Capital + Merchant Finance Limited (in rec and in liq) v Vision Securities Limited (in rec) [2011] NZCA 657 (16 December 2011)

Last Updated: 22 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA147/2010 [2011] NZCA 657

BETWEEN CAPITAL + MERCHANT FINANCE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) First Appellant

AND RICHARD GRANT SIMPSON AND TIMOTHY WILSON DOWNES Second Appellants

AND VISION SECURITIES LIMITED (IN RECEIVERSHIP) Respondent

Court: Ellen France, Gendall and Allan JJ

Counsel: S A Barker and E Ritchie for Appellants M R Bos for Respondent M J Tingey and J F D Moffat for Receivers

Judgment: 16 December 2011 at 11.30 am (On the papers)

JUDGMENT OF THE COURT

1. The application for an order awarding non-party costs against the receivers of the respondent is declined.
   
2. The appellants must pay the receivers costs as for a standard application on a band A basis on the application for non-party costs together with usual disbursements.

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REASONS OF THE COURT

(Given by Ellen France J)

Introduction

[1] In a judgment delivered on 4 August 2011, we allowed the appellants’ appeal.[1] As a result, the first appellant was entitled to summary judgment as a defendant against the respondent. The appellants were awarded costs.
[2] The respondent is unable to meet the costs awarded against it, having been placed into receivership during the course of the proceedings. The parties have unsuccessfully attempted to resolve the question of costs.
[3] The appellants now seek a supplementary order of the Court awarding non-party costs against the receivers of the respondent.
[4] The receivers, Henry Levin and Rodney Pardington of Deloitte, oppose any award of costs against them. They seek costs on the present application.

The application for non-party costs

[5] The appellants seek costs on the application by the respondent to adduce new evidence in this Court and their costs on the appeal against the refusal of summary judgment.
[6] The appellants submit that it is unjust to allow the receivers to pursue the litigation without any corresponding liability as to costs. Mr Barker for the appellants points out that the respondent is an institution in the Crown Retail Guarantee Scheme pursuant to the Crown Deed of Guarantee it entered into on 8 December 2009. The submission is that it follows that any monies received in the receivership will be for the benefit of the Crown, and the receivers’ costs and expenses will be met by the Crown.
[7] It is further submitted that the receivers are not “pure funders” but rather have a personal financial interest in the litigation outcome. In pursuing the litigation, the receivers sought to gain $250,000 for the receivership. Mr Barker says this is in the interests of the receivers and the party on whose behalf they are ultimately acting (now the Crown) rather than in the interests of the respondent, Vision Securities Ltd. In essence, the submission is that in avoiding any liability for costs the receivers are effectively in a “heads I win, tails you lose” position.
[8] In these circumstances, where the receivers were seeking justice for their own purposes, it is submitted that they are the real party to the litigation as success in the proceedings would benefit the receivership. Further, it is submitted that the respondent’s financial position, and so its ability to meet any costs award, would have been apparent to the receivers.
[9] Finally, Mr Barker says that the receivers made a conscious decision to continue to defend the appeal after assuming control of the company. They also controlled how the respondent’s case was handled.
[10] The receivers submit that there are no exceptional circumstances warranting a departure from the ordinary position that costs are awarded only against the parties. Counsel for the receivers submits that the receivers did not bring the appeal and were appointed only after the appellants had lodged their appeal against the High Court decision. Accordingly, it is submitted that the receivers did not cause the appellants to incur the costs on the appeal as those costs would always have had to be incurred if the appellants were to overturn the High Court decision.
[11] Finally, it is submitted that the receivers were not acting for their personal financial benefit but rather in the interests of the secured debenture holders in the respondent to whose entitlements the Crown is subrogated under the Crown Retail Deposit Guarantee Scheme as well as interests of the respondent’s unsecured creditors. The submission is that this is quite different from a case where a person funds litigation through another entity in order to gain the benefits of that litigation him or herself.

