|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
DUNEDIN REGISTRY
CIV 2007-412-507
BETWEEN MURRAY NEIL FROST AND MICHAEL
CRAIG HORNE
Applicants
AND EWAN ROBERT CARR
First Respondent
AND BROOKSIDE FARM TRUST LIMITED
Second Respondent
AND JARCEL INVESTMENTS LIMITED
AND AWATAIERI HOLDINGS
LIMITED
Third Respondent
AND ANESYDS LIMITED (IN
RECEIVERSHIP)
Fourth Respondent
AND RODNEY JOHN HUMPHRIES
Fifth Respondent
CIV 2007-412-510
AND BETWEEN EWAN CARR
First Plaintiff
AND
BROOKSIDE FARM TRUST LIMITED
Second Plaintiff
AND
RODNEY JOHN HUMPHRIES
First Defendant
AND
BIG SKY DAIRY FARMS LIMITED (IN
LIQUIDATION)
Second Defendant
FROST AND HORNE V CARR AND ORS HC DUN CIV 2007-412-507 18 June 2008
AND
CASCADE CAPITAL LIMITED
Third Defendant
AND
MAIN FARM LIMITED
Fourth Defendant
AND
CONSULTANT MANAGEMENT
SERVICES LIMITED
Fifth Defendant
AND ANESYDS LIMITED (IN
RECEIVERSHIP)
Sixth Defendant
AND AWATAIERI
HOLDINGS LIMITED
Seventh Defendant
AND JARCEL
INVESTMENTS LIMITED
Eighth Defendant
Hearing: 11 June 2008
(Heard
at Wellington)
Appearances: J G J Toebes for the Receivers of the Big Sky Group of Companies
D Forman for South Canterbury
Finance Limited (a non-party)
Judgment: 18 June 2008
RESERVED JUDGMENT OF RANDERSON J
On an
application for costs against a non-party
This judgment was delivered by me on 18 June 2008
at 4 pm, pursuant to r 540(4) of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Rhodes & Co, PO Box 13444 Armagh Street, Christchurch
Buddle Findlay, PO Box 2694, Wellington
Dyer
Whitechurch, PO Box 6444, Wellesley Street, Auckland
Morgan Coakle, PO Box 114, Auckland
Meredith Connell,
PO Box 2213, Auckland
Raymond Sullivan McGlashan, PO Box 557, Timaru
Counsel: A R Gilchrist, PO Box 5444, Wellesley
Street, Auckland
Introduction
[1] This judgment is concerned with an application by two of the successful
defendants in these
proceedings to recover costs from a non-party, South Canterbury
Finance Limited (`SCF").
[2] The applicants are the receivers
of the Big Sky Group of companies and the
receiver of Anesyds Limited.
[3] On 3 June 2008 I made joint and several costs orders against the plaintiffs
Ewan Robert Carr and his company
Brookside Farm Trust Limited. These amounted
to $44,320 plus disbursements of $2,728 in favour of the receivers of the Big Sky
Group
of companies and $26,720 plus disbursements of $3,139.80 in favour of
Anesyds Limited.
[4] The present applicants now seek an
order that SCF be jointly and severally
liable with Mr Carr and Brookside Farm Trust Limited to pay those costs.
[5] The Anesyds
receiver is represented by Mr Wedekind who has informed the
Court that he adopts the submissions made by Mr Toebes on behalf of the
receivers
of the Big Sky Group of companies. Mr Rennie, who represents Mr Carr and his
company, has advised that he does not seek
to be heard. The Humphries interests
(the other principal parties to the substantive proceedings) have taken no steps in
relation
to this application.
[6] In essence, the applicants submit that SCF has a financial interest in the
outcome of the proceedings
(and in the appeal since filed by the Carr interests) such
that it is just that the costs order be made.
The facts
[7] The
substantive proceedings arose from the failed settlement of sale and
purchase agreements relating to three substantial dairy farms
in the Maniatoto Basin.
Also included in the sale were two separate properties known as the Danseys Pass
Coach Inn and the historic
Styx Hotel. Under a document known as the Amended
Settlement Agreement executed in May 2007, the Carr interests were granted an
option
to purchase the various assets. The option was exercised and the sales were to
be completed by 4 pm on 31 May 2007, time being of
the essence. The sales were
not settled by that time and the agreements for sale and purchase arising from the
exercise of the option
were cancelled. In the substantive decision given on 29
February 2008, I found that the agreements were validly cancelled.
[8]
The evidence at trial was that at the time for settlement the purchase was to
be 100 per cent financed through borrowing by the
Carr interests from Hanover
Finance Limited. However, Mr Carr had also approached SCF seeking finance. In
early May 2007 he requested
SCF to provide funding for the dairy farms and
Danseys Pass Coach Inn (but excluding the Styx Hotel). On 16 May 2007 SCF
prepared
a draft of finance to a company named Maniatoto Dairy Limited. The
funds offered totalled $24,680,000. Interest was to be paid at
14 per cent per annum
and capitalised monthly. An exit fee of $2 million was to be paid on 1 June 2008.
