ROWMATA HOLDINGS LIMITED (IN LIQUIDATION) & ORS v HILDRED & ORS (COSTS) [2014] NZHC 3257

ROWMATA HOLDINGS LIMITED (IN LIQUIDATION) & ORS v HILDRED & ORS (COSTS) [2014] NZHC 3257 [16 December 2014]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2011-412-663[2014] NZHC 3257UNDER the Companies Act 1993IN THE MATTER OF the liquidation of Rowmata HoldingsLimitedBETWEEN ROWMATA HOLDINGS LIMITED(IN LIQUIDATION)First PlaintiffHENRY DAVID LEVIN andVIVIEN JUDITH MADSEN-RIESSecond PlaintiffsAND NOLEEN MARGARET HILDREDFirst DefendantSHANE DAVID HILDREDSecond DefendantGEORGE STEPHEN COLEThird DefendantHearing: On the papersCounsel: M Davies and N Malarao for PlaintiffsL A Andersen for DefendantsJudgment: 16 December 2014JUDGMENT OF WILLIAMS J (COSTS)Introduction[1] This is a costs decision. In a decision released on 18 December 2013, I found in favour of the plaintiffs and ordered the defendant trustees to pay the plaintiffs $720,000 plus interest. I indicated that the plaintiffs were also entitled to costs on a Category 2B basis plus disbursements but gave leave to the parties to filememoranda in the event they could not reach an agreement.1 Agreement has not been reached and the matter has returned to the Court for determination on the papers.[2] Schedule 2 and 3 of the High Court Rules changed while the proceeding was still on foot. The relevant time allocation and daily rate for each step therefore depends on whether it took place before 14 June 2012.The proceedings[3] The first and second defendants, the Hildreds, purchased a dairy farm. It was intended that the title would be taken by the first plaintiff, Rowmata Holdings Limited (RHL). The Hildreds are directors of RHL. RHL obtained a GST refund on the purchase price and used it to pay the deposit. The contract was made unconditional but settlement did not occur due to insufficient finance. The IRD became a creditor to RHL for the GST refund. RHL could not repay the money and IRD obtained an order liquidating RHL.[4] The liquidators brought a claim asking the Court to reach through RHL to its directors to make them account for the GST refund. The liquidators said this was appropriate because the Hildreds breached their duties as directors under ss 131(1), 135, 136 and 137 of the Companies Act 1993. The liquidators also made a separate claim against the Hildreds and their friend George Cole, the third defendant, as trustees of the two mirror trusts (Rowmata 1 and Rowmata 2) under ss 292, 297 and 298 of the Companies Act, s 348 of the Property Law Act 2007 and equitable doctrines of restitution.[5] In relation to the first to fourth causes of action, I found in favour of the plaintiffs and ordered the directors of RHL to pay 70 per cent of $720,000. In relation to the fifth and ninth causes of actions, I found that the plaintiffs were entitled to recover the full $720,000 from the trustees of the Rowmata 1 and 2 trusts. In relation to the seventh cause of action, I found that the plaintiffs were entitled to recover the repayment of $360,000 from the trustees of the Rowmata 1 and 2 trusts.1 Rowmata Holdings Ltd (in liq) v Hildred [2013] NZHC 2435, (2013) 26 NZTC 21-039.Accordingly, the defendant trustees were ordered to pay the plaintiffs $720,000 plus interest.[6] The defendants have appealed to the Court of Appeal. A date is to be allocated in 2015 and as a result of the delay, the plaintiffs seek to have the issue of costs determined at this stage.Issues on costs[7] It is common ground that because the defendants were successful, they are entitled to costs on a 2B basis. Several issues remain in dispute. First, the parties dispute costs in relation to discovery (including third party discovery). Second, whether second counsel should be allowed. Third, the defendants do not accept a number of disbursements claimed by the plaintiffs. Fourth, whether there are grounds for increased costs.DiscoveryInspection[8] The plaintiffs claim 2B costs in relation to the following discovery steps taken before 14 June 2012:Step 4.5 List of documents on discovery 1.5Step 4.6 Production of documents for inspection 1Step 4.7 Inspection of documents discovered in 1.5defendants' affidavit sworn 22 December 2011[9] These steps were reasonably required and the plaintiffs are entitled to costs in relation to them. The parties disagree on whether the plaintiffs are also entitled to further 2B costs in relation to the inspection of documents discovered in thedefendants' second affidavit sworn on 20 November 2012. Schedule 3 allows 1.5 days on a 2B basis for this step and the plaintiffs also seek increased costs of 50 per cent.[10] Counsel for the defendants, Mr Anderson, says that the 1.5 days allowed for the first inspection is sufficient, given that less than 400 documents were discovered in total.