Aotearoa Forests Limited v Land Haul Contractors Limited

[2023] NZHC 2803

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2022-419-139

[2023] NZHC 2803

BETWEEN

AOTEAROA FORESTS LIMITED

Plaintiff

AND

LAND HAUL CONTRACTORS LIMITED

Defendant

Hearing:	On the papers
Appearances:	M D Atkinson for the Applicant K I Bond for the Respondent
Judgment:	6 October 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 6 October 2023 at 2 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Fee Langstone, Auckland

Braun Bond and Lomas Limited, Hamilton

AOTEAROA FORESTS LTD v LAND HAUL CONTRACTORS LTD [2023] NZHC 2803 [6 October 2023]

Introduction

[1]    In my judgment dated 31 May 2023, I dismissed the  application  by  Aotearoa Forests Limited to set aside the statutory demand served on it by Land Haul Contractors Limited on a technical basis for failure to comply with the strict time limits in filing such an application.1 However, I indicated my preliminary view that Aotearoa Forests’ substantive arguments, that Land Haul had failed to mediate and Aotearoa Forests had a reasonably arguable counterclaim, appeared to have merit (although I did not determine these questions because the application was not filed in time).

[2]    I recorded that although I had dismissed the application, my preliminary view from a costs perspective was that both parties had achieved a measure of success. I asked the parties to confer and, only if costs were not able to be agreed, to file memoranda.2 Unfortunately agreement has not been reached and memoranda have been filed.

[3]    I set out the parties’ submissions below including in relation to Land Haul’s application for an extension of the time for compliance with the statutory demand. I then discuss that application before determining costs.

Submissions

Land Haul’s submissions

[4]    Land Haul submits it was the successful party and that costs should follow the event in the usual way. Land Haul says that it pointed out to Aotearoa Forests from the outset that the time for serving an application to set aside the statutory demand had expired and that the application would be unsuccessful on that basis alone and that this has proven to be the case. In Land Haul’s submission, Aotearoa Forests ought to have accepted that proposition and made the arguments it made in the application if and when Land Haul applied or threatened to apply to liquidate Aotearoa Forests. Land Haul submits that is the point at which the matters raised by Aotearoa Forests would

1      Aotearoa Forests Limited v Land Haul Contractors Limited [2023] NZHC 1256.

2 At [81].

have become arguable. Land Haul therefore submits that the observations of the Court in respect of the dispute resolution clause and Aotearoa Forests’ counterclaim relate to steps that Land Haul may or may not actually take.

[5]    Land Haul says that it is well established that the Court should not consider steps the parties took prior to the proceedings being issued when determining costs, referring to Thames Coromandel District Council v Coromandel Heritage Protection Society Inc and Paper Reclaim Limited v Aotearoa International Limited.3 In Land Haul’s submission it would be even more objectionable to take into account steps that may or may not be taken in the future and after the proceedings have concluded.

[6]    In addition, Land Haul seeks an order pursuant to s 290(3) of the Companies Act 1993 (or s 291) extending the time for compliance with the statutory demand. It submits this is the usual practice following the Court declining to set aside a statutory demand and requests that time for compliance is extended to 15 working days from the date of this judgment. If an extension is not granted Land Haul will not be able to rely on the statutory demand for the purposes of liquidation proceedings as s 288(1) of the Companies Act requires proceedings to be filed within 30 working days of the last date for compliance with the statutory demand.

Aotearoa Forests’ submissions

[7]    Aotearoa Forests submits that costs should lie where they fall because both parties achieved a measure of success on a wide view of the application. Aotearoa Forests says that as a result of the judgment Land Haul has failed to obtain evidence to support an application to liquidate. The function of a statutory demand is to provide evidence of a company’s insolvency for the purpose of an application to put the company into liquidation; Aotearoa Forests says it has no other function. While the statutory demand was not set aside, Aotearoa Forests submits it established that it has a real basis for its counterclaim and that its counterclaim would not be dismissed as a mere assertion. In Aotearoa Forests’ submission:

3      Thames Coromandel District Council v Coromandel Heritage Protection Society Inc (2009) 19 PRNZ 365 (CA) at [10]; and  Paper Reclaim Limited v Aotearoa International Limited  [2006] 3 NZLR 188 (CA) at [160].

