Singh v Buttar

[2023] NZHC 1401

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV 2021-470-26

[2023] NZHC 1401

UNDER

section 165 of the Companies Act 1993

BETWEEN

JASWINDER SINGH

Applicant

AND

DALJEET SINGH BUTTAR

First Respondent

KIWI JOINT LIMITED

Second Respondent

Hearing:	On the papers
Judgment:	7 June 2023

COSTS JUDGMENT OF DUFFY J

This judgment was delivered by me on 7 June 2023 at 11 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors:

Holland Beckett, Tauranga

Vallant Hooker & Partners, Tauranga

SINGH v BUTTAR [2023] NZHC 1401 [7 June 2023]

[1]    On 21 February 2023 I delivered judgment granting Mr Singh’s application to take a derivative action in the name of Kiwi Joint Ltd (Kiwi Joint) pursuant to s 165 of the Companies Act 1993.1  Mr Singh now seeks costs on a 2B basis uplifted by   50 per cent plus disbursements. Mr Buttar opposes an uplift and challenges certain items claimed by Mr Singh.

Scale costs

[2]    The parties are agreed that as regards scale costs 2B costs are appropriate. However, certain items are contested by Mr Buttar.

[3]    First, Mr Buttar submits that there was only one case management conference relevant to the substantive proceeding on 20 September 2021. He says that a telephone conference on 4 May 2021 related to charging and freezing order applications (the interim relief applications) which were ultimately withdrawn.  Mr Singh argues the  4 May 2021 case management conference does in fact relate to the derivative action proceeding as evidenced by van Bohemen J’s minute of 5 May 2021.

[4]    Mr Singh has included an allowance for second counsel. Mr Buttar submits that costs for second counsel are not justified. He contends the matter was not complex. Further, second counsel did not take an active part in the hearing.

[5]    Mr Singh disagrees, stating that whilst the hearing was short there was extensive documentation. He maintains that second counsel was active during the hearing, providing assistance to senior counsel and making oral submissions in reply, similar to Beverley v Drylandcarbon GP One Ltd.2

Finding

[6]    The timeline of the interim relief applications is recorded in the judgment I delivered on the s 165 application.3 The timeline shows they were set down for hearing on 22 June 2021. On 18 June 2021 Mr Buttar agreed not to dispose of the assets

1      Singh v Buttar [2023] NZHC 243.

2      Beverley v Drylandcarbon GP One Ltd [2023] NZHC 586 at [21]–[23].

3      Singh v Buttar, above n 1, at [5].

involved in those applications and to provide requested information to Mr Singh. Accordingly, any questions regarding costs relating to the interim relief applications should have been addressed as part of the agreement the parties made to dispose of those applications.

[7]    I have read Van Bohemen J’s minute of 5 May 2021. It covers the s 165 application and the interim relief applications. The latter applications were dependent on the s 165 application. The minute reveals that Mr Buttar was late in filing affidavits to support his opposition to both sets of applications. The minute imposes time limits on Mr Buttar. I am satisfied the minute addresses issues relevant to both the s 165 application and the interim relief applications. Accordingly, I consider it appropriate that the fee for the 5 May 2021 conference be apportioned equally between the s 165 application on one hand and the interim relief applications on the other. It follows that the fees of $956 filing memorandum and $717 appearance at conference for this conference should be reduced to a total of $836.5 (being $478 for filing memoranda and $385.5 for appearance). This reduces the total of scale costs to $16,252.4

[8]    I am satisfied Mr Singh is entitled to claim costs for a second counsel. I accept Mr Singh’s submissions regarding the extensive documentation and the involvement of second counsel at the hearing.

Costs on costs application

[9]    Mr Singh seeks “costs on costs” for the filing of the present costs memorandum. His counsel submits that where there is a claim for an uplift and accordingly an element of complexity requiring a detailed analysis costs on costs can be appropriate.5

[10]Mr Buttar contends that the costs application is not of requisite complexity.

