Deng v QS Scaffolding Limited

[2020] NZHC 1865

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2020-419-57

[2020] NZHC 1865

BETWEEN

LIZHEN DENG

Plaintiff

AND

QS SCAFFOLDING LIMITED

Defendant

Hearing:

On the papers

Counsel:

A J Nolan for Plaintiff

P A Depledge for Mr Tahiri

Judgment:

30 July 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 30 July 2020 at 11.30am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 30 July 2020

DENG v QS SCAFFOLDING LIMITED [2020] NZHC 1865 [30 July 2020]

[1]    The first call of the plaintiff’s (Mr Deng), application to liquidate the defendant, QS Scaffolding Ltd, was on 2 June 2020. At that time, Mr Tahiri, the largest shareholder of QS Scaffolding Ltd, presented a number of documents he had prepared to oppose the liquidation. The Court record shows that Mr Tahiri’s documents were not filed. The proceeding was adjourned to allow Mr Tahiri to file evidence. By the time of the second call on 13 July 2020, any opposition was withdrawn, indeed, Mr Tahiri supported liquidation.

[2]    Accordingly, at the second call, an order was made placing QS Scaffolding Ltd in liquidation and Mr Deng was awarded costs on a 2B basis together with disbursements against the company.

[3]    The costs award against QS Scaffolding Ltd was expressly without prejudice to Mr Deng seeking non-party costs against Mr Tahiri. As the application for non-party costs had only been raised late in the piece, that issue was adjourned to allow counsel for Mr Tahiri to file a reply memorandum in that regard.

[4]    Mr Tahiri  had  been  invited  by   Mr Deng   to   agree   to   liquidation   of QS Scaffolding Ltd before the commencement of these proceedings on 9 March 2020. Indeed, Mr Deng relies on the fact that on 3 December 2019, a solicitor then acting for Mr Tahiri, said Mr Tahiri wanted to place QS Scaffolding Ltd in liquidation. In those proceedings, Mr Deng sought liquidation on the basis that the company was insolvent, was not trading, and that there had been a complete breakdown in the relationship between the shareholders.

[5]    Mr Tahiri changed his mind from supporting liquidation in December 2019 as a result, he says, of concerns he had about the management of the company and as he wanted disclosure of financial information before deciding on a voluntary liquidation. Mr Tahiri’s present counsel says that instead of providing Mr Tahiri with the information he sought, Mr Deng brought the liquidation proceedings. Mr Deng disputes withholding the information sought.

[6]    Mr Deng says that Mr Tahiri’s belated agreement to liquidation, when he had been requested to agree to voluntary liquidation, means the costs of this proceeding could have been avoided. In short, Mr Deng says  Mr Tahiri’s  late  consent  led to Mr Deng incurring the costs of this proceeding.

[7]The following issues are raised by Mr Deng’s application:

(i)Mr Tahiri’s refusal to agree to voluntary liquidation said to have resulted in an unnecessary proceeding concerns pre-commencement conduct;

(ii)Mr Tahiri is a non-party; and

(iii)Mr Tahiri is legally aided, albeit his grant of legal aid came after the majority of Mr Deng’s costs were incurred.

[8]    Mr Tahiri, as shareholder, had the ability under r 31.16(2) of the High Court Rules 2016, to file a statement of defence on his own behalf. He did not do so. If he had filed a statement of defence, he would have been added as a defendant and thus become a party to the proceeding and become liable for costs,1 subject to his legal aid status.

[9]In respect of pre-commencement conduct, McGechan on Procedure says:2

A proceeding must be extant before costs can be incidental to it: Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668, 16 December 2011 at [14].

Generally costs are to reflect how parties have acted during the litigation, not before it: Paper Reclaim  Ltd v Aotearoa  International Ltd [2006] 3 NZLR 188 (CA) at [160], decision upheld

[2007] NZSC 26, [2007] 3 NZLR 169 (SC) at [40]-[41].

[10]   These principles apply to party costs. Here, Mr Deng is seeking costs against Mr Tahiri as a non-party, but I do not see why someone who is not a party should be

1      Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR31.16.04].

2      At [HR14.1.03].

subject to costs because of pre-commencement conduct when a party is not, or at least not as a general rule.

[11]   Leaving that issue to one side, a costs order against a non-party should only be made in exceptional circumstances:3

exceptional … 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.

[12]   In terms of the above passage, Mr Tahiri did not take any formal steps in the proceeding. Mr Tahiri’s involvement was to appear at the first call and say he wished to defend the application. It is, in fact, in “the ordinary run of cases” for directors or shareholders to appear and seek adjournments in the hope of reaching a settlement or because they (belatedly) want to take advice. Causing there to be a second call in my view would not, without more, generally not give rise to personal liability for costs on the part of the director or shareholder appearing.

[13]   Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) makes it clear that although costs against non-parties are exceptional, the ultimate question was whether in all the circumstances it was fair to make an order.

[14]   I do not consider that it would be fair to make an order against Mr Tahiri in these circumstances, as the conduct said to justify costs accrued pre-commencement which is normally irrelevant to the issue of costs; and Mr Tahiri did not actively oppose the present proceeding, save for appearing at the first call. Once he had the benefit of counsel’s  advice,  he  understood  that  his   concerns   about   the   operation   of  QS Scaffolding Ltd could be addressed through the liquidator and an order was made at the second call.

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

[15]   Accordingly, even if there is jurisdiction to award costs against a non-party for pre-commencement conduct, I do not consider the present circumstances warrant such an award and I decline the application.

Associate Judge Lester

Solicitors:

Nolan & Lu, Hamilton Foster & Milroy, Hamilton Copy to counsel:

Paul Depledge, Barrister, Hamilton