(a)If Land Haul is prudent, the judgment will be sufficient to dissuade Land Haul from seeking to liquidate Aotearoa Forests without first addressing Aotearoa Forests’ counterclaim through mediation, arbitration or general proceedings.

(b)Even if Land Haul made an application to put Aotearoa Forests into liquidation, it cannot rely upon the statutory demand as evidence that Aotearoa Forests is unable to pay its debts because any application by Land Haul will not have been brought within 30 working days of the last  date for compliance  with  the statutory  demand as  required  by  s 288(1) of the Companies Act. Land Haul’s statutory demand was dated 25 May 2022 and required payment of the asserted debt within 15 working days (16 June 2022) so the last date for Land Haul to make an application to put Aotearoa Forests into liquidation relying on its statutory demand was 28 July 2022.

[8]    Aotearoa Forests says that Land Haul cannot now seek an extension of time for compliance with the statutory demand to ensure liquidation proceedings are able to be brought, because:

(a)s 290(3) provides that an extension can only be granted “at the hearing of the application” and that hearing is now over; and

(b)Land Haul did not apply for, and the Court did not grant, an extension of time for compliance at the hearing of the application.

Further submissions on recall

[9]    Following the filing of the costs submissions, I issued a minute directing further memoranda to be filed because it appeared that once the application to set aside had been determined the power in s 290(3) to extend the time for compliance may no longer be available. I recorded that one option would be to recall my judgment but before doing so I needed to confirm that the judgment had not been sealed and to give the parties an opportunity to make submissions on whether recall was appropriate in

the circumstances. The parties have now filed the further memoranda directed. The memoranda confirm the judgment has not been sealed, so recall is still available.

[10]   Counsel for Land Haul submits that it would be appropriate to recall the decision because the recall decision in Queensland Maintenance Services (NZ) Limited v Queensland Maintenance Services (Pty) Limited (In Liq) is precisely on point.4 Counsel agrees that counsel did not seek an extension of time for compliance with the statutory demand at the hearing but that such applications are routinely granted when an application to set aside a statutory demand fails. Land Haul therefore submits it would have been granted if the matter had been raised. But it was not.

[11]   In those circumstances Land Haul submits that there has been an oversight in that the effect of s 288 of the Companies Act 1993 and the requirement for an extension of time for compliance under s 290 (given the time that had passed since the statutory demand expired) were not raised with the Court. Land Haul says that this oversight falls into either the second (failure to refer Court to relevant legislative provision) or third category (special circumstances) of cases referred to in Horowhenua County v Nash (No 2) as justifying recall.5 In these circumstances Land Haul submits jurisdiction exists for the judgment to be recalled and an order extending time for compliance with the statutory demand ought to be made.

[12]   Alternatively, Land Haul suggests that the matter might instead be addressed under r 11.10 of the High Court Rule as an accidental slip or omission. It is well established that such omissions can include those made by counsel or a party.6

[13]   Counsel for Aotearoa Forests submits in response that recall would not be appropriate because it would be unjust to strictly apply the time limits in section 290(2) in respect of Aotearoa Forests’ application to set aside and not to take a similarly strict approach in respect of Land Haul. Section 290(3) provides the Court with a discretionary power to extend the time for compliance with the statutory demand “at the hearing of the application”. An application for an extension of time was not made

4      Queensland Maintenance Services (NZ) Limited v Queensland Maintenance Services (Pty) Limited (In Liq) [2015] NZHC 784.

5      Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC).

6      Re Setter [2022] NZHC 1996.

at the hearing and so an extension cannot now be granted. Aotearoa Forests submits justice requires an even-handed approach for both the applicant and the respondent.

