Motel Holdings Limited v Tairua Pacific Harbour Limited
[2018] NZHC 1992
•6 August 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2017-419-0251
[2018] NZHC 1992
BETWEEN MOTEL HOLDINGS LIMITED
Plaintiff
AND
TAIRUA PACIFIC HARBOUR LIMITED
Defendant
Hearing: On the papers Counsel:
D Grove for the Plaintiff
J Savage for the Defendant
Judgment:
6 August 2018
COSTS JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 6 August 2018 at 4.45pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Foy & Halse, Auckland
Daniel Grove and Samuel Moore, Auckland Norris Ward McKinnon, Hamilton
MOTEL HOLDINGS LTD v TAIRUA PACIFIC HARBOUR LTD [2018] NZHC 1992 [6 August 2018]
[1] In August 2017 the plaintiff applied to put the defendant to liquidation. At the same time, it applied for an order appointing an interim liquidator. The application to appoint an interim liquidator was dismissed by Associate Judge Doogue in an oral judgment given on 25 September 2017.1 Costs on that application were reserved.
[2] The defendant filed a statement of defence on 28 September 2017. It denied liability for the debt of $72,169.21 that was said to be owing to the plaintiff. It admitted that $8,094 had been owing to the plaintiff, but said that it had paid that sum into its solicitor's trust account with instruction to pay it to the plaintiff. It denied that any further sum was owing to the plaintiff. Further, it said that it had notified the plaintiff by emails dated 15 May 2017 and 27 July 2017 that the alleged debt was disputed.
[3] The liquidation claim was due for call on 6 November 2017. However counsel submitted by memorandum that the liquidation claim should be adjourned, to allow time for the Court to determine a related proceeding (proceeding CIV-2017-419-0314 "the injunction proceeding") in which the defendant sought relief against cancellation by the plaintiff of a relevant lease. The case was adjourned to the list on 26 February 2018.
[4] On 21 February 2018 counsel filed separate memoranda. They advised that a payment had been made by the defendant to the plaintiff, but there was an outstanding issue regarding a claim by the plaintiff against the defendant for GST on payments previously received. The parties had agreed (at least in principle) that that issue should be resolved by way of arbitration. The plaintiff sought an adjournment of the liquidation claim.
[5] The defendant did not agree to the adjournment – it wanted the liquidation claim struck out. It referred to the injunction proceeding, contending that it had been the successful party in the injunction proceeding, and that it was awaiting a determination on its application for costs in the injunction proceeding.
1 Motel Holdings Limited v Tairua Pacific Harbour Limited [2017] NZHC 2327.
[6] In the event, no costs were awarded in the injunction proceeding to either party. The injunction proceeding was resolved without any determination by the Court, and Jagose J considered that in the absence of any determination on the merits he was unable to assess the utility of the defendant's settlement offers. His Honour dismissed costs applications made by both parties in a judgment given on 12 March 2018.2
[7] The defendant submitted that it was likely that the GST dispute would be submitted to arbitration, but considered that it was likely that it would be at least four months before the arbitration took place. The defendant submitted that there was no reason for the proceeding to languish in the Court for that length of time.
[8] The liquidation claim was further adjourned when it was called on 26 February 2018, to 16 April 2018. The case was called before me on that date, but there was no appearance for the plaintiff. I adjourned the matter to the list on 28 May 2018. When the plaintiff failed to appear again on 28 May 2018, I made an order dismissing the liquidation claim. I directed that counsel could file submissions on costs.
[9] Counsel have both filed memoranda. I now give judgment on their respective applications for costs.
The costs applications
The defendant
[10] The defendant seeks costs on a 2B basis, with an uplift on the basis that the application to appoint an interim liquidator was unjustified, and constituted an unnecessary step, or argument lacking merit, under r 14.6(3)(b)(ii) of the High Court Rules. Further, the defendant says that the liquidation claim was based on a disputed debt, and not on any failure to comply with a statutory demand. The substantive dispute has now been referred to arbitration, and that (the reference to arbitration) should have been the first step taken.
2 Tairua Pacific Limited v Motel Holdings Limited [2018] NZHC 384.
The plaintiff
[11] The plaintiff says that the application to appoint an interim liquidator was made because it had real concerns, and still does, about the defendant's solvency. Also, the proceeding resulted in a payment being made by the defendant. The defendant says there are ongoing issues relating to alleged breach of fiduciary duties and breach of the unit letting agreements by the defendant and its directors, and that that dispute is now the subject of an arbitration with a substantive hearing to be dealt with in September.
[12] Based upon the payment received, issuing the proceeding was justified. And should the plaintiff succeed at the arbitration its claim will be seen to have been justified in an additional amount.
