STEPHEN MARR MANAGEMENT LIMITED AND BOUTIQUE HAIR & BEAUTY LIMITED (In Receivership & In Liquidation)

[2018] NZHC 660

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000835

[2018] NZHC 660

UNDER

the Companies Act 1993

IN THE MATTER

of the liquidation of BOUTIQUE HAIR & BEAUTY LIMITED (In Receivership & In Liquidation)

BETWEEN

STEPHEN MARR MANAGEMENT LIMITED

Plaintiff

AND

BOUTIQUE HAIR & BEAUTY LIMITED

(In Receivership & In Liquidation) Defendant

CIV-2017-409-000880

UNDER

Section 284(1)(g) of the Companies Act 1993

IN THE MATTER

of an application for a declaration as to the validity of appointment of liquidators by

LYNDA JANE SMART and GEOFFREY

SEBASTIAN ERIC BROWN as liquidators of Boutique Hair & Beauty Limited (In Rec & In Liq)

Applicants

Hearing:

12 April 2018 (Determined on the papers)

Counsel:

D Hoskin for Stephen Marr Management Ltd

S D Munro and A L Davidson for Ms Smart and Mr Brown, Liquidators of Boutique Hair & Beauty Ltd (In Rec & In Liq) A S Botterill for Hansa Ltd (In Liq), Mr Grant and Mr Khov

Judgment:

12 April 2018

STEPHEN MARR MANAGEMENT LIMITED v BOUTIQUE HAIR & BEAUTY LIMITED (In Receivership

& In Liquidation) [2018] NZHC 660 [12 April 2018]

COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]    On 7 March 2018 the Court issued a judgment on these proceedings, which both concern Boutique Hair & Beauty Limited (In Receivership & In Liquidation) (BHBL). On proceeding CIV-2017-409-880 the Court made an order confirming the validity of the appointment of Geoffrey Brown and Lynda Smart as liquidators of BHBL. The Court dismissed an application by Stephen Marr Management Limited (SMML) on proceeding CIV-2017-409-835 seeking an order terminating the voluntary liquidation of BHBL, effected by the appointment of Mr Brown and Ms Smart as liquidators.

[2]    Mr Brown and Ms Smart succeeded on their application (880) over the opposition of Hansa Limited (In Liquidation) (Hansa) and its liquidators, Damien Grant and Steven Khov, and succeeded in their opposition to the application by SMML on proceeding 835. In the judgment of 7 March the Court reserved costs, ordering however that costs would follow the event. Mr Brown and Ms Smart therefore seek costs on both applications, on a 2B basis with an uplift of 50 per cent in each case. They also seek orders that costs awarded in their favour are paid by the liquidators of Hansa personally, an order that costs be awarded jointly and severally against the unsuccessful parties, and an award of costs for second counsel.

Uplift of costs – 880 proceeding

[3]    The reasons for the arguments advanced for Hansa, Mr Grant and Mr Khov in opposition to this application are fully set out in the substantive judgment.1 In particular the argument based on breach of the freezing order lacked merit. Had the terms of the freezing order and the structure of the companies, which is fully described in the judgment, been reviewed by counsel, and the decision in JSC BTA Bank v Ablyazov2 been carefully analysed it should have been apparent that no breach of the freezing order had occurred. Further, as noted in the judgment, there was no evidence

1      Stephen Marr Management Limited v Boutique Hair & Beauty Limited (In Receivership & In Liquidation) [2018] NZHC 341.

2      JSC BTA Bank v Ablyazov [2015] UKSC 64.

to support the proposition that the value of shares in Cameron Gladstone Commercial Limited (CGCL) would be diminished by the liquidation of BHBL, yet this was a contention advanced by counsel.3

[4]    In the judgment I also noted  that  arguments  presented  in  opposition  to  Mr Brown and Ms Smart seemed to be based on the premise that if their appointment was made in breach of the freezing order this would necessarily render the appointment invalid. Although this argument was not dealt with in the judgment, no argument was presented to support this proposition and, as also noted, the consequence of breach of an injunction is a proceeding for contempt of court. Even if it had been established therefore that the freezing order had been breached there were significant difficulties standing in the way of an order being made setting aside the appointment of Mr Brown and Ms Smart.

