IN THE Court of appeal OF new Zealand

I TE KŌTI PĪRA O AOTEAROA	
 CA542/2020
 [2021] NZCA 245

	
BETWEEN	
CLARENCE EDWARD BEARDSMORE
Appellant	
	
AND	
PRIME BOOKKEEPING LIMITED
First Respondent

CATHERINE ANN DAVIES
Second Respondent	

Hearing:	
10 May 2021	

Court:	
Miller, Venning and Peters JJ	

Counsel:	
A C Harpur for Appellant
S T Scott for First and Second Respondents	

Judgment:	
10 June 2021 at 2.00 pm	

JUDGMENT OF THE COURT

A	The appeal is allowed in part.  The indemnity costs of $38,957.15 awarded to the respondents is reduced by consent to the sum of $35,128.80.
B	The remaining costs orders in the High Court for actual and reasonable costs from 3 June to 20 July 2020, and for costs on a 2B basis for the costs application, are confirmed.
C	The appellant must pay one set of costs to the respondents for a standard appeal on a band A basis and usual disbursements for costs on the appeal.
____________________________________________________________________

REASONS OF THE COURT

(Given by Venning J)

[1]	In December 2018 Mr Beardsmore issued proceedings against Prime Bookkeeping Limited (PBL) and Ms Davies (the respondents) under s 174 of the Companies Act 1993.  He subsequently discontinued them.
[2]	Brewer J awarded PBL and Ms Davies indemnity costs against Mr Beardsmore in the sum of $38,957.15 plus actual and reasonable costs from 3 June 2020 to the date of discontinuance.  He also awarded costs on a 2B basis for the application for costs itself.  
[3]	Mr Beardsmore appeals against the award of indemnity costs.  He says costs should lie where they fall or, at the most, be fixed on a 2B basis and only for a limited number of steps in the proceedings. 
Background 
[4]	Ms Davies is an associate chartered accountant.  Her mother was married to Mr Beardsmore.  They separated in 2012.  Ms Davies worked as an accountant for Mr Beardsmore’s company, Prime Blasting Services Ltd (PBS).  
[5]	Initially, PBS did not generate enough work to keep Ms Davies employed full‑time.  She reached an agreement with Mr Beardsmore that she would provide accounting services for third parties and split the profits with Mr Beardsmore. 
[6]	PBL was incorporated as the vehicle for Ms Davies to provide her accounting services.  Ms Davies and Mr Beardsmore were each directors.  They each held one‑half of the shares in PBL.
[7]	PBS’s work grew to occupy Ms Davies’s time more and more.  So, increasingly, her PBL work was done in her own time after hours.  This led to Mr Beardsmore transferring his shares in PBL to Ms Davies in two tranches.  Mr Beardsmore also resigned as a director.
[8]	Ms Davies left the employment of PBS in 2016 to join a firm of chartered accountants.  
[9]	In or about 2018, Mr Beardsmore requested information about PBL from Ms Davies including evidence of what had transpired in respect of the transfer of his shareholding.  In June 2018, Mr Beardsmore’s solicitors acknowledged receiving relevant documents in response to this request, including shareholder resolutions relating to the transfer, even if not copies of the actual transfer(s) itself.  We refer again to this correspondence below.
[10]	Not satisfied with the information provided, Mr Beardsmore filed his proceedings in the High Court on 11 December 2018, pleading:
7.	The acts of [PBL] have been oppressive, unfairly discriminatory and unfairly prejudicial to the plaintiff in the plaintiff’s capacity as a shareholder and director of [PBL]… .
[11]	By way of particulars of Ms Davies conduct, Mr Beardsmore alleged:
8.	On or about 26 February 2013, 240 shares in [PBL] were transferred from [Mr Beardsmore] to [Ms Davies] (the first transfer).  The transfer was done without the consent of [Mr Beardsmore].
9.	On or about 21 February 2014, a further 360 shares in [PBL] were transferred from [Mr Beardsmore] to [Ms Davies] (the second transfer).  The transfer was done without the consent of [Mr Beardsmore].
10.	As at 21 February 2014 the sole shareholder in [PBL] was registered as Ms [Davies].
11.	No payments have been received by [Mr Beardsmore] from [Ms Davies] in consideration of the purported transfer of the shares.
12.	On or about 26 August 2013 [Mr Beardsmore] was removed as a director of [PBL].  This was done without the consent of [Mr Beardsmore].
13.	The removal of [Mr Beardsmore] was done without the consent of Mr Beardsmore.
[12]	The statement of claim went on to plead that the financial accounts of PBL were incorrect in that they recorded Mr Beardsmore had received drawings and dividends which he had not received.
[13]	Mr Beardsmore swore an affidavit on 23 November 2018 to support his claim.  In that affidavit he affirmed the allegations in the statement of claim, denied signing the share transfers, and said that Ms Davies had access to his electronic signature.  He concluded:
36.	I can only surmise that somebody has used my electronic signature to sign these documents without my permission.
[14]	By way of relief, Mr Beardsmore sought declarations that he continued to be a shareholder and director of PBL and that he was entitled to the payment of dividends.  
[15]	The day before he issued his proceedings, Mr Beardsmore’s solicitors had received further documents that ought to have resolved any remaining doubts in his mind about whether he had transferred his shares in PBL of his own volition.  To the extent Mr Beardsmore was concerned about whether he had received the dividends to which he was entitled, his own bank and tax records would have confirmed that he had.  Indeed, Mr Beardsmore now accepts his own tax returns disclosed his receipt of the dividends. 
[16]	PBL and Ms Davies filed statements of defence denying Mr Beardsmore’s allegations.  Ms Davies also filed three affidavits in opposition to Mr Beardsmore’s affidavit in which she addressed his allegations and exhibited documents which, in the Judge’s words, “substantively undermined them”.  
[17]	On 14 March 2019 Ms Davies also filed an affidavit by Kerianne Bruce, a close family friend of Mr Beardsmore.  Ms Bruce had also previously worked for PBS.  Ms Bruce annexed copies of the share transfers signed by Mr Beardsmore and Ms Davies and confirmed that the transfers recorded her signature as a witness.  Ms Bruce also said that she had recently been contacted by Mr Beardsmore and confirmed to him that she had witnessed his signature on the documents.  Ms Bruce said that Mr Beardsmore had acknowledged to her that he had, or had seen, the originals with his signature.  
[18]	Mr Beardsmore filed an affidavit in reply on 19 June 2019 in which he maintained his claims against the respondents.  He suggested Ms Bruce had misheard him when he said he had seen a copy of the share transfers.  He did not accept that he had signed the share transfers.  The parties exchanged further affidavits.  The last affidavit was filed on 9 October 2019.  
[19]	The trial was set for 27 July 2020.  On or about 3 June 2020, Mr Beardsmore advised PBL and Ms Davies he would discontinue the proceedings.  On 20 July 2020, a week prior to trial, Mr Beardsmore discontinued his claim.
High Court judgment
[20]	Brewer J noted the presumption in r 15.23 of the High Court Rules 2016 that a plaintiff who discontinues a proceeding must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.  The Judge also discussed r 14.6, which provides for the award of indemnity costs.  
[21]	The Judge considered Mr Beardsmore’s proceedings effectively alleged that Ms Davies had forged documents, filed false documents with the Companies Office and filed false tax returns.  He regarded those as particularly serious allegations, given Ms Davies was an associate chartered accountant.  The Judge also considered that Mr Beardsmore had been provided, prior to issuing the proceeding, with relevant documents, including copies of the share transfers he had signed.  Brewer J found that Mr Beardsmore had acted improperly and unnecessarily in bringing the proceeding.  He had also acted very unreasonably.  The Judge accepted that an award of indemnity costs was appropriate.
[22]	The Judge noted that costs on a 2B basis for the proceedings would be $25,642 and that actual costs to 3 June 2020 were $38,957.15.  The Judge regarded such a sum to be reasonable.  He also directed Mr Beardsmore to pay actual and reasonable costs from 3 June to the date of discontinuance and made an order for costs on the application for costs on a 2B basis. 
Appellant’s case 
[23]	In support of the appeal, Ms Harpur for Mr Beardsmore orally submitted that:
(a)	The High Court erred in awarding indemnity costs.  The high standard for an award of indemnity costs had not been made out.  Mr Beardsmore had not acted improperly, unnecessarily or very unreasonably in issuing the proceedings. 
(b)	At most costs on a 2B basis were appropriate.  Further, there should be no allowance for the costs claimed for the respondents’ affidavits and preparation for hearing given that Mr Beardsmore had indicated in his solicitor’s letter of 7 July 2020 that he would be discontinuing the proceedings. 
[24]	In the written submissions for the appellant it was argued in the alternative that, if indemnity costs were warranted, the amount awarded should be adjusted as:
(a)	the amount included $3,828.35 for steps taken by the respondents prior to the proceedings being filed;
(b)	costs of at least $6,118.00 were claimed and awarded for steps taken after Mr Beardsmore had clearly intimated he intended to discontinue;  and
(c)	the amount awarded was considered against a hypothetical 2B cost calculation which included all preparatory steps prior to a hearing, but then a further award of actual and reasonable costs from 3 June 2020 to the date of discontinuance was included.
Costs on a discontinuance – the presumption 
[25]	Although Ms Harpur did not pursue the issue in her oral submissions, the written submissions for Mr Beardsmore suggested that the presumption under r 15.23 was displaced and that costs should lie where they fall.
[26]	Rule 15.23 provides:
15.23 	Costs
	Unless the defendant otherwise agrees or the court otherwise orders, 	a plaintiff who discontinues a proceeding against a defendant must 	pay costs to the defendant of and incidental to the proceeding up to 	and including the discontinuance.
[27]	Ms Harpur did repeat the argument that Mr Beardsmore’s primary purpose in issuing the proceedings was to obtain access to company documentation he had been requesting for more than two years and he was ultimately successful in achieving that purpose.
[28]	Ms Harpur submitted that Mr Beardsmore had obtained sufficient information through the proceedings to be able to have his advisers analyse what took place with PBL and his shareholding in it.  Shortly after receiving the analysis of the material from his accountants he made the first offer to discontinue the proceedings on 14 January 2020.
[29]	Ms Harpur referred to Carmel College Auckland Limited v North Shore City Council and Whiting v Earthquake Commission as examples of cases where the presumption had been displaced and costs had been awarded to discontinuing plaintiffs.  Both of those cases were quite different.  In the Carmel College case, the defendant Council changed the policy which the proceedings sought to judicially review.  The plaintiff achieved what they sought in the proceedings.  In the Whiting case the Earthquake Commission paid out the plaintiffs after proceedings were issued.  The plaintiffs were awarded costs on the basis that they had substantially succeeded.  
[30]	The present case is distinguishable.  In the face of the evidence and relevant documentary record, most of which had been provided to Mr Beardsmore before the proceedings were issued (or which he should at least have been aware of from his own knowledge), he could not have achieved the relief he sought in the proceedings under s 174 of the Companies Act.
[31]	The appellant seeks to rely in part on the Judge’s observation that Mr Beardsmore could have pursued an application under r 8.20 to obtain the information.  That does not assist.  In making that observation the Judge was doing no more than noting that, if Mr Beardsmore’s primary objective was to obtain information before issuing proceedings, then there was another, more appropriate, way for him to do so.  The Judge was not endorsing the use of the current proceedings for that purpose.  Further, the proceedings Mr Beardsmore issued went much further than just seeking information.  The proceedings sought relief under s 174 of the Companies Act.  Mr Beardsmore sought confirmation of his position as a shareholder and director of PBL and the payment of dividends.  That relief was not achieved.  
[32]	Mr Beardsmore did not succeed.  There is no basis to depart from the presumption in r 15.23. 
The claim for indemnity costs
[33]	Rule 14.6(4)(a) provides: 
(4)	The court may order a party to pay indemnity costs if—
	(a)	the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; …
[34]	The principles to apply on an application for indemnity costs have been confirmed by this Court in Bradbury v Westpac Banking Corporation. 
[35]	Mr Beardsmore’s pleadings, supported by his sworn affidavit evidence (which he maintained in his affidavit in reply), effectively alleged that Ms Davies had either forged his signature or had misused his electronic signature without his approval, and had filed false documents with Inland Revenue and Companies Office.  
[36]	Ms Harpur noted that issue of the validity of his signature had not been determined against Mr Beardsmore.  That is correct, but he discontinued the proceedings and thereby denied Ms Davies the opportunity to be vindicated by a finding of the High Court.  The evidence that is before the Court, including the documents and the sworn evidence of Ms Bruce, supports the respondents’ case that the allegations were without merit.  
[37]	Mr Beardsmore seeks to rely on what he characterised as the respondents’ failure to provide him with relevant documentation as justification for issuing the proceedings.  But in June 2018, six months before the proceedings were issued, Mr Beardsmore’s solicitors acknowledged that copies of a number of relevant documents had been provided.  The documents that had been provided by then included two signed shareholders resolutions dealing with the transfer of shares in PBL from Mr Beardsmore to Ms Davies and a copy of a resolution relating to a lease agreement.