[14]   Furthermore, Aotearoa Forests submits this case can be distinguished from Queensland Maintenance Services (NZ) Ltd v Queensland Maintenance Services (Pty) Limited (in Liq) as in that case, the Court dismissed the application to set aside the statutory demand on substantive rather than technical grounds. The Court was satisfied that a debt was owed by the applicant to the respondent and that there was no basis for the applicant’s assertion of a set off, counterclaim or cross demand.7 In those circumstances Aotearoa Forests says the statutory demand was good evidence of the applicant’s insolvency and there was a compelling basis for the Court to exercise its discretion to recall the judgment so as to correct the error of the respondent.

Should an extension of time for compliance with the demand be granted?

[15]   Section 290(3) of the Companies Act provides that no extension of time may be given for making or serving an application to set aside a statutory demand but that “at the hearing of the application, the Court may extend the time for compliance with the statutory demand”.

[16]   I dismissed the application to set aside because it was not served within the 10 working days’ time limit in s 290(3) and the time period is not able to be extended.8 However, unless an extension is granted for compliance with the demand, Land Haul is not able to rely on it for a presumption of insolvency. This is because s 288 of the Companies Act provides that a statutory demand is not admissible as evidence of insolvency unless liquidation proceedings are filed within 30 working days of the last day for compliance with the demand. This date has now passed.

[17]   As referred to above, in Queensland Maintenance Services (NZ) Ltd v Queensland Maintenance Services (Pty) Limited (in Liq) Associate Judge Christiansen held in circumstances where no application to extend had been made before or at the hearing of the application to set aside that it was appropriate to recall the decision and

7      Queensland Maintenance Services (NZ) Ltd v Queensland Maintenance Services (Pty) Limited (in Liq) [2015] NZHC 40.

8      Aotearoa Forests Limited v Land Haul Contractors Limited, above n 1, at [37] to [45].

grant such an extension.9 Counsel for Aotearoa Forests submits that case is distinguishable as the Court had found on a substantive basis that the statutory demand ought not to be set aside whereas here I have instead found on a technical basis that the application to set aside cannot proceed.

[18]   The difficulty is, however, because the application to set aside could not proceed I have not made substantive findings. As will be clear from my judgment, I do not consider that proceeding with liquidation proceedings now in advance of complying with the dispute resolution procedure agreed between the parties is likely to be consistent with the contract nor appropriate where the applicant appears to have a reasonably arguable counterclaim. However neither of these points were finally determined in my judgment given the issue with the timing of the application to set aside. Declining to extend in these circumstances would in my view be proceeding on the basis those matters have been established.

[19]   Furthermore, I do not consider I am taking a technical view on one matter (the timing of the application to set aside) and not on another (the timing of the application to extend). The High Court Rules allow for the recall of a decision in certain circumstances as summarised in Horowhenua County v Nash (No 2),10 and this situation clearly falls within the second category, as counsel for Land Haul submits, being a failure to refer the Court to a relevant legislative provision. By contrast and as discussed in the judgment, there is no ability to extend time for the filing and service of an application to set aside under the High Court Rules because of the requirements of the Companies Act.

[20]   If Land Haul had requested an extension at the hearing there would have been no basis to decline to extend time given the conclusion I reached in relation to the application to set aside.

[21]   I therefore recall the decision and extend the period for compliance with the statutory demand by 15 working days.

9      Queensland Maintenance Services (NZ) Ltd v Queensland Maintenance Services (Pty) Limited (in Liq), above n 7.

10     Horowhenua County v Nash (No 2), above n 5, at 633.

What is the appropriate costs award on the application to set aside?

Relevant costs principles

[22]   The starting point in any costs decision is r 14.1 of the High Court Rules 2016 which confirms that all matters relating to costs are at the discretion of the Court. The discretion vested by r 14.1 is wide but must be exercised subject to the general principles in r 14.2. The first principle set out in r 14.2(1) is that the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds.

[23]The Court of Appeal has confirmed that:11

Success or failure in this context is better assessed by a realistic appraisal of the end result rather than by focussing on who initiated what step, and the extent to which that step succeeded or failed.

