EG STRACHAN V DENBIGH PROPERTY LIMITED HC PMN CIV-2010-454-232

EG STRACHAN V DENBIGH PROPERTY LIMITED HC PMN CIV-2010-454-232 3 June 2011IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYCIV-2010-454-232IN THE MATTER OF the Companies Act 1993BETWEEN ELIZABETH GRACE STRACHANPlaintiffAND DENBIGH PROPERTY LIMITEDDefendantJudgment: 3 June 2011 at 3:00 PMJUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D.I. GENDALLThis judgment is delivered by Associate Judge Gendall on 3 June 2011 at 3.00 pm under r 11.5 of the High Court Rules.Solicitors: Rainey Collins, Solicitors, PO Box 689, WellingtonMoodie & Co, Lawyers, PO Box 376, FeildingIntroduction[1] In a judgment I issued in this proceeding on 17 December 2010 I made an order under s 241(4)(d) Companies Act 1993 placing the defendant company, Denbigh Property Limited ("the company") into liquidation. This order was made on the application of the plaintiff, ("Ms Strachan"), a director and fifty per cent shareholder in the company.[2] The application was opposed by Mr Robert Alexander Moodie and MrsSuzanne Patricia Moodie (together "the Moodies") jointly as trustees of the Moodie Family Trust as to the other fifty per cent shareholding interest.[3] In that 17 December 2010 judgment I reserved costs and indicated that in the absence of agreement between the parties on the issue of costs, this could be the subject of memoranda. These memoranda were to be filed sequentially and then referred to me, at which time a decision was to be made on costs based on the material before the Court.[4] Counsel has advised that they have been unable to agree on the question of costs between them.[5] Detailed memoranda have been filed on behalf of the plaintiff, Ms Strachan, and on behalf of the Moodies.[6] The defendant company did not oppose the liquidation application nor has any memorandum been filed on the issue of costs on behalf of the company.[7] The general factual background to this matter was set out at paras 10-26 of my judgment of 17 December 2010.[8] This proceeding has some history and involves a major and acrimonious dispute between the shareholders in the company, Ms Strachan and the Moodies.[9] An order for liquidation of the defendant company, although always seen as something of a last resort, especially where just and equitable grounds are advancedby a plaintiff (as occurred here) was made as noted at para [65] of my 17 December 2010 judgment:... because of the catastrophic and ongoing breakdown in the relationship between the shareholders and directors which has led to a complete impasse in the proper operation of the company, in a situation where I am satisfied no other realistic remedy is possible.[10] As to costs on this matter, as the plaintiff succeeded in her application to place the company into liquidation she seeks costs from the Moodies on a Category 2B basis (totalling $19,928.00) with an appropriate uplift from this figure together with disbursements. The order for costs is sought against the Moodies as the parties who opposed the application, there being no steps taken here by the company.[11] The Moodies in turn oppose the application for costs by the plaintiff at this point. Essentially, they contend that on an earlier occasion they had made an attractive Calderbank Offer to Ms Strachan which was rejected and the appropriate course now is to await a final distribution to the shareholders from the liquidation of the company to ascertain whether that Calderbank Offer is relevant and whether indeed any costs at all should be awarded.[12] As I have noted above, the essential defence from the Moodies to the present costs claim, is simply that in the light of a whole range of subsequently rejected offers which they say they have made to Ms Strachan over a long period of time including a Calderbank Offer, the plaintiff's present claim for costs is premature.The Moodies contend that initially in January 2006 an informal offer to purchase MsStrachan's shares in the company was made by them and then later from December2006 the Moodies and their Family Trust:made offer after offer to buy Ms Strachan's shares in Denbigh Property Limited orsought her agreement to lease the property to a third party in respect to her unoccupied half. She refused to agree to anything that was put to her.(Paragraph 4 of the Costs Memorandum from the Moodies dated 4 April 2011).[13] A copy of a "Without Prejudice Except as to Costs" offer letter dated 30November 2010 from the Moodies to Ms Strachan's lawyers said by the Moodies tobe a Calderbank Offer is attached to the 4 April 2011 Costs Memorandum filed on their behalf. This letter contains an offer by the Moodies' family trust to purchaseMs Strachan's shares in the company for $115,000.00 as follows:in full and final settlement of all causes of action against the company and shareholders and all matters in dispute in the above proceedings between (Ms Strachan) and (the company), the Moodie Family Trust and (the Moodies).[14] That offer it seems was rejected on 1 December 2010, although a counter offer from Ms Strachan for the sale of her shares at a price of $127,000.00 was made. This counter offer included a requirement that:All allegations of theft and fraud against Ms Strachan are withdrawn in writing.[15] The counter offer was not accepted and the hearing of Ms Strachan'sapplication to place the company into liquidation (which was the subject of my judgment of 17 December 2010) proceeded on 2 December 2010.