Ingenious Asset Management Limited v McConnon [2024] NZHC 1888 (11 July 2024)

Last Updated: 26 July 2024

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2103 [2024] NZHC 1888

IN THE MATTER OF	the Companies Act 1993
BETWEEN	INGENIOUS ASSET MANAGEMENT LIMITED Plaintiff
AND	SIMON MCCONNON First Defendant JOHN BAIRD MCCONNON Second Defendant ... cont over

Hearing:	On the papers
Appearances:	G Jindal for the Plaintiff M Wallace/ K Maclean for the First and Second Defendants K McDonald / N Percy for the Third Defendants R Stewart / A Wakeman for the Fourth and Fifth Defendants
Date of Judgment:	11 July 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

[costs]

This judgment was delivered by me on 11 July 2024 at 12 midday, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors/Counsel:

Ormiston Legal, Auckland

D’Archy Thompson Law, Christchurch Fee Langston, Auckland

Kevin McDonald & Associates, Auckland Freedom Chambers, Christchurch

INGENIOUS ASSET MANAGEMENT LTD v MCCONNON [2024] NZHC 1888 [11 July 2024]

AND KEVIN BRUCE RAMSEY

Third Defendant

STEPHEN MARK LAWRENCE

Fourth Defendant

CHRISTOPHER CAREY MCULLAGH

Fifth Defendant

Introduction

• [1] On 21 March 2024, I gave judgment for the defendants granting their applications for security for costs (the judgment). The plaintiff, Ingenious Asset Management Ltd (Ingenious) was ordered to pay $25,000 into Court for security for all defendants globally. It accounted for steps in the proceeding until determination of Ingenious’ application for strike out and any cross-applications by the defendants for strike out and/or summary judgment.

• [2] Ingenious filed a memorandum dated 25 March 2024 requesting that the Court revisit the judgment, relying on rr 7.49 and 14.8(2) of the High Court Rules 2016 (HCR). The memorandum comprised nine pages of submissions, challenging the reasoning and findings in the judgment.

• [3] Following directions from the Court, Ingenious filed an interlocutory application confirming the orders sought. The application sought an expanded range of orders relying on rr 7.49, 11.9 and 14.8(2) of the HCR, and leave to appeal the judgment under s 56(3) of the Senior Courts Act 2016 (SCA). The application was opposed by all defendants.

• [4] On 16 May 2024, the parties filed memoranda confirming that an agreed position had been reached regarding a proposed recall of the judgment and amendment of paragraph [37] of the judgment. On 20 May 2024, I recalled the judgment.

• [5] On 27 May 2024, Ingenious filed a memorandum confirming that the remaining interlocutory applications by the plaintiff under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA were withdrawn.

• [6] The judgment was re-issued on 31 May 2024, with an amended paragraph [37] of the judgment as proposed by the parties.¹ Costs were reserved.

• [7] The parties have been unable to agree on costs following the judgment and Ingenious’ subsequent applications. I will deal with costs in two parts:

¹ Ingenious Asset Management v McConnon [2024] NZHC 624.

(a) costs on the application for security for costs; and

(b) costs on Ingenious’ applications under rr 7.49, 11.9 and 14.8 of the HCR and s 56(3) of the SCA.

Costs on the application for security for costs

• [8] In the judgment, I expressed a preliminary view that costs should follow the event and that the defendants were the successful parties. There are three groups of defendants, and each group seeks an award of costs on a 2B basis, together with an uplift to reflect Ingenious’ conduct.

• [9] The groups of defendants are:

(a) the first and second defendants;

(b) the third defendant;

(c) the fourth and fifth defendants.

• [10] Ingenious argues that:

(a) The defendants should be refused costs and Ingenious should be awarded increased costs because the defendants unreasonably refused to accept Ingenious’ offer of security made before the hearing.

(b) Alternatively, costs should lie where they fall because Ingenious could not have anticipated that the level of security would be fixed based on a first stage of litigation involving applications for summary judgment.

