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PPCS Ltd v Richmond Ltd [2004] NZCA 219; [2005] 1 NZLR 201; (2004) 17 PRNZ 328; (2004) 2 NZCCLR 1 (9 September 2004)

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PPCS Ltd v Richmond Ltd [2004] NZCA 219 (9 September 2004); [2005] 1 NZLR 201; (2004) 17 PRNZ 328; (2004) 2 NZCCLR 1

Last Updated: 18 December 2011


IN THE COURT OF APPEAL OF NEW ZEALAND

CA253/02

BETWEEN PPCS LIMITED
Appellant


AND RICHMOND LIMITED
First Respondent


AND R J BELL & ORS
Second Respondent


Coram: Keith J Blanchard J Tipping J McGrath J Glazebrook J


Appearances: A R Galbraith QC for Appellant
W M Wilson QC for First Respondent
R A Dobson QC for Second Respondent


Judgment: 9 September 2004


JUDGMENT OF THE COURT DELIVERED BY McGRATH J

[1] This Court delivered judgment in this appeal on 1 October 2003. It is reported at [2004] 1 NZLR 256. The outcome was that the appeal of PPCS Limited (which the Bell group as second respondent had opposed) was allowed in part. A cross-appeal by the Bell group was dismissed. Despite achieving only partial success the Bell group has applied for an award of substantial costs against PPCS, contending that there are special circumstances warranting such an order in the public interest. The application is opposed by PPCS. The first respondent, Richmond Limited, does not seek costs and abides the Court’s decision on the application.
[2] The Bell group was a group of farmers who were shareholders in Richmond, which is a meat processing company based in the Hawkes Bay. The Bell group brought proceedings in the High Court against PPCS, a South Island-based meat processing company, which was seeking to take over Richmond. The Bell group, supported by Richmond, alleged that PPCS had breached disclosure obligations under the Securities Markets Act 1988 in relation to interests that it acquired in the shares of Richmond over a lengthy period. The High Court held that PPCS had breached such obligations and made orders under s32 of the Act first forfeiting 6,867,468 shares in Richmond (comprising 16.76% of that company’s issued shares) and secondly prohibiting PPCS from exercising voting rights in respect of a further 14,663,080 shares (being 35.7% of the issued shares). The Court’s prohibition on the exercise of voting rights would not, however, come into effect if, by 1 January 2003, PPCS had made a successful takeover offer resulting in it holding 90% of the ordinary shares in Richmond after the forfeiture.
[3] In its appeal to this Court against the High Court judgment PPCS did not dispute the Judge’s finding that PPCS had acted in breach of its statutory disclosure obligations. It did however appeal against the s32 orders made by the High Court. The Bell Group cross-appealed against the High Court judgment, seeking that further orders be made against PPCS in respect of its shares in Richmond. The outcome of the PPCS appeal was that PPCS failed in its argument that orders should not have been made against it, this Court holding that the High Court did have the power to impose the orders that it did.
[4] This Court then considered submissions from PPCS concerning the terms of the orders against it made by the High Court. It concluded that the order made for forfeiture of shares, effectively a fine of $10 million, was both necessary and sufficient to reflect the seriousness of the breaches by PPCS of its obligations, and its associated deception of the market. The order for forfeiture of shares had also substantially removed the advantages obtained by PPCS from its breaches. In that context this Court decided that the further order to prohibit PPCS from exercising voting rights in respect of other shares was excessive and that order was quashed. This was the extent to which PPCS was successful, and the Bell group unsuccessful, in the appeal.
[5] In its cross-appeal the Bell group sought further orders under s32 for divestment by PPCS of the shares it held in Richmond. As indicated, the cross-appeal was dismissed. Richmond, which supported the Bell group in the High Court and on appeal, brought a separate appeal against the High Court’s judgment in relation to default under notice and pause provisions of Richmond’s Constitution. This appeal was dismissed in the judgment of 1 October 2003.
[6] In relation to costs this Court made the following observation in the final paragraph of its judgment:

[133] This is not a situation in which costs should follow the relative success of the parties in the appeal. The parties may, however, be able to reach agreement on costs. If they cannot they may submit memoranda.

