Xternal Solutions Limited (in liquidation) v Hodge

[2014] NZHC 1427

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-000634 [2014] NZHC 1427

UNDER

Sections 298 and 301 of the Companies

Act 1993

IN THE MATTER

of the liquidation of Xternal Solutions
Limited (in Liquidation)

BETWEEN

XTERNAL SOLUTIONS LIMITED (IN LIQUIDATION)

First Plaintiff

SCOTT WILLIAM GREER Second Plaintiff

AND

TONY JOHN HODGE and SUSAN JANE HODGE

First Defendants

TONY JOHN HODGE and SUSAN JANE HODGE

Second Defendants

Hearing:	(On the papers)
Counsel:	D Grove for Plaintiffs R Phillips for Defendant
Judgment:	24 June 2014

COSTS JUDGMENT OF VENNING J

This judgment was delivered by me on 24 June 2014 at 11.45 pm, pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Daniel Overton & Goulding, Auckland

Barter & Co, Auckland

D Grove, Auckland

XTERNAL SOLUTIONS LTD (IN LIQUIDATION) v HODGE [2014] NZHC 1427 [24 June 2014]

[1]      The  plaintiffs  sought  summary  judgment  against  the  defendants.    After receipt of the notice of opposition and affidavits in opposition filed by and on behalf of the defendants the plaintiffs withdrew the application for summary judgment. Costs were reserved to be dealt with by way of an exchange of memoranda.

[2]      The Court has now received two memoranda from the defendants in support of their application for costs and a reply and further memorandum on behalf of the plaintiffs.

[3]      The defendants seek their actual costs in opposing the summary judgment application of $7,000 plus GST together with the costs of an expert witness, Mr Leonard, an accountant.  Mr Leonard’s costs amount to $4,600, including GST.

[4]      The plaintiffs oppose the application for costs.  They submit that the costs on the application for summary judgment should be reserved pending the outcome of the substantive proceedings and further that the plaintiffs’ costs in responding to the application for costs should be paid to the plaintiffs.

[5]      Mr  and  Mrs  Hodge  are  directors  and  shareholders  of  Xternal  Solutions Limited (in liquidation) (Xternal).  NZB Developments Limited (NZB) sued Xternal. Mr Greer, the second plaintiff, acted as counsel for NZB.

[6]      After filing a statement of defence to the claim Mr and Mrs Hodge resolved to put Xternal into liquidation.   The initial liquidator Mr Herbke stood aside in favour of Mr Greer. The principal creditor of Xternal is NZB.

[7]      The plaintiffs issued these proceedings against Mr and Mrs Hodge in their personal capacity and as trustees of the Hodge Family Trust:

(a)       seeking to recover sums said to be due in respect of shareholders’

current account;  and

(b)a claim pursuant to s 298(2) of the Companies Act in respect of a transaction at an undervalue.

[8]      In light of the information provided by the respondents in their affidavits in opposition to the application for summary judgment  as supported by the expert accountant, Mr Leonard’s evidence, the application for summary judgment was withdrawn and the matter will now proceed to a substantive hearing if necessary.

[9]      On the withdrawal or dismissal of an application for summary judgment, the general position is that costs will be reserved and follow the outcome of the substantive proceeding:   NZI Bank Limited v Philpott.1     However that is not an immutable position.  If the plaintiff pursues an application for summary judgment in the certain knowledge there is a bona fide question of fact or law which can be determined only after a trial the Court will award costs to the defendant.2     Such awards are, however, generally only made in exceptional cases involving an abuse of the procedure.3

[10]     It is apparent from the extensive memoranda filed on this costs application that the parties are at loggerheads.  The defendants do not consider Mr Greer should continue as liquidator.  They consider he is in a position of conflict of interest.  Mr Greer as liquidator considers that the defendants failed to answer reasonable requests for information and only provided the necessary information to answer the claim when they were facing the application for summary judgment.

[11]     I put to one side the defendants’ complaint about Mr Greer.  Their application to have him removed as liquidator was withdrawn with no issue as to costs.  The issue for the Court on this application is whether the plaintiffs’ actions in issuing the summary judgment application amounted to an abuse of procedure so as to justify an award of costs at this stage.   The defendants point to the information before the Court and the correspondence between the parties including the threat on behalf of the  defendants  that  if  the  application  for  summary  judgment  was  pursued  the

defendants would seek costs.

1      NZI Bank Limited v Philpott [1990] 2 NZLR 403 (CA).

2      At 405.

3      At 407.

[12]     In response, Mr Grove submits the relevant information that supports the defence was not provided until the application for summary judgment was made. The defendants had ample opportunity to provide it before then.  Mr Grove referred to nine identified requests for information between 28 November 2013 and 29 April

2014. The summary judgment proceedings were only issued on 31 March 2014.

[13]     On the limited information before the Court I am not satisfied that this is a case where it can be said the application for summary judgment was, on the basis of the information available to the plaintiffs at the time they issued it, an abuse of process.

[14]     Once Xternal was placed into liquidation Mr and Mrs Hodge had certain responsibilities in relation to the provision of information to the liquidator, whoever that may have been.  It is apparent the defendants were distracted by the involvement of Mr Greer as liquidator.  On the limited information before the Court it appears the Hodges failed to provide sufficient information to the liquidator in a timely way.  I do not accept the submission made for the Hodges that the plaintiffs should have pursued a formal request for information from the Hodges before pursuing these proceedings.

[15]     If the plaintiffs had pursued the application for summary judgment and taken it to a hearing despite the defendants’ opposition this may well have been a case for costs in the defendants’ favour following the inevitable dismissal of the application for summary judgment, but the plaintiffs did not take it that far.  Once the plaintiffs were faced with the full information provided by the defendants and Mr Leonard they responsibly withdrew the application for summary judgment.

[16]     I decline the application for costs by the defendants at this stage.  I leave the matter on the usual basis that the application for summary judgment having been withdrawn the costs (and disbursements) associated with it are reserved to follow the outcome of the substantive proceedings.  I observe that, undoubtedly, Mr Leonard’s advice to the defendants will be of value to them in the course of the substantive proceedings.

[17]     I make no order for costs on the memoranda  that have been  exchanged between the parties in relation to costs.  Costs on those memoranda are to lie where

they fall.

Venning J