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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2006-404-4353
IN THE MATTER OF Section 167 of the Personal Property
Securities
Act 1999
BETWEEN ASSET TRADERS LIMITED
Applicant
AND FAVAS SPORTSCAR WORLD LIMITED
Respondent
Appearances: Mr Burley for applicant
Mr Dale for respondent
Judgment: 13 September 2006 at 2.15 pm
COSTS JUDGMENT OF WINKELMANN J
This judgment was delivered by me on 13 September 2006 at, 2.15 pm pursuant
to
Rule540(4) of the High Court Rules.
Registrar/ Deputy Registrar
Callaghan & Co, Auckland
P J Dale, Barrister, Auckland
ASSET TRADERS LTD V FAVAS SPORTSCAR WORLD LTD HC AK CIV 2006-404-4353
13 September
2006
[1] On 3 August 2006 I heard argument on an application under s 167 of the
Personal Property Securities Act
1999 (the Act) for an order that the Financing
Statements registered over two cars owned by the respondent be maintained.
[2]
The respondent had served demand on the applicant under s 162(d) of the
Act. The effect of this demand was that the applicant's
registration in respect of a
claimed security interest could be discharged on the respondent's request unless
within 15 days the
applicant obtained a Court order maintaining the registration.
[3] The applicant was unsuccessful in its application to maintain
its registrations.
The respondent now seeks indemnity costs on the application, or alternatively
increased costs. It also seeks an
order for costs against the director of the applicant,
and deponent in this proceeding, Mr Trent Cary.
Application for costs against
non-party
[4] In submissions the respondent states that the shares in the applicant are
owned by a Trust which is "presumably"
controlled by Mr Cary. In any event it is
said to be obvious that Mr Cary was likely to be the beneficiary of a successful
outcome.
The contents of Mr Cary's affidavit suggest that the vehicle was for
personal use, and that is in any event evident from the type
of vehicle itself. The
respondent submits that Mr Cary was the real party to the litigation and that the
"shell company" was simply
a vehicle for bringing the claim.
[5] The respondent submits that it can be inferred that the applicant is
impecunious because
Mr Cary's affidavit makes clear that there were difficulties
with funding the purchase of the vehicle, and further the applicant
company has a
share capital of only $100. There is therefore little prospect of costs recovery unless
it is against Mr Cary personally.
[6] The respondent further submits that costs could be ordered on a joint and
several basis, so that if the applicant is able
to pay, Mr Cary will not suffer any
hardship.
[7] In response the applicant argues that costs against a non-party are an
exceptional
order and as a pre-requisite to making such an order, it must be
established the non-party "caused" the proceeding to be brought
or continued; the
non-party should not be held liable for costs incurred without that party's
involvement. The applicant submits
that there is insufficient evidence to support the
contention the proceedings were brought for Mr Cary's benefit and that the evidence
is to the contrary (and consistent with asset trading) because Mr Cary said he
personally had no particular preference over which
Lamborghini was ultimately
purchased. More generally, it is submitted there is no suggestion that Mr Cary was
in fact the "real"
party to the litigation. There is no clear indication that he funded it.
Lastly, the applicant refutes the respondent's submission
that the applicant company
has insufficient funds to meet any costs order. There is no supporting financial or
independent evidence to support the view the company does not have
any assets, nor
that the $100 share value of the company is indicative of impecuniosity.
[8] The starting point in respect of
considering whether costs should be awarded
against a non-party is the decision of the Privy Council in Dymocks Franchise
Systems
(NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145. In that case the Privy
Council summarised the general principles applicable as follows
(at [25]:
Although costs orders against nonparties 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 and
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. It must be recognised that this is inevitably to some extent a fact
specific jurisdiction and that
there will often be a number of different
considerations in play, some militating in favour of an order, some against.
Generally speaking the discretion will not be exercised against "pure
funders", described in para [40] of Hamilton v
Al Fayed as "those with no
personal interest in the litigation, who do not stand to benefit from it, are not
funding
it as a matter of business, and in no way seek to control its course".