[16] The Moodies have now contended that the day after this 2 December 2010 hearing, the Moodies through their Trust made a new offer (noted simply on its faceas "Without Prejudice") amending the earlier $115,000.00 settlement offer to an offer of $121,000.00. Given that the liquidation application hearing had just taken place and a decision was awaited, there is little surprise that there was no response from Ms Strachan to this increased offer.[17] The position of the Moodies on this costs question now, as I understand it, is that, given that the tasks of the liquidators of the company are still not as yet completed, it cannot be ascertained at this point whether the Moodies as opposing shareholders are entitled to credit for the Calderbank Offer made to Ms Strachan on 30 November 2010 until the final amounts available for distribution to the shareholders as a result of the liquidation are known.[18] On this aspect, it would appear from the liquidator's report dated 11 March2011 which is before the Court, that both Ms Strachan and the Moodies have each received a distribution from the company liquidation of $98,333.00. That 11 March2011 report confirms that these amounts represent an interim distribution from the company.[19] Significantly, the report goes on at page 2 to state:We are intending to make demand against Moodie & Co for unpaid rent due to Denbigh. We are currently calculating the appropriate quantum of our demand. Any recovery from this will be added to the pool of funds available to be distributed to creditors and shareholders.and to indicate that there should be sufficient funds to repay unsecured creditors of the company in full and:any surplus funds will then be split equally between the two shareholders.[20] It is the Moodies' position that until the final payment which is to be made to Ms Strachan from the company is established, the Court is unable to conclude that the offered amount in the Moodies' 30 November 2010 "Calderbank Offer", might have exceeded this sum and thus the impact of the Calderbank Offer on the costs question is unknown.[21] Turning to address this aspect, I take the view that the "Calderbank Offer"here does not assist the Moodies for the following reasons:(a) The offer in question misunderstands the proper purpose of these liquidation proceedings brought by Ms Strachan. Their purpose was to obtain an order for liquidation of the company on just and equitable grounds set out in s 241(4)(d) Companies Act 1993. Ms Strachan was not suing anyone for a specific sum of money. She was seeking a liquidation order on the grounds that the requisite criteria for the order had been met and that such an order was necessary in order to resolve a range of issues between the parties. These were to include first, issues surrounding the complete collapse of their relationship as shareholders, secondly, an independent consideration of decisions made for the company by Mr Moodie, perhaps not engaging as one of its directors but instead wearing his Moodie & Co legal practice cap,and thirdly, a range of other outstanding matters including issues over rental and other payments properly due to the company but unpaid for some years.(c) Calderbank Offers are provided for in r 14.10 High Court Rules and may be taken into account and have an effect on an ultimate award of costs at the discretion of the Court as provided in r 14.11. Timing of aCalderbank Offer is important. McGechan on Procedure at para HR14.10.02(2) deals with this aspect and states:HR14.10.02 Scope and requirements(2) TimingThe rule permits an offer "at any time" which, in practical terms,means right up to the point judgment is delivered, and even after judgment on liability when the trial is split into liability and quantum. But the later the offer the less its impact on costs, and very late offers will have little or no impact. Examples are: Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005- 419-809, 22 April 2010 (offer made 3pm Friday, requiring acceptance by 10am the following Monday disregarded for costs purposes); Rogers v Estate Sarah Rogers HC Auckland CIV- 2008-404-5637, 29 April 2009 (offer made the day before trial, and in terms the offeree was unable to accept, disregarded); Levin v Ikiua (No 2) HC Auckland CIV-2007-404-6810, 7 December 2009 (offer sent eight working days before trial, but requiring a response by the following day disregarded). By contrast, 12 clear days for acceptance was held sufficient in Health Waikato Ltd v Van der Sluis (1997) 10 PRNZ 514, [1997] ERNZ 236 (CA).(d) In the present case, the Moodies "Calderbank Offer", which they put forward as justifying some departure from the standard costs regime, was made on 30 November 2010 for a liquidation hearing which was due to commence on 2 December 2010. In Bloor v IAG New Zealand Limited HC, Rotorua, 3 February 2011, CIV-2004-463-425, Stevens J noted that an offer made at 3.48 pm on 1 May 2011 in respect of a trial scheduled to commence at 9.00 am on 4 May 2011 was appropriately rejected as having been made too close to the hearing date, notwithstanding that it was for substantially more than the party making it ultimately recovered. Applying Bloor and the other authorities noted at para [21](c) above to the facts of the present case, I am of the view that the timing of the 30 November 2010 offer from the Moodies does not meet the criteria set out in the High Court Rulesfor a valid "Calderbank Offer" and should have no impact on the question of costs here.