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Employment Court of New Zealand |
Last Updated: 19 December 2016
IN THE EMPLOYMENT COURT AUCKLAND
ARC 22/14
IN THE MATTER OF an application for costs
AND IN THE MATTER of an application for joinder
BETWEEN SHABEENA SHAREEN NISHA (NISHA ALIM)
Plaintiff
AND LSG SKY CHEFS NEW ZEALAND LIMITED
First Defendant
AND PRI FLIGHT CATERING LIMITED Second Defendant
AND TERRY HAY Third Defendant
Hearing: 25 August 2016 (and on papers filed subsequently: application heard at Auckland)
Appearances: M O'Brien, counsel for Ms Alim until 18 November 2016
N Taefi, counsel for Ms Alim from 21 November 2016
C Meechan QC and J Douglas, counsel for LSG Sky Chefs
New Zealand Limited
D France and S Worthy, counsel for PRI Flight Catering
Limited
R Leggett, counsel for Kensington Swan
J Goodall, counsel for Terry Hay from 14 October 2016 to
9 November 2016
N Scampion, counsel for Terry Hay from 9 November 2016
Judgment: 14 December 2016
INTERLOCUTORY JUDGMENT (NO 22) OF JUDGE B A CORKILL
SHABEENA SHAREEN NISHA (NISHA ALIM) v LSG SKY CHEFS NEW ZEALAND LIMITED NZEmpC AUCKLAND [2016] NZEmpC 166 [14 December 2016]
Background
[1] An application has been made to join two non-parties for cost purposes. This judgment deals only with that issue; it does not determine whether any existing party, or any party who may be joined, should in fact pay costs. That matter will need to be determined subsequently.
What led to the application for joinder?
[2] Following the Court’s substantive judgment which was issued on
30 September 2015, each party made applications for costs against the other, filing memoranda describing the amounts sought.1 These were filed in November 2015. Ms Alim’s counsel, Mr O’Brien, sought an award totalling $240,000.04 plus GST for the interlocutory matters and the substantive challenge. Ms Alim also challenged the Employment Relations Authority’s (the Authority) determination as to costs, arguing that she had successfully “overturned” that determination.2 For the three-day investigation, an award of $15,750 was sought; this was included in the gross sum just mentioned.
[3] LSG Sky Chefs New Zealand Limited (LSG), via its counsel, Ms Meechan QC, sought an order for costs in the sum of $234,890.57 as a contribution to costs for all interlocutory judgments (19 in total prior to the substantive hearing) and the substantive challenge. At the same time, LSG applied to join two non-parties for costs purposes, PRI Flight Catering Limited (PRI), and one of its directors, Mr David Nathan. The application stated that Ms Alim, PRI and Mr Nathan should be held jointly and severally liable for such orders as to costs as the Court might make.
[4] For the purposes of advancing this application, the Court was required to consider applications for discovery which were subsequently brought against Ms Alim and PRI. These were strongly contested, and were resolved by a judgment
which I issued on 20 June 2016.3 I ordered Ms Alim and PRI in judgment (No 20) to
1 Alim v LSG Sky Chefs New Zealand Ltd [2015] NZEmpC 171.
2 Alim v LSG Sky Chefs New Zealand Ltd [2013] NZERA Auckland 472.
file affidavits of documents relating to various aspects of the funding and support given to Ms Alim. Affidavits were filed in early August 2016.
Further application by LSG
[5] The next step occurred on 5 August 2016 when LSG applied for a range of further orders. The first of these was for an application that the Court should join PRI, as a party, urgently. This was because LSG had just learned that PRI had applied to the Registrar of Companies to be removed from the Register on or before
9 May 2016, and that the Registrar might do so on 11 August 2016 before the Court could determine issues as to joinder. LSG also stated that it intended to object to the removal of PRI from the Register, which would have the effect of extending the date when strike-off might occur. In my judgment of 10 August 2016, I declined this
application.4 This was principally because the Court was in a position where it could
hear all parties before PRI could be removed from the Register, at a prompt hearing which was scheduled to take place on 25 August 2016. At such a hearing, all affected parties could be heard.
[6] In its further application, LSG also sought orders:
a) That Ms Alim’s statement of claim including her claim for costs be struck out, and that her challenge to the costs determination made by the Authority also be struck out, on the basis she had repeatedly failed to comply with the Court’s orders as to disclosure of relevant documents.
b) That Mr Terry Hay be joined as a party to the proceedings for costs purposes, on the basis that he appeared to be either a person, or the person, who funded the litigation brought by Ms Alim and who controlled the claims brought against LSG.
c) Directing Kensington Swan to produce documents relevant to the
funding of Ms Alim’s claims.
[7] At about the same time, Mr O’Brien formally applied for leave to withdraw from the proceedings as solicitor on the record for Ms Alim, on the ground that a conflict of interest had arisen. It was asserted that Mr O’Brien’s firm, Kensington Swan (KS), could no longer act for Ms Alim due to the conflict, the nature of which was said to be privileged.
[8] The further application triggered a number of procedural reactions, each of which must be considered separately.
Service on Mr Hay
[9] On 18 August 2016, counsel for LSG advised that the company had been trying to arrange service of the further application on Mr Hay, but had been unsuccessful in doing so. Service had been attempted at various New Zealand addresses, one of which was recorded under Mr Hay’s name at the Companies Office and another at an address which Mr Hay himself provided to a process server.
[10] Evidence was also produced that counsel for PRI, Mr France, who had also received copies of the amended application and related documents on behalf of that company, had forwarded them on to Mr Hay. In his covering email to Mr Hay of
5 August 2016, he said he would be happy to discuss these with him; he had met
Mr Hay previously for the purposes of this proceeding.
[11] LSG sought directions dispensing with personal service on Mr Hay. Although I was satisfied that most of the documents relating to the amended application had already been provided to Mr Hay, I was not satisfied that he had received either a copy of a minute which I had issued which set down LSG’s application for hearing, or the Court’s notice of that hearing. I directed that all relevant documents, including the documents just referred to, be served at the two addresses LSG had provided to the Court for Mr Hay, and to the email address that counsel for PRI had been using for him. That occurred on 19 August 2016.
[12] There was no appearance by or on behalf of Mr Hay at the hearing which took place on 25 August 2016.
[13] However, on 14 October 2016, then counsel for Mr Hay, Mr Goodall, filed a late objection to the jurisdiction of the Court on behalf of Mr Hay. Subsequently, in an affidavit he filed in support of the objection, Mr Hay acknowledged receiving the subject documents by way of email, but said this had occurred in Hawaii where he had lived since 2008. He said that he had spoken with the General Manager of LSG, Mr Pieter Harting, who was aware that he resided in Hawaii. He also said that the address recorded for him at the Companies Office was the address of an acquaintance. He stated there would be an unfair disadvantage if the proceeding was heard in New Zealand.
[14] It was formally contended for Mr Hay that his objection to the Court’s
jurisdiction should be upheld because:
b) No entitlement to costs had as yet been established by the defendant.
[15] The essence of the objection was that as Mr Hay was alleged to be an overseas resident, reg 31A – 31G of the Employment Court Regulations 2000 (the Regulations) applied. Because service had not occurred under the Regulations, service of the relevant documents was invalid.
