A marine engineering company has been hit with a massive legal bill after trying to freeze an Australian multi-millionaire's luxury yacht over a third-party debt worth barely $2,000.

In 2009, Auckland-based General Marine Services (GMS) supplied fittings to Salthouse Marine for a $3.5m yacht called the Luana.

The 70-foot luxury launch was constructed for Yachts West, a company owned by wealthy Perth businessman Chris Norman.

Salthouse Marine went into liquidation in early 2010 causing another of its customers, NBR Rich Lister Jim Delegat, and a liquidator of a Salthouse subsidiary to place the Luana "under arrest".

The aim was to recover money that had been allegedly transferred from the subsidiary building Delegat's yacht to that constructing Norman's vessel.

Only two hours before the matter was to be settled and the Luana returned to Yachts West, GMS lodged a caveat preventing the release.

It was owed just $2,189.

The caveat was eventually set aside by Justice Peter Woodhouse, who said it was an abuse of process and a contrived claim without merit.

Among his reasons for rejecting GMS' action was the fact that "the amount claimed would be dwarfed by legal costs".

He ordered GMS to pay Yachts West indemnity costs of $61,737 on the grounds that it had acted "vexatiously, frivolously, improperly or unnecessarily".

GMS took the matter to the Court of Appeal, which has now dismissed its argument and ordered it to pay the full sum.

Upholding the initial judgment, Justice Douglas White said the lodging of the caveat was disproportionate to the amount of money at stake.

He said there were "more appropriate avenues" available to GMS, including the Disputes Tribunal, which has jurisdiction for claims up to $15,000.

Another was a separate High Court proceeding which GMS, along with other unsecured creditors, was taking against the directors of the Salthouse Marine subsidiary that built the Luana.

GMS founders Roy Chalton and Michael Coventry did not return requests for comment.

Further litigation between Delegat, Norman and a liquidator concluded at the High Court last month, with a judgment expected shortly.

- © Fairfax NZ News