4      I note there was an error in counsel’s calculations of the total, which should have come to

$17,088.5. Less $836.5 this comes to $16,252.

5      Referring to Little Republic New Zealand Ltd v Kum Fu Stainless Kitchen Equipment Ltd [2021] NZHC 1836 at [31].

Finding

[11]   Associate Judge Sussock noted in Little Republic New Zealand Ltd v Kum Fu Stainless Kitchen Equipment Ltd that costs on a costs memorandum would be available where:6

… some complexity or genuine dispute arises in relation to the availability of costs or their quantum, and the successful party has gone to considerable time and expense addressing that ambiguity over the unsuccessful party’s reasonable opposition.

[12]   However, the Associate Judge did not award costs on costs in that case. The situation was analogous to the present with the successful party claiming indemnity costs and the unsuccessful party accepting that 2B scale costs were appropriate and opposing only indemnity. Instead, the Associate Judge held that while the unsuccessful party ought not to have opposed the award of costs, the successful party had been put to little effort and cost in successfully outlining its position.7

[13]   I do not consider the costs application in this case involved the type of effort and cost that would warrant an award of costs on a costs application. Indeed, some of the time Mr Singh spent on his costs application dealt with the arguments regarding unreasonable refusal to settle, which I have found were made prematurely. Once those arguments are excluded there is little, if anything, about this costs application which makes it remarkable or outside the norm for such an application. As was recognised by Associate Judge Sussock in Little Republic New Zealand Ltd v Kum Foo Stainless Kitchen Equipment Ltd courts are “generally reluctant to award ‘costs on costs’”.8 I agree with the Associate Judge that generally an award of costs on costs is reserved to more atypical cases where the successful party has gone to considerable time and expense addressing that issue when faced with an unsuccessful party’s unreasonable opposition. Here I consider Mr Buttar’s opposition to parts of the cost application was reasonable. The time and expense Mr Singh incurred has in part been largely brought about by a premature attempt to rely on refusal to settle, which anticipates Kiwi Joint will be successful in its claims against Mr Buttar.

6 At [31].

7 At [31].

8 At [31].

[14]It follows that I refuse to award costs on costs. Scale costs accordingly total

$15,057.

Uplift

[15]   Mr Singh makes two arguments for uplifted costs: first, that Mr Buttar pursued an argument that lacked merit and took unnecessary steps; second, that he failed without reasonable justification to accept settlement offers. Mr Singh says that includes an offer to resolve costs on a 2B basis, and accordingly the uplift should also be applied to the “costs on costs” item.

[16]   As to the first argument, Mr Singh submits that Mr Buttar did not deny many of the transactions that are central to the dispute or that he was instrumental in them. Instead his primary defence was to argue that a derivative action would not solve the issue at hand; the “real issue” was the need to finalise Kiwi Joint’s accounts, determine the amount owed by Mr Buttar and the share value and address the breakdown in the directors’ relationship. Mr Buttar argued that a s 174 Companies Act application would be more suitable.

[17]   Mr Singh submits that Mr Buttar’s submissions were “categorically rejected” and were found to be incorrect at law.9 Mr Buttar’s submissions did not explain the breaches of fiduciary and statutory duties (which founded the proposed substantive claim) and provided an unreasonable defence. Additionally, Mr Buttar failed to file expert accountant evidence to support his position and instead personally filed three affidavits. One of those dated 9 June 2021 was in “reply” to the applicant’s reply affidavit, but Mr Buttar did not seek leave before filing it. In total Mr Buttar’s affidavit evidence was over 259 pages but did not, in Mr Singh’s submission, assist the Court. It only lengthened the time required for the applicant to prepare for the hearing.

[18]   Mr Singh submits that where an argument lacks merit increased costs should apply to all steps in the proceeding.10

9      Referring to [44] of the judgment: Singh v Buttar, above n 1.

10 Citing NR v MR [2014] NZCA 623; Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA  434 at [57] and referring to the latter and Ballantyne Trustees Ltd v Papprill Hadfield [2015] NZHC 2651 as examples.

