Bussell Construction Limited v Manchester Industrial Holdings Limited
[2016] NZHC 606
•8 April 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2014-485-011442 [2016] NZHC 606
UNDER the Companies Act 1993 IN THE MATTER
an application to put MANCHESTER INDUSTRIAL HOLDINGS LIMITED into liquidation
BETWEEN
BUSSELL CONSTRUCTION LIMITED Plaintiff
AND
MANCHESTER INDUSTRIAL HOLDINGS LIMITED Defendant
Hearing: 5 April 2016 Appearances:
F B Collins for Plaintiff
J R Grace for DefendantJudgment:
8 April 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE AS TO COSTS
Introduction
[1] The parties agree that the plaintiff’s application for an order putting the defendant into liquidation, filed in late-2014, has now become effectively defunct by reason of events since issue. What they cannot agree on is an appropriate costs resolution.
[2] Each party applies for an order that the other pay the costs and disbursements of the substantive proceeding and of an interlocutory application to be assessed on a
2B basis.1 Calculations of the plaintiff ’s costs on a 2B basis would amount to $4,460
1 High Court Rules: rr 14.3(1) and 14.5(2).
(for the substantive proceeding) and $5,798 (for the stay application), with disbursements totalling an additional $931.75. For the defendant, Mr Grace has not submitted a calculation of a 2B award.
The litigation and its outcome
The creditor/debtor relationship
[3] The plaintiff (Bussell) was a creditor of the defendant (Manchester) through having undertaken building renovations for Manchester on a Wellington property. The contract was governed by the provisions of the Construction Contracts Act 2002 (the CCA). Bussell served a payment claim on Manchester in July 2014 in response to which Manchester failed to issue a payment schedule or to make payment. Thereby, pursuant to the provisions of the CCA, Manchester became liable to make payment of the claimed sum.
[4] In September 2014, Bussell issued a statutory demand2 for payment of what had now become a debt due and owing ($47,295.37). Manchester did not make payment of the debt or apply to set the demand aside.
[5] When Manchester disputed its liability, Bussell chose to give notice of a claim for adjudication under the CCA, which it did on 30 October 2014. That claim was heard by an adjudicator who on 19 December 2014 determined that Manchester must within two days pay Bussell $46,745.37 together with any additional sum paid by Bussell on account of the adjudicator’s costs.
[6] In the meantime, the period within which Bussell needed to issue a liquidation proceeding in reliance upon its unmet statutory demand was to expire. That led Bussell to issue this proceeding on 12 November 2014.
Manchester’s judicial review application
[7] Manchester did not accept the adjudicator’s determination. It filed and
pursued an application for judicial review. That application was eventually heard by
2 Under s 289 Companies Act 1993.
Dobson J in late-January 2016. His Honour gave judgment on 18 February 2016 dismissing Manchester’s application for judicial review.3
Manchester’s interlocutory application for a stay of this proceeding
[8] I now revert to the time at which this proceeding was commenced, shortly before Bussell made its adjudication claim. In response to this liquidation proceeding, Manchester filed an application for an order staying the proceeding. Manchester asserted that there was a genuine dispute as to the existence of the claimed debt and that the debt’s existence was dependent on the outcome of the pending adjudication.
[9] In the affidavit in support of the application, Simon Manchester rehearsed the factual material in arguments which were shortly thereafter rejected by the adjudicator (whose decision was in turn upheld in the judicial review proceeding).
[10] At the same time as filing its application for stay, Manchester filed a statement of defence referring to its dispute as to its indebtedness and asserting that it was solvent and able to pay its debts. Bussell filed opposition to the stay application. By the time the opposition was filed, the adjudicator’s determination had become available and Bussell relied on that determination to establish the debt was beyond dispute.
[11] Mr Manchester filed an affidavit in reply. Mr Manchester referred to Manchester’s intention to pursue judicial review proceedings. He went on to explain that the reason Manchester had not paid Bussell in the meantime was because Bussell had virtually no capital, with the consequence that Manchester would not be able to enforce repayment of any sum paid in the meantime to Bussell.
