STEPHEN MARR MANAGEMENT LIMITED v BOUTIQUE HAIR & BEAUTY LIMITED (In Receivership & In Liquidation) [2018] NZHC 660

STEPHEN MARR MANAGEMENT LIMITED v BOUTIQUE HAIR & BEAUTY LIMITED (In Receivership& In Liquidation) [2018] NZHC 660 [12 April 2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2017-409-000835[2018] NZHC 660UNDER the Companies Act 1993IN THE MATTER of the liquidation of BOUTIQUE HAIR &BEAUTY LIMITED (In Receivership & InLiquidation)BETWEEN STEPHEN MARR MANAGEMENTLIMITEDPlaintiffAND BOUTIQUE HAIR & BEAUTY LIMITED(In Receivership & In Liquidation)DefendantCIV-2017-409-000880UNDER Section 284(1)(g) of the Companies Act1993IN THE MATTER of an application for a declaration as to thevalidity of appointment of liquidators byLYNDA JANE SMART and GEOFFREYSEBASTIAN ERIC BROWN as liquidatorsof Boutique Hair & Beauty Limited (In Rec& In Liq)ApplicantsHearing: 12 April 2018 (Determined on the papers)Counsel: D Hoskin for Stephen Marr Management LtdS D Munro and A L Davidson for Ms Smart and Mr Brown,Liquidators of Boutique Hair & Beauty Ltd (In Rec & In Liq)A S Botterill for Hansa Ltd (In Liq), Mr Grant and Mr KhovJudgment: 12 April 2018COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS[1] On 7 March 2018 the Court issued a judgment on these proceedings, whichboth concern Boutique Hair & Beauty Limited (In Receivership & In Liquidation)(BHBL). On proceeding CIV-2017-409-880 the Court made an order confirming thevalidity of the appointment of Geoffrey Brown and Lynda Smart as liquidators ofBHBL. The Court dismissed an application by Stephen Marr Management Limited(SMML) on proceeding CIV-2017-409-835 seeking an order terminating the voluntaryliquidation of BHBL, effected by the appointment of Mr Brown and Ms Smart asliquidators.[2] Mr Brown and Ms Smart succeeded on their application (880) over theopposition of Hansa Limited (In Liquidation) (Hansa) and its liquidators, DamienGrant and Steven Khov, and succeeded in their opposition to the application by SMMLon proceeding 835. In the judgment of 7 March the Court reserved costs, orderinghowever that costs would follow the event. Mr Brown and Ms Smart therefore seekcosts on both applications, on a 2B basis with an uplift of 50 per cent in each case.They also seek orders that costs awarded in their favour are paid by the liquidators ofHansa personally, an order that costs be awarded jointly and severally against theunsuccessful parties, and an award of costs for second counsel.Uplift of costs – 880 proceeding[3] The reasons for the arguments advanced for Hansa, Mr Grant and Mr Khov inopposition to this application are fully set out in the substantive judgment.1 Inparticular the argument based on breach of the freezing order lacked merit. Had theterms of the freezing order and the structure of the companies, which is fully describedin the judgment, been reviewed by counsel, and the decision in JSC BTA Bank vAblyazov2 been carefully analysed it should have been apparent that no breach of thefreezing order had occurred. Further, as noted in the judgment, there was no evidence1 Stephen Marr Management Limited v Boutique Hair & Beauty Limited (In Receivership & InLiquidation) [2018] NZHC 341.2 JSC BTA Bank v Ablyazov [2015] UKSC 64.to support the proposition that the value of shares in Cameron Gladstone CommercialLimited (CGCL) would be diminished by the liquidation of BHBL, yet this was acontention advanced by counsel.3[4] In the judgment I also noted that arguments presented in opposition toMr Brown and Ms Smart seemed to be based on the premise that if their appointmentwas made in breach of the freezing order this would necessarily render theappointment invalid. Although this argument was not dealt with in the judgment, noargument was presented to support this proposition and, as also noted, the consequenceof breach of an injunction is a proceeding for contempt of court. Even if it had beenestablished therefore that the freezing order had been breached there were significantdifficulties standing in the way of an order being made setting aside the appointmentof Mr Brown and Ms Smart.