Sawer v Satara Co-operative Group Limited [2012] NZHC 156 (30 January 2012)

Last Updated: 20 February 2012

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

_{CIV-2011-441-715}

BETWEEN SHARLENE BRYANT AND DAVID SAWER

Applicant

AND SATARA CO-OPERATIVE GROUP LIMITED

Respondent

CIV-2008-441-856 [2012] NZHC 156

AND BETWEEN SATARA CO-OPERATIVE GROUP LIMITED

Plaintiff

AND FUS LIMITED (IN LIQ) First Defendant

AND SHARLENE BRYANT AND DAVID SAWER OF STAPLES RODWAY HAWKES BAY LTD AS LIQUIDATORS OF FUS LIMITED

Second Defendants

Hearing: On the papers

(Heard at Napier)

Counsel: J. Krebs for Applicant

H. Sutherland-Stacey for Respondent

Judgment: 30 January 2012 at 3:30 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment was delivered by Associate Judge Gendall on 30 January 2012 at 3.30 pm under r 11.5 of the High Court Rules.

SB AND D SAWER V SATARA CO-OPERATIVE GROUP LIMITED HC NAP CIV-2011-441-715 30 January

2012

Solicitors: Bramwell Grossman, Solicitors, PO Box 500, Napier

Sharp Tudhope, Lawyers, Private Bag 12020, Tauranga

Introduction

[1] Before me is an application for costs relating to proceedings brought by the liquidators, Ms Bryant and Mr Sawyer, of Fus Ltd (in liquidation). While the application on proceeding CIV-2011-441-715 was for directions concerning the future conduct of the liquidation and it was not filed as such, it is properly considered as an originating application: r 19.4 of the High Court Rules. The directions sought were related to other proceedings: CIV-2008-441-856. The plaintiff in those proceedings is Satara Co-Operative Group Ltd (Satara). Those proceedings are taken against Fus Ltd, which was formerly known as Apollo Fruit Ltd. Satara’s claim relates to an alleged failure on the part of Apollo Fruit Ltd to store and transport kiwifruit in Satara’s control pursuant to a contract between the two parties. Satara’s claim is for $368,212.00 plus interest and costs. After Satara initiated proceedings against Apollo, Apollo (by that time called Fus Ltd) was placed into liquidation. Satara applied to have its full claim admitted for proof in the liquidation. That application was declined by the liquidators.

[2] Subsequently, in an amended statement of claim in proceeding CIV-2008-

441-856 filed in 2009, Satara applied to have that decision reversed under s 284 of the Companies Act 1993, and added the liquidators as second defendants to that proceeding. That application was opposed by the liquidators. Eventually, that matter was resolved by consent on the basis that Satara would discontinue its claim against the liquidators and the matter would proceed against Fus Ltd (in liquidation), with the liquidators’ consent. Therefore, if Satara was to succeed as against Fus Ltd (in liquidation), any judgment obtained would be accepted as a proved debt. If Fus Ltd (in liquidation) did not defend the claim, Satara would need to proceed by way of formal proof.

[3] On 11 June 2011, the liquidators received a report prepared by a Mr Errol W Hewett (Mr Hewett) a kiwifruit storage ―expert‖ that suggested Apollo/FUS Limited’s liability was no more than 10 per cent. Accordingly, the liquidators made

an offer to Satara to accept for proof 10 per cent of the quantum claimed by it. That offer was rejected. The liquidators accordingly on 19 October 2011 sought directions in proceeding CIV-2011-441-715.

[4] The directions sought by the liquidators were:

(a) The Court confirm the decision of the liquidators to accept a proof of debt from Satara for $36,821.20, being 10 per cent of the amount sought by that company as plaintiff in proceedings CIV-2008-441-856; and

_{(b) The Court direct that the liquidation be concluded; OR}

(c) If neither (a) or (b) are directed, in the alternative the Court direct what if any further steps the liquidator be required to undertake in the liquidation.

[5] An affidavit was filed in support.

[6] On 2 November 2011, Satara filed a notice of opposition to that application. Satara opposed the application on the basis that if the directions sought in (a) and (b) were made, that would be tantamount to defeating its legal rights.

[7] A hearing was set down for that application to take place on 2 December

2011. On 28 November 2011, however, the liquidators withdrew their application. Costs on that application then became an issue and the matter was scheduled for a telephone conference on 2 December 2011. At that conference I directed the parties to file submissions on costs in sequence. I now have those submissions for which I thank counsel and give my decision on the costs question.