[7] The Bell group has applied for costs seeking an order that PPCS pay it up to half of the total legal costs and disbursements incurred in the appeal which amounted to $335,000. In written submissions in support of the Bell group’s application its counsel, Mr Dobson QC, argued that PPCS had strongly contested all elements of the High Court’s orders on appeal, but succeeded only on the order concerning voting rights. The Bell group had generally supported the High Court’s decision in this Court but sought orders involving a combination of forfeiture and divestment of shares to prevent PPCS from retaining control. In this respect the Bell group’s position reflected its stance in the High Court and its recognition that the High Court’s orders which suspended voting rights were vulnerable to challenge in light of events since the High Court hearing.
[8] Counsel submitted that the outcome of the appeal remained a vindication of the Bell group in bringing the proceedings, which had involved far more extensive work than might reasonably have been anticipated at the outset. There had been no criticism in this Court of the High Court’s factual findings, and the forfeiture order had been upheld. In achieving that, Counsel said, the Bell group had performed a signal public service. He suggested that the costs sought would be a relatively insignificant additional expense over what PPCS had already incurred to pursue its goals.
[9] In his written submissions Mr Galbraith QC, for PPCS, argued that it had confined its appeal to the question of the penalty imposed by the High Court. The Bell group’s role in the appeal had not merely been a defensive one. That reflected its purpose of using the breaches to contest the takeover. It had failed in its goal of obtaining a more onerous order which would force a divestment of the shares which PPCS held in Richmond. Having failed to achieve that main objective the Bell group should not receive an award of costs. Counsel contended that the Bell group was not motivated by public interest considerations but by its members’ own perceived self interest in preventing PPCS from taking over Richmond. Mr Galbraith also pointed out that the Bell group had received solicitor and client costs in the High Court of $824,651 and that throughout it had been protected by an indemnity from Richmond for any costs awarded against it. He argued that any award of costs should be no more than the usual award made by the Court.
[10] The starting point in considering any application for costs in civil litigation in this Court is that awards of costs are discretionary, the discretion being exercised according to the Court’s perception of the interests of justice in the particular case. The Court’s present general practice in a case where the hearing of an appeal occupied a full day or more, is to award a successful party costs of $6,000 per day plus reasonable disbursements, including travel and accommodation costs of counsel.
[11] There are of course instances where the Court has departed from this general approach to the exercise of its discretion because of particular considerations. In Wellington City Council v Woolworths New Zealand Limited and others CA17/96, CA46/96, 4 July 1996, following a successful appeal by the Council against a judgment of the High Court quashing a rating decision, the Court refused the Council’s application for costs. The reason was that while the Council had been successful in the litigation, the proceeding had been brought in the public interest. From a costs point of view the commercial ratepayers who were respondents were well justified in bringing the judicial review proceedings.
[12] In Berkett v Cave [2001] 1 NZLR 667 this Court accepted that in exceptional cases the High Court could, in the early stages of litigation, properly make an order, which would apply throughout the proceedings irrespective of the result, requiring one party to pay indemnity costs to the other. In general, the minimum requirements for such an order would be, first, that the applicant’s case was clearly arguable, secondly, that there was a substantial public interest in obtaining the Court’s decision on the points in issue irrespective of the final result, and, thirdly, that it would be unduly onerous for the plaintiff to fund the litigation in the interim. The Court emphasised that costs are normally awarded after trial and follow the event and that it is only after trial that the ultimate merits are apparent and account can be taken in determining costs applications of the way in which the litigation is conducted. Advance orders for indemnity costs made by the High Court in that case were set aside on appeal.
[13] These considerations are of assistance in determining the present case which concerns an application for costs in this Court, made following delivery of the Court’s judgment in the appeals concerned. The Bell group, as second respondent, took the leading role in resisting the appeal by PPCS against the High Court’s order of forfeiture of one parcel of shares and order of prohibition on the exercise of the voting rights of other shares held.
[14] The two main issues were first whether the High Court had power to make the orders it did in the circumstances and secondly whether, if there was such a power, the orders made were an appropriate exercise of the High Court’s discretion. Much of the four day hearing in this Court was taken up with counsel’s extensive discussion of the evidence concerning the breaches by PPCS of disclosure obligations. The appeal by Richmond covered similar ground and did not significantly lengthen the hearing. That there were breaches was not directly in issue, but we are satisfied that it was necessary and appropriate for counsel for the respondents to traverse the evidence in detail to enable this Court to decide whether there was a sufficient relationship between the initial breaches of PPCS, and its subsequent course of conduct directed to obtaining control of Richmond, to justify the exercise of jurisdiction to make orders against the shares which PPCS held at the time of the trial. PPCS had acquired most of these shares from Active Equities Ltd, following the involuntary sale of nearly all its holding to that company in July 2000.
