Platform Homes Equipment Limited v Ormiston Rise Limited (in receivership)
[2022] NZHC 881
•29 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1845
[2022] NZHC 881
UNDER the Companies Act 1993 BETWEEN
PLATFORM HOMES EQUIPMENT LIMITED
Applicant
AND
ORMISTON RISE LIMITED (in
receivership and Administrators appointed) Respondent
Hearing: On the papers Counsel:
JP Forsey and AJ Hopping for the Applicant DJ Friar and MA Powell for the Respondent
Judgment:
29 April 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 29 April 2022 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Duncan Cotterill, Auckland Bell Gully, Auckland
PLATFORM HOMES EQUIPMENT LTD v ORMISTON RISE LTD (in rec) [2022] NZHC 881
Introduction
[1] The applicant, Platform Homes Equipment Ltd (PHEL), applied on 28 September 2021 to set aside a statutory demand issued by the receivers of the respondent company, Ormiston Rise Ltd (in liquidation and receivership) (ORL). The demand was issued on 14 September 2021 for $1 million, a sum advanced by ORL to PHEL under a loan agreement.
[2] Following the application to set aside, there was considerable correspondence between the parties including before and after the filing of a notice of opposition by the company together with an affidavit in support sworn by one of the receivers.
[3] The receivers offered to withdraw the statutory demand on a conditional basis on 26 January 2022, finally confirming their withdrawal on 1 February 2022.
[4] PHEL now claims 2B costs against the receivers with a 50 per cent uplift. PHEL additionally seeks orders that any costs award is made against the receivers themselves, rather than against ORL.
[5]ORL submits that costs should lie where they fall in light of PHEL’s conduct.
Relevant costs principles
[6]All matters relating to costs are at the discretion of the Court.1
[7] This discretion is to be exercised in a principled way, the primary presumption being that the unsuccessful party should pay costs to the successful party.2
[8] If the statutory demand is withdrawn before the hearing of an application to set aside, the withdrawal is treated as analogous to a discontinuance.3 On a
1 High Court Rules 2016, r 14.1.
2 Rule 14.2(1)(a).
3 York Trustees Ltd v Body Corporate 166208 [2014] NZHC 2748 at [7].
discontinuance, the plaintiff bears the onus of displacing the presumption in r 15.23 of the High Court Rules 2016 that they must pay the defendant’s costs.
[9]The principles applying to the application of r 15.23 are summarised in
McGechan on Procedure:4
(a)The r 15.23 presumption obviates any requirement for the defendant to demonstrate that the plaintiff acted unreasonably in commencing and then discontinuing the proceeding. The defendant has the advantage of the presumption even where there has not been such unreasonableness.
(b)Although the r 15.23 presumption is designed to give a certain and predictable outcome upon discontinuance, it may be displaced if the court finds there are circumstances which make it just and equitable that it should not apply.
(c)Although the court is not limited in factors it may take into account when considering whether the presumption is displaced, generally:
(i)The court will not consider the merits of respective cases unless they are so obvious that they should influence the costs outcome.
(ii)The court will consider the reasonableness of the stance of both parties up to the point of discontinuance: whether it was reasonable for the plaintiff to bring and continue the proceeding; and for the defendant to oppose the proceeding. The plaintiff will not be able to avoid the presumption by showing that at one point it had reasonable grounds for believing it would be successful in the proceeding.
(iii)The reason for discontinuing may be relevant, for example a change of circumstances rendering the proceeding unnecessary. However it must be clear that the plaintiff would have succeeded had the circumstances … not changed …
(d)The court’s general discretion in r 14.1 as to costs can also override the general principles relating to discontinuance.
[10] From these principles the following questions emerge, adjusted for the fact that the present circumstance is the withdrawal of a statutory demand rather than a proceeding:
(a)Are the merits so obvious that they should influence the costs outcome?
(b)Was it reasonable to issue the demand?
4 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.01]; citing Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973, FM Custodians Ltd v Pati [2012] NZHC 1902 at [10]–[12] and Opus International Consultants Ltd v Colac Bay Vision Ltd [2015] NZHC 1782, [2015] NZCCLR 19 at [20]–[24].
(c)Was it reasonable to apply to set it aside?
(d)Why was the demand withdrawn?
(e)Is it just and equitable to displace the r 15.23 presumption?
[11]I consider each of these questions below.
Are the merits so obvious that they should influence the costs outcome?
[12] In my view this is not a case where the merits are so obvious that they should affect the costs outcome as there appear to be considerable factual matters in dispute.
Was it reasonable to issue the statutory demand?
[13] The receivers were appointed to ORL on 7 May 2021. When the receivers took office, the debt in issue was recorded in ORL’s books. The receivers’ evidence is that they were not provided with any other documents concerning the debt. The receivers therefore requested all relevant information regarding the debt from PHEL. PHEL responded that the funds were “equipment loan drawdowns” and said that they would provide the loan document when it was located.
[14] The receivers followed up again on 21 June 2021 but PHEL failed to respond. The receivers followed up again on 25 August 2021 and, at that time, made demand for repayment of the debt. Again, PHEL did not respond.
[15] The receivers sent a final demand on 6 September 2021. Again, no response was received from PHEL.
