Country Land Limited v White Pine Holdings Limited
[2012] NZHC 2903
•5 November 2012
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2012-441-422 [2012] NZHC 2903
BETWEEN COUNTRY LAND LIMITED Applicant
ANDWHITE PINE HOLDINGS LIMITED Respondent
CIV-2012-441-423
AND BETWEEN COUNTRY LAND LIMITED Applicant
ANDNEW ZEALAND PINE CORPORATION LIMITED
Respondent
CIV-2012-441-424
AND BETWEEN COUNTRY LAND LIMITED Applicant
ANDWAIMEA CONSULTANCY LIMITED Respondent
Hearing: 31 October 2012
Counsel: R Ferguson for Applicant
T J Savage for Respondents
Judgment: 5 November 2012
COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered on 5 November 2012 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
COUNTRY LAND LIMITED V WHITE PINE HOLDINGS LIMITED HC WHA CIV-2012-441-422 [5
November 2012]
[1] This is a costs decision. Country Land Ltd’s applications to set aside three
statutory demands under s 289 of the Companies Act 1993 were to be heard on
31 October 2012. The respondents gave notice that they withdrew the demands. Country Land Ltd sought costs. The respondents accepted that costs follow the event. Country Land Ltd asked for indemnity costs under r 14.6 of the High Court Rules. The respondents said that there was no basis for increased or indemnity costs. While they did not say so expressly, it is implicit that the respondents reserve their rights to pursue Country Land Ltd for the debts in the statutory demands by other proceedings.
[2] Under the statutory demands, the respondents claimed that Country Land Ltd was indebted to them for the following debts:
White Pine Holdings Ltd $310,000.00
New Zealand Pine Corporation Ltd $611,030.00
Waimea Consultancy Ltd $325,461.00
[3] In its applications to set aside the demands Country Land Limited relied on all three grounds under s 290(4): there was a substantial dispute as to the debts, it had an arguable set-off, counterclaim or cross demand and the demands should be set aside on other grounds.
[4] These proceedings have their background in the break-up of the marriage of
Amanda and David Blackley. They are only part of the litigation between them.
[5] Country Land Ltd was originally known as Blackley Bathe Builders Ltd. It was incorporated in 1990. Mr and Mrs Blackley were the only directors and (equal) shareholders of the company. Mrs Blackley resigned as director in 1997. She says that Mr Blackley had effective management and control of the company throughout until he resigned in December 2011. The company’s business includes a dry-stock farm at Pullin Road, Purua, Whangarei.
[6] In September 2011, Mrs Blackley was appointed director of the company. Although her appointment required her consent, he signed on her behalf and without her knowledge. He also transferred all but one of his shares in the company to her. She assumed control of management of the company only after his resignation as director. She says that Mr Blackley did not hand over any company documents to her. They had been removed from the office on the farm.
[7] Mr Blackley and Mr Roger Arnold are directors and equal shareholders of the respondents. Those companies have the same registered office and accountants. The same lawyers have represented them and Mr Blackley.
[8] When Mr Blackley transferred his shares in Country Land Ltd to
Mrs Blackley, he wrote a letter on 19 September 2011 which included the following:
... The value of assets in Blackley Builders Ltd that I have now transferred to you exceeds $3 million and has no bank debts or mortgages.
This company is now exclusively yours, Mandie, I have no control over it anyway, shape or form. It is the cornerstone of this families [sic] future and our sole source of income.
Goodwin Street, the boat, the various vehicles, farm house, tools and animals
(stock) all now belong to you. This family is now at your mercy.
The only debt is a small one over Goodwin Street (ASB) that is serviced by rent. ...
[9] The last financial statements available are dated 31 March 2010. These show term liabilities to White Pine Holdings Ltd of $310,000; to New Zealand Pine Corporation Ltd of $41,109; and to Waimea Consultancy Ltd of $325,463.
[10] In February 2012 Mrs Blackley’s lawyers began enquiries as to the liabilities shown in the accounts of Country Land Ltd. They made enquiries of accountants, including the respondents’ accountants. They received some but not all the information they required. The lawyers now acting for the respondents had advised in December 2011 and again in February 2012 that they had no instructions from Mr Blackley and could not reply to their enquiries.
[11] On 31 May 2012 Mr Blackley’s lawyers, now acting for White Pine Holdings Ltd, New Zealand Pine Corporation Ltd and Waimea Consultancy Ltd, wrote making demand for debts said to be owed to the companies:
White Pine Holdings Ltd $310,000.00
New Zealand Pine Corporation Ltd $611,030.00
Waimea Consultancy Ltd $325,461.00
[12] Mrs Blackley’s lawyers replied saying that payment could not be made until Country Land Ltd was satisfied that the purported loans were actually made and as to the terms of those loans.