[12] The hearing of the stay application commenced before Associate Judge Smith in February 2015 and was then adjourned for both parties to file additional evidence. Bussell filed evidence as to its financial ability to repay any sum which Manchester
paid. Mr Manchester filed an affidavit recording that $47,000 had been deposited
3 Manchester Industrial Holdings Ltd v Hazelton [2016] NZHC 211.
into a stakeholding account. Associate Judge Smith then heard further submissions and gave judgment on 29 April 2015.4
[13] His Honour granted a stay conditional upon Manchester:5
(a) providing evidence of a stakeholding in a solicitor’s trust account of
$49,085.62 (being the full amount of the adjudicator’s determination
plus costs); and
(b)commencing any judicial review proceeding within 30 working days and thereafter prosecuting the proceeding diligently to a hearing.
[14] His Honour was satisfied that in the proposed judicial review proceeding, Manchester had “a reasonably arguable challenge”, and that it would place undue pressure on Manchester to allow Bussell to continue with its liquidation claim when the amount of the claim was adequately secured.6 His Honour also took into account Mr Manchester’s evidence of Manchester’s solvency.7
[15] The judicial review proceeding then followed. After the release of the judicial review judgment, the stakeheld funds were released to Bussell. By the judicial review judgment, Manchester had been ordered to pay the costs and disbursements of that proceeding to Bussell, a total of $15,547.50. That additional sum remains owing.
The parties’ positions on the costs of this proceeding
[16] Counsel accept, on behalf of both parties, that by dint of the release of the stakeheld funds, the proceeding should be brought to an end. I will be formally dismissing the plaintiff ’s claim. The costs of the proceeding, including the
interlocutory application, are for determination in this judgment.
4 Bussell Construction Ltd v Manchester Industrial Holdings Ltd [2015] NZHC 858.
5 At [66].
6 At [68].
7 At [68].
[17] Mr Grace filed a memorandum for the previous callover of the proceeding in which he submitted that the appropriate outcome was that Manchester have costs on both the substantive and interlocutory proceedings, to be offset against the costs ($15,547.50) awarded against Manchester in the judicial review proceeding.
[18] Bussell’s position is that it should have costs on both the substantive and interlocutory proceedings (with the result that there would be no set-off available to Manchester).
[19] The Court, in considering the appropriate order of costs and disbursements in this case, is not concerned with the set-off implications of its judgment – the focus is quite simply on determining the appropriate order for costs as a matter of the Court’s discretion8 and taking into account the general principles which apply to the determination of costs.9
Discussion
[20] I heard some detailed submissions from Mr Grace as to the reasons why the Court might regard Manchester as having had the meritorious position in this proceeding.
The interlocutory costs
[21] In relation to the stay application, Mr Grace invited the Court to regard Manchester as having been the successful party (it having obtained the requested stay) which, consistently with r 14.8(1) High Court Rules, could appropriately have resulted in an order of costs in Manchester’s favour when the stay application was granted.
[22] I do not find the focus on who “won” the stay application on the day to be particularly helpful in relation to costs issues now being determined in the light of the overall outcome. Rule 14.8(2) High Court Rules itself implicitly recognises that
a costs order made at the time of the outcome of an interlocutory application (which
8 High Court Rules, r 14.1.
9 High Court Rules, r 14.2.
will generally be in favour of the then-successful party) may no longer be appropriate when the substantive outcome is known.
[23] For the plaintiff, Mr Collins observed that the situation in relation to a successful stay application may be seen as somewhat analogous to the situation when a plaintiff’s summary judgment application is unsuccessful. Both in terms of the correct practice as recognised by the Court of Appeal in NZI Bank Ltd v Philpott,10 and now expressly recognised by r 14.8(3) High Court Rules, it may be just that the ultimately unsuccessful party pays all costs.
[24] In the present case, the primary consideration which drove the granting of the stay was the fact that Manchester had established what Associate Judge Smith found to be a “reasonably arguable” case in relation to judicial review. The analogy with the situation in a proceeding commenced with an unsuccessful summary judgment application is obvious. The actual validity of the case advanced was yet to be determined. As it transpired, the judicial review judgment established that Manchester did not have a valid basis for judicial review.
[25] The overall outcome flowing on from the making of the interlocutory order favours a costs award against Manchester rather than for Manchester.
Substantive costs
[26] Turning to the substance of the proceeding, Mr Grace submitted that the proceeding was unnecessary and inappropriate in that Bussell has “always been able to pay its debts” and had in the meantime, through the stakeholding, provided security for payment.