[16] I indicated I would consider the late objection: this was because some of the delay in lodging the objection was that of counsel, and because of the importance of the issues which required resolution. Documents in opposition were filed for LSG. Mr Harting deposed that he had no direct personal knowledge as to Mr Hay’s residence, and did not know whether Mr Hay resided permanently in Hawaii or spent part of his time in Hawaii and part in New Zealand. He said that Mr Hay had a “very real” role in PRI’s management, as was reflected in his description as the “Director and CEO” of that company by an email of 23 November 2015 sent by Mr France to junior counsel for LSG, Ms Douglas. He also stated that in 2014, Mr Hay had signed a consent to act as a director for another New Zealand company, giving a New Zealand residential address. Then reference was made to a website
which referred to Mr Hay as being “of New Zealand”. Mr Harting also stated that it was Mr Hay who had initiated the “sham” on which the plaintiff had founded her claim, as was evident from the judgment of Woolford J in LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd.5
[17] On 8 November 2016, I issued a minute declining to uphold the jurisdiction issue raised by Mr Hay; in that minute I summarised my reasons and stated these would be set out in full subsequently.6
[18] I now amplify those reasons. The first of these was that Mr Hay had provided a New Zealand address in formal documents filed with the Companies Office. In addition, he had provided a New Zealand address to a process server, at which he had said he could be served. When Mr Hay filed evidence in support of his objection, the fact that he had made such a request was not denied. There was no basis for suggesting, therefore, that the original direction as to service should not have been made.
[19] Secondly, even had an application been placed before the Court under reg 31A of the Regulations, I would have granted it having regard to the range of factors described in reg 31A(5) and (6). A persuasive factor was that the evidence which was already before the Court indicated Mr Hay was involved in the proceedings brought by Ms Alim against LSG.
[20] Had I been asked to consider ordering service on Mr Hay under reg 31A, I
would have done so on the same terms as applied to the order which was in fact made on 18 August 2016.7
5 LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd [2012] NZHC 2810 at [12].
Court’s reasons. The essence of my reasons were contained in my minute of 8 November 2016.
No submissions were filed in response to that minute, although there was ample opportunity to do so. Moreover, in view of the extensive opportunities which have been provided to all parties to file evidence and to make submissions as to joinder, it is unnecessary to proceed in this fashion.
7 See this judgment at [11].
[21] Furthermore, a consideration of reg 31F factors would have led to the conclusion there was no place outside New Zealand where it would be more appropriate for the issues affecting Mr Hay to be resolved.
[22] Finally, I indicated that had I determined that consideration should have been given to the issue of service under the Regulations, given the new information which had come before the Court I would have considered it appropriate to waive any technical error under s 221 of the Employment Relations Act 2000 (the Act), since Mr Hay himself had led the process server to believe he could be served at a New Zealand address.
[23] Although the objection as to jurisdiction was filed well after the receipt of submissions as to joinder, I granted Mr Hay an indulgence by indicating I would receive late submissions, and if necessary evidence, as to joinder, under a strict timetable. This occurred, with an opportunity for response from LSG, the applicant, which also occurred. Then reply submissions were filed. I will return to these later.
Status of PRI
[24] In my judgment of 10 August 2016, which dealt with LSG’s application for urgency since it was understood PRI was about to be removed from the Companies Register, I indicated that whilst LSG was naturally concerned that the possibility of joining PRI as a party for cost purposes could be circumvented by removal from the Register, I was satisfied this was an issue which was capable of being dealt with via
the mechanisms of the Companies Act 1993 (CA).8 I recorded that LSG was
exercising its right to object to removal, and that s 322 of the CA meant removal would not occur during the period within which the application for joinder of PRI would be considered by the Court.9
[25] LSG objected to PRI’s removal from the Register of Companies on
10 August 2016, and then applied to the High Court for orders that PRI not be removed, on 6 September 2016. That application was not served on the Register of
8 Alim v LSG Sky Chefs New Zealand Ltd (No 21), above n 4.
9 At [31].
Companies until 9 September 2016. On the same day, the Registrar removed PRI
from the Register on the basis that LSG’s application was not served in time.
[26] Thereafter, LSG applied to have PRI restored to the Register under s 329 of the CA. That application was dealt with by Palmer J; in his judgment of
10 October 2016 he ordered that PRI be restored to the Register of Companies.10 On
14 October 2016, there was a second application for voluntary deregistration of PRI, but on this occasion LSG objected with the relevant CA time limits, so that on
9 November 2016 the Registrar suspended the deregistration process for six months.
[27] In summary, although PRI was on the Register at the time of this Court’s hearing on 25 August 2016, it was removed subsequently which meant that this Court could not consider the application for joinder of PRI until it was restored; this occurred on 10 October 2016.
Representation for Ms Alim
[28] I have already mentioned that Mr O’Brien sought leave to withdraw as Ms Alim’s lawyer on the grounds that a conflict of interest had arisen. This matter was the subject of evidence and extended submissions over the next two months. It is unnecessary for me to recount the details of that matter in this judgment, since the issues appear to have been overtaken by events.
[29] On 9 November 2016, leave to withdraw was granted subject to service of relevant minutes on Ms Alim. A subsequent affidavit of service confirmed that on
15 November 2016, Ms Alim was served with these documents.
[30] On 21 November 2016, Ms Taefi advised the Court she had been briefed for
Ms Alim. An opportunity was accordingly extended to her to confirm Ms Alim’s
position as to the joinder applications.
10 LSG Sky Chefs New Zealand Ltd v The Registrar of Companies [2016] NZHC 2407.
Application for records held by Kensington Swan
[31] It is next appropriate to deal with the application brought by LSG for an order directing KS to produce documents which the Court had previously directed should be produced by Ms Alim and by PRI in judgment No 20 as to documents relating to the funding arrangements, including trust account records.11
[32] LSG asserted that Ms Alim and PRI had failed to comply with the Court’s orders properly. Consequently disclosure of trust account records was now sought from KS itself.
[33] LSG submitted that the question of who actually was the client remained
“opaque”, so that it was now essential for the Court to make the further orders.
[34] Counsel for KS, Mr Leggett, stated that if Mr O’Brien was granted leave to withdraw as counsel for Ms Alim, the firm would be prepared to provide its trust account records.
[35] However, Mr Leggett submitted that if such leave was not granted, the records should properly be sought via Ms Alim, if necessary by way of an order of compliance of the order of disclosure made against her in Interlocutory Judgment (No 20). Mr Leggett said that there would otherwise be a conflict of interest between the interests of KS when responding to an application for third party disclosure on the one hand, and Ms Alim’s interests as client on the other.