[16]At that stage the facts that the receivers were aware of were:
(a)the debt was recorded in ORL’s books;
(b)PHEL acknowledged that there was a loan;
(c)PHEL had failed to provide any supporting documents as requested;
(d)PHEL had failed to respond to (or otherwise dispute) the receivers’ demands for payment of the debt as due.
[17] On the basis of those facts, I consider that it was reasonable for the receivers to issue the statutory demand when they did.
[18] The applicant submits that the receivers could not have had the level of confidence that the sum was due and owing necessary to justify the issue of a statutory demand. But the timeline above makes it clear that at the time it was issued the receivers had no reason for considering that the acknowledged debt was not due and owing.
[19] The applicant submits further that it is a wholly owned subsidiary of Platform Homes Limited (PHL), the largest single unsecured creditor of ORL, which has pursued ORL (and the Receivers) for the funds owed to it including a judgment sum of $1.469 million (with a total claim alleged to be in excess of $8 million). The receivers respond that the position of PHL is irrelevant as no set-off arises. Other than the general submission referred to above, the applicant does not explain why there ought to be set-off. PHEL’s status as subsidiary of PHL does not therefore affect the costs position.
Was it reasonable for PHEL to apply to set aside the statutory demand?
[20] This question is not directed to the merits of PHEL’s position but rather whether the step to apply to set aside the statutory demand was reasonable at that time. Given the very tight timeframes within which applications to set aside are required to be filed, I consider it was reasonable for PHEL to apply to set aside the demand.
[21] Following service of the demand, PHEL’s solicitors wrote to the receivers advising that they considered there was a substantial dispute whether or not the debt was owing and invited the receivers to withdraw the statutory demand. As the receivers declined to do so, it was reasonable for PHEL to file the application to set aside as there is a strict 10 working day time limit within which such an application must be filed.
Why was the statutory demand withdrawn?
[22] The receivers say that the decision to withdraw the statutory demand was made following the filing of the reply evidence on behalf of PHEL where it was alleged for the first time that there had been an oral variation to the written loan agreement. Mr Dobbie’s affidavit evidence in reply was that the “parties’ intention upon entering into the loan agreement was for no interest to be actually demanded on the loan”. The receivers say that PHEL later said in correspondence that ORL had orally agreed not to recover any of the amounts under the written loan agreement.
[23] The receivers submit that this was the first time such an oral variation had been raised as a defence to the statutory demand. Up until that point PHEL had acknowledged the debt and offered to provide the loan agreement. It was only after ORL issued the statutory demand and sought to specifically rely on the terms of the written loan agreement that PHEL said for the first time that repayment was not required because of the purported oral variation. The receivers submit that “[t]here is good reason to be deeply sceptical of this last-minute theory” but that they responsibly accepted that such a theory attested to by PHEL’s witness gave rise to a genuine dispute that could not be resolved in the context of an application to set aside a statutory demand. The receivers therefore withdrew the demand.
[24] PHEL submits that from the date that the receivers admit that they had a full copy of the loan agreement they should have withdrawn the demand. But as the receivers submit above the loan agreement appeared to support the receivers’ position. It was only the oral variations referred to later that changed that. Assertions that there had been oral variations would need to have been investigated by the receivers so I do not accept that the actions of the receivers forced PHEL to incur further wasted legal costs.
Is it just and equitable for the r 15.23 presumption to be displaced?
[25] The respondents rely on JPL Trading Ltd v James Products Ltd (in rec)5 where the receivers issued a statutory demand in respect of a debt that the company records indicated was owed by JPL.
[26] As in this case, the receivers asked JPL to provide relevant information in relation to the debt. JPL failed to provide that information until its second affidavit in support of its application to set aside a statutory demand, at which stage the receivers withdrew the statutory demand. Associate Judge Sargisson declined to award costs, ruling that there was good reason to depart from the general principle that a successful party is entitled to costs on the withdrawal of a demand because:6
(a)JPL failed to disclose relevant information when the receiver requested it.
(b)The receiver’s request was an appropriate request and one to which he was entitled to expect a more fulsome response, supported by documentations setting out the key resolution.
(c)It was not until Ms Stenner filed and served her second affidavit that clear evidence was given that JPL had discharged the subvention payment obligations.
[27] Parallels can be drawn with this case where the receivers asked for the reason for the advances in ORL’s books. PHEL described the two amounts as “equipment loan drawdowns” and said they would provide the loan agreement when it was located. PHEL did not do so despite repeated requests from the receivers. Even following the issuing of the statutory demand, the letter from the lawyers on behalf of PHEL did not attach a copy of the loan agreement. In the circumstances, it was appropriate for the receivers to decline to withdraw the statutory demand.
[28] The supporting affidavits filed with the application still did not include a copy of the loan agreement, attaching instead a single page of a quantity surveyor’s report that referenced the loan agreement. The receivers say the report was issued before the receivers were appointed and was not part of the company records that they received. However, the page of the report annexed provided the receivers with sufficient information to locate a copy of the loan agreement. The copy of the loan agreement
5 JPL Trading Ltd v James Products Ltd (in rec) [2012] NZHC 2390.
6 At [15].
located continued to support the receivers’ position and so they continued to oppose the application to set aside.
[29] As set out above, it was only following the filing of evidence in reply that it became clear that, on the affidavit evidence filed, there was a factual dispute which made the matter inappropriate for determination in an application to set aside.
[30] As the receivers submit, PHEL appears to have brought this whole episode on itself by failing to provide information when requested.
