Canterbury Regional Council v Peacocke
[2015] NZHC 1464
•26 June 2015
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2014-470-133 [2015] NZHC 1464
UNDER Part 18 of the High Court Rules IN THE MATTER OF
the Companies Act 1993 section 301
BETWEEN
CANTERBURY REGIONAL COUNCIL Plaintiff
AND
RICHARD BRANDON PEACOCKE First Defendant
CHRISTOPHER PHILLIP FLAVELL Second Defendant
JOHN DAVID PEACOCKE Third Defendant
GRAEME SCOTT WILSON Fourth Defendant
Hearing: 28 April 2015 Appearances:
J V Ormsby for Plaintiff
D M Fraundorfer and J P Dickson for DefendantsJudgment:
26 June 2015
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 26 June 2015 at 4:00pm
Pursuant to Rule 11.5 of the High Court Rules
…………………………………..
Registrar/Deputy Registrar
Solicitors:
Wynn Williams (J Ormsby) Christchurch, for Plaintiff
Holland Beckett (D Fraundorfer/J P Dickson) Tauranga, for Defendants
CANTERBURY REGIONAL COUNCIL v PEACOCKE [2015] NZHC 1464 [26 June 2015]
[1] The question in this discovery application is whether the Canterbury Regional Council has to disclose documents going to the reasonableness or foreseeability of its resource consent application charges.
[2] The substantive proceeding is a claim against directors under s 301 of the
Companies Act 1993 for breaches of duty.
[3] Williamson Holdings Ltd and Southdown Holdings Ltd, both now in liquidation, applied to the Canterbury Regional Council for consents under the Resource Management Act 1991 to take and discharge water and to discharge effluent for a proposed cubicle farming project to be carried out on two farms in the Mackenzie Country, Glen Eyrie Downs and Killermont. The companies were associated with the Southdown Dairy Partnership, comprising New Zealand and overseas investors. The first three defendants are directors of Williamson. The first, second and fourth defendants are directors of Southdown.
[4] The resource consent process was extensive and expensive. Eventually the Minister for the Environment called the applications in under Part 6AA of the Resource Management Act. Faced with a fresh round of hearings and yet more costs, Williamson and Southdown withdrew their consent applications. They went into voluntary liquidation. They paid all their creditors except the Canterbury Regional Council.
[5] The council says that Williamson owes it $116,488.46 for outstanding consent fees, Southdown $203,906.76. As the council stands to get nothing out of the liquidation, it has brought this proceeding under s 301 of the Companies Act against the directors. It sues them for breaches of duty under s 135 (reckless trading), s 136 (a director of a company carrying debt had reasonable grounds to believe the company would be able to pay) and s 131 (duty to act in good faith and in the best interests of the company).
Background
[6] Williamson applied for consents to take and discharge water in October
2003. At various stages, Southdown was the consent applicant rather than
Williamson. Both companies incurred consent application fees. The council’s
consent fees were paid up until February 2010. Invoices for work carried out by the council on the water consents from then until August 2012 were not paid.
[7] On the applications to take and discharge water Williamson and Southdown were partly successful, with some consents granted and others declined. The companies appealed to the Environment Court against those decisions. They also lodged objections under s 357B of the Resource Management Act to further consent charges the council invoiced in January 2012. After the companies went into liquidation, the liquidator chose not to continue with the objections.
[8] In July 2009 Williamson applied for consents to discharge diluted dairy effluent by spray irrigation. That application was withdrawn in March 2010. The council charged both companies consent fees for the effluent discharge applications. Williamson Holdings was charged $39,587.92. Southdown Holdings was charged
$38,319.98. Both Williamson and Southdown objected to those charges under s 357B of the Resource Management Act. An independent commissioner ordered reductions of $6,000 plus GST for each charge. Williamson and Southdown appealed against the independent commissioner’s decision but the appeals were abandoned once the companies went into liquidation.
[9] Both Williamson and Southdown went into liquidation on 1 May 2012 by shareholders’ resolution. The liquidator they first appointed was a former director of Williamson. The council made claims in the liquidations for its unpaid consent fees. The liquidator initially did not accept them. The council began a proceeding to reverse the liquidator’s decisions. The liquidator resigned in July 2013 and was replaced by the current liquidators, who have admitted the council’s claims for the unpaid fees.
The further discovery sought by the defendants
[10] The council has already provided an affidavit of documents. It has included invoices going back to November 2006, extracts from its annual plan, correspondence and documents passing between it and the companies. The defendants say that that affidavit does not go far enough.
[11] The schedule to the defendants’ application for further discovery is detailed,
but broadly four general classes of documents are sought:
a) documents relating to the unpaid invoices (with detailed requisitions as to particular sub-classes of documents);
b)any additional documents showing how the council incurred the costs for the resource consent applications and how increases in costs could be justified;
c) documents relating to the call-in by the Minister for the Environment
(including detailed requisitions as to particular sub-classes); and d) documents relating to costs objections
[12] In general, the defendants say that these documents need to be discovered, because they are relevant to these issues:
[i] the reasonableness of the council’s charges; and
[ii] their foreseeability.