[36] As I have already recorded, Ms Alim was ordered to disclose a wide range of documents relating to the funding or support given to her in bringing these proceedings. Initially an order to this effect was made in Interlocutory Judgment (No 6).12 In Interlocutory Judgment (No 20) she was ordered to disclose any document evidencing such an agreement. Those documents were to include communications to and from lawyers acting for her, as well as trust account records
and letters of engagement relating to the funding and supporting of her claims. If
privilege was claimed for any documents, they were to be identified by date,
11 Alim v LSG Sky Chefs New Zealand Ltd (No 20), above n 3.
12 Alim v LSG Sky Chefs New Zealand Ltd (No 6) [2015] NZEmpC 65 at [21].
description of their general nature and details of the sender and recipient where appropriate.13
[37] A rudimentary affidavit of documents was sworn by Ms Alim on
23 July 2016, and sent by her to the Court directly on 5 August 2016.14 By this time, Ms Alim’s counsel had told the Court that his firm was no longer acting for her, although an application for leave to withdraw had yet to be filed. The document had plainly been prepared for her by someone with a knowledge of court documents. As signed by Ms Alim, it purported to claim that there was no single relevant document in any category for which disclosure had been ordered, whether privileged or not.
[38] Turning to the position of PRI, comprehensive orders of disclosure were also made in Interlocutory Judgment (No 20), requiring it to disclose any document in its possession or under its control relating to the funding or support given to Ms Alim in bringing her claims, including any documents which related to whether PRI controlled or directed proceedings, and the reasons why they may have done so; any bank account records evidencing payments from PRI to KS in relation to the funding or support given to Ms Alim in bringing her claims; financial statements of PRI for the years ending 31 March 2014 and 31 March 2015. If privilege was claimed for any documents, they were to be identified by date, description of their general nature and details of the sender and recipient where appropriate. The only documents which were disclosed were the financial year-end documents, and a bank account statement. It was claimed there were no documents in existence in any of the other categories.
[39] In my view, it was inherently unlikely that there were no documents which Ms Alim and/or PRI should have disclosed relating to the funding or support given to Ms Alim in the categories which were stipulated in Interlocutory Judgment (No
20). I accept the submission made for LSG that there was a deliberate strategy to
avoid the disclosure of documents.
13 Alim v LSG Sky Chefs New Zealand Ltd (No 20), above n 3, at [124].
14 The version forwarded at that stage was not witnessed. A witnessed version was received by the
Court on 31 August 2016.
[40] Against this background, I held that the circumstances of the case were so unusual that it was appropriate for the Court to direct KS itself to disclose the relevant documents, notwithstanding the difficulty which Mr Leggett said could potentially arise for KS.
[41] I should also add that Mr O’Brien, on behalf of Ms Alim, submitted that these records were privileged, referring to the provisions of s 51 of the Evidence Act
2006 as discussed by Kós J in Dixon v Kingsley.15 As I indicated at the hearing,
however, the Court is not bound by that Act, although it may be guided by its principles. Nor was there any evidence that the trust account records were a “communication” in terms of s 51, or that those records contained legal advice. I also observe that the relevant invoices were already before the Court, because they had been attached to a submission as to costs, filed for Ms Alim in December 2015. No privilege had been sought for their content. Nor was the fact of payment by a third party privileged, because the Court had been so advised as early as March 2014. Ms Alim did not refer to these documents as being privileged in her affidavit of documents. I was not satisfied in all these circumstances that there was a relevant privilege.
[42] A yet further issue which was raised related to confidentiality. After hearing from counsel I was satisfied that this issue could be dealt with by placing limitations on disclosure.
[43] Accordingly, I directed that KS was to provide, on an unredacted basis, its trust account records relating to the funding and support of Ms Alim’s claims by
29 August 2016 to lawyers acting for LSG only (Ms Meechan and Ms Douglas), and lawyers acting for PRI only (Mr France and Mr Worthy), and to the Court. I directed that the documents were not to be disclosed to any other person without leave of the Court or agreement between all parties. KS provided its trust account statement under that timetable; and subsequently after a further request from Ms Meechan, also
provided its office account statement.
15 Dixon v Kingsley [2015] NZHC 2044, [2015] NZFLR 1012.
[44] I also directed that counsel could file memoranda, for the purposes of the joinder application, in relation to the trust and office account records. These were subsequently provided by counsel for LSG and for PRI. Counsel for Ms Alim filed a memorandum stating that as Ms Alim did not have a position on the application for joinder which was between LSG and PRI, no submissions would be provided. I shall return to the submissions made as to these documents when dealing with the joinder issues later.
The balance of LSG’s applications
[45] As mentioned earlier, LSG originally sought to join Mr Nathan, who until
23 February 2016 was a director of PRI. That application was not pursued at the hearing on 25 August 2016.
[46] In its application of 5 August 2016, LSG also sought orders that Ms Alim’s claim for costs in the proceeding in this Court, contained in her first amended statement of claim be struck out; and that her challenge to the Authority’s costs determination be struck out. This was advanced on the basis that she had failed to comply with the Court’s order as to disclosure. Given the uncertainty as to her representation at the hearing on 25 August 2016, LSG did not proceed with these applications then or since.
[47] The applications which LSG did proceed with were for the joinder of PRI and
Mr Hay. It is to these applications that I now turn.
Application to join PRI and Mr Hay
Evidence
[48] It will be necessary to discuss relevant aspects of the evidence more fully when considering particular factors relevant to joinder, but at this stage I summarise the key evidence which was referred to.
[49] This included the invoices rendered by KS to PRI and a company described as Pacific Flight Catering Ltd (Pacific Flight). According to company office records
Pacific Flight was approved for deregistration on 18 September 2014; counsel for
KS stated that all invoices after that date were sent to PRI.
[50] As described earlier, copies of KS’s trust and office accounts are now before the Court. Additionally, the Court has the few documents which were disclosed by PRI in its affidavit of documents, these being the documents of a financial nature for which confidentiality was claimed.
[51] The Court was also referred to the affidavits of documents filed by Ms Alim and PRI.
[52] I turn next to affidavits which were filed specifically for the purposes of the applications for joinder. Ms Park, Human Resources Manager for LSG, filed two affirmations in support of LSG’s application for joinder. In the first of these16 she said that the identity of the funder and the basis of any funding agreement for Ms Alim was unclear. She had understood that PRI was funding Ms Alim’s claim, which was one of two companies operating the business of “Pacific Flight Catering”. The second company, Pacific Flight had been struck off, as already mentioned. It was understood that PRI was no longer trading in New Zealand, having sold its
business to Gate Gourmet Ltd in about July 2013.
[53] In her second affirmation17 Ms Park provided further information in support of LSG’s application that Mr Hay be joined. On the basis of further information which had emerged in the course of 2016, she asserted that Mr Hay had controlled and managed PRI notwithstanding his resignation as a director on 1 April 2008. She referred to examples of statements in the evidence where she said Mr Hay took steps which confirmed he had controlled the litigation.
[54] Reference was made to a statement made by Mr Stewart QC to this Court, as counsel for the plaintiff in Matsuoka v LSG Sky Chefs New Zealand Ltd. This case was brought by another former PRI employee who claimed he should have been
transferred with other staff to LSG in 2011. He said counsel had described Mr Hay
16 Affirmed on 5 November 2015.
17 Affirmed on 5 August 2016.
as “the primary client”; and that at a hearing earlier this year, Mr Stewart had stated that Mr Hay was assisting with Mr Matsuoka’s costs.
[55] Ms Park also stated that she was concerned Mr Hay was pursuing the claim, notionally in Ms Alim’s name, as a way of forcing LSG to incur significant legal costs, which would be consistent with a strategy PRI adopted in inflating wages and leave records in 2011.
