RESERVE BANK OF NEW ZEALAND v CBL INSURANCE LIMITED [2019] NZHC 737

RESERVE BANK OF NEW ZEALAND v CBL INSURANCE LIMITED [2019] NZHC 737 [8 April 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-000306[2019] NZHC 737BETWEEN RESERVE BANK OF NEW ZEALANDPlaintiffAND CBL INSURANCE LIMITEDDefendantHearing: On the papersAppearances: N S G Gedye QC and S A Barker for Reserve BankJ S Cooper QC and A E Murray for Interim LiquidatorsA S R Ross QC and J E M Lethbridge for Elite InsuranceM Kersey for LBC HoldingsJ F Anderson QC and J A MacGillivray for AlphaD A Salmon and J P Cundy for CBLIH L Quinlan for Supporting CreditorJudgment: 8 April 2019 at 4 pmJUDGMENT OF COURTNEY J[Costs]This judgment was delivered by Justice Courtney on 8 April 2019 .at 4 pm pursuant to r 11.5 of the High Court Rules –Registrar / Deputy Registrar – DateIntroduction[1] On 12 November 2018, I made an order placing CBL Insurance Ltd (in interimliquidation) (CBLI) in liquidation on the application of the Reserve Bank of NewZealand (RBNZ).1 Although the application ultimately proceeded unopposed, theopposition to it from CBLI itself (by its directors, Messrs Harris and Hutchison) andits shareholder, LBC Holdings Ltd (Administrators Appointed) (LBC) was onlywithdrawn at the last minute.[2] At the conclusion of the hearing I made an order for costs in favour of RBNZagainst CBLI.2 RBNZ signalled its intention to apply for costs against LBC also,which it has done. LBC opposes the application.Background[3] RBNZ advanced the liquidation application on three grounds; breach of thesolvency margin (which CBLI admitted), breach of directions regarding payments tothird parties (which CBLI admitted) and the just and equitable ground, specifically,that CBLI was balance sheet insolvent and misconduct by the directors.[4] LBC filed a notice of appearance in the proceeding on 2 March 2018. It wasserved with the statement of claim on 17 April 2018 and subsequently with a notice ofappearance by two directors of CBLI, Messrs Harris and Hutchison, who opposed theapplication. LBC's Administrators did not oppose the liquidation application at thatstage; they considered it appropriate for there to be full argument and evidence as towhether there were grounds for liquidation and so reserved their decision pendingconsideration of evidence from Messrs Harris and Hutchison.[5] LBC changed its position in May 2018. Its statement of defence dated 15 May2018 denied that there was any basis for winding up on the just and equitable ground1 Acting in its capacity as regulator under s 151(2) of the Insurance (Prudential Supervision) Act2010.2 As LBC's counsel noted in submissions, this order was not included in the sealed order but mynote and that of counsel are consistent as to the order made.and asserted that where insolvency was relied upon as a basis for liquidation, theCompanies Act 1993 required that to be cashflow rather than balance sheet insolvency.It also identified factors that ought to be taken into account in the exercise of theCourt's discretion, including that the interests of CBLI's creditors and its own interestsas shareholder would be better met by voluntary administration than liquidation.[6] By that stage, the Court had allocated two days, 5 and 6 June 2018, for thehearing of the substantive liquidation claim. The week before the scheduled fixture,RBNZ applied for an adjournment. Despite LBC's opposition the fixture wasadjourned and re-scheduled for three days from 30 July 2018. Also extant by thatstage was CBLI's cross-application to remove the interim liquidators, which I directedwould be heard together with the substantive liquidation application. LBC did not takea position on that application which, ultimately, was never argued.[7] The next fixture date was also adjourned, this time on CBLI's application,triggered by RBNZ's third amended statement of claim filed on 9 July 2018 and by aproposed commutation agreement between CBLI and Elite. Ultimately, all partiesagreed that it was not feasible to proceed with the fixture in light of the proposedcommutation agreement, which was acknowledged to be likely to affect CBLI'ssolvency position. The interim liquidators had signalled an application for directionsregarding the commutation agreement and it was agreed that that issue needed to beresolved before the substantive liquidation application could proceed further.