Justitiae Trustee Company Limited v Bradbury
[2022] NZHC 1070
•16 May 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002265
[2022] NZHC 1070
UNDER the Companies Act 1993 BETWEEN
JUSTITIAE TRUSTEE COMPANY LIMITED
Applicant
AND
CLAYTON MAURICE BRADBURY
Respondent
Hearing: 27 April 2022 Appearances:
R B Hucker for the Applicant
K T Glover and A C van Ammers for the Respondent
Judgment:
16 May 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 16 May 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Hucker & Associates, Auckland
West Auckland Law Office, Auckland K T Glover, Auckland
JUSTITIAE TRUSTEE CO LTD v BRADBURY [2022] NZHC 1070 [16 May 2022]
Introduction
[1] Justitiae Trustee Company Limited (Justitiae) was ordered to pay increased and indemnity costs to Clayton Bradbury following unsuccessful High Court proceedings. It now applies to set aside a statutory demand based on those cost orders and asks the Court to confirm that its obligations under the orders have been discharged.
[2] Justitiae says that when it paid the amount demanded into Mr Bradbury’s solicitor’s trust account on 24 September 2021, it paid the costs and satisfied the debt to Mr Bradbury.
[3] Mr Bradbury says that this payment did not satisfy the debt because his solicitor had informed Justitiae beforehand that its stated basis for the payment was not accepted. Mr Bradbury immediately returned the funds to Justitiae.
[4] The issue is whether it is arguable that the debt is not owing or due because Justitiae satisfied the debt when it paid funds into Mr Bradbury’s solicitor’s trust account on 24 September 2021.
Background
High Court proceedings
[5] Mr Bradbury is the sole trustee of the R & A Trust (Trust). In September 2019, Justitiae commenced proceedings against Mr Bradbury and others in relation to the affairs of the Trust. Justitiae alleged (amongst other things) that Mr Bradbury was not the interim trustee of the Trust, and that if he was, certain steps that he took in relation to executing a deed of assignment were in breach of trust. Justitiae is associated with Dr Garry Muir and his family, and the defendants in the proceeding are associated with Clive Bradbury and his family. Mr Bradbury is Clive Bradbury’s brother.
[6] In March 2021, Gordon J entered judgment for Mr Bradbury and the other defendants and reserved costs.1 The Court held that Mr Bradbury was in fact the
1 Justitiae Trustee Company Ltd v NZF Nominees Ltd [2021] NZHC 659 [Substantive Judgment].
interim trustee of the Trust, that he had been since April 2019, and that he had not acted in breach of trust.
Costs orders
[7] Following the filing of memoranda, on 30 June 2021 Gordon J ordered Justitiae to pay increased costs to Mr Bradbury and the other defendants under the High Court Rules 2016.2 The Judge also ordered Justitiae to pay Mr Bradbury’s actual costs under the Trustee Act 1956 and the Trusts Act 2019.
[8]Specifically, the Court ordered Justitiae to pay Mr Bradbury:3
(a)2B costs with an uplift of 50% for steps taken between 18 September 2019 and 17 June 2020;
(b)2B costs with an uplift of 50% for steps taken between 17 June 2020 and 23 February 2021, apart from preparation for the substantive hearing (2C basis with 50% uplift);
(c)disbursements of $550; and
(d)his actual costs under the Trustee Act 1956 and Trusts Act 2019, to the extent those actual costs were not recovered from Justitiae under the High Court Rules.
[9] Justitiae brought an unsuccessful application to recall the substantive and costs judgments. Justitiae was ordered to pay indemnity costs to Mr Bradbury and the other parties in relation to that application.4
[10] The costs to which Mr Bradbury was entitled were quantified by the Court on 7 September 2021 as:
2 Justitiae Trustee Company Ltd v NZF Nominees Ltd [2021] NZHC 1585 [Costs Judgment] at [94].
3 At [94].
4 Justitiae Trustee Company Ltd v NZF Nominees Ltd [2021] NZHC 2323 at [44][Recall Judgment].
(a)$72,219.51 (comprising $37,475.50 under the High Court Rules and
$34,744.01 in costs under the Trustee Act/Trusts Act);5 and
(b)$5,808.50, being costs on the recall application on an indemnity basis.6
[11] Those orders were sealed and served on Justitiae on 10 September 2021.