[56] Additionally, the Court has two affidavits from Mr Nathan. In both of these he asserted that he did not initiate Ms Alim’s litigation and he did not control her proceeding. He also said that he had never been involved in settling Ms Alim’s litigation strategy or instructing lawyers.
[57] Ultimately, an affidavit was also filed by Mr Hay. He said that he resigned as a director of PRI with effect from 1 April 2008, but that since then he had “occasionally” been asked by directors of PRI to assist the company. He said that following the sale of the business of PRI in July 2013, he was asked to deal with PRI’s accounts because the company no longer employed an accounts department, accountant or general manager. Accordingly, all legal invoices were sent to him for his attention. He said he was there basically to “open the mail”. He would forward invoices to a contract accountant who would look after payment. He said that he understood legal fees were paid using money that was left in the business after the catering operation was sold. He stated he had not provided any money to PRI in relation to the proceedings, and had not “personally” funded PRI. He said he did not stand to benefit personally from the result of the proceedings. These had not been brought by Ms Alim for his benefit, and he assumed she would keep any damages she obtained from the proceeding.
[58] Ms Alim has via her new counsel filed an affidavit on 6 December 2016. It deals with a point as to privilege, and updates her financial circumstances; I shall return to these topics below. Otherwise, no evidence was provided on funding topics.
[59] The evidence which I have described needs to be considered against the evidence which the Court heard previously, and the findings made in judgments to which I shall refer as necessary later.
Submissions
[60] I now summarise the key points made by counsel in their various submissions.
[61] For LSG, Ms Meechan confirmed that the application for joinder was made under s 221 of the Act. She said the background was that Ms Alim had failed to disclose documents relating to the funding of her proceeding, notwithstanding orders made by the Court in interlocutory judgment No 6;18 and ordered again in judgment No 20.19 Ms Alim had filed an affidavit of documents, but there had been inadequate compliance with the Court’s orders. A similar criticism was made in respect of the
affidavit filed by PRI. There was no letter of engagement or other documentation such as a funding agreement. This was not withstanding the fact that PRI acknowledged that it was “a funder”. Nor did Ms Alim or PRI list any relevant documents in the privileged section of their respective affidavits of documents which would indicate that KS gave advice to those parties and/or took instructions from them. She submitted that the deliberate strategy of not disclosing relevant documents was relevant to the present application.
[62] Turning to the application in respect of Mr Hay, she argued that the totality of the evidence that was before the Court suggested that he was in control of the litigation, and that his assertion to the contrary was not reliable. Ms Meechan analysed the position of the de jure directors of PRI during the course of the litigation (Mr Nathan and Mr Drake). She said there was no reliable evidence that they had been involved in this litigation, but there were many pointers to Mr Hay being involved. She submitted that PRI had allowed itself to be used by Mr Hay.
Ms Meechan also submitted that Ms Alim was clearly insolvent.
18 As described at [36] above.
19 As described at [4] above.
[63] In summary Ms Meechan said that the requisite thresholds for joinder for cost purposes were clearly met in respect of both PRI and Mr Hay.
[64] Ms Alim took a neutral position with regard to the applications for joinder.
[65] For PRI, Mr France submitted that the company was a funder only; there was no reliable evidence to suggest that it had controlled the litigation, or that there was any other relevant aspect of its involvement that would justify joinder.
[66] He said that the findings which had been made in the Court’s substantive judgment which were critical of PRI were not relevant because they related to the circumstances of transfer of employees from PRI to LSG which occurred well prior to the inception of Ms Alim’s proceeding. In summary, it was submitted that LSG’s application must fail because:
a) The “core features” required by the authorities for joinder of a
non-party were not present;
c) It was not established that PRI was the real party in the litigation; and d) PRI had not committed any impropriety in the litigation.
[67] Mr France also submitted that applications for joinder were usually in respect of individuals, rather than corporate entities. He also said that the documents which were disclosed did not reveal any information that suggested PRI had been the “guiding mind” of the proceeding.
[68] Counsel for Mr Hay, Mr Scampion, submitted there were three essential prerequisites which the authorities indicated should be established, as well as discretionary factors. He said that none of those prerequisites was made out in this case. Mr Scampion submitted in summary:
a) Cost orders against directors of litigant companies are “exceptional”,
and require a finding of impropriety or bad faith;
b) A fresh injection of capital from the director involved is usually required;
c) A failure to seek security for costs weighs against the exercise of the discretion;
d) Mr Hay was not at any material time a director of PRI, and the test for determining that he was a de facto director was not established having regard to the particular evidence relied on by LSG for the proposition that he was;
e) There was no evidence that Mr Hay stood to benefit personally from the proceedings, and he had not committed some impropriety in the litigation.
[69] Mr Scampion also emphasised that LSG was required to prove its case to a high standard given the potential consequences for Mr Hay; assumption and inference would not suffice.
[70] In supplementary submissions, Mr Scampion repeated his contention that the essential prerequisites were not made out. He emphasised that there was nothing to support the proposition that Ms Alim was insolvent. While she may have been of modest means in 2014, there was no evidence regarding her current circumstances, and hardship caused by a costs award could not be the test.20 In further submissions after Ms Alim filed her updating affidavit of 6 December 2016, it was argued that the fresh evidence established Ms Alim was not in fact insolvent. It was also argued that if LSG could establish Ms Alim was insolvent at the time of the litigation it would
need also to establish that PRI was insolvent at the same time in order to succeed against Mr Hay. PRI’s accounts suggested that this was not the case. Even if it did
not hold much cash, it could not be inferred that it was Mr Hay who had put PRI in
funds – it was more likely that the entity which was shown as a payer in the KS records, Pacific Rim Investments Ltd (Pacific Rim) had done so. Earlier submissions as to other inadequacies in LSG’s application were repeated.
[71] I shall refer in more detail to aspects of the various submissions which have been made, as is appropriate.
Legal principles
[72] The applicable legal principles are well established, and there was no controversy as to these between counsel.
[73] The principles regarding the exercise of a jurisdiction to award costs against non parties was authoritatively and fully discussed by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2);21 and in the subsequent English Court of Appeal judgment of Goodwood Recoveries Ltd v Breen.22 In this jurisdiction, the leading judgment is that of the Court of Appeal in Kidd v Equity Realty (1995) Ltd.23
[74] It is appropriate to refer, first, to the dicta of Lord Brown of Eton-Under-Heywood in Dymocks, when he commenced his review of the main principles by stating:24
Although cost orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.
[75] Turning to the New Zealand case of Kidd, the Court of Appeal confirmed that given the broad and untechnical language of s 221, this Court has jurisdiction in an
appropriate case to join a non party for the purpose of making an award as to costs.25
21 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145.
22 Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723.
23 Kidd v Equity Realty (1995) Ltd [2010] NZCA 452.
24 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 20, at [25].
25 Kidd v Equity Realty (1995) Ltd, above n 22, at [12].
[76] In that instance, the Court of Appeal was required to consider an application for joinder of a non-party for cost purposes, Mr Kidd; he was a director of a party Axiom Rolle PRP Valuations Services Ltd (Axiom).
[77] After reviewing the relevant authorities, and in particular those to which I
referred above, the Court of Appeal held:
[15] The core features of the present case are routine. Mr Kidd was the guiding mind of Axiom and in this way was responsible for the litigation strategy it pursued. By the time costs came to be fixed Axiom was insolvent.
[16] We think it clear that those factors do not in themselves warrant an award of costs against Mr Kidd personally. Something more is required. In the present context, the requirement for “something more” might be satisfied if:
(a) there was any relevant impropriety on the part of Mr Kidd; or if
(b) Mr Kidd was relevantly acting not in the interests of Axiom but rather in his own interests and was thus the real party.
(footnotes omitted)
[78] The Court of Appeal referred to Goodwood Recoveries as demonstrating what was meant by “relevant impropriety” for the purposes of the first type of case where something more was required.26 In that instance, an insolvent company brought an unsuccessful claim. That entity was controlled by a third party director who was the subject of strong criticism by the Court. It was held that the whole of the cost of the litigation was caused by the third party’s director’s dishonesty or impropriety; his conduct was described as improper and exceptional conduct.27
[79] Then the Court of Appeal discussed the second type of case where the requirement for something more could be satisfied: where the third party was acting in his own interests and was thus the real party.28 Referring to the situation where a closely held company is a litigant, the Court stated that those who control it
necessarily control its conduct of the litigation. But the routine circumstances where
26 Goodwood Recoveries Ltd v Breen, above n 21.
27 At [72].
28 Kidd v Equity Reality (1995) Ltd, above n 22.
a closely held company is a litigant do not warrant third party costs awards. The
Court said this:29
Where a company litigant was insolvent at the time of the litigation, a court might well be easily persuaded that its directors were acting for their own purposes rather than those of the company and its creditors. If so, the court will conclude that they were therefore the “real parties” and ought to pay costs accordingly. The same conclusion is likely to be reached where those promoting ligation have sought to take advantage of the insolvency of the company by taking, either expressly or by implication, a “heads I win, tails you lose” approach. In circumstances where the claim was speculative and/or devoid of merit, a court may well conclude that this was the approach of the director or directors concerned. But, and in respectful disagreement with the judgment of Morgan J, we consider that the sort of circumstances which are routinely present when closely held companies litigate do not in themselves warrant an order for costs against those who control them.
(footnotes omitted)
[80] It is also useful to refer to the discussion of these issues by Lord Brown in Dymocks.30 In his consideration of the authorities, Lord Brown cited with approval the dicta of Mason CJ and Deane J in Knight v FP Special Assets Ltd, who in the High Court of Australia said:31
For our part, we consider it appropriate to recognize a general category of cases in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.
[81] After reviewing a number of such authorities, Lord Brown stated:32
In the light of these authorities Their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases ...
29 At [20].
30 Dymocks Franchise Systems (NSW) Pty Ltd v Todd, above n 20.
31 Knight v FP Special Assets Ltd (1992) 1474 CLR 178 (HCA) at 192 – 193.
32 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 20, at [29].
[82] Later, when considering the particular facts in Dymocks, Lord Brown observed:33
Thirdly, Associated submit that there was no impropriety involved in their promoting this appeal; on the contrary, they and the Todds had independently received encouraging advice from leading counsel. This cannot, however, avail them. The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against a non-party, its absence does not preclude the making of such an order.
[83] This review led Rix LJ, in the English Court of Appeal in the subsequent decision of Goodwood Recoveries, to refer to the foregoing observations and then say:34
[59] In my judgment it is clear from these passages that the law has moved a considerable distance in refining the early approach of Lloyd LJ in Taylor v Pace Developments. Where a non-party director can be described as the
‘real party’, seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact sensitive and objective assessment of the circumstances. It may also be noted that Lord Brown’s comments [at [33] of his opinion] ‘the pursuit of speculative litigation’ is put into the same category as ‘impropriety’.
[84] Finally, the words of Mummery LJ in Dolphin Quays Development Ltd v
Mills are apposite:35
A costs order against a non-party can be made by the court in its discretion, which, like all discretions, involves a balancing exercise controlled by principles of justice.
[85] It is these principles which must be applied when considering the present applications.
Analysis
[86] A particular difficulty which arises with regard to LSG’s application is the fact that, despite extensive efforts to obtain details of Ms Alim’s funding arrangements, it has proved very difficult to do so. I find it is likely that a national
firm such as KS would have issued a letter or letters of engagement, and would not
33 At [33].
34 Goodwood Recoveries Ltd v Breen, above n 21 (citations omitted).
35 Dolphin Quays Development Ltd v Mills [2008] EWCA Civ 385, [2008] 1 WLR 1829 at [91].
have acted without funding arrangements being clearly described and recorded. Yet no such documents in relation to Ms Alim’s proceedings were disclosed.
[87] Factors such as these are relevant when considering Mr Scampion’s submission as to onus. While it is incumbent on LSG to establish an evidential basis for its applications for joinder, the point may be reached where it is appropriate to draw an adverse inference if there is an absence of a response on particular issues from the affected party, particularly when that party has chosen to respond only in
part.36
[88] The KS records confirm that PRI paid some amounts for the relevant legal services. This is unsurprising: it was always acknowledged that PRI was a funder. The issue was as to the identity of any other funder. Counsel for Mr Hay submitted that it was “more likely that Pacific Rim Investments Ltd placed PRI in funds as Pacific Rim Investments made a payment directly to Kensington Swan itself (as recorded in the KS account documents)”. Mr Hay obviously knows what the correct position is and it is significant that counsel made that submission on his behalf.
[89] In any event, the evidence supports the submission. The direct payment made by Pacific Rim occurred on 25 July 2016, by which time the Registrar of Companies had given notice of her intention to remove PRI from the Register. Pacific Rim is the sole shareholder of PRI. It is logical to conclude that the second
funder was PRI’s parent company.37
[90] On the evidence before the Court, I find that the source of funding for
Ms Alim’s proceedings was derived from these two sources.
36 New Zealand Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC) at 212; Accident Compensation Corp v Ambros [2007] NZCA 304, [2008] 1 NZLR 340 at [58] (referring to the oft-cited dictum of Lord Mansfield in Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63 at 65) and the cases cited by that Court at [62], confirming that such a principle applies in many contexts; and The Healy Holmberg Trading Partnership v Grant [2012] NZCA 451, [2012] 3
NZLR 614 at [41].
37 The nature of Pacific Rim’s activities was subject to findings by Judge Travis in Matusoka v
LSG Sky Chefs New Zealand Ltd, [2011] NZEmpC 44, [2011] ERNZ 56 at [9].
Guiding mind
[91] Given that funding context, the next question I must consider is whether PRI or Mr Hay could be said to have controlled the litigation in a material way; that is, did either or both of them provide a “guiding mind”?
[92] There is a range of factors to be considered for the purposes of this assessment. I refer first to the finding made by Woolford J in the High Court litigation which took place between LSG on the one hand and Pacific Flight and PRI on the other. The focus of the proceeding related to the circumstances of transfer of employees from PRI to LSG on or about 23 February 2011; those circumstances were also central to Ms Alim’s claim.
