D J Manuel Trading (in receivership) v Cranswick Farming Limited
[2015] NZHC 793
•22 April 2015
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2015-441-007 [2015] NZHC 793
UNDER The Companies Act 1993 BETWEEN
D J MANUEL TRADING (IN RECEIVERSHIP)
Plaintiff
AND
CRANSWICK FARMING LIMITED Defendant
On the Papers Judgment:
22 April 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] On 14 November 2014 the plaintiff issued a statutory demand under s 289 of the Companies Act 1993 (the Act).
[2] At that time, the defendant was indebted to the plaintiff in the sum of
$26,588.67, in respect of maize supplied by the plaintiff to the defendant. Approximately half of the sum owing was paid on 2 December 2014, and the plaintiff says that the balance was due on 20 January 2015. The balance was not paid by that date, and the plaintiff filed a liquidation proceeding on 26 January 2015.
[3] The balance of the debt was paid on 30 January 2015, but there is a dispute over the plaintiff’s costs in the liquidation proceeding. In essence, the defendant says that there was an agreement between the plaintiff and the defendant under which half of the amount due for the maize would be paid on 2 December 2014, and the balance in January 2015. It says that the plaintiff moved prematurely in issuing
the liquidation claim, and that there should be no order for costs.
D J MANUEL TRADING (IN RECEIVERSHIP) v CRANSWICK FARMING LIMITED [2015] NZHC 793 [22
April 2015]
[4] The plaintiff accepts that its liquidation claim should be dismissed, but submits that it is entitled to costs on a 2B basis for steps taken in the liquidation proceeding up to and including the hearing on 12 March 2015.
[5] At the hearing on 12 March 2015 I directed the parties to file memoranda on the costs dispute. I now formally dismiss the liquidation claim and give judgment on the costs issue.
Factual background
[6] The statutory demand was served on the defendant on 14 November 2014. On 28 November 2014, Mr Cranswick made a verbal proposal to staff employed by the receivers of the plaintiff to pay half the debt on 2 December 2014, and the other half in January 2015. The plaintiff says that the second half was to be paid on
20 January 2015, but that is refuted by the defendant: Mr Cranswick says that the date 20 January 2015 was only ever an assumption made by the receivers.
[7] On 5 December 2014, the receivers’ staff sent an email to the defendant, purporting to accept the defendant’s payment proposal. The email said:
Further to our phone discussion last week, we accept your repayment proposal as follows:
- Payment of $13,294.33 on 02/12/14 (which has been received)
- Payment of $13,294.34 on 20/01/15
Payment is to be made to the following bank account […]
Please note, we will continue with the statutory demand process and if the above repayment proposal is not adhered to we will proceed to file an application in Court to liquidate Cranswick Farming Limited.
[8] On 6 December 2014, the defendant sent an email to the receivers’ staff
stating:
Thank you for that, the next payment will be around the 22nd/23rd, grain funds usually hit our bank 20 or 21 and we will transfer on once received.
[9] It appears that the receivers made no response to Mr Cranswick’s
6 December 2014 email.
[10] On 21 January 2015, when no payment had been received, a member of the receivers’ staff telephoned Mr Cranswick pointing out that no payment had been received. Mr Cranswick agreed, saying that payment was never going to be made on
20 January, as he had advised in his 6 December email. Mr Cranswick says that the member of the receivers’ staff with whom he was dealing then got angry, and said that if she did not receive the payment that day, the receivers would proceed with the winding up action. Mr Cranswick says that he explained that he had no control over what the receivers might choose to do, and that what they did would have no effect on when the funds would turn up.
[11] The plaintiff commenced the liquidation proceeding on 26 January 2015. The receivers say that the last day for commencing a liquidation proceeding based on failure to comply with the statutory demand (being the 30th working day after the last
date for compliance with the demand1) was 27 January 2015, and that they were
fully justified in commencing the proceeding. They submit that they are entitled to costs on the basis of r 14.2(a) of the High Court Rules: a party who fails with respect to a proceeding should normally pay costs to the party who succeeds. The receivers submit that the defendant has failed, because by paying the debt it has acknowledged that the debt should have been paid.
[12] The defendant submits that the Court should refuse to make an order for costs, on the basis that it was unnecessary for the plaintiff to commence the liquidation proceeding. It refers to r 14.7(f)(ii) of the High Court Rules which states that costs which would otherwise be payable may be refused if the party claiming the costs has contributed unnecessarily to the time or expense of the proceeding by taking or pursuing an unnecessary step.
[13] More generally, the Court may refuse to award costs which would otherwise be payable if some other reason exists which justifies the Court taking that course of
action.2
1 Companies Act 1993, s 288(1).
2 High Court Rules, r 14.7(g).
Discussion and conclusions
[14] On the plaintiff’s own case, an agreement was reached on 5 December 2014 for the satisfaction of the debt on the basis that the defendant would make two instalment payments, one on 2 December 2014 and the other on 20 January 2015.
5 December 2014 was the last day of the 15 working days allowed to the defendant under the statutory demand to either pay the amount claimed, or to take one of several other steps. One of the steps open to the defendant was to “compound with the creditor…to the reasonable satisfaction of the creditor.”3
[15] ‘Compounding’ is not defined in the Companies Act, but is normally understood to mean a process whereby a creditor and a debtor reach mutual agreement to the reasonable satisfaction of the creditor as to the payment of a debt.4
[16] The issue which arises is whether, in the communications between the parties within the relevant 15 working day period, the defendant compounded with the plaintiff, by reaching mutual agreement as to the payment of the debt. If that occurred, the defendant would have satisfied the statutory demand.
[17] The facts in Kema Plastics Pty Ltd v Mulford Plastics Pty Ltd were somewhat similar to this case, in that after a demand for a sum of money had been served, the parties allegedly agreed that the sum would be paid in two instalments.5 Legoe J sitting in the Supreme Court of South Australia held that the facts alleged came within the meaning of counpounding in the equivalent statutory provision which was in force in South Australia.6 There would be a compounding of a debt where there was a “coming together” by the creditor and debtor by mutual agreement.
[18] The facts were again similar in another Australian case, Commonwealth Bank v Parfom Pty Ltd,7 where the debtor offered to pay part of the debt immediately, with
the balance to be paid later, after the final date in the statutory demand. The Court
3 Companies Act 1993, s 289(2)(d).
4 Company and Securities Law (looseleaf ed, Brookers) at [CA289.05], citing Kema Plastics Pty
Ltd v Mulford Plastics Pty Ltd (1981) CLC 40-724; 5 ACLR 607.
5 There was some factual dispute as to the fact of the arrangement, which the Judge left open for determination after the hearing of the evidence.
6 The provision was not materially different from the corresponding s 289(2)(d) in the Act.
7 Commonwealth Bank v Parform Pty Ltd (1995) 13 ACLC 1 309.
stated that to ‘compound’ a debt was to accept an arrangement for payment of the amount of the debt, or of a different amount.
[19] In this case, the fact that the payment was not actually received on
20 January 2015 does not affect the issue of whether or not the 5 December 2014 email effected a compounding of the debt. Using the words of the Australian cases, the effect of the receivers’ argument is that the parties came to an agreement for the payment of the debt at a future time, and that agreement was to the satisfaction of the receivers.
[20] On the plaintiff’s case, then, the statutory demand was complied with, within the relevant 15 working day period. If that is right, the demand could not be relied upon by the plaintiff to provide an evidential basis for the allegation in the liquidation claim that the defendant was insolvent.8 The plaintiff did not provide other evidence of insolvency, so the Court was left with no admissible evidence of the defendant’s insolvency as at the date of the filing of the liquidation claim.
[21] Nor was there evidence at that date that the making of a liquidation order would have been just and equitable on some other basis. If there was a compounding agreement, as the plaintiff contends there was, and the plaintiff wished to prove the defendant’s insolvency by pointing to a failure to comply with a statutory demand, a further statutory demand had to be issued following the defendant’s default on 20 January 2015.
[22] I have not overlooked the plaintiff’s reservation in the 5 December 2014 email of a purported right to continue to rely on the November 2014 statutory demand in the event of the defendant failing to comply with the agreement for instalment payments. But I do not think that reservation was effective. Either there was an agreement for deferred payments reached within the 15 working day period or there was not, and if there was, the defendant must be regarded as having compounded with the plaintiff at that time, and so complied with the demand within
the prescribed period. The demand could not somehow be “resurrected” by any
8 Section 288(1).
failure to comply with a deferred payment arrangement made within the statutory 15 working day period.
[23] It remains to consider the alternative that Mr Cranswick may be correct, and
that the plaintiff unilaterally added the “20 January 2015” payment date in its
5 December 2014 email, when that date formed no part of the proposal which Mr Cranswick had put to the receivers’ staff on 28 November 2014. If that is what happened, it may be that the receivers’ 5 December 2014 email constituted a counter- offer to the defendant, which was never accepted by the defendant. In those circumstances, there would have been no compounding with the plaintiff within the period allowed for compliance with the statutory demand, and the defendants’ failure to comply with the demand would have provided a sufficient evidential basis for the later allegation of insolvency made in the liquidation claim. I think the plaintiff would have had a prima facie entitlement to costs if that is the correct interpretation of the relevant events.
[24] But even if the receivers’ 5 December 2014 email is to be regarded as a counter-offer, which never matured into an agreement, I think it would be unfair in the circumstances of this case to award costs against the defendant. Mr Cranswick made his company’s position clear on the “20 January 2015” issue, very promptly after he received the 5 December 2014 email. He assumed this was accepted when he heard nothing in response to his 6 December 2014 email. I think it was reasonable for him to make that assumption, even if the absence of any acceptance of the position set out in his 6 December email meant there was no binding agreement between the parties. The receivers’ failure to advise the defendant that time was of the essence as far as the 20 January 2015 date was concerned may have deprived the defendant of the opportunity to take steps to bring forward the date of payment of the second instalment, at least to a date which would have been within the period of 30 working days following the date for compliance with the statutory demand. The plaintiff may well have been able to live with that; indeed, the receivers’ apparent lack of concern over the minor delay signalled in Mr Cranswick’s 6 December 2014 email suggests that they probably would have.
[25] In circumstances where the relief sought in the statement of claim (the making of a liquidation order) has not in fact been granted, I think the onus was on the plaintiff to show that an award of costs is appropriate. For the reasons set out above, the plaintiff has failed to satisfy me that it is.
[26] The liquidation proceeding is accordingly dismissed, and there will be no order for costs.
Associate Judge Smith
0
1
0