Body Corporate 85978 v Saint Pauls Asset Management Limited (previously Mighty Rocket Trustees Limited)
[2020] NZHC 1803
•27 July 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-4
[2020] NZHC 1803
UNDER the Companies Act 1993 AND
IN THE MATTER
of the liquidation of SAINT PAULS ASSET MANAGEMENT LIMITED (previously Mighty Rocket Trustees Limited)
BETWEEN
BODY CORPORATE 85978
Plaintiff
AND
SAINT PAULS ASSET MANAGEMENT
LIMITED (previously Mighty Rocket Trustees Limited)
Defendant
Hearing: 22 July 2020 Appearances:
D A Bleier for Plaintiff (by VMR)
A Gilmore for defendant company (by VMR)
Judgment:
27 July 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 27 July 2020 at 12.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 27 July 2020
BODY CORPORATE 85978 v SAINT PAULS ASSET MANAGEMENT LIMITED [2020] NZHC 1803 [27 July 2020]
[1] By a statement of claim dated 8 January 2020, the plaintiff sought that the defendant be placed in liquidation.
[2] The defendant, Saint Pauls Asset Management Limited (previously Mighty Rocket Trustees Limited), failed to satisfy in full a statutory demand issued against it on 6 December 2019. 8 January 2020 was the day after the demand expired.
[3] On 8 January 2020, of the $36,861.82 claimed in the statutory demand, the sum of $6,079.80 remained outstanding. The sum demanded related to unpaid Body Corporate levies in respect of three units owned by the defendant.
[4]The statement of claim was served on 9 January 2020 and on that day a further
$2,000 was paid with the remaining $4,080 paid on 10 January 2020.
[5] While the amount in the statutory demand had been paid, the defendant was advised by the plaintiff on 16 January 2020 that further unpaid Body Corporate levies of $19,330.75 plus legal costs of $6,727 and disbursements had accrued. The total said to then be due from the defendant was $26,908.25. By 22 January 2020 the unpaid levy portion of this amount had been paid by the defendant.
[6] A further round of Body Corporate levies was due on 1 April 2020 and these were paid between 3 and 9 April 2020 by the defendant.
[7]There remains the issue of costs.
[8] The statement of claim pleads that the defendant is insolvent and it is just and equitable that it be placed in liquidation.
[9] The defendant asserts that it is solvent. It says it has paid the amounts in the statutory demand and further Body Corporate fees, albeit late. It says it can pay costs once they are fixed.
[10] The plaintiff says the defendant has not rebutted the presumption of insolvency and points to the fact Body Corporate levies were paid late and at times by instalments. Further, the evidence provided by the defendant as to solvency is inadequate. The
expert evidence produced by the plaintiff to show the material produced by the defendant does not establish solvency, is not met with expert evidence in reply.
Costs
[11] The plaintiff relies on the following costs clause which is part of an order made by Churchman J on 21 August 2017, approving a Scheme under s 74 of the Unit Titles Act 2010:
8.5If an Owner fails to pay its Levy in the amount and at the time required by the Body Corporate, that Owner is liable for any losses and for all associated and additional costs, expenses and disbursements resulting from such non-payment (including all costs incurred by the Body Corporate in attempting to recover the outstanding Levy and associated costs including legal costs on a solicitor/client basis together with any penalty interest under section 128(2) of the Act).
[12] Mr Bleier, counsel for the plaintiff, advised at the hearing that the present claim for costs is approximately $30,000.
[13] The defendant does not dispute it is subject to the above costs clause. What is covered by the clause are costs, expenses and disbursements resulting from non-payment of Body Corporate levies, including costs incurred by the Body Corporate in attempting to recover the outstanding levies. The last payment of levies by the defendant was on 9 April 2020. At that point and through to the hearing, there was no outstanding levies. I have my doubts whether steps taken by the plaintiff after 9 April 2020 are caught by the clause.
[14]The defendant company has offered to compromise costs at $15,000.