[93] At issue was whether pay records had been altered to increase the leave balances and hourly pay rates of employees shortly before transfer. Woolford J received evidence that it was Mr Hay who made the relevant decisions, as recorded in this passage:38
Ms Gorgner acknowledged that there were some pay rises and adjustments in the annual leave balances but said she was not privy to the decisions made around those adjustments. She said that the decisions were taken by Mr Terry Hay, one of the owners of Pacific and although she was the Human Resources Manager and Acting General Manager, she was not consulted. Ms Gorgner acknowledged that there would be additional costs for LSG but could not see it as having a big impact because LSG was so much larger than Pacific.
[94] The Court went on to observe that it was unfortunate Mr Hay had not given evidence for PRI/Pacific Flight regarding his reasons for giving pay rises to and increasing the leave balances of the staff who were about to transfer.39 Although the High Court decision was appealed, there is no evidence that this finding was challenged.40
[95] The next contextual matter to which I refer is the evidence of Ms Alim that after resigning from LSG in early January 2012, she attended PRI and worked there
38 LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd, above n 5, at [12].
39 At [13].
40 Pacific Flight Catering Ltd v LSG Sky Chefs New Zealand Ltd [2013] NZCA 386, [2014] 2
NZLR 1 and LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd [2014] NZSC 158, [2016] 1 NZLR 433.
for a few hours. Ms Alim stated that on the following day when she returned to PRI, she was told that she could not stay because “Mr Hay said so”. She did not know why this occurred. This evidence was confirmed by Mr Cyril Belk when he gave evidence to this Court; he was PRI’s Production Sous-Chef. He stated that he received a telephone call from Mr Hay instructing him to tell Ms Alim to leave the premises. He then told Ms Alim that he had been directed to “send you home”.
[96] I do not accept Mr Scampion’s submission that Ms Alim’s evidence is inadmissible on a hearsay basis. This Court may consider such evidence having regard to the jurisdiction bestowed upon it under s 189 of the Act. Moreover, it is confirmed by Mr Belk’s evidence, and I find that the events he and Ms Alim described occurred. Again, Mr Hay exercised control over circumstances arising from the transfer of staff to LSG.
[97] The next contextual matter to which I refer arises from Mr Hay’s involvement in other litigation. First, Mr Hay made reference to the fact that during the Supreme Court proceedings between LSG and PRI, LSG sought a stay of execution of a costs order which had been made by the Court of Appeal. This occurred in late 2013. At issue was the then solvency of PRI. A memorandum was placed before the Court of Appeal which attached a letter from Mr Stewart QC on behalf of PRI to Mr Skelton QC on behalf of LSG. Annexed was a document with a handwritten note endorsed by Mr Hay stating that after the maturity of a fund held by PRI of some two million dollars which would occur on 6 January 2014 “it is the intention of PRI Flight Catering to keep bank balance exceeding $1,000,000 through April 2015”. This evidence confirms a key role with regard to financial matters affecting PRI, and that Mr Hay held himself out as having the authority of the company to make representations of this kind.
[98] Next, I refer to other proceedings in this Court which also involve the circumstances of transfer, those that have been brought by Mr Matsuoka against LSG. I have already alluded to the evidence given by Ms Park to the effect that at a hearing in those proceedings, Mr Stewart QC stated that Mr Hay was assisting with Mr Matsuoka’s costs. For LSG it was submitted that this evidence had not been challenged by Mr Hay. In response, Mr Scampion submitted that this was an unfair
submission because Ms Park had presented inadmissible hearsay evidence, to which Mr Hay had therefore not responded. Counsel also stated that he understood Ms Park had not been present at the hearing in any event, although I observe there is no evidence to that effect. Ms Park’s evidence is admissible in this Court.
[99] I also note from various judgments issued in the Matsuoka proceeding that the Court was informed Mr Matsuoka’s claim was being funded.41 It would be unsurprising if, as Mr Stewart QC told the Court, Mr Hay himself became the primary funder. I accept Ms Park’s evidence as being reliable. Mr Hay’s involvement in the funding of the Matsuoka proceeding is a yet further contextual factor which, in my view, it is appropriate to consider.
[100] Relevant findings concerning Mr Hay’s involvement in PRI were made in Matsuoka. In particular, Judge Travis found that after Mr Hay had departed for Hawaii some time in 2008, Mr Matsuoka continued to report to him throughout that period to February 2011, and that Mr Hay was in daily contact with PRI. This finding confirms a significant management role to at least that date.42 Other
evidence shows that it continued thereafter.43
[101] Turning to issues relating to the conduct of this proceeding, there are a variety of factors to be considered. The first is that Mr Hay is named on KS’s trust and office account records as being the person to whom invoices for legal services rendered for the purposes of the proceeding should be sent. As to this, Mr Hay said as I have already mentioned that he was simply assisting PRI and that he was there to “open the mail”. However, he then stated that he would forward invoices to the “contract accountant who would look after payment”. I infer from this evidence that he approved the invoices for payment; otherwise there would have been no necessity for his involvement. I also infer that he would not have approved those invoices unless he was satisfied the legal services had been performed as required. At the
very least, he had knowledge of these.
41 Matsuoka v LSG Sky Chefs New Zealand Ltd [2012] NZEmpC 219, [2012] ERNZ 595 at [41] –
[45]; Matsuoka v LSG Sky Chefs New Zealand Ltd [2013] NZEmpC 96 at [13].
42 Matsuoka v LSG Sky Chefs New Zealand Ltd [2011] NZEmpC 44, [2011] ERNZ 56 at [21].
43 For example, as at [92] – [95] of this judgment.
[102] When referring to this issue, Mr Hay stated that he “understood” legal fees were paid using money that was left in the business after the catering operation was sold on the documentation which has been placed before the Court. It is evident that PRI had substantial equity as at 31 March 2014, but modest equity only at
31 March 2015. From the invoices which are before the Court it is clear that after March 2015 invoices were rendered for sums well in excess of that equity and in excess of the modest cash held by the company. Furthermore, costs were paid by Pacific Rim directly to KS as recently as July 2016. On the evidence before the Court, it is not correct to say that legal fees were paid by PRI from money left in the business. The evidence from Mr Hay that they were so paid is unreliable, and casts doubt on his credibility as a witness.
[103] When Mr France became involved initially, he sent an email to other counsel, on 23 November 2015, which inter alia stated he had met with Mr Hay, “the Director and CEO of the company” a few days previously. In a subsequent memorandum, he told the Court that Mr Hay had met with his firm and instructed it to seek an extension of time for the filing of relevant documents for PRI. For his part, Mr Hay asserted that he had been asked by PRI directors to meet with Mr France to seek an extension of time.
[104] In a later hearing in this Court, Mr France advised that he had been mistaken in his email of 23 November 2015 when he referred to Mr Hay as a director. That was an appropriate correction, since the Companies Office records confirm Mr Hay’s resignation as a director some years previously. However, with regard to his interaction with Mr France, I accept the submission made for LSG that Mr Hay must have held himself out as being a PRI director, which is why he was described as such.
[105] Next, it is necessary to consider the position of those persons who are recorded in Companies Office records as being directors.