[27] For two reasons those matters cannot be a full answer to Bussell’s application for costs. First, although there has been repeated reference to Manchester’s evidence as to its solvency, the evidence appears to rest on the bare statement of Mr Manchester. It was not supported by documents evidencing such solvency. The
presumption of insolvency was operating throughout by reason of Manchester’s
failure to meet the statutory demand.
[28] Secondly, Bussell’s provision of funds on a stakeholding covered only the sum which was the subject of the adjudication. The subsequent release of those funds did not cause Bussell to cease to be a creditor. It had in the meantime become a judgment creditor for the costs of the judicial review proceeding and (I am informed from the bar) also in relation to the registration of the adjudication determination in the District Court. Had it wished to do so, Bussell could have continued to pursue this proceeding by reason of it being a creditor for those sums. What has happened is that Bussell has through this proceeding obtained payment of the sum which was always the focus of its concern leading to its issuing of this proceeding.
[29] Standing back, the inevitable conclusion is that for costs purposes, Manchester may be regarded as the party who has failed in the proceeding as a whole.
The alternative of an arbitration process
[30] Mr Grace submitted that the Court, in considering costs, should take into account a failure by Bussell to agree to participate in an arbitral proceeding as an alternative to the other streams of litigation (including this) which were taking place. Mr Grace referred to observations which Associate Judge Smith made as to the substantive disputes appearing well-suited to arbitration.11
[31] I do not find it appropriate to hold against Bussell in a costs setting its refusal to engage in an arbitration. Arbitration would have had its own implications in terms of potential delay and expense and may or may not have proved to be an ultimately more convenient and effective process. What counts more is that Bussell had the right to bring this proceeding following Manchester’s failure to meet the statutory demand and has responsibly accepted that the proceeding should now be brought to an end with the amount of the demand having been met.
Test cases and novel points
[32] The above portion of my judgment traverses matters raised directly by
counsel’s submissions.
[33] A further consideration arises through documents that were provided to the Court by agreement in the course of submissions. When counsel were engaged in correspondence in May 2015 as to the possibility of an arbitration, Mr Collins wrote to Mr Grace confirming that Bussell would continue to oppose the judicial review application. He recorded:
We have agreed to do this [litigation] on a “no win, no fee” basis with our client as the judicial review application and the recent stay decision raise issues which are of considerable importance to the construction industry.
[34] The wording of Mr Collins’ statement indicates that Bussell’s decision to pursue matters to judicial determination was driven, at least in part, by the view of its solicitors and/or itself that the case raised novel points of law on which a judicial determination would have broader effect.
[35] On the subject of points pursued for their broader importance, a majority of the Court of Appeal observed in Birkdale Service Station Ltd v Commissioner of Inland Revenue that, “Generally, an award of costs is not made in test cases”.12
[36] To some extent, the position pursued by Bussell must be regarded as having had test case character. On the other hand, Bussell was entitled to pursue payment and, when the statutory demand was not met, to issue and maintain this proceeding as a means of either obtaining that payment or seeking to have Manchester put into liquidation. This liquidation proceeding retained a significant private-interest
character also.
12 Birkdale Service Station Ltd v Commissioner of Inland Revenue [2001] 1 NZLR 293 (CA) at [81]. See also the other cases discussed in A C Beck and others (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR Pt 14.17(1)].
Conclusion
[37] As recognised by counsel, this is an appropriate case for a 2B calculation.13
It is just that Bussell obtain an award of costs. In the absence of the test case aspect, an appropriate award of costs would have been based on a full 2B calculation. Having regard to the test case aspect, a just outcome is that the defendant pay costs assessed at 50 per cent of a 2B award, which recognises both the public and private interest involved for Bussell in seeing the litigation through to the outcome achieved.
Order
[38] I order:
(a) The interlocutory orders granted in the judgment of the Court dated 29
April 2015 are rescinded;
(b) The plaintiff’s claim for an order of liquidation is dismissed;
(c) The defendant is to pay:
(i) the plaintiff’s costs of the proceeding which I fix in the sum of
$5,129 together with disbursements of 931.75; and
(ii) the plaintiff’s costs of this hearing as to costs which I fix at
$557.
Associate Judge Osborne
Solicitors:
Gibson Sheat, Wellington
Duncan Cotterill, Wellington
13 Above at [2].
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