Appeal
[12] Justitiae had appealed Gordon J’s substantive judgment and amended its notice of appeal to encompass the costs judgment of 30 June 2021. It did not appeal the decision regarding the recall application or the award of costs resulting from determination of that application.
[13] Justitiae filed a notice of abandonment of its appeal with the Court of Appeal on 2 March 2022.
Mr Bradbury demands payment
[14] On 10 September 2021, MinterEllisonRuddWatts wrote to Justitiae’s solicitors on behalf of all of the defendants, requesting that Justitiae pay the amounts owing under the sealed costs orders.
[15] Justitiae’s solicitors wrote to Mr Bradbury’s solicitors on 15 September 2021. Justitiae’s solicitors said that in a letter dated 16 August 2021 Mr Bradbury had said he participated in the proceedings in his personal capacity. On that basis, the Trust had incurred no legal expenses and the amounts payable under the costs awards could not be applied to his personal expenses and were trust funds payable to Justitiae upon its instructions. They put Mr Bradbury on notice that he would be required to confirm receipt of the funds as trustee and to immediately transfer the funds back to Justitiae’s solicitors for Justitiae.
5 Justitiae Trustee Company Ltd v NZF Nominees Ltd [2021] NZHC 2331 [Quantification Judgment] at [7].
6 Recall Judgment, above n 4, at [44].
[16]Mr Bradbury’s solicitor replied on 17 September 2021, again seeking payment.
[17] On 17 September 2021, Justitiae’s solicitors sent two further letters. In the first, they replied to Mr Bradbury’s solicitors’ email, saying that as a proper demand for payment of the judgment debts had not been made, no debt was due and payable. In the second, they sought to arrange a meeting between Justitiae and Mr Bradbury (as trustee of the Trust) and requested that Mr Bradbury provide Justitiae with “trust information”, including information relating to Mr Bradbury’s disposal of costs paid to him in Justitiae’s proceedings.
[18] On 20 September 2021, Mr Bradbury’s solicitors responded to the 15 September letter, explaining that the letter of 16 August had been misconstrued. They said that Mr Bradbury clearly participated in the proceedings in his capacity as trustee of the Trust. However, he engaged his lawyers in his personal capacity because the proceedings were “hostile”. It therefore would have been inappropriate for him to incur legal expenses in his capacity as trustee. His only option was to incur legal expenses as personal debts and seek costs orders if ultimately successful.
[19] The letter also noted that the letter of 16 August had been provided to Gordon J before her Honour issued the judgments regarding recall and quantification on 7 September. The Judge expressly stated that if Justitiae wished to rely on the letter, it would need to apply for leave to adduce it in the Court of Appeal and make its arguments in that forum.7
[20] Mr Bradbury’s solicitors demanded that Justitiae promptly pay the $78,027.01 into their trust account, which amount would be available to Mr Bradbury to apply as he saw fit.
[21] On 21 September 2021, Justitiae’s solicitors asserted that they had notice that Mr Bradbury intended to breach s 37 of the Trusts Act 2019 by using the funds paid pursuant to the costs orders to pay his personal expenses, rather than expenses incurred on behalf of the Trust. Saying that they were not prepared to be a party to such a breach, they stated prior to making the payment they required undertakings:
7 Recall Judgment, above n 4, at [38]–[39].
(a)that the monies were being applied to meet legitimate expenses incurred on behalf of the Trust by Mr Bradbury and that, if the monies were to be disbursed to anyone else, Mr Bradbury’s solicitors had written instructions that Mr Bradbury accepted they were paid on that basis; and
(b)to file a memorandum of satisfaction of judgment under r 11.28 of the High Court Rules confirming that the funds were received by Mr Bradbury in his capacity as trustee.
[22] Justitiae’s solicitors also stated that they required a trust account receipt recording the capacity in which the funds were received.
[23] Mr Bradbury’s solicitors replied on 23 September, recording that the judgment debts could only be disputed by way of appeal and that Justitiae was not able to make payment subject to conditions relating to the receipt and disbursement of the funds.
Justitiae transfers funds
[24]On Friday, 24 September 2021:
(a)Mr Bradbury served the statutory demand on Justitiae.