Can the defendants challenge the debts owed to the Canterbury Regional
Council?
[13] As part of their defence, the defendants intend to attack the debts claimed by the council. They deny that Williamson and Southdown are indebted to the council for consent fees, and allege that the fees were unjustified and illegitimate. They deny that the charges were reasonable and lawful. To challenge the reasonableness of the council’s charges they seek wide-ranging discovery of council records.
[14] That is misconceived. In this proceeding the defendants cannot challenge
the reasonableness of the council’s charges for two reasons:
(a) The statutory régime for fixing and reviewing charges under s 36 of the Resource Management Act does not allow for this court to review the reasonableness of the charges in a civil proceeding, except on an appeal under Part 11 of the Resource Management Act or on judicial review of a decision made under the Resource Management Act.
(b) The liquidators have accepted the council’s debts as claims in the
liquidations.
The Resource Management Act régime for reviewing application fees
[15] The debts due to the council are charges for processing resource consent applications under s 36(1)(b) of the Resource Management Act:
36 Administrative charges
(1) A local authority may from time to time, subject to subsection (2), fix charges of all or any of the following kinds:
…
(b) charges payable by applicants for resource consents, for the carrying out by the local authority of any 1 or more of its functions in relation to the receiving, processing, and granting of resource consents (including certificates of compliance and existing use certificates).
[16] Charges under s 36(1) may be fixed in advance, but where they are inadequate to enable a local authority to recover its actual and reasonable costs, the local authority may require the liable person to pay an additional charge.1 In this case the council’s claim is for additional charges. A person required to pay an additional charge has a right of objection under s 357B of the Resource Management Act. Any objection under s 357B must be made no later than 15 working days after the decision is notified to the objector, or such longer period as the local authority allows.2 The consent authority must consider the objection as soon as reasonably practicable and after giving the objector at least five working days’ notice of the date, time and place for hearing the objection. Section 358 confers a right of appeal to the Environment Court from the consent authority’s decisions on objections. There is in turn a right of appeal to this court on a question of law.3 Given the availability of appeal, there is limited ability to apply for judicial review.4
[17] These provisions of the Resource Management Act are self-contained rules for setting charges for processing resource consent applications, imposing liability, and reviewing charges by the objection procedure. They are akin to provisions imposing liability for other statutory charges such as rates and taxes. Once liability
1 Resource Management Act 1991, s 36(3).
2 Section s 357C.
3 Section s 299.
4 Section s 296.
is fixed under the statute, the liable party has remedies under the statute to challenge that liability, but that aside, it has no remedy outside the statute (barring of course judicial review).
[18] In a civil proceeding by a consent authority to recover payment of unpaid fees under s 36, it is no defence to challenge the amount of the charges. The remedy of the party alleged to be liable for the fees is to follow the objection procedures under the Resource Management Act. If that party fails to use the opportunities provided under the Resource Management Act, the civil proceeding does not provide a second chance.
[19] In Canterbury Regional Council v Clifden Holdings Ltd Judge Neave said:5
It is quite clear that the jurisdiction to determine the reasonableness of the charges under s 36 is prescribed by the Resource Management Act 1991. A clear procedure is set which involves application to a Commissioner and then to the Environment Court. This Court in its civil jurisdiction simply does not have the jurisdiction, in my view, to consider the reasonableness or otherwise of the costs. Apart from anything else, this is a matter on which the expertise of the Commissioner and the Environment Court is likely to have considerable significance and this Court should not trespass upon the statutory functions allocated to a specialist Court. In any event, many of the matters referred to by the defendant are essentially covered in the statutory processes referred to above, which further indicates that the Environment Court is the proper forum to raise those issues, if they are to be raised.
I agree.
[20] The council has put its invoices in evidence. They contain narrations of tasks for which charges were made, setting out the time spent on each task, and an hourly rate. As applicants for resource consents, Williamson and Southdown were entitled to object to those charges. Only in a few cases did they object. The companies are now out of time under s 358 to object. The defendants, directors of Williamson and Southdown, never had standing to object under the Resource Management Act.
[21] For two invoices, those in [8] above, Williamson and Southdown did lodge objections. An independent commissioner considered the objections and gave a full and reasoned decision. While he remitted parts of the fees, he rejected most of the
matters raised by Williamson and Southdown, including arguments that:
5 Canterbury Regional Council v Clifden Holdings Ltd DC Christchurch CIV-2013-009-164,
9 October 2013 at [27].
a) The council had encouraged numerous submissions which increased
the companies’ costs.
b)The companies had done everything possible to restrict the level of costs incurred, but were unsuccessful.
c) The minister’s call-in was a result of inadequacies on the council’s
part in processing the applications.
d)There were special circumstances arising out of the call-in that made it appropriate to reduce the charges.
[22] Williamson and Southdown lodged appeals in the Environment Court against the decisions of the commissioner. Once the liquidator withdrew the appeals, the commissioner’s decision became final.
