Walker v Henderson
[2018] NZHC 59
•8 February 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2012-409-002486 [2018] NZHC 59
BETWEEN ROBERT BRUCE WALKER First Plaintiff
PROPERTY VENTURES LIMITED (on receivership and liquidation)
FIVE MILE HOLDINGS LIMITED Third Plaintiff
CASHEL VENTURES LIMITED (in liquidation)
Fourth Plaintiff
TAY VENTURES LIMITED (in receivership and in liquidation)
Cont …
Hearing: On the papers Appearances:
J B M Smith QC, N R Williams and K Francis for Plaintiffs
Fourth Defendant in personJudgment:
8 February 2018
JUDGMENT OF LANG J
[on costs as between plaintiffs and fourth defendant]
This judgment was delivered by me on 8 February 2018 at 10.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
WALKER v HENDERSON (A Bankrupt) [2018] NZHC 59 [8 February 2018]
LIVINGSPACE PROPERTIES LIMITED (in receivership and in liquidation)
Sixth Plaintiff
BEECHNEST VENTURES LIMITED (in liquidation)
Seventh Plaintiff
TUAM VENTURES LIMITED
(in receivership and in liquidation) Eighth Plaintiff
CASTLE STRET VENTURES LIMITED (in receivership and in liquidation)
Ninth Plaintiff
LICHFIELD VENTURES LIMITED (in receivership and in liquidation)
Tenth Plaintiff
92 LICHFIELD LIMITED
(in receivership and in liquidation) Eleventh Plaintiff
ST ASAPH VENTURES LIMITED (in liquidation)
Twelfth Plaintiff
MONTECRISTO CONSTRUCTION COMPANY LIMITED
(in liquidation) Thirteenth Plaintiff
ANDDAVID IAN HENDERSON (A Bankrupt) Fourth Defendant
[1] In this proceeding the plaintiffs sought an order under s 383 of the Companies Act 1993 banning Mr Henderson from being a director of any company. They discontinued the claim on 1 November 2017, just over three months before the scheduled commencement of the trial on 12 February 2018.
[2] Mr Henderson now seeks costs against the plaintiffs on a Category 2B basis together with disbursements as fixed by the Registrar. He seeks costs in respect of all steps taken in the proceeding whilst he was represented by counsel.
[3] Mr Henderson maintains that the discontinuance means that he was the successful party in the proceeding. He also contends that the first plaintiff, Mr Walker, has acted inappropriately on numerous occasions whilst undertaking the liquidations of Mr Henderson’s companies. He has annexed numerous documents to his reply memorandum that he says support this claim. He also maintains that the claim could never have been of advantage to any of the companies’ creditors, and that Mr Walker has endeavoured to use it for improper collateral purposes. These include a desire to obtain “leverage” against Mr Henderson in other proceedings in which he and Mr Walker are involved.
[4] The plaintiffs oppose any award of costs being made. They contend they acted reasonably in bringing the proceeding, and that they had a strong claim against
Mr Henderson. They also contend they acted reasonably in discontinuing the claim when they did.
Relevant principles
[5] There is no dispute regarding the principles that apply in the present context. Although costs are at the discretion of the Court, there is a presumption that a plaintiff who discontinues a proceeding will pay costs to the defendant.1 It is also clear, however, that the presumption may be displaced in circumstances where it is just and equitable that the defendant should not receive an award of costs.2 As counsel for the
plaintiffs points out, the authorities demonstrate that, although the Court is not limited
1 High Court Rules, r 15.23.
2 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].
in the facts it may take into account, nevertheless the following factors may often be relevant:3
(a) It is not generally appropriate to consider the merits of the respective cases unless they are so obvious that they should influence the outcome in respect of costs.
(b)The Court is entitled to consider whether the parties have acted reasonably up to the point of discontinuance.
(c) Conduct by the parties prior to the commencement of the proceeding may also be relevant.
(d)The circumstances in which the plaintiff elects to discontinue the proceeding may also be relevant. By way of example, in some cases a change of circumstances may render the proceeding irrelevant or unnecessary.
Decision
[6] I accept that ordinarily Mr Henderson would be entitled to an award of costs in respect of the periods during which he was represented by counsel. The principal issue for present purposes is whether he should be denied costs on the basis that the plaintiffs acted reasonably in commencing the claim in November 2012 and then continuing with it until 1 November 2017.
Was it reasonable for the plaintiffs to commence the claim and to pursue it until 1
November 2017?