In their case the Court's usual approach is to give
priority to the public
interest in the funded party getting access to justice over that of the
successful unfunded
party recovering his costs and so not having to bear the
expense of vindicating his rights.
Where, however, the
nonparty not merely funds the proceedings but
substantially also controls or at any rate is to benefit from them, justice
will
ordinarily require that, if the proceedings fail, he will pay the successful
party's costs. The nonparty in
these cases is not so much facilitating access
to justice by the party funded as himself gaining access to justice for his
own
purposes. He himself is "the real party" to the litigation, a concept repeatedly
invoked throughout the jurisprudence
see, for example, the judgments of
the High Court of Australia in Knight and Millett LJ's judgment in Metalloy
Supplies Ltd (in liq) v MA (UK) Ltd [1996] EWCA Civ 671; [1997] 1 WLR 1613.
[9] In Arklow Investments Ltd v MacLean HC AK CP49/97, 19 May 2000,
Fisher J said (at [20]):
... where a person is
a major shareholder and dominant director in a
company which brings proceedings, that alone will not justify a third party
costs order. Something additional is normally warranted as a matter of
discretion. The critical element will often
be a fresh injection of capital for
the known purpose of funding litigation.
[10] In this case I do not accept that the
matters the respondent refers me to justify
an inference that the applicant is impecunious. Nor is there any evidence that
Mr Cary
has funded the litigation.
[11] However, Mr Cary is the sole director of the applicant and thus has the means
of causing the
applicant to bring these proceedings. The affidavit filed in support of
the application is an affidavit of Mr Cary. He says in paragraph
[1] that he is the
sole director, and authorised to make the affidavit. The applicant is not thereafter
referred to again in the
chronology of events in his affidavit (although referred to in
solicitor's correspondence once the issue of priorities between the
applicant and
respondent had crystallised). Indeed, the affidavit starts out:
I became aware that a neighbour of mine, Adrien
De Croy, was looking to
sell two Lamborghini Diablos which I was equally interested in buying for
my own use as an
investment opportunity.
[12] At paragraph [17] he says:
Following this agreement, I then separately agreed with Ethnik
that in
consideration of my having brokered the land/car swap deal between he and
Adrien, I would have the opportunity
of buying one of the Lamborghinis of
my choice at what effectively would be a discounted price relative to
whatever
the agreed swap value would be between he and DeCroy.
[13] In the light of this material contained in the affidavit, I am satisfied
that the
dealings were between Mr Cary personally and Mr Krasniqi. There is no evidence to
suggest that Mr Cary was acting as the
agent of Asset Traders. The overriding
impression created by his own affidavit is that when the matter turned to a dispute,
he simply
utilised the limited liability company he was sole director of to pursue the
issue and commence these proceedings. There
is nothing to suggest that the
company ever had an interest in the cars or was intended to have an interest. In these
circumstances
I am satisfied that Mr Cary has used the applicant company as a front
for bringing this litigation, perhaps to avoid the possibility
of facing a personal
liability for costs.
[14] In such circumstances where the company is being used as a mere front for
the
directors own activities, I do not see that proof of impecuniosity is a pre-requisite
before an order for costs against the non-party
will be made.
[15] Accordingly the order for costs will be made jointly and severally against the
applicant and against Mr Cary
personally.
Indemnity costs
[16] In relation to the claim for indemnity costs, this is made on the basis that the
applicant's
claim was hopeless, yet the applicant persisted when legal deficiencies in
its claim to security interests in the cars were articulated
in the notice of opposition.
Further, the claim was brought on an urgent basis, the issues raised novel points of
law and required
careful analysis of the legal issues.
[17] In terms of the High Court Rules indemnity costs can be awarded where the
party has
acted vexatiously, frivolously, improperly or unnecessary in commencing,
continuing or defending a proceeding or a step in a proceeding,
or some other reason
exists which justifies the Court making an order for indemnity costs despite the
principle that the determination
of costs should be predictable and expeditious (Rule
48C(a) & (f).
