded in the 127 Proceedings are likely to resolve the issues in the 88 Proceedings whereas the reverse is not true.

(d)Mr and Mrs Singh-Heer have previously offered to stay their proceedings pending the outcome of Sarbjit’s 127 Proceedings which would protect RSK’s position while the 127 Proceedings are resolved. If Mr and Mrs Singh-Heer are no longer prepared to agree to that, leave could be granted for RSK to bring an application for stay pending resolution of the 127 Proceedings.

(e)The requirement for RSK to pay the costs of the 88 Proceedings (and to meet the costs of Mr and Mrs Singh-Heer if unsuccessful) may mean the difference between RSK, currently a viable company, surviving and preserving shareholder value pending the agreed or directed buy out of Sarbjit’s shares or failing, thereby having the effect of rendering the 127 Proceedings largely moot.

[48]   Counsel for Rupinder further submits that in cases where no order is made under s 166 then the applicant is required to meet costs in the first instance. Counsel suggests one option would be to reserve leave for Sarbjit to file for reimbursement of any specific costs and disbursements at any point in the proceedings. Counsel for Rupinder points to an order of this nature being made in Thompson v Quinn.13

[49]   Furthermore, counsel for Rupinder submits that the fact that Sarbjit is in receipt of legal aid and is not able to privately fund the litigation on behalf of RSK is not an impediment for requiring her to fund the proceedings citing Watts v Kawhia Offshore Services Ltd.14 In Watts the applicant was also in receipt of legal aid and an order was made that he fund the proceedings himself.15 However, in that case the company did not have the ability to fund the proceeding and there had been no attempt to quantify the loss of opportunity claim that the company would bring so that the judge could not be satisfied one way or the other that the costs of the proceeding as compared to the

13     Thompson v Quinn, above n 9, at [71].

14     Watts v Kawhia Offshore Services Ltd HC Hamilton M278/98, 10 August 1999.

15     At [33]–[34].

relief likely to be obtained justified an order to intervene. Leave was however reserved to apply to vary the order made at the conclusion of the litigation.

[50]   The numbers in this case are more straightforward. Currently, there is a difference of $1 million between the expert valuers. Associate Judge Brittain has held that if Sarbjit is correct and the farm was not transferred at market value then it is arguable that an equitable remedy would be available requiring adjustment of the arrangements between the parties to reflect that.

[51]   Whether RSK can afford to fund the whole of the proceeding is not a matter that needs to be determined at this stage. I note however it is not as straightforward as counsel for Rupinder suggests. Even if the legal costs of RSK defending the proceedings were $350,000 - $450,000, if there is $989,293 at stake (or more as counsel for Sarbjit submits) a prudent business person may still continue to defend the litigation depending on the degree of litigation risk. Furthermore, the cost of the litigation would be incurred in instalments and not all of the costs would be deducted from Sarbjit’s half-share.

[52]   The question for the Court in this application however is whether RSK can afford to fund $55,000 now. At the time Sarbjit filed her further indemnity application, RSK had $110,111.42 in the bank. By the time Rupinder filed his affidavit in opposition there was only $15,000. Rupinder explains in his affidavit why the balance had reduced including because repairs had been carried out to the main house for approximately $27,000, a replacement tractor had been purchased and an invoice received for maize contracting, with amounts still owing.

[53]   In terms of invoices over the new few months, Rupinder’s evidence is that given RSK only has May’s milk production to come until spring he anticipates that “over the next three months, RSK will only receive $60,915 in income from Fonterra.” Rupinder annexes a screenshot to his affidavit from Fonterra’s Farm Source Milk Price Estimator in support of this. Rupinder further deposes that he is uncertain of whether RSK is likely to receive any further payment from Fonterra in the upcoming off‑season, saying:

Previously monthly milk payments were distributed in a way that allowed Fonterra to make some reduced payments to farmers in the off-season, but I understand Fonterra have not made the same provision for this year.

[54]   In her affidavit in reply, Sarbjit confirms that Fonterra pays RSK a percentage of the final milk price as an advance each month and annexes a print-out of the payments received over a twelve-month period. These show payments received during June and July despite no milk production in those months. The accounts annexed to Rupinder’s affidavit also show in the “Milk Trading Statement” on page 13 that RSK received payments for each month in the calendar year for both 2022 and 2023, with the payments for months for which milk production was nil being set out under the heading “deferred payments”, rather than monthly production.