(e) In addition, a "Calderbank Offer", in order to apply and affect liability for costs, must be for a sum equal to or greater than the amount ultimately obtained by a plaintiff – Blue Star Print Group (New Zealand) Limited v Mitchell [2010] NZCA 385. In the present case, the Moodies' 30 November 2010 "Calderbank Offer" was only for the sum of $115,000.00 (although they endeavoured to increase this offer to $121,000.00 on 3 December 2010 after the liquidation hearing). This amount was stated to include settlement for the value of all shares in the company, all other causes of action against the company and shareholders and all matters in dispute involving not only the company but also the Moodie Family Trust and the Moodies personally. These sums would clearly have included the $3,277.90 outstanding to Ms Strachan in respect of the sealed and served costs award against Mrs Moodie made in this Court on 29 October 2010 following Mrs Moodie's unsuccessful application to stay the liquidation proceedings and restrain advertising. In addition, these sums would have included funds held in the company bank account referred to at [17] of my 17 December 2010 judgment, as well as potential arrears of rent which should have been paid to the companyby Mr Moodie's legal practice Moodie & Co for the 2006, 2007, 2008, 2009, 2010 and (part) 2011 years, less those nominal amounts which were paid as noted at para [26] of my decision. To suggest now that Ms Strachan might ultimately receive less than $115,000.00 from her interest in the company and any causes of action she may have against the company, the Moodies and the Moodie Family Trust, in my view, is quite unrealistic.(f) As I see the position, under the circumstances prevailing in this case, it was not unreasonable for Ms Strachan to have refused the"Calderbank Offer" set out in the letter of 30 November 2010. Infact the reply to this offer contained in the letter from Ms Strachan'sbarrister, Mr Churchman dated 1 December 2010 which again might have itself constituted a "Calderbank Offer" at a settlement figure of $127,000.00 (although subject to a number of conditions) might also have some possible relevance here. (No argument was advanced to me on this aspect, however, and for present purposes I leave it to one side).(g) A successful plaintiff, such as Ms Strachan, is entitled to costs under the general principles applying to costs outlined in r 14.2 High Court Rules. In my view, the Moodies' "Calderbank Offer" made here, if indeed it was appropriate in the first place, in any event is neither valid nor influential in terms of the proper criteria outlined in the High Court Rules. It was made too close to the liquidation hearing date to be reasonable in all the circumstances and to have any impact on costs here. In addition, the Moodies' Calderbank Offer at $115,000.00 in full and final settlement of "all matters in dispute" asoutlined in the letter of offer, is likely to be significantly lower than the amount ultimately to be obtained by Ms Strachan from the liquidation of the company.[22] For all these reasons I reject the contention advanced before me by the Moodies that in light of their "Calderbank Offer" Ms Strachan's present claim forcosts is premature and should be deferred until the liquidation of the company is concluded.[23] Turning now to the principles to be applied in determining questions of costs, the starting point here must be r 14.2 High Court Rules. This provides the general principle that the party who fails with respect to a proceeding is to pay costs to the party who succeeds. Here, Ms Strachan has succeeded in obtaining the order liquidating the company and is entitled to an order for costs against the Moodies as the parties that opposed this application.[24] On the issue of quantum, as I have noted above, the amount sought by Ms Strachan here is calculated on a Category 2B basis. In the costs schedule provided, itamounts to $19,928.00 although an increase on these costs is sought under r 14.6. This is on the basis that under r 14.6(3)(b) the Moodies as intervening shareholders are said to have pursued unnecessary steps and arguments in this litigation that have lacked merit, and they have also increased Ms Strachan's costs in this proceeding by single-handedly lengthening the hearing of and preparation for the liquidation application by, amongst other things, filing and serving an affidavit, running to at least 56 pages with an additional three spiral bound bundles containing 93 exhibits, only some 9 working days before that 2 December 2010 substantive hearing.[25] On this question of quantum, there seems to be no disagreement between the parties that Category 2B for a costs assessment in this case is appropriate and I accept that position here. In the Memoranda provided by the Moodies, issue appears to be taken with calculation of the $19,928.00 Category 2B costs claim detailed in the 30 March 2011 Memorandum from counsel for Ms Strachan. The Moodies describe this calculation, without more, as "grossly inflated". In his 4 April 2011 Memorandum at para 14 Mr Moodie argues:... only a handful of documents were new to the parties as a result of extensive discovery made by the same parties in other proceedings that resulted in a 9 day hearing that resulted in the documentation being closely examined.This appears to be the only form of amplification of the Moodies claim that the$19,928.00 Category 2B costs sought are "grossly inflated". No other details tojustify the claim that this figure is inflated are advanced by the Moodies. Taking these matters into consideration, however, and considering each claimed item in the costs schedule provided by counsel for Ms Strachan, as I see the position, this amount of $19,928.00 is appropriate on a Category 2B basis for the not inconsiderable amount of work which was required on the part of Ms Strachan'scounsel in this drawn out and difficult proceeding.