Mana Property Trustee Ltd v James Developments Ltd

JurisdictionNew Zealand
CourtSupreme Court
JudgeElias CJ,Blanchard,Tipping,McGrath,Anderson JJ
Judgment Date11 October 2010
Neutral Citation[2010] NZSC 124
Docket NumberSC 105/2009
Date11 October 2010

[2010] NZSC 124

IN THE SUPREME COURT OF NEW ZEALAND

court:

Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ

SC 105/2009

BETWEEN
Mana Property Trustee Limited
Appellant
and
James Developments Limited
Respondent
counsel:

J M McCartney SC for Appellant

C S Withnall QC for Respondent

D M Lester for Liquidators of Respondent

Application for costs by appellant against liquidators of respondent company personally, following a successful appeal to the Supreme Court, after respondent company had been successful in having an order for specific performance overturned in the Court of Appeal — whether costs should be awarded against liquidators personally.

Held: The commencement or continuance of a proceeding against a company in liquidation required the consent of its liquidator or the Court but a liquidator had power under para (a) of Schedule 6 to the Companies Act 1993 to commence, continue or defend a proceeding on behalf of the company in liquidation without any court consent being needed. The party to the litigation was the company, not the liquidator, even in the case of a proceeding commenced against the company after it was in liquidation. It was therefore James itself which was the successful appellant in the Court of Appeal and the unsuccessful respondent in the Supreme Court. The liquidators were merely its agents in relation to the litigation, having taken over the conduct of its affairs from its director.

A non-party like a director or liquidator was not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursued or defended claims for their own benefit and at their own expense.

There was certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order would not be made unless there had been some relevant impropriety on the part of the liquidator. The courts recognised that the other party could protect its position, should it be successful, through its ability to seek in advance an order for payment of security for costs. Where the non-party was a liquidator, he or she could realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his or her own interests. The reluctance of courts to make awards against liquidators who were non-parties was for the very good reason that otherwise they may not be prepared to take on the role and enter into litigation that may be beneficial for the company and thus for creditors.

The present case was not one in which the liquidators should be required to pay a costs award personally. There was no impropriety on their part in electing to continue with the extant appeal by James to the Court of Appeal. It was only with hindsight that it could clearly be seen that the argument being pursued by James (concerning the essential term) could not carry the day even if, as happened, James was right on that issue. The crucial issue, on which James ultimately lost, was not then fully developed by Mana and did not plainly emerge until after James had won in the Court of Appeal and Mana applied for leave to the Supreme Court.

The liquidators, who obviously were not themselves responsible for the company going into liquidation (that was the act of Mr James), were at all times acting on behalf of the company and its creditors. They had been criticised by Mana for having pursued an appeal which was contrary to its interests as the major creditor (the others were Mr James and entities associated with him) but they could rightly see it as their duty to the company to establish whether Mana in fact had any claim at all as creditor against James provable in the liquidation and whether an asset of $450,000 (the deposit) was recoverable by James. But, if so, that was not something which should expose the liquidators to personal liability. The liquidators may have been funded for the appeals by Mr James, but they would have committed no impropriety in accepting such funding in order to fulfil their duty to the company. Furthermore, it appeared that before making their decision to continue with James's appeal the liquidators took independent legal advice.

It could not be seen as unreasonable, let alone an impropriety, for liquidators to continue with a proceeding in which they bona fide believed there is some prospect of recovery. To brand liquidators as unreasonable or as acting improperly could only be justified if the action or defence or appeal were not being conducted bona fide in the sense of being reasonably arguable. Clearly this was not a situation in which the appeal was so hopeless that the liquidators could be regarded as having acted improperly in continuing with it.

The delay of 5 weeks by the liquidators in responding to Mana's counsel's inquiry about whether they intended to cause James to continue with its appeal was not unreasonable as they must have needed time to get legal advice and to assess the prospects of the appeal.

Mana's application for costs against the liquidators personally was dismissed but James was ordered to pay costs of $15,000 to Mana.

  • A The application for costs against the liquidators personally is dismissed with costs to the liquidators of $2,500.

  • B The costs award made by the Court of Appeal in favour of the respondent is reversed.

  • C The appellant is awarded costs in this Court against the respondent in the sum of $15,000 together with reasonable disbursements to be fixed by the Registrar.

JUDGMENT OF THE COURT (COSTS)
REASONS

(Given by Blanchard J)

1

Mana Property Trustee Ltd has made an application for costs following its successful appeal to this Court. 1 It seeks costs in relation to both the Court of Appeal and Supreme Court stages of the proceeding not only against James Developments Ltd but also against its liquidators personally.

2

James agreed to purchase some land from Mana for $4.5 million. It paid a deposit of $450,000 but later failed to settle. It alleged that it had validly cancelled the contract and asked for refund of the deposit. Mana brought the proceeding against James in the High Court seeking specific performance of the contract. On Mana's application for summary judgment, the High Court made an order for specific performance. 2

3

James appealed to the Court of Appeal and paid for security for costs in the sum of $4,740. It also applied to the High Court for a stay of execution pending appeal. On 28 May 2009 the High Court granted a stay on terms that James would, within 10 days, pay Mana's costs awarded by the High Court and also pay $821,214.80 into Mana's solicitors' trust account. A further condition of the stay was that James would obtain a hearing of the appeal in the week commencing 20 July 2009 and diligently prosecute the appeal.

4

These conditions, which necessarily related to the stay rather than to James's ability to pursue the appeal (it was not an “unless” order), were not complied with. On 6 July Mr Chris James, the sole shareholder of James, by resolution placed James into liquidation and appointed two Dunedin insolvency practitioners, Mr Jenkins and Mr Nellies, to be its liquidators.

5

On 17 July counsel for Mana asked the liquidators whether they intended to pursue the appeal. It was not until 20 August that the liquidators advised that they did. Mana then applied to the Court of Appeal for orders adjourning, staying or striking out the appeal. It also sought an increase in the amount of the security for costs if the appeal was to proceed. The appeal had been set down for hearing by a Court of Appeal panel on 15 September. The presiding Judge, Hammond J, convened a telephone conference on 7 September. He declined to grant an adjournment and, in the absence of the other members of the panel, did not make any of the other orders which had been sought.

6

Before the appeal was heard, Mana obtained from the High Court an order discharging the specific performance decree but leaving it free to seek damages from James.

7

The Court of Appeal hearing took place on 15 September and that Court subsequently delivered a judgment allowing James's appeal. 3 Disagreeing with the High Court, it took the view that James had been entitled to cancel the contract because Mana had on the settlement date been in breach of an essential term relating to the minimum area of the property. It also,...

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    ...Court recognised Dymocks as the leading case on costs against non-parties in Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011] 2 NZLR 25 at [11]. We also note that the English Court of Appeal held in Arkin, above n 45, that a professional funder should be pot......
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1 firm's commentaries
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