[5]    By reference to r 14.6(3)(b)(ii) I find that Hansa has pursued an argument lacking merit and that grounds are made out for an order of increased costs. Scale costs are calculated to represent an average of two-thirds of actual fees so an uplift of 50 per cent as sought by Mr Munro would in theory result in an award of costs equating the likely actual cost incurred. I do not think this is warranted. I assess that an uplift of 25 per cent on scale 2B costs is warranted.

Uplift of costs – 835 proceeding

[6]    The arguments presented on this application are discussed in detail in the substantive judgment. In my opinion the argument in relation to appointment of liquidators by exercise of the power of attorney entirely lacked merit. Analysis of the relevant sections of the Companies Act was a straight-forward exercise that should have been undertaken in advance, and that analysis is also discussed in detail in the binding authority of Clark v Libra Developments Ltd referred to in the judgment.4

[7]    Further, in the substantive judgment the Court observed that it was unclear what was intended to be achieved by this application in any practical sense, and

3 At [31].

4      Clark v Libra Developments Ltd [2007] NZLR 709 at [21].

counsel was unable to give the Court any reason why the application was necessary. That remains the position. The most it could achieve would have been to set aside the appointment of Mr Brown and Ms Smart, which would have left BHBL out of liquidation from the time that order was made until such time as the application for appointment of liquidators by SMML, under the control of its liquidators, was heard by the Court. On the facts of this case it is almost inevitable that liquidators would have been appointed. The application could only have achieved a brief hiatus in the liquidation, and it is difficult to see why SMML thought that was a desirable position.

[8]    Again, detailed analysis of the effect of the freezing order would have clearly demonstrated that the misgivings expressed by Stephen Irvine in his affidavit about the appointment process were unfounded. Mr Irvine went on to express the view that Mr Brown and Ms Smart were “not suitable liquidators”. There was no substance in the concerns expressed. Mr Irvine said that SMML would prefer the appointment of other liquidators. In the end I conclude that this was in all likelihood the driving reason behind this application, and had complete analysis of the factual and legal position been undertaken before the application was brought, or at the very latest when the evidence of Mr Brown was filed and served, it should have been abundantly clear that this application had very little chance of success.

[9]    Again, I find that grounds are made out for an uplift in costs. In this case I assess the uplift at 50 per cent, as there was no sound basis to bring it, or to pursue it once the evidence of Mr Brown was to hand, nor does it appear that any consideration had been given to whether the Court would make an order setting aside the liquidation even if there had been a breach of the freezing order, as I have noted above.

Incidence of costs on proceeding 880

[10]   The originating application filed by Mr Brown and Ms Smart did not cite any respondents. It was, however, directed to Hansa and to Mr Grant and Mr Khov, its liquidators. The notice of opposition filed on this proceeding is in the name of the first respondent Hansa, only, though Mr Botterill also cited Mr Grant and Mr Khov on the heading of the document as second respondents. Why this was done is unclear. Subsequent documents filed by Mr Botterill also refer to Hansa and Mr Grant and

Mr Khov. It seems, however, that despite this Mr Grant and Mr Khov are not parties to this proceeding. Correctly, in my view, Mr Munro approached the question of their liability, if any, for costs being assessed on the basis of their being non-parties.

[11]   Exceptional circumstances are required to warrant a costs order against a non- party.5 In Mana Property Trustees Ltd v James Developments Ltd Blanchard J noted that the actions of liquidators could only be unreasonable or improper if it could be shown that the action or defence they were conducting was not being conducted bona fide in the sense of being reasonably arguable.

[12]   In support of a submission that the actions of the liquidators of Hansa fit within this description Mr Munro referred to various findings in the judgment, and noted also that Hansa is not a creditor of BHBL, nor does it have any direct interest in that company. I agree with his conclusion that the opposition to the application by Hansa was unmeritorious. It is difficult to see how a successful opposition to the application could have assisted the creditors of Hansa if successful. I have already referred to the lack of analysis in relation to the submission that the freezing order was breached, and the fact that no argument was presented to the effect that even if the freezing order were breached, that should necessarily have resulted in the appointment of the liquidators being set aside. Further, at the time the liquidators of Hansa decided to oppose the application by Mr Brown and Ms Smart it was all but inevitable that BHBL would be placed in liquidation on the application of SMML, relatively shortly after they were appointed, because it was manifestly insolvent and already in receivership.

