Valmar Trustee Ltd v Smart Water Technology

[2016] NZHC 1583

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001269 [2016] NZHC 1583

BETWEEN

VALMAR TRUSTEE LIMITED

First Applicant

EMBAY TRUSTEE LIMITED Second Applicant

AND

SMART WATER TECHNOLOGY LIMITED

First Respondent

CHRISTOPHER STEPHEN HARRIS Second Respondent

TIMOTHY JAMES STONE Third Respondent

On the papers
Judgment:	13 July 2016

COSTS JUDGMENT OF HINTON J

This judgment was delivered by me on 13 July 2016 at 9.00 am pursuant to Rule 11.5 of the High Court Rules

……………………………………………………………………

Registrar/Deputy Registrar

Counsel/Solicitors:

K F Gould, Barrister, Auckland

B Upton and D J Tillett, Simpson Grierson, Auckland

VALMAR TRUSTEE LIMITED v SMART WATER TECHNOLOGY LIMITED [2016] NZHC 1583 [13 July 2016]

[1]      This is an application for costs following an unsuccessful application to have a liquidator appointed to Smart Water Technology Ltd (Smart Water) on the grounds of oppression under s 174 of the Companies Act 1993.

[2]      The applicants accept that the respondents are entitled to 2B scale costs.  The nub of this decision is whether the Court should make an order increasing scale costs under r 14.6 of the High Court Rules, which relevantly provides:

(3)     The court may order a party to pay increased costs if— ….

(b)   the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)   failing to comply with these rules or with a direction of the court; or

(ii)   taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)  failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)   failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

….

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(Emphasis added)

Submissions

[3]      The respondents seek a 50 per cent increase on scale costs, on the basis that the applicants have contributed unnecessarily to the time and expense of the proceedings (or steps required in it) or alternatively, that the matter proceeded as if it were a trial, rather than an originating application.

[4]      Alternatively, the respondents seek a band C allocation in relation to certain steps.  I decline at the outset to award band C costs on any steps, as I do not consider

there was increased complexity in respect of them, nor do the respondents strongly contend there was.

[5]      2B scale costs are calculated by the respondents at $19,178.  In respect of this calculation, the respondents highlight that:

(a)      the matter was called a number of times due to issues being raised by the applicants (for which costs are included) and;

(b)they have included costs for opposition to an interlocutory application filed by the applicants, challenging Mr Harris’ second affidavit, which was settled by agreement but costs were reserved.

[6]      The respondents say that the unnecessary time and expense of the proceeding results from the applicants:

(a)       pursuing arguments that lacked merit;

(b)raising intellectual property issues in evidence as being a ground for oppression (but ultimately accepting that these issues fell outside the scope of the proceedings);

(c)      failing to comply with court directions (for example, late filing of evidence) and taking steps in the proceedings (such as seeking adjournments) which ultimately created unnecessary expense; and

(d)      failing to accept a pre-action offer.

[7]      The applicants accept the scale calculation, but oppose any increased costs award.   They say that the respondents brought the proceedings on themselves by failing to comply with the requirements of the Companies Act and that, “had the financial statements been audited, then it is unlikely that the proceedings would have issued”.   Furthermore, they say that the applicants’ position was vindicated by an audit report.

[8]      The  respondents  in  reply  say  that  the  applicants  continued  with  the proceeding, even after having had most of their complaints addressed, and they could have awaited the result of the audit prior to issuing proceedings.  Further, the audit report was not enough to liquidate the company, as illustrated by the judgment.

Should the Court make an order increasing costs?

A 50 per cent uplift based on unnecessary time or expense?

[9]      I agree with the respondents’ submission that the allegations raised by the applicants were exhaustive and that, to a significant degree, they had been remedied or materially addressed either before or during the proceedings.  However, I did not consider the applicants’ case overall to be devoid of merit.

[10]     Turning to the respondents’ second point, it was agreed at the hearing that the issue  as  to  ownership  of  intellectual  property  was  outside  the  scope  of  the proceedings and it was therefore put to one side.   The respondents say this issue nevertheless had to be unnecessarily addressed in reply evidence.  As a result, time was wasted.  Further, it was inflammatory.

[11]     I have some sympathy with this point.  I agree that the issue was not relevant to the proceeding and it was inflammatory.   However, I do not consider this is a sufficiently material factor to justify increasing costs on its own.  It did not seem to occupy much of the written evidence and the respondents would have known it was not relevant, albeit, I accept, having to put an answer on record.

[12]     As to the third point, it is correct that the applicants failed to comply with timetabling directions and unsuccessfully sought adjournments, but the respondents are entitled to costs in accordance with scale for the consequential attendances.  I do not consider the circumstances warrant an uplift.   I accept Mr Gould’s submission that  the  requests  for  adjournment  were  not  unreasonable1   and  that  it  was  not

unreasonable to raise timing issues with Venning J.

1      For example, the length of the reply evidence filed by the respondents; and the unavailability of

Mr Fletcher as a witness.

[13]     I now turn to the respondents’ final submission in this connection, namely

that the applicants failed to accept a pre-action offer. The letter relied upon states:

There appears to be agreement in principle that our respective clients want to exit the current shareholder relationship in the Company.  If your clients are genuine in wanting to explore the possibility of a negotiated exit, then we need to focus on the best way to proceed.

Our clients propose that an independent valuation of the Company be carried out.

… We suggest that a valuation protocol should be agreed that allows each of the shareholders in the Company to set out their positions to the valuer to enable the valuer to consider all issues and work on the basis of a complete set of various assumptions.

Please confirm your clients’ instructions.  We would be happy to discuss this

further.

[14]     The applicants did not respond.   The applicants submit that it would have been a “pointless exercise” to have the shares in Smart Water valued without independent verification by way of an audit of the financial statements.   Balanced against this concern, of course, is that what the applicants were seeking was a “remedy of last resort”.   They should have sought and exhausted other forms of relief, such as a buy-out. They did not.

[15]     However, in circumstances where the respondents were clearly in breach of a number of statutory obligations and the applicants were suspicious as to the state of the accounts, I am not prepared to allow increased costs on the basis of failure to accept the respondents’ offer to instigate a buy-out process.  I note also that the letter does not clearly fall into the category of “an offer to settle or dispose of a proceeding”.

[16]     I  therefore  do  not  consider  increased  costs  should  be  awarded  under r 14.6(3)(b) for incurring of unnecessary time and expense.

Should the proceeding be treated as though it were a trial?

[17]     The respondents say they should receive increased costs on the basis that the time allocations here were more consistent with trial preparation and appearance than with an originating application.

[18]     The respondents rely on r 14.6(3)(d).  They have not provided any precedent for this submission and I have been unable to locate any.

[19]     In  any  event,  I  do  not  agree  with  the  respondents’ submission  that  this proceeding, despite having commenced as an originating application, should be treated as if it were a trial for purposes of determining costs.

[20]     First, as I understand it, this proceeding commenced by way of originating application by consent between the parties, not as a matter of requirement in terms of the rules.

[21]     Secondly, although witnesses were called, followed by cross-examination and closing addresses, the general thrust of the proceeding was still conducted in a manner consistent with an originating application proceeding (for example, there were no interlocutory steps such as discovery, nor briefs of evidence, nor common bundles).

Conclusion

[22]     For the reasons given, I decline to award increased costs.

[23]     The applicants are liable to pay the respondents costs in the sum of $19,178, together with disbursements of $220.

[24]     The applicants’ liability to pay costs is joint and several.

------------------------------------------------------ Hinton  J