(b)At 10.49 am, Justitiae’s solicitors sent a letter to Mr Bradbury’s solicitors stating that, before 5 pm on Monday, they would pay the sum owing under the sealed orders into Mr Bradbury’s solicitors’ trust account on account of Mr Bradbury as Justitiae’s trustee and on account of costs incurred by him as trustee and that they required a receipt and memorandum of satisfaction to be filed under r 11.28 on the same basis. They said: “If you are not prepared to accept payment on the above basis please return the funds deposited into your trust account to us and we will treat the judgment debt as satisfied unless you can demonstrate [Mr Bradbury] was awarded the sum other than for appearing as trustee”. They also stated that they wanted trust records relating to the
$78,021.01, including to whom the Trust was indebted, who lent the Trust money and how it was repaid.
(c)At 1.16 pm, Mr Bradbury’s solicitors replied to Justitiae’s solicitors’ letter stating that Mr Bradbury would not accept payment of the judgment debts on the basis described. Accordingly, crediting the sums owing under the sealed orders on that basis (or subject to any other terms and conditions) would not satisfy the judgment debts.
(d)At 2.10 pm, Justitiae’s solicitors replied to the above letter stating that they had already transferred the funds into Mr Bradbury’s solicitors’ trust account per the terms of the 10.49 am letter and that if the funds were to be returned, Justitiae would still treat the judgment debts as having been satisfied.
(e)At 4.52 pm, Mr Bradbury’s solicitors replied stating that Mr Bradbury would not accept payment of the judgment debts on the basis set out in the 10.49 am letter and asking for Justitiae’s solicitors’ trust account details so that the funds paid could be returned.
(f)At 5.03 pm, Justitiae’s solicitors provided Mr Bradbury’s solicitors with a trust account deposit slip.
(g)Mr Bradbury’s solicitors repaid the funds received from Justitiae’s solicitors back into their trust account.
[25] On 29 September 2021, Justitiae filed its application to set aside the statutory demand.
Legal principles
[26] Under the Companies Act 1993, the Court may set aside a statutory demand if it is satisfied that:8
8 Companies Act 1993, s 290(4).
(a)there is a substantial dispute about whether or not the debt is owing or is due;
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand is less than the amount of the counterclaim, set-off, or cross-demand;
(c)the statutory demand ought to be set aside on other grounds.
[27] The general principles that apply to applications to set aside statutory demands are well-settled:9
(a)The onus is on the applicant to show that there is a genuine and substantial dispute that the debt exists. The Court’s task is not to resolve the dispute, but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion of a dispute is insufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved by ordinary proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-claim or set-off is suggested, an applicant must establish that it is reasonably arguable in all the circumstances. It does not need to prove the claim.
(e)It is not usually possible to resolve disputed questions of fact based on affidavit evidence alone, especially when issues of credibility arise, unless such evidence is contrary to the available documents or earlier statements by the parties.
9 See for example Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
(f)The Court's discretion is wide, but it will be a rare occasion where an application is refused if one of the grounds in s 290(4) are made out.
Issues
[28] Justitiae submits that the main issue for determination is whether there is a genuine dispute as to whether the costs orders prohibit Justitiae from paying Mr Bradbury as trustee, that being the capacity in which he appeared in the proceedings.
[29]Further, it says that this issue involves the following questions:
(a)Was it open to Mr Bradbury to seek to enforce the orders in a capacity other than the capacity in which he appeared in the hearing?
(b)Is it unlawful in terms of ss 37 and 38 of the Trusts Act 2019 for Mr Bradbury to claim and receive payment in any capacity other than as trustee?
(c)Given Mr Bradbury’s participation in the hearing as trustee, could he only give satisfaction of judgment in that capacity?
[30]With respect, I see the issues differently.
[31] The overarching issue is whether there is a substantial dispute as to whether the debt demanded in the statutory demand exists.
[32] That issue turns on whether (arguably) Justitiae extinguished the debt when it deposited the amount demanded into Mr Bradbury’s solicitors’ trust account at 12:23 pm on 24 September 2021.
[33]To resolve that issue, it is necessary to look more closely at these issues:
(a)What exactly is the judgment debt? This turns on the terms of the costs orders.
(b)Did Justitiae satisfy that judgment debt?
[34] If Justitiae did not satisfy that judgment debt on 24 September 2021, it is necessary to consider Justitiae’s secondary argument: that the statutory demand should be set aside because the funds remain in its solicitors’ trust account, demonstrating its solvency.
What exactly is the judgment debt?