[7] The issue of costs needs to be considered against the wider background, including other proceedings in this Court and the Court of Appeal that followed the
collapse of Mr Henderson’s companies. The liquidators can be expected to have been
3 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd, above n 2; FM Custodians Ltd v Pati [2012] NZHC 1902.
aware of the events giving rise to these because they can be taken to be familiar with
Mr Henderson’s involvement in the operation and affairs of his companies.
[8] The most important background matter for present purposes flows from the fact that Mr Henderson was adjudicated bankrupt on 29 November 2010. The Official Assignee objected to his automatic discharge from bankruptcy in 2014, and a lengthy public examination was then held before Associate Judge Osborne in August and October 2015. A delay then occurred before the Associate Judge received submissions during October 2016.
[9] The Associate Judge issued a judgment on 9 December 2016 in which he canvassed Mr Henderson’s business activities at considerable length.4 He then made orders prohibiting Mr Henderson until 9 December 2022 from undertaking the following activities without the Court’s permission:5
(i) entering into, carrying on, or taking part in the management or control of any business or class of business;
(ii) being a director of any company;
(iii) directly or indirectly being concerned, or taking part, in the management of any company;
(iv) being employed by a relative of Mr Henderson;
(v) being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of Mr Henderson.
[10] The Court of Appeal upheld the Associate Judge’s conclusions and orders in a judgment issued on 18 September 2017.6 In doing so the Court described the causes of Mr Henderson’s bankruptcy and his involvement in civil and criminal litigation as follows:
[5] The causes of Mr Henderson's bankruptcy were undisputed. He had assumed substantial liabilities through personal guarantees given to largely second-tier financiers for loans to various companies under his control. Mr Henderson undertook major property developments in Queenstown, Christchurch, Dunedin and Invercargill. He acted principally through Property Ventures Ltd (PVL), in which he was a major shareholder and later managing director. In late 2007 PVL and related companies under Mr
4 Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969.
5 At [446].
6 Henderson v Official Assignee [2017] NZCA 411.
Henderson's control started to experience difficulties in meeting debt repayment obligations which Mr Henderson had guaranteed. PVL's receivership followed in March 2010. The Associate Judge outlined in detail the nature and extent of Mr Henderson's personal guarantees for his companies [sic] borrowings.
[6] There was a related cause for Mr Henderson's bankruptcy. He failed consistently to meet his personal taxation liabilities to the Inland Revenue Department. The Department claimed on his adjudication a total of
$2,270,319.74 including penalties and use of money interest for years when
Mr Henderson filed returns recording nil income and nil expenses. His companies also diverted PAYE and GST payments, for which they were legally bound to account to the Department, for their own purposes. Mr Henderson was responsible for this corporate misuse of taxation payments to finance various commercial developments. He applied public monies as private working capital.
[7] Mr Henderson has an unusually active history in both the criminal and civil litigation [sic]. He has committed numerous offences under the relevant taxation legislation. Included among them are 25 convictions for PAYE offences entered on four earlier occasions and 12 convictions for other taxation offences on seven separate occasions. He has also been the subject of a number of money judgments in the District Court, High Court and the Taxation Review Authority. He has been a frequent appellant before this Court and the Supreme Court. The full details of Mr Henderson's litigation history are chronicled in the High Court judgment.
(footnotes omitted)
[11] The Court of Appeal cited7 the following passage from the Associate Judge’s decision which describe the manner in which Mr Henderson had structured his personal affairs and those of his companies:8
[336] Mr Henderson carefully structured his personal affairs both before and in the decade following his first bankruptcy so as to have no assets. But he provided personal guarantees for huge sums. Consequently those creditors entitled to call on his guarantees would almost inevitably receive no payment on account of the guarantee if the company-borrower defaulted in adverse economic times. The distinct likelihood existed that a company-borrower would default in each of the many cases where the financier was a second-tier lender, usually lending for a short to medium term. The occurrence of an economic down-turn (as occurred with the GFC) was a predictable [event] at least in terms of occurrence (if not in magnitude), and one for which a property development enterprise of substantial scale should have prepared. It was precisely in the event of a major economic downturn that second-tier lenders might not roll over loans; others might not step in to refinance the loans; the company borrowers would default; and Mr Henderson’s guarantees would be enforced.
[337] The fact that the Henderson companies embarked upon a programme of sustaining payments to financiers and suppliers at the expense of meeting Revenue obligations such as PAYE and GST masked for a period the onset of corporate insolvencies. The evidence is that Mr Henderson, as managing or sole director of key companies, was centrally involved in such decision- making. Those decisions increased what would have already been Mr Henderson’s huge level of insolvency arising through his guarantees.
[338] Furthermore, Mr Henderson was involved in company tax arrangements which led to personal tax liabilities. He received income for which he did not account to the IRD. The structuring of his personal affairs once again meant, that as those liabilities became confirmed through adjudication processes, he was insolvent on the basis of his tax liabilities alone.
