JPL Trading Ltd v James Products Ltd (in receivership)

[2012] NZHC 2390

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-7195 [2012] NZHC 2390

UNDER  The Companies Act 1993

IN THE MATTER OF     Of Section 290 Companies Act 1994

BETWEEN  JPL TRADING LTD Applicant

ANDJAMES PRODUCTS LTD (IN RECEIVERSHIP)

First Respondent

ANDKLASSE PROPERTIES LTD (IN RECEIVERSHIP)

Second Respondent

Hearing:         (on the papers)

Judgment:      14 September 2012 at 3 pm

JUDGMENT OF ASSOCIATE JUDGE SARGISSON (on costs)

This judgment was delivered by me on 14 September 2012 at 3 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Hucker & Associates, PO Box 3843, Auckland

Osborne Attewell Clews, PO Box 641, Whakatane

JPL TRADING LTD V JAMES PRODUCTS LTD (IN RECEIVERSHIP) HC AK CIV-2011-404-7195 [14

September 2012]

[1]      On 10 November 2011 the applicant, JPL Trading Ltd, applied by way of originating application to set aside two statutory demands served on it by the respondents on 29 October 2011.  The sums demanded were $838,769 and $506,405.

[2]      At the first call of the application on 27 January 2012, an interim order was made extending the time for compliance.  Directions were made.  A timetable was set for the affidavits in reply and a fixture allocated for 2 April 2012.

[3]      On 2 April 2012 there was an order by consent setting aside the demands.  At counsel’s request directions were made for memoranda to be filed on the question of costs.

[4]      The remaining issue is one of costs.

Background

[5]      On 14 September 2011 Mr John Gilbert was appointed as receiver of the first and second respondents, James Products Limited (in receivership) and Klasse Properties Limited (in receivership).   The respondents’ records indicated that the applicant, JPL Trading Limited, owed them two subvention payments for the sums

$838,769.00 and $506,405.00.

[6]      On 21 September Mr Gilbert required that Ms Stenner, the sole director of both respondents and also JPL’s director, produce all “books records, files, work papers and other records electronically stored information.”  After receiving what he thought to be all of the relevant information, Mr Gilbert concluded that JPL had not paid the above sums that it owed to the respondents.

[7]      Mr  Gilbert  caused  the  statutory  demands  to  be  served  on  JPL.    On  10

November 2011 JPL filed a notice of application to set aside the statutory demands and an affidavit in support sworn by Ms Stenner.  The respondents filed documents in opposition to that application on 22 November 2011.

[8]      In a minute issued on 27 January 2012, I directed that any affidavits in reply be filed and served by 20 February 2012.  Ms Stenner provided an affidavit in reply

which was filed over a month late on 21 March 2012.  This was her second affidavit. It contained information that JPL had discharged its subvention payment obligations through accounting entries.  The respondents’ director at the time had resolved that the debts were to be forgiven.

[9]      Four  working  days  following  service  of  the  second  affidavit,  the  parties agreed on 27 March 2012 that the statutory demands be set aside.  They could not agree, however, on the incidence of costs.  Each side seeks a costs order.

Costs

[10]     The statutory costs regime contained in the High Court Rules is subject to r

14.1 which provides that costs are to be in the discretion of the Court.  In Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd the Court of Appeal, in noting the Court’s over-riding discretion, said:[1]

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council (30 August 2001 CA 234/00). We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.

[1] (2002) 16 PRNZ 662 at [27].

[11]     The general principles to be applied in the exercise of that discretion are those contained r 14.2.  The first general principle is that the party who fails with respect to a proceeding should pay the costs to the party who succeeds.  As JPL has been successful, it is the party prima facie entitled to costs.   Given the parties’ position it is necessary, however, that I go further:

a)       JPL submits that it is entitled to costs against the respondents and Mr Gilbert personally on a joint and several basis.  It seeks costs on a 2B basis for applying to set aside the statutory demand including the preparation for a half day hearing scheduled on 2 April 2012.  It also seeks an order of increased costs comprising a 50% uplift on the 2B

costs.

b)The  respondents  submit  that  JPL  is  actually  responsible  for  the statutory demands because it failed to disclose relevant information and comply with timetabling directions.   They submit that these failures  are  the  only  reasons  why  JPL  needed  to  prepare  for  the hearing and it should not be compensated for its own failures.

Relevant legal principles

[12]    In International Airline Trading (NZ) Ltd v Rohling New Zealand Ltd[2], Associate Judge Faire opines the following with respect to the general approach to costs in applications of the present kind:

[2] HC Auckland CIV-2003-404-3464, 23 February 2004.

[14]     ... An application made to set aside a statutory demand ... is an originating application.   In short, it is a discrete, stand-alone, application.

[15]     Because of its special nature, an order on the application concludes the specific application to the Court.   Generally it will not be appropriate to reserve costs pending some other event.   However, because the Court is required to exercise the discretion, each case will be determined on the facts before the Court.  Nevertheless, there needs to be good reason for departing from the general principle that the party who fails should pay costs to the party who succeeds.

[Emphasis added]

[13]     His Honour added:

[16]     ... statutory demands should only be issued in cases which are appropriate, that is, where there is a genuine basis for establishing the evidential foundation so that an application can ultimately be made to appoint a liquidator.  It is quite improper for the procedure to be used as a debt collection device or as a device to embarrass a party in a situation where there is a contest as to liability for a given debt.

[14]     More recently, in the decision Telecom New Zealand Limited v Landmark

Technologies Limited, Associate Gendall states:[3]

[3] (2010) 10 NZCLC 264,619; (2009) 20 PRNZ 744.

[9]       Ordinarily,  the  accepted  position  on  the  authorities  is  that  if  a statutory demand is withdrawn before the actual hearing of an application  to  set  it  aside occurs, the  withdrawing party will  be required to pay costs: see Furnz Limited v Goode Industries Ltd, r

15.23 of the High Court Rules.  The position by analogy is akin to that which arises on a Notice of Discontinuance being filed.  This rule however is subject to the Court’s general discretion as to costs outlined in r 14.1.   It may be, for example, that the creditor acted reasonably in issuing the statutory demand, and that the demand is merely  withdrawn  because  it  is  rendered  futile  by  the  alleged debtor’s subsequent actions: See McGechan on Procedure.

[Footnotes not included]

[15]     Applying these principles to these circumstances, I reach the conclusion that in this case there is good reason to depart from the general principle that a successful party is entitled to costs on the setting aside or withdrawal of a demand.  I do not accept the submission of counsel for the applicant to the effect that the respondents’ receiver used the statutory demand procedure inappropriately.  Rather I accept that:

(a)      JPL  failed  to  disclose  relevant  information   when  the  receiver requested it.

(b)The receiver’s request was an appropriate request and was one to which he was entitled to expect a more fulsome response, supported by documentation setting out the key resolution.

(c)      It was not until Ms Stenner filed and served her second affidavit that clear  evidence  was  given  that  JPL had  discharged  the  subvention payment obligations.

[16]     I agree with counsel for the respondents that it would be wrong to infer, in these circumstances, that the statutory demand was used inappropriately.  The failure to discharge subvention payments created an adverse inference as to possible insolvency.  There was a reasonable and genuine basis for the service of the demand as a means to establish the evidential foundation for an application to appoint a liquidator.

[17]     In reaching these findings, I do not overlook the submission counsel for Ms Stenner makes that the respondents were put on notice that the debt was not owed and that the respondents given the opportunity to withdraw at an early stage.  Neither do I overlook that Ms Stenner denies the allegation that she was not co-operative.

However, in the final analysis I do not accept that it was enough to assert the absence of liability when plainly the resolution should have been provided in support.

Result

[18]     For these reasons I order that costs are to lie where they fall.

Associate Judge Sargisson