[35] Justitiae’s case is that the judgment debt is an obligation to pay the costs orders, which require Justitiae to pay Mr Bradbury as trustee for the costs he incurred as trustee, being the capacity in which he appeared in the proceedings. Justitiae argues that Mr Bradbury could not have been awarded costs in any other capacity, the award being to him as a party to the proceeding, rather than a non-party.
[36] Justitiae is wrong to define the costs orders as orders to pay Mr Bradbury as trustee for the costs he incurred when acting as trustee.
[37] It is correct that Mr Bradbury’s role in the proceedings related to his role as trustee (whether he was an interim trustee and whether he acted in breach of trust). That is agreed by Mr Bradbury. But Mr Bradbury incurred and paid the legal costs and disbursement personally, which he considered appropriate given the ‘hostile’ nature of Justitiae’s proceedings.
[38] Gordon J did not order that Justitiae pay Mr Bradbury as trustee for costs he incurred when acting as trustee. The Judge ordered Justitiae to pay Mr Bradbury the legal costs and disbursements he incurred and paid personally when defending Justitiae’s claims.
[39] The starting point for this analysis is the statutory demand. On 23 September 2021, Mr Bradbury demanded that Justitiae pay to him the sum of $78,027.01, being the amount that Justitiae owed Mr Bradbury by way of judgment debts comprised of:
(a)costs and disbursements of $72,219.51 payable pursuant to the sealed order as to costs and disbursements dated 7 September 2021 in Justitiae
Trustee Company Limited v NZF Nominees Ltd CIV-2019-404-1954, in relation to the substantive proceedings; and
(b)costs and disbursements of $5,807.50 payable pursuant to the sealed order as to costs and disbursements dated 7 September 2021 in Justitiae Trustee Company Limited v NZF Nominees Ltd CIV-2019-404-1954 in relation to the recall application.
[40] The statutory demand required Justitiae to pay that amount to Mr Bradbury by paying it into his solicitors’ trust account “on his account”.
[41] Turning to the sealed order of 7 September 2021 relating to the Substantive Judgment, that order requires Justitiae to pay Mr Bradbury:
(a)costs of $36,925.50 under the High Court Rules;
(b)in addition to that sum, costs of $34,744.01; and
(c)disbursements of $550.
[42] The order records that details of the costs and disbursements are set out in the schedules annexed to the order. The costs and disbursements calculation for Mr Bradbury is contained in Schedule 2.
[43] Schedule 2 first sets out the legal costs awarded to Mr Bradbury pursuant to Gordon J’s orders at [94](a) and (c) of the Costs Judgment for the periods 18 September 2019 to 17 June 2020 and 17 June 2020 to 23 February 2021, calculated based on a 50% uplift to scale 2B costs. The steps involved included commencing the defence, appearing at mentions and a case management conference, filing amended statements of defence and appearing at the hearing. The schedule records the costs awarded for preparation for the hearing on a 50% uplift on 2C costs. The total costs awarded to Mr Bradbury under the High Court Rules was stated to be $36,925.00 and disbursements of $550.
[44] The schedule then sets out the actual and reasonable costs incurred by Mr Bradbury since commencement of the proceeding (excluding disbursements and costs already paid) pursuant to the orders of Gordon J at [94](d) of the Costs Judgment. There Gordon J ordered that, “[t]o the extent that Clayton’s costs and disbursements are not recovered from Justitiae pursuant to my orders under the High Court Rules, those costs and disbursements [as set out in Schedule 5 to Clayton’s submissions] are to be paid by Justitiae”.
[45] The schedule identifies Mr Bradbury’s actual and reasonable costs for seven time periods (presumably billing periods) from 7 November 2019 to 3 February 2021, totalling $74,341.31 (excluding GST). The schedule records that less costs and disbursements already paid, and costs awarded under the High Court Rules, the balance payable by Justitiae in accordance with [94](d) of the Costs Judgment was
$34,744.01.
[46] This sealed cost order accurately reflects Gordon J’s orders in the Quantification Judgment at [7](b)(i) and (ii).
[47] The Judge’s reason for ordering that Justitiae pay Mr Bradbury’s actual costs and disbursements to the extent they were not recovered under the High Court Rules is set out at [84] to [91] of her Costs Judgment.
[48] First, the Judge set out s 71 of the Trustee Act 1956, which provides that the Court may order that costs and expenses relating to any application for any order under the Act be raised and paid out of the property to which it relates, or out of income from that trust property, or to be borne and paid in such manner and by such persons as the Court considers just.