[11] In response, the plaintiffs say that the volume of documents discovered is only one factor in determining the appropriate quantum of scale costs for inspection. They say that the piecemeal approach taken by the defendants to discovery caused confusion and significant additional time and costs to be incurred. In support of this claim, the plaintiffs refer to the affidavit of one of the liquidators, Ms Madsen-Ries2sworn on 20 December 2012. Ms Madsen-Ries deposes that following inspection of the documents discovered by the defendants in their first affidavit of documents, the plaintiffs contacted Mr Anderson expressing concern that discovery was not complete. Mr Anderson provided a further 350 pages of documents not previously discovered in a series of emails with attachments. The documents were not accompanied by an adequate explanation of what was being provided or where the documents had been sourced from. Further clarification from Mr Anderson was required. The plaintiffs inspected the documents and formed the impression thatmany of the additional documents provided had always been in the defendants'possession or in the possession of a party from whom they would have been entitled to obtain them. Included in the documents were also discoverable documents that had not previously been discovered by the defendants.[12] Mr Anderson for the defendants has not responded to these claims. In my view, the matters raised by the plaintiffs justify the additional allowance sought for inspection of documents.Third party discovery[13] The plaintiffs' concerns were not alleviated by the further discovery providedby the defendants via email. These concerns prompted applications for non party discovery against Rodgers Law (RHL's solicitors), Staples Rodway (RHL's accountants) and ASB Bank Ltd, (RHL's banker). The plaintiffs claimreimbursement of costs paid to those parties for discovery. The costs are claimed as2 Ms Madsen-Ries is an associate director of Deloitte. She was appointed as liquidator of RHL on 14 September 2010.disbursements so the issue turns on whether the applications were reasonably necessary for the conduct of the proceeding.3[14] The plaintiffs sought non-party discovery from ASB Bank because, while the defendants had provided discovery of documents held by ASB Bank, their approach to discovery made it difficult to determine what documents had been requested and discovered. They rely on an affidavit of Mr Levin,4 the other liquidator of RHL, sworn in support of the application against ASB Bank. The facts outlined in the affidavit largely mirror those put forward by Ms Madsen-Ries. For their part, the defendants say that they sought and provided all of the relevant information that ASB Bank would provide to them.[15] It is clear that the defendants' unsatisfactory provision of discovery at thatstage required the plaintiffs to seek non-party discovery from ASB Bank to ensure that all relevant documents had been discovered. On the other hand, the application was initially made on the basis that the plaintiffs would meet the costs of ASB Bank in complying with the order. In these circumstances, it is appropriate that the partiesshare ASB Bank's costs equally.[16] The plaintiffs sought non-party discovery from Rodgers Law and StaplesRodway for two reasons. First, the defendants' approach to discovery as outlined above. Second, they were not satisfied that Rodgers Law and Staples Rodway had complied with a request made in accordance with s 261 of the Companies Act 1993 for copies of documents of RHL in their possession or under their control. The request was first made on 14 September 2010. The documents sent in response were considerably fewer in number than the plaintiffs expected, necessitating the applications for non-party discovery.[17] As with the application against ASB Bank, these applications were made on the basis that the plaintiffs would meet the reasonable costs of compliance. More to the point, the plaintiffs have not emphasised the fruits of their application in terms of further relevant documents discovered. This casts doubt on whether the application3 High Court Rules, r 14.12(2)(c).4 Mr Levin is a partner at Deloitte. He was appointed as liquidator of RHL on 14 September 2010.was required. Moreover, the need for the applications arose in part because of theplaintiffs' suspicions that their s 261 requests had not been complied with. That is not a matter within the defendants' control. On the other hand, the documents sought from Rodgers Law and Staples Rodway ought to have been sought and provided in an adequate manner by the defendants as part of their discovery in the first place. The piecemeal approach adopted by the defendants made it difficult for the plaintiffs to ascertain whether proper discovery had been provided and for this, the defendants must bear some of the responsibility for the application. In these circumstances it is appropriate for the defendants to pay a one third contribution towards the cost of compliance.Second counsel[18] Plaintiffs claim costs for second counsel on the basis that: the trial was five days, with the Court sitting early and late on some of those days; the plaintiffs called four witnesses; and the defendants called eight witnesses; and the bundle of documents contained 803 pages of documents. The defendants oppose any certification of second counsel. Mr Anderson submits on their behalf that they objected to a costs allowance for second counsel when the issue was first raised.