[13] Mr Blackley’s lawyers did not provide any further information, but on 2 July
2012 served the statutory demands in issue in these cases.
[14] On 4 July 2012 Mrs Blackley’s lawyers wrote to Mr Blackley’s lawyers, challenging the issue of the statutory demands. The letter pointed out that Mr Blackley’s lawyers had not given any evidence of these loans and had not provided any underlying documents to prove that the loans or any advances made. The letter requested substantiating evidence no later than 6 July 2012.
[15] Mr Blackley’s lawyers did not reply until 10 July 2012. That letter provided information as to the basis for the debts claimed. This was on the sixth working day after the statutory demands had been served. It gave Mrs Blackley’s lawyers only four working days in which to mount the present applications. Impressively, they filed and served the present applications within time. Country Land Ltd filed the applications in the Napier registry of the court, as the court nearest the registered office of each of the respondents. In Napier I transferred the proceedings to Whangarei, given that neither side wanted the case argued in Napier. Both Mr and Mrs Blackley had lived in Whangarei before the separation. The applications concerned indebtedness of a company that carried on business in the Whangarei district.
[16] It is also relevant to take into account other steps that Mr Blackley has taken. White Pine Holdings Ltd, New Zealand Pine Corporation Ltd and Waimea
Consultancy Ltd have also sued Country Land ltd in the High Court at Tauranga. They have applied for summary judgment for the same debts as are in issue in these proceedings.
[17] Mr Blackley has also lodged notices of claim under s 42 of the Property (Relationships) Act 1976 against the titles to land owned by Country Land Ltd. While the shares in Country Land Ltd owned by Mr and Mrs Blackley may be relationship property under the Property (Relationships) Act 1976, it is not clear how assets owned by the company could be relationship property under the Act. If they cannot be relationship property, or even separate property, because the land is not owned by either of the parties but by a company, it is not clear how a court with jurisdiction under the Property (Relationships) Act could make an order in respect of land owned by the company, as opposed to shares in the company owned by Mr and Mrs Blackley. If a court could not make any order in respect of the land under the act, then Mr Blackley could not claim an interest in the land under s 42.
[18] Parua Bay Farms Ltd is a farming company under the effective control of Mr Blackley. That farm adjoins the farm operated by Country Land Ltd. Mrs Blackley says that livestock, plant and equipment on the farm of Country Land Ltd have been taken by Mr Blackley and Parua Bay Farms Ltd. In CIV-2012-488-
173, Country Land Ltd sued Mr Blackley and Parua Bay Farms Ltd for conversion and trespass. She also applied for an interim injunction.
[19] Mr Blackley’s response was to challenge the jurisdiction of this court to hear Country Land Ltd’s jurisdiction to hear these tort claims. He contended that this court’s jurisdiction was ousted by the exclusive jurisdiction provisions of the Family Court to hear property relationship claims between spouses. His challenge was unsuccessful. Orders have been made preserving the status quo.
Merits of the setting aside applications
[20] Country Land Ltd’s evidence includes not only an affidavit from Mrs Blackley, but also an affidavit from Mr Bonney, a Tauranga accountant, who had examined financial records of Country Land Ltd. His evidence was that, as
director of Country Land Ltd, Mr Blackley’s way of dealing with company transactions was unsatisfactory. He suggested that there were some transactions which Mr Blackley had instructed his accountants to keep “under the radar”. There were a number of aspects where proper accounting was required. Country Land Ltd had a balance sheet solvency, even if it was not cash-flow solvent. His evidence did not challenge the validity of the debts claimed in the statutory demands.
[21] Evidence in opposition came not only from Mr Blackley but also from
Mr Arnold, his co-director, and from Mr Ogier, the accountant for all respondents.
[22] I did not hear full argument on the merits. Although Country Land Ltd prepared fully for the hearing, the respondents did not file written submissions. However, their position was broadly as follows: there could be no doubt as to Country Land Ltd’s indebtedness to each of the respondents, as the debts were repayable on demand and demand had been made; the decision to call up the debts was a commercial one, based on the company now having turned a profit; there was no arguable counterclaim against any of the respondents; the matrimonial context was irrelevant, as Mr Arnold had a half share in the respondents and he was entitled to the return of the funds he had advanced to Country Land Ltd through the respondents. In deciding the claim for indemnity costs, I must have some regard to
the merits.[1] Accordingly, although I did not hear full argument, I express a
[1] See Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CIV 2001-404-2302,
22 December 2009 as an example of this approach.
provisional view as to the merits.