[8] Satara now seeks either indemnity, increased or scale costs (in that order of preference) for the expense it says it incurred in responding to the liquidators’ withdrawn application. Satara submits that the liquidators acted improperly or unnecessarily here such that indemnity costs ought to be awarded. The defendant liquidators dispute this and ask the Court to reserve costs until the substantive proceeding is resolved.

Counsels’ Submissions and My Decision

[9] I first deal with the liquidators’ request that costs be reserved until after the hearing of the plaintiff Satara’s substantive proceeding in CIV-2008-441-856. The liquidators’ position is that they brought their application for directions due to the furnishing of Mr Hewett’s report as to their liability vis-a-vis Satara with regard to Satara’s proceedings in CIV-2008-441-856. Mr Krebs, for the liquidators, submitted that this was because, following receipt of that report which suggested Fus Ltd’s liability was being a maximum of 10 per cent only, the liquidators made an offer to Satara accordingly. That offer was rejected by Satara and so the liquidators brought their present application. Mr Krebs submitted that the liquidators withdrew that application only upon receipt of an affidavit from Mr Leslie James Anstis, Satara’s Chief Operating Officer which was filed in support of Satara’s opposition to the liquidators’ application for directions. He said that was because the affidavit put matters in such a light that the liquidators conceded the issues should be set down for resolution by the Court either by way of a formal proof hearing or a full trial, if funding could be obtained by the liquidators from a creditor.

[10] Therefore, the liquidators now claim that these proceedings are so inextricably linked with those in CIV-2008-441-856 that an assessment of liability as to costs should not be made at this time.

[11] I disagree. Whatever the outcome of the proceeding in CIV-2008-441-856, the liquidators’ liability for costs with respect to this application is clear. The liquidators brought proceedings which required a response by Satara. They have now discontinued these proceedings but costs have been incurred by Satara. In those circumstances, I am satisfied that the question of costs should be dealt with now as little relating to that particular costs issue hinges on the outcome of the substantive proceedings.

[12] Here, Satara seeks either indemnity costs, increased costs or scale costs in that order of preference. As proceedings were discontinued by the liquidators, costs are sought pursuant to r 15.23 of the High Court Rules. That Satara may be entitled here to scale costs is not in dispute between the parties. I therefore turn to consider whether costs over and above scale are justified in the present case.

[13] Rule 14.1 of the High Court Rules gives the Court a discretion to order costs in relation to proceedings brought in this Court. And, where the requirements of r 14.6 are established, the Court may award increased or indemnity costs. Rule

14.6(3) and (4) provide:

(3) The court may order a party to pay increased costs if—

(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—

(i) failing to comply with these rules or with a direction of the court; or

(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or

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

(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; 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.

(4) The court may order a party to pay indemnity costs if—

(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 another party; or

(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; 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 relation to it; or

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

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

[14] The Court of Appeal in Bradbury v Westpac Banking Corp [2009] NZCA

234, [2009] 3 NZLR 400 summarised the situations where increased or indemnity costs will be appropriate at [27] in the following way:

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

(b) indemnity costs where they may be awarded where that party has behaved either badly or very unreasonably.

[15] With regard to Satara’s application for indemnity costs, Ms Sutherland- Stacey for Satara, relied on r 14.6(4)(a). One such circumstance which has been said to fall within that provision is where proceedings are commenced in wilful disregard of known facts or clearly established law: see Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29](d).

[16] In support of the submission that the liquidators initiated these proceedings in wilful disregard of known facts, Ms Sutherland-Stacey referred me to an affidavit sworn by Ms Bryant, filed in support of an opposition to Satara’s application for an order reversing or modifying the liquidators’ decision in the CIV-2008-441-856 proceeding. That affidavit was sworn on 15 December 2009. In it, at paragraphs 19

– 21, Ms Bryant deposes: (emphasis added)

If Satara wishes to continue with the proceedings and makes an application to the Court as it is required to do so pursuant to the Companies Act, we as liquidators would not oppose that application and would abide the decision of the Court.

Whether the liquidators would go on to actively defend the claim or simply put the plaintiff to proof as to liability and quantum would depend whether funding was available to the liquidator to take those steps. It may well be that the other principal creditor would fund the liquidators in such a defence.

In any event, it is for a Court and not a liquidator to decide the liability and quantum whether or not a defence is mounted.

[17] In light of those statements in [16] above, Ms Sutherland-Stacey contended that, given the liquidators had already said they would abide the decision of the Court, by subsequently seeking directions from the Court, they acted unnecessarily in that they acted in wilful disregard of that previous ―undertaking‖.

