ASSET TRADERS LTD V FAVAS SPORTSCAR WORLD LTD HC AK CIV 2006-404-4353

ASSET TRADERS LTD V FAVAS SPORTSCAR WORLD LTD HC AK CIV 2006-404-4353 13 September 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-4353IN THE MATTER OF Section 167 of the Personal Property Securities Act 1999 BETWEEN ASSET TRADERS LIMITED Applicant AND FAVAS SPORTSCAR WORLD LIMITED Respondent Appearances: Mr Burley for applicant Mr Dale for respondent Judgment: 13 September 2006 at 2.15 pmCOSTS JUDGMENT OF WINKELMANN JThis judgment was delivered by me on 13 September 2006 at, 2.15 pm pursuant to Rule540(4) of the High Court Rules. Registrar/ Deputy RegistrarCallaghan & Co, Auckland P J Dale, Barrister, Auckland[1] On 3 August 2006 I heard argument on an application under s 167 of the Personal Property Securities Act 1999 (the Act) for an order that the Financing Statements registered over two cars owned by the respondent be maintained. [2] The respondent had served demand on the applicant under s 162(d) of the Act. The effect of this demand was that the applicant's registration in respect of a claimed security interest could be discharged on the respondent's request unless within 15 days the applicant obtained a Court order maintaining the registration. [3] The applicant was unsuccessful in its application to maintain its registrations. The respondent now seeks indemnity costs on the application, or alternatively increased costs. It also seeks an order for costs against the director of the applicant, and deponent in this proceeding, Mr Trent Cary.Application for costs against non-party[4] In submissions the respondent states that the shares in the applicant are owned by a Trust which is "presumably" controlled by Mr Cary. In any event it is said to be obvious that Mr Cary was likely to be the beneficiary of a successful outcome. The contents of Mr Cary's affidavit suggest that the vehicle was for personal use, and that is in any event evident from the type of vehicle itself. The respondent submits that Mr Cary was the real party to the litigation and that the "shell company" was simply a vehicle for bringing the claim. [5] The respondent submits that it can be inferred that the applicant is impecunious because Mr Cary's affidavit makes clear that there were difficulties with funding the purchase of the vehicle, and further the applicant company has a share capital of only $100. There is therefore little prospect of costs recovery unless it is against Mr Cary personally.[6] The respondent further submits that costs could be ordered on a joint and several basis, so that if the applicant is able to pay, Mr Cary will not suffer any hardship. [7] In response the applicant argues that costs against a non-party are an exceptional order and as a pre-requisite to making such an order, it must be established the non-party "caused" the proceeding to be brought or continued; the non-party should not be held liable for costs incurred without that party's involvement. The applicant submits that there is insufficient evidence to support the contention the proceedings were brought for Mr Cary's benefit and that the evidence is to the contrary (and consistent with asset trading) because Mr Cary said he personally had no particular preference over which Lamborghini was ultimately purchased. More generally, it is submitted there is no suggestion that Mr Cary was in fact the "real" party to the litigation. There is no clear indication that he funded it. Lastly, the applicant refutes the respondent's submission that the applicant company has insufficient funds to meet any costs order. There is no supporting financial or independent evidence to support the view the company does not have any assets, nor that the $100 share value of the company is indicative of impecuniosity.[8] The starting point in respect of considering whether costs should be awarded against a non-party is the decision of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145. In that case the Privy Council summarised the general principles applicable as follows (at [25]:Although costs orders against non–parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact– specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. Generally speaking the discretion will not be exercised against "pure funders", described in para [40] of Hamilton v Al Fayed as "those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course". In their case the Court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.Where, however, the non–party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non–party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence – see, for example, the judgments of the High Court of Australia in Knight and Millett LJ's judgment in Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1997] 1 WLR 1613.[9] In Arklow Investments Ltd v MacLean HC AK CP49/97, 19 May 2000, Fisher J said (at [20]): where a person is a major shareholder and dominant director in a company which brings proceedings, that alone will not justify a third party costs order. Something additional is normally warranted as a matter of discretion. The critical element will often be a fresh injection of capital for the known purpose of funding litigation.[10] In this case I do not accept that the matters the respondent refers me to justify an inference that the applicant is impecunious. Nor is there any evidence that Mr Cary has funded the litigation. [11] However, Mr Cary is the sole director of the applicant and thus has the means of causing the applicant to bring these proceedings. The affidavit filed in support of the application is an affidavit of Mr Cary. He says in paragraph [1] that he is the sole director, and authorised to make the affidavit. The applicant is not thereafter referred to again in the chronology of events in his affidavit (although referred to in solicitor's correspondence once the issue of priorities between the applicant and respondent had crystallised). Indeed, the affidavit starts out:I became aware that a neighbour of mine, Adrien De Croy, was looking to sell two Lamborghini Diablos which I was equally interested in buying for my own use as an investment opportunity.[12] At paragraph [17] he says:Following this agreement, I then separately agreed with Ethnik that in consideration of my having brokered the land/car swap deal between he and Adrien, I would have the opportunity of buying one of the Lamborghinis of my choice at what effectively would be a discounted price relative to whatever the agreed swap value would be between he and DeCroy.