(c) Alternatively, only one set of costs should be allowed to all defendants collectively.

(d) Alternatively, any award of costs in favour of the defendants should be reduced, because:

(i) Ingenious conceded that the threshold for making an order for security had been met, and the defendants presented unnecessary arguments on the merits of Ingenious’ substantive claims; and

(ii) the defendants pursued security for costs for an “ulterior tactical purpose”.

Did the defendants unreasonably refuse to accept Ingenious’ offer of security made before the hearing?

• [11] Rule 14.7(f)(v) of the HCR relevantly provides:

14.7 Refusal of, or reduction in, costs

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

(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

• [12] Rule 14.10(1) of the HCR relevantly provides:

• 14.10 Written offers without prejudice except as to costs

(1) A party to a proceeding may make a written offer to another party at any time that—

(a) is expressly stated to be without prejudice except as to costs; and

(b) relates to an issue in the proceeding.

• [13] Rule 14.11 of the HCR relevantly provides:

• 14.11 Effect on costs

(1) The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.

(2) Subclauses (3) and (4)—

(a) are subject to subclause (1); and

(b) do not limit rule 14.6 or 14.7; and

(c) apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).

(3) Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a) offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b) makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

(4) The offer may be taken into account, if party A makes an offer that—

(a) does not fall within paragraph (a) or (b) of subclause (3); and

(b) is close to the value or benefit of the judgment obtained by party B.

• [14] The reasonableness of a party’s rejection of an offer should be considered at the time the offer was made, not against the subsequent result.²

• [15] Ingenious made three relevant offers of security to the defendants. The first offer was dated 5 February 2024 and can be disregarded. The proposed staged security was in the form of undertakings from Ingenious’ director. No supporting information was provided to confirm the director’s ability to meet the undertakings. As I held in the judgment, this was an appropriate case for security to be in the form of a payment into Court.³

• [16] The second offer was dated 28 February 2024. When that offer was not accepted, it was superseded by a more generous offer from Ingenious dated 5 March 2024, which is the relevant offer when considering the application of rr 14.7(f)(v) and 14.11.

• [17] The offer was for global security of $75,000 paid into Court in three stages:

$15,000 by 1 April 2024; $20,000 two months before trial and $40,000 15 days before trial.

• [18] All parties agreed that staged security was appropriate. Ingenious’ offer did not attribute specific steps in the proceeding to stage one proposed by Ingenious. This made it difficult for the defendants to assess the offer, because it required a prediction

2. Samson v Mourant [2016] NZHC 1119 at [44]; Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].

³ Ingenious Asset Management v McConnon, above n 1, at [39]–[44].

of the steps that would be taken in the proceeding by 1 April 2024. All defendants declined the offer.

• [19] During argument at the hearing on 11 March 2024, it became apparent that the logical delineation of stage one for security was Ingenious’ extant application for strike out and/or summary judgment in respect of parts of the defences, combined with any cross-applications that might be filed by the defendants for strike out or summary judgment in respect of Ingenious’ claim. I called for further submissions on the appropriate level of security on that basis, and security for stage one of $25,000 was ultimately fixed on that basis.

• [20] Ingenious’ offer of $15,000 for stage one security was well short of the $25,000 that was ordered. That is not a criticism of Ingenious’ decision to offer $15,000 for an ill-defined stage one. However, the defendants did not act unreasonably in rejecting the offer and were ultimately successful in obtaining security that exceeded the amount offered by 66 per cent. Ingenious’ offer of $15,000 was not close to the benefit of the judgment obtained by the defendants.

• [21] It is not unusual for a party who has obtained an order for security for costs to be considered the successful party and awarded costs notwithstanding that the order is less than the amount of security sought.⁴ The defendants’ refusal to accept Ingenious’ offer of security does not provide a basis to refuse or reduce an award of costs to the defendants.