[8] In my minute of 6 August 2018, I recorded LBC's position as being thatconsideration was being given to a deed of company arrangement (DoCA) and,depending on the outcome of that process, the Administrators might not opposeRBNZ's application for liquidation.[9] Substantial time and effort by all parties was directed towards the interimliquidators' application for approval of the proposed commutation agreement, which Iultimately refused.3 Although that application took up a good deal of the parties'attention during the year, it was determined in the context of a separate proceedingand is therefore not relevant to present costs application.3 Re CBL Insurance Ltd (in liquidation) [2018] NZHC 2547.[10] The substantive liquidation application was set down for hearing on12 November 2018. Up until the week before the hearing CBLI (by Messrs Harris andHutchison) and LBC were still promoting voluntary administration pursuant to aDoCA as preferable to liquidation. However, no viable draft DoCA had ever beenfinalised and by then it was clear that none would eventuate. LBC withdrew itsopposition to the liquidation application two days before the hearing and CBLI on themorning of the hearing.[11] CBLI's largest creditor, Elite Insurance Co Ltd (Elite) appeared in support ofthe liquidation application. The other parties who appeared - LBC, Alpha InsuranceA/S (in bankruptcy) and Curmi & Partners Ltd - abided the Court's decision.[12] The interim liquidators appeared to assist the Court and abided the Court'sdecision.Application[13] RBNZ says that LBC's opposition lent credibility to the directors' oppositionand exacerbated the delays in the case and that its late withdrawal of opposition meantthat preparation for the defended liquidation application had already been completed.Its costs application rests on the principles that costs should follow the event andshould be predictable and expeditious.4[14] LBC opposes costs on the grounds that (1) in liquidation proceedings theprinciple that costs follow the event is satisfied by the award of costs against thecompany in liquidation (2) RBNZ settled with other parties who had a greaterinvolvement in the case on a no-costs basis (3) the work that LBC did to explore apotential restructuring of the CBL group was to have been for the benefit of allcreditors and it should not be penalised for that work.[15] I do not accept any of these arguments. Costs on a defended liquidation fall tobe determined under r 14 of the High Court Rules 2016 in the same way as otherproceedings. There is no reason to take a different approach where the liquidation is4 High Court Rules 2016, r 14.2(1)(a) and (g); Shirley v Wairarapa District Health Board [2006]NZSC 63, [2006] 3 NZLR 523 at [19].at the suit of a regulator such as in this case. RBNZ is entitled to costs against one ormore of the unsuccessful parties.5[16] The fact that settlement has been reached on a no-costs basis with one partydoes not preclude an application for costs against another party. That does not mean,however, that the defendant against whom costs are sought ought to bear the whole ofthe scale costs applicable.6 The default position is that costs are joint and several7 butthe Court may depart from this where the circumstances of a case are out of theordinary.8 One such circumstance may be that a party abided the decision of the court,thereby reducing the cost of trial. The extent of that party's contribution to costs maytherefore be less that a party who has taken an active role in the proceeding.9[17] In this regard, LBC makes the point that, when it became apparent that arestructuring would not be possible, it responsibly withdrew its opposition and abidedthe decision of the Court. But the extent of such contribution in those circumstancesmust reflect the Court's assessment of the justice of the case; where, as here, thedecision to abide was made very close to the substantive hearing, it is unlikely to makea significant difference.[18] Finally, I do not consider it relevant that LBC's efforts at achieving an overallrestructuring of the CBL group were for the benefit of all creditors. Although LBCmaintained throughout that a DoCA would be a better outcome than liquidation andopposed the liquidation on that ground, this alternative never developed to the pointof being able to place a DoCA before the Court. In addition, LBC argued (wrongly)that balance sheet insolvency could not justify winding up on the just and equitableground. Further, one of the Administrators, Mr Gibson, provided evidence that CBLIwas only marginally balance sheet insolvent.5 Because LBC filed a statement of defence it is properly treated as a defendant for costs purposesand LBC does not suggest otherwise.6 Hong v Deliu [2016] NZCA 75, [2016] NZAR 667 at [25].7 High Court Rules 2016, r 14.14.8 Hong v Deliu at [24].9 Kawarau Jet Services Holdings Ltd v Queenstown Lakes District Council HC Invercargill CIV-2008-425-518, 19 May 2009.