Tempest Litigation Funders Limited v Davies

[2020] NZHC 1790

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-419-000200

[2020] NZHC 1790

UNDER

the Companies Act 1993

IN THE MATTER OF

the liquidation of RAHMAN INVESTMENTS LIMITED (IN LIQUIDATION)

BETWEEN

TEMPEST LITIGATION FUNDERS LIMITED

Plaintiff

AND

KEVIN J DAVIES

Respondent

Counsel:	W van Roosmalen-Werie for Applicant P L Rice for Respondent
Judgment:	23 July 2020
Reissued:	11 August 2020

COSTS JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 23 July 2020 at 4.00 pm

pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

TEMPEST LITIGATION FUNDERS LTD v DAVIES [2020] NZHC 1790 [23 July 2020]

Introduction

[1]    In my judgment of 24 April 2020, I dismissed the application by Tempest Litigation Funders Ltd (Tempest) for orders under ss 284 and 286 of the Companies Act 1993 (the Act).1

[2]    The respondent, Mr Davies, now seeks indemnity costs of $47,057.60. Mr Davies claims that Tempest made unsupported allegations of fraud against him; the claims were wholly without merit; and that the proceedings were commenced and continued for an ulterior motive.

[3]    Tempest contends that costs should be awarded on a 2B basis plus an uplift of around 30 – 40 per cent.

[4]The following is my decision on costs.

Relevant legal principles

[5]Rule 14.6(4) of the High Court Rules reads:

The court may order a party to pay indemnity costs if –

(a)The party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding …

[6]    Indemnity costs may be awarded where the paying parties behave badly or very unreasonably. The misconduct must be “flagrant”, as stated in Bradbury.2 Unfounded or irrelevant allegations of fraud or deceit will usually support a claim for indemnity costs.3

Analysis and decision

[7]    In the substantive proceeding, Tempest sought orders removing Mr Davies as liquidator, disentitling him to his remuneration and prohibiting him from acting as a liquidator or receiver of a company indefinitely. Tempest alleged that Mr Davies:

1      Tempest Litigation Funders Ltd v Davies [2020] NZHC 809.

2      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [28]; see also Saunders v Winton Stockfeed Ltd [2009] 19 PRNZ 342 (CA) at [28] & [30].

3      Hedley v Kiwi Co-operative Dairies Ltd (Costs) [2002] 16 PRNZ 694 (CA) at [11].

(a)Failed to act in good faith and impartially;4

(b)Solicited proxies and dishonestly claimed to have proxies that he did not have;5

(c)Changed a postal vote to be in his favour after the deadline had passed for votes to be accepted;6

(d)Solicited a creditor to change its vote to replace him to a vote confirming his appointment;7

(e)Failed to disclose that he would indirectly benefit from the commission payable to his daughter’s real estate company.8

[8]    However, as I concluded in my substantive judgment, there was no evidence of bad faith or impartiality.9 I held that Mr Davies had acted with considerable restraint and patience, and tried to treat the participants at the creditors’ meeting in an even- handed and fair manner.10 I also found there was no evidence that he had failed to pursue legitimate lines of enquiry to locate other assets.11

[9]    In his affidavit in support of the applications, Mr Grant, on behalf of Tempest, made several assertions and insinuations as to Mr Davies’ dishonesty. These included:

(a)“Dishonestly declaring to have proxies”;12

(b)“An enquiry into the matter should follow to ensure there is no fraudulent or dishonest behaviour”;13

(c)“At this point, it became clear that Mr Davies could not be trusted”;14

4      Originating application, para 2(f)(ii).

5      Paragraph 2(f)(v).

6      Paragraph 2(g)(vii).

7      Paragraph 2(g)(viii).

8      Paragraph 2(g)(ix).

9      Tempest Litigation Funders Ltd v Davies, above n 1, at [45].

10     At [38] and [39].

11 At [40].

12     Heading to para 3.15 in Mr Grant’s affidavit (dated 5 July 2019).

13     Paragraph 3.14.

14     Paragraph 3.17.

(d)“It was apparent to me that Mr Davies’ behaviour was outside the standards of behaviour expected of an insolvency practitioner”;15

(e)“Rightful concerns that Mr Davies was not a fit and proper person to be carrying out the litigation”;16

(f)“It seems that Mr Davies is … not being transparent or acting in good faith”;17

(g)“Mr Davies has complete disregard to his statutory obligations as a liquidator and as an officer of the court”;18

(h)“… the wishes of the creditors were deliberately and frequently thwarted by the actions of Mr Davies”.19

[10]   I accept the submission of Tempest that it did not pursue the allegations of fraud at the hearing. However, as I concluded in my judgment, the unsubstantiated allegations of dishonesty should not have been made in the first place. Furthermore, it was not made clear to Mr Davies until the date of the hearing that the fraud allegations would not be pursued.

[11]   I find that the respondent has established a proper basis for an award of indemnity costs. Tempest acted unreasonably in pursuing unmeritorious claims. In particular, the claim that Mr Davies should be prohibited from acting as a liquidator or receiver of any company indefinitely was wholly unmeritorious and should never have been brought.

[12]   While there may have been some irregularities at the creditors’ meeting, Tempest’s evidence fell well short of demonstrating conduct that might justify the Court’s intervention. In any event, there was no utility in granting leave under s 284 of the Act, as Rahman Investments Ltd was hopelessly insolvent.

15     Paragraph 4.1.

16     Paragraph 4.2.

17     Paragraph 4.10.

18     Paragraph 6.10.

19     Paragraph 7.1.

[13]   Furthermore, as Mr Rice submitted, the application for orders under s 286 was equally misguided. The applicant, Tempest, had not served the requisite notice five working days beforehand, and the severity of the orders sought (including prohibition for an indefinite period) had no prospect of success.

[14]   As to the quantum of indemnity costs, I am of the view that Tempest should pay 80 per cent of the total sum claimed, namely, $37,646.08. Some allowance should be made for the fact that the fraud allegations were not ultimately pursued, and while clearly misguided, Tempest’s motives were not solely  based  on  animus  towards Mr Davies.

Result

[15]   I order that the applicant, Tempest Litigation Funders, is to pay costs to the respondent, Mr Davies, in the sum of $37,646.08.

Associate Judge P J Andrew