[24]The remaining principles in r 14.2(1) are:

(b)an award of costs should reflect the complexity and significance of the proceeding:

(c)costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application:

(d)an appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application:

(e)what is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the party claiming costs:

(f)an award of costs should not exceed the costs incurred by the party claiming costs:

(g)so far as possible the determination of costs should be predictable and expeditious.

[25]   Rules 14.3 to 14.5 provide for the categorisation of proceedings, the appropriate daily recovery rates and the determination of a reasonable time for each

11   Packing In Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA) at [6]; and see Emmons Developments New Zealand Ltd v Mitsui Sumitomo Insurance Company Ltd [2020] NZHC 932 at [28]–[29].

step for the purposes of r 14.2(1)(c) by reference to the time specified for each step in Schedule 3.

[26]   Rule 14.7 provides that despite rr 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable including where the party claiming costs, although succeeding overall, has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs or where some other reason exists which justifies the court refusing or reducing costs, despite the principle that the determination of costs should be predictable and expeditious.12

Application of costs principles in this case

[27]   Having considered the costs submissions of the parties, I am not dissuaded from my preliminary view that costs ought to lie where they fall. The parties had engaged in considerable correspondence prior to the statutory demand being issued, as referred to in my judgment.13 In that correspondence Aotearoa Forests had pointed out that the contract required the parties to go to mediation before liquidation proceedings could be filed and that Aotearoa Forests had a counterclaim. Agreement had been reached following the service of a first statutory demand that the demand would be withdrawn on the basis “the timeframes for negotiation and mediation in the contract will apply”. However Land Haul appears not to have agreed to go to mediation unless Aotearoa Forests offered to pay something. As I said in the judgment, it is at least reasonably arguable that this was a refusal to go to mediation.14 Land Haul then issued its second statutory demand.

[28]   Aotearoa Forests’ application to set aside was not successful because of timing issues. It would be surprising however if Land Haul proceeded to file liquidation proceedings on the basis of the demand given the likely requirement to comply first with the alternative dispute resolution clause in the contract15 and the alleged counterclaim.16

12     High Court Rules 2016, rr 14.7(d) and (g).

13     Aotearoa Forests Limited v Land Haul Contractors Limited, above n 1, at [55] to [60].

14 At [60].

15 At [61].

16     At [63]–[79].

[29]   Land Haul relies on Aotearoa Forests’ alleged concession in relation to its mileage claim as justifying its opposition to Aotearoa Forests’ application but this aspect of the counterclaim was not relied on by Aotearoa Forests in argument in any event.

[30]   As referred to above, the Court of Appeal has confirmed that the appropriate approach to assessing success or failure is to realistically assess the end result.17 By doing so, it is clear in my view that costs ought to lie where they fall. The end result is that while the statutory demand stands, I have indicated a preliminary view that liquidation proceedings brought in reliance on the demand appear likely to fail. On a realistic appraisal, Land Haul cannot be said therefore to have succeeded.

[31]   Land Haul submits that the Court ought not to consider what Land Haul might or might not do next in reaching a costs award. However by taking into account the consequences of the judgment that I reached, I do not consider I am taking into account future steps that Land Haul may or may not take. Instead I am realistically appraising the outcome of the decision and the position the parties are left in as a result.

[32]   Nor do I accept Land Haul’s submission that it is only in the liquidation proceedings, not in the application to set aside, that the matters raised by Aotearoa Forests become arguable. Aotearoa Forests’ alleged counterclaim was properly relied on in the application to set aside and potentially the dispute resolution clause if it prevented reliance on the statutory demand in any event. The issues with timing just prevented their determination.

[33]Costs are therefore to lie where they fall.

Result

[34]I order:

17     Packing In Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott, above n 11.

(a)my judgment on the application to set aside dated 31 May 2023 is recalled and an order added that the time for compliance with the statutory demand is extended to 30 October 2023; and

(b)costs on the application to set aside the statutory demand are to lie where they fall.

Associate Judge Sussock