McAulay v Hawkes bay Wind Machines Limited (in liq) HC Napier CIV-2007-441-916 [2011] NZHC 787 (4 July 2011)

IN THE MATTER OF an application under s 276, s 277 and s 284 of the Companies Act 1993

MCAULAY V HAWKES BAY WIND MACHINES LIMITED (IN LIQUDIATION) HC NAP CIV-2007-441-

[1] The liquidator applied for a Court order approving his remuneration pursuant to s 284(1)(e) of the Companies Act 1993. Mr McAuley and Ms Atkinson (collectively “the directors”) opposed the application which was therefore conducted on an opposed basis. In my judgment issued in March of this year, I approved the remuneration claimed by the liquidator. I invited the parties to confer on the costs of the application to the Court for approval. They have not been able to reach agreement on costs. I have received further written submissions from counsel for the liquidator and from the directors. I now give my decision on the question of costs relating to the hearing of the contested application for approval of the liquidator’s remuneration.

[2] The directors asserted that no costs order ought to be made against them and that the liquidator would have to be content with an order for costs against the company. The liquidator’s counsel, Mr Gordon, submits that an order for costs against the company would, in effect, be a hollow one because the company has no funds.

[3] The directors assert that they did not anticipate benefitting from any reduction in the liquidator’s costs as such funds as became available as a result of a reduction of those costs would have been distributed to other parties including their respective family trusts.

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[4] There is no doubt that the Court has jurisdiction to make an award of costs against non-parties.[1] The liquidator seeks such an order.

[5] The directors did not suggest, and I am not aware that there is, any authority that an order for costs against non-parties should only be made in circumstances where their intervention could potentially have resulted in a benefit accruing to them personally. Orders for costs are generally regarded as a contribution to the opposite

party’s expenses of conducting the litigation. Attention, therefore, is directed to

[6] There is no doubt that there would have been no dispute about the liquidator’s costs had the directors not intervened. In their memorandum on costs dated 1 April 2011 that exact point is made. I have no doubt that as a result of the need for Mr Palairet to justify his costs, he incurred additional costs from having to instruct counsel and participate in the opposed hearings that took place about that issue.

[7] The intervention of the non-parties, was in some respects salutary. The arguments and submissions that they put forward persuaded the Court that there were indeed some issues that justified further investigation before the liquidator’s costs should be approved by the Court. One relevant matter that they raised was the question of the extent to which the liquidator’s costs were correctly augmented by taking into account time he spent recovering debts of the company and the extent to which such a factor should influence the overall quantum of his costs.

[8] On the other hand, I agree that the non-parties raised a number of irrelevant issues. Alleged bias on the part of Mr Palairet towards Mrs McAulay, the plaintiff, was one such feature of their opposition. The allegations that they made also included assertions which, if they did not actually cross the line, bordered on assertions that the liquidator had behaved fraudulently. There was no evidence to support such assertions and they ought not to have been made.

[9] Importantly, the liquidator has obtained the outcome for which he applied to the Court. The usual rule is that the unsuccessful party is required to pay costs.[2]

[10] The liquidator has incurred actual costs of $29,533.88 which are directly attributable to his having to justify his charges. He seeks indemnity costs, increased

costs, or, at the minimum, scale 2C costs (plus disbursements). An order for indemnity costs can be made in the circumstances set out in r 14.6(4) of the High Court Rules which provides (as relevant):

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or

(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in

(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or

order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[11] In her judgment for the Supreme Court in Prebble v Huata,[3] Elias CJ stated:[4]

In New Zealand, costs have not been awarded to indemnify successful litigants for their actual solicitor and client costs, except in rare cases generally entailing breach of confidence or flagrant misconduct. Except in such cases, in both the Court of Appeal and the High Court orders for party and party costs have been limited to a reasonable contribution to the costs of the successful party. That approach is of long standing and may have been adopted partly for reasons of access to justice, as Williams J suggested in the course of argument in Sargood v Corporation of Dunedin (footnotes omitted).

[12] The following comments are made. First, the Chief Justice’s remarks were plainly intended by her to describe the principle applied by all courts, including this Court, when determining an application for indemnity costs. Secondly, had any change in approach been warranted in light of the enactment of the cost rules in the High Court Rules which came into effect in February 2009, Elias CJ would no doubt have adverted to that fact.

[13] My conclusion is that while I accept that the directors acted unwisely and exceeded the limits of robust comment that could properly be made about the

liquidator, on balance, I do not think that their conduct was of such impropriety that an award of indemnity costs is called for.

[14] That however, is not the end of matters. The Court also has jurisdiction to make an increased order for costs. Rule 14.6 provides, as relevant:

(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or ...

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

[15] In deciding whether there should be an order for increased costs, I consider that the most applicable ground for an order of increased costs in this case is to be found in r 14.6(3)(b). I consider that the requirements of that sub-rule have been met in this case. In my assessment, the directors have contributed unnecessarily to the time and expense of the proceeding in the respects set out in (ii) and (iii) above.