[13] The plaintiff seeks costs on a 2B basis for the commencement of the liquidation proceeding. Alternatively, it asks either that costs be reserved pending the arbitration hearing, or that there be no order for costs. In the latter regard, Mr Grove referred to the judgment of Jagose J, in which His Honour declined to make any award of costs in the injunction proceeding.
Discussion and conclusion
[14] First, I do not consider this is a case where costs can be simply determined in accordance with the usual rule that costs follow the event.3 A payment was made by the defendant after the liquidation claim was commenced, and to that extent at least it appears that there was an undisputed amount which had been owing to the plaintiff for some time when the liquidation claim was commenced.
[15] Nor do I consider that I am now in any better position than was Associate Judge Doogue when he heard the application for appointment of an interim liquidator and concluded that "there is a reasonable prospect that the plaintiff could establish insolvency" (on the basis that it would be possible for the plaintiff to establish insolvency even if it could only prove that one debt had not been paid timeously).4
3 High Court Rules, r 14.2(1)(a).
4 Motel Holdings Limited v Tairua Pacific Harbour Limited, above n 1, at [6].
[16] There has been no further evidence directed to the solvency issue, apart from the fact that it appears that the debt claimed by the plaintiff has been paid (apart from the claimed GST component, which will be addressed in the arbitration proceeding).
[17]There are three possible orders the Court could make on the costs applications:
(i)the applications could be reserved pending the issue of an award in the arbitration proceeding (now due for hearing in September 2018);
(ii)costs could be awarded to one side or the other (or to both);
(iii)the Court could decide to make no order for costs.
[18] I do not see a basis for reserving costs. First, I do not understand that the arbitration award will address the question of whether or not the defendant was or is solvent. I accept the defendant's submission that, to the extent the plaintiff's claims were known to be genuinely disputed by the defendant, a liquidation claim should not have been brought in the first place. That will remain the position regardless of what might be the outcome of the arbitration on the disputed issues.5 On the other hand, the defendant owed the plaintiff an undisputed sum (of at least $8,000) when the liquidation claim was commenced, and I do not think it can be said that the liquidation claim should never have been brought. That would depend on an assessment of the defendant's solvency, and, as I have said, I do not think I am in any better position to make a finding on that now than Associate Judge Doogue was on 25 September 2017.
[19] For those reasons, I do not consider that there is a basis for reserving costs until the arbitration proceeding has been concluded. The outcome of the arbitration seems unlikely to assist.
[20] Looking at the application to appoint an interim liquidator, it seems to me that that application failed because the plaintiff failed to establish that it was necessary or
5 Mainzeal Property and Construction Ltd (in receivership and in liquidation) [2014] NZCA 190, and South Waikato Precision Engineering Limited v Ahu Developments Limited HC Auckland CIV-2008-404-970, 10 December 2008 at [22]. If there is a genuine and substantial dispute over the defendant's liability to pay, the matter is not likely to be suitable for resolution in the liquidation list.
expedient for the purpose of maintaining the value of assets owned or managed by the defendant, to appoint an interim liquidator.6 The application did not fail because the debt was disputed, or it was otherwise clear that the plaintiff would not succeed at the hearing of the substantive liquidation claim. In those circumstances, it seems to me that the defendant would be entitled to some costs on the application to appoint an interim liquidator, and that those costs would be on a 2B basis. (I do not have sufficient before me to conclude that the application was so clearly hopeless and unnecessary that an award of increased costs would be justified.)
[21] On the other hand, it may be that the commencement of the liquidation claim was fully justified, on the basis that there was an undisputed unpaid amount which was large enough to form the basis for a liquidation claim, and that (as Associate Judge Doogue accepted) there was a reasonable prospect that the plaintiff could establish insolvency. In that case, the plaintiff would, on my calculation, have been entitled to costs and disbursements somewhere in the order of $3,000 for the commencement of the proceeding, considering the statement of defence (in which an undisputed debt was acknowledged), and say, one appearance.
[22] Beyond that, the position appears to be as Jagose J found it to be when he dealt with the costs issue in the injunction proceeding – there has been no judicial determination on the parties' substantive allegations, and there is therefore nothing to say who has been successful in the liquidation proceeding. But for one thing, I would say that the parties' respective costs claims (the plaintiff's claim for the commencement of the liquidation proceeding, and the defendant's claim for costs on the application to appoint an interim liquidator) cancel each other out.
[23] The exception relates to the two calls on 16 April 2018, and 28 May 2018, where the plaintiff did not appear. In my view it is appropriate to mark that failure by an award of costs against the plaintiff, and I do that on a 2B basis. Two appearances (at $892.00 each) total $1,784, and there will be an award of costs to the defendant in that sum.
6 Companies Act 1993, s 246(1).
Result
1.The plaintiff's application for costs is dismissed.
2.Costs are awarded to the defendant in the sum of $1,784.00.
Associate Judge Smith
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