[15] The Bell group succeeded in upholding the High Court’s substantial forfeiture order, but not its further order prohibiting exercise of voting rights by PPCS. The Bell group’s cross-appeal which sought a divestment order in place of the voting rights prohibition also failed. In these respects PPCS was successful in obtaining majority control of Richmond as a result of this Court’s judgment. That practical success, however, does not reflect the extent to which the Bell group was able to uphold much of the High Court’s judgment which was challenged in the appeal, including a forfeiture order which was many times more substantial than any other previously made by a New Zealand court for breaches of securities legislation.
[16] In considering where the interests of justice lie in relation to the Bell group’s application we are influenced by three particular factors. The first is the statutory scheme of the Securities Act in relation to ensuring compliance by market participants with their regulatory obligations. While the Commission has a role in enforcement under it, the Act envisages that enforcement will largely be a matter for private proceedings brought by those who have been affected by apparent breaches. In resisting the PPCS appeal and bringing the cross-appeal the Bell group was giving effect to the purpose of the Act of ensuring proper operation of securities markets and was doing so in the manner that the Act envisaged. Certainly the Bell group saw this as being in their personal interests but the legislation relies for its effectiveness on the coincidence of individual and public interests. This statutory context lends support to an application for substantial costs at the appellate level particularly by a plaintiff which has been able to uphold on appeal the substance of a favourable High Court decision.
[17] Secondly, the particular appeal was largely concerned with the power of the High Court to make orders in the circumstances of the case and the nature and extent of the orders that should have been made. Neither of these questions has previously been addressed by this Court and there was a substantial public interest in obtaining the Court’s decision on the points concerned. This context also tells in favour of an award of costs in favour of the Bell group for the appeal. The participation of the Bell group in the appeal was necessary for obtaining its decision on these points.
[18] The third matter of particular relevance is the very serious nature of the commercial misconduct of PPCS which was involved in its breaches of the Act. We have made strong findings concerning this in our principal judgment, in particular at para [123], which it is unnecessary to repeat. In relation to the present application we do however add that the covert nature of PPCS’s conduct throughout has made all stages of this proceeding to hold it accountable a very difficult and time consuming exercise for the Bell group and its advisers. The funding of such litigation by persons in the position of the Bell group will generally be onerous.
[19] We are not persuaded that the motives of the Bell group diminish the force of these considerations in relation to its application. The motives of members were no doubt mixed, but it is plain that the effort that has been put into this proceeding by the Bell group far outweighs the personal gain which the shareholdings of the group’s members would ever generate. While historic loyalties to Richmond, as a company largely owned by producers, and the perceived needs for the servicing of the farming industry in the Hawkes Bay by such a company, no doubt played their part, we are also satisfied that a significant factor motivating Bell group’s members was to make PPCS accountable for what appeared to them to be serious wrongdoing. In the end we are satisfied that the public interest with which the Act is concerned will best be served by making a substantial order for costs in favour of the Bell group and that, for the reasons we have given, the interests of justice favour the making of such an order in this case.
[20] Mr Dobson advanced the claim seeking half of the total chargeable legal costs and disbursements of the Bell Group amounting to $335,000. We prefer not to use that as the measure of an appropriate award. The case took four days to be heard in this Court. We note that its duration was not significantly affected by the concurrent hearing of the Richmond appeal. Ordinarily a successful party would have been awarded costs of $24,000. In the special circumstances of this case that figure should be substantially increased. In addition the Bell group has obviously incurred other disbursements beyond those normally incurred for an appeal in the form of the fees of experts other than legal advisers for which allowance should be made in the costs award. Looking at the matter in the round we conclude that in the particular circumstances of this case the Bell group should have costs of $100,000, together with the reasonable disbursements of the kind usually incurred by solicitors and counsel, including travel and accommodation costs but excluding the professional fees covered by the costs award, to be determined by agreement or, failing agreement, by the Registrar.

Solicitors:
Chapman Tripp, Christchurch for Appellant
D J S Parker, Wellington for First Respondent
Buddle Findlay, Christchurch for Second Respondent



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