Cookson v Agility Building Solutions Limited (in liquidation)
[2020] NZHC 961
•11 May 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-776
[2020] NZHC 961
BETWEEN VINCENT BLAIR COOKSON
Appellant
AND
AGILITY BUILDING SOLUTIONS LIMITED (IN LIQUIDATION)
Respondent
Hearing: 5 May 2020
Further submissions 8 May 2020
Counsel:
M Freeman for Appellant S B Henry for Respondent
Judgment:
11 May 2020
JUDGMENT OF CHURCHMAN J
Background
[1] The intended appellant/applicant (Mr Cookson) wishes to appeal a decision of Judge A I M Thompkins dated 11 December 2019.1
[2] In that decision, the Court held that a payment schedule issued by Mr Cookson to Agility Buildings Solutions Limited (in liquidation) (Agility) pursuant to the Construction Contracts Act 2002 (the Act) was valid and that no valid payment schedule had been issued by Mr Cookson.
[3] The Court gave summary judgment for a sum of $80,502.37 together with contractual interest costs and disbursements.
1 Agility Building Solutions Ltd v Cookson [2019] NZDC 24613.
COOKSON v AGILITY BUILDING SOLUTIONS LIMITED (IN LIQUIDATION) [2020] NZHC 961 [11 May 2020]
[4] Mr Cookson seeks the leave of this Court to appeal that summary judgment decision and he also seeks to stay enforcement of the decision pending the District Court hearing and determining a counterclaim he has raised against Agility.
Leave
[5] The reason that Mr Cookson needs the leave of the Court is because, shortly before the District Court decision was issued, Agility’s shareholders passed a special resolution pursuant to s 241(2)(a) of the Companies Act 1993 to put the company into liquidation. Rhys Cain of Christchurch and Rees Logan of Auckland were appointed liquidators.
[6] The liquidators oppose the application for leave to appeal and the application for stay. They now consent to the application by Mr Cookson for leave to continue his counterclaim in the District Court in proceedings CIV-2019-096-158 and that order is made by consent.
Mr Cookson’s case
[7] Mr Cookson submits that the Judge erred in finding that the payment claim met the requirements of a valid payment claim and, in particular, challenges the finding of the District Court that the provision in the contract which reduced the time within which a payment schedule challenging a payment claim needed to be served was enforceable.
[8] In relation to the District Court counterclaim, in an affidavit in support of the application, Mr Cookson submitted that Agility left the building site without completing the construction, did numerous things wrong and charged as variations, things included in the contract price. He also claimed that Agility was trying to block him from raising issues with the quality of the building work. He claimed that paying money to the liquidators meant that he had no chance of getting it back. He expressed the view that he should not have to borrow money to make a payment into Court when he had a substantial counterclaim.
[9] For Mr Cookson, Mr Freeman, referred to the “pay now, argue later” ethos underlying the Act and submitted that Agility were relying on the “pay now” part of the principle but were effectively depriving Mr Cookson of the ability to “argue later”.
[10] Mr Freeman noted that the Court had not yet adjudicated on the issues of whether the work was defective or whether Mr Cookson had been wrongly charged for work as extras which was included in the contract price.
[11] In relation to the application for a stay of enforcement, Mr Freeman submitted that Mr Cookson’s rights to advance a legitimate counterclaim would be rendered nugatory if a stay was not granted. He opposed any suggestion that the undertaking offered by the liquidators to hold any funds ordered to be paid by the Court and not release those funds unless permitted by Court order or a settlement between the parties, on the basis that any requirement that involved Mr Cookson having to pay money before the Court addressed the counterclaim, rendered the claim nugatory.
Agility’s case
[12] Mr Henry, for Agility, submitted that the District Court applied the standard caselaw in rejecting the various defences advanced by Mr Cookson to the summary judgment application.
