Liquidators' liability for litigation costs

The longstanding view that liquidators are not personally liable for litigation costs has been reaffirmed in two recent decisions, one from the Supreme Court and the other from the High Court.

This Brief Counsel looks at the two cases.

Mana Property

At issue in Mana Property Trustee Limited v James Development Limited [2010] NZSC 124 was whether a liquidator can attract personal liability for costs by electing to continue with litigation.

James Development appealed against a High Court finding that it had invalidly cancelled a contract to purchase land from Mana. Prior to the Court of Appeal hearing, liquidators were appointed to James Development. The liquidators pursued the appeal, and won.

Mana then appealed to the Supreme Court, which overturned the Court of Appeal finding and held that the cancellation was invalid. Mana applied for costs against the liquidators personally, founded upon the liquidators' decision to continue the proceedings.

The Court noted that s.248 of the Companies Act 1993 provides that the commencement or continuation of a proceeding against a company in liquidation requires the liquidator's or the court's consent, but that a liquidator has power under Schedule 6 of the Act to commence, continue or defend proceedings without any court consent required. The party to the litigation was the company and the liquidators were merely its agents.

While the Court acknowledged that it had the power to order a liquidator as a non-party to pay costs personally, it confirmed the long-standing principle that a liquidator will not be at risk of a costs award, unless there are exceptional circumstances (such as impropriety or bad faith). The other party could protect its position by seeking an order for security for costs.

On the facts, the Supreme Court did not consider that the case was one in which the liquidators should pay costs personally. The liquidators had taken independent legal advice before confirming that the appeal would be pursued, and it was not a situation where the appeal was so hopeless that the liquidators could be regarded as having acted improperly by continuing with it. The Court also considered that the funding of the appeal by the sole shareholder of James Development was not something that would expose the liquidators to personal liability.

Magsons Hardware

Magsons Hardware Limited and Anor v Pritish Patel And Anor (High Court, Auckland, CIV-2010-404-2891, 10 September 2010) involved a liquidator's...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT