Greys Avenue Investments Ltd v New Zealand Mint Ltd
[2015] NZHC 2633
•27 October 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1194 [2015] NZHC 2633
BETWEEN GREYS AVENUE INVESTMENTS
LIMITED Applicant
AND
NEW ZEALAND MINT LIMITED Respondent
Hearing: On the papers Appearances:
S McAnally for Applicant
A Barker for RespondentJudgment:
27 October 2015
COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 27 October 2015 at 4:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………………
Registrar/Deputy Registrar
Solicitors:
Keegan Alexander (Sean McAnally) Auckland, for Applicant
Schnauer & Co (Andrew Schnauer) Milford, Auckland, for Respondent
Counsel:
Andrew Barker, Auckland, for Respondent
GREYS AVENUE INVESTMENTS LIMITED v NEW ZEALAND MINT LIMITED [27 October 2015]
[1] This is a costs decision on an application to set aside a statutory demand. New Zealand Mint Ltd served on Greys Avenue Investments Ltd a demand under s 289 of the Companies Act for $322,414.40. Greys Avenue Investments Ltd applied to set aside the statutory demand. New Zealand Mint Ltd opposed. Ahead of the hearing, New Zealand Mint Ltd agreed to withdraw the statutory demand. The parties could not agree on costs. Courtney J gave leave by consent to withdraw the application and gave directions for submissions on costs. Greys Avenue Investments Ltd seeks costs, including indemnity costs. New Zealand Mint Ltd says that there should be no order for costs, except on the costs application.
Facts
[2] The man behind Greys Avenue Investments Ltd is Aaron Coupe. The man behind New Zealand Mint Ltd is Simon Harding. They came to deal with each other through a Mr McNabb. He was adjudicated bankrupt on 7 May 2015. As claimed in the statutory demand, New Zealand Mint Ltd says that Greys Avenue Investments Ltd guaranteed Mr McNabb’s obligations under a settlement agreement and term loan made in February-March 2015.
[3] Greys Avenue Investments Ltd owns a building at 48 Greys Avenue, Auckland.1 In 2008 MFT Treasury Ltd became the sole shareholder of Greys Avenue Investments Ltd. The shareholders of MFT Treasury Ltd were the trustees of the McNabb Investment Trust, Mr and Mrs McNabb and their lawyer.
[4] The McNabb Investment Trust also held shares in three companies, Antiquus Aurum Ltd (previously New Zealand Mint Ltd), Antiquus Aurum Exchange Ltd (previously New Zealand Mint Bullion & Exchange Ltd) and Antiquus Aurum Holdings Ltd (previously New Zealand Mint Holdings Ltd). They carried on business in part of the premises at 48 Greys Avenue. In March 2012, those businesses were sold to interests under the control of Mr Harding. New Zealand Mint Ltd now owns those businesses. The trustees of the McNabb Investment Trust
guaranteed the obligations of the vendors under the agreement. New Zealand Mint
1 Many of the companies referred to in this decision have changed their names over time. In this decision I use only their current names.
Ltd took a new lease of the premises at 48 Greys Avenue that the vendors had occupied. That lease is in the standard Auckland District Law Society form, but with added provisions. One of them gave the tenant a right of first refusal of the landlord’s interest, including a restraint on the landlord or its holding company transferring ownership or control without the tenant’s consent under cl 51.7:
No shares in the landlord company, i.e. Greys Avenue Investments Ltd nor in its holding company, MFT Treasury Ltd, may be transferred to any other person/entity without the consent of the tenant and to the intent that the effective ownership and/or control of the landlord company is not to be varied while the tenant has the rights or first refusal set out in this clause 51.
New Zealand Mint Ltd has occupied that part of the Greys Avenue premises ever since. One of the standard clauses of the Auckland District Law Society lease provides that rent is to be paid without deductions or set-off.2
[5] New Zealand Mint Ltd claimed against the vendors for breaches of warranties relating to stock valuations, stock methodology and unsatisfied creditors. The dispute was referred to arbitration which resulted in an award of $773,396 against the vendor companies and their guarantors, the trustees of the McNabb Investment Trust. Whereas the liability of two of the trustees was limited to the assets of the trust, Mr McNabb’s liability was unlimited. The award was entered as a judgment of the court on 30 July 2014. Because of a vendor finance arrangement, Mr McNabb could allege a set-off so that his net liability was $397,241.77.
