Stanley v McDonald

[2012] NZHC 2198

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-005898 [2012] NZHC 2198

BETWEEN  LN & M J STANLEY Applicants

ANDD P MCDONALD First Respondent

ANDMCDONALD TEXTURES PROPERTIES LIMITED

Second Respondent

ANDL MCDONALD Third Respondent

Hearing:         On the papers

Counsel:         DJ Powell for Applicants

RK Potter for Second and Third Respondents

Judgment:      29 August 2012

JUDGMENT OF RODNEY HANSEN J As to costs

This judgment was delivered by me on 29 August 2012 at 2.00 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Grimshaw & Co, P O Box 6646, Auckland 1141 for Applicants

Martelli McKegg, P O Box 5745, Auckland 1141 for 2nd and 3rd Respondents

LN & M J STANLEY V D P MCDONALD HC AK CIV-2011-404-005898 [29 August 2012]

[1]      In my judgment of 30 March 2012[1]  I made an order under s 348 of the

Property Law Act 2007 (the Act) transferring to the first respondent (Mr McDonald)

49 shares in the second respondent that he had earlier transferred to his wife, the third  respondent  (Mrs  McDonald).    The  transfer  to  Mr  McDonald  was  for  the purpose only of enabling the carrying out of any execution or similar process against him or the administration of a future bankruptcy of him or arrangement with his creditors.

[1] Stanley v McDonald HC Auckland CIV-2011-404-005898, 30 March 2012. [2012] NZHC 597

[2]      The applicants had made a successful claim before the Weathertight Homes Tribunal against Mr McDonald.   They had been awarded $332,897.   They unsuccessfully appealed to this Court.  Before the appeal was determined and while bankruptcy proceedings against him were outstanding, Mr McDonald sold the shares to his wife and used the proceeds to pay other creditors.  I found the disposition had been made with intent to prejudice the applicants and at an undervalue.  I also found that Mrs McDonald could not rely on s 349(1) of the Act to avoid an order.  She was unable to prove that the shares had been acquired in good faith without knowledge of the fact that they had been the subject of a disposition which would prejudice the applicants.

[3]      The applicants seek costs on a category 2 band B basis totalling $12,408 and disbursements of $6,911.90. They ask that the costs be awarded jointly and severally against all respondents.

[4]      Counsel for the second and third respondents (the first respondent did not oppose the application) does not challenge the award of scale costs or the amounts claimed.  However, he submits that I should exercise my discretion under r 14.7 of the High Court Rules to refuse to make an order for costs or to make a reduced award of costs. The stated reasons are as follows:

(a)       The applicants are not creditors of Mrs McDonald.

(b)      Mrs McDonald did not act dishonestly or with an improper motive.

(c)      Mrs McDonald obtained a valuation of the shares and purchased them for the price set out in the valuation.  She acted reasonably and was entitled to oppose the application to revest the shares in order that the value of the shares might be properly examined by the Court.

(d)The  applicants  were  only  successful  in  the  proceeding  due  to  a “technical deficiency” in the valuation of the shares.  The valuation was not so deficient that it was unreasonable for Mrs McDonald to rely upon it.  She did not know that the shares were being sold at an undervalue.

(e)      Mrs McDonald has been left with substantial debts and without the equivalent assets.   The purchase price of the shares $54,130.30, far exceeds the amount of costs sought by the applicants.

[5]      None of the grounds relied on come within subparagraphs (a) – (f) of r 14.7. I infer that the respondents rely on subparagraph (g) which provides:

14.7     Refusal of, or reduction in, costs

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if -

...

(g)       some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

[6]      I do not find the arguments advanced by the respondents provide any basis for refusing or reducing costs.  The fact that the applicants are not creditors of Mrs McDonald  is  irrelevant.    The  proceeding  was  properly  and  necessarily  brought against her because she was the recipient of the shares.  While I accepted[2]  that she did not act dishonestly or with an improper motive, I went on to say that she did not act in good faith and must have known that the transaction would prejudice the

applicants.   I had said earlier that she must have known that the proceeds of sale would be used to pay some creditors in full while the largest by far (the applicants) would receive nothing at all.

[2] At [34].

[7]      I also accepted that Mrs McDonald did not know the shares were being sold at an undervalue.  She relied on an accountant’s valuation which she had no reason to think was deficient.  It was in fact fundamentally flawed, not simply technically deficient, but she was not to know that.  The important point is, however, that even a

sale at full value would not have saved the disposition. As I said in the judgment: [3]

The  sale  was  at  an  undervalue  but,  more  importantly and  relevantly  in considering Mrs McDonald’s position, it was made as part of a scheme which would undoubtedly hinder, delay or defeat the applicants.

[3] At [35].

[8]      It is the case that Mrs McDonald has been left with substantial debts without the corresponding assets.    I said  in  the judgment  that  is  regrettable[4]   but  is  the inevitable consequence of a scheme by which she, in effect, accepted an assignment of her husband’s debts at the same time as she acquired the shares.  It is not a basis for her to avoid an order for costs.

[4] At [39].

[9]      The applicants, having succeeded in the application, are entitled to an order against all respondents.  I make an order that the respondents jointly and severally pay the applicants’ costs on a category 2 band B basis, comprising scale costs of

$12,408 and disbursements of $6,911.90.