[19] Awarding costs for the attendance of junior counsel in 2B cases tends to be the exception rather than the norm.5 In Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd, Chambers J stated that it will now be less likely that costs will be certified for a second counsel because much of work that formerly occupied second counsel during the trial is done beforehand.6 This has reduced the workload at trial and made it less necessary for a second counsel to appear. Chambers J identified the relevant enquiry as being:7 whether the nature of this proceeding, given the way the trial wasconducted, was such as to justify requiring the losing party to contribute tothe winning party's cost in having a junior counsel present.5 Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2014] NZHC 467.6 Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC) at [18].7 At [21].[20] On the other hand, in Roading and Asphalt Ltd v South Waikato District Council Keane J considered that whether an award of costs for second counsel is justified turns on whether the hearing could have been conducted by principal counsel only. Keane J considered that principal counsel could have conducted the case by themselves but decided that the case was of sufficient complexity to justify certification for second counsel.8[21] I am satisfied that the proceeding was not sufficiently complex to justify second counsel. None of the matters raised by the plaintiffs support the conclusion that principal counsel would have been unable to conduct the case without assistance.Disbursements[22] The plaintiffs' first memorandum as to costs set out a number ofdisbursements without accompanying invoices. In response, Mr Anderson accepted that most of those disbursements are payable once they are established. Theplaintiffs' memorandum in reply provided invoices in relation to the following costs.The dispute as to disbursements has therefore largely fallen away. The remaining items that require determination are as follows.[23] First, the plaintiffs claim flights and accommodation for Ms Madsen-Ries. Iaccept Mr Anderson's challenge that these costs were incurred by a party to theproceedings rather than a witness and are not therefore payable. Second, the plaintiffs sought flights and accommodation for second counsel. Second counsel has not been certified so these costs are not payable. Third, service fees of $941.27 are claimed. The expenses of serving documents for the purposes of a proceeding are payable as disbursements under the High Court Rules.9[24] The remaining area of disagreement arises from the costs incurred by non- parties, which were dealt with above.8 Roading and Asphalt Ltd v South Waikato District Council [2012] NZHC 2243 at [6].9 High Court Rules, r 14.12(1)(b)(ii).Increased costs[25] As mentioned above, the plaintiffs claim increased costs of 50 per cent forinspection of the defendants' discovery. They also claim increased costs for preparation for trial. They say that the defendants' conduct contributedunnecessarily to the time and expense of those steps.[26] In relation to discovery, the plaintiffs argue that the defendants failed to, without reasonable justification, comply with an order for discovery in the first instance.[27] The following matters have either been accepted by the defendants or are apparent from Ms Madsen-Ries' affidavit. First, the initial discovery provided bythe defendants was incomplete. The defendants acknowledged in their cover letter serving the affidavit that not all documents had been provided but that they were only aware there were further documents to discover following a review of theplaintiffs' affidavit of documents. Second, the plaintiffs were required to correspondwith the defendants on numerous occasions to obtain further discovery. Third, the second tranche of documents provided by the defendants included: emails that in their affidavit of documents sworn on 21 December 2011 the defendants said hadbeen deleted; additional documents that had always been in the defendants'possession, or in the possession of a party from whom they would have been entitled to collect them; and further discoverable documents that had not yet been discovered by the defendants. Fourth, further correspondence was then required.[28] The plaintiffs also claim the manner in which the defendants provided discovery meant it was necessary to cross-reference all of the various documents, which incurred further costs.[29] The question is whether allowance for the second inspection is sufficient, or whether the plaintiffs are entitled to increased costs. I note that the matters relied on by the plaintiffs were also referred to in support of an allowance for the second inspection. I consider these matters have already been provided for by the further allowance of 1.5 days for that additional step and therefore do not provide an appropriate basis for increased costs. To find otherwise would risk double counting.