[49] The Judge then set out ss 81 and 140 of the Trusts Act 2019. Section 81 provides that a trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee, but the trustee is entitled to pay the expense or discharge the liability from trust property, or to reimburse themselves from the trust property, where the trustee has paid the expense and discharged the liability out of their own funds.
[50] Section 140 reflects s 71 of the former Act, providing that the Court may order that the costs of an application to the Court under the Act be paid or raised out of the trust property to which the application relates, or the income of that trust property, or borne and paid in the way and by persons that the Court considers just.
[51]The Judge went on to say:
[88] In this case, I have upheld Clayton’s actions and found that he became trustee of the trust. Further, I found there was no breach of trust in signing the settlement and no additional breaches of trust. Clayton had filed a notice of appearance reserving rights but was forced to defend the proceeding by Justitiae’s actions already referred to in [26] above.
[89] I do not consider s 71 of the Trustee Act and s 140(b) of the Trusts Act are limited in the manner as submitted on behalf of Justitiae. The words “… or to be borne and paid in such manner and by such persons as to the Court may deem just” and “be borne and paid in the way and by the persons that the Court considers just” are wide and general and are not limited to the trust assets as asserted by Justitiae.
[90] I have considered schedule 5 annexed to the submissions for Clayton for legal fees and disbursements from the period of 7 November 2019 to 23 February 2021. I consider the total amount for this period (less costs and disbursements already paid) of $71,669.51 is reasonably claimed. However, I do not consider Fairlight should be required to pay an equal share equivalent to the share paid by Justitiae. Fairlight was entirely successful in defending Justitiae’s claims.
[91] As a consequence, I order that Clayton’s costs and expenses incurred in relation to Justitiae’s claim (to the extent those costs are not recovered under the orders I will make under the High Court Rules), are to be borne and paid by Justitiae.
(emphasis added)
[52] From this analysis, the following points are clear and beyond reasonable argument. First, the judgment debt is the obligation to pay the costs ordered by Gordon J on 7 September 2021. Second, under the costs order relating to the Substantive Judgment, Justitiae was obliged to pay Mr Bradbury an amount for the legal fees and disbursements he personally incurred and paid between 7 November 2019 to 23 February 2021 of $71,669.51 set out in Schedule 5 to Mr Bradbury’s costs submissions and Schedule 2 to the sealed cost order. Third, Gordon J ordered Justitiae to pay these costs, to the extent they were not covered by her order under the High Court Rules pursuant to the Court’s broad discretion under s 71 of the Trustee Act and s 140(b) of the Trusts Act, to order that costs associated with the proceeding
(brought by Justitiae under s 68 of the Trusts Act) be borne and paid by any persons considered just. Fourth, the order did not specify that Mr Bradbury must have incurred the costs in any capacity or that he must receive the funds in any capacity. Fifth, the intention was that the funds would be used by Mr Bradbury to reimburse himself for the legal costs and expenses he had personally paid as set out the schedules and approved by the Court.
Did Justitiae satisfy that debt?
[53] Justitiae submits that when it transferred the amount demanded by Mr Bradbury into his solicitors’ trust account at 12:23 pm on 24 September 2021, it paid the costs orders and satisfied the debt. It argues that the return of the funds does not change this satisfaction: legal title to the money had passed.10 Once the funds were transferred the court order was satisfied and that could not be undone. It does not matter that Mr Bradbury did not agree to accept payment on the terms asserted by Justitiae. Further, it was open to Mr Bradbury under ss 37 and 81 of the Trusts Act 2019 to reimburse himself from those funds for any expenses he had personally paid that he incurred when acting reasonably on behalf of the trust as trustee.
[54] Mr Bradbury submits that in the correspondence preceding payment on 24 September 2021 Justitiae sought to impose conditions on his receipt of the funds that did not exist in the court order and which were not acceptable to him. That is, that he confirm that he incurred the costs as trustee while acting on behalf of the Trust. Mr Bradbury resisted receiving the funds on that basis because, even though he participated in the proceeding as trustee, he incurred the legal costs as personal expenses. He was wary of Justitiae’s motives, recalling that Justitiae had earlier demanded that Mr Bradbury pay any funds paid under the costs awards to him in his trustee capacity to Justitiae (on the basis that they were trust funds). Mr Glover for Mr Bradbury emphasises that Justitiae’s present submission that it was open to Mr Bradbury under ss 37 and 81 of the Trusts Act 2019 to reimburse himself for his personal expenses is at odds with Justitiae’s earlier correspondence.
