Wellington Combined Taxis Limited v Roe [2024] NZCA 413 (5 September 2024)

Last Updated: 9 September 2024

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA645/2023 [2024] NZCA 413

	BETWEEN	WELLINGTON COMBINED TAXIS LIMITED Appellant
	AND	RICHARD WILLIAM ROE, VANNA SENG, PAUL JOHAN JOHANSSON, THEODOROS SERAFIM, SURESH LALLOO and KRISHNA SAMY GOUNDAR First Respondents
	AND	DAVID CLYMA Second Respondent
	AND	DELFIN DE GUZMAN Third Respondent
	AND	CHRISTOPHER DAVID FINLAYSON Fourth Respondent
	AND	GARTH FRASER Fifth Respondent
	AND	SAHA DEWAN MUDALIAR Sixth Respondent
	AND	DEV KUMAR NARAYAN Seventh Respondent

Hearing:	30 July 2024
Court:	Thomas, Jagose and Grice JJ
Counsel:	P R W Chisnall and S P Radcliffe for Appellant A S Olney and H E Cameron for First Respondents M A Cavanaugh and C E Clayton for Second to Fifth and Seventh Respondents
Judgment:	5 September 2024 at 10.30 am

JUDGMENT OF THE COURT

A The application to adduce new evidence on appeal is declined.
B The appeal is dismissed.

100. The appellant must pay costs to the first respondents for a standard appeal on a band A basis, together with usual disbursements.

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REASONS OF THE COURT

(Given by Jagose J)

• [1] Wellington Combined Taxis Limited (the company) appeals part of the 2 October 2023 decision of Associate Judge Skelton in the High Court at Wellington.^[1] The decision granted leave to the first respondents to bring a derivative action against the second to seventh respondents.^[2] The company appeals the part of the decision requiring it to meet the action’s reasonable costs. The appeal is brought on the ground the Judge should have considered “it would be unjust or inequitable for the company to bear those costs”.^[3]

Background

• [2] The company operates a small taxi business. The first respondents (the applicant shareholders) hold some of the shares in the company. The second to seventh respondents (the directors) are the company’s directors, comprising its board (the board). The derivative action relates to the board’s resolution to fix and reduce levies payable by licensees operating under the company’s brand and with access to its infrastructure, either directly as shareholders (as driver shareholders) or under lease of such shares (from investor shareholders).
• [3] In response to financial challenges faced by shareholders, the board resolved to fix levies payable on operated shares and reduce levies payable on unoperated shares. The resolution was said to deprive the company of revenue, favouring investor shareholders over driver shareholders, and not to be in the company’s interests. The Judge was satisfied the necessary threshold for shareholders to bring a derivative action was met.^[4] Noting the company and directors arguably were in breach of various statutory obligations,^[5] the Judge ultimately was satisfied:^[6]

[147] ... a prudent business person conducting their own affairs would commence the intended proceeding. The proposed claims against the directors are at least arguable. The potential value of the claims in terms of monetary and non-monetary benefits is significant for [the company] which is currently running at a significant operating loss. The cost of pursuing the claims is not insignificant, but the cost/benefit analysis falls in favour of pursuing the claims. The bringing of the claims is in the interests of [the company] including determining whether the directors have breached duties owed to [the company] and in holding the directors to account for any such breaches.

• [4] A considerable amount of argument on the present appeal was effectively to dispute the Judge’s assessment of cost and benefit and the company’s interest. But that part of the Judge’s decision is not subject to appeal. Given the substance of the Judge’s assessment is the subject of the derivative action, we also refrain from addressing those issues, at least to avoid inadvertently influencing the action’s ultimate determination.

Applicable law

• [5] Section 166 of the Companies Act 1993 provides:

166 Costs of derivative action to be met by company

The court shall, on the application of the shareholder or director to whom leave was granted under section 165 to bring or intervene in the proceedings, order that the whole or part of the reasonable costs of bringing or intervening in the proceedings, including any costs relating to any settlement, compromise, or discontinuance approved under section 168, must be met by the company unless the court considers that it would be unjust or inequitable for the company to bear those costs.

Part of judgment under appeal

• [6] The Judge noted the directors bore the onus of establishing the qualifying injustice or inequity.^[7] He rejected their contentions the company’s poor financial position warranted deferring or capping the derivative action’s expense for the applicant shareholders’ interim or residual payment.^[8] He considered, if the applicant shareholders were required to fund the derivative action, there was a risk the claim would not be pursued or later would be abandoned.^[9] If the action’s progressive expense could not be met from the company’s reserves, the company could use the levy facility to raise the funds.^[10] The Judge emphasised the derivative action was for the company’s benefit.^[11]

New evidence on appeal

• [7] The company seeks to adduce new evidence on appeal, updating or otherwise informing of its financial position since the judgment under appeal and responding to the Judge’s proposition of an additional levy.^[12] If accepted, the applicant shareholders would seek to supplement that new evidence, to supply some of the material said to be omitted from it.
• [8] It is well-understood new evidence will not be admitted on appeal unless it is “fresh, credible, and cogent”,^[13] and this requirement serves to balance the interests of the parties and ensure the just and efficient dispatch of litigation.^[14] Given the ‘cogency’ requirement in particular, by which is meant the new evidence “may have a material bearing on the outcome of the appeal”,^[15] we took it in on a provisional basis.

