Alf No 9 Pty Limited v Ellis and others HC WN CIV 2009-485-435 [2009] NZHC 2392 (30 November 2009)

Last Updated: 16 January 2010

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

_{CIV 2009-485-435}

BETWEEN ALF NO 9 PTY LIMITED

Plaintiff

AND PHILLIP GEORGE ELLIS, LYNLEY

ANN ELLIS AND JOHN LOUIS COKER First Defendants

AND ANTHONY CLIVE COLLINS Second Defendant

AND ALEX FERGUSON KNOWLES Third Defendant

AND TERRY SHAGIN AND FRANCIE SHAGIN

Fourth Defendants

AND JOHN WILLIAM CUNNINGHAM Fifth Defendant

AND WELLINGTON BOOT LIMITED Sixth Defendant

AND DOUGLAS RICHARD PAUL AND MELANIE TOLLEMACHE

Seventh Defendants

AND NICOLA JANE ELLIS (STABLES) Eighth Defendant

AND PHILLIP GEORGE ELLIS Ninth Defendant

AND NVESTEC LLC Tenth Defendant

Hearing: 25 November 2009 (On Papers)

Counsel: M D O'Brien and B M Cash for Plaintiff

_{R B Stewart QC and S M Hunter for Defendants}

ALF NO 9 PTY LIMITED V PHILLIP GEORGE ELLIS, LYNLEY ANN ELLIS AND JOHN LOUIS COKER

AND ORS HC WN CIV 2009-485-435 30 November 2009

Judgment: 30 November 2009

_{JUDGMENT OF RONALD YOUNG J}

[1] The plaintiff is a litigation funder. In March 2009 the liquidators of IBS

Holdings Limited (“IBS”) purported to assign the claims made in these proceedings

to the plaintiff by an assignment deed. Essentially the plaintiff’s claim was that some of the defendants sold IBS’s assets at $11.5 million below their true value. AMP Capital Investments No. 4 Limited (“AMP”) a 14% shareholder in IBS complained that as a result of the sale at the undervalue it suffered loss of $1.6 million (14% of the $11.5 million).

[2] For reasons set out in my judgment of 30 September 2009 I struck out the plaintiff’s claim against the defendants.

[3] The defendants now seek costs. The plaintiff accepts they are entitled to costs but do not accept they are entitled to indemnity or increased costs as claimed.

[4] The defendant’s seek indemnity costs (of $150,000 claiming that they have incurred total costs including GST and disbursements in excess of $160,000). In the alternative they say an uplift of 50% from scale costs on a 3C basis is appropriate.

[5] The plaintiff’s say that indemnity costs are not appropriate nor is there any basis for increased costs beyond a 3C basis.

[6] In Bradbury & Anor v Westpac Banking Corporation [2009] NZCA 234 the

Court of Appeal said at [27] and at [29]:

[27] The distinction among our three broad approaches: standard scale costs; increased costs; and indemnity costs may be summarised broadly:

(a) standard scale applies by default where cause is not shown to depart from it;

(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and

2

(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

...

[29] We therefore endorse Goddard J’s adoption in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [11] (HC) of Sheppard J’s summary in Colgate v Cussons at [24]. While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:

(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;

(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.

[7] The defendants’ case here is that the plaintiff made irrelevant and unsustainable allegations of fraud. Further, it commenced and continued these proceedings seeking $11.5 million when the true loss to AMP was no more than

$1.6 million. This, the defendants say, was irresponsible. he defendants point to the fact that the plaintiff’s were offered the opportunity of reducing their claim to

$1.6 million but refused to do so and have persisted with the $11.5 million claim.

[8] The allegations of fraud were of an equitable fraud, that is, an allegation of a breach of duty sufficient to justify an equitable remedy. Dishonesty was not an essential element of this cause of action. The essence of the plaintiff’s claim was based on the proposition that the sale of IBS by the defendant shareholders was a breach of duty to AMP as a shareholder who, it was said, did not benefit from post sale advantages in the same way as the other shareholders.

[9] In those circumstances I would not categorise the “fraud” allegation here as the same type identified in Bradbury. In any event my judgment did not deal with

any alleged breach of duty. This submission does not justify any indemnity or increased costs.

[10] The plaintiff’s claim was, in my view, inappropriately inflated. The only dissatisfied shareholder was AMP. It claimed it had therefore lost the value of its shareholding when the company was sold at an undervalue. Its loss therefore could be no more than $1.6 million ([1], [7]). The other shareholders said they had suffered no loss on the sale. There were no unpaid creditors of the company. Persisting with the $11.5 million claim (alleged whole of company loss) in the circumstances meant that if successful the defendant shareholders would, without advantage to themselves, be paying the litigation funder (here the plaintiff) $3 million to sue themselves. However, the significant factor here is that the quantum of the claim had no direct relevance to the outcome of the strike out itself.

[11] The case took a short time to hear (one day). However, significant factual and legal material was placed before the Court. The issue was one of obvious importance to the parties. It involved a not insignificant sum of money. The litigation justified senior counsel and an appropriate junior.

[12] To return to the analysis in Bradbury. I do not consider the plaintiff’s conduct was either a failure to act reasonably or bad or unreasonable behaviour in the context of this case. As I have identified the only area where the plaintiff could be criticised is with respect to an inflated claim for damages. While this could result in some form of increased costs at trial it is difficult to see it as a justification for increased costs in a strike out/summary judgment claim.

[13] Given the issues involved I am satisfied that 3C costs are appropriate and that there is no justification for any other form of increased costs.

[14] The plaintiff’s complained, with respect to the 3C costs claim of the defendants, that there was no need for the defendants to file a statement of defence in the circumstances and therefore the defendants should not have their costs for doing so. I consider that the filing of the statement of defence was appropriate and assisted in the identification of the strike out issues. Full allowance for filing the statement

of defence should therefore be given to the defendants and be reflected in their costs entitlement.

[15] On that basis total costs would be $29,625 and disbursements $2,653.28. Those costs I order, therefore, in favour of the defendants against the plaintiff.

[16] Given an appeal has been filed and some of the appellants reside overseas, which would create difficulties in obtaining a refund of the costs paid if an appeal is successful, I order the costs to be paid to the Registrar of this Court within twenty-eight days from today. The Registrar will hold the costs in an interest _{bearing account until further order of this Court.}

_Solicitors:

Ronald Young J

M D O’Brien, Bell Gully, PO Box 1291, Wellington, email: [e-mail]

B M Cash, Bell Gully, PO Box 1291, Wellington, email: [e-mail]

R B Stewart QC, PO Box 2302, Auckland, email: [e-mail]

S M Hunter, Barrister, PO Box 1595, Wellington