Cir v Cooper HC Auckland CIV 2007-404-4430

[2008] NZHC 2256

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2007-404-4430

UNDER  the Companies Act 1993

IN THE MATTER OF     Neilson Street Limited (in receivership and in liquidation)

BETWEEN  COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDMICHAEL JOSEPH COOPER First Defendant

AND  BRENDON JAMES GIBSON AND GRANT ROBERT GRAHAM Second Defendants

ANDBRENT DOUGLAS CLODE Third Defendant

Hearing:         By memoranda

Appearances: Mr C K Wood for plaintiff

Mr B D Clode in person

Judgment:      2 April 2008 at 2.30 pm

JUDGMENT OF LANG J [re Costs]

This judgment was delivered by me on 2 April 2008 at 2.30 pm, pursuant to Rule

540(4) of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:
Meredith Connell, Auckland
Copy to:

Mr B D Clode, Auckland

CIR V COOPER AND ORS HC AK CIV-2007-404-4430  2 April 2008

[1]      This proceeding was issued after the shareholder of a company called Neilson Street Limited passed a resolution on 28 April 2006 placing it in voluntary liquidation.   The third defendant, Mr Clode, is the sole shareholder and director of that company.

[2]      The  original  liquidator  of  the  company  was  a  Mr  Carl  Mckee.      He subsequently resigned, and appointed the first defendant, Mr Cooper, as liquidator in his place on or about 21 September 2006.

[3]      At the time that Mr Clode placed the company in liquidation, it owed the sum of $11,314.35 to the Commissioner of Inland Revenue in respect of outstanding GST together with penalties and interest.

[4]      After the company was placed in liquidation the Commissioner filed a proof of debt with the liquidator, together with a summary of account detailing the manner in which the company’s indebtedness had arisen.   The proof of debt then remained unpaid notwithstanding the fact that Mr Clode had provided the Registrar of Companies with a declaration as to the company’s solvency on or about 9 May 2006. That declaration confirmed that the company was solvent and able to pay its debts.

[5]      Despite the declaration, and further assurances given by Mr Clode to the Commissioner between August 2006 and July 2007, the debt continued to remain outstanding.    The Commissioner eventually reached the view that Mr Cooper was unsuitable to continue as liquidator of the company.   He reached that conclusion because of Mr Cooper’s close association with Mr Clode, and because of the fact that Mr Cooper did not appear to his carrying out his function as liquidator.    The Commissioner therefore issued the present proceeding on 24 July 2007 seeking to replace Mr Cooper with another liquidator.

[6]      The proceeding was ultimately resolved in February 2008, when Mr Clode paid the debt in full.   The Court also terminated the liquidation of the company at that point.     The Commissioner then sought an order for costs in relation to the present proceeding.

[7]      The application for costs was called before Randerson J as Duty Judge on 12

March 2008.   As a result of matters that Mr Clode raised in a memorandum that he filed just prior to the hearing, Randerson J directed the Commissioner to file a memorandum explaining several matters.   These included the reasons why the Commissioner had elected to issue the present proceeding rather than take a less expensive option, such as an application for summary judgment in the District Court. Randerson J also directed the Commissioner to explain what notice he had given to Mr Clode prior to the filing of the present proceeding, and why the Commissioner sought an allowance of three days for preparation of the statement of claim and notice of proceeding.

[8]      Counsel for the Commissioner has now filed a detailed memorandum dealing with all of these matters.     I am satisfied from the matters contained in that memorandum that there was real and significant delay by both Mr Clode and Mr Cooper in dealing with the Commissioner’s requests for payment.   Those requests were entirely reasonable given the fact that Mr Clode had lodged the declaration of solvency with the Registrar.  When Mr Cooper failed to respond, I consider that the Commissioner was justified in instituting the present proceeding.     He was not required to sit back and wait for Mr Clode to honour promises to make payment at some unspecified time in the future.

[9]      It was also appropriate for the Commissioner to issue the present proceeding rather than a proceeding seeking judgment against Mr Clode in the District Court. Mr Clode did not owe the tax – the company did.     It is difficult how the Commissioner could have sheeted home liability to Mr Clode in respect of the tax notwithstanding  the  fact  that  he  was  the  sole  shareholder  and  director  of  the company.

[10]     The reality appears to be that, until the Commissioner issued the present proceeding, Mr Cooper was not advancing the liquidation with any degree of vigour. It is highly likely that the present proceeding provided the impetus for Mr Clode to resolve matters with the Commissioner directly.

[11]     In therefore consider that the proceeding was justified.    I also consider that an allowance of three days is properly claimable in respect of the preparation of the originating documents.    Although the documents themselves are relatively simple, the Commissioner was still required to brief counsel regarding the background to the matter and to assemble the necessary material in order to enable the proceeding to be issued.    It is well recognised that the costs allowed for the commencement of a proceeding include not just the drafting of the pleadings but also the preliminary investigations that need to be made before the proceeding is issued.

[12]     Mr Clode contends that, if costs are to be awarded, they should be awarded against the company.     Counsel for the Commissioner does not demur.     I am conscious, however, of the fact that the company is not a party to the proceeding. Should this cause any jurisdictional difficulty, both parties have leave to apply to recall the judgment.

Result : Order

[13]     I therefore direct Neilson Street Limited to pay costs on a Category 2B basis as  sought  by  the  Commissioner  together  with  disbursements  as  fixed  by  the Registrar.

[14]     I reserve leave to both parties to apply further (including for recall of this judgment) upon 48 hours notice.

Lang J