Receivers are well aware that they can limit or exclude their personal liability on a contract by appropriately worded language, in accordance with the Receiverships Act. But what about litigation? Is a receiver sufficiently protected against a personal costs award if the litigation is in the name of the company rather than the receiver?
Maybe not. Receivers should tread warily, even if the company – and not the receiver – is a plaintiff or defendant. A recent High Court case illustrates the potential for a receiver to be ordered to pay costs personally, even if the receiver is not a party to the litigation.
Love v Auburn Apartments Ltd1
Mr and Mrs Love agreed to buy an apartment in the Maison Apartment complex in Takapuna from Auburn Apartments Ltd. A dispute arose, and the Loves sued Auburn, claiming that they were not required to settle.
Receivers were appointed to Auburn, and the receivers continued the litigation in the name of Auburn after their appointment.
The Court of Appeal decided against Auburn, and Auburn was ordered to pay costs to the Loves in the High Court and Court of Appeal.
Auburn had no money, so the Loves then sought an order for non-party costs against the receivers. The High Court found in favour of the Loves and ordered the receivers personally to pay costs, even though they had since retired. The Court relied on the following:
- the Loves' correspondence to the receivers put the receivers on notice from the outset as to the receivers' potential personal liability if Auburn was unsuccessful;
- the receivers controlled and directed the litigation;
- the receivers personally (as opposed to Auburn) had paid security for costs; and
- the receivers' appointing party (the secured creditor) stood to benefit from the litigation.
Receivers should be aware of the potential costs consequences of litigation, particularly where:
- they might be seen to be directing and controlling the litigation;
- their appointing party stands to benefit from the litigation; and/or
- they have been put on notice of a potential claim for costs.
Receivers should also carefully review their potential future liability (and the extent of their indemnity) before retiring.