FROG ROCK TRUST v TOON (as liquidator of Social Media Consultants Ltd) [2020] NZHC 1407

FROG ROCK TRUST v TOON (as liquidator of Social Media Consultants Ltd) [2020] NZHC 1407 [22 June2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-002526[2020] NZHC 1407IN THE MATTER OF an application to obtain leave for creditorsand other entitled persons, under s 284(1) ofthe Companies Act 1993, to have the Courtgive direction to the liquidator of SocialMedia Consultants Ltd pursuant toss 284(1)(a) to (h) and s 284(2) of theCompanies Act 1993 and for the Court toremove the protection that the liquidatorcould employ under s 284(3) of theCompanies Act 1993 by the Court ruling thatan order pursuant to s 284(4) should be madeagainst the liquidatorBETWEEN FROG ROCK TRUST, BRIAN HENRY,HOWARD TAYLOR, JUANA ATKINS andMARC SPRING (being an authorised personof the prepaid subscription holders)ApplicantsAND VICTORIA TOON (as liquidator of SocialMedia Consultants Ltd)RespondentHearing: (On the papers)Judgment: 22 June 2020COSTS JUDGMENT OF VENNING JThis judgment was delivered by me on 22 June 2020 at 11.30 am, pursuant to Rule 11.5 of the HighCourt Rules.Registrar/Deputy RegistrarDateSolicitors: Nicholls Law Ltd, AucklandHeaney & Partners, AucklandIntroduction[1] On 13 November 2019 the applicants issued an originating application seekinga number of orders against the respondent as liquidator of Social Media ConsultantsLimited, including an order that she resign from that office effective immediately.[2] On 16 March 2020 the applicants discontinued the application. The respondentnow seeks costs. The respondent seeks an order that her reasonable solicitor/clientcosts of $19,171.65 be paid on an indemnity basis. The applicants accept that an orderfor costs is appropriate but submit it should be to scale.[3] The file came before two Associate Judges: Judge Andrew and JudgeSargisson. Judge Sargisson was the last Judge to minute the file. She has now retired.In her absence the Registrar has referred the file to me as Duty Judge. I propose todeal with the issue of costs as provided for by HCR 14.9.[4] The proceedings were misconceived from the outset. The applicants are statedto be Frog Rock Trust and four named persons. The trustees of the Frog Rock Trustwere not identified. It is now accepted that the Frog Rock Trust is not a legal entity.The four other named applicants all signed the application, which was stated to bemade under s 284 of the Companies Act 1993 for urgent emergency orders.Procedural history[5] The application came before Associate Judge Andrew on 13 December 2019.Mr Spring, one of the named applicants, sought to appear on behalf of all theapplicants. The Judge recorded that Mr Spring had no authority to represent parties inthis Court and it would be necessary for the applicants to obtain proper legalrepresentation. The Judge also noted there were issues as to whether the respondentMs Toon had been properly served with the proceedings. She had only obtained copiesof the relevant documents by picking up copies from the Registry. Mr Martelli fromHeaney and Partners appeared on her behalf.[6] The Judge observed that the applicants made very serious allegations againstthe respondent. He considered it essential the applicants obtained legal representationto determine whether there was a proper basis for the application.[7] By the time the matter next came before Associate Judge Sargisson on 6 March2020 Mr Nicholls had been instructed by the applicants. Mr Nicholls acknowledgedthe first named applicant, Frog Rock Trust, was not a legal entity. He also had somedifficulty to support the standing of the remaining applicants except for Ms Atkins(who was a director and shareholder of the company in liquidation). Judge Sargissondirected further steps be taken in relation to the standing of Mr Henry, Mr Taylor andMr Spring if the matter was to be pursued. As noted, shortly afterwards, on 16 March,the proceeding was discontinued.Indemnity costs[8] The respondent seeks costs on a solicitor/client basis under HCR 14.6 whichprovides:(4) The court may order a party to pay indemnity costs if—(a) the party has acted vexatiously, frivolously, improperly, orunnecessarily in commencing, continuing, or defending aproceeding or a step in a proceeding; [9] Mr Martelli submitted the proceedings were vexatious and had no prospect ofsuccess.[10] The application contained a number of extreme allegations against therespondent. The grounds in support of the application alleged, inter alia, that:(a) Ms Toon had entered secret negotiations and sales contracts with aminor creditor with a joint desire to destroy the value of the company'smajor asset;(b) Ms Toon had acted to criminally harass and blackmail other personswishing to protect the value of the domain name in order to obtainassets that did not belong to the company in order to destroy the valueof the company's assets and reputation;(c) that Ms Toon had falsely alleged that certain major creditors had fileddishonest claims in order to attempt to intimidate and harass thosecreditors.[11] The allegations were purportedly supported by affidavits from Mr Spring, MsAtkins and Mr Cunliffe. The allegations are serious, particularly when made againsta professional person such as Ms Toon acting in the course of her profession. If madepublicly and found to be wrong they would support a claim in defamation. Allegationsmade in Court proceedings are privileged. With that privilege comes a responsibilityto ensure that allegations of fraud or dishonest behaviour have a proper basis.[12] A solicitor associated with such pleadings or allegations has an additionalresponsibility and can be the subject of disciplinary proceedings if the allegations aremade without a substantive basis.1 Quite apart from the solicitor's responsibility, aparty who wrongfully makes such allegations is at risk of sanction by an adverse costsaward.[13] Mr Nicholls submitted that the situation fundamentally arose from lay peopleattempting to avert what they honestly believed to be an injustice. The application wasnot intentionally vexatious. While he argued that no more than scale costs wereappropriate, if there was to be an uplift, it should be no more than 25 per cent.[14] I accept that once Mr Nicholls became involved the matter was very quicklybrought under control and the discontinuance filed but by then the respondent hadbeen put to the trouble of responding to the salacious allegations. Sensationalallegations of the type made in the present case can attract the attention of the media.In this case an application was made by the media to search the Court file, which MsToon's solicitors had to respond to.1 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 13.8.1.[15] I am satisfied that the criteria for indemnity costs is made out in this case. Theproceedings were vexatious and improperly brought in the form they werecommenced. They wrongly alleged fraud, criminal harassment and blackmail withoutany proper basis for such scandalous allegations. Such serious allegations against aprofessional person in the role of liquidator required a serious and detailed response.[16] In bringing the proceedings the applicants acted improperly and unreasonably.2To exacerbate matters, it appears the proceedings were brought with the intention ofpreventing Ms Toon from carrying out her proper functions as liquidator. Theproceedings were hopeless and on the information before the Court would never havesucceeded.[17] As noted, the costs sought are $19,171.65. By comparison, costs on a scale 2basis would amount to $9,082.00 calculated as:Notice of opposition and affidavit in opposition 2.6 daysTwo memoranda (1 case management, 1 in response to theapplication for a search of the file)0.8 daysTwo hearings/call-overs 0.4 daysTotal: 3.8 days @ $2,390.00 a day 3.8 days $9,082.00[18] Mr Nicholls submitted that in respect of some steps the costs claimed were notreasonable as they were excessive. He refers to a number of items in particular. I havereviewed those items. I consider the attendance and the costs associated to bereasonable in the circumstances of this case.[19] I also note that as late as 21 February Mr Spring was still purporting to filememoranda on behalf of the applicants repeating the allegations of harassment andattempted intimidation by the respondent. Further, until the discontinuance, therespondent and her advisers were entitled to properly prepare to meet the seriousallegations maintained by the applicants.2 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400.[20] Mr Nicholls properly makes the point that costs of $1,434.00 were awarded byAssociate Judge Sargisson on the call before her on the 6 March. Those costs representone memorandum, (0.4) and call-over (0.2), (0.6 x $2,390 = $1,434). They have beenpaid and have been dealt with. The respondent is not entitled to claim the actual costsfor those attendances to the extent they may exceed that sum as the Court has alreadyfixed the costs for the memorandum and the call. It appears the costs of thememorandum (filed 21 February) were included with preparation of Ms Toon'saffidavit in reply. A total of $2,815.50 is claimed as the actual costs for thememorandum, affidavit and associated attendances. I estimate one third of that($938.50) as reasonable for the memorandum. A separate sum of $862.50 is claimedfor the preparation for the mention and attendance at Court. On that basis $1,801.00($938.50 + $862.50) should be deducted from the actual costs claimed (as opposed tothe $1,434.00 awarded by the Court previously).[21] Deducting the costs paid from the amount claimed by the respondent and alsodeducting the costs associated with drafting the memorandum for costs, which Idisallow, leaves a balance of actual costs claimable of $15,983.15.Result[22] The respondent is to have costs against the applicants Brian Henry, HowardTaylor, Juana Atkins and Marc Spring, jointly and severally, in the sum of $15,983.15.__________________________Venning J