One Broadcast Limited (in liq) v Orcus Limited HC Auckland CIV-2009-404-2267
[2011] NZHC 1867
•21 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-2267
BETWEEN ONE BROADCAST LIMITED (IN LIQUIDATION)
Plaintiff
ANDORCUS LIMITED Defendant
Hearing: 29 November 2010
Judgment: 21 December 2011 at 4:30 PM
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 21 December 2011 at 4.30 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Tetley Jones Thom Sexton, Auckland
Alex Lee Lawyers, Auckland
ONE BROADCAST LIMITED (IN LIQUIDATION) V ORCUS LIMITED HC AK CIV-2009-404-2267 21
December 2011
[1] The liquidators of the plaintiff commenced this proceeding against the defendant in April 2009 to recover a money sum. On 7 September 2010 they filed a notice of discontinuance and on 4 November 2010 the court granted leave to discontinue the proceeding and vacated a fixture allocated for a defended hearing of the defendant’s application for an order for security for costs.
[2] The defendant now seeks costs against the liquidators, or alternatively against counsel for the liquidators, of $4,700, assessed on a 2B basis.
[3] It is not in dispute that ordinarily a liquidator who brings proceedings on behalf of a company in liquidation will not be liable for costs. Here, however, the defendant contends that an order against the liquidators is warranted principally because the liquidators withdrew a 2008 liquidation proceeding that was based on the same money sum and were not prepared to stand behind this 2009 claim. Therefore, the defendant says, there has been an abuse of process. The defendants contend that the abuse has been compounded because the liquidators unreasonably delayed in responding to the defendant’s request as to whether they were prepared to provide security of costs.
[4] Counsel for the liquidators opposes the application.
Background
The claim
[5] In the plaintiff’s statement of claim, the liquidators sought to recover
$264,439.86 from the defendant. The claim alleged that:
a) The plaintiff, before going into liquidation, paid $378,000 as a three month security deposit for the defendant’s services in connection with pay to view television programmes;
b)The defendant was to charge the plaintiff $126,000 per month for this service including satellite charges;
c) The parties were to sign a service agreement but, if either side did not agree on any clause in the agreement, then the defendant was to refund the deposit within three working days;
d) The service agreement was never concluded;
e) The plaintiff is entitled therefore to a refund; and
f) The plaintiffs accept that the defendant is entitled to a set-off for some decoders, leaving an outstanding sum of $264,439.86 outstanding.
[6] The defendant has consistently maintained that it had a substantial defence by way of a set-off. In its statement of defence, the defendant accepts the plaintiff’s prima facie right to a refund but says the plaintiff owes it $450,000 for the decoders.
The application for security for costs
[7] The defendant, concerned that the liquidators may not have made provision to meet an award of costs should its defence be successful, decided to seek security for costs. On 4 June 2010, the defendant therefore invited counsel for the liquidators to say whether they had any proposals for providing the defendant with security for costs. It deferred filing a statement of defence pending a response.
[8] At the first case management conference on 16 June, counsel for the liquidators did not appear. He advises, and I accept, that he had understood the conference had been adjourned.
[9] At the conference, counsel for the defendant indicated that the parties had reached no agreement on the issue of security for costs. I directed that the defendant file and serve a statement of defence. The proceeding was adjourned for further direction on the basis that it would be struck-out at the next call if there was no appearance for the liquidators.
[10] The matter was called in the Chambers List on 30 June. The parties had still not agreed on security for costs. The defendant indicated that it intended to apply for security for costs and timetable directions were made.
[11] The defendant filed its application in accordance with timetable directions but the liquidators did not file documents in opposition on 4 August as directed. They belatedly filed a notice of opposition and, at the chambers hearing on 24
August, they obtained an extension of time for filing any affidavits to 15 October, on the basis that any opposition was to be confined to the issue of quantum if no affidavits were filed.
[12] On 7 September, the liquidators filed their notice to discontinue the claim.
Legal principles on costs on discontinuance
[13] High Court Rule 15.23 deals with costs when a plaintiff discontinues. It provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including a discontinuance.
[14] The onus is on the plaintiff to satisfy the court that the relevant circumstances displace the normal presumption that costs will be awarded in favour of the defendant.[1]
[1] North Shore City Council v Local Government Commission (1995) 9 PRNZ 182.
[15] Generally, the Court will not speculate as to the likely outcome of a trial that never took place. Only in exceptional circumstances where the merits are clear, will they influence the Court’s costs decision on discontinuance.[2]
[2] Andrew Beck and Others McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.0 l].