[13]   Mr Botterill argued that if costs were awarded against Hansa only this would be a cost in its liquidation which would rank ahead of and be paid out prior to other creditors in the liquidation. Even if that is so (and he did not elaborate on the argument) there is no certainty that  the  costs  would  be  paid  from  that  source. Mr Botterill did not challenge the argument by Mr Munro that the conduct of the liquidators in opposing the application through Hansa was not bona fide in the sense of being reasonably arguable.

5      Mana Property Trustees Ltd v James Developments Ltd [2010] NZSC 124.

[14]   Although I proceed with caution in considering an application that liquidators of one company should be personally responsible for the costs of an action they brought in the name of the company in liquidation, I am satisfied that this is an exceptional case. It manifestly lacked merit and could achieve nothing of any practical value for Hansa, even if successful. I see no reason why its creditors should, in effect, bear the costs of this application.

[15]   For these reasons the award of costs on proceeding 880 is made jointly and severally against Damien Grant and Steven Khov.

Incidence of costs against unsuccessful parties

[16]   Mr Munro submits that as the two proceedings were heard together, some costs which were incurred were in relation to both proceedings and could be attributed equally to them. He describes these as the cross-over costs. They involve filing and service of a memorandum, appearing at a mentions hearing, preparation of written submissions and a bundle  for  the  hearing  and  appearing  at  the  hearing  itself.  Mr Munro asks that the costs orders be made on the basis that the opposing parties are jointly and severally liable for the cross-over costs.

[17]   I do not agree that this should occur, because it would enable Mr Brown and Ms Smart to seek to recover all costs awarded in their favour from one of the liable parties, which would not be appropriate.

[18]   I was not given a detailed breakdown of how the costs might be apportioned in order to reflect the exact amount of time spent in relation to each proceeding, I do not think it would be reasonable to expect this information to be available, nor is a precise calculation necessary. I agree that a just outcome is to direct that the cross-over costs will be paid in equal shares, one-half by Mr Grant and Mr Khov, and one-half by SMML.

Second counsel

[19]   Mr Munro seeks costs for second counsel. I have no doubt that Ms Davidson assisted materially in the preparation of the case, but she did not present argument in

court and I am not satisfied that this is a case where the costs of second counsel should be awarded.

Issues relating to specific claims for costs

[20]   Mr Brown and Ms Smart claim costs on filing the originating application and supporting affidavits on proceeding 880 (item 37 in the costs schedule). Mr Botterill says that his client should not be required to pay this as its involvement in the proceeding only commenced after the application was filed and served, and therefore the sum claimed is not a cost which results from their opposition. There is no merit in this submission. An unsuccessful party is liable for the costs of the commencement of the proceeding so item 37 will be included in the costs awarded.

[21]   I approve the items and  time  allocations  for  which  costs  are  sought  by Mr Brown and Ms Smart.

Outcome

[22]Costs will be paid as follows:

(a)On proceeding 880, by Damien Grant and Steven Khov, costs on a 2B basis plus an uplift of 25 per cent, excepting costs in relation to the cross- over attendances.

(b)On proceeding 835, by Stephen Marr Management Ltd, costs on a 2B basis plus an uplift of 50 per cent, excepting costs on the cross-over attendances.

(c)On the cross-over attendances, one half of the costs on a 2B basis, plus an uplift of 25 per cent, will be paid by Mr Grant and Mr Khov, and one half of these costs plus an uplift of 50 per cent will be paid by Stephen Marr Management Ltd.

(d)There will be no costs for second counsel.

J G Matthews Associate Judge

Solicitors:

Steindle Williams Legal, Auckland Agent: Young Hunter, Christchurch Anderson Lloyd, Christchurch

Waterstone Insolvency, Auckland