Bo Si Limited (in liquidation) v Crusaders Building Development Limited

[2022] NZHC 944

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2021-409-467

[2022] NZHC 944

UNDER

the Companies Act 1993

IN THE MATTER

of an application for liquidation (Section 274 Companies Act 1993)

BETWEEN

BO SI LIMITED (IN LIQUIDATION)

Plaintiff

AND

AND

CRUSADERS BUILDING DEVELOPMENT LIMITED

First Defendant

CANTERBURY RYWM HOLDINGS LIMITED

Second Defendant

Hearing:

(Determined on the Papers)

Counsel:

S Carradus for Plaintiff

B M Russell and J A Frampton for Second Defendant E L Sprott for Supporting Creditor, P C Eastgate

Judgment:

5 May 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

BO SI LIMITED (IN LIQUIDATION) v CRUSADERS BUILDING DEVELOPMENT LIMITED [2022] NZHC 944 [5 May 2022]

[1]                   On 13 April 2022, I released a decision dismissing the plaintiff’s application to liquidate the first defendant.1

[2]                   The defendant company took no steps to defend the application with the opposition being mounted by the second defendant (an 18 per cent shareholder in  the first defendant company). I concluded there was a genuine and substantial dispute as to the existence of the debt asserted by the plaintiff.

[3]                   The debt relied on by the plaintiff was an alleged advance. I found it was not possible to determine what the terms of the advance may have been, if indeed the transaction was an advance. If my conclusion on that point was incorrect, I held it was reasonably arguable the amount claimed in the demand (for which a  breakdown  was given) was not an advance at all. Instead, it appeared to be the plaintiff paying to the first defendant funds from a third party, paid to the plaintiff for the third party’s intended purchase of shares in the first defendant. If that was correct, the plaintiff was just a conduit for the funds of the third party – no advance was involved. In short, the facts were too uncertain to allow the matter to be dealt with on a summary basis.

[4]                   At the conclusion of the Judgment, I indicated my view that costs should follow the event on a 2B basis and that would be the order of the Court if submissions were not filed within five working days of my Judgment. The second defendant has sought costs, albeit outside that timeframe, but no objection is taken to that by the plaintiff. The second defendant seeks costs on a 2B basis with a 50 per cent uplift.

[5]                   The plaintiff opposes the issue of uplift and takes issue with items in the costs scale used by the second defendant to calculate costs.

Uplift

[6]                   The second defendant says an uplift is justified because among other arguments, the Band B time allocations are inadequate. That is not a ground for an uplift. Mr Carradus, counsel for the plaintiff, says scale costs are not intended to be

1      Bo Si Ltd (in liq) v Crusaders Building Development Ltd [2022] NZHC 788.

indemnity costs. The award of costs is driven by the Court’s and the parties’ assessment of complexity, not actual costs.

[7]                   I am satisfied the complexities of this case were such that it was a 2B case. As will be seen, there are ‘unders and overs’ in the application of the scale and I do not consider the fact the scale allocations may be inadequate compared to solicitor-client costs of itself warrants an uplift.

[8]                   It is then submitted that the plaintiff’s arguments lacked merit, being one of the grounds for increased costs under  r 14.6(3)(b)  of  the  High  Court  Rules  2016  (the Rules). These Rules are predicated on the actions of the losing party increasing the cost of the proceeding once it was issued. However, here, there was the unusual circumstance that the company in liquidation did not take steps to apply to set aside the statutory demand, indeed, it supported the application to liquidate when it came before me for hearing. It was for that reason that the second defendant took up its right to oppose. Accordingly, from the plaintiff’s position, the defendant it sought to liquidate did not oppose the orders sought.

[9]                   A 50 per cent uplift is sought. In declining the second defendant’s application for an uplift, I take into account that the second defendant’s application for an adjournment, heard by telephone on 28 March 2022, was unsuccessful. Costs in respect of that application were reserved. Accordingly, I see there being no award of costs against the second defendant on that application as a further factor persuading me no uplift is called for.

[10]               I also note that the liquidator of the plaintiff here did not attempt to conceal the actual difficulties with the plaintiff’s case. The liquidator frankly acknowledged the issues with the records of the plaintiff. That I took a different view from the plaintiff of the factual position does not of itself warrant an uplift in costs.

[11]Accordingly, I decline the application for an uplift.

Appropriate scale items

[12]               Counsel for the plaintiff submits that the costs for the determination of the liquidation application should be determined as if it were an interlocutory hearing or the hearing of an originating application. If the matter was treated as an interlocutory hearing, on the plaintiff’s calculation, the costs would be $8,245.50. If the matter was treated as the hearing of an originating application, the costs would be $11,591.50.

[13]               Counsel for the second defendant has approached costs on the basis that it was the determination of a proceeding to arrive at scale costs of $19,657.75.

[14]               The Third Schedule to the High Court Rules 2016 contains the time allocations for calculating scale costs. Under the heading “Company liquidation proceedings”, only items from a plaintiff’s perspective (save for an appearance at hearing) are specifically provided for. On a 2B basis, the time allowed for the filing of a statement of claim in a liquidation proceeding is 0.6 of a day, compared to three days allowed for the commencement of an ordinary proceeding. No doubt the allocation of 0.6 of  a day reflects that the documents prepared for the commencement of a liquidation based on a statutory demand are largely pro forma. The same will usually not be the case in respect of a statement of defence which is other than a “stalling” defence. Once a substantial  defence  is  filed  along  with  the  necessary  evidence,  the  matter  is  a defended proceeding.

[15]               The plaintiff here says that using the scale items that would be used for a pt 5 High Court Rules proceeding in a liquidation context results in allowances higher than appropriate. While that may in some cases result in allowances that may appear generous, that is part of the ‘unders and overs’ that is inherent in the use of a set scale. This is a further factor persuading me that an uplift is not called for.

[16]               Accordingly, I remain of the view that costs on a 2B basis are appropriate. The plaintiff does not suggest any of the scale items identified by the second defendant in Mr Russell’s schedule attached to his costs memorandum of 22 April 2021 are not claimable once the matter is viewed as a proceeding. No issue is taken with the claim for second counsel which, given the complexity of the hearing, I consider appropriate.

[17]               Accordingly, there is an award of costs in favour of the second defendant against the plaintiff on a 2B basis as per the costs schedule attached to the second defendant’s memorandum of 22 April 2022. There is no award of costs on this decision fixing costs.

Associate Judge Lester

Solicitors:

Duncan Cotterill, Christchurch (for the Plaintiff)

Lane Neave, Christchurch (for the Second Defendant) Cavell Leitch, Christchurch (for Supporting Creditor)

Copy to:
The Liquidator