[15] The defendant maintains it is able to pay the costs when fixed. The plaintiff maintains the defendant has not proved it is able to do so. The solvency test under s 4(1) of the Companies Act 1993 (the Act) is:
4 Meaning of solvency test
(1)For the purposes of this Act, a company satisfies the solvency test if—
(a)the company is able to pay its debts as they become due in the normal course of business; and
(b)the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.
[16] The practical point is that a party subject to an obligation to pay indemnity costs is entitled to test the reasonableness of those costs. While the invoices making up the amount are produced, many of the invoices from the plaintiff’s solicitor and counsel have only pro former narrations.
[17] McGechan on Procedure1 notes in assessing what are reasonable actual costs, the time and other pressures on the court, leaves “room for robust judgment as to the costs considered reasonable in the circumstances”, referring to Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd.2
[18] The starting point is that there is no quantified indebtedness owed by the defendant to the plaintiff.
[19]McGechan notes:3
In a case where the full amount has been paid over as security, it is difficult to imagine a situation where a liquidation order would be justified… This approach was approved by Master Thomson in Airborne Freight Ltd v Fastway Express Parcels (NZ) Ltd…
[20] Associate Judge Gendall (as he then was), commented on this in Commissioner of Inland Revenue v Aotearoa Coolstores Ltd,4 noting Associate Judge Osborne (as he then was) referred to the approach in McGechan in Commissioner of Inland Revenue v The Fish & Chip Shop Ltd, stating:5
As a general proposition the McGechan passage uncomplicated by the context of an increasing debt is a passage I would accept and adopt in its context. But when applied to a defendant whose debt is increasing as a result of the statutory regime week by week and against a background of presumed insolvency or evidence of insolvency, I do not consider Airborne Freight particularly assists in this context.
1 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.6.03(3)(e)(iv)].
2 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZConvC 191, 873 (CA) at 191,887.
3 McGechan on Procedure, above n 1, at [HR31.11.04].
4 Commissioner of Inland Revenue v Aotearoa Coolstores Ltd HC Palmerston North CIV-2008-454-940, 5 October 2009.
5 Commissioner of Inland Revenue v The Fish & Chip Shop Co Ltd (2009) 24 NZTC 23,766 (HC).
[21] Associate Judge Gendall in Aotea Coolstores Ltd considered the passage from McGechan and the approach from Airborne Freight Ltd related to the situation where all debt has been paid or secured to the creditor and no monies were outstanding between the parties. The general practice in this Court is where all indebtedness has been paid by a defendant company, the liquidation proceeding will be brought to an end.
[22] Here, the plaintiff does not say it is owed a debt that is due and payable – its costs claim remains unquantified. Nonetheless, it maintains its application for liquidation on the basis the defendant has not proved solvency. The plaintiff only has standing to seek a liquidation order as it is a prospective or contingent creditor.
[23] Under s 288(5) of the Act, an application for an order that a company be put into liquidation on the grounds that it is unable to pay its debts, may be made by a contingent or prospective creditor only with the leave of the Court. Such leave may be made with or without conditions where the Court is satisfied there is a prima facie case that the company is unable to pay its debts.
[24] I am satisfied the plaintiff is a prospective or contingent creditor as it has the right to recover its costs of recovery incurred as a result of the unpaid Body Corporate levies. I am also satisfied that there is a prima facie case the defendant company is unable to pay its debts because of the uncontested expert evidence. However, I am not prepared to place the defendant company into liquidation when it is unable to satisfy the unfixed costs liability. If the defendant’s costs were fixed and paid, the plaintiff would not have standing to seek the order. The plaintiff was not in a position to advise its exact costs at the hearing on 22 July 2020, nor, as I have said, have sufficient materials been advanced to allow its costs claim to date to be properly assessed on an indemnity basis.
[25] Given the plaintiff has not taken those steps, I do not think it can at the same time seek to liquidate the defendant company, having deprived the defendant of the ability to pay the very debt that gives the plaintiff standing.