Should costs lie where they fall because Ingenious could not have anticipated that the level of security would be fixed based on a first stage of litigation involving applications for summary judgment?

• [22] Ingenious argues that it was not possible to anticipate the approach that the Court would take to determining the steps in stage one for security, and therefore costs should lie where they fall.

• [23] Where the parties agree that staged security is appropriate, and there are divergent views regarding the steps that should be included in stage one, then it is

⁴ For example, see Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2019] NZHC 759.

inevitable that the Court will need to determine the scope of stage one for the purpose of security. That was a necessary part of determining the applications for security, and Ingenious’ inability to predict the outcome in advance is not a sufficient reason to deny the defendants’ costs.

Should only one set of costs be allowed to the defendants collectively?

• [24] Rule 14.15 of the HCR relevantly provides:

14.15 Defendants defending separately

The court must not allow more than 1 set of costs, unless it appears to the court that there is good reason to do so, if—

(a) several defendants defended a proceeding separately; and

(b) it appears to the court that all or some of them could have joined in their defence.

• [25] The rule is directed towards the conduct of substantive defences, however it also applies to interlocutory steps where the defendants are applicants.⁵

• [26] Regarding the defendants’ substantive defences, I remain of the view that the three groupings of the defendants is appropriate. The first, second and third defendants were directors of Global Dairy Ltd (in liquidation), the company that is the subject of Ingenious’ claims. The third defendant asserts that he had no knowledge of certain key acts by the first and second defendants. It is appropriate for the third defendant to have independent representation in this proceeding.

• [27] The fourth and fifth defendants are the liquidators of Global Dairy. The interests of the liquidators, and the claims against them by Ingenious, are discreet. The liquidators require separate representation in this proceeding.

• [28] It was appropriate for each group to bring a separate application for security. The issue is whether the three groups of defendants could have cooperated to a greater degree in prosecuting their applications.

⁵ Houghton v Saunders [2013] NZHC 3452 at [36].

• [29] Ingenious’ substantive claims against each group of defendants differ. A preliminary assessment of the merits of each claim was relevant when determining the level of security. It was appropriate for each group to make submissions on the merits of Ingenious’ substantive claims against that group. Even so, there was scope for the first, second and third defendants to file one set of submissions, rather than the two sets filed. A reduction for this step is justified.

• [30] There was scope for cooperation between the defendant groups in representation at the hearing. Given the significant divergence between the claims against the directors and the claims against the liquidators, it was appropriate for the liquidators to have separate representation at the hearing, and for one counsel to represent the first to third defendants. That is the approach that the defendants took.

Should costs be reduced because the defendants presented unnecessary arguments on the merits of Ingenious’ substantive claims?

• [31] The defendants filed their applications for security for costs between November 2023 and January 2024. Ingenious did not concede that the threshold for security was met until after the applications had been filed.

• [32] As discussed above, in my view it remained appropriate for the defendants to make submissions on the merits of Ingenious’ substantive claims. Ingenious made similar submissions. There is no basis for a reduction in the costs awarded to the defendants.

Should costs be reduced because the defendants pursued security for costs for an ulterior tactical purpose?

• [33] Generally, if a plaintiff is unable to pay security for costs then a plaintiff’s claims are likely to be stayed, and the defendant will have gained an advantage. That does not render every application for security for costs an abuse of process.

• [34] The defendants were justified in applying for security for costs – their applications led to Ingenious conceding that security was required. The defendants ultimately obtained orders for security that exceeded the best without prejudice offer

made by Ingenious. The defendants’ applications were not made for an ulterior tactical purpose.

Are the defendants entitled to an uplift?

• [35] I do not accept that Ingenious’ approach to the applications for security satisfies any of the grounds for an uplift of costs in r 14.6 of the HCR. An award of 2B costs to each defendant group is appropriate.