[13] In relation to the application for grant of leave to appeal, Mr Henry submitted that the principles set out in Fisher v Isbey were applicable and that Agility’s assets should not be dissipated in wasteful litigation, particularly if there was a more convenient method for determining the claim.2 He further submitted that leave should be declined if the proceedings sought to be commenced, even if successful, would likely be fruitless.
[14] Mr Henry submitted that the real issue between the parties lay in the counterclaim and that if Mr Cookson was successful in some or all of his claims under the counterclaim, he would be unlikely to proceed with an appeal against summary judgment.
2 Fisher v Isbey (1999) 13 PRNZ 182 (HC).
[15] Mr Henry submitted that there was a substantial risk that Mr Cookson would not be able to pay the District Court judgment referring to the paragraph in Mr Cookson’s evidence that he does “not currently have $111,000 sitting around in a bank account”.
[16] Mr Henry submitted that the balance between the rights of Agility as a successful litigant to have the fruits of its judgment and the need to preserve Mr Cookson’s position pending resolution of the litigation could be met by requiring Mr Cookson to pay $103,641.94 to the Registrar or the liquidators in part payment of the District Court judgment. The amount excluded from the total owing under the District Court judgment was interest that the judgment sum of 15 per cent per year compounding monthly.
[17] Relying on the decision in Alpine Prime Properties Ltd v Haskell Construction Ltd, Mr Henry submitted that Mr Cookson would not be entitled to stay a bankruptcy notice if one was issued by Agility.3
The law
[18]Section 248(1)(c) of the Companies Act provides:
Unless the liquidator agrees or the Court orders otherwise, a person must not –
(i)Commence or continue legal proceedings against the company or in relation to its property; or
(ii)Exercise or enforce, or continue to exercise or enforce, a right or remedy over or against the property of the company.
[19]Both parties were agreed that the leading relevant authority is Fisher v Isbey.
That case is authority for the following propositions:4
(a)The Court has a discretion whether to grant leave, but the proceeding should not produce a comparative advantage to any particular creditor in the liquidation.
3 Alpine Prime Properties Ltd v Haskell Construction Ltd [2019] NZHC 3223.
4 Fisher v Isbey, above n 2, at 186.
(b)The assets of a company in liquidation should not be dissipated in wasteful litigation, particularly if there is a more convenient method for determining the claim. The onus in this case is on Mr Cookson to satisfy the Court that leave should be given.
(c)The Court must determine whether it is appropriate for the creditor’s claims to be proved in the liquidation, or whether leave should be given to allow the claims to be established by way of civil proceedings.
(d)The appropriate test is that the Court must be satisfied that the proposed claim is not clearly unsustainable. The Court should not examine the merits of the case but should consider, in this case, whether the appeal is the most convenient and cost-effective way in which Mr Cookson’s claim can be established.
(e)In addition to the factors set out in Fisher v Isbey, the Courts have also stated that leave would usually be declined if the proceedings sought to be commenced, even if successful, would likely be fruitless.5
(f)Section 79 of the Act unequivocally states that unless a party has a judgment in their favour for a particular amount or there is no dispute between the parties in relation to a claim for that amount, that in any proceedings for the recovery of a debt under ss 23, 24 or 59 of the Act, “the Court must not give effect to any counterclaim, set-off or cross- demand raised by any party to those proceedings …”.6
[20] The fact that Agility intends to enforce its summary judgment by way of commencement of bankruptcy proceedings against Mr Cookson does not alter the principle of “pay now, argue later” underpinning the Act. This principle is confirmed by the High Court’s recent decision in Alpine Prime Properties Ltd v Haskell Construction Ltd. The plaintiff in that case was in an even stronger position than Mr Cookson because he had obtained an arbitral award in the sum of $133,000 against
5 Birchall v Project Works Construction Ltd (in liquidation) (2014) 9 NZCLC 263, 547 at [24].
6 Construction Contracts Act 2002, s 79.
the company seeking to enforce an earlier arbitral award in their favour from the same arbitrator. The Court held that s 79 precluded the consideration of that counterclaim and held that:7
Any other interpretation would undermine the “pay now, argue later” regime of the Construction Contracts Act.