[23] It is unlikely that I would have upheld the statutory demands for these reasons:
[a] Under s 290(4)(a) there was a substantial dispute whether the debts were owing. The dispute was whether the respondents were entitled to call up the debts. Even though the respondents had advanced sums to Country Land Ltd and they would ordinarily be repayable upon demand, under Mr Blackley’s directorship, these debts had been
treated as term liabilities. The letter he wrote to Mrs Blackley on the
transfer of his shares to her would have given her to understand that the companies he was associated with would not be looking to the company for the repayment of any advances made, at least in the short term. It was arguable that the respondents were bound by Mr Blackley’s assurances given at the time of the transfer.
[b] I would also have set aside the statutory demand on the “other grounds” under s 290(4)(c).
[24] Country Land Ltd’s submissions referred to the test applied by the Court of Appeal in Commissioner of Inland Revenue v Chester Trustee Services Ltd[2] that a statutory demand may be set aside on other grounds where the creditor’s entitlement to liquidate a company is outweighed by some factor making it plainly unjust for liquidation for ensure. On that approach, the court considers at the statutory demand stage whether a liquidation order should be made.
[2] Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395.
[25] There is an alternative approach, under which the court considers only whether it would be unjust to allow the presumption of insolvency under s 288(1) to arise. This is a narrower approach. The authority for this approach is the decision of the English Court of Appeal in Re a Debtor ex parte the Royal Bank of Scotland.[3]
[3] Re a Debtor ex parte the Royal Bank of Scotland [1989] 1 WLR 271 (CA) at 276.
That was a decision on the statutory demand provisions of the English Insolvency
Rules 1986, which are very close to the statutory demand provisions of our
Companies Act. Nicholls LJ said:
The question arising on this appeal concerns the exercise by the court of its power to set aside a statutory demand “on other grounds” within sub- paragraph (d).[4] In my view, the right approach to paragraph (4) of rule 6.5 is this. Under the Act, a statutory demand which is not complied with founds the consequence that the debtor is regarded as being unable to pay the debt in question or, if the debt is not immediately payable, as having no reasonable prospect of being able to pay the debt when it becomes due. That consequence, in turn, founds the ability of the creditor to present a bankruptcy petition because, under section 268(1), in the absence of an unsatisfied return to execution or other process, a debtor's inability to pay the debt in question is established if, but only if, the appropriate statutory demand has been served and not complied with.
[4] The counterpart of s 290(4)(c) of the Companies Act.
When therefore the rules provide, as does rule 6.5(4)(d), for the court to have a residual discretion to set aside a statutory demand, the circumstances which normally will be required before a court can be satisfied that the demand "ought" to be set aside, are circumstances which would make it unjust for the statutory demand to give rise to those consequences in the particular case. The court's intervention is called for to prevent that injustice.
[26] Even under this narrower approach, I would not have upheld the statutory demands for these reasons:
[a] The statutory demands were one part of double recovery action by the respondents. They had also sued for summary judgment. Country Land Ltd had been compelled to face two lots of debt recovery action by the respondents. First, by statutory demands, and second, by the summary judgment proceedings in the Tauranga High Court. Such double recovery action was oppressive.
[b] Mr Blackley was engineering the insolvency of the Country Land Ltd, because he had lodged notices of claim against the titles to the land, which would make it more difficult for the company to refinance any indebtedness.
[c] The statutory demands were part of a series of steps taken by Mr Blackley to cause harm to Mrs Blackley and to reduce the value of assets in her name (the other steps being the misappropriation of company assets and the lodging of notices of claims without proper foundation).
[d] The context for the dispute was the Blackleys’ separation. The use of statutory demands is generally inappropriate in the context of a division of property between parting spouses. A statutory demand operates summarily. However, summary procedures are unusual in the division of property on separation. For example, relationship property proceedings in the Family Court cannot be the subject of summary judgment applications. Similarly when property relationship proceedings are moved into this court, they come here because of complexity and accordingly could not be the subject of a
summary judgment application. The use of such quick-fire measures gets in the way of an orderly separation of property interests. It was inappropriate in this case.
[27] Country Land Ltd’s submissions did not take the case for a counterclaim to
an arguable level.