10 Citing Wookey v Pole (1820) 106 ER 839 at 841; Scoones v Galvin [1934] NZLR 1004 (CA); Decimal Currency Act 1964, s 6; and David Fox “The Transfer of Legal Title to Money” (1996) 4 RLR 60.
[55] Further, Mr Bradbury submits that the judgment debt has not been satisfied because Mr Bradbury did not accept Justitiae’s conditional tender and returned the funds. Mr Bradbury maintains that if a creditor refuses to accept a tender, there is no payment and the debt is not discharged.11 Mr Bradbury accepts that had the payment been unconditionally tendered, the position would be different. But because Justitiae tendered payment on conditions that were unacceptable to Mr Bradbury, and he was told to return the payment if he did not accept those conditions, the debt was not satisfied when he did so.
[56] I find that Justitiae has not satisfied the judgment debt, because when it paid the funds into Mr Bradbury’s solicitors’ trust account on 24 September 2021 it did not purport to pay the costs orders on their terms. Rather it purported to pay on some other basis. Specifically, it purported to pay Mr Bradbury as Justitiae’s trustee, and on account of costs incurred by him as trustee. As I have already found, that is not what Gordon J ordered.
[57] Returning to the correspondence preceding payment of the funds into Mr Bradbury’s solicitors’ trust account, Justitiae’s solicitors asserted that:
(a)Mr Bradbury could not use the funds to reimburse himself for personal expenses;
(b)if he did, he would be in breach of s 37 of the Trust Act 2019;
(c)payments under the costs award to Mr Bradbury in his trustee capacity should be paid immediately to their trust account;
(d)unless Mr Bradbury was prepared to confirm that he received payment as Justitiae’s trustee, and on account of costs incurred by him as trustee, he should return the funds to Justitiae’s solicitor’s trust account;
(e)in that event, Justitiae would consider the judgment debt as satisfied.
11 Griffiths v School Board of Ystradyfodwg (1890) 24 QB 307; Young v Queensland Trustees Ltd
(1956) 99 CLR 560 at 568 (HCA).
[58] Critically, when Justitiae made payment into Mr Bradbury’s solicitors’ trust account, Justitiae’s solicitors were explicit that they did so according to the terms of their 24 September 2021 (10.49 am) correspondence. That is, the funds were paid to Mr Bradbury as Justitiae’s trustee, and on account of costs incurred by him as trustee.
[59] In doing so, Justitiae made the payment on terms not present in the orders of Gordon J. Those orders did not contain a qualification that the fees and disbursements for which Justitiae was ordered to pay Mr Bradbury must have been incurred by Mr Bradbury while acting as trustee, or that Mr Bradbury must receive Justitiae’s payment as trustee and use the funds in a particular way.
[60] Nor would one expect there to be such a qualification. Before making the order against Justitiae pursuant to the Court’s broad discretion under s 71 of the Trustee Act and s 140(b) of the Trusts Act, Gordon J determined that it was just that Justitiae pay Mr Bradbury’s legal costs and disbursements arising out of his involvement in the proceeding. Further, the Judge considered the specific legal costs and disbursements claimed by Mr Bradbury and determined that they were reasonable and should be paid by Justitiae. In this sense, the qualification Justitiae introduced on payment sought to revisit matters that the Judge had already decided. The correct way of doing that was to pursue an appeal against the Costs Judgment.
[61] Justitiae argues that it was simply seeking confirmation of the basis on which the funds would be received to ensure there was compliance with the court order and that the funds were received in the capacity that Mr Bradbury appeared in the proceeding. With respect, it was for Justitiae to comply with the court order. The order required Justitiae to pay Mr Bradbury the sum ordered for the legal costs and disbursements he had incurred in participating in the proceeding and which the Court had approved. The court order did not require Mr Bradbury to receive the funds in any capacity or to confirm to Justitiae how he would use the funds. Justitiae had no legitimate basis for pursuing confirmation of these matters.