[6] Between August 2014 and May 2015, control of Greys Avenue Investments Ltd was changed. Whereas MFT Treasury Ltd was the shareholder at the outset, Mr Coupe became the sole shareholder of Greys Avenue Investments Ltd. There were a number of intermediate transactions involving transfers of shares in Greys Avenue Investments Ltd to QED Holdings Ltd (another company associated with Mr McNabb). With further changes in the shareholding of QED Holdings Ltd, the ultimate position was that Mr Coupe acquired the shares of QED Holdings Ltd and also became sole shareholder of Greys Avenue Investments Ltd. While this change in control occurred over time, Mr Coupe had become one of the directors of Greys
Avenue Investments Ltd in early 2015. However, at the time of the settlement early
2 Second Schedule, cl 1.1.
this year he did not own shares in Greys Avenue Investments Ltd or any holding company. He is now the sole director of Greys Avenue Investments Ltd.
[7] These changes appear to have come about because the Bank of New Zealand, first mortgagee of the Greys Avenue property, lost confidence in Mr McNabb. New Zealand Mint Ltd added to the financial pressure on Mr McNabb by serving a bankruptcy notice on him for the unsatisfied part of the arbitral award, $376,154.23. Mr McNabb did not comply with the notice. New Zealand Mint Ltd applied to make Mr McNabb bankrupt. That led to the settlement agreement, the subject of the statutory demand. It was made in late February-early March 2015. The parties to the settlement are New Zealand Mint Ltd as creditor, Mr McNabb as debtor, and Greys Avenue Investments Ltd as guarantor. Four documents made up the settlement: a settlement agreement, a term loan agreement, a deed of variation of lease and a general security agreement. Mr McNabb and Mr Coupe signed the documents on behalf of Greys Avenue Investments Ltd as its directors.
[8] The settlement agreement re-stated the debt at $383,119.71, which was to be paid off by monthly instalments of principal and interest (at 5 per cent) with the last payment to be made on 20 June 2016. Greys Avenue Investments Ltd guaranteed the obligations of Mr McNabb under the settlement.
[9] The term loan agreement documented the arrangements for payment of the debt.
[10] Under the deed of variation of lease, the “no deduction or set-off” provision was deleted. A new provision was inserted giving New Zealand Mint Ltd the right to set-off and deduct against rent and outgoings any claims for rectifying any defaults under the settlement agreement or the accompanying term loan agreement, or under the lease or the general security agreement.
[11] The general security agreement given by Greys Avenue Investments Ltd in support of its obligations as guarantor is in the standard Auckland District Law Society form.
[12] The term loan agreement contained a call-up acceleration clause in the event of a default. Bankruptcy was a default event under the term loan agreement and the general security agreement. Mr McNabb’s adjudication in bankruptcy on 7 May
2015 entitled New Zealand Mint Ltd to accelerate. Its lawyers gave written notice on 11 May 2015 calling up the balance under the term loan. On acceleration, the amount payable under the term loan agreement, guaranteed by Greys Avenue Investments Ltd, was $322,414.40. That was the amount demanded under the s 289 demand issued on 18 May 2015.
The proceeding
[13] In its application to set aside the statutory demand, Greys Avenue
Investments Ltd alleged:
[i] That the settlement agreement, the term loan contract and associated arrangements could be set aside at its option for undue influence and knowing receipt.
[ii] It had a counterclaim or set-off on account of a claim against New Zealand Mint Ltd for breach of the lease by reason of alterations and additions to the premises.
[iii] New Zealand Mint Ltd was in any event entitled to arrange payment of the debt by the provision for deduction in the variation of the lease.
[14] Later it applied to amend its grounds. It no longer relied on the second ground. It asked to add another ground, that New Zealand Mint Ltd had security under the general security agreement. No decision was made on the application to amend.
[15] Following the statutory demand, New Zealand Mint Ltd has not paid any rent, but has instead applied the rent payments in reduction of the sums demanded in the statutory demand. New Zealand Mint Ltd says that with these deductions, the
entire debt will be repaid by the time the November rent is due. So far, Greys Avenue Investments Ltd has not started any separate proceeding to challenge the deductions by New Zealand Mint Ltd.
The parties’ positions on costs
[16] As for the costs sought, Greys Avenue Investments Ltd calculates costs on a
2B basis as $11,689.00 and disbursements of $1,495.00. Its costs include a claim of
0.4 of a day ($892.00) for its memorandum on costs. Its disbursements include a filing fee of $200.00 on an application to amend its originating application. It seeks an uplift of 50 per cent: $17,533.50 plus disbursements.
[17] Greys Avenue Investments Ltd says that New Zealand Mint Ltd ought not to have issued the statutory demand or, at the very least, ought to have withdrawn it by the time of the first call of the application in June of 2015, because New Zealand Mint Ltd was assured of payment by the end of October 2015 through its rights of deduction. Moreover, it was a secured creditor and there was adequate equity to meet any liability to New Zealand Mint Ltd. Because it had adequate means of ensuring that it would be paid, there was no need to resort to the statutory demand. It does not rely on the set-off or counterclaim against New Zealand Mint Ltd. While it still contends that the debt in the demand is subject to a substantial dispute, it does not place strong emphasis on that aspect.
[18] On its side, New Zealand Mint Ltd says that the statutory demand was withdrawn because the debt was largely paid. It therefore contends that it was the successful party. It says that the debt was properly due but has been paid over time so that the statutory demand is no longer necessary. At one stage in correspondence between the parties, New Zealand Mint Ltd proposed that the matter be resolved on the basis that costs lie where they fell. Greys Avenue Investments Ltd did not accept that proposal but, consistent with its earlier approach, New Zealand Mint Ltd contends for the same result. It also seeks costs on the costs application.
Two preliminary matters
[19] This decision is only about costs to be awarded under the High Court Rules on the application under s 290 of the Companies Act. The case materials have passing references to contractual provisions for New Zealand Mint Ltd to recover its actual lawyer-client debt recovery costs. The parties’ submissions did not address those provisions and I do not deal with them in this decision.
[20] The parties attached to the submissions copies of correspondence sent “without prejudice except as to costs.” The correspondence shows serious attempts to resolve all issues. For that purpose, the parties adopted various positions. I was invited to draw inferences from arguments the parties set out in the correspondence. While it may be permissible to read the correspondence to see what terms were offered in settlement, it is not helpful to go through the competing arguments in the correspondence to assess costs. The parties also referred to the correspondence as setting out some factual matters, in particular information relevant to the security question. Some of that information was not in evidence. But as both sides referred to it, I have used it also.
Costs when an application to set aside a statutory demand is withdrawn
[21] The court is required to decide costs when the proceeding has gone to a hearing on the merits, the parties’ settlement does not address costs and the parties have not agreed on costs. The approach I take is that costs will go to the party who succeeds. That follows the principle in r 14.2(a) of the High Court Rules:
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:
Success is determined according to whether the outcome shows that the person who issued the statutory demand has been upheld as a creditor for the debt stated in the demand. The basis for that is that an unpaid creditor may issue a statutory demand and an application to set aside the demand challenges the exercise of that power.
[22] There are arguments against that approach in the case of a withdrawn application. Failure and success in a proceeding are found by referring to the court decision, but here the court was not required to decide the merits of the parties’ positions. In cases where proceedings are withdrawn, the court is wary of speculating on the possible outcome. Instead, another approach is followed. There is a presumption that costs should go against the party starting the proceeding.
[23] This presumption approach is suitable in cases where a discontinuance is equivocal as to the ultimate merits of the case. But statutory demand cases are different. The surrounding circumstances in the withdrawal of the application and what happens afterwards point to one side as having succeeded and the other having failed. That allows a different approach.
[24] The standard approach can be seen in r 15.23:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[25] McGechan on Procedure extracts these principles from the authorities:3
(a) Although the r 15.23 presumption is designed to give a certain and predictable outcome upon discontinuance, it may be displaced where the parties agree or the court finds there are circumstances which make it just and equitable that it should not apply.
(b) The onus is on the plaintiff to persuade the court to exercise its discretion.
(c) Although the court is not limited in the factors it may take into account when considering whether the presumption is displaced, generally:
(i) The court will not consider the merits of the respective cases, unless they are so obvious that they should influence the costs outcome.
(ii) The court may consider the parties’ conduct in the proceeding and the reasonableness of their respective stances, including the reasons why the plaintiff brought and continued the proceeding and why the defendant opposed it.
3 Andrew Beck and others (eds) McGechan on Procedure (online looseleaf ed, Brookers) at
[15.23.01].
(iii) Conduct prior to the commencement of the proceeding may be relevant (for example, if the defendant’s conduct precipitated the litigation and/or then rendered it unnecessary), as may be the reason for discontinuing (for example, a change in circumstances or an intervening government or third party decision rendering the proceeding unnecessary)
(d) The court’s general discretion in r 14.1 as to costs can also override
the general principles relating to discontinuance.
[26] Rule 15.23 uses “plaintiff”, “defendant” and “discontinuance” – terms used in general proceedings, not originating applications. Originating applications differ in that the parties are applicants and respondents. Those differences in form are not enough that r 15.23 should not apply to originating applications.
[27] But applications to set aside statutory demands have a distinguishing feature. They cannot be discontinued unilaterally.4 If they are to be abandoned, an order granting leave to withdraw is required. The court needs to decide whether it should make orders under s 291 of the Companies Act.5 This provision prevents a company running an application under s 290 as a stalling device (starting an application to set aside a statutory demand, but keeping it running only until the time for the creditor to use the 30 working day presumption under s 288(1) has run out). The need for the court to dispose of the setting aside application is reinforced by the court’s power under s 290(3) to extend time for complying with the demand. Interim directions extending time pending further order are regularly given on the first call of an application under s 290. Once any such order has been made, a court order will be required to undo it.
[28] The court’s disposal of the setting aside application requires the court to deal with the demand. Admittedly in many cases the disposal is perfunctory. Even if the court does not expressly address the merits of a statutory demand, inferences may be drawn as to who has succeeded. On any orders made under s 291, the creditor will
be vindicated in having issued the notice. The point is that the way an application
4 Applications to set aside bankruptcy notices under the Insolvency Act 2006, s 17, are similar.
5 If satisfied that the debt is due, the court may order the company to pay it within a set time, failing which the creditor may apply for liquidation, or may make an immediate liquidation order.
under s 290 is disposed of leaves less room for applying a presumption required because of difficulty in ascertaining the merits of the abandoned application.
[29] It is sometimes said that the withdrawal of a statutory demand is equated to a discontinued proceeding for costs purposes. For example, the court in Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd said:6
… There is a general presumption that a party who discontinues a proceeding will be liable for costs. The withdrawal of a statutory demand is commonly equated to a discontinued proceeding.
…
Generally, the Court will not consider the merits of the competing contentions unless the merits are so obvious that they should influence the costs issue. There needs to be a good reason for departing from the general principle that the party who fails should pay costs to the party who succeeds.
[30] First, a qualification needs to be noted. For costs to be awarded under Part 14 of the High Court Rules there must be a proceeding. By itself, a statutory demand is not a proceeding. It is not filed in court. It does not invoke the court’s civil jurisdiction. A statutory demand under s 289 of the Companies Act requires the company served to comply within 15 working days of service by paying the debt demanded, entering into a compromise under Part 14 of the Companies Act, compounding with the creditor, or giving a charge over its property to secure payment to the creditor’s reasonable satisfaction. If the company does not comply with the statutory demand, that creates a presumption that the company is unable to pay its debts, so long as a liquidation application is made within 30 working days
after the last day for compliance.7 The 15 working days allowed for compliance also
gives the parties the opportunity to resolve matters without invoking the court’s civil
jurisdiction. During this phase, the question of court orders for costs will not arise.8
6 Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd [2013] NZHC
3077 at [19]-[20] (footnotes omitted). Others are Furnz Ltd v Goode Industries Ltd HC Auckland CIV-2008-404-1024, 13 October 2008 and Telecom New Zealand v Landmark Technologies Ltd (2009) 20 PRNZ 744 (HC).
7 Companies Act 1993, s 288(1).
8 It is necessary to add a qualification. Some creditors stipulate in their contracts that debtors must pay debt collection costs. A statutory demand can be issued only for an existing debt. It cannot create a debt: Keene v Okere Holdings Ltd (1996) 7 NZCLC 261,034 (HC). So a statutory demand cannot require payment of court costs, because they will not have fallen due. But if appropriately drafted, a costs recovery clause may allow a creditor to recover its collection costs without invoking the court’s costs jurisdiction under Part 14 of the High Court Rules.
[31] Costs orders are made only on the setting aside application. The cases that equate a statutory demand to a proceeding are putting a gloss on r 15.23 so as to reverse the presumption. Under that approach the party who starts the actual proceeding but does not continue if the demand is withdrawn has the benefit of the presumption. In the absence of any clear reason in the cases, I take it that the ground for reversing the presumption is that the party applying to set aside the demand is the presumed winner. It indicates unease with a default position that the party abandoning a setting aside application is the presumed loser. But I query whether it is necessary to deal with these cases on the basis of presumed winners and losers.
[32] The withdrawal of a statutory demand is equivocal. By itself alone, it does not indicate where costs should fall. The withdrawal of the demand needs to be considered in the light of other circumstances, especially what happened afterwards.
[33] Creditors may use statutory demands to test a company’s ability to pay its due debts. Non-compliance may lead to a liquidation application relying on the presumption of insolvency under s 288(1) of the Companies Act. Even if a company does not comply with a demand, it may avoid a liquidation application by paying the debt or making other arrangements with the creditor after the time for complying with the demand has expired. Such arrangements may be made in the context of a setting aside application. If the outcome is that the creditor is paid or arrangements are made for payment, the creditor will be vindicated. If the creditor agrees to withdraw the demand as part of those arrangements, that does not make the creditor the loser. There is no reason to require the creditor to pay costs. The situation is little different from those of creditors who withdraw bankruptcy or liquidation applications on being paid or accepting arrangements for payment. They are
invariably entitled to costs.9
[34] In an application to set aside a statutory demand, these questions may typically come up:
9 For a bankruptcy example, see Smith & Partners (a firm) v Laurenson [2014] NZHC 389, (2014) 22 PRNZ 179 (HC). For a liquidation example, see Auckland City Council v Southbourne Holdings Ltd HC Auckland CIV 2010-404-4076, 8 November 2011.
[a] Does the document meet the formal requirements for a demand under s 289?
[b] Is the issuer of the demand a creditor of the company? [c] Has the debt been correctly stated?
[d] Is the debt now payable?
[e] Is it unjust to allow non-compliance with the demand to create a presumption that the company cannot pay its debts?
On the last question, s 290 recognises three forms of injustice:
[i] there is a substantial dispute whether the debt is payable;10
[ii] the company has a counterclaim, set-off or cross-demand;11 or
[iii] there are other grounds for setting aside.12
In characterising the question under [e] as one of preventing an injustice, I follow the
English Court of Appeal in Re A Debtor (No 1 of 1987):13
... 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.
[35] Findings for the company on these questions in an opposed application may result in the court setting the demand aside. The company will have succeeded. The creditor will not be able to use non-compliance with the demand to prove insolvency. The creditor may have to take other steps instead, such as starting an
ordinary proceeding in the case of disputed debt. In some cases, the company will
10 Companies Act, s 290(4)(a).
11 Companies Act, s 290(4)(b).
12 Companies Act, s 290(4)(c).
13 Re A Debtor (No 1 of 1987) [1989] 1 WLR 271 (CA) at 276: the statement is about the corresponding provision under the English Insolvency Rules 1986.
not have to take its application to a hearing, because the creditor recognises the points made by the company and agrees not to use the statutory demand. Withdrawal of the demand may follow without the need for a contested hearing. The company will still have succeeded.
[36] In the case of an abandoned application, success or failure will turn not just on whether the statutory demand is withdrawn, but more on whether the creditor’s position as a creditor for the debt stated in the demand is upheld. Payment and arrangements for payment or its equivalent are consistent with the creditor’s position. Outcomes under which the creditor has to take other steps to establish its position as creditor go to show that the company has succeeded. In the case of a successful challenge on formal grounds, that may be shown by the creditor serving a fresh compliant demand.
[37] It should be possible to decide success in most cases by considering not only the withdrawal of the application, but also the outcome to see whether the creditor’s position has been upheld. Ascertaining the outcome should not be difficult. Most times the facts should not be in dispute. Because this is a relatively straightforward matter, it is unnecessary to apply presumptions rigidly. To the extent that r 15.23 does apply in these cases, it should be possible to move past the presumption easily and decide according to the outcome. In terms of the principles in [25] above, the merits are likely to be obvious.
[38] It follows from this that I do not accept the submission for Greys Avenue Investments Ltd that there is a presumption in its favour that should be departed from only if it has been guilty of disqualifying conduct.
[39] It is also necessary to clarify another aspect, complaints as to alleged improper use of a statutory demand. The court in Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd said:14
The following principles are relevant to determining costs relating to the withdrawal of a statutory demand:
14 Mitsubishi Motors New Zealand Ltd v New Zealand Transport Engineering Ltd , above n 6, at
[21] (footnotes omitted).
(a) The party who issues a statutory demand needs to have a degree of assurance that there is no reasonable argument against the debt demanded.
(b) The use of a statutory demand for debt collection purposes rather than proving the insolvency of a company is improper.
(c) The issuing of a statutory demand is a very serious matter. The recipient of a statutory demand must act quickly in order to avoid the statutory consequences of failing to comply with the demand.
(d) A company wishing to issue a statutory demand should do so through a solicitor. As an officer of the court, a solicitor has an overriding obligation to evaluate whether in law a demand is sustainable before issuing such a demand.
[40] If a statutory demand is set aside under s 290, the company will have costs for having succeeded, even if the creditor has acted properly in accordance with these principles. The company’s right to costs follows its success, regardless of these principles. The same applies to withdrawal of the demand ahead of a hearing if the outcome is consistent with the company’s success. Again, the right to costs does not require findings in its favour under the principles in Mitsubishi Motors Ltd. Instead arguments as to improper use of the statutory demand have a different place: they may go to whether the court should order increased or indemnity costs under r 14.6(3) and (4) of the High Court Rules.
This case
[41] Four matters are relevant to working out who has succeeded:
[a] Greys Avenue Investments Ltd’s argument that the debt was subject
to a substantial dispute because the guarantee was not binding;
[b] Its claim to set-off or counterclaim for breaches of the lease by New
Zealand Mint Ltd;
[c] New Zealand Mint Ltd’s deductions from rent; and
[d] New Zealand Mint Ltd’s security under the GSA.
Greys Avenue Investments Ltd’s substantial dispute argument
[42] On the face of it, New Zealand Mint Ltd was a creditor for the sum demanded in the statutory demand. Greys Avenue Investments Ltd’s allegations of undue influence and knowing receipt were affirmative defences which it would have to show were arguable. In the context of arm’s length commercial transactions such as the one in this case, allegations of undue influence are unusual. Greys Avenue Investments Ltd’s case is that Mr Coupe, as a director of Greys Avenue Investments Ltd, was subject to undue influence at the hands of his co-director, Mr McNabb, and that New Zealand Mint Ltd knew about that undue influence. The knowing receipt argument relies on alleged breaches of director’s duty by Mr McNabb.
[43] At the time of the settlement in February 2015, Mr Coupe did not own any shares in Greys Avenue Investments Ltd or in its holding company, QED Holdings Ltd. He did not own those shares until May 2015. There is no suggestion that Mr McNabb and Mr Coupe, as directors of Greys Avenue Investments Ltd, did not have authority to enter into the settlement arrangements. Mr Coupe’s evidence does not explain how New Zealand Mint Ltd could have been put on notice that he was under the undue influence of his co-director. While the settlement arrangements were made in February 2015, Mr Coupe did not suggest that the settlement agreements could be set aside on account of undue influence until June 2015 when Greys Avenue Investments Ltd applied to set aside the statutory demand. In the meantime, Mr Coupe had taken transfers of the shares in QED Holdings Ltd and Greys Avenue Investments Ltd. Taking the shares when he knew of the settlement makes it hard for him to contend that the settlement arrangements should now be
rescinded on account of undue influence on him.15 If that is not affirmation, it must
be something very close to it.
[44] Part of Greys Avenue Investments Ltd’s case is that it had no reason to guarantee Mr McNabb’s obligations under the arbitral award. New Zealand Mint Ltd points out that the trustees of the McNabb Investment Trust were all liable under
the guarantee given on the sale of the businesses to New Zealand Mint Ltd in March
15 A contract made under undue influence is voidable, not void. The remedy for undue influence is rescission at equity: it is not available as of right but requires the exercise of discretion. Grounds for refusing to exercise the discretion include affirmation and acquiescence.
2012 (even if the liability of two of the trustees was limited to the assets of the trust). At the time of the sale of the businesses, through their shareholding in MFT Treasury Ltd, an intermediate holding company, the trustees could control Greys Avenue Investments Ltd. The trustees could have resort to trust assets (including ultimately the Greys Avenue building) to meet liabilities they had incurred as trustees (and trust creditors could be subrogated to their position). While Greys Avenue Investments Ltd was under the ultimate control of the trustees of the McNabb Investment Trust, it was entirely understandable that Greys Avenue Investments Ltd would enter into a settlement with an unpaid trust creditor to clear the trustees’ liability to New Zealand Mint Ltd.