[16] When dealing with costs on a discontinuance claim, a relevant factor is whether or not the plaintiff acted reasonably in commencing the proceedings, and the
defendant acted reasonably in defending the proceeding.[3]
[3] Oggi Advertising Ltd v McKenzie (1998) 12 PRNZ 535 at 536.
[17] It is also appropriate to bear in mind the overriding provision in r 14.1 that:
All matters are at the discretion of the court if they relate to costs...
[18] All this is subject to the long-standing principle that generally costs should not be awarded against a liquidator.[4]
Decision
[4] Metalloy Supplies Ltd v MÄ (Vic) Ltd [1997] 1 WLR 1613 at 1620.
[19] I am satisfied that the defendant has not demonstrated sufficient grounds for a departure from the long-standing principle and a costs order against the liquidators, or indeed their counsel. There is no abuse of process. My reasons are stated briefly and follow the grounds that the defendant advances as outlined at [3] above.
Withdrawal of 2008 liquidation proceedings
[20] The fact that the liquidators withdrew these proceeding is not indicative of such abuse. It is proper for liquidators to discontinue a liquidation proceeding once the defendant raises a legitimate dispute over the debt. The withdrawal in this case represents, at best, a concession on the liquidators’ part that the dispute over the debt was not one that should be dealt with in the companies court, but in a normal civil proceeding in debt. It is not an abuse to bring such a proceeding.
Alleged non-preparedness to stand behind 2009 claim
[21] I do not accept the submission that there is abuse on this ground either. The contention is the liquidators did not comply with the request to put up security and, when faced with the formal application, they withdrew the proceeding rather than provide security. It can be inferred therefore that they were not prepared to stand
behind the claim, and that there has been abuse of process.
[22] The submission is conclusory. First, it equates the request to give security for costs with an obligation to give security. The liquidators are not required, however, to give security for costs simply upon request, or for that matter on an undetermined application. Rather, whether or not security is required is a matter for the court’s discretion, taking into account all the circumstances, under r 5.45. Relevantly, the rule states:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a) ...
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
[23] Secondly, the submission proceeds on the basis that the withdrawal of the proceeding gives rise to an adverse inference that supports a finding of abuse. However, a liquidator is entitled to commence a claim without being in a position to pay costs.[5] So too, a liquidator is entitled to assess whether defending an application for security, and perhaps ultimately giving security, is the best use of the limited funds available to creditors, or whether the better course is to discontinue the claim.
[5] Metalloy Supplies Ltd v MÄ (Vic) Ltd [1997] 1 WLR 1613 at 1620.
[24] Further, it is well settled that a liquidator is not at risk of a security for costs award other than in exceptional circumstances. Such an order will not be made unless the liquidators are guilty of some relevant impropriety.
[25] Here, the evidence falls well short of establishing such impropriety. There is nothing to suggest that the liquidators’ claim was hopeless or unarguable, or that they proceeded knowing that they did not have a bona fide claim. Where a company
is in liquidation, the liquidator is under a statutory duty to collect in its assets.[6] It cannot be unreasonable, let alone an impropriety, for liquidators to commence and to continue with a proceeding in which they genuinely believe there is some prospect of recovery. Nor can it be an impropriety for the liquidator to discontinue a claim, which they believe to be arguable, for pragmatic reasons.
Delay in responding to the inquiry about security of costs
[6] Mana Properties Trustees Ltd v James Development Ltd (2010) NZSC 124 at [10].
[26] I deal next with the defendant’s subsidiary submission that the liquidators should pay costs because they delayed in responding to the defendant’s inquiry about whether they proposed to pay any security for costs. Counsel for the defendant alleges that this delay forced the defendant to file a statement of defence and seek security of costs.
[27] These contentions can be disposed of in relatively short order. Though the liquidators delayed in responding, the reason the defendant had to file a defence was because it indicated an intention to defend the plaintiff’s claim. A statement of defence was therefore required and a direction was made accordingly.
[28] If, despite the intention to defend, and though the grounds of defence would have been relevant to the determination of any application for security, the defendant saw good reason to further defer filing their statement of defence, pending a response as to security it could have sought an adjournment or a review of the direction.
[29] Similarly, the reason the defendant had to make a formal application was not so much the liquidators’ delay, but because a formal application was required if there was to be a prospect of obtaining security. The fact that the liquidators did not acquiesce to the request for security does not equate to impropriety. I see no abuse of process therefore in the result that the defendant had to make a formal application for security.
[30] Furthermore, though the liquidators’ delay in responding and making clear their position as to security was plainly irksome, it falls well short of warranting an award of costs in departure from the long-standing principle as to costs that applies to them.
Result
[31] For the above reasons, the application for an order for costs is declined. Costs are to lie where they fall.
Associate Judge Sargisson
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