[19]   In response Mr Buttar submits that simply because some of the grounds of opposition were not accepted by the Court that does not mean they were without merit or incorrect at law. The availability of a s 174 remedy arose in a number of other derivative action application cases, even if not accepted in this proceeding. Other grounds of opposition included not accepting Mr Ruby’s evidence. In Mr Ruby’s reply affidavit he concluded that a number of the loans raised in issue had been repaid; this information was provided by Mr Buttar. Further there were legitimate disputes over payments made to Gold Star 2019 and whether Mr Singh approved Mr Buttar’s loan to buy a house. These points were not provided to Mr Ruby and it was not unmeritorious for Mr Buttar to defend the application on this evidence.

[20]   In relation to unnecessary steps Mr Buttar contends that a failure to have his own accounting evidence is not a “step”. Additionally, the 9 June 2021 affidavit was necessary because Mr Singh did not put the “full picture” in evidence regarding some transactions. The affidavit evidence was not excessive; the evidence covered multiple transactions, bank statements and accounts which was simply due to the nature of the proceeding. The Ballantyne Trustees Ltd case  relied  on  can  be  distinguished  in Mr Buttar’s submission because there the applicants failed to bring their own expert evidence despite alleging breaches of duty.11 It involved a very different lack of merit.

[21]   As to the second argument, the facts of the settlement offers are as follows. On 1 June 2021 Mr Buttar’s solicitors made a settlement offer that Mr Buttar would acquire Mr Singh’s and his parents’ shares in return for $60,000 paid in two instalments. The first instalment would be paid after Mr Singh lifted the stop on Kiwi Joint’s bank account. Mr Singh and his parents would retain all payments made by Kiwi Joint to them up to 27 November 2020. Mr Singh would resign as director. Finally, the High Court proceedings would be terminated and the settlement would be full and final in respect of any issues between Mr Singh, his parents, Mr Buttar and the two companies.

[22]   On 15 June 2021 Mr Buttar’s solicitors proposed a resolution “for the application to be heard next week” (that is, the application for charging and freezing

11     Ballantyne Trustees Ltd v Papprill Hadfield, above n 10.

orders). However it also proposed that “the originating application is adjourned on the same basis” being leave reserved to raise any performance or other issue by memorandum. It involved joint instruction of an accountant to complete financial statements and an undertaking by Mr Buttar that no further loans would be made.  Mr Singh made a counter offer on 16 June 2021, the detail of which is not particularly germane. There was further negotiation and a settlement in relation to the application for charging and freezing orders was met on 17 June 2021.

[23]   The settlement offer made by Mr Singh’s solicitors on 22 December 2021 was that Mr Singh would withdraw proceedings if Mr Buttar paid to him $559,167.50 being the money owed to Mr Singh by Kiwi Joint plus half the balance of the cash in the company following repayment of Mr Buttar’s debts to Kiwi Joint. Mr Singh would then cut ties with the company by transferring his shares and assigning his account to Mr Buttar and resigning as director.

[24]   On 13 January 2022, a counteroffer of $130,000 was made by Mr Buttar. That offer was rejected on 27 January 2022.

[25]   The settlement offer made by Mr Singh’s solicitor on 8 February 2022 was on the following terms.   There was to be a payment of $534,720.56 to Mr Singh.      Mr Buttar would retain the plant and equipment listed in Kiwi Joint’s asset schedule. Mr Buttar would transfer his 50 per cent shareholding to Mr Singh and resign as director. Mr Singh’s parents are removed as shareholders of Workaholic. Debt owning from Workaholic to Kiwi Joint is forgiven ($76,792.12). Mr Singh would assume responsibility for Kiwi Joint’s non-current liabilities up to a maximum value of

$124,313 as listed in the 2020 Financial Statements.