[62] Further, Justitiae’s submission concerning ss 37 and 81 of the Trust Act is misconceived. Those provisions enable a trustee to reimburse themselves out of trust property for expenses incurred when acting reasonably on behalf of the trust if they
paid the expense out of their own funds. Separately, s 71 of the Trustee Act and 140(b) of the Trust Act enable the Court to order that any person pay costs arising out of an application to the Court under that Act. Gordon J ordered Justitiae to pay Mr Bradbury’s actual legal costs under ss 71 and 140(b). She did not order that Justitiae pay funds into the Trust from which Mr Bradbury could reimburse himself for expenses incurred when acting reasonably on behalf of the Trust, under ss 37 and 81.
[63] In conclusion, I find that in making the payment on 21 September on the basis it did, Justitiae did not satisfy the costs orders on their terms, but rather made payment on some other asserted basis. Justitiae’s contrary position does not reach the threshold of being arguable. The costs orders have not been paid and the judgment debt demanded in the statutory demand remains due and owing.
Justitiae’s evidence of solvency
[64] Justitiae says that irrespective of its primary submission that the judgment debt is satisfied, the funds returned by Mr Bradbury remain in its solicitors’ trust account. Justitiae submits that the presence of the funds demonstrates its ability to meet the debt. Further, Justitiae made a ‘gratuitous’ offer to transfer the funds to Mr Bradbury again, subject to three conditions: that it is able to deduct its costs relating to this application; that Mr Bradbury provide Justitiae with final trust accounts; and that Mr Bradbury provide a satisfaction of receipt of the funds as Justitiae’s trustee under r 11.28.
[65] I decline to exercise my discretion to set aside the statutory demand because the funds remain in Justitiae’s solicitors’ trust account; or because of the offer it has now made through its submissions. As mentioned above, to set aside a statutory demand, the Court must be satisfied that (a) there is a substantial dispute about whether or not the debt is owing or is due; or (b) there is a counterclaim, set-off or cross- demand; or (c) that the statutory demand should be set aside for some other reason.12
12 Companies Act 1993, s 290(4).
[66] In AMC Construction Ltd v Frews Contracting Ltd, the Court of Appeal stated that it would be extremely rare that solvency of the company could constitute a stand-alone ground for setting aside a statutory demand under s 290(4)(c).13 That is, where solvency is not relevant to consideration of whether there is a substantial dispute or a cross-claim. The Court stated:14
We would not wish to rule out the possibility that the solvency of the company might constitute a stand-alone ground for setting aside a notice under para (c). However, we consider that such cases are likely to be extremely rare. If there is no dispute as to the company’s liability, so that para (a) or (b) [of s 290(4)] cannot be invoked, it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to prove that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed. If it is not met, and an application for liquidation is filed, in reliance on the presumption in s 287(a) that the company is unable to pay its debts, then the company will have an opportunity on the liquidation application to rebut the statutory presumption, which applies ‘unless the contrary is proved’. There might be circumstances in which it is appropriate to advance the inquiry as to solvency to the s 290 stage, but that would require some particular circumstance not present in this case.
[67]The Court also said:
“… Where neither of the grounds in s 290(4)(a) or (b) apply, the demand ought not to be set aside, so as to avoid an enquiry into the company’s solvency, solely on the grounds that the company is arguably solvent. To allow that would be to subvert the statutory process”.
[68] I see nothing in the present circumstances that justify the extremely rare step of setting aside the statutory demand because the company has produced evidence that it is able to pay the debt.
[69] As to Justitiae’s ‘gratuitous’ offer, this again seeks to pay the costs on a basis not present in the costs orders, and self-evidently does not provide a basis for setting aside the statutory demand.
13 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389.
14 At [7]. See also Commissioner of Inland Revenue v Retro Civil Construction Ltd [2017] NZHC 309; Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2014] NZCA 349; and Beach Road Commercial Ltd v Commissioner of Inland Revenue [2015] NZHC 2205. AMC Construction was cited with approval in the latter two cases.
Result
[70] Justitiae’s application to set aside the statutory demand dated 23 September 2021 is dismissed.
[71] I order under s 291(1)(a) of the Companies Act 1993 that Justitiae is to comply with the statutory demand within five working days, failing which Mr Bradbury may make an application to put Justitiae into liquidation.
[72] In terms of costs, Mr Bradbury is the successful party and should be paid his costs and disbursements. If counsel are unable to agree costs, they may file submissions of no more than three pages and I will decide costs on the papers.
Associate Judge Gardiner
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