Willburn Furniture and Restorations Ltd (in liq) v Gledhill

[2016] NZHC 549

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2015-409-000580 [2016] NZHC 549

BETWEEN

WILLBURN FURNITURE AND

RESTORATIONS LTD (IN LIQUIDATION)

First Plaintiff

AND

COLIN DAVID OWENS AND GRANT STEPHEN JARROLD

Second Plaintiffs

AND

MATTHEW LAWRENCE GLEDHILL First Defendant

AND

CAMERON MATTHEW GLEDHILL Second Defendant

Hearing:	(On the papers)
Counsel:	K C Francis and S K Shaw for Plaintiffs
Judgment:	1 April 2016

JUDGMENT OF DUNNINGHAM J

[1]      In my judgment issued on 2 March 2016, I gave judgment in favour of the plaintiffs (being a company in liquidation and its liquidators), against the defendants; the company’s director, Mr Matthew Gledhill, and his son, Mr Cameron Gledhill.

[2]      I also held that the first and second defendants should be jointly and severally liable to pay 2B costs to the plaintiffs, but I reserved the right for the plaintiffs to seek increased costs against the first defendant and allowed the plaintiffs to file a

memorandum quantifying their actual cost in the proceeding for this purpose.

WILLBURN FURNITURE AND RESTORATIONS LTD (IN LIQ) v GLEDHILL [2016] NZHC 549 [1 April 2016]

[3]      That memorandum has now been filed.   It quantifies 2B costs at $13,380, along  with  disbursements  of  $448.04  (comprising  photocopying  costs  and  two process server fees).  I am satisfied that those costs and disbursements are reasonable and that the first and second defendants should be jointly liable for costs totalling

$13,828.04.

[4]      However, that does not necessarily cap the first defendant’s liability for costs. The plaintiffs have sought an award of indemnity costs against the first defendant totalling $31,627.48.  These comprise legal costs of $31,075.94 (for which invoices have  been  provided),  plus  disbursements  totalling  $551.54  (being  the  $448.04 already  itemised  above,  plus  a  further  $103.50  for  the  fee  for  service  of  an application for a freezing order).

Principles applying to an award of costs on a solicitor/client basis

[5]      The High Court Rules provide that, so far as possible, the determination of costs should be predictable and expeditious and, to achieve that, normally an award of costs should be assessed by applying the appropriate daily recovery rate to the time  considered  reasonable  for  each  step  reasonably  required  in  relation  to  the

proceeding.1    However, High Court r 14.6 allows the Court to order a party to pay

increased or indemnity costs in certain circumstances.

[6]      Here  indemnity  costs  are  sought,  though  none  of  the  circumstances  in High Court r 14.6(4)(a) to (e) are directly applicable.  Indeed, as the first defendant did not engage with the proceedings, he cannot be said to have acted vexatiously, frivolously, improperly or unnecessarily in terms of any step in the proceeding, nor has he ignored or disobeyed an order or a direction of the Court.

[7]      However, the rule also provides that increased or indemnity costs may be ordered where “some other reason exists which justifies the Court making an order for [increased or indemnity] costs despite the principle that the determination of costs should be predictable and expeditious”.2   This is a broadly worded exception,

and  the  Courts  have  been  reluctant  to  categorise  particular  types  of  cases  as

1      High Court Rule, r 14.2(g) and (c).

2      Rules 14.6(3)(d) and 14.6(4)(d).

attracting  increased  or  indemnity  costs.    Rather,  the  provision  is  “reserved  for

specific circumstances occurring in the particular proceedings”.3

[8]      In this case the plaintiffs rely on an exception recognised in Madsen-Ries v Petera,4 and utilised in the judgment of William Young J in Mako Holdings Ltd (in liq) v Crimp.5

[9]      In  Mako Holdings Ltd, the Court found that two company directors  had breached their duties to the insolvent company and had been guilty of reckless trading.  His Honour, William Young J, held:

… unless the liquidator makes a full recovery someone is going to be out of pocket  over  this  case.    I  see  the  case  as  being  entirely  the  fault  of Messrs Crimp and Carswell …   Both were in gross breach of their duties. There are very small sums money at stake in this case.  Unless full costs are awarded, the creditors will not get paid and, unless judges take a firm line with those who choose to act in this way, we will wind up creating incentives for directors to strip their companies on the basis that they can argue about it later.

[10]     The plaintiffs submit that the present case is similarly an exceptional case. The first defendant was in gross breach of his duties to the company and deliberately stripped assets from it, with blatant disregard for the interests of creditors, and an award of indemnity costs is therefore justified.

[11]     However, in Madsen-Ries v Petera, Lang J did observe that he regarded Crimp “as being an exceptional case that should not be regarded as creating any general principle in this area of the law” and, “the Courts have been careful to restrict the right to claim indemnity damages to situations where the part against whom such damages are awarded has acted in an egregious manner”.  Thus, it is not a simple matter of saying that where directors are in breach of their duties, that, of itself, will lead to an award of indemnity costs.  Rather, there needs to be something

particularly egregious about the directors’ behaviour to warrant such award.

3      Tamahere v Mediaworks Radio Ltd [2015] NZHC 268 at [6].

4      Madsen-Ries v Petera [2015] NZHC 538.

5      Mako Holdings Ltd (in liq) v Crimp HC Invercargill CP23/99 28 November 2000.

[12]     In this case, I also take into account that I have awarded the costs of the liquidation (as opposed to the costs of these proceedings) on an indemnity basis, having held that the company would have remained solvent but for the first defendant’s deliberate course of conduct in drawing money from the business for personal expenses and disposing of business assets.

[13]     While parallels can be drawn with the Mako Holdings case, they are not on all fours.  In Mako Holdings the defendants participated actively in the case, and in the judgment the Judge concluded “that the case as to liability … struck me as being hopeless from the point of view of the defendants – an attempt to defend the indefensible which was finally rightly abandoned …”.  In the present case, there is nothing about the first defendant’s behaviour which has contributed to the costs of the litigation as opposed to the costs of the liquidation.  However, his behaviour has led to the need for the proceeding, and has demonstrated a complete failure to have regard to the interests of the company or its creditors.  More importantly, the demise of the company did not occur through factors beyond the first defendant’s control, or even as simply the result of poor management or muddle-headedness.  Rather, it was as the result of a deliberate course of action by the first defendant to knowingly strip the company of its assets, or to put the assets of the company beyond the reach of creditors.

[14]     In  those  circumstances,  I  am  prepared  to  make  an  award  of  increased, although not indemnity, costs on the basis that it was reasonably necessary for the party claiming the costs to bring the litigation in the interests of those creditors affected, and the behaviour of the first defendant does qualify as a reason which justifies the Court making an order for increased costs despite the principle that a determination of costs should be predictable and expeditious.

[15]     The plaintiffs claim for indemnity costs is sought in terms of a further award of costs of $17,799.44 solely against the first defendant, in addition to his joint and several liability for 2B costs plus disbursements itemised in [3] above.  Rather than award indemnity costs, I make a further award of increased costs of $10,000 solely against the first defendant along with the further disbursement claimed.

[16]     In summary, therefore, the final costs orders are as follows:

(a)       2B costs and disbursements totalling $13,828.04 are awarded jointly and severally against both defendants;

(b)a  further  award  of  increased  costs  of  $10,000  plus  $103.50  in disbursements is made against the first defendant.

Solicitors:

Meredith Connell, Wellington