[26]   On 24 February 2022 Mr Singh’s solicitors wrote to Mr Buttar’s solicitor offering to resolve costs on a 2B basis, noting that Mr Singh’s instructions were to seek uplifted costs based on the settlement offers but the offer would avoid the cost of preparing submissions. That offer was not accepted.

[27]   Mr Singh submits that he made two offers prior to the hearing to settle the proceedings in their entirety. Mr Buttar advanced two counteroffers, neither of which

reflected the likely damages claimed in the proceeding. Mr Singh submits it was unreasonable for Mr Buttar to reject the settlement offers and the parties will now become involved in complex and protracted litigation.

[28]   In response, Mr Buttar states that the first offer was in fact  made by him on  1 June 2021. No concrete response was given by the applicant.  On 15  June 2021  Mr Buttar sent a letter proposing an agreed process for financial statements and an adjournment of the derivative action proceeding. Financial statements were at the heart of the dispute and the exercise should have resulted in an accurate statement about amounts owed to and from the company. Correspondence in June led to an adjournment of the charging order and freezing application on the basis of production of financial statements. The respondent was instrumental in achieving that resolution. Further, the financial statements were expressly used by forensic accountant Mr Ruby in his reply affidavit.

[29]   Mr Buttar also submits that by the time the 22 December 2021 offer was made both sides had filed their evidence and substantial cost had been incurred by both parties.

[30]   Further, Mr Buttar contends that there is no evidence for Mr Singh to say rejection of the offers was unreasonable. The proposed amount was excessive, and based on incomplete analysis by Mr Ruby. Accepting the offer would amount to accepting that untested analysis. The offer came days before Christmas 2021 with accounting advice not available until the New Year and the hearing in early February 2022. The 8 February 2022 offer was the day before the hearing. The offer was reduced by only $20,000, and the problem of accepted untested financial analysis remained. Other aspects of the second offer were problematic, including that control of the company would pass to the applicant even if other debt and liabilities were waived or assumed.

[31]   In reply Mr Singh states that the respondent refers to settlement discussions regarding the application for freezing and charging orders, which he submits was a separate interlocutory  application.  Settlement  was  achieved  on  17  June  2021. Mr Singh submits these negotiations are not relevant to the application for leave to

bring a derivative action and should not be taken into account for the purposes of the costs proceeding.

Finding

[32]   As to the first ground for an uplift, generally I accept Mr Singh’s arguments for an uplift. In particular, I accept Mr Singh’s argument that Mr Buttar did not deny many of the transactions in particular that prompted the s 165 application or his involvement in those transactions. I agree with Mr Singh that the primary basis for Mr Buttar opposing the s 165 application was that it would not solve the “real issue” which, according to Mr Buttar, was a dispute between shareholders. Accordingly,  Mr Buttar promoted the use of an application under s 174.

[33]   Mr Singh is correct that I dismissed Mr Buttar’s arguments in opposition. Put shortly, whilst it is true the evidence showed Mr Singh as a shareholder was not happy with how Mr Buttar had conducted himself, that unhappiness flowed from the way Mr Buttar had dealt with Kiwi Joint’s funds and assets. The company was best placed to take steps to remedy the alleged injuries it had suffered from Mr Buttar’s alleged breaches of director’s duties.12 Hence the need for the s 165 application. In my view Mr Buttar failed to advance any reasonable or credible grounds for opposing the s 165 application. His arguments were focussed on matters that will be relevant to matters Kiwi Joint raises in any proceedings it may bring against Mr Buttar for alleged breach of directors’ duties, but they were of little relevance here. Particularly, they often involved factual disputes which could not be resolved in the s 165 application hearing, given there was no cross-examination of witnesses, and this application has a lower threshold of proof than is required for establishing a breach of directors’ duties.13

[34]   As to the second ground for an uplift, the impression I gained from Mr Singh’s submissions is that the settlement offers he contends were unreasonably rejected went to settlement of the substantial allegations he wants to bring against Mr Buttar by way of derivative action. Mr Singh’s success in the s 165 application does not necessarily mean that actions he later takes in Kiwi Joint’s name to remedy the alleged breaches