• [36] I have reviewed the schedules provided by each defendant group setting out the costs claimed on a 2B basis. The only adjustment I make is to reduce the amount of time for step 24 pursuant to sch 3 of the HCR, for the preparation of written submissions, for the first, second and third defendants. The claims of 1.5 days (for the first and second defendants collectively, and the third defendant) are reduced to 0.75 of a day per group.

• [37] It is only necessary for one defendant to seal the judgment. I have allowed that step to the fourth and fifth defendants.

Result

• [38] On that basis, I am satisfied that the awards of costs on the applications for security should be:

(a) first and second defendant — $5,377.50 as set out in sch A of this judgment, plus disbursements of $500;

(b) third defendant — $ 6,572.50 as set out in sch B, plus disbursements of

$500;

(c) fourth and fifth defendants — $11,233 as set out in sch C, plus disbursements of $500.

Costs on the plaintiff’s applications under rr 7.49, 11.9 and 14.8 of the HCR and s 56(3) of the SCA

• [39] Ingenious’ applications under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA were withdrawn and the defendants are entitled to be treated as the successful parties in respect of those applications. The issues are:

(a) whether there should be a reduction in costs, or an award of costs to Ingenious, because Ingenious was successful in obtaining a limited recall of the judgment under r 11.9;

(b) whether the defendants are entitled to increased costs due to Ingenious’ conduct in pursuing the applications; and

(c) whether an award of costs should be made against Ingenious’ counsel.

Whether there should be a reduction in costs, or an award of costs to Ingenious, because Ingenious was successful in obtaining a limited recall of the judgment under r 11.9

• [40] I begin by considering what the position on costs would have been if Ingenious’ only application was for recall and amendment of paragraph [37] of the judgment under r 11.9 of the HCR.

• [41] Although Ingenious was successful, I consider that costs on this application should lie where they fall for the following reasons:

(a) the application under r 11.9 did not set out the specific relief sought by Ingenious, and in particular, the form of the amendment sought to paragraph [37] of the judgment;

(b) on being served with that application, the defendants could not ascertain whether the relief sought on a recall of the judgment would overlap with the much broader relief sought in respect of Ingenious’ applications under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA. It was appropriate for the defendants to oppose all applications;

(c) the parties then communicated and agreed the terms of an amended paragraph [37] of the judgment, subject to the Court’s approval;

(d) the recall was granted and the proposed amendment of paragraph [37] was made by consent, and the amount of time occupied by this part of the application was minimal.

• [42] Therefore, I do not consider that it is appropriate to award costs to Ingenious. However, costs for the defendants in respect of the applications under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA should be fixed based on allowances of time which exclude time spent on the application under r 11.9.

Whether the defendants are entitled to increased costs due to Ingenious’ conduct in pursuing the applications

• [43] The starting point is that the defendants are entitled to costs on a 2B basis for all steps that they reasonably took in opposing Ingenious’ applications under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA.

• [44] The challenges to the judgment were in substance a challenge that the judgment was wrong in fact and law. Ingenious’ approach to the applications was to begin by filing memoranda seeking orders on an informal basis. I required Ingenious to file a formal interlocutory application, and Ingenious eventually did so.

• [45] Each group of defendants is entitled to 0.6 of a day for preparation of a notice of opposition, and the filing fee of $110 each.

• [46] Ingenious’ approach required case management conferences on 10 and 16 April 2024. The defendants filed joint memoranda for those conferences dated 28 March and 16 April 2024. I allow 0.3 of a day to each group of defendants for each case management conference, including preparation of the joint memorandum. The total allowance is 0.6 of a day for each group.

• [47] There was a further conference on 17 May 2024, which was necessary for two reasons:

(a) to deal with the application for recall of the first judgment on a consent basis;

(b) to deal with the other interlocutory applications by Ingenious, which had not been withdrawn at that stage.

• [48] I consider that each group of defendants is entitled to 0.2 of a day for attendance at this conference, including preparation of the joint memorandum dated 16 May 2024 filed in advance of that conference.