[30] In relation to preparation for trial, the plaintiffs refer to the defendants'amendment of their defence after the date directed by the Court and after the plaintiffs had served their briefs. The relevant background to this claim is as follows. On 21 February 2013, timetabling orders were made for various pre-trial steps, including the filing of amended pleadings and exchange of briefs, in preparation for a trial date of 15 April 2013. In accordance with this timetable, the plaintiffs filed an amended statement of claim and the defendants filed their statement of defence. On 15 March 2013, the plaintiffs served their briefs. On 21 March 2013, the defendants raised by way of further particulars a defence based onthe first plaintiffs' ability to recover the deposit paid. On 28 March 2013 theplaintiffs responded, noting that the issues raised were not reflected in the pleadings and were in fact inconsistent with the current pleadings to the extent that it would be evasive for the defendants to rely on those pleadings at trial. The plaintiffs also saidthat the introduction of this defence as "further particulars" was an attempt tocircumvent the requirement that amendment of pleadings required leave of the Court. The defendants responded by filing a further amended statement of defence purporting to correct an error under r 1.9. The plaintiffs responded reserving their rights in respect of the amended statement of defence. They said further that the amendments to the statement of defence did not constitute the correction of a defect or error in the pleadings within the scope of r 1.9. Rather, they were a significantchange in the defendants' previous position. On 11 April 2013, the plaintiffsproposed a resolution of the issues relating to the defendants' amended pleadings,which was accepted. The parties proceeded to trial on that basis.[31] The relevant aspects of that proposal are as follows:(a) the defendants were to make an application for leave to file an amended statement of defence at the start of the hearing;(b) the plaintiffs' witnesses would be permitted to address any evidentialmatters raised by the amendments by way of supplementary evidence at the hearing;(c) the plaintiffs would be permitted to advance a further cause of action in unjust enrichment against the defendants (this cause of action required no further evidence).[32] In essence, the plaintiffs seek an additional 1.5 days on the basis that the defendants contributed unnecessarily to the time or expense of preparing for trial. In response, Mr Anderson says the first amended statement of claim was filed late and the issues raised by the defence must be seen in that context, without elaborating further.[33] There is little merit in Mr Anderson's response. The first amended statementof claim was filed on 1 March 2013. The statements of defence were received on 11 and 12 March 2013 and did not allude to the further defence subsequently raised by way of further particulars. The defendants made a last minute change to theirdefence, following service of the plaintiffs' briefs of evidence, amended theirdefence and then provided further documents not previously discovered.[34] That said, an award of 50 per cent is generally regarded as the maximum that can reasonably be claimed by a party seeking increased costs. Having regard to the circumstances outlined above, I consider increased costs of 25 per cent in relation to this step are appropriate.Result[35] The result is as follows:(a) costs for the second inspection are allowed;(b) the defendants are to contribute one third of the costs paid by the plaintiffs to ASB Bank for non-party discovery;(c) the defendants are to contribute half of the costs paid by the plaintiffs to Rodgers Law and Staples Rodway for non-party discovery;(d) second counsel is not certified;(e) the defendants are to pay for the defendants' service fees but not forflights and accommodation for Ms Madsen-Ries; and(f) an award of one half day is made to reflect the additional time and expense necessary for preparation for trial.[36] By my calculation the final amount (not including flights, accommodation and meals for principal counsel) due is:Costs for steps taken prior to 14 June 2012 at a daily rate of $1,880Time allocated: 10 daysCost: $18,800.00Costs for steps taken on or after 14 June 2012 at a daily rate of $1,990Time allocated: 19.4 daysCost: $38,606.00DisbursementsExpert fees for Messrs Bayliss and Jones: $30,102.90Accommodation and meals for principal counsel: TBCFlights for principal counsel: TBCService fees: $941.27Photocopying: $352.19Costs paid to Staples Rodway: $2,070.00Costs paid to Rodgers Law: $1,916.67Costs paid to ASB Bank Ltd: $2,034.00Sub-total: $37,417.03Total: $94,823.03___________________________Williams JSolicitors:Meredith Connell, AucklandL A Andersen, Barrister, Dunedin