One of the terms of the offer
of finance was that Mr Carr and his company had a
right to purchase all the shares in Maniatoto Dairy Limited held by another company
named Seadown Holdings Limited. The purchase price under this option was to be
the total amount of the funding provided by SCF to
Manitoto Dairy Limited plus fair
and reasonable costs and a call option fee of $2 million.
[9] It is common ground that the
offer of 16 May 2007 was not accepted and did
not proceed at that time.
[10] At trial, Mr Carr's accountant Mr Stephen O'Connell
was cross-examined
about the availability of funds to complete the purchase. It was put to him that
Maniatoto Dairy Limited was a
company associated with the principals of SCF. He
responded he was not sure that was so but agreed that Maniatoto Dairy Limited was
not a company in which Mr Carr or Brookside Farm Trust Limited were involved.
Mr O'Connell was also asked about certain correspondence
which SCF had issued
prior to trial about the availability of funds from SCF. One of these letters dated
4 October 2007 confirmed
to Brookside Farm Trust Limited that "the Carr interests
had the capacity to settle the purchase of the assets as set out in the
Amended
Settlement agreement". Another letter, from SCF's solicitors dated 15 November
2007 advised that SCF understood that Mr
Carr's preference was to obtain full
funding from a bank but that if an order for specific performance was made in favour
of Mr Carr, SCF would renew his previous loan offer
if requested. This was subject
to final agreement being reached with Mr Carr which SCF's solicitors said was
probable.
[11] In
his evidence at trial, Mr O'Connell stated that Brookside Farm Trust
Limited intended to borrow the necessary funding to complete
the purchase from
SCF if the Court found in favour of the Carr interests.
[12] The chief executive officer of SCF, Mr L J McLeod,
has sworn an affidavit in
opposition to the present application in which he details the financial arrangements
between the Carr interests
and SCF. He refers to two relatively small loans which I
will discuss shortly, but deposes that there are no other relevant contractual
arrangements between the parties. However Mr McLeod confirms that if Mr Carr is
successful in these proceedings "SCF may consider
renewing its draft loan offer put
forward in May 2007, however it may decide not to". He goes on to point out that
even if an offer
were made by SFC, there is no obligation on behalf of the Carr
interests to accept any such offer.
[13] As to the two smaller
loans, Mr McLeod states that, at the request of Mr Carr,
a loan offer was made by SCF to a company named Kye Ventures Limited on
11 October 2007 in the sum of $145,000 plus further advances. The interest payable
was 14 per cent per annum. The $145,000 was advanced
to Kye Ventures Limited
on 15 October 2007 and a further sum of $40,000 on 22 January 2008.
[14] It is evident that Kye Ventures
Limited is (or was at the time) a company
associated with Mr Carr. The current director is Mr O'Connell but a recent company
search
shows that Mr Carr was previously a director, resigning on 1 May 2006. Mr
O'Connell is also a director of Mr Carr's company Brookside
Farm Trust Limited.
The advances made by SCF to Kye Ventures Limited were guaranteed by Mr Carr
and repayment was to be made by 28
February 2008 or the earlier sale of the dairy
farms owned by the Big Sky Group of companies. Various other securities were to
be provided by the Carr interests.
[15] Mr McLeod accepts that he was aware that Mr Carr needed money to pay
legal fees relating
to the proceeding but states that there was no requirement that Kye
Ventures Limited apply the loan sum for that purpose. He further
states that neither
he nor SCF has any knowledge as to how the sums advanced were applied. I note
however that in a letter from SCF's
solicitors to the solicitors for the receivers of the
Big Sky Group of companies dated 3 October 2007, it was stated that instructions
had been received from SCF "to complete loan and security documentation for
proposed short-term funding for on-going litigation".
The loan referred to was the
advance to be made to Kye Ventures Limited.
[16] Despite Mr Forman's submission on behalf of SCF
to the contrary, I am
satisfied that SCF was well aware that the advances made to Kye Ventures Limited
were for the purpose of funding
the litigation and that Kye Ventures Limited was a
company with which Mr Carr was plainly associated. That is clear from the letter
of
3 October 2007 and the terms of the advance linking the repayment date to the sale
of the dairy farms owned by the Big Sky Group.
[17] Since it is common ground that Mr Carr was impecunious at all material
times, I infer and find that the funds advanced from
SCF to Kye Ventures Limited
were used to fund the litigation and that SCF knew this was to occur. The initial
advance of $145,000
was made a few weeks before the fixture for the substantive
proceeding. On the day after the initial advance, Rhodes & Co became
solicitors on
the record for the Carr interests, their previous solicitors having been Gallaway Cook
Allan. It is reasonable to infer
that the advance and the change of solicitors were
linked to the imminent fixture.
