Young & Associates Limited v Ruscoe

[2012] NZHC 2059

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-65 [2012] NZHC 2059

UNDER  the Companies Act 1993

IN THE MATTER OF     Optimisationz Limited (in liquidation) BETWEEN  YOUNG & ASSOCIATES LIMITED

Plaintiff

ANDDAVID IAN RUSCOE AND RICHARD GRANT SIMPSON

Defendants

Counsel:         C J Tennet and K R Smith for Plaintiff

S R Sparksman and S H Backhouse for Defendants

Judgment:      15 August 2012

In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 1:00pm on the 15th August 2012.

COSTS JUDGMENT OF WILLIAMS J

Solicitors:

C J Tennet, Barrister, Wellington

Kensington Swan, Wellington

YOUNG & ASSOCIATES LIMITED V DAVID IAN RUSCOE AND RICHARD GRANT SIMPSON HC WN CIV-2012-485-65 [15 August 2012]

Introduction

[1]      The   liquidators   of   Optimisationz   Limited   (Optimisationz)   apply   for indemnity or, in the alternative, increased costs under r 14.6 of the High Court Rules. In the substantive proceeding, they successfully defended a claim brought by the present respondent, Young & Associates Ltd, one of Optimisationz’s two remaining creditors (the other being the Inland Revenue Department (IRD)).  The respondent had alleged the applicants were in breach of their statutory duties by reaching a settlement  with  Optimisationz’s  shareholders  that  was  too  favourable  to  the

shareholders and too neglectful of creditors’ interests.  I disagreed.[1]

[1] Young & Associates Ltd v Ruscoe [2012] NZHC 1438.

[2]      The applicants base both applications on the same grounds, namely: (a)        the claim brought against them was hopeless; and

(b)by failing to articulate the statutory basis for its claim and by applying for an adjournment pre-hearing for which no grounds existed, the respondent pursued its case in a way that wasted time and caused undue expense; and

(c)       the    respondent’s   submissions    contained   unfounded   allegations,

including allegations of bias.

[3]      The respondent opposes.  In fact, it submits for several reasons that no costs award at all should be made.  First, it submits its claim was made in good faith and had a general public benefit.   Second, it raised an untested point which was reasonably arguable.  Third, the applicants’ actual costs are being met by company money they are charged with recovering, so a costs award in their favour (indemnity, increased or otherwise) is unnecessary.  In the alternative, the respondent says costs should not exceed the lowest (1A) scale costs.

[4]      The respondent generally submits:

(a)      indemnity or increased costs are inappropriate.  The substantive claim was reasonably arguable.    There was no actual delay.    The respondent’s application for an adjournment before the substantive hearing (which the applicants rely on in part in their application) was caused by the applicants’ failure to disclose relevant information;

(b)scale 2B costs are inappropriate.  The issue in the case was relatively simple and disposed of quickly.

Discussion

[5]      I see no reason to depart from scale in the present case.

[6]      On the one hand, the respondent’s submission that no costs order be made is not tenable.  First, I do not accept that any potential benefits of making the initial claim extended to the public at large.  While the IRD stood potentially to gain as an unsecured creditor, this benefit[2] would have been too small and too remote to justify letting costs lie where they fall for the respondent in the event of failure – especially given  the  legal  difficulties  its  claim  faced  from  the  outset.[3]      Second,  the  legal question before the court[4] was not new or “untested”, as the respondent claims.  Far from it.[5]    Third, it is no answer to say the applicants’ costs can simply be set off against the whole of the debts owing to Optimisationz and therefore a costs award is unnecessary. As the applicants correctly submit, that would be unfairly prejudicial to

the IRD, which chose not to become a party to the substantive proceedings.

[2] The hypothetical public benefit (ie to the IRD) at the time of making the application can be calculated by subtracting the amount of debt the IRD would have recovered if the application were brought (ie if new receivers were in place), from the amount it would have recovered if the current receivers’ settlement deal went ahead. This amount is likely to be small, and in any event, would have been very difficult to calculate (hence too remote).

[3] Namely the stringent legal test posed by Commissioner of Inland Revenue v Hulst (2000)

19 NZTC 15,693 (HC).

[4] That is: in what circumstances can a liquidator be removed from his or her position?

[5] See generally Commissioner of Inland Revenue v Hulst, above n 3; Trinity Foundation (Services No 1) Ltd v Downey (2006) 3 NZCCLR 401 (CA) and Birchall v Project Works Construction Ltd (2004) 9 NZCLC 263,547(HC).

[7]      On the other hand, I also reject the applicants’ submission that indemnity or

increased costs are appropriate here.

