Capital Precut Solutions Limited v Graham HC Wellington CIV-2010-485-2081

[2010] NZHC 2363

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-2081

BETWEEN  CAPITAL PRECUT SOLUTIONS LIMITED

Applicant

ANDTONY GRAHAM Respondent

Hearing:         25 November 2010

Appearances: Mr C. La Hatte - Counsel for Applicant

Mr T Graham in person

Judgment:      29 November 2010

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment is delivered by Associate Judge Gendall on 29 November 2010 at 3.30 pm under r 11.5 of the High Court Rules.

Solicitors:           Mike Garnham, Solicitors, PO Box 10-240, Wellington

Brandons, Solicitors, 32 The Terrace, Wellington, New Zealand

CAPITAL PRECUT SOLUTIONS LIMITED V T GRAHAM HC WN CIV-2010-485-2081  29 November 2010

Introduction

[1]      The applicant, Capital Precut Solutions Ltd (“Capital Precut”), applied for an order setting aside a statutory demand issued against it by the respondent Tony Graham (“Mr Graham”) on the ground that the purported demand was defective. The demand claimed a debt of $5,625 that is alleged to be owing to a company called Woodworx Wellington Limited (“Woodworx”).

[2]      At the hearing of this matter before me on 25 November 2010, Mr Graham informed the Court that he wished to withdraw the statutory demand. The only outstanding issue, therefore, is one of costs.  Capital Precut seeks costs against Mr Graham on a 2B basis. Before me Mr Graham effectively asked for the Court’s “compassion” with regards to costs.

Background

[3]      The statutory demand appears to relate to a transaction which took place in

2003. Mr Graham alleges that a Mr David Buckthought (“Mr Buckthought”), who is a director of Capital Precut, purchased woodworking machinery from Woodworx in return for timber, which was never supplied. He says that Mr Buckthought needed the machinery in order to set up Capital Precut, the applicant company, which was incorporated in June 2004. Mr Graham claims that he sent an invoice (or several invoices) to Mr Buckthought and to Capital Precut, but that he received no reply. Mr Graham also says that he purchased Woodworx in 2006 together with its assets, and claims that the equipment in question is still in the possession of Capital Precut.

[4]      Mr  Buckthought,  however,  says  that  Capital  Precut  has  never  had  any dealings  with  either  Mr  Graham  or  Woodworx.  He  says  that  he  bought  the machinery in July 2003, in his capacity as director of a company called Plateau Holdings Ltd. He maintains that he purchased the machinery from a person who was storing the machinery, but had not been paid any storage fees.   Mr Buckthought contends that the payment arrangement included the supply of timber to Woodworx to settle the storage bill owed by Woodworx. He claims that the last time he saw the equipment was when the liquidator took possession of the assets of Plateau Holdings

Ltd in 2004, and that he was sent one invoice in 2004 asking for payment for a machine,  to  which  he  replied  by saying  that  this  was  a  debt  owed  by  Plateau Holdings Ltd.

[5]      So far as the present statutory demand is concerned, on 15 October 2010, Mr Graham issued Capital Precut with a document entitled “Statutory Demand pursuant to section 289 of the Companies Act 1993”.  This demanded that Woodworx be paid the sum of $5,625.00. Attached to the demand was an invoice dated 26 September

2010, described as a “Final Notice”, for the alleged debt.

[6]      In its application to set aside Mr Graham’s statutory demand, Capital Precut maintained that the demand was defective in the following respects:

•Capital Precut and Mr Graham have never entered into any transaction and there is no debt owing by Capital Precut.

•The purported debt refers to the sale of woodworking machinery by Mr Graham’s company, which did not exist at that time, to a company which was not incorporated at that time, six years before the invoice relied on in the statutory demand was issued. There is no evidence of any notice or invoice having been issued prior to the invoice of 26 September 2010.

•The statutory demand should have been issued by Mr Graham’s solicitor if he claimed to be a creditor.

•The statutory demand should have been signed by Mr Graham as creditor but was not.

My Decision

[7]      It  is  clear  here  that,  at  the  last  minute,  Mr  Graham  has  withdrawn  the statutory demand.   Although Capital Precut submits that an uplift on scale costs could well be justified here, in its present application it seeks only costs on a 2B basis. Mr La Hatte for Capital Precut argued before me that although the purported

statutory demand was clearly defective, Capital Precut simply had no choice but to bring its present application to set the demand aside. He argued that, given that Mr Graham was willing to “take the risk” in issuing a statutory demand, which he described as a “potentially draconian weapon”, an award of costs in favour of Capital Precut must be made as entirely appropriate here.  Mr La Hatte noted also that he learnt of the respondent’s intention to withdraw the demand only shortly before the hearing on 29 November 2010 and after he had prepared submissions.

[8]      In response, Mr Graham accepted at this late stage that, although the demand did not constitute a valid statutory demand, it was designed to “get Capital Precut’s attention”. He also argued that the substance of the dispute between the parties still remains alive, and he maintained that Capital Precut remains in possession of the equipment.

[9]      Ordinarily,  the  accepted  position  on  the  authorities  is  that  if  a  statutory demand is withdrawn before the actual hearing of an application to set it aside occurs, the withdrawing party will be required to pay costs: see Furnz Limited v Goode Industries Limited HC Auckland CIV-2008-404-1024, 13 October 2008 at [6], r 15.23 of the High Court Rules.  The position by analogy is akin to that which arises on a Notice of Discontinuance being filed.  This rule however is subject to the Court’s general discretion as to costs outlined in r 14.1. It may be, for example, that the creditor acted reasonably in issuing the statutory demand, and that the demand is merely withdrawn because it is rendered futile by the alleged debtor’s subsequent actions: see McGechan on Procedure at HR15.23.01.

[10]     In the present case, however, there is no reason to depart from the rule that the withdrawing party is liable for costs. The fact that the underlying dispute remains alive is not a relevant consideration in this context. In withdrawing the demand, Mr Graham effectively acknowledges that the statutory demand procedure was not the appropriate way to resolve his claim against Capital Precut.  It may be the case that Mr Graham only issued the purported demand to “get Capital Precut’s attention”, but I accept Mr La Hatte’s submission that once this occurred, Capital Precut had little choice but  to  apply to  have the  demand  set  aside.  Despite its  deficiencies,  the demand  clearly  purported  to  be  a  statutory  demand  issued  pursuant  to  s  289

Companies Act 1993, and it would not be fair to refuse costs here on the basis that Capital Precut should simply have ignored the document on account of its apparent invalidity.

Conclusion

[11]     For these reasons, Capital Precut is clearly entitled to costs on its application to set aside Mr Graham’s late withdrawn statutory demand. Costs are awarded to Capital Precut on a 2B basis, together with disbursements as fixed by the Registrar.

‘Associate Judge D.I Gendall’