Madsen-Ries v Rapid Construction Limited

[2013] NZHC 1319

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-001044 [2013] NZHC 1319

BETWEEN  VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN

Applicants

ANDRAPID CONSTRUCTION LIMITED Respondent

Hearing:                   by memoranda

Appearances:           R P Coltman for applicants

B D Gustafson for respondent

Judgment:                5 June 2013

COSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 5 June 2013 at 4.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Fortune Manning, Auckland

B Gustafson, Auckland

V J MADSEN-RIES AND H D LEVIN v RAPID CONSTRUCTION LIMITED [2013] NZHC 1319 [5 June

2013]

[1]      The respondent, Rapid Construction Limited (Rapid), seeks an award of costs following determination of this application by the liquidators of Giant Engineering Limited (in liquidation) for an order for payment to them of the value of an insolvent transaction.  Rapid contends that it was the successful party as the Court accepted that it had a statutory defence to the majority of the sum claimed by the liquidators. It also seeks an uplift on scale costs on the ground that the liquidators refused a Calderbank offer.

[2]      The  liquidators  contend  that  no  award  of  costs  should  be  made,  on  the grounds that they obtained an order for payment even though it was less than they had sought.  They say that it was not certain that the defence would succeed, and in light of uncertainty as to the scope of the statutory defence it was reasonable for them to reject the Calderbank offer.

[3]      For the reasons I will now give briefly, I consider that costs should lie where they fall.

Background

[4]      The liquidators gave notice to Rapid on 30 August 2011 that they considered a payment of $113,551.84 made to it by Giant to be an insolvent transaction.  Rapid did not object to the notice, so the transaction was set aside automatically.[1]    The liquidators issued this proceeding seeking an order under s 295 of the Companies Act

[1] Companies Act 1993, s 294(3).

1993 that Rapid pay them the amount of the transaction.   Rapid opposed the application claiming that it was entitled to the statutory defence under s 296(3) of the Act in respect of the sum of $90,713.50.

[5]      On 20 December 2012 I held that Rapid had a defence in respect of the sum of $90,713.50, and made an order that the liquidators were entitled to receive the balance of $22,838.34.  Costs were reserved.

[6]      The parties have been unable to resolve costs.  The respondent says that the liquidators recovered less than it offered them in a Calderbank letter.  It seeks costs

on a scale 2B basis of $5726, together with an uplift of 33% (said to be a further

$1858).  The applicants say that both parties had some success and no order for costs should be made.

The parties’ contentions

[7]      The respondent says that the only matter in issue in the hearing was its entitlement to the s 296(3) defence (in respect of a cheque for $90,713.50 that it delivered to Giant at the same time as receiving the payment from Giant), and that the Court upheld it on that.   It says that it was unreasonable for the liquidators to reject its Calderbank offer of $35,000, thereby causing it to incur the costs of preparing for and attending the hearing (the applicants accept that the Calderbank offer was made before the parties filed and served their submissions).

[8]      The applicants say that they were successful to the extent that they obtained an order for Rapid to pay the balance (although Rapid said that the defence was raised in respect of its cheque, it had not paid the balance), and that they were acting reasonably in contesting Rapid’s claim to the s 296(3) defence and in rejecting the Calderbank offer in light of a lack of clear authority at that time as to the scope of the defence.  In the alternative they say that if costs are awarded it should be on a scale

2B basis, and only in respect of steps taken after rejection of the Calderbank offer and  after  taking  account  of  a  reduction  of  time  for  preparation  of  written submissions. This was to reflect a late argument on a “counterfactual” case for set- off in the event of liquidation used to support its case on alteration of position.

Discussion

[9]      If Rapid had paid or tendered payment for the balance that it was ultimately required  to  pay  there  could  be  no  argument  that  it  was  the  successful  party. However, in the absence of that payment there is merit to the liquidators’ contention that  they were  required  to  bring  their  application  in  order  to  get  the  order  for payment of $22,838.34.  I also accept that the scope of the s 296(3) defence has been clarified by several decisions (including decisions of the Court of Appeal) since this case was heard, and the availability of the defence was not a forgone conclusion – the hearing was needed to determine whether Rapid could establish its entitlement to

the ultimately successful defence.   For these reasons I initially took the view that each side could fairly claim some success.

[10]     Rapid  has  advanced  its  Calderbank  letter  as  support  for  its  claim  for increased costs (contending that the liquidators’ refusal to accept its offer of $35,000 had  contributed  to  costs  by  adding  the  unnecessary  time  and  expense  of  the hearing[2]).    I am  not  persuaded  that  it  is  an  argument  for increased  costs.  It  is understandable that the liquidators, with their responsibility to explore all avenues of potential recovery for the general body of creditors, would wish to test Rapid’s claim

[2] High Court Rules, r 14.6(3)(b)(v).

given the evolving state of the law over the s 296(3) defence.  However, I must also consider whether it tilts the balance in favour of Rapid in deciding whether to make an award of costs. The Calderbank offer could be seen as adding support for the view that overall Rapid was the successful party.

[11]     Counsel referred to the decision of the Court of Appeal in Moore v McNabb[3] where the Court expressed the view that a court is not duty bound to give costs to a defendant who offers more than the plaintiff was awarded if it would be unjust not to do so.[4]     I do not see that this assists with the determination in this case. The considerations which led the liquidators to pursue their application rather than accept Rapid’s offer do not make it unjust for the Calderbank offer to be taken into account in deciding whether to award costs.

[3] Moore v McNabb (2005) 18 PRNZ 127 at [59].

[4] The Court of Appeal accepted that it was not reasonable for the applicant to have rejected a settlement offer, but also that a concession by the respondent not to pursue an award in his favour (leaving costs to lie where they fell) was a responsible concession.

[12]     Two factors lead me to the view that no costs should be awarded in this case. First, the liquidators did succeed in part in that they obtained an order for payment (that Rapid could easily have made in advance of the hearing).  Secondly, I accept that Rapid did not advance its argument on the “counterfactual” of set-off in liquidation until after the Calderbank offer.   Although it cannot be said with any certainty that the liquidators would have changed their stance towards the application

had the argument been advanced earlier, I cannot discount that possibility.

Decision

[13]     Weighing all the factors, I consider that cost should lie where they fall.   I

make no order as to costs.

Associate Judge Abbott