[12] It is clear from the Associate Judge’s decision that the Official Assignee relied at least in part on material produced by the liquidators of Mr Henderson’s companies.9
These provided details of the debts owing by those companies, and in particular of the taxation liabilities they had incurred. In total these amounted to more than $300
million.
[13] I consider that the sheer quantum of the liabilities owed by Mr Henderson’s companies, coupled with the manner in which they were incurred, provided the plaintiffs with sufficient grounds to justify the present proceeding being issued in
2012. At that stage they could not have known that the Official Assignee would object to Mr Henderson’s discharge from bankruptcy in 2014, or that the Associate Judge would make orders of the type he made on 9 December 2016. The plaintiffs knew only that Mr Henderson would ordinarily be entitled to be automatically discharged from bankruptcy in 2014.
[14] The decision to commence the proceeding is further justified by the fact that Mr Henderson had been bankrupted on an earlier occasion in 1996. The Associate Judge recorded that Mr Henderson’s debts as admitted by the Official Assignee on that occasion amounted to approximately $440,000, and were largely incurred because he had given guarantees in support of loans made to entities with which he was involved.10
[15] I also consider the plaintiffs were entitled to continue the proceeding after
9 December 2016 notwithstanding the orders made by the Associate Judge on that date. Mr Henderson lodged an appeal against those orders, and it was not until the Court of Appeal issued its decision on 18 September 2017 that the plaintiffs could proceed on the basis that they would remain undisturbed.
[16] The issue of whether the claim against Mr Henderson continued to have any practical utility after the Court of Appeal issued its decision was first raised by me during a telephone conference with all counsel, including counsel then acting for
Mr Henderson, on 26 September 2017. At that stage Mr Smith QC, senior counsel for the plaintiffs, indicated that his clients were considering the possibility of discontinuing the claim but that there were several issues to be taken into account in making that decision.
[17] The next event in the proceeding occurred on 1 November 2017, when I was scheduled to hear several applications that were not related to the claim against
Mr Henderson. At the commencement of that hearing Mr Smith tendered a notice of discontinuance of the claim against Mr Henderson, who by that stage was unrepresented and present in person. The notice was endorsed with the consent of all other parties to the proceeding. Given the rapidity with which the discontinuance occurred I accept that it was tendered at the earliest practicable opportunity after the Court of Appeal had upheld the orders made by the Associate Judge.
Mr Walker’s conduct
[18] I have not sought a response from Mr Walker regarding the allegations
Mr Henderson makes in his reply memorandum regarding Mr Walker’s conduct as liquidator. In part this is because I have no doubt that Mr Walker will dispute
Mr Henderson’s claims and Mr Henderson will then seek to refute Mr Walker’s response. This will undoubtedly lead to the final resolution of the proceeding being further delayed.
[19] More importantly, however, I do not consider that such claims can be resolved in the context of written submissions relating to the issue of costs. Furthermore, I do not consider Mr Henderson’s concerns can or should affect the outcome in relation to
costs. His assertion that the companies’ creditors could never have received any benefit from the present proceeding overlooks the fact that a banning order is designed to protect the commercial community in the future. It is not a means by which existing creditors can receive recompense. Nor do I consider Mr Walker can be criticised for proposing a global settlement under which both parties walked away from other litigation in which they are currently involved. Mr Henderson was free to reject that offer and he has obviously now done that.
Change of circumstances
[20] The fact that the Court of Appeal has now confirmed the orders made by the Associate Judge also amounts in my view to a change of circumstances that may be taken into account in the present context. Once the Court of Appeal upheld the Associate Judge’s orders there remained no need for the plaintiffs to continue with their own application for a banning order against Mr Henderson.
The merits
[21] In addition, I consider that the conclusions reached by the Associate Judge and the Court of Appeal in the bankruptcy litigation suggest that, had it been necessary for them to continue with it, the plaintiffs are likely to have been successful in their application for a banning order in the present proceeding. The material contained in the public examination of Mr Henderson in the bankruptcy jurisdiction would have formed part of the evidence against Mr Henderson in this proceeding. The plaintiffs would also have been able to rely on all of the material regarding Mr Henderson’s conduct that the liquidators had obtained during the course of the liquidation. To the limited extent that the merits can now be taken into account they clearly favour the plaintiffs.
Conclusion
[22] All of these factors persuade me that the usual presumption has been displaced and that it would be wrong in principle to make an award of costs in favour of
Mr Henderson.
Result
[23] I direct that costs as between the plaintiffs and Mr Henderson are to lie where they fall.
Lang J
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