Principles

[12] The authors of McGechan note that the “broadly based” r 14.1 costs discretion can be exercised against or for non-parties to civil litigation.[2]
[13] The relevant principles are set out in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2).[3] Lord Brown summarised the position as follows:

[25] ... 1) Although costs orders against non-parties are to be regarded as “exceptional” exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.

2) Generally speaking, the discretion will not be exercised against “pure funders”, ...

3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” ...[4]

Discussion

[14] We have concluded that it is not just, in all the circumstances, to make an award of costs against the receivers. Three considerations are relevant in our view.
[15] First, the receivers were appointed on 31 March 2010. By that point the appeal had already been filed. It seems to us that some costs at least were going to be incurred by the appellants in any event. It is not at all clear that the Court would have been prepared to allow the appeal without hearing from anyone in opposition.[5] The appellants accept that, on this basis, they cannot seek costs in the High Court and in our view the same principle applies in terms of the appeal.
[16] To some extent, this point runs into our next point. But before moving on to that we have not ignored the fact the respondent did seek, unsuccessfully, leave to adduce fresh evidence in this Court.[6] That was a cost which would not otherwise have been incurred. However, that does not change our assessment of where the overall interests of justice lie. It is relevant in that respect that, because of the timing of the appointment, the receivers did not get the usual notice of the potential liability for costs.
[17] The second point is that the points raised on appeal were quite difficult and their resolution reasonably finely balanced. The task before the Court was to determine the proper construction of a deed made between the first appellant and the respondent. That question was not without its difficulties.
[18] The fact that there were issues requiring the determination of the Court in this way distinguishes this case from that of Poh v Cousins & Associates[7] which is relied on by the appellants. Costs were awarded against the non-party receivers in that case. However, in reaching that decision, Associate Judge Osborne found, first, that the receivers had “a distinct degree of control” over the proceedings both as to whether it was necessary in the first place and as to how it was resolved.[8] Further, in his view, there was no “tenable” argument against the plaintiffs’ claims and “with a very modest amount of time spent on research” the need for litigation would have been avoided.[9]
[19] Finally, although the receivers are not “pure funders” the litigation has not been pursued for their personal financial benefit.
[20] For these reasons, we decline to make an order awarding non-party costs against the receivers of the respondent.

Costs on this application

[21] As we have noted, the receivers seek costs on the application for non-party costs. That course is opposed by the appellants on the basis that the application became a necessary part of the litigation. The appellants say that, as they were successful in the litigation, they are entitled to the costs granted by this Court in its earlier judgment. Mr Barker says the appellants are seeking recovery of those costs from the real party, the party that would have benefited from a successfully defended appeal. Finally, the appellants submit that to omit this application for non-party costs would leave the appellants with no ability to recover their costs.
[22] We do not see that the receivers should incur costs on the application without any recovery given that they have succeeded. Accordingly, the appellants must pay the receivers costs as for a standard application on a band A basis on the present application together with usual disbursements.

Solicitors:
Buddle Findlay, Wellington for Appellants
Chapman Trip, Auckland for Respondent
Bell Gully, Auckland for Receivers

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[1] Capital + Merchant Finance Ltd (in receivership & in liquidation) v Vision Securities Ltd (in receivership) [2011] NZCA 371, [2011] NZCCLR 28.

[2] McGechan on Procedure (online looseleaf ed, Brookers) at [HRPt 14.09(1)(a)].

[3] Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145.
[4] And see also [29].

[5] See for example, Orlov v ANZA Distributing (NZ) Ltd (in liquidation) [2011] NZSC 28, [2011] 2 NZLR 721.

[6] Capital + Merchant Finance Ltd (in liquidation & receivership) v Vision Securities Ltd (in receivership) [2010] NZCA 602.
[7] Poh v Cousins & Associates HC Christchurch CIV-2010-409-2654, 4 February 2011.
[8] At [48].
[9] At [61].