[18] In general, the threshold for awarding indemnity costs
is a high one. In
Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [8] to [10] Goddard
J noted that indemnity costs will only be awarded under rule 48C in "truly
exceptional circumstances". In
that decision the Judge cited Colgate Palmolive Co v
Cussons Pty Ltd [1993] FCA 536; (1992) 118 ALR 248 where Shepherd J delineated six scenarios
which might justify the award of indemnity costs:
(xii) The question must always
be whether the particular facts and
circumstances of the case warrant the making of an order for payment of
costs other
than on party and party basis. Circumstances warranting the
exercise of the discretion to award indemnity costs include:
(a) the making of allegations of fraud knowing them to be false,
and the making of irrelevant allegations
of fraud;
(b) evidence of particular misconduct that causes loss of time to
the court and other
parties;
(c) the fact that the proceedings were commenced for some
ulterior motive;
(d) the fact that the proceedings were commenced in wilful
disregard of known facts or clearly established
law;
(e) the making of allegations that ought never to have been
made or the undue prolongation
of a case by groundless contentions;
(f) an imprudent refusal of an offer to compromise;
[19] In this case,
I accept that the applicant's claim was ultimately doomed to fail.
However, it was necessarily brought on an urgent basis and there
was some
underlying factual background which caused Mr Cary to believe that he had some
interest in the respondent's cars. In those
circumstances I do not consider lack of
merit in the claim meets the high threshold for the award of indemnity costs.
[20] I
do not consider that urgency is in itself a basis for the award of indemnity
costs. In any case, it was the respondent itself that
requested that the matter be dealt
with urgently. It would have been possible to grant a lengthier interim order (an
interim order
lasting only three days was granted in this case) so that the matter
could have proceeded in a more measured fashion.
However, the respondent
requested that the Court deal with the matter in the Duty Judge list because of
concerns that the value
of the cars could be adversely impacted by delay.
[21] As to the argument that indemnity costs should be awarded because the
legal
issues were complex, that is not a basis for the award of indemnity costs. In any
case, I do not consider the legal issues
raised were overly complex.
[22] I have also considered whether Mr Cary's use of the applicant company as a
"front" for his
own purposes, justifies the award of indemnity costs. However, this
conduct of his did not add costs to the proceeding, and I remind
myself that costs are
not be to utilised as a punishment.
[23] There is nothing in the conduct of the proceeding that justifies
an increased
order.
Proper calculation
[24] In relation to the proper calculation, the respondent notes that there are three
possible ways in which the calculation of costs can be approached. Mr Dale says
that while the application was an originating application,
it does not fall within the
definition of a specified originating application contained in items 26-31 to the 3rd
Schedule of the
High Court Rules. However, originating applications in respect of
caveats are specified applications for the purposes of those Rules
and in this case a
similar procedure was used to that in respect of applications that caveat not lapse.
Accordingly, Mr Dale suggests
that that is the appropriate costs calculation.
Alternatively, he says I may be of the view that costs should be payable on the
originating
application as they would have been prior to the introduction of items 26-
31 of the 3rd Schedule on 1 June 2005 and in any event,
on the basis that this is not a
specified originating application. That produces a significantly higher cost
calculation than
is produced if the proceeding is treated as a specified originating
application.
[25] Finally, the alternative way of approaching
the matter which is urged upon
me by the applicant, is that this application should be dealt with as if an interlocutory
application. That is not an appropriate
approach. The application was dispositive of
the issues between the parties and so cannot in any sense be said to be interlocutory.
Were that calculation to be adopted, the contribution toward costs would be at too
low a level.
[26] I therefore accept that
while items 26-31 of the third schedule does not
expressly refer to applications under the Act, the costs calculation provided for
in
Schedule A to Mr Dale's memorandum is most appropriate in this case.
[27] Accordingly, the respondent is entitled to an order
of costs against the
applicant and Mr Trent Cary in the sum of $4,640.00. The applicant and Mr Cary
are jointly and severally liable
in respect of those costs.
Winkelmann J
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