[23] The first defendant’s affidavit in support of the discovery application indicates the defendants’ wish to re-run those arguments in this court. It is hardly appropriate for them to re-run arguments which failed when the companies used the objection procedure under the Resource Management Act.
[24] Southdown and Williamson also lodged objections, those in [7] above, to other charges, but when the liquidator abandoned those objections, those charges also became final.
[25] In summary then, it is now too late for Williamson and Southdown to use the opportunities given under the Resource Management Act to challenge the council’s consent processing charges. Once the time for objecting to the charges has passed and available objection rights have been exhausted or abandoned, the charges are final. Later civil proceedings based on those charges do not give an opportunity for the charges to be re-examined afresh.
[26] The defendants, as directors of Williamson and Southdown, did not have standing to challenge the consent fees, although as they had management of the consent applicants, they could arrange for the companies to object under the Resource Management Act. Of course, once the companies went into liquidation, the liquidator could control any proceedings by the companies, including objection
rights under the Resource Management Act.6 Mr Robertson, the liquidator appointed by the companies’ shareholders, abandoned costs objections pending in the Environment Court.
The liquidators’ admission of the council’s claim under s 304 of the Companies Act
[27] On 19 November 2013 the current liquidators admitted the council’s claims under s 304 of the Companies Act. A liquidator’s decision to admit a claim may be reviewed on an application under s 284(1)(b). While the defendants as directors have standing to apply with leave under s 284(1), they have not challenged the liquidators’ decision to admit. In the absence of any challenge, the liquidators’ decisions stand. The claims are therefore indisputably debts of the companies. Because the liquidator has accepted the debts in the liquidation, the defendants cannot in this proceeding contend that the council’s claims are not debts incurred by Williamson and Southdown, or that the admitted amounts ought to be adjusted.
[28] Because the defendants cannot contend that Williamson and Southdown are not indebted to the council for the amounts of the unpaid application fees, there is no purpose in requiring the council to disclose documents going to the reasonableness or otherwise of the fees.
Foreseeability
[29] Different considerations arise with the defendants’ foreseeability argument. The council’s causes of action are for breaches of directors’ duties. It alleges that because of those breaches the defendants must carry some responsibility for non- payment of the debts due to the council.
[30] While the defendants are not entitled to challenge the indebtedness of Williamson and Southdown to the council, whether the debts were foreseeable is a separate issue. For example, in a claim against a director for breach of the reckless trading duty under s 135 of the Companies Act, it may be a defence for the director to show that the liabilities the company incurred were not foreseeable.
[31] In this case, once Williamson and Southdown lodged resource consent
applications, they became liable to pay the council’s consent processing fees, subject of course to any objection rights. Under the council’s causes of action based on
6 Companies Act 1993, s 260(2) and sch 6(a).
s 136 of the Companies Act, there is a duty on a director not to agree to the company incurring an obligation unless the director believes, on reasonable grounds, that the company will be able to perform the obligation. It will be relevant whether the directors could foresee not only that the company would incur consent processing fees, but also the amounts of those fees.
[32] After an application has been lodged, directors may arguably be under an ongoing duty to consider whether the company is able to fund the resource consent costs. That ongoing duty may be relevant to the cause of action of reckless trading under s 135 of the Companies Act. Information as to likely processing costs may come not only from the company, from the companies’ employees and others within the Southdown Holdings dairy partnership group but also from consultants engaged to obtain the resource consents, and the council itself. Accordingly, documents in the control of the Regional Council going to the foreseeability of its resource consent processing charges are relevant to the directors’ duties in this case.
[33] The council says, however, that it has already discovered any such documents in its control. More specifically, it refers to these:
a) Council letter to Williamson of 12 February 2009;7
b) Council letter to Southdown of 24 July 2009;8
c) Council letter to Southdown of 27 August 2009;9
d) Council letter to Southdown of 24 September 2009;10 and
e) Items CRC 082 to 085, 091 and 095 in the affidavit of documents.
[34] The letters, (a) to (d) above, address likely consent charges for coming steps in the application. The council has confirmed in its affidavit of documents and in its affidavit in opposition to this discovery application that it has no further documents under this head. The defendants have not shown any reason why I should reject that. I am accordingly satisfied that the council has made relevant disclosure of documents relevant to foreseeability.
7 McConway affidavit exhibit MM 43.
8 Exhibit MM 46.
9 Exhibit MM 47.
10 Exhibit MM 53.
Outcome
[35] Requiring the council to disclose documents on the reasonableness or legitimacy of its charges is unnecessary as that cannot be in issue in this proceeding. Documents going to the foreseeability of the council’s fees are relevant and discoverable but I am satisfied that the council has properly disclosed documents under that head. Accordingly, orders for further discovery are not required.
[36] The defendants may have other rights to obtain information from the council under the Local Government Official Information and Meetings Act 1987, but this decision is confined to the matter of discovery under the High Court Rules.
[37] I make these orders:
a) I dismiss the defendants’ application for further discovery.
b)I grant costs on the application to the plaintiff. If the parties cannot agree costs, memoranda may be filed and I shall decide costs on the
papers.
Associate Judge R M Bell
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