Discussion

• [9] On the substantive matter, the Judge directly engaged in the necessary cost/benefit analysis to reach his ultimate assessment.^[16] If the applicant shareholders were successful in their claims that the board’s decision was in breach of the directors’ duties to the company, “avoiding just one further year of foregone levy revenue would potentially result in [the company] receiving an additional $500,000 in revenue”.^[17] Even accounting for the possibility of the action costing two or three times the applicant shareholders’ $100,000 estimate, the company’s interest alone justified pursuing the claims.^[18]
• [10] On appeal, however, the issue is whether the company or directors had discharged their burden to establish it was unjust or inequitable the company bear the cost of the derivative action. Qualifying injustice or inequity can be seen, for example, in circumstances in which the prospective beneficiary of the derivative action is not the company.^[19]
• [11] But, given the limited way in which the appeal has been brought against the Judge’s s 166 order only, it is not open to the company or directors to contest: (a) the Judge’s cost/benefit analysis, (b) as falling in the company’s interest, or (c) as justifying the applicant shareholders’ issue of derivative action for (at least, initial) funding by the company. On this appeal, any contention of the injustice or inequity of that funding by the company must accept the foregoing analysis, interest and justification.
• [12] We do not consider the Judge’s reference to the applicant shareholders’ ability to fund the action an error. It was not a matter, as Mr Chisnall put it, of the Judge taking “fright” at the prospect the action may not proceed and applying “the wrong test”, but – having already decided the proceeding should be brought — responding to submission on its funding.^[20] As said in the preceding paragraph, the foundation finding is not open to dispute on this appeal.
• [13] Neither do we consider the company’s financial position affords any basis on which to render the company’s liability for the action’s expense unjust or inequitable. Rather it is an exogenous factor, going to the company’s overall business viability. We acknowledge the company is of unusual financial structure, by which its liquidity largely is dependent on levies payable by its shareholders. But that is the company’s constitutional financial structure subscribed to by all shareholders, and therefore implausibly a source of qualifying injustice or inequity.
• [14] In any event, the onus was on the company or directors to satisfy the Judge of such, and they brought nothing to the Judge’s attention in that context. The Judge was right to reject the company’s financial state as the source of any injustice or inequity in its funding the derivative action. The Judge expressly noted, “even if the cost of the litigation cannot be met from cash funds, it could reasonably be met by [the company by] way of an additional levy on all shares”.^[21]
• [15] The new evidence contends only for a poorer financial position than may have appeared to the Judge. Plainly, the evidence of the company’s current financial circumstances is fresh. And, particularly as supplemented by that sought to be adduced by the applicant shareholders, it may also be credible. What it is not is cogent. That the company’s financial position might be worse than was evidenced before the Judge, or the levy process has worse or unforeseen consequences, does not address the central proposition the derivative action is for the company’s benefit and (unless unjust or inequitable) its expenses “must be met by the company”.^[22]
• [16] The new evidence does not touch on the subject of the appeal.

Costs

• [17] Although the applicant shareholders sought an uplift of costs for “the way [the company] has conducted the appeal”, they have not identified any failure or action on the part of the company which contributed unnecessarily to the time or expense of the appeal or step in it.^[23] We do not consider there is any other reason to justify increased costs to contradict “the principle that the determination of costs should be predictable and expeditious”.^[24] The company must pay costs to the applicant shareholders for a standard appeal on a band A basis, together with usual disbursements.
• [18] There is no issue as to costs in respect of the directors.

Result

• [19] The application to adduce new evidence on appeal is declined.
• [20] The appeal is dismissed.
• [21] The appellant must pay costs to the first respondents for a standard appeal on a band A basis, together with usual disbursements.

Solicitors:
McBride Davenport James, Wellington for Appellant
Cameron Lawyers, Wellington for First Respondents
Wotton + Kearney Ltd, Auckland for Second to Fifth and Seventh Respondents

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^[1] Roe v Wellington Combined Taxis Limited [2023] NZHC 2756 [judgment under appeal].

^[2] A “derivative action” here is one brought in the name and on behalf of the company: Companies Act 1993, s 165(1)(a).

^[3] Section 166.

^[4] Judgment under appeal, above n 1, at [46], referring to s 165(3)(a) of the Companies Act.

^[5] Judgment under appeal, above n 1, at [83]–[84], referring to ss 117 and 134 of the Companies Act; at [111], referring to s 131; at [118], referring to s 133; and at [124], referring to s 137.

^[6] Footnote omitted.

^[7] At [149], citing Presley v CallPlus Ltd [2007] NZHC 1277; [2008] NZCCLR 37 (HC) at [62] and [67].

^[8] At [150]–[151].

^[9] At [151].

^[10] At [152].

^[11] At [153].

^[12] The application is made pursuant to r 45 of the Court of Appeal (Civil) Rules 2005.

^[13] Lawyers for Climate Change Action NZ Inc v Climate Change Commission [2023] NZCA 443 at [12], citing Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 192–193 and Paper Reclaim Ltd v Aotearoa International Ltd (Further Evidence) (No 1) [2006] NZSC 59, [2007] 2 NZLR 1 at [6].

^[14] Rae v International Insurance Brokers (Nelson Marlborough) Ltd, above n 13, at 192.

^[15] Leckie v Beverley [2023] NZCA 570 at [48].

^[16] Judgment under appeal, above n 1, at [125], citing He v Chen [2014] NZCA 153, [2014] NZCCLR 18 at [54]–[58].

^[17] Judgment under appeal, above n 1, at [137].

^[18] At [137] and [147].

^[19] Totara Properties Whangarei Ltd v Cochrane [2013] NZCA 283 at [36], referring to Frykberg v Heaven (2002) 9 NZCLC 262,966 (HC) and Presley v CallPlus Ltd, above n 7. Similarly, see Leckie v Beverley, above n 15, at [74].

^[20] Judgment under appeal, above n 1, at [151].

^[21] At [152].

^[22] Companies Act, s 166.

^[23] Court of Appeal (Civil) Rules 2005, r 53E(2)(b).

^[24] Rule 53E(2)(d).