[21] Although Mr Freeman, in his written submissions, described the payments regime under the Act as “draconian”, there is no doubt that the regime set out in the Act and in particular the provisions of s 79, were a deliberate effort by the legislature to shift the balance between a creditor and a debtor in relation to construction contracts.
[22] This case does not fall within the very limited exceptions authorised by s 79, and the fact that Agility intends to commence bankruptcy proceedings does not alter that.
[23] The Court of Appeal addressed this issue of principle in the case of Laywood v Holmes Construction Wellington Ltd where they said:8
If a contrary view were to be adopted, the efficacy of the s 73 process would, in our view, be undermined. Parties to construction contracts could refuse to pay an amount ordered by an adjudicator, and resist bankruptcy notices or statutory demands in relation to the debt, on the basis that they had a counterclaim, set-off or cross-demand. The effect of this would simply be to recreate similar problems to those which led to the enactment of the CCA, albeit in a different context.
We acknowledge that this approach may produce hardship. A party may have a meritorious counterclaim, set-off or cross-demand and may not raise it in the context of the CCA or by means of separate proceedings. Yet that party may be precluded from raising it in an application to set aside a bankruptcy notice or a statutory demand that follows an unsatisfied judgment issued under s 74. This seems hard. But while the adoption of the alternative view would alleviate this hardship, it would, as we have said, create another hardship – it would keep the party in whose favour the adjudicator had ruled from its entitlement under the CCA, and thereby frustrate its purpose.
[24] The law in relation to stay of proceedings is set out in r 20.10 of the High Court Rules 2016 (HCR). This rule stipulates that an appeal does not operate as a stay, either
7 Alpine Prime Properties Ltd v Haskell Construction Ltd, above n 3, at [21]-[26].
8 Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35; [2019] 2 NZLR 243 at [63] and [64].
of the proceedings appealed against or the enforcement of any judgment. The Court has a discretion to grant relief and any relief granted may be subject to any conditions for the giving of security that the Court thinks just.
[25] The factors to be considered by a Court on a stay application pursuant to HCR 20.10 were outlined by Simon France J in Lagolago v Wellington Standards Committee 2 as being:9
(a)whether the appeal may be rendered nugatory by the lack of a stay;
(b)the bona fides of the applicant as to the prosecution of the appeal;
(c)whether the successful party will be injuriously affected by the stay;
(d)the effect on third parties;
(e)the novelty and importance of questions involved;
(f)the public interest in the proceeding;
(g)the overall balance of convenience; and
(h)the apparent strength of the appeal.
Application of law to facts
[26] The “pay now, argue later” principle is enshrined in the Act. The fact that Mr Cookson wishes to pursue a counterclaim does not bring him within the exceptions in s 79. The use of the adjective “draconian” to describe the Act’s provisions does not assist Mr Cookson.
[27] The Court is obliged to ensure, when considering a leave application, whether the company in liquidation’s assets would be dissipated in wasteful litigation particularly if there is a more convenient method for determining for claim. A significant factor relevant to this analysis is the fact that the liquidators accept that Mr Cookson should have the right to advance his counterclaim in the District Court. The issues to be advanced in the counterclaim appear to be at the heart of the dispute between the parties.
9 Lagolago v Wellington Standards Committee 2 [2015] NZHC 2187 at [5].
[28] The District Court counterclaim proceedings could be described as a more convenient forum for addressing the issues in contention than an appeal to the High Court to set aside a summary judgment order. That is because, even were Mr Cookson to be successful on the appeal, the matter would be remitted to the District Court.
[29] As Mr Cookson is not presently a creditor of Agility, the issue of whether his claims should be proved in the liquidation, does not arise.
