Grant v Il Forno Limited [2014] NZHC 1847 (7 August 2014)

Last Updated: 14 August 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-000627 [2014] NZHC 1847

UNDER	the Companies Act 1993
IN THE MATTER OF	the liquidation of SM Food Limited (In Liquidation)
BETWEEN	DAMIEN GRANT and STEVEN KHOV Plaintiffs
AND	IL FORNO LIMITED Defendant

On the papers
Judgment:	7 August 2014

_{COSTS JUDGMENT OF GILBERT J}

This judgment is delivered by me on 7 August 2014 at 3pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

GRANT and KHOV v IL FORNO LIMITED [2014] NZHC 1847 [7 August 2014]

Introduction

[1] In a judgment delivered on 23 June 2014 I dismissed the plaintiff liquidators’ application to set aside an alleged voidable transaction.¹ I found that the liquidators’ notice was valid and that they had proved that the transaction would have been an insolvent transaction in terms of s 292(2) of the Companies Act 1993 had it been a transaction involving SM Food Limited (In Liquidation). However, I dismissed the liquidators’ application because I found that the relevant transaction involved the

sole shareholder of SM Food Limited, Skipper Trustees Limited, not SM Food itself.

[2] The parties have been unable to agree the issue of costs and this judgment deals with that issue.

[3] The creditor, Il Forno Limited, seeks an uplift of 50 per cent on 2B costs on the grounds that there was no proper basis for the liquidators’ application and the liquidators failed, without reasonable justification, to accept a settlement offer. The liquidators contend that a 50 per cent reduction on 2B costs should be awarded because Il Forno pursued arguments that lacked merit. The liquidators also argue that costs should not be allowed for some steps as they contend that these were unnecessary. Finally, there is a dispute about the recoverable disbursements.

Should scale costs be increased, or decreased, because arguments were pursued that lacked merit?

[4] Although I concluded that the relevant transaction was entered into by Skipper Trustees, not SM Food, I do not consider that the liquidators’ contention to the contrary was so lacking in merit as to justify an award of increased costs against them. There had been a lengthy history of substantial shareholder advances by Skipper Trustees to enable SM Food to meet payments due to creditors. The liquidators considered that the relevant transaction fell into the same category, having regard to the substance, rather than the form, of the payment. While I did not accept their analysis, I consider that the liquidators acted responsibly in pursuing the

_claim.

¹ Grant & Khov v Ilforno Ltd [2014] NZHC 1416.

[5] I found that there was no merit in Il Forno’s contentions that the liquidators’ notice was invalid and that the liquidators had failed to prove that Il Forno received more as a result of the transaction than it would be likely to receive in the liquidation. However, these issues did not occupy significant time at the hearing and I do not consider that costs should be reduced on account of them.

Should scale costs be increased because the liquidators failed, without reasonable justification, to accept a settlement offer?

[6] On 11 June 2014 Il Forno’s solicitors wrote to the liquidators’ solicitors explaining why they considered that the claim would fail. The letter concluded with the following offer:

Scale 2B costs in Il Forno’s favour at this point are approximately $4,800.

On a without prejudice save as to costs basis Il Forno will accept the sum of

$2,500 in full and final settlement of the issue of costs on the application if the application is withdrawn immediately. This offer is open for acceptance until 10am tomorrow morning after which time it is withdrawn. In the event that this offer is not accepted and Il Forno obtains a result in its favour this letter will be presented to the court in support of an application for indemnity costs against the liquidators for all steps taken in the proceeding from this point onwards.

[7] I do not consider that the liquidators acted unreasonably in failing to accept this offer. The liquidators were not offered anything; they were invited to pay costs as a condition of being able to discontinue their claim. I do not consider that increased costs can be justified on the basis that the liquidators did not accept the offer contained in this letter in the extremely tight timeframe stipulated. In any event, I would not be prepared to take this letter into account in Il Forno’s favour because it communicated this offer to the Court prior to the substantive judgment being issued, contrary to r 14.10(2) of the High Court Rules. Il Forno had no right to waive unilaterally the joint privilege held by the parties in respect of this letter.

Unnecessary steps?

[8] When the liquidators’ application was first called on 9 April 2014, Mr Greer suggested that there were some preliminary issues that could dispose of the application if the Court had time to hear them that day. Mr Ho did not have instructions and was not able to deal with the matter that day. Accordingly,

Sargisson AJ adjourned the matter until 16 April 2014. Her Honour noted in her minute that whether or not the preliminary issues could be determined on that date would depend on whether time was available that day.

[9] The application was called before Doogue AJ on 16 April 2014. There was no time available to determine the preliminary issues and accordingly the matter was adjourned so that all matters could be addressed. Mr Ho submits that the attempt by Il Forno to have preliminary issues determined was an unnecessary step and that the liquidators are entitled to costs in relation to it. I do not accept this submission. I consider that costs should follow the event in relation to all relevant steps, including the brief appearance on 16 April 2014.

Disbursements

[10] Il Forno is entitled to its reasonable disbursements, being the filing fee paid on its notice of opposition, photocopying and binding charges, and courier charges for serving documents. These disbursements are to be fixed by the Registrar in the event that they cannot be agreed. In the circumstances of this case, I do not consider that Il Forno is entitled to travel costs for counsel.

Result

[11] Il Forno is entitled to costs calculated on a 2B basis for all steps in the proceeding, together with its reasonable disbursements as set out above. These are

_{to be fixed by the Registrar in the absence of agreement.}

M A Gilbert J