[38]	While the Judge was incorrect to say that Mr Beardsmore had the two share transfers (as opposed to the shareholder resolutions) prior to commencing the proceeding (the copies of the share transfers were in the tranche of documents provided to his solicitors on 10 December 2018 when the proceedings had been sent for filing), Mr Beardsmore acted irresponsibly in making the serious allegations he did in the proceedings.  This was compounded by him maintaining the allegations after having the opportunity to review the further documents provided on 10 December and despite the further affidavit evidence filed by the respondents in early 2019.  
[39]	We agree with the Judge that the appellant acted improperly in commencing proceedings which raised serious allegations against Ms Davies which were without foundation.  That in itself might not warrant an award of indemnity costs if there were substance in Mr Beardsmore’s claim that Ms Davies had failed to provide the documents he requested.  It is not in dispute that some of the documents were provided contemporaneously with the filing of the proceeding.  However, the costs claimed relate to the steps Ms Davies had to take thereafter to defend the proceeding and at a time when Mr Beardsmore must have known there was no merit in his claim.  In our view the Judge was right to find that Mr Beardsmore acted very unreasonably in continuing to pursue the proceedings after receiving that material, and in light of the respondents’ evidence.  The proceeding was not an application for discovery.  It rested on what was essentially an allegation of fraud against a professional person.  The evidence since filed, including Ms Bruce’s affidavit and confirmation that Mr Beardsmore’s own tax returns evidence the payment of dividends, sufficiently establishes that the allegations were irresponsible and without foundation.  His insistence on maintaining them warranted an award of indemnity costs.
Quantum 
[40]	The respondents accept that the sum of $3,828.35 had been incorrectly included in their claim for costs in the High Court.  It related to costs for steps incurred by the respondents prior to the proceedings being filed.  We note that concession was made immediately following the filing of the appeal.  
[41]	As to quantum, 2B costs for the steps taken by the respondents in the High Court amounted to $25,422.00.  We reject the suggestion that the respondents should not have costs for the preparation of affidavits and preparation for the hearing.  The affidavits were necessary to respond to Mr Beardsmore’s claim and until he discontinued his claim, the respondents were entitled to continue preparation for the hearing.
[42]	On that basis, and particularly with the reduction of the $3,828.35 referred to above, the balance of indemnity costs to 3 June 2020 of $35,128.80 is a reasonable figure.  In some cases a more detailed analysis of the indemnity costs claimed may be required, but in a case such as this, it is not.  Where the scale costs properly claimable are close to two-thirds of the actual costs claimed, the Court will more readily accept the quantum as reasonable, particularly when the sum is relatively modest, as in the present case.  The indemnity costs in this case will not be materially different to an award of scale costs with a 50 per cent uplift even after taking account of the further award from 3 June to the date of discontinuance.
[43]	We do not accept the submission by the appellant that costs of $6,118.00 were awarded for steps taken unnecessarily after Mr Beardsmore had clearly intimated that he intended to discontinue.  Mr Beardsmore’s first offer to settle the proceedings was on 10 December 2019.  It was made without prejudice except as to costs.  It did not include a withdrawal of the serious allegations against Ms Davies.  The offer in the letter of 10 December 2019 was on the basis that costs would be left to lie where they fell.  A further offer was made on 30 June 2020.  That letter was inconclusive, suggesting that the determination of costs be left to the Court.  While Mr Beardsmore’s solicitors said in the letter of 7 July 2020 that he did not intend to proceed further with his claim, until Mr Beardsmore discontinued the proceedings the respondents were entitled to continue preparation for the fixture.  
Result  
[44]	The appeal is allowed in part.  The indemnity costs of $38,957.15 awarded to the respondents is reduced by consent to the sum of $35,128.80.
[45]	The remaining costs orders in the High Court for actual and reasonable costs from 3 June to 20 July 2020, and for costs on a 2B basis for the costs application, are confirmed.
Costs on the appeal
[46]	The appellant must pay one set of costs to the respondents for a standard appeal on a band A basis and usual disbursements for costs on the appeal.  

Solicitors: 
Braun Bond & Lomas, Hamilton for Appellant
Rejthar Stuart Law, Tauranga for Respondents