[106] Mr Nathan denied that he was involved in controlling or managing the litigation. Despite his status, he did not inform the Court in either of his affidavits as to why PRI advanced substantial funding for the purposes of Ms Alim’s claims or
what the funding arrangements were. Mr Nathan was served with a summons to attend the substantive hearing in this Court in August 2015, and to disclose PRI documents. When served he stated “Well, you’re not getting anything from me”. Mr Nathan applied to set aside the summons to avoid attending the hearing. Ultimately he was not called on to do so. Soon after, an application was served on him for joinder as a party for costs purposes, he resigned as a director of PRI in February 2016. I infer from all the circumstances that the resignation was in response to the application to join him. Subsequently he stated that he had been a director because he understood the company needed a director who was a New Zealand resident. The full extent of his role in the governance of PRI is unclear, but I accept there is an absence of any evidence to suggest that he could be described as a “guiding mind” of this litigation.
[107] According to the company office records which have been produced to the Court, the other director of PRI is Mr William Drake. Those records state that his residential address is 18 Viaduct Harbour, Auckland; this is the address of KS. However, he also signed the affidavit of documents for PRI in this proceeding, stating there that he resides in Hawaii. The implication in the Companies Office records, therefore, that he resides at the offices of KS is inherently unlikely and misleading. That said, no party or non-party has provided any other evidence to suggest that Mr Drake has been actively involved in this litigation, except for the signing of PRI’s affidavit of documents. I do not regard that fact as supporting the proposition that he provided instructions to KS for the purposes of the litigation in the absence of any other evidence that he did so. The signing of that affidavit by him meant that it would not need to be signed by anyone else on behalf of PRI; it is likely that this occurred for strategic reasons.
[108] Taking all these factors into account, I am satisfied that there is a sufficient foundation of evidence that supports the proposition that Mr Hay was directly involved in the initial transfer of employees from PRI to LSG, and at multiple stages thereafter in the extensive litigation about those events which has followed, whether in the courts of general jurisdiction or in this Court. The totality of the evidence points strongly to Mr Hay being the “guiding mind” for the purposes of this proceeding. This conclusion is endorsed by the fact that there was a proper
opportunity for him to explain both why Ms Alim’s proceeding was funded, and who
managed and controlled the litigation, but he has chosen not to do so.
[109] The Court must, however, also determine the capacity in which Mr Hay acted.
[110] Mr Scampion addressed the question of whether it could be said Mr Hay was a de facto director, according to dicta in Delegat v Norman, where the Court was required to consider such a question under s 126 of the CA.44 Woolford J held for the purposes of that section that an individual was a de facto director when that person undertook functions that could only be discharged by a director.45
[111] Other authorities with regard to such a provision also place emphasis on whether the company, or the individual involved, has held the subject person out as being a director.46
[112] Mr Scampion submitted that merely because Mr Hay, from time to time, acted as a “de facto Human Resources officer, accountant, or in any other position” does not go far enough.
[113] However, the totality of the evidence and inferences which the Court can properly draw strongly point to the fact that in the present case Mr Hay exercised the functions of a director of PRI, and that he held himself out as being authorised to exercise these functions. It is also the case that the de jure directors must have been well aware of his actions, so that it should be concluded that PRI permitted him to act as a director.
[114] In summary, I find that Mr Hay was a guiding mind for the purposes of the litigation, in his capacity as a de facto director of PRI.
44 Delegat v Norman [2012] NZHC 2358.
45 At [31] – [32]. The Court was also referred to two other cases which deal with an application of that section: Aquaheat New Zealand Ltd v Hi Heat Seat Ltd (in liq, in rec) [2013] NZHC 1438, and Vance v Jeffreys [2015] NZHC 1202.
46 Ray v Hydrodam (Coby) Ltd (in liq) [1994] 2 BCLC 180 (Ch) per Millett J; re Low-Line Electric Motors Ltd [1988] BCLC 698 (Ch) per Browne-Wilkinson V-C at 706 and Clark v Libra Developments Ltd [2007] 2 NZLR 709 at [179].
Ms Alim’s financial status
[115] It was submitted that there was nothing to suggest Ms Alim was insolvent.
[116] In early 2014, Ms Alim filed an affidavit which outlined the fact that she was on a modest wage, and was unable to pay the sum of $21,000 which was being sought as security for costs.
[117] Now she has filed a further affidavit which confirms that her liabilities exceed her assets. She does not own any property. She and her husband work. She says that although she sometimes struggles to make ends meet, she can pay her “expenses”.
[118] I referred earlier to the dicta of Mason CJ and Dean J in Knight47 which was referred to with approval by Lord Brown in Dymocks.48 There, reference was made to a party being “an insolvent person or [a] man of straw”. Many of the cases refer to circumstances where the party involved has either been placed in receivership or
liquidation, with the issue being the funding of litigation thereafter; but I find the authorities do not require, in the case of an individual, evidence that an order of bankruptcy has been made. Insolvency in effect will suffice.
[119] In my view, the circumstances here are obvious. With no disrespect to Ms Alim, her financial circumstances fall within the description referred to in Knight, both during the proceeding, and now. For the purposes of this application, Ms Alim was at all material times, in effect, insolvent. She could not have met the very substantial legal expenses involved in bringing her claim. That is why it was funded. I also find that but for the funding which was made available to Ms Alim, she could not and would not have brought the proceeding.
[120] Her financial circumstances have not altered materially since. Just as it would not have been appropriate to conclude that she could have paid $21,000 for
security for costs in February 2014, it is also appropriate to conclude that she could
47 Knight v FP Special Assets Ltd, above n 30, at 192 – 193.
48 Dymocks Franchise System (NSW) Pty Ltd v Todd (No 2), above n 20, at [29].
not pay such a sum now, let alone a sum in excess of that amount were the Court to conclude that LSG was entitled to such an order.
[121] I accept Mr Scampion’s submission that assessing Ms Alim’s financial position against a claimed costs award of up to $300,000 does not assist at this stage, and I have placed LSG’s submission to that effect to one side.
Something more?
[122] The next question which must be considered is what was described by the Court of Appeal in Kidd as a requirement for “something more” which would be satisfied either if there was relevant impropriety, or if either of the third parties were not acting in the interests of Ms Alim but in their own interests. In this case it is appropriate to consider the former factor rather than the latter; that is, was there a relevant impropriety?
[123] Ms Alim’s claim could only be described as speculative. It was founded on controversial circumstances which arose from the transfer of employees from PRI to LSG under Part 6A of the Act. The Court of Appeal had previously stated that PRI’s conduct appeared to have been reprehensible.49 In its costs judgment, the High Court subsequently stated that in the course of the proceedings which it heard, no explanation had been given for PRI’s conduct; however, the Court inferred that it
occurred out of “commercial spite for having lost the contract to a rival, in order to
make the contract financially disadvantageous for LSG”.50
[124] In this Court, I concluded ultimately that the representations on which Ms Alim’s claim was based, which were made on behalf of PRI to LSG, were fictitious and were a sham. The Court of Appeal agreed. It held that “on any view” the purported arrangements were a sham and of no legal effect. Consequently, the
application for leave to appeal was dismissed.51 I conclude that the claim must be
49 Pacific Flight Catering Ltd v LSG Sky Chefs New Zealand Ltd [2013] NZCA 386, [2014] 2
NZLR 1 at [8].