[19] It is not for the Court to inquire into the motivations and potential benefits thatmight have resulted from LBC's efforts to negotiate a restructuring. Ultimately, theposition that LBC took was not vindicated and the principle that costs follow the eventmeans that costs are properly determined on the basis of what did happen rather thanwhat might have happened.[20] LBC also maintained that the delays caused by the adjournments of theapplication were not the result of its involvement and that it had taken no position onthe grounds for liquidation advanced by RBNZ, merely arguing that the Court shouldnot exercise its discretion against liquidation. It is true that, apart from taking aposition on the issue of balance sheet insolvency as a ground justifying winding up,LBC's focus was on persuading the court that voluntary administration would bepreferable for the creditors overall so that the discretion should be exercised againstliquidation. However, I accept RBNZ's claim that LBC's involvement also had theeffect of bolstering the directors' efforts to stave off liquidation by means of a proposedrestructuring. The Administrators enjoyed a level of credibility that the directors mightotherwise have lacked and CBLI relied on Mr Gibson's evidence to a significantextent.[21] Even allowing for the fact that LBC cannot be said to have actually caused theadjournments of the application, it is fair to say that, had LBC not become involved tothe extent it did in promoting the prospects of a restructuring the liquidationapplication would very likely have proceeded more swiftly. In these circumstances Ifind that it is appropriate that LBC contributes to the costs awarded against CBLI.[22] Given that I find it reasonable for LBC to contribute to the costs because of itsgeneral involvement in the case, I do not accept that fixing that contribution byreference to specific steps to be appropriate, beyond the exclusion acknowledged byRBNZ of the costs associated with CBLI's discovery application and application toremove the interim liquidators. In my view a contribution of 20% of costs calculatedon a 3C basis is an appropriate contribution.[23] RBNZ categorised the steps in the proceeding as mostly Band C, or Band B ifthey took comparatively less time. I do not accept LBC's arguments against thecategorisation of certain steps as Band C, as the proceedings were properly viewed ascomplex and the time required reflected that.[24] Nor do I accept LBC's arguments that they should not contribute to the costrelating to LBC's opposition of RBNZ's application for an adjournment, because LBCmaterially contributed to this step. I also consider that LBC should not contribute tothe costs for the 27 April 2018 conference.[25] LBC should also contribute to the costs RBNZ's second counsel, which willrarely be disallowed in a category 3 case.10[26] The costs sought total $104,673.11 LBC's allocation is $20,934.60.[27] A contribution to disbursements (court scheduling and hearing fees of $640each and the sealing fee) are sought. I allow these. RBNZ also seeks to recover 20%of the Finity costs relating to Mr Atkin's first affidavit on the basis that it was directedentirely to the issue of balance sheet solvency (although it does not specifically addressMr Gibson's affidavit). I accept that the 20% contribution that this is appropriate.[28] In addition, RBNZ seeks full reimbursement from LBC of the cost of Finity'sfurther work, recorded in Mr Atkin's second affidavit on the basis that it related to theRBNZ's counterfactual analysis needed to respond to the claim that voluntaryadministration would provide a better outcome for creditors. I do not consider thatLBC should bear the entire cost of the second affidavit. LBC was not the only partyadvancing that contention and there is no reason to require a higher contribution thatthat 20% contribution to disbursement.____________________P Courtney J10 Andrew Beck and others McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at[HR14.3.01].11 The amount shown in RBNZ's calculation of $101,323 was the result of incorrect addition. Thisis the correct figure.