[16] Taking into account the matters I have raised, I am of the view that the involvement of the non-party directors resulted in the Court being referred to matters which were irrelevant to the question of the quantum of the liquidator’s costs that were submitted to the Court for approval.

[17] The proper approach to be taken to the grant of an award of increased costs and was set out in the judgment of the Court of Appeal in Holdfast NZ Ltd v Selleys

Pty Ltd.[5] The approach that the court took was to look at cases summarised in

Step 2: work out a reasonable time for each step in the proceeding under r 14.5.

Step 3: as part of the step 2 exercise a party can, under r 14.6(3)(a), apply for extra time for a particular step.

Step 4: the applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r 14.6(3)(b) it should do so, but any increase above 50% on the costs produced by steps 1 and 2 is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding.

[18] I interpolate that category 2 is appropriate here. That is, it is a proceeding of “average complexity requiring counsel of skill and experience considered average in the High Court”.[7] I will deal in a moment with the appropriate time allocations.

	Days or part thereof under Band B, Schedule 3	Amount payable under 2B	Days or part therefore under Band C, Schedule 3	Amount payable under 2c
4.12 Preparing and filing interlocutory application (excluding summary judgment application) and supporting affidavits	0.6	1,128	2	3,760
4.14 Preparation for hearing of defended interlocutory application	The time occupied by the hearing measured in quarter days	1,880	←	1,880

(excluding summary judgment application).	(estimate) 1
4.15 Appearance at hearing of defended interlocutory application (excluding judgment summary application) for sole or principal counsel	Appearance in Court measured in quarter days (estimate) 1	1,880	←	1,880
4.18 Sealing order or judgment	0.2	376	←	376
	2.8 days	5,264	4.2	7,896

[20] The current recovery rate for category 2 proceedings is $1,880 per day. Under 2B, therefore, the liquidator would recover $5,264. Under 2C the amount would be $7,896.

[21] The total legal costs that the liquidator incurred on the costs argument was

$29,533.88. This apparently included both the application by the liquidator and the cross-application brought by the directors.

[22] As a general comment the fixing of the liquidator’s remuneration in this case was not a straightforward process. The Court was assisted by the then-recent authority of Re Roslea Path Ltd (in liq).[8] That application of the case to a defended application for approval of remuneration required, because of the fact that it was a recent case, getting to grips with the correct approach, which meant that considerable effort was required on the part of all concerned.

[23] Part of the complexity of the exercise of fixing remuneration was due to the necessity for the Court to examine legitimate points that were raised by the directors. Not everything that they raised was irrelevant or frivolous. The propriety of the warranties claims was one example. Another was the contention for the directors

_{that it was not necessary for Mr Palairet’s accountancy practice
to prepare financial}

accounts for the company as part of the function of carrying out the liquidation. Some of the issues that they did raise, such as the assertions of bias, were of a different category. The same can be said of the application which the directors brought for a direction that the liquidator pay back money to the company, money paid out to settle warranty claims. Such an application in the circumstances of this case was unrealistic.

[24] Another factor which contributed to the effort that counsel for the liquidator was required to invest in the application was the fact that only one side was represented by legal counsel. While some of the submissions made by the directors, particularly those made by Ms Atkinson, who as I have noted is an accountant by profession, were helpful, others were not. I was particularly dependent upon submissions from Mr Gordon when dealing with the issue of the responsibility of the liquidator to arrange financial statements.

[25] Even though some of the material which the directors filed was ultimately found to be irrelevant, such as the allegations of bias which the Court did not have to subject to a detailed examination, the liquidator, and his counsel Mr Gordon, were required to take the assertions seriously and deal with them in evidence and submissions.

[26] I consider that the overall circumstances of the case bring it within band C because a comparatively large amount of time was reasonably required for counsel for the liquidator to take the steps of preparing documents, preparing for hearing and appearing in support of the liquidator’s application and to oppose the cross- application by the directors. As I have indicated above, the amount of time which is permitted is 4.2 days. In the circumstances I take the view that that is inadequate and that a fairer allocation of time would be 6 days excluding sealing of the order which does not require augmentation, for a total of 6.2 days or $11,656. I order that the two directors are to be jointly and severally liable for the amount awarded together with the liquidator’s disbursements as fixed by the Registrar.

[2] High Court Rules, r 14.2(a).
[3] _{Prebble v Huata [2005] NZSC 18, [2005] 2 NZLR
467.}
[4] Ibid, at [6].
[5] _{Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; (2005) 17 PRNZ 897
(CA).}
[6] _{McGechan on Procedure High Court Rules (online ed) at
[HR14.6.02].}
[7] High Court Rules, r 14.3.

[8] Re Roslea Path Ltd (in liq); Flynn v McCallum HC Tauranga CIV-2005-470-000611, 17

High Court of New Zealand Decisions

McAulay v Hawkes bay Wind Machines Limited (in liq) HC Napier CIV-2007-441-916 [2011] NZHC 787 (4 July 2011)