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Houghton v Saunders [2019] NZHC 2567 (9 October 2019)

Last Updated: 15 October 2019

JUDGMENT OF DOBSON J

[Stage Two Interlocutory Costs]

[1] By memorandum dated 11 September 2019, counsel for all defendants requested that I settle the quantum of costs entitlements in their favour for a number of interlocutory arguments relating to stage two of this proceeding.

[2] The defendants also sought an order that costs be personally payable by the funder involved, Joint Action Funding Limited (JAFL) and its alter ego, Mr Anthony Gavigan.

HOUGHTON v SAUNDERS [2019] NZHC 2567 [9 October 2019]

[3] On 25 September 2019 I received memoranda from:

• counsel for the plaintiff opposing components of the costs claimed, and

• Mr Gavigan opposing any order to pay costs being made against either him or JAFL.

[4] On 8 October 2019, I received a supplementary memorandum from counsel for the plaintiff relating to disbursements.

[5] At the time of the various judgments to which the present cost claims relate, I considered it appropriate to defer quantification of costs given the state of issues that were then unresolved. Most particularly, these were outstanding issues for funding of the stage two claims, and more recently the non-compliance with orders for security for costs on stage two.

[6] I accept it is now appropriate that the costs for the stage two interlocutory arguments be settled.

Successful opposition to strike out application

[7] The plaintiff sought to strike out pleadings for the defendants that foreshadowed reliance on s 63 of the Securities Act 1978. I dismissed the strike out application in a judgment of 15 May 2019.¹ An appeal from that judgment has subsequently been dismissed by the Court of Appeal.²

[8] The defendants contend that the complexity of the proceeding justifies category 3 costs.

[9] Each of the first defendants (former Feltex directors) who were separately represented in opposing the strike out seek separate awards of costs on the basis that individual director defendants had different interests. The first defendants other than Mr Magill and Ms Withers (the majority directors) claim a band C allowance for

¹ Houghton v Saunders [2019] NZHC 1061.

² Houghton v Saunders [2019] NZCA 404.

preparation of written submissions, and band B for other steps, including an appearance by third counsel. Counsel for Mr Magill and Ms Withers additionally claim category 3B costs for their contributions to notices of opposition and preparation of written submissions.

[10] The plaintiff contended this application was not sufficiently complex to warrant category 3 classification. He contended that 2B costs would be sufficient, except for the two sets of written submissions filed (one combined set for all director defendants and a second set for the Credit Suisse defendants) for which 2C would be appropriate. The plaintiff opposes separate cost claims for the contributions made by counsel for Mr Magill and Ms Withers to the single set of submissions on behalf of the first defendants opposing the strike out application.

[11] As presented, additional points made for Mr Magill and Ms Withers at the hearing amplified arguments that availed all of the director defendants, rather than raising any distinctive points of importance for either of them. In those circumstances, I accept the plaintiff’s opposition to separate claims for filing notices of opposition and preparation of written submissions. I do accept that separate appearances remained appropriate and allow those. I agree with the plaintiff that costs should not be allowed for third counsel for the majority directors, nor should Ms Withers get an allowance for second counsel on that argument.

[12] I propose allowing one 3C allowance for preparation of written submissions for all of the first defendants. I allow 3B costs on all other steps as detailed in Appendix A to this judgment.

[13] On the item allowed for preparation of one set of written submissions, I am unable to determine an allocation as between the majority directors and Mr Magill and Ms Withers. With respect, I anticipate that the level of co-operation between counsel will enable them to agree on any apportionment of the sum allowed for the separately represented directors, by way of their contribution to that step.
[14] The costs claimed for the Credit Suisse defendants are to be addressed in the same way, disallowing an appearance item for third counsel. The result is also set out in Appendix A.

Application for security for costs

Successful application by defendants

[15] I granted an application by the defendants for security for costs in a judgment on 14 June 2019.³ In that judgment I deferred the issue of costs on the applications it dealt with,⁴ but accept that it is now appropriate to fix the quantum to which the defendants are entitled, given the defendants’ concerns at continued non-compliance with the order for security for costs.

[16] All of the first defendant directors claimed a single set of costs on a 3B basis totalling $13,365 for appearances by one principal counsel and one second counsel. Costs at that level were opposed by the plaintiff on the basis that this step in the proceeding warranted only 2B costs.

[17] In addition, given that all defendants filed a joint memorandum and relied on a single interlocutory application, the plaintiff opposed a second set of costs for those steps being granted to the Credit Suisse defendants.

[18] I am satisfied that 3B is the appropriate category for the security for costs argument. I consider that a single award should be made for the filing of the interlocutory application and the joint memorandum of counsel for all defendants. The Credit Suisse defendants are entitled to a separate award of costs for preparation of submissions and the bundle, and for appearances at the hearing. These are set out in Appendix B.

[19] I leave it to counsel for the all defendants to settle any contribution to which the Credit Suisse defendants should be entitled for filing of the interlocutory application and memorandum of counsel.

³ Houghton v Saunders [2019] NZHC 1362.

⁴ At [91].