[30] Mr Cookson has the onus of establishing that he meets the various criteria for the granting of leave. The focus is not on the merits of his case but on whether the appeal is the most convenient and cost-effective way in which his claim can be established. I conclude that Mr Cookson has failed to discharge that obligation and that the most convenient and cost-effective way of addressing his concerns is the District Court counterclaim proceedings.
[31] Now that the liquidators have consented to the counterclaim proceedings continuing, Mr Cookson’s argument that the liquidators are relying on the “pay now” principle of the Act but depriving him of the benefit of the “argue later” principle evaporates.
[32] An appeal against the summary judgment is properly characterised as “wasteful litigation” which would unnecessarily dissipate Agility’s assets.
[33] The undertaking by the liquidators to retain any sums paid to them in respect of this matter until permitted to disburse them by order of the Court or settlement agreement, addresses Mr Cookson’s argument that unless leave is granted, “… his counterclaim will be utterly compromised – he will then simply be an unsecured creditor.”
[34] The undertaking offered by the liquidators also completely answers the allegation made by Mr Cookson that:
They want to curtail due process rather than face a legitimate challenge to the District Court judgment in their favour. That position is not going to weigh heavily on the scales of justice.
[35] The undertaking offered by the liquidators is also of critical relevance in relation to the stay application.
[36] Because of it, it cannot be said that Mr Cookson’s real concern, namely that any payment he made would disappear into the creditor’s pool and be unavailable to satisfy any counterclaim judgment he might obtain, would come to pass. In that sense, the counterclaim would not be rendered nugatory.
[37] Mr Freeman argued that merely requiring Mr Cookson to pay $103,641.94 into Court of itself rendered his claim nugatory. I do not accept that. It is the Act which imposes the “pay now, argue later” obligation, and there is nothing inconsistent with the principles of the Act requiring that obligation to be suspended so as to allow Mr Cookson to pursue his counterclaim.
[38] Neither is there anything legally impermissible in the liquidators seeking to enforce their judgment by the issue of a bankruptcy notice although, as the Court of Appeal made clear in Laywood v Holmes Construction Wellington Ltd, the situation would be different if the liquidators sought an adjudication and bankruptcy.10
[39] In terms of the other factors identified by Simon France J in Lagolago v Wellington Standards Committee 2, I accept that Mr Cookson commenced the application for a stay on a bona fide basis. However, the need for the appeal to be heard has disappeared as a result of the undertaking given by the liquidators.
[40] Granting the stay (on terms) will not significantly injuriously affect the liquidators and may save them from having to become involved in unnecessary legal proceedings. There are no adverse effects on third parties.
[41] I invited Counsel for the liquidators to provide me with further submissions on the power of liquidators to agree to hold funds undisbursed pending an order of the Court. Based on the submissions received, I am satisfied that ss 264 and 280 of the Companies Act 1993 would permit the liquidators to give such an undertaking.
10 Laywood v Holmes Construction Wellington Ltd, above n 8.
[42] In the supplementary submissions filed, counsel indicated that as an alternative to the funds being paid to the liquidators, they would be comfortable for them to be paid either into their solicitors’ trust account or into Court. I think that the most convenient option is for the funds to be paid into Court.
Outcome
[43] For the reasons set out above, the application for leave to appeal the summary judgment decision under s 248(1)(c) of the Companies Act is dismissed.
[44] The application for leave to proceed with the District Court counterclaim against Agility is granted by consent.
[45] The application for stay of enforcement of the District Court decision is granted on the following terms:
(a)that within 15 working days of the date of this decision, Mr Cookson will pay into Court the sum of $103,641.94 to be held by the Registrar in an interest-bearing account pending further direction of the Court; and
(b)that Mr Cookson is to diligently prosecute the counterclaim, and should he not do so, leave is reserved to the liquidators of Agility to apply to the Court to set the stay aside.
[46]Costs are reserved.
Churchman J
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for Appellant Young Hunter Lawyers, Christchurch for Respondent
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