[18] In May 2008, Mr Carr approached SCF for
a further loan which Mr McLeod
describes as being for general purposes. SCF was not willing to advance any further
funds under the agreement with Kye Ventures
Limited but agreed to advance
$100,000 to another company named Garrison Limited. The sole director and
shareholder
of Garrison Limited is a Mr S W Herron who guaranteed the advance.
By this stage, the Carr interests had filed an appeal against
the substantive decision.
[19] It is clear that Mr Carr and Kye Ventures Limited have some connection with
Garrison Limited and
Mr Herron. The advance made to Garrison Limited was
guaranteed not only by Mr Herron but also by Mr Carr himself. The repayment
terms
provide that repayments are to be made by direct debit from Kye Ventures
Limited's account during the period of the loan facility.
Given Mr Carr's on-going
state of impecuniousity, it is reasonable to infer that the additional funding was
required for the purposes
of the appeal. To what extent SCF were aware of this is
not clear but it would be surprising if Mr Carr had not informed SCF of the
reason
for the further advance made through Garrison Limited.
Principles
[20] There are no specific rules relating to the award
of costs against non-parties.
Costs generally are at the discretion of the Court under r 46 High Court Rules and
the general principles
in r 47 apply. The jurisdiction to award costs against non-
parties was first recognised in New Zealand in Carborundum Abrasives
Ltd v BNZ
[1992] 3 NZLR 187. As Fisher J stated in Arklow Investments Ltd v MacLean
(unreported HC AK CP49/97 19 May 2000) at [21]:
[T]he overall rationale
[is] that it is wrong to allow someone to fund
litigation in the hope of obtaining a benefit without a corresponding risk
that
the person will share in the costs of the proceedings if they ultimately fail.
[21] The leading authority on the principles
applicable to applications for costs
against non-parties is now the decision of the Privy Council in Dymocks Franchise
Systems (NSW)
Pty Ltd v Todd (No 2) [2005] 1 NZLR 145. It is well established that
proof of causation is a necessary pre-condition to the making
of a costs order against
non-parties in the sense that the provision of funds by the non-party enabled the
litigation to be instituted
or continued and that this would not otherwise have
occurred.
[22] The principles relevant to discretion were summarised in the
Dymocks case at
[25] as follows:
(1) Although costs 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 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.
(2) 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.
(3) Where, however, the non-party 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 non-party 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. Consistently with
this approach, Phillips LJ described the non-party underwriters in TGA
Chapman Ltd v Christopher
[1997] EWCA Civ 2052; [1998] 1 WLR 12 as "the defendants in all but
name". Nor, indeed, is it necessary that the non-party be "the only real party"
to the
litigation in the sense explained in Knight, provided that he is "a real
party in . . . very important and critical respects"
- see Arundel Chiropractic
Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406,
referred to in Kebaro at pp 32 - 33, 35 and 37. Some reflection of this
concept of "the real party" is to be found
in CPR 25.13(1)(f) which allows a
security for costs order to be made where "the claimant is acting as a
nominal claimant".
Discussion
[23] Mr Toebes accepted there was no evidence that SCF sought to control the
litigation or to direct how it should
be conducted. Nor was there any evidence that
SCF controlled or directed the litigation in fact. But he submitted in support of the
application that:
a) SCF had caused the proceeding to be continued in the sense that, but
for the advances
made by SCF, the litigation could not have
proceeded given Mr Carr's impecunious state.
b) SCF had a financial
interest in the outcome of the litigation because,
at the least, it was likely SCF would advance the purchase price
if the
Carr interests were successful and SCF would profit from the interest
earned on the advances.
c) As well, SCF had the opportunity to proceed with the original offer of
16 May 2007 which would give
SCF the opportunity to purchase the
property. This could occur by SCF, through Maniatoto Dairy Farms
Limited, taking an assignment of Mr Carr's option to purchase under
the Amended Settlement Agreement or by Mr Carr
completing the
purchase himself with an immediate on-sale to Maniatoto Dairy
Farms Limited. This was
likely to be a material advantage to SCF
since the purchase price under the Amended Settlement Agreement
was substantially below the current market value of the dairy farms.
d) In the circumstances, it is just to make
an order for costs against SCF
on the basis of the principles outlined in the authorities.
[24] Mr Toebes also
referred to the following passage from Arkin v Borchard
Lines Ltd [2005] 3 All ER 613 (CA) at [41]:
We consider that a professional
funder, who finances part of a claimant's
costs of litigation, should be potentially liable for the costs of the opposing
party to the extent of the funding provided. The effect of this will, of course,
be that, if the funding is provided
on a contingency basis of recovery, the
funder will require, as the price of the funding, a greater share of the
recovery
should the claim succeed. In the individual case, the net recovery of
a successful claimant will be diminished. While this
is unfortunate, it seems
to us that it is a cost that the impecunious claimant can reasonably be
expected to bear.