12     I include here the alleged breaches of duties under the Companies Act 1993 and fiduciary duty.

13     See Singh v Buttar, above n 1, at [14].

of directors’ duties will be successful. If such proceedings are brought successfully, then any offers made to settle them, including the offers made prior to the hearing of the s 165 application, will be relevant to whether an award of increased costs is made against Mr Buttar. But for the present, the circumstances Mr Singh relies on to establish an unreasonable refusal to accept settlement offers are raised prematurely. They should properly be advanced in any costs application brought against Mr Buttar following the outcome of any substantive claims Kiwi Joint makes against him, in consequence of the successful s 165 application.

[35]   Accordingly, I am not going to rule on the second ground for increased costs as I find it is brought prematurely. Leave is reserved to Mr Singh/Kiwi Joint to bring this application at the conclusion of  any  proceedings  Kiwi  Joint  brings  against Mr Buttar.

[36]   I acknowledge that for the present the costs incurred in bringing the 165 applications will have been borne by Mr Singh personally, whereas any costs incurred in claims Kiwi Joint pursues against Mr Buttar will be met by Kiwi Joint. However, the successful s 165 application will have enabled Kiwi Joint to pursue claims for breaches of directors’ duties against Mr Buttar. If those claims are brought successfully Kiwi Joint will enjoy the fruits of its success because Mr Singh brought the s 165 application. This may require an accounting between Mr Singh and Kiwi Joint. Accordingly, I consider Kiwi Joint should be able to rely on monies Mr Singh has spent in pursuing the s 165 application as support for an uplift in costs in any subsequent hearing where Kiwi Joint brings successful claims against Mr Buttar.

[37]   In conclusion, I am satisfied that the arguments Mr Buttar raised in opposition to the s 165 application lacked merit and they required Mr Singh to take unnecessary steps in the form of having to actively advance the application of at an opposed hearing. Given Mr Buttar agrees there are disputed factual matters about his conduct towards Kiwi Joint it would have been open to Mr Buttar not to oppose the s 165 application, so that substantive issues could then be determined more readily. Had the s 165 application not been opposed it is likely it could have been dealt with on the papers, thus avoiding the need for a hearing.

[38]   Whatever defences Mr Buttar may seek to raise in any subsequent proceedings, it is clear to me there was little if anything that he could properly raise against allowing the s 165 application. Accordingly, I am satisfied that a 30 percent uplift of scale costs is appropriate. I have fixed the uplift at 30 percent rather than the 50 percent uplift sought by Mr Singh because it leaves room for later consideration of the arguments Mr Singh has advanced now in relation to Mr Buttar’s refusal to accept the settlement offers predating the s 165 application. The 30 percent uplift comes to $4517.1, which makes a total sum of $19,574.1 in costs.

Disbursements

[39]   Mr Singh claims disbursements for Mr Ruby’s fees, the expert forensic accountant. He notes that I found Mr Ruby’s evidence helpful in the proceeding. In response, Mr Buttar  argues  that  timesheets  have  not  been  provided  to  justify Mr Ruby’s fees.

[40]   I am satisfied the fee Mr Ruby has charged for his services is reasonable and one to which he is entitled. I see no need to view timesheets or any other documents recording the hours spent preparing his expert evidence. The quality of his evidence and the help it provided to the Court speaks for itself. The fee of $5,778.75 is well warranted.

[41]   I am also satisfied Mr Singh is entitled to claim for the other disbursements. Accordingly, I order Mr Buttar to pay $6,173.75 in disbursements to Mr Singh.

Result

[42]Mr Singh is awarded costs in the sum of $19,574.10.

[43]Mr Buttar is ordered to pay Mr Singh disbursements in the sum of $6,173.75.

[44]   Should Mr Singh see a need to seal the costs order he is entitled to claim scale costs and any disbursement cost for that exercise. These costs should be included in the order for sealing.

Duffy J