[18] In response, Mr Krebs submitted that Ms Bryant’s affidavit needs to be put in context. Her affidavit was sworn in relation to the issue that was then before the Court: whether the proceedings in CIV-2008-441-856 should be permitted by the liquidators to continue. Mr Krebs suggested that the liquidators have duties to properly consider claims against them and to advance any litigation on the basis of the evidence known to them. At that time, they had the report of Mr Hewitt which suggested only a maximum 10% liability to Satara. Mr Krebs further submitted that the liquidators cannot be criticised here in their approach. Ms Sutherland-Stacey for Satara submitted before me that a party’s conduct after the initiation of proceedings is not relevant as it is the events which give rise to the initiation of proceedings which is relevant. While that may be true, where a costs application is made on the basis of a party unnecessarily commencing a proceeding and that assessment is entirely objective, the fact that the liquidators here withdrew the application upon receipt of Mr Anstis’ affidavit in my view suggests that, indeed, their basis for the application was that Mr Hewett’s report showed that Fus Ltd was only 10 per cent liable and so Satara’s rejection of the liquidators’ offer was arguably unreasonable. Therefore, that evidence as I see it is relevant here.

[19] And, I agree with the submission for the liquidators that they were attempting here to proceed toward a prompt resolution of this lengthy liquidation. Liquidators must protect the assets of the company over which they are appointed: s 253

Companies Act 1993. I am satisfied that that is what they were attempting to do in this case. While there may be occasions where directions are sought by liquidators in order to defeat a creditor’s interests in a liquidation, I am not satisfied that this is what was intended here. A party cannot be held to a statement for all intents and purposes even when fresh evidence becomes available. That statement needs to be kept in context and further, fresh evidence here which the liquidators came to hold by way of the report by Mr Hewett was both cogent and new.

[20] While I accept the liquidators were ultimately misguided in making the application that they did, that is reflected in the fact that they withdrew that application (albeit late) prior to hearing. I am satisfied that the liquidators were acting on the basis of all of the information that was before them at the time. I have not been referred to any other evidence available prior to Mr Anstis’ affidavit, which

would suggest anything other than that the liquidators acted properly in accepting Mr Hewitt’s report as correct. Therefore, I decline to exercise my discretion in this case to award indemnity costs against the liquidators.

[21] As to increased costs, for the same reasons, I consider that such a claim is unfounded. For the reasons set out above, I do not consider that the liquidators acted unreasonably here. I therefore consider that scale costs only should be awarded in the present case.

[22] On this, counsel agree that scale should be set at 2B, and I also agree. In addition, counsel for the liquidators has also taken no real issue with Satara’s claims for the steps undertaken here for which costs are assessed.

[23] In the present case, as I understand the position, the actual costs incurred by Satara were $3,757.05. Rule 14.2(f) provides that an award of costs should not exceed the actual costs incurred by the party claiming costs. The award of 2B costs here sought by Satara totals $2,444.00. It is not questioned in any real way by Mr Krebs for the liquidators. That provides a figure which is, roughly, in keeping with r

14.2(d) which provides that an appropriate daily recovery rate should normally be two-thirds of the actual daily rate reasonably charged in relation to a proceeding or interlocutory application.

[24] On the question of disbursements, Ms Sutherland-Stacey noted in her submissions in reply, that counsel for the liquidators has not taken any issue with Satara’s claimed disbursements. Rule 14.12 defines disbursements as:

An expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs.

[25] The two disbursements claimed are for a courier and for a lawlink case search. The issue of online research was recently considered by Dobson J in Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV-2006-485-1600, 1

July 2011 at [70]. In that case, it was held that such expenses are properly ones which should be absorbed by a firm’s overheads. I adopt that approach here. As for courier fees, I am satisfied that these were necessary and specific to the litigation: Mawhinney v Waitakere City Council HC Auckland CIV-1999-404-1850, 26

September 2007 at [12]; Liu v Ward HC Palmerston North CIV-2010-454-48, 2

August 2011 at [19]. I therefore, certify the disbursement with regard to the courier but not that for the online search.

Conclusion

[26] Satara is entitled here to costs on a 2B basis and reasonable disbursements. [27] I order 2B costs as per the schedule of costs attached to the 2 December 2010

memoranda from counsel for Satara and disbursements thus:

(a) Costs - $2,444.00; and

(b) Disbursements - $8.90.

‘Associate Judge D.I. Gendall’