Successful applications by plaintiff

[20] The 14 June 2019 judgment also determined successful applications by the plaintiff for orders requiring the defendants to disgorge costs paid to them for stage one, and granting costs in favour of the plaintiff for the extent of his stage one success as determined by the Supreme Court.

[21] The Court has not received any application for costs on those applications. In the absence of an explanation for the plaintiff not seeking costs on his success in obtaining orders in respect of stage one costs, and although I am not minded to make a final quantified order without receiving submissions, it is appropriate to recognise that off-setting entitlement.

[22] By parity of reasoning with the components of the order in favour of the defendants on their security for costs issues argued in the same hearing, my provisional view is that the plaintiff would be entitled to costs on a 3B basis for the steps it took. Those are the same as the steps claimed for the first defendants on their security for costs application, except that only one memorandum was filed in support of the plaintiff’s position whereas there were two for the defendants. In round terms the plaintiff appears to be entitled to a costs award on the orders revisiting stage one costs in the vicinity of $10,000. Pending finalisation of that aspect of costs issues, I will be directing that any steps to enforce costs orders recognise the plaintiff’s off-setting entitlement in the sum of $10,000.

Stage two interlocutory applications

[23] On 8 August 2019 I heard a number of applications brought by the defendants to address:

(a) non-compliance by the plaintiff with previous orders for security for costs;

(b) breaches of timetable orders on discovery and provision of briefs;
(c) the need for individual pleadings by those claimants whose claims are to be heard and determined at the stage two hearing; and

(d) a challenge to one component of the brief of an expert, Mr Greg Houston, who is to be called by the claimants.

[24] Although the background to a number of the defendants’ concerns aired in these applications was relatively complicated, it was only the challenge to Mr Houston’s evidence that involved matters of any complexity.

[25] I granted all of the defendants’ applications, at least in part, in a judgment of 15 August 2019.⁵

[26] The majority directors claim costs of $29,714 for preparing for and appearing at that hearing. Mr Magill’s counsel claims $10,007 and counsel for Ms Withers claims $18,034. The comparable claim for the Credit Suisse defendants is $33,244.

[27] Those sums are claimed on the basis that the majority directors claim costs on a 3B basis for all steps other than filing the interlocutory application and preparation of written submissions for which 3C costs are claimed. Both counsel for Mr Magill and Ms Withers consistently claim 3B costs for all the steps they took.⁶ The Credit Suisse defendants have applied on the same basis as the majority directors, namely 3C costs for filing the application and preparation of written submissions, and 3B for the remainder.

[28] The plaintiff objects to these claims, contending that 2B is the appropriate scale for this argument and, given that the defendants filed one joint application, only one award of costs should be granted in respect of it. The plaintiff also contends that, where joint memoranda were filed, costs should only be awarded once.

[29] The application for numerous orders had to review the history of previous steps, which have hardly been straightforward. Apart from that, most issues were not

⁵ Houghton v Saunders [2019] NZHC 2007.

⁶ Mr Magill was not separately represented at the 8 August 2019 hearing.

legally or factually complicated. The one component of the applications requiring substantial preparation was the challenge to parts of Mr Houston’s brief.

[30] Reflecting the costs determinations on the steps leading up to this argument, and the scale of what was involved, I consider that costs on a 2B basis are appropriate. This is subject to an uplift of $1,500 each for the majority directors and the Credit Suisse defendants to reflect the additional complexity in the submissions challenging the admissibility of parts of Mr Houston’s brief.

[31] Appearances for third counsel are disallowed for the majority directors and for the Credit Suisse defendants. Appearances for second counsel for Ms Withers are also disallowed.

[32] As was the procedure for the security for costs application, a single award for the filing of the interlocutory application and the joint memoranda will be made, and it will be left to counsel to settle between themselves how the amount awarded should be split.

[33] The amounts in respect of the stage two interlocutory applications are reflected in Appendix C.

Disbursements

[34] The plaintiff also challenges a number of the disbursements claimed. In previous costs disputes in this litigation, there is a pattern of the paying party challenging the accommodation costs claimed by the claiming party. When troubled with these issues, some Wellington judges allow a dollar limit per night. That does not take account of the rapacious practices of Wellington hoteliers whose daily rates fluctuate according to demand. I have previously rejected the defendants’ challenge to the extent of costs the plaintiff incurred at the Bolton Hotel.⁷ I treat the Intercontinental Hotel as more or less comparable in standard. I accordingly allow the cost of a standard room at the Intercontinental as included in present disbursement

⁷ See Houghton v Saunders, above n 3, schedule B at [B15].

claims, and an allowance per counsel for food, certified at a maximum of $100 per day. No beverages are recoverable as I have previously ruled.

[35] I do not allow any disbursements for third counsel in the case of the majority directors, nor for second counsel for Ms Withers.

[36] In other respects, the disbursement claims are accepted.

[37] Disputes in the application of this ruling on disbursements should be referred to the Registrar.

Should the costs orders be payable by non-parties?