[26] I recognise this against the background of the evidence that the defendant is insolvent. As an interim arrangement, the following directions were made during the hearing on 22 July 2020:
(i)The defendant company is to pay in cleared funds to the Registrar of the Wellington High Court, the sum of $15,000 within five working day (that is by Wednesday 29 July 2020). For the avoidance of doubt, day 1 is 23 July 2020.
(ii)The defendant is to provide to Mr Bleier a copy of the receipt issued by the Registry for the funds.
(For the avoidance of doubt, while this judgment is dated 27 July 2020, the parties were advised of the above dates on 22 July 2020).
[27] This proceeding is adjourned to 9.00am on Friday 31 July 2020 (by AVL before me).
[28] If the $15,000 has not been paid as directed in [26] above, that will be practical confirmation that the defendant is insolvent and the company will be placed into liquidation on 31 July 2020.
[29] If Mr Bleier receives proof of payment above, then he is to advise the Registrar of the Wellington High Court of receipt of payment and the call on 31 July 2020 will be vacated.
[30] If the call on 31 July 2020 is vacated, then Mr Bleier is to, within a further five working days (that is by Friday 7 August 2020), file a memorandum in support of the fixing of costs sought by his client, taking into account the matters raised at the hearing.
[31] Mr Gilmore is given limited leave to file costs submissions on behalf of the defendant company in reply and they are also to be filed within five working days of receipt of Mr Bleier’s submission. I will then fix costs on the papers.
[32] If the call on 31 July 2020 is vacated, I will allocate a further call date when I issue the judgment fixing costs.
Representation of the defendant
[33] The defendant in this proceeding was initially represented by counsel. The director of the defendant, Mr Aaron Gilmore, on 20 July 2020 sought leave to represent the defendant company himself. It seems that sometime in early June 2020, the defendant ceased giving instructions to its solicitor.
[34] On 10 June 2020, Mr Gilmore emailed the Registrar of the High Court advising that he was in the process of appointing new counsel and that he saw no reason to depart from the hearing date of 22 July 2020.
[35] It is apparent from what I have already said, that Mr Gilmore has not instructed new counsel. In his memorandum of 20 July 2020 he referred to the plaintiff’s submissions having been provided on 16 July 2020. However, the submissions on the court file from the plaintiff are dated 8 July 2020.
[36] Mr Gilmore refers to the alleged lateness in the submissions received as a reason it was not possible to engage counsel on reasonable terms in time. Such explanation is hard to reconcile with Mr Gilmore as early as 10 June 2020 advising the Registrar that he was in the process of appointing new counsel.
[37] Mr Gilmore has sworn two affidavits in this proceeding. Anyone seeking to adopt the position of witness and counsel is immediately in a difficult position.
[38] Mr Gilmore refers to a passage in Re G J Mannix Ltd, which lays down the rule that, save in exceptional circumstances, a company cannot be represented by its director.6 Mr Gilmore refers to the passage where Cooke J said a director may be allowed to represent a company where:7
… it would be unduly technical or burdensome to insist on counsel. Especially in minor matters, costs-saving could be a relevant factor. A “one man”
6 Re G J Mannix Ltd [1984] 1 NZLR 309 (CA).
7 At 214.
company might be allowed to be represented by its owner if the Judge saw fit ...
[39] Again, the defendant insists that it is solvent. In the application for leave to withdraw filed by the defendant’s solicitor, it refers to (amongst other things), unpaid invoices. Accepting what Mr Gilmore says about the company being solvent, there is no reason why it did not instruct other counsel. It had ample time to do so and it claims to have the resources.
[40] That said, because I adopted the pragmatic approach to the winding up application described above, I was prepared to hear Mr Gilmore in respect of that, I have allowed him to reply only on the issue of fixing costs.
Associate Judge Lester
Solicitors:
Greenwood Roche, Wellington
Copy to counsel:
D A Bleier, Barrister, Wellington
Copy to:
Mr A Gilmore
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