Cone Peak Farms Limited v CRB Transport Limited

[2020] NZHC 1739

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2020-406-000007

[2020] NZHC 1739

UNDER

the Companies Act 1993

IN THE MATTER

of putting a company into liquidation

BETWEEN

CONE PEAK FARMS LIMITED

Plaintiff

AND

CRB TRANSPORT LIMITED

Defendant

Hearing:	16 July 2020 (List Court)
Counsel:	K Lawson for Plaintiff D J Clark for Defendant
Judgment:	17 July 2020

COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 17 July 2020 at 11.00 am

pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

CONE PEAK FARMS LTD v CRB TRANSPORT LTD [2020] NZHC 1739 [17 July 2020]

The applications

[1]                 The plaintiff made application that the defendant be put into liquidation. At the first-call the plaintiff applied to discontinue the proceeding. Both parties apply for costs. I entered the discontinuance but reserved my decision on costs.

Background

[2]                 The  plaintiff’s  application  to  liquidate  the  defendant  was  made  under    s 241(4)(a) of the Companies Act 1993 (the Act) which provides the court may appoint a liquidator if satisfied the company is unable to pay its debts.

[3]                 The plaintiff relied upon the presumption the defendant was unable to pay its debts under s 287(a) of the Act as it had failed to comply with a statutory demand served upon it by the plaintiff on 12 March 2020. The statutory demand required payment of $63,250 which it was said the defendant overcharged the plaintiff in respect of the purchase of a Volvo Loader. This amount was an assessment of loss the plaintiff considers it suffered as a result of an alleged misrepresentation by the defendant as to the hours the loader had operated.

[4]                 After service of the proceeding the defendant filed an application under r 31.11 of the High Court Rules 2016 seeking both a stay of the proceeding and an order restraining the plaintiff from advertising. As evidence of its solvency the defendant deposited $55,000 with its solicitors and provided draft 2019 financial statements (which contain final figures for the 2018 financial year). The plaintiff had, as it turned out, already advertised the proceeding so the latter part of the defendant’s application was rendered moot.

[5]                 The case was listed to be called on 16 July 2020 and counsel were given prior notice it was my intention to deal with the stay application at the first-call. When the case was called Ms Lawson advised the plaintiff wished to discontinue the proceeding (rendering a hearing of the stay application unnecessary) but sought costs. For the defendant, Mr Clark also sought costs. I heard submissions from counsel.

[6]                 Ms Lawson submitted the proceeding was filed because the defendant had failed to respond to the statutory demand (and an earlier statutory demand). The plaintiff was “forced”, she argued, to take action to recover what it is owed and should get costs.

[7]                 Mr Clark argues the statutory demand was a nullity and the proceeding based upon it should never have been filed and costs should follow the event.

Analysis

[8]                 The court has an overriding discretion in relation to costs. The discretion must be exercised in a principled manner and consistently with the costs regime in the High Court Rules.

[9]                 The primary purpose of a costs award is to compensate a successful party for the costs they have expended in having their legal rights recognised and enforced by the court.

[10]Relevant in this case are r 14.2(1)(a) and (g). They provide:

14.2 Principles applying to determination of costs

(1)     The following general principles apply to the determination of costs:

(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:

…

(g)so far as possible the determination of costs should be predictable and expeditious.

[11]             The principle in r 14.2(1)(a), that costs should be paid by the unsuccessful party, is fundamental to the High Court Rules costs regime and will apply unless there are exceptional circumstances.1

[12]             The court may refuse to make an order for costs or reduce costs otherwise payable in circumstances set out in r 14.7. One such circumstance is r 14.7(g). It provides:

1      Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if  ̶

…

(g) some other reason exists which justifies  the  court  refusing  costs despite the principle that the determination of costs should be predictable and expeditious.

[13]             The plaintiff’s proceeding faced insurmountable hurdles. The amount claimed in the statutory demand was not a “debt owing” or a “debt that is due”,2 but an amount that the plaintiff might seek by way of damages and which the defendant disputes. There are substantial grounds for the defendant to dispute the plaintiff’s claim. At best the plaintiff is a prospective creditor of the defendant.3

[14]             Furthermore, but related to the point above, the plaintiff did not seek or obtain leave of the court to commence this proceeding under s 288(5) of the Act which provides:

An application to the court for an order that a company be put into liquidation on the ground that it is unable to pay its debts may be made by a contingent or prospective creditor only with the leave of the court; and the court may give such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts.

[15]             The defendant was successful in this proceeding and is prima facie entitled to costs. I do not accept Ms Lawson’s submission the plaintiff was forced to take this proceeding. The proper approach was to issue a claim in the District Court for damages. The issue of the statutory demand and the filing of this proceeding in the liquidation jurisdiction of the Court was plainly inappropriate.

[16]             My only reservation was that the defendant did not respond to the statutory demand and might be said to have brought the proceeding upon itself. On reflection, I have concluded this is not a relevant matter. There is an argument that the statutory demand was a nullity in not complying with the mandatory requirements of s 289 of the Act and that no application to set it aside was necessary. I do not need to decide if

2      Companies Act 1993, s 289.

3      Precinct Properties Holdings Ltd v Golden Tower NZ Ltd [2019] NZHC 3225 at [6]; Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC); Northern Crest Investments Ltd v Robt Jones Holdings Ltd (2009) 19 PRNZ 258 (HC).

that is the case. If the criticism is the defendant should have applied to set aside the statutory demand it is necessary to look at what would have happened had it done so. Any such application would have been successful, and the defendant would have been entitled to costs. Furthermore, what I am concerned with here is the costs of this proceeding. Notwithstanding the defendant’s failure to respond to the statutory demand the plaintiff was not entitled to issue this proceeding without leave of the court, which it did not seek or obtain.

[17]             In addition, having received the defendant’s application for a stay the plaintiff did not accept the merits of the defendant’s position but opposed the application. It was only at the hearing, and after the defendant had filed submissions, that the proceeding was discontinued. The plaintiff put the defendant to needless cost.

[18]             There is no reason, then, to depart from the general rule that as the successful party the defendant is entitled to costs. It is usual in liquidation proceedings for costs to be awarded on a 2B basis. That is appropriate in this case also.

Additional matters

[19]             After presenting submissions on costs, Ms Lawson asked if further submissions could be filed by her principals (she was appearing as agent). I declined this request as Ms Lawson had already argued the matter before me. It was obvious that upon the  discontinuance  of  the  proceeding  costs  would  be  in  issue,  and  Ms Lawson was prepared for that.

[20]             Ms Lawson also asked the Court to order that the $55,000 deposited by the defendant with its solicitor not be released to the defendant. I was not prepared to make such an order in circumstances where there is a substantial dispute in relation to the plaintiff’s claim, the only proceeding between the parties has been discontinued and, the defendant has provided adequate proof of its solvency. In terms of the undertaking offered by Mr Gifford in his affidavit of 11 June 2020 for the defendant’s solicitors to hold the sum of $55,000 pending resolution of the dispute, I consider the relevant dispute has been determined upon the discontinuance of this proceeding.

Result

[21]             The defendant is entitled to costs of the proceeding on a 2B basis and disbursements as fixed by the Registrar.

O G Paulsen Associate Judge

Solicitors:

Gresson Dorman & Co, Timaru for Plaintiff

Wiseheart Macnab & Partners, Blenheim for Defendant