[45] That argument has to address the changes in shareholdings that started in August 2014. It appears that at the time of the settlement in February 2015 Greys Avenue Investments Ltd’s shareholder was QED Holdings Ltd. MF Trustees Ltd (not MFT Treasury Ltd) was QED’s shareholder. The shareholders of MF Trustees Ltd were Mr McNabb’s wife and brother.16 These are all McNabb-controlled entities. While he was a director of Greys Avenue Investments Ltd at the time of the settlement, Mr Coupe was not a shareholder and did not have an interest in any holding company. The change in the shareholding of Greys Avenue Investments Ltd
without the consent of New Zealand Mint Ltd breached the restraint in clause 51.7 of the lease.
[46] The argument that Greys Avenue Investments Ltd had no business guaranteeing the obligations that Mr McNabb incurred as a trustee of the McNabb Investment Trust requires the court to accept that even though the changes in the shareholding of Greys Avenue Investments Ltd were in breach of the lease, they were effective and cannot be set aside. That is ambitious. This appears to be one of those cases where the law will ignore the separate corporate personality. See for
example Lord Sumption in Prest v Petrodel Resources Ltd:17
I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his
16 Mr Coupe’s affidavit of 2 June 2015, at [8]–[13].
17 Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 at [35].
control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.
Besides, the transfers of shares to entities still under McNabb control so as to reduce trust assets available to creditors may be vulnerable under Part 6, subpart 6 of the Property Law Act 2007.
[47] If the directors of Greys Avenue Investments Ltd caused the company to guarantee the obligations of one of the trustees of McNabb Investment Trust so as to address any difficulties arising out of the transfer of shares in breach of the restraint in the lease, the court is hardly likely to find that improper or in breach of duty. In the end the trustee’s disposal of their shares does not matter much.
[48] Greys Avenue Investments Ltd’s argument as to knowing receipt is based on allegations of breach of duty by Mr McNabb. Given that there was good reason for the company to give the guarantee, the allegation of breach of director’s duty is thin.
[49] Weak as the arguments as to substantial dispute are, what counts is that they have for all practical purposes fallen by the wayside. New Zealand Mint Ltd has recovered payment of the debt by offsetting it against its rent payments. Greys Avenue Investments Ltd has not contested its right to do so, for example by suing for unpaid rent. It has effectively conceded the argument.
Greys Avenue Investments Ltd’s claim to set-off or counterclaim
[50] Greys Avenue Investments Ltd’s claim to a counterclaim, set-off or cross- demand disappeared in the light of Muir J’s decision in New Zealand Mint Ltd v Greys Avenue Investments Ltd.18 Greys Avenue Investments Ltd had alleged a breach by New Zealand Mint Ltd of the lease of the Greys Avenue premises for unauthorised alterations. Muir J found no breach of the lease but in any event would have granted relief against forfeiture. Given that judgment, Greys Avenue
Investments Ltd can no longer contend for a counterclaim based on breaches of the lease.
New Zealand Mint Ltd’s deductions from rent
[51] Greys Avenue Investments Ltd accepts the effectiveness of the deduction power that New Zealand Mint Ltd used to arrange payment. It says that in light of that power it was unnecessary and unreasonable for New Zealand Mint Ltd to serve the statutory demand.
[52] In general it is a matter of commercial judgment for the creditor whether to issue a statutory demand, subject of course to complying with the duties set out in Mitsubishi Motors Ltd. Greys Avenue Investments Ltd’s unnecessary argument invites the court to second guess the creditor’s commercial judgment when the issue of the demand did not breach any of those duties. It is not the court’s business to make commercial decisions for creditors.
[53] Although it does not say so expressly, Greys Avenue Investments Ltd’s argument seems to suggest that where a creditor has a range of remedies, including issuing a statutory demand, the creditor must elect between serving a demand and other remedies. It cannot use both at the same time.
[54] In general there is no objection to pursuing more than one remedy at the same time (as opposed to asserting inconsistent rights). By way of example, in guarantee law it is well established that a creditor may pursue several remedies at once: the debtor, securities and the guarantor.19 In an application to set aside a statutory demand, an argument as to alternative remedies being available would have to be run under the “other grounds” limb under s 290(4)(c). Liability for the debt would not
be disputed and there is no basis for a counterclaim or set-off. The best shot in an
“other grounds” argument might be to allege that the use of the demand is oppressive, but that is an optimistic submission.20
[55] In this case, New Zealand Mint Ltd has used more than one remedy. When it tried the statutory demand, it ran into opposition. On the other hand, the right of deduction in the amended lease worked. It no longer continued with the statutory demand. But that abandonment does not mean that it has given away its position as creditor for the amount in the demand. Its election to continue with a more efficient alternative remedy does not count against it.
New Zealand Mint Ltd’s security under the GSA
[56] Under s 289(2)(d) of the Companies Act one of the ways that a company can comply with a statutory demand is to give a charge over its property to secure payment of the debt. In Covington Railways Ltd v Uni-Accommodation Ltd, the Court of Appeal held that when the company had given a charge before the statutory demand was served, that was compliance with the demand. It said:21
There is no reason to read s 289(2)(d) as referable only to an event occurring after the demand is made. If in the circumstances it is reasonable to expect a creditor to be satisfied by a charge over the property of the company, why should it matter whether that was given before or after the making of the statutory demand? In assessing what is reasonable in the circumstances it is very relevant to take into account what has earlier been agreed to and done by the parties. And when the Court is considering only whether there has been reasonable satisfaction as to a particular amount immediately recoverable under an existing performance guarantee, it would seem to be of little relevance that there may have been a failure to provide other guarantees of further amounts.
(Emphasis added)
[57] Greys Avenue Investments Ltd relies on this to say that New Zealand Mint
Ltd already had security for the debt through the general security agreement given in the settlement of February-March this year. It did not raise the matter when the
20 Country Land Ltd v White Pine Holdings Ltd [2012] NZHC 2903 is distinguishable. The creditors had both served demands and made summary judgment applications, requiring the company to deal with contested liability in duplicate proceedings. I held that to be an abuse of process. The double vexation element is absent here.
21 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [27].
statutory demand was served or when it first applied to set aside the demand, but only on 21 August 2015 when it applied to amend its application.
[58] The parties are apart on whether the general security agreement does provide security. There are prior charges to the Bank of New Zealand, a registered mortgage securing $13.1 million and to Summer Blue Ltd, a caveator owed $383,000. The rating value of the building is $10,500,000 as at 1 July 2014. New Zealand Mint Ltd therefore believes that it is under water. On the other hand Greys Avenue Investments Ltd says that there is plenty of freeboard. It has received an offer to buy the building for $27 million. A third party agent arranged the offer. The offer was not put in evidence, but Greys Avenue Investments Ltd sent a copy of it, partly redacted, to the lawyers for New Zealand Mint Ltd. The correspondence, but not the offer, was attached to submissions. New Zealand Mint Ltd’s lawyer noted that Greys Avenue Investments Ltd had not signed the offer, it was subject to a due diligence condition, which in practice can lead to a renegotiation of terms, and the purchaser had not been identified. Relevantly, Greys Avenue Investments Ltd would have to address New Zealand Mint Ltd’s right of first refusal. Leaving aside the
2014 rating valuation, there is no expert valuation evidence.
[59] Greys Avenue Investments Ltd points to the withdrawal of the statutory demand as conceding its case on security. New Zealand Mint Ltd counters that it is still not satisfied as to the security, but that it withdrew because it was being paid by the rent deductions.
[60] It is not necessary to speculate how the court might decide after full argument. The outcome tells the answer. New Zealand Mint Ltd has been paid without relying on its security. Nor has it waived the security. In the end the security argument is irrelevant.
Assessment on outcome
[61] New Zealand Mint Ltd withdrew its statutory demand as part of an agreed disengagement under which Greys Avenue Investments Ltd withdrew its setting aside application. The withdrawal of the statutory demand does not support any
inference that New Zealand Mint Ltd has failed under r 14.2(a). To the contrary it has been paid and its position as a creditor for the debt in the demand has been upheld. In the end none of the matters that Greys Avenue Investments Ltd relies on shows that New Zealand Mint Ltd has lost. There is therefore no reason to award costs against New Zealand Mint Ltd. As New Zealand Mint Ltd is not liable for costs at all, there is no basis for requiring it to pay increased or indemnity costs.
Costs on costs
[62] New Zealand Mint Ltd does not seek costs except on its costs submission. The parties agree that there should be costs on the costs decision and that the amount should be $892 on the basis of category 2 band B for 0.4 of a day at a daily rate of
$2,230.00 22 by analogy with step 11.23 They only differ on who should pay. As it
has succeeded, New Zealand Mint Ltd will have costs.
Result
[63] I make no order for costs on the application to set aside the statutory demand, except that Greys Avenue Investments Ltd shall pay New Zealand Mint Ltd costs of
$892 on the costs application.
………………………………………..
Associate Judge Bell
22 High Court Rules, Schedule 2, as amended by the High Court Amendment Rules 2015 (LI
2015/102).
23 High Court Rules, Schedule 3.
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