[5] By reference to r 14.6(3)(b)(ii) I find that Hansa has pursued an argumentlacking merit and that grounds are made out for an order of increased costs. Scalecosts are calculated to represent an average of two-thirds of actual fees so an uplift of50 per cent as sought by Mr Munro would in theory result in an award of costs equatingthe likely actual cost incurred. I do not think this is warranted. I assess that an upliftof 25 per cent on scale 2B costs is warranted.Uplift of costs – 835 proceeding[6] The arguments presented on this application are discussed in detail in thesubstantive judgment. In my opinion the argument in relation to appointment ofliquidators by exercise of the power of attorney entirely lacked merit. Analysis of therelevant sections of the Companies Act was a straight-forward exercise that shouldhave been undertaken in advance, and that analysis is also discussed in detail in thebinding authority of Clark v Libra Developments Ltd referred to in the judgment.4[7] Further, in the substantive judgment the Court observed that it was unclearwhat was intended to be achieved by this application in any practical sense, and3 At [31].4 Clark v Libra Developments Ltd [2007] NZLR 709 at [21].counsel was unable to give the Court any reason why the application was necessary.That remains the position. The most it could achieve would have been to set aside theappointment of Mr Brown and Ms Smart, which would have left BHBL out ofliquidation from the time that order was made until such time as the application forappointment of liquidators by SMML, under the control of its liquidators, was heardby the Court. On the facts of this case it is almost inevitable that liquidators wouldhave been appointed. The application could only have achieved a brief hiatus in theliquidation, and it is difficult to see why SMML thought that was a desirable position.[8] Again, detailed analysis of the effect of the freezing order would have clearlydemonstrated that the misgivings expressed by Stephen Irvine in his affidavit aboutthe appointment process were unfounded. Mr Irvine went on to express the view thatMr Brown and Ms Smart were "not suitable liquidators". There was no substance inthe concerns expressed. Mr Irvine said that SMML would prefer the appointment ofother liquidators. In the end I conclude that this was in all likelihood the driving reasonbehind this application, and had complete analysis of the factual and legal positionbeen undertaken before the application was brought, or at the very latest when theevidence of Mr Brown was filed and served, it should have been abundantly clear thatthis application had very little chance of success.[9] Again, I find that grounds are made out for an uplift in costs. In this case Iassess the uplift at 50 per cent, as there was no sound basis to bring it, or to pursue itonce the evidence of Mr Brown was to hand, nor does it appear that any considerationhad been given to whether the Court would make an order setting aside the liquidationeven if there had been a breach of the freezing order, as I have noted above.Incidence of costs on proceeding 880[10] The originating application filed by Mr Brown and Ms Smart did not cite anyrespondents. It was, however, directed to Hansa and to Mr Grant and Mr Khov, itsliquidators. The notice of opposition filed on this proceeding is in the name of the firstrespondent Hansa, only, though Mr Botterill also cited Mr Grant and Mr Khov on theheading of the document as second respondents. Why this was done is unclear.Subsequent documents filed by Mr Botterill also refer to Hansa and Mr Grant andMr Khov. It seems, however, that despite this Mr Grant and Mr Khov are not partiesto this proceeding. Correctly, in my view, Mr Munro approached the question of theirliability, if any, for costs being assessed on the basis of their being non-parties.[11] Exceptional circumstances are required to warrant a costs order against a non-party.5 In Mana Property Trustees Ltd v James Developments Ltd Blanchard J notedthat the actions of liquidators could only be unreasonable or improper if it could beshown that the action or defence they were conducting was not being conducted bonafide in the sense of being reasonably arguable.[12] In support of a submission that the actions of the liquidators of Hansa fit withinthis description Mr Munro referred to various findings in the judgment, and noted alsothat Hansa is not a creditor of BHBL, nor does it have any direct interest in thatcompany. I agree with his conclusion that the opposition to the application by Hansawas unmeritorious. It is difficult to see how a successful opposition to the applicationcould have assisted the creditors of Hansa if successful. I have already referred to thelack of analysis in relation to the submission that the freezing order was breached, andthe fact that no argument was presented to the effect that even if the freezing orderwere breached, that should necessarily have resulted in the appointment of theliquidators being set aside. Further, at the time the liquidators of Hansa decided tooppose the application by Mr Brown and Ms Smart it was all but inevitable that BHBLwould be placed in liquidation on the application of SMML, relatively shortly afterthey were appointed, because it was manifestly insolvent and already in receivership.