• [49] Therefore, the total allowance for each group of defendants is 1.4 days. If costs are awarded on a 2B basis, the award for each group of defendants is $3,346.

• [50] Rule 14.6(3) of the High Court Rules 2016 relevantly provides:

14.6 Increased costs and indemnity costs

...

(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

• [51] Ingenious’ applications under rr 7.49 and 14.8(2) of the HCR sought to make substantive challenges to the judgment beyond the scope of the rules relied upon. The

appropriate course was for Ingenious to seek leave to appeal under s 56(3) of the SCA, which Ingenious eventually did. However, that application was withdrawn.

• [52] I do not accept that the conduct of the applications that were combined with the application under r 11.9 contributed unnecessarily to the time or expense incurred by the defendants in dealing with the applications. I award costs to each group of defendants of $3,346 plus the filing fee.

Whether an award of costs should be made against Ingenious’ counsel

• [53] The defendants seek an order for costs against the plaintiff’s counsel, Mr Jindal. They argue, primarily, on the alleged ground that Mr Jindal misled the Court regarding the terms of the assignments between creditors of Global Dairy and Ingenious, which are the basis of Ingenious’ claims in this proceeding.

• [54] I do not consider that this alleged ground is relevant to a determination of costs following the event in respect of the applications dealt with in this judgment.

• [55] Even if the allegations made against Mr Jindal are established, which is a matter that I have not considered, the conduct in question did not:

(a) affect the outcome of the application for security for costs;

(b) affect the outcome of the applications under rr 7.49 and 14.8(2) of the HCR and s 56(3) of the SCA;

(c) materially affect the amount of time required by the defendants to deal with those applications.

• [56] The allegations made by the defendants may become relevant when costs are determined in respect of other steps in this proceeding.

Conclusion

• [57] On that basis, I am satisfied that the combined awards of costs should be:

(a) first and second defendant — $8,723.50 plus disbursements of $660;

(b) third defendant — $9,918.50 plus disbursements of $660;

(c) fourth and fifth defendants — $14,579 plus disbursements of $660.

Orders

• [58] The plaintiff shall pay the first and second defendants’ costs of $8,723.50 plus disbursements of $660, payable immediately.

• [59] The plaintiff shall pay the third defendant costs of $9,918.50 plus disbursements of $660, payable immediately.

• [60] The plaintiff shall pay the fourth and fifth defendants’ costs of $14,579 plus disbursements of $660, payable immediately.

Associate Judge Brittain

Schedule A

22	Filing interlocutory application.	0.6	$1,434
12	Attendant at Judicial Conference 16 February 2024	0.2	$478
24	Preparation of written submissions.	.75	$1,792.50
13	Appearance at subsequent case management conference.	0.3	$717
11	Filing memorandum in respect of costs on security for costs application	0.4	$956
	Total	2.25	$5,377.50

Schedule B

12	Appearance at mentions hearing or callover (16.02.24)	0.2	$478
22	Filing interlocutory application	0.6	$1,434
24	Preparation of written submissions	.75	$1,792.50
26	Appearance at hearing	.5	$1,195
13	Appearance at subsequent case management conference (19.03.24)	0.3	$717
11	Filing memorandum on costs	0.4	$956
	Total	2.75	$6,572.50

Schedule C

12	Appearance at mentions hearing or callover.	0.2	$478
22	Filing interlocutory application.	0.6	$1,434
24	Preparation of submissions.	1.5	$3,585
25	Preparation by applicant of bundle for hearing	0.6	$1,434
26	Appearance hearing of defended application for sole or principal counsel.	0.5	$1,195
11	Filing memorandum for subsequent case management conference or mentions hearing.	0.4	$956
13	Appearance at subsequent case management conference	0.3	$717
11	Filing memorandum for subsequent case management conference or mentions hearing (Memorandum re costs necessitated by plaintiff’s refusal to agree costs. Step applied by analogy).	0.4	$956
29	Sealing order or judgment	0.2	$478
	Total	4.7	$11,233