[28] The respondents played on the role of Mr Arnold. The argument ran that he was an external creditor and was entitled to use normal methods to recover money he had advanced to the company. That argument does not address the double recovery issue. Even so, it is clear that Mr Blackley is in the driving seat in this matter. Having made his investments through companies in which Mr Blackley is an equal shareholder and directors, Mr Arnold’s position can be no better than the companies’.
The claim for indemnity costs
[29] In seeking indemnity costs, Mr Ferguson referred to Colgate Palmolive Co v Cussons Pty Ltd, Hedley v Kiwi Co-operative Dairies Ltd and Bradbury v Westpac Banking Corp.[5] However, the starting point is r 14.6(4):
[5] Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248; Hedley v Kiwi Co-Operative
Dairies Ltd (2002) 16 PRNZ 694; and Bradbury v Westpac Banking Corp [2009] 3 NZLR
400.
14.6 Increased costs and indemnity costs
(4) The court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the
party claiming costs has acted reasonably in the proceeding;
or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[30] I find that the respondents’ actions are within r 14.6(4)(a) for these reasons:
[a] Duplication of proceedings is an abuse of process.[6] The duplication here is the simultaneous service of statutory demands and the issue of summary judgment applications. The demands and the summary judgment applications were based on the same debts. They required Country Land Ltd to respond to a double attack on the same matters in different courts, Tauranga and Napier, within tight timeframes. An application under s 290 of the Companies Act must be filed and served within 10 working days of service. A summary judgment application can be served as short as 15 working days before the hearing, but a notice of opposition and affidavit in opposition must be filed and served at least 3 clear working days before the hearing. Country Land Ltd has been put to an unnecessary second set of costs. Costs under the Schedules 2 and 3 of the High Court Rules are set so that the successful party is not normally fully reimbursed for their actual costs on a proceeding: they are set at what is considered to be about two-thirds of actual costs. However, there is no reason to apply this discount to a second proceeding, which overlaps the first. It would be unjust to require Country Land Ltd to bear some share of the costs on a second proceeding. The respondents should pay them
[6] McGechan on Procedure 15.1.05(2)(c).
all.
[b] That is compounded by the failure of the respondents and their accountants and lawyers to provide information when Country Land Ltd’s lawyers requested it, before any demands were made; by their peremptory demands, without supplying information requested; and by their belated supply of information only after the statutory demands had been served. While the normal ten working days for applying to set aside a statutory demand is tight, the respondents effectively gave Country Land Ltd only four days to respond.
[c] Next, the respondents’ actions have to be seen in the context of Mr Blackley’s other conduct this year - his lodging of the notices of claim, which by themselves do not seem to be in order. While the statutory demands required Country Land Ltd to find funds, Mr Blackley stymied any efforts that Country Land Ltd might have taken to find funds by lodging his notices of claim against the titles to the company’s farm property, thereby precluding refinancing. His actions were calculated to cause embarrassment to Country Land Ltd and to Mrs Blackley. They went beyond normal steps taken by a creditor to obtain payment. To that extent, I accept Mr Ferguson’s submission that there was an ulterior motive. Mr Blackley’s actions in removing stock and equipment from the company’s farm were likewise calculated to cause embarrassment.
[d] Finally, statutory demands are inappropriate in the context of a couple disengaging their property interests. Admittedly, the disengagement of property interests has to be worked out, not only through the Property (Relationships) Act but also through proceedings in this Court, but an orderly separation of property interests will not be promoted by pre-emptory short-cut steps such as statutory demands.
[31] I find that this is an appropriate case to award indemnity costs against the respondents. Costs on that basis have still to be fixed. Mr Ferguson did not provide a calculation of costs. He conceded that some adjustment to actual bills will be required, in part to reflect that Country Land Ltd has changed representation.
[32] Accordingly, I direct Mr Ferguson to provide Mr Savage with a calculation of costs, showing copies of accounts rendered (redacted, if necessary, to remove privileged content) and other material to show the basis for the calculation of costs claimed. If the parties are unable to reach agreement on the amount, Mr Ferguson should file submissions by 23 November 2013. Mr Savage should file any submissions in reply by 30 November 2012. I will then consider the matter on the
papers when I next sit in Whangarei in the week beginning 3 December 2012.
R M Bell
Associate Judge
Solicitors:
Ferguson Law (R Ferguson), P O Box 106 866 Auckland, for PlaintiffEmail: [email protected]
Webb Ross McNab Kilpatrick (T J Savage) Private Bag 9012 Whangarei 0148
Email: [email protected]
Copy for:
Deborah A T Hollings QC, Bankside Chambers, Lumley Centre, 88 Shortland Street, Auckland 1140
Email: [email protected]
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