[8]      The applicable legal  principles  are well  settled.   The applicant  relies  on r 14.6(4)(a) and (f), and r 14.6(3)(b)(ii) of the High Court Rules.  To satisfy these sections, the respondent must have acted badly or very unreasonably (for indemnity costs) or unreasonably (for increased costs).[6]    In Bradbury v Westpac Banking Corporation,  Baragwanath  J  accepted the following circumstances  would  attract indemnity costs award (while accepting these categories are not closed):[7]

[6] Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 (CA) at [27].

[7] At [29].

(a)      the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)       commencing or continuing proceedings for some ulterior motive;

(d)      doing so in wilful disregard of known facts or clearly established law;

or

(e)      making allegations which ought never to have been made or unduly prolonging   a   case   by   groundless   contentions,   summarised   in French J’s “hopeless case” test.

[9]      In Commissioner of Inland Revenue v Chesterfields Preschools Ltd, the Court of Appeal affirmed that, to award increased costs, the court must consider not only whether the respondent acted unreasonably, but also the extent of that unreasonableness.[8]    Only conduct that contributes materially to a waste of time or expense will warrant increased costs.

[8] Commissioner of Inland Revenue v Chesterfields Preschools Ltd  [2010] NZCA 400 at [165].

[10]     Taking  indemnity  costs  first,  in  my  view,  the  case  was  not  sufficiently

“hopeless” – as that term is referred to in Bradbury v Westpac Banking Corporation[9]

–  to  engage  r  14.6(4).    Some  of  the  respondent’s  arguments[10]   were  dismissed

relatively  summarily.     Others,[11]    however,  required  closer  consideration.     For example, the high valuation of the Optimisationz shareholders’ family property, set against   the   ostensibly   modest   settlement   figure   of   $96,000,   created   an understandable – if ultimately legally unsustainable – ground for concern.  Although the facts as proven failed to satisfy the relatively strict legal test for removal of liquidators, there is some distance between a failed submission and a baseless one. The respondent’s case fell into the former category.

[9] At [29].

[10] For example, that that the applicants’ settlement with Optimisationz shareholders was unreasonable because the applicants had failed properly to consider one of the shareholders’ future earning capacity; and that the applicants had wrongfully failed to trace $728,000 paid out from a related family trust.

[11] Such as the effect of the $1.6m valuation obtained for the shareholders’ family property.

[11]     Nor do I accept that the way in which the respondent chose to pursue its claim should be fatal.  I appreciate that, in its submissions of 11 June 2012, it did not frame the remedy sought as precisely as perhaps was desirable.  But, the applicants clearly understood what was being argued.  That was enough.  Something more than minor confusion about the precise statutory basis for a claim is needed before the serious consequences of r 14.6(4) to flow.   While focussing on the respondent’s conduct, I also do not find the respondent’s eleventh-hour application for an adjournment engaged that subsection. While the application in question was refused, there was no delay in proceedings.  The adjournment application was, as I recall, no more than a minor distraction in the overall run of the case.

[12]     Third, I do not think that the respondent’s submissions of 11 June 2012 crossed the line into “very unreasonable” conduct.   The allegations in those submissions  of apparent  bias  and  excessive  fees  charged  by the  applicant  were perhaps imprudent, but some attempt was made to state the factual basis on which those claims rested.  The claim the applicants “should” have consulted with creditors after their initial application was also, when read in context, a minor part of the respondent’s submissions.

[13]     As to increased costs, I would refuse this application for the same reasons. The respondent’s conduct was not sufficiently unreasonable.  If I am wrong in that assessment, the Chesterfields Preschools caution on considering the extent of the

respondent’s unreasonable conduct is relevant.   If any of the respondent’s conduct

was unreasonable, the extent to which it wasted the respondents’ time and expense

was too limited to give rise to a claim for increased costs.

Scale costs

[14]     It follows that the just outcome is to award scale costs.  I am quite satisfied band 2B is appropriate.  The hearing was a standard half-day affair, reflective of the general complexity of the matter.

[15]     I  am  also  satisfied  that  those  costs  should  include  allowance  for  the applicants’ preparation for the hearing on 20 February 2012.  Given the respondent served their statement of claim on the applicant six days before that hearing, an analogy with preparation for an interlocutory application to accommodate time to respond to that document can fairly be made.

[16]     I am, however, concerned about the respondent’s claim for costs for second counsel.  Case law suggests such discretionary allowances are rarely, if ever, given in cases of ordinary complexity.[12]  In line with those authorities I would not make such an allowance here.

Resolution

[12] See, for example: Attorney-General of Samoa v TVWorks Ltd [2012] NZHC 824 at [8];

[17]     Costs of $9,880 together with reasonable disbursements are awarded to the applicants.

Williams J

General Distributors Ltd v Waipa District Council HC Auckland CIV-2008-404-4857, 4 March 2009;
Network Cabling Solutions Ltd v Ice Group (NZ) Ltd HC Wellington CIV-2008-485-1360,
15 December 2010; and T&T Drainage Ltd v Rennell HC Auckland CIV-2009-404-1506 16 February
2011.