Overall justice will be better served than leaving
defendants in a position where they have no right to recover any costs
from a
professional funder whose intervention has permitted the continuation of a
claim which has ultimately proved
to be without merit.
[emphasis in original]
[25] I am satisfied that the facts in Arkin bear no relationship to the present.
In
Arkin, the Court was concerned with a professional litigation funding company
which agreed with Mr Arkin to instruct, engage and
pay for a firm of forensic
accountants to prepare a report on the losses alleged. The company's agreed
remuneration was a
substantial percentage of any damages recovered. Mr Arkin was
to have the conduct of the proceeding but the company's approval was
required if a
settlement were proposed. This was a case where the funder had a clear contractual
arrangement to provide funds and
to share in any proceeds of the litigation. It was to
have control of any settlement. It appears the arrangement was a contingent
one
since the company was not to be remunerated except through any proceeds of the
litigation.
[26] I am not persuaded that
an order for costs should be made against SCF in the
circumstances of this case. While I accept that the funding provided by SCF
undoubtedly enabled the proceedings to continue
to trial and that they would not
have done so but for that funding, there is no principled basis upon which an order
for costs should
be made.
[27] SCF was aware that the funding provided in October 2007 was for the
purposes of the litigation but it is undisputed
that SCF did not seek to control or
direct the proceedings in any way and that it did not in fact do so. I accept Mr
Forman's submission
that in this circumstances, SCF could not be regarded as the
"real party" to these proceedings.
[28] Although the expression
"a pure funder" is not necessarily easy to define, it
has not been shown on the balance of probabilities that SCF had any material
financial interest in the proceeding other than the possibility that, if Mr Carr were
successful, SCF would have the opportunity
to advance funds to him on a normal
commercial basis. Undoubtedly, SCF would profit from so doing but there is no
evidence that such
advances would be made other than as part of SCF's usual
business as a financier.
[29] The opportunity to provide funds on usual
commercial terms to complete a
disputed agreement for sale and purchase could not generally be regarded as
sufficient, by itself,
to give a non-party such as SCF a material interest in the
proceedings for the purposes of an application for costs against a non-party.
The
position might be different if SCF had funded the litigation on an interest-free or
contingency basis as in Arkin, but here
the funds were advanced on normal
commercial terms. SCF was not therefore dependent on the successful outcome of
the litigation to
recover its advances.
[30] As to the possibility that SCF or a party associated with it may have had the
opportunity to purchase
the subject properties on an advantageous basis, I regard this
as somewhat speculative. There is no direct evidence that Maniatoto
Dairy Farm
Limited is a company associated with SCF but even if it were, it is not clear that an
arrangement of the kind offered
on 16 May 2007 would inevitably have proceeded if
Mr Carr were successful in the proceedings. SCF was likely to be the first port
of
call for Mr Carr in that event and on the evidence to date, some arrangement may
well have been reached. But there was no contractual
obligation on either side.
[31] One would have expected a commercial negotiation to ensue and that Mr
Carr would consider all
options available to him to finance the purchase on terms
most favourable to himself. He had earlier secured 100 per cent funding
from
Hanover Finance for the transaction as well as further funds when there was a
shortfall. It is possible that some transaction
favourable to SCF might have been
achieved but the absence of any clear contractual arrangements to share in the
proceeds of the
litigation (as was the case in Arkin) shows there was an absence of
any nexus between SCF and the litigation sufficient to render
it just that SCF should
pay the costs.
[32] In summary, SCF's funding of the litigation was on normal commercial
terms; it had
no direct or indirect control of the course of proceedings; repayment of
its advances was not dependent on the outcome of the litigation;
and there was no
contractual or other arrangement that would entitle it to any share of the proceeds.
SCF may have benefited from
a successful outcome in one or more of the ways
discussed, but the evidence does not establish any binding arrangement between SCF
and the Carr interests.
[33] I conclude that SCF's involvement in funding the litigation was not
sufficiently proximate to warrant
the conclusion that SCF was the "real party" to the
litigation in the sense described in the authorities. The prospect that SCF might
in
the end have gained some commercial benefit from the outcome is not sufficient to
compel the conclusion that justice requires
an award of costs to be made against it.
Result
[34] The application is dismissed. There will be a joint and several order for costs
on a 2B basis in favour
of South Canterbury Finance Limited against the receivers of
the Big Sky Group of companies and the receiver of Anesyds Limited.
______________________________
A P Randerson, J
Chief High Court Judge
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2008/927.html