[13] Mr Botterill argued that if costs were awarded against Hansa only this wouldbe a cost in its liquidation which would rank ahead of and be paid out prior to othercreditors in the liquidation. Even if that is so (and he did not elaborate on theargument) there is no certainty that the costs would be paid from that source.Mr Botterill did not challenge the argument by Mr Munro that the conduct of theliquidators in opposing the application through Hansa was not bona fide in the senseof being reasonably arguable.5 Mana Property Trustees Ltd v James Developments Ltd [2010] NZSC 124.[14] Although I proceed with caution in considering an application that liquidatorsof one company should be personally responsible for the costs of an action theybrought in the name of the company in liquidation, I am satisfied that this is anexceptional case. It manifestly lacked merit and could achieve nothing of any practicalvalue for Hansa, even if successful. I see no reason why its creditors should, in effect,bear the costs of this application.[15] For these reasons the award of costs on proceeding 880 is made jointly andseverally against Damien Grant and Steven Khov.Incidence of costs against unsuccessful parties[16] Mr Munro submits that as the two proceedings were heard together, some costswhich were incurred were in relation to both proceedings and could be attributedequally to them. He describes these as the cross-over costs. They involve filing andservice of a memorandum, appearing at a mentions hearing, preparation of writtensubmissions and a bundle for the hearing and appearing at the hearing itself.Mr Munro asks that the costs orders be made on the basis that the opposing parties arejointly and severally liable for the cross-over costs.[17] I do not agree that this should occur, because it would enable Mr Brown andMs Smart to seek to recover all costs awarded in their favour from one of the liableparties, which would not be appropriate.[18] I was not given a detailed breakdown of how the costs might be apportioned inorder to reflect the exact amount of time spent in relation to each proceeding, I do notthink it would be reasonable to expect this information to be available, nor is a precisecalculation necessary. I agree that a just outcome is to direct that the cross-over costswill be paid in equal shares, one-half by Mr Grant and Mr Khov, and one-half bySMML.Second counsel[19] Mr Munro seeks costs for second counsel. I have no doubt that Ms Davidsonassisted materially in the preparation of the case, but she did not present argument incourt and I am not satisfied that this is a case where the costs of second counsel shouldbe awarded.Issues relating to specific claims for costs[20] Mr Brown and Ms Smart claim costs on filing the originating application andsupporting affidavits on proceeding 880 (item 37 in the costs schedule). Mr Botterillsays that his client should not be required to pay this as its involvement in theproceeding only commenced after the application was filed and served, and thereforethe sum claimed is not a cost which results from their opposition. There is no merit inthis submission. An unsuccessful party is liable for the costs of the commencement ofthe proceeding so item 37 will be included in the costs awarded.[21] I approve the items and time allocations for which costs are sought byMr Brown and Ms Smart.Outcome[22] Costs will be paid as follows:(a) On proceeding 880, by Damien Grant and Steven Khov, costs on a 2Bbasis plus an uplift of 25 per cent, excepting costs in relation to the cross-over attendances.(b) On proceeding 835, by Stephen Marr Management Ltd, costs on a 2Bbasis plus an uplift of 50 per cent, excepting costs on the cross-overattendances.(c) On the cross-over attendances, one half of the costs on a 2B basis, plusan uplift of 25 per cent, will be paid by Mr Grant and Mr Khov, and onehalf of these costs plus an uplift of 50 per cent will be paid by StephenMarr Management Ltd.(d) There will be no costs for second counsel._______________________J G MatthewsAssociate JudgeSolicitors:Steindle Williams Legal, AucklandAgent: Young Hunter, ChristchurchAnderson Lloyd, ChristchurchWaterstone Insolvency, Auckland