50 LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd [2015] NZHC 685 at [14].
51 Nisha v LSG Sky Chefs New Zealand Ltd [2016] NZCA 21, [2016] ERNZ 65 at [13].
regarded as speculative in the sense in which that term was used by Lord Brown in
Dymocks.52
[125] These proceedings were conducted in a tenacious fashion, with every point that it was possible to take for the plaintiff being taken. The result was that there were no fewer than 19 interlocutory judgments, and the substantive hearing was lengthy, extending over seven days.
[126] It is clear that those responsible for the funding of Ms Alim’s claim were
prepared to make significant legal funds available to advance the claim.
[127] I accept the submission made for LSG that taking all factors into account, a key motive for bringing such a proceeding was to force that entity to shoulder significant costs and other burdens which would be associated with defending the litigation; that motivation was consistent with the actions taken by PRI at the outset, which amounted to “commercial spite”. I do not regard the facts that Ms Alim felt she was the real party, and that she received the modest compensatory award of
$1,500 rather than PRI, as being matters which should alter this finding.
[128] These factors, considered cumulatively, are sufficient to reach the conclusion that there was relevant impropriety on behalf of PRI, driven by Mr Hay as the person who was controlling the proceeding as a de facto director.
[129] The impropriety is reinforced by what has occurred since cost issues came before this Court. As mentioned, Mr Nathan resigned, and there have been two attempts to have the company removed from the Register of Companies. I find that these attempts were undertaken to avoid a possible liability for costs in this proceeding.
PRI’s financial circumstances
[130] Mr Scampion submitted that Mr Hay could only be joined if the Court was first satisfied that PRI was insolvent at the time of the relevant events, which he said
52 Dymocks, above n 20, at [33]; Goodwood Recoveries, above n 21, at [59].
occurred in 2011 and early 2012. He said it would be insufficient to establish that
PRI may have become insolvent since then.
[131] If PRI had been a funded party to the proceeding from the outset, it would have been necessary to consider whether that entity was insolvent as a prerequisite to joinder of Mr Hay. But these are not the circumstances.
[132] PRI was one of the funders. Initially it apparently had the ability to meet the costs of Ms Alim’s proceeding. But by March 2015, it no longer had available cash for this purpose. Thereafter, its holding company Pacific Rim provided funds directly or indirectly for that purpose. Mr Hay says he did not do so himself: I assume he means by personal injection of capital to Pacific Rim or to PRI. No further information on this topic has been provided by PRI or Mr Hay. No doubt those parties could have set out the details, but they have chosen not to.
[133] That PRI has sought voluntary deregistration does not necessarily mean that the company is insolvent. Although it apparently no longer trades, there is no evidence of its inability to continue to obtain funding if needed; and no evidence of actual insolvency. Again PRI and Mr Hay have chosen to provide no information on this topic. The Court cannot rule out the possibility that the company could access some funding if needed.
[134] The Court has a wide discretion when dealing with costs: cl 19, Sch 3 of the Act. If ultimately persuaded that an order for costs should be made against a party joined for that purpose, the Court in exercising its discretion would need to consider whether such an order should be made jointly and severally; on an apportioned basis; against one party only; or against neither. These are not matters which can be resolved until all affected parties have been heard. As an aspect of that process, the joined parties should have an opportunity to provide up-to-date information as to their financial circumstances.
[135] At this stage, it is premature to rule out the possibility of either PRI or
Mr Hay being liable for some or all of any order for costs, if made.
Should LSG have applied for security for costs?
[136] I referred earlier to the submission that LSG should be denied the right to seek costs against non-parties, because it could have protected itself by seeking security for costs.
[137] Mr France submitted that the failure to seek security was inexplicable, given that LSG was aware from at least 21 February 2014 that Ms Alim was not resident in New Zealand, and was aware from at least 14 March 2014 that PRI was a funder. Reference was also made to the observation of Chief Judge Colgan to the effect that it was unclear why such an application had not been brought.53
[138] Mr Scampion referred to dicta arising from High Court decisions where, in a receivership context, it was considered that the availability of a security order is a strong reason not subsequently to order costs against a non-party.54
[139] For LSG it was submitted that it should not be penalised for not pursuing such an application, given a jurisdiction where security for costs is not commonly awarded for access to justice reasons, and where in circumstances where it is awarded, the awards are modest. Counsel also submitted that even if security for costs had been awarded it would not have covered the actual and reasonable costs LSG incurred to meet the aggressive strategy that was brought.
[140] The following statement contained in the joint judgment of Mason CJ in
Dean J in Knight is of relevance on this topic:55
The appellants contend that the availability of an order for security for costs where the plaintiff is suing on behalf or for the benefit of another is a strong reason for denying the existence of a jurisdiction to order costs against a non-party. Indeed, it has been said that the practice of making such an order for security for costs and of staying the proceedings until it is given is the appropriate remedy ... no doubt it is an appropriate remedy in many cases but there are limitations attaching to the availability of security for costs. These limitations are such that security for costs is not a remedy in all cases
53 Nisha v LSG Sky Chefs New Zealand Ltd (No 18) [2015] NZEmpC 133 at [11].
54 Eastern Agriculture Ltd v Manawatu-Wanganui Regional Council HC Palmerston North Civ-
2008-454-31, 22 December 201; Love v Auburn Apartments Ltd (in rec and liq) [2013] NZHC
851.
55 Knight, above n 30, at 190 – 191.
in which justice calls for an order for the award of costs against a non-party. Security cannot be ordered against a defendant or a plaintiff who is an individual and who resides in the jurisdiction. The amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect the defendant to make further applications to the Court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient. And the availability of the remedy is scarcely a reason for denying the existence of jurisdiction to make an order for costs against the “real party” at the end of the trial of an action. The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction.
(Emphasis added)
[141] I agree that this factor can be dispositive. However, when considering an application of the present kind the Court is required to act according to the principle as to whether it is just to make the order sought in all the circumstances.
[142] Whilst it is surprising that LSG did not advance an application for security for costs, the circumstances of this case – as assessed earlier – are exceptional. An application for security for costs against Ms Alim even if successful was likely to have resulted in a modest sum being fixed for security;56 and an application for such an order against PRI itself as a known funder but a non party would have been controversial.
[143] Having regard to all the matters which I have considered in this judgment, I conclude that, in the interests of justice, this factor should not disqualify LSG from obtaining orders of joinder.
Disposition
[144] PRI and Mr Hay are joined as parties to this proceeding for costs purposes.
[145] I do not, at this stage, determine that costs orders will be made. There are live applications before the Court brought not only by LSG, but also by Ms Alim. The issues raised will be of some complexity, and it is important in these
circumstances that all parties, including those who are now joined, should have the
56 Young v Bay of Plenty District Health Board [2011] NZEmpC 89, at [13].
opportunity of presenting full submissions on liability and quantum issues in respect of the substantive judgment, the interlocutory judgments (those issued before and after the hearing), and in respect of Ms Alim’s challenge to the Authority’s determination as to costs; and to provide evidence as to financial means as mentioned.
[146] Accordingly, I direct the Registrar to arrange a time with counsel for all parties for a telephone directions conference. It is my present view that a full hearing should be conducted, with a timetable for the filing of submissions and evidence (if any) in advance.
[147] I reserve costs with regard to the various applications dealt with in this judgment.
B A Corkill
Judge
Judgment signed at 2.15 pm on 14 December 2016
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