[38] The defendants have applied for the quantified orders for costs and disbursements against the plaintiff to also be enforceable against JAFL and Mr Gavigan personally. They submit such orders are appropriate given the litigation constitutes a funded representative action where Mr Houghton has the benefit of an indemnity from a third party funder or entity assuming responsibility to arrange funding.

[39] At much earlier stages of the litigation, there have been orders that JAFL should be liable for any costs awarded to the defendants. The defendants submit that rendering JAFL liable is of no practical effect, given that it is, in essence, a shell company with no assets and therefore no capacity to meet costs liabilities.

[40] The defendants submit that Mr Gavigan falls within the contemplation of non- party liability for costs in the appeal in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) in which the Privy Council distinguished the circumstances of a “pure funder” from others:⁸

(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

8. Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25].

facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.

[41] The defendants also cited passages from an earlier decision of French J, who supervised much earlier stages of this litigation, about Mr Gavigan’s involvement and his relationship with JAFL to support their proposition that JAFL is unable to meet any material obligations and that its shell character was an inherent feature of a structure through which Mr Gavigan has advanced his interests in the proceeding.⁹

[42] The defendants also referred to a decision in collateral litigation between Mr Gavigan and the minority shareholder in JAFL, which recorded that Mr Gavigan is budgeted to receive $1.25 million for his services in respect of the litigation.¹⁰

[43] Mr Gavigan has filed a memorandum, as invited by me, to address reasons why the defendants ought not to have the benefit of a costs order against him personally. That memorandum, dated 25 September 2019, does not dispute the details of his personal interest in the outcome of the litigation as stated in the defendants’ memorandum seeking this order.

[44] Instead, Mr Gavigan criticises the terms of orders I have made as to security for costs. Although the plaintiff was already in default of orders to provide security for costs when my judgment of 15 August 2019 was issued, Mr Gavigan cites the constraints on valuation evidence from Mr Houston ordered in that judgment as the reason for not being able to provide security for costs.

[45] Mr Gavigan also criticises the extent to which I have redressed stage one costs, on the implicit premise that the Supreme Court judgment amounted to a complete vindication of the claimants’ position. That is not a proposition with which I am able to agree.

[46] Relevant to financial capacity, Mr Gavigan also states that Mr Houghton is in a position to meet costs orders of the scale Mr Gavigan contemplates might be made on the defendants’ present application.

⁹ Houghton v Saunders [2011] NZHC 542; (2011) 20 PRNZ 509 (HC).

¹⁰ Gavigan v Eichelbaum [2017] NZCA 412, [2018] 2 NZLR 530 at [15], [29]–[30].

[47] Mr Gavigan also alludes to the terms of present funding arrangements as entered into in late May 2019. As previously indicated to Ms Mills, I have received those documents on the basis that their contents are not to be revealed. My firm preference is to deal with issues only on the basis of information known to all parties and I asked for those documents against the contingency that circumstances might arise requiring me to consider those arrangements. So far, I have not done so.

[48] It is apparent that Mr Gavigan is very closely involved in preparation of the claimants’ case. From counsel’s comments, it is apparent that he is responsible for all attempts to arrange funding, and for communications with the claimants. He provided instructions to Mr Houston on the issues on which he sought Mr Houston’s opinion for the stage two hearing. In the absence of any challenge to the current submission from the defendants, I treat him as having a significant financial interest in the outcome.

[49] The representative action is being run without any committee overseeing claimants’ interests to afford a measure of independence from the funder/organiser of funding. This is a feature of numerous representative actions more recently undertaken on a funded basis that has been treated as material by supervising judges.

[50] Given all these features of Mr Gavigan’s involvement, I am satisfied that it is appropriate for him to be liable for costs orders made in favour of the defendants. Such liability is to be contingent on a failure by Mr Houghton to meet such liabilities within a reasonable period.

[51] It is also not appropriate for any orders to be enforceable pending resolution of the claimants’ current appeal to the Court of Appeal. The defendants are entitled to seal costs orders in their favour for the amounts stipulated earlier in this judgment. Any demands for payment must give $10,000 credit for the plaintiff’s provisional cost entitlement as acknowledged at [22] above.

[52] Such orders are not enforceable for 48 hours after delivery of the Court of Appeal’s judgment on the appeal to be heard today, 9 October 2019. The orders may
be enforced personally against Mr Gavigan only on default being made by the plaintiff for a period of 35 days after demand is first made of him.

Dobson J

Solicitors:

Antony Hamel, Dunedin for plaintiff

Gilbert Walker, Auckland for first defendants (other than Mr Horrocks and Ms Withers) Wilson Harle, Auckland for Ms Withers

Clendons, Auckland for Mr Horrocks

Russell McVeagh, Wellington for second and third defendants

Counsel:

C R Carruthers QC and P A B Mills for plaintiff

A R Galbraith QC and D J Cooper for first defendants (other than Mr Magill and Ms Withers) T C Weston QC for Mr Magill

B D Gray QC for Ms Withers

J B M Smith QC and A S Olney for second and third defendants

Appendix A

Plaintiff’s strike-out application

Appendix B Security for costs application

Appendix C

Stage two interlocutory applications