Myoak Holdings Limited v Millstone Grazing Limited

[2017] NZHC 891

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2016-441-000104 [2017] NZHC 891

UNDER

the Companies Act 1993 and Part 19 of the

High Court Rules

BETWEEN

MYOAK HOLDINGS LIMITED Applicant

AND

MILLSTONE GRAZING LIMITED Respondent

Hearing:	4 May 2017 (Determined on the papers)
Counsel:	P W G Ahern for Applicant J D Haig for Respondent
Judgment:	5 May 2017

COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      On  29  July  2016  the  applicant,  Myoak  Holdings  Limited  (Myoak)  was ordered to pay costs to Millstone Grazing Limited (Millstone) in the sum of $10,258 plus disbursements in the sum of $1,280.  This followed a judgment by the Court sustaining a caveat Millstone had lodged over a property owned by Myoak.

[2]      Millstone  did  not  pay the  costs  as  ordered.    It  appealed  the  substantive judgment to the Court of Appeal.   It did not apply for a stay of the High Court judgment.

[3]      Millstone issued a demand against Myoak under s 289 of the Companies Act

1993  on  16 August  2016  claiming payment  of the costs  ordered  by the Court. Myoak brought this application to set aside the statutory demand, a few days later.

The application was scheduled to be heard by the Court on 18 November 2016.

MYOAK HOLDINGS LTD v MILLSTONE GRAZING LTD [2017] NZHC 891 [5 May 2017]

[4]      The day before the scheduled hearing counsel for Myoak and Millstone filed a joint memorandum advising the Court that the case had been resolved, and an order was sought that the application to set aside the notice be dismissed by consent. Millstone was paid the sum owing under the Court order, evidently on the basis that it gave an undertaking that the amount paid would be repaid should Myoak’s appeal to the Court of Appeal be successful. An order was made accordingly, but costs were reserved.

[5]      Millstone  applies  for costs.    It  says  that  an  appeal  against  a substantive judgment and a costs award does not operate as a stay or justify an appellant not meeting a costs order.  It says that it was justified in issuing the notice and it seeks costs on a 2B basis with a further 0.2 of a day on scale costs for the preparation of the submissions made in relation to costs.

[6]      Myoak says that the use of the statutory demand process was improper and that there were no grounds on which the statutory demand should be set aside under s 290 of the Companies Act.  It says that the parties both agreed that the hearing of the application to set aside should not proceed, and the Court should approach the question of costs on the basis that each party compromised in order to achieve an outcome.  The parties remain engaged in substantial litigation and evaluation of the compromise reached is a subjective issue requiring assessment of the merits.

Discussion

[7]      Rule 14.2(a) provides that a party which fails in respect of a proceeding should pay costs to the party which succeeds.  Rule 15.23 provides:

That unless the defendant otherwise agrees or the Court otherwise orders, a plaintiff who discontinues a proceeding against the defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[8]      The onus is on the discontinuing party to persuade the Court to exercise its discretion not to apply the rule in a particular case.  Although r 15.23 is designed to give a certain and predictable outcome on a discontinuance, the Court may order a different outcome if it is just and equitable so to do.

[9]      Although the Court is not limited in the factors it may take into account when considering this issue, the Court will not generally consider the merits of the respective cases for the parties.  In this case, I find that some consideration of the merits is warranted.  The Court may consider the parties’ conduct in the proceeding and the reasonableness of the parties’ respective stances in bringing or defending the proceeding.  The Court’s general discretion preserved by r 14.1 in relation to costs can also override the general principle in r 15.23.

[10]     Section 290 of the Companies Act provides that a statutory demand may be set aside where there is a substantial dispute whether the debt is owing, where the company has a counterclaim, set-off or cross-demand, or whether there are other grounds on which the Court considers a notice should be set aside.

[11]     In Birchfield Developments Ltd v Kent Prier Real Estate Ltd Master Venning

(as he then was) said:1

It is accepted in this case there is no substantial dispute whether the debt is owing.  Apparently no application for stay of the High Court judgment has been  made.    It  is  clear  enough  that  an  appeal  does  not  operate  as  an automatic stay.  If any further authority is required, in Hoare Bros Pty Ltd v DFC it was held that the possibility that a presently existing and enforceable debt might be set aside in the future under a subsisting appeal does not give rise to a genuine dispute about the existence of the debt.

[12]     His honour continued:

The fact that the appeal may be heard on 9 March is not of itself conclusive in my view.  As noted, the Plaintiff has made no application for a stay of execution.   The appeal itself, whilst lodged within time, was I note only lodged after the statutory demand was issued. A hearing on an application to set aside a statutory demand such as this should not be turned into a de facto application for stay of judgment.

[13]     In Bristol Forestry Venture Ltd v Commissioner of Inland Revenue, Associate Judge Faire (as he then was) referred to the decision of Master Venning in Birchfield Developments and said:2

Unless a judgment is stayed, there cannot be a substantial dispute over the debt it establishes.  The possibility that a present existing and enforceable

1      Birchfield Developments Ltd v Kent Prier Real Estate Ltd (1999) 8 NZCLC 261,889.

2      Bristol Forestry Venture Ltd v Commissioner of Inland Revenue [2013] NZHC 2384 at [41].

debt might be set aside in the future under a subsequent appeal does not give rise to a general dispute about the existence of the debt.

[14]     It follows that it was established authority of which Myoak should have been aware before  bringing its  application  to  set  aside the demand that  it  could  not succeed in establishing the first of the grounds in s 290.

[15]     Myoak also says that it has a claim against Millstone which exceeds the amount owing on the costs order.  The claim Myoak points to is its substantive claim against Millstone.  There is brief mention of this in paragraph 33 of Myoak’s written submissions prepared and filed for the fixture which did not take place.   There is insufficient in that document for the Court to form a view on whether that Myoak does have the claim it asserts.

[16]     In my opinion the position in relation to costs on the application to set aside the statutory demand is clear, and is this.  The notice related to an order of this Court which, though under appeal, had not been stayed, nor was there an extant application for a stay.   A party who has received a favourable judgment from this Court is entitled to the fruits of that judgment unless and until the judgment is stayed or set aside.

[17]     Secondly, a company cannot as a matter of law establish that there is a genuine dispute about the existence of a debt where the debt is established by a judgment which has not been stayed.3

[18]     I have therefore formed a clear view that the application to set aside the statutory demand was most unlikely to succeed.  Whilst the Court will not generally inquire into the merits of a proceeding which is discontinued, the position here is sufficiently clear cut for the Court to be readily able to assess its merit.   In short, Myoak  ought  to  have  come  to  an  agreement  with  Millstone  in  terms  of  the agreement reached just before the hearing before the statutory demand was even

issued.

3      See authorities above, and Remote Camps Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130 at [25].

[19]     In this circumstance I find that Millstone is entitled to costs against Myoak on the application to set aside, and on its memorandum in relation to costs.

Outcome

[20]     Myoak will pay to Millstone costs on a 2B basis on the application to set aside the statutory demand together with costs for 0.2 days in relation to Millstone’s memorandum in relation to costs.   Myoak will also pay any disbursements which

may be fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Morrison Kent, Auckland

Nowland Gordon & Associates, Wellington