[13] In the light of this material contained in the affidavit, I am satisfied that the dealings were between Mr Cary personally and Mr Krasniqi. There is no evidence to suggest that Mr Cary was acting as the agent of Asset Traders. The overriding impression created by his own affidavit is that when the matter turned to a dispute, he simply utilised the limited liability company he was sole director of to pursue the issue and commence these proceedings. There is nothing to suggest that the company ever had an interest in the cars or was intended to have an interest. In these circumstances I am satisfied that Mr Cary has used the applicant company as a front for bringing this litigation, perhaps to avoid the possibility of facing a personal liability for costs. [14] In such circumstances where the company is being used as a mere front for the directors own activities, I do not see that proof of impecuniosity is a pre-requisite before an order for costs against the non-party will be made. [15] Accordingly the order for costs will be made jointly and severally against the applicant and against Mr Cary personally.Indemnity costs[16] In relation to the claim for indemnity costs, this is made on the basis that the applicant's claim was hopeless, yet the applicant persisted when legal deficiencies in its claim to security interests in the cars were articulated in the notice of opposition. Further, the claim was brought on an urgent basis, the issues raised novel points of law and required careful analysis of the legal issues. [17] In terms of the High Court Rules indemnity costs can be awarded where the party has acted vexatiously, frivolously, improperly or unnecessary in commencing, continuing or defending a proceeding or a step in a proceeding, or 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 (Rule 48C(a) & (f).[18] In general, the threshold for awarding indemnity costs is a high one. InHedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [8] to [10] Goddard J noted that indemnity costs will only be awarded under rule 48C in "truly exceptional circumstances". In that decision the Judge cited Colgate Palmolive Co v Cussons Pty Ltd (1992) 118 ALR 248 where Shepherd J delineated six scenarios which might justify the award of indemnity costs:(xii) The question must always be whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on party and party basis. Circumstances warranting the exercise of the discretion to award indemnity costs include: (a) the making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud; (b) evidence of particular misconduct that causes loss of time to the court and other parties; (c) the fact that the proceedings were commenced for some ulterior motive; (d) the fact that the proceedings were commenced in wilful disregard of known facts or clearly established law; (e) the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions; (f) an imprudent refusal of an offer to compromise;[19] In this case, I accept that the applicant's claim was ultimately doomed to fail. However, it was necessarily brought on an urgent basis and there was some underlying factual background which caused Mr Cary to believe that he had some interest in the respondent's cars. In those circumstances I do not consider lack of merit in the claim meets the high threshold for the award of indemnity costs. [20] I do not consider that urgency is in itself a basis for the award of indemnity costs. In any case, it was the respondent itself that requested that the matter be dealt with urgently. It would have been possible to grant a lengthier interim order (an interim order lasting only three days was granted in this case) so that the matter could have proceeded in a more measured fashion. However, the respondent requested that the Court deal with the matter in the Duty Judge list because of concerns that the value of the cars could be adversely impacted by delay.[21] As to the argument that indemnity costs should be awarded because the legal issues were complex, that is not a basis for the award of indemnity costs. In any case, I do not consider the legal issues raised were overly complex. [22] I have also considered whether Mr Cary's use of the applicant company as a "front" for his own purposes, justifies the award of indemnity costs. However, this conduct of his did not add costs to the proceeding, and I remind myself that costs are not be to utilised as a punishment. [23] There is nothing in the conduct of the proceeding that justifies an increased order.Proper calculation[24] In relation to the proper calculation, the respondent notes that there are three possible ways in which the calculation of costs can be approached. Mr Dale says that while the application was an originating application, it does not fall within the definition of a specified originating application contained in items 26-31 to the 3 rdSchedule of the High Court Rules. However, originating applications in respect of caveats are specified applications for the purposes of those Rules and in this case a similar procedure was used to that in respect of applications that caveat not lapse. Accordingly, Mr Dale suggests that that is the appropriate costs calculation. Alternatively, he says I may be of the view that costs should be payable on the originating application as they would have been prior to the introduction of items 26- 31 of the 3 rd Schedule on 1 June 2005 and in any event, on the basis that this is not a specified originating application. That produces a significantly higher cost calculation than is produced if the proceeding is treated as a specified originating application. [25] Finally, the alternative way of approaching the matter which is urged upon me by the applicant, is that this application should be dealt with as if an interlocutory application. That is not an appropriate approach. The application was dispositive of the issues between the parties and so cannot in any sense be said to be interlocutory.Were that calculation to be adopted, the contribution toward costs would be at too low a level. [26] I therefore accept that while items 26-31 of the third schedule does not expressly refer to applications under the Act, the costs calculation provided for in Schedule A to Mr Dale's memorandum is most appropriate in this case. [27] Accordingly, the respondent is entitled to an order of costs against the applicant and Mr Trent Cary in the sum of $4,640.00. The applicant and Mr Cary are jointly and severally liable in respect of those costs. Winkelmann J