[55]   Although Rupinder says it is uncertain that RSK will receive any further pay‑out in the upcoming off season and that he understands Fonterra has not made the same provision for this year, he does not give any further detail or provide any documentary material in support of this evidence. I find it hard to accept Rupinder’s evidence, therefore, that there has been a change in Fonterra’s approach.

[56]   The total amount received from Fonterra over the 2023/2024 season is recorded as being $1,051,949.60. I accept that the farm has significant expenses and that there may be some difficulties in terms of cash flow but I do not accept that there is sufficient evidence that RSK will not be in a position to pay $55,000 for legal fees up to and including the judicial settlement conference.

[57]   Furthermore, I do not accept that the fact that it might be appropriate for these proceedings to be stayed pending the outcome of Sarbjit’s 127 Proceedings ought to affect whether Sarbjit’s costs up to the judicial settlement conference ought to be indemnified. These 88 Proceedings have not yet been stayed and so costs have properly been and will continue to be incurred in defending them up until a stay is ordered.

[58]   I agree that there is some overlap between these proceedings and the 127 Proceedings but the outcome of the s 127 proceedings will not determine these proceedings. Mr King has confirmed that where there is overlap McKenna King have

separated those attendances. He candidly admits that there is rarely a clean distinction but this does not mean the costs claimed in this proceeding are not reasonable. I am concerned that the need to justify the reasonableness of the fees charged is providing an opportunity to put further obstacles in the way of Sarbjit, as Winkelmann J was concerned to avoid in Presley.

[59]   Following the hearing, Mr King provided the time sheets underpinning McKenna King’s 6 June 2024 invoice and the estimates for tasks leading up to and including the judicial settlement conference. A memorandum was filed on behalf of Rupinder in response setting out his position as follows:

5.[Rupinder’s] position on the time records is as follows:

5.1Costs of indemnity application: Steps taken in making and arguing the application for an order that RSK pay $50,000 to the trust account of McKenna King ought not to be chargeable to RSK and/or [Sarbjit] ought not receive costs in relation to that application because it was not reasonably brought;

5.2Hourly rate: All three lawyers working on the file are charged out at the director’s hourly rate of $440.49 plus GST regardless of their level of experience or the tasks to which they are attending.

5.3Costs of s174 proceeding: Many of the time entries record steps taken in relation to the s174 proceedings including:

5.3.1Preparing and reviewing “applications” and “affidavits” plural which must include time relating to [Sarbjit]’s personal application for interim farm management orders;

5.3.2Liaising with Rupinder’s solicitors regarding discovery which must relate to the s174 proceedings given that Rupinder is not a party to the 88 proceedings;

5.3.3Correspondence regarding, preparation of memoranda for and attendance at case management conferences, all of which have dealt with both the s174 proceedings and the 88 proceedings; and

5.3.4At least $1,300 of time spent preparing the casebook for the hearing, the bulk of which must have been intended for the interim farm management orders given the very limited references to the applicant’s bundle at the hearing on 20 June 2024.

(bold in original)

[60]   Counsel then attached an excel spreadsheet analysing the time records and either deducting those that in Rupinder’s view related to the 127 Proceedings or splitting them in half where they relate to both. In addition, counsel adjusted the amount to be charged by reducing the hourly rates for two of the solicitors to address the fact that all solicitors appear to have been charged at $440 per hour.

[61]   I then issued a minute asking counsel for Sarbjit for a further breakdown by author of the relevant charge out rates and the number of hours spent. Mr King filed a memorandum in response to that request on 10 July 2024 advising that the charge out rates had changed on 1 April 2024 and provided two replacement invoices for each of the relevant periods. These two invoices together add up to the same amount as for the 6 June 2024 invoice. Mr King explains that the billing software averages the charge out rate when producing the invoice. Although this is slightly confusing, now that the replacement invoices have been issued confirming that the solicitors on the file appear to have been charged out at appropriate rates, I consider that this charge out issue has been resolved.

[62]   In terms of whether the amounts charged are reasonable, in my view matters must be looked at in the round as otherwise the public policy behind the s 166 presumption that the company will pay will be defeated.

[63]   Starting with the original invoice issued on 2 October 2023, in my view approximately $42,000 (including GST) in fees plus disbursements of approximately

$7,500 (including GST) for the application for leave to intervene and for successfully defending the summary judgment proceeding is reasonable. As part of this, two counsel can be justified for the summary judgment hearing itself given the amounts in issue and when Mr and Mrs Singh-Heer were represented by two counsel.

[64]   Reviewing the 10 July 2024 invoices, I again consider that a further approximately $41,000 in fees plus disbursements of $2,500 is reasonable for the steps that have been undertaken since the summary judgment application was declined, a period of approximately ten months. These steps are leading up to the judicial settlement conference and so will have involved considerable strategy and development of RSK’s case. I do not consider that scale costs provide a useful

indication of what reasonable fees for these steps would be. And it is not a situation where a party has been prepared to reveal its own legal costs to underscore the unreasonableness of the fees being charged. I acknowledge that there is no obligation to do so and it is complicated here by Mr and Mrs Singh-Heer being the opposing party but the submission may have had more weight if it was supported by such evidence.

[65]   Finally, I consider that the estimates for further steps leading up to and including the settlement conference are reasonable, including $7,000 for reviewing submissions in opposition, preparing and attending the hearing of the application for a further indemnity order and $4,500 for preparing for and attending the settlement conference.16

[66]   Mr King has confirmed that previous tasks have been delineated with the  127 Proceedings as he has done for his estimate for the judicial settlement conference. I am not prepared therefore to make other adjustments as proposed on behalf of Rupinder.

[67]   Given the timing of this judgment (less than a week before the judicial settlement conference) I do not consider that it is necessary to await a further invoice before directing that the total amount is paid.

[68]I therefore make an order below that Sarbjit is to be indemnified for a further

$55,000 for her reasonable legal costs up to and including the judicial settlement conference. If matters do not settle, further estimates will need to be provided and directions given in terms of fees going forward.

Costs on this application

[69]   Although counsel for Rupinder emphasises in his recent memorandum that Rupinder did not oppose an increase in costs to $50,000 and that there was no need for Sarbjit to bring the application, his memorandum concludes by confirming

16     $4,500 is calculated by dividing $9,000 in half to reflect that the settlement conference will also address the 127 Proceedings.

Rupinder is only prepared to pay $14,115.63 of the $43,437.20 invoiced and $8,020 of the $11,500 further estimated fees.

[70]   I consider that Sarbjit had no option but to make this application to clarify the position. Sarbjit has been successful and so is entitled to costs on the application. Rupinder opposed the application and so ought to pay those costs, rather than RSK.

[71]   I do not consider that such an order can only be made if Sarbjit’s application in made in a separate proceeding. It appears that Sarbjit’s original application seeking leave to intervene was made by way of a separate originating application but the judgment granting leave was issued in the 88 Proceedings. I do not consider that technicalities ought to prevent the just award of costs.

[72]   Although the hourly rate charged was slightly confusing, it did not change the amount charged and Rupinder opposed indemnification on a number of other bases. One option would be to calculate the extent of the fees that relate to this application and direct that Rupinder pay those fees rather than RSK.

[73]   In the circumstances, however, I consider the pragmatic approach is for the costs of this application to be paid by Rupinder on a 2B basis leaving RSK to pay

$55,000 less the 2B costs. This avoids the difficulty of working out which fees relate to this application. 2B costs are as set out below with the allowance for the preparation of the bundle halved because the bundle related to the application for interim farm management orders as well.

2B Costs on application for RSK to further indemnify
Schedule 3	Allocated day	Daily rate	Total
Item 22	0.6	$2390
Item 24	1.5	$2390
Item 28	0.3	$2390

Item 26	0.5	$2390	$7,528.50
Item 27	0.25	$2390
Total	3.15	$2390

Result

[74]   Sarbjit’s application for her further reasonable costs up to and including the judicial settlement conference to be indemnified is granted.

[75]   RSK is to pay $55,000 less 2B costs on the application of $7,528.50 for a total of$47,471.50.

[76]Rupinder is to pay 2B costs of $7,528.50.

Associate Judge Sussock