Nicholls v The Drain Man Limited [2012] NZHC 1894 (31 July 2012)

Last Updated: 19 August 2012

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2011-442-332 [2012] NZHC 1894

BETWEEN RICHARD ERUERA NICHOLLS Plaintiff

AND THE DRAIN MAN LIMITED First Defendant

AND WAIWHERO SEWERAGE DESIGN SYSTEMS LIMITED

Second Defendant

AND BRIAN ROBERT PARKINSON Third Defendant

AND BARBARA ANNE PARKINSON Fourth Defendant

AND WAIWHERO FOREST LIMITED Fifth Defendant

AND GRAY CHRISTOPHER PARKINSON Sixth Defendant

Hearing: 31 July 2012

Counsel: No appearance for Plaintiff

M J Logan for Defendants

Judgment: 31 July 2012

In accordance with r 11.5 I direct that the delivery time of this judgment is 4pm on the 31st day of July 2012.

_{RESERVED JUDGMENT OF MACKENZIE J}

[1] This is an application for a review, under s 26P of the Judicature Act 1908, of

_{an order made by Associate Judge Matthews, by a minute issued on 6 July 2012,}

NICHOLLS V THE DRAIN MAN LIMITED HC NEL CIV-2011-442-332 [31 July 2012]

directing that an earlier costs award made by him on 23 May 2012, be payable by the defendants jointly and severally.

[2] The proceeding was an application for orders under s 174 of the Companies Act 1993, in respect of the first and second defendants. The plaintiff was a minority shareholder and former director of the first and second defendant companies. The third and fourth defendants were directors and majority shareholders of both companies, and of the fifth defendant. The sixth defendant was a minority shareholder in the first defendant.

[3] The plaintiff alleged that the affairs of the first and second defendant were being conducted in a manner which was oppressive, unfairly discriminatory or unfairly prejudicial to the plaintiffs in a number of respects. He alleged that the third and fourth defendants had overdrawn their current shareholder accounts, increased the shareholder salaries of themselves and the sixth defendant, directed the first defendant to make a loan to the fifth defendant, and that an inter-company advance from the first defendant to the second defendant was given without any apparent benefit to the second defendant. The plaintiff further alleged that he had been excluded from the management of the first and second defendants, that he had not been paid his shareholder current accounts with the companies. He also raised a number of further allegations as to the operation and management of the first and second defendants. A range of orders were sought under s 174 of the Companies Act

1993. Those were directed, in general terms, to having the plaintiff’s interest in the two companies valued and determined, and some arrangement reached to address the dysfunction which existed between, in particular, the plaintiff and the third and fourth defendants.

[4] The proceeding was the subject of a hearing before

Associate Judge Matthews on 11 May 2012. He delivered judgment on

23 May 2012. He recorded that all defendants accepted that it was appropriate for orders to be made under s 174. The plaintiff sought detailed orders which included an assessment by an independent accountant, the number of matters relating to the way in which the affairs of the first and second defendants had been managed, with further steps to be taken after that assessment. The defendants, in accepting that it

was appropriate for orders to be made under s 174, acknowledged a breakdown in the relationship between the parties but took issue with some of the orders sought by the plaintiff.

[5] Counsel then acting, who is recorded in the judgment of Associate Judge Matthews as representing all defendants, maintained that the first defendant had claims against the company. The judgment records that, given the confined ambit of the differences between the positions of the parties and the nature of the proceeding, the Associate Judge adjourned during the fixture to allow counsel to discuss the matter. Agreement on orders was not reached. The Judge in his reserved judgment made orders essentially in terms of the draft orders which had been proposed, and reserved leave to apply to the Court for further procedural or administrative directions in relation to any of the orders made. The judgment concluded with the following paragraph:

The plaintiff is entitled to costs on a 2B basis with disbursements fixed by the registrar.

[6] Counsel for the defendants then sought an opportunity to make submissions on the issue of the way the costs order was to be borne. The Associate Judge directed that submissions for the defendants on costs could be made by memorandum within five working days from 18 June. That time expired on

25 June 2012, and no memorandum was filed. The Judge issued a minute dated

6 July. In his minute of 6 July he noted:

[3] Counsel for the plaintiff has sought consent to seal the judgment and costs order so that all defendants are liable for costs, jointly and severally.

[4] As the defendants have not taken the opportunity afforded them to make submissions otherwise, either within the time specified or subsequently, it is appropriate that the plaintiff now seals judgment in the form requested. I so direct.

[7] The plaintiff has taken no formal steps on the present application. Counsel for the plaintiff has filed a memorandum noting that no notice of opposition has been filed, and advising that it does not consent to the application. Counsel supports the judgment awarding costs on a joint and several basis but indicates that the plaintiff will abide by the Court’s decision.

[8] Mr Logan, who describes himself in the notice of application for review as representing the first, second, third, and fifth defendants, was not counsel at the earlier stage. At the hearing before me, he frankly acknowledged the failure to meet the deadline for submissions which the Associate Judge had fixed. He submits that there should not have been a joint and several award of costs against all defendants, and invites the Court on this review to revisit the decision of the Associate Judge.

[9] It is not clear what submissions were made to the Associate Judge at the hearing on 11 May as to costs. The order which the Associate Judge made as to costs essentially proceeds on the basis that the plaintiff was the successful party. The Associate Judge’s order was an application of the general principle expressed in r 14.2(a) of the High Court Rules that costs follow the event. Decisions as to costs are discretionary, and the principles which apply to an appeal against the exercise of a discretion must apply on this review. The defendants must demonstrate an error of principle. It would not be appropriate, on this review, to revisit the assessment by the Associate Judge who had conducted the hearing and was seized of the issues to the extent necessary to enable him to resolve the issue which remained to be decided.

[10] Mr Logan addressed submissions to me which in essence challenged the proposition that there should have been an award of costs in favour of the plaintiff. The application for review does not challenge the order made in the judgment of

23 May. It seeks a review only of the later decision of 6 July providing for joint and several liability. I do not consider it appropriate to examine the earlier decision. Having said that, I observe that I do not discern any error of principle in the Associate Judge’s decision to award costs to the plaintiff.

[11] The notice of review challenges the subsequent decision, recorded in the minute of 6 July, that the liability for costs should be joint and several on the part of all defendants. Mr Logan submits that, particularly so far as the sixth respondent is concerned, that party had limited involvement and it is unfair to award full costs against him. Mr Logan also advised that the first and second defendants are probably insolvent.

[12] I do not consider that any error on the part of the Associate Judge in directing that costs be payable by all defendants, jointly and severally, has been shown. Under r 14.14, the liability of each of two or more parties ordered to paid costs is joint and several, unless the Court otherwise directs. Associate Judge Matthews’ decision applied that general rule. I do not consider that any reason to depart from it has been demonstrated.

[13] The effect of the joint and several liability of the defendants is that the plaintiff will have the right to enforce the order against any defendant. Any issue as to the appropriate liability of the defendants inter se will be a matter for resolution between the defendants. If the liability were to be made a several one, the Court would have to fix the amount payable by each defendant. The plaintiff would carry the risk that one or more of the defendants may be unable to pay the share allocated. I consider that the Associate Judge was right not to vary the default position of joint and several liability. Any issues of contribution can be resolved as between the defendants. They are jointly represented.

[14] I am satisfied that no grounds have been made out for disturbing the decision which the Associate Judge made. The application for review is dismissed.

[15] As the plaintiff has not taken any formal steps on the present application, and abides the decision of the Court, there will be no order as to costs on the present application.

“A D MacKenzie J”

Solicitors: Pitt & Moore, Nelson, for Defendants