[26] The only further question for consideration therefore is whether MsStrachan's claim to increased costs under r 14.6 is appropriate here. On this, counsel for Ms Strachan refers to r 14.6.3 High Court Rules which permits an order for increased costs in part in the following circumstances:(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by –............(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.......(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an order under r 14.10 or some other offer to settle or dispose of the proceeding; or.........(d) some other reason exists which justifies the Court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.[27] It is clear the party claiming increased costs carries the onus of persuading the Court that their award is justified – Radfords Limited v Advertising Work New Zealand Limited trading as Ogilvie Advertising Works, High Court, Auckland, 26 April 2006, Associate Judge Faire, CIV-2006-404-325.[28] The Court of Appeal noted in Bradbury v Westpac Banking Corporation[2009] 3 NZLR400 at [27] that:Increased costs may be ordered where there is failure by the paying party to act reasonably.Further, a Court should consider the extent to which a failure to act reasonably contributed to the final time or expense of the proceeding. It is only on that basis that any percentage uplift would be justified –Commissioner of Inland Revenue v Chesterfield Preschools Limited [2010] NZCA 400 at [165].[29] In earlier correspondence between the parties here, it appears that Ms Strachan through her counsel sought from the Moodies an agreement on Category 2B costs together with an uplift of one third. This brought the total amount of costs sought from the Category 2B amount of $19,928.00 to a figure of $26,504.24.[30] On this, counsel for Ms Strachan contends that the relevance of the late filed 56 page affidavit with voluminous exhibits was entirely limited and of little, if any, assistance to the Moodies here. To a certain extent I must agree. I noted this at [49] and [50] of my 17 December 2010 judgment. Much of the copious material which had been placed before the Court by the Moodies related to the Employment Courtdispute between the parties and to the entirely separate defamation proceeding in this Court and thus was of little relevance.[31] Further, as I noted at [54] of my 17 December 2010 judgment it was "simply impossible" to find as the Moodies otherwise urged as their principal defence to MsStrachan's claims that the breakdown in the relationship was caused solely by her.[32] In my judgment of 17 December 2010 I noted that the parties appeared to accept that there was a serious deadlock and the relationship between them had totally collapsed to such an extent that it would be unrealistic to continue anybusiness involvement or relationship in the future. Ms Strachan's claim forincreased costs here is partly founded on the basis that she has been put to considerable extra costs because of the failure of the Moodies to accept the inevitable outcome of the deterioration in this relationship and, despite established legal authority (including the Vujnovich decision and the case of Re: Rongo Ma Taane Farms Limited) that it was inevitable that an order for liquidation would be made.[33] Whilst I have some sympathy for the position in which Ms Strachan has found herself in this proceeding, by a rather fine margin I am of the view that this is not a case where she has satisfied the onus upon her of persuading this Court that an award of increased costs is justified here. There is no doubt that the Moodies chose to place before this Court a huge amount of material for this application much of which, in my view, was irrelevant. Notwithstanding this, given that this material would have been familiar to Ms Strachan and her advisers (as it related to earlier disputes elsewhere between the parties with similar representation) it is difficult to say categorically that Ms Strachan was unduly prejudiced here or that the time involved in the hearing of this matter was substantially increased by the provision of this additional material. In addition, the possibility that an order liquidating the company might have been refused in favour of some other s 174 Companies Act1993 type order (such as for the purchase of one party's shares by the other) alwaysremained a possible outcome when the application was opposed.[34] For these reasons, I decline the request for an increase in costs to Ms Strachan in terms of r 14.6(3) High Court Rules. Ms Strachan, however, is entitled to an award of costs here against the Moodies which I order on a Category 2B basis at the sum of $19,928.00. In addition, disbursements (if any) are awarded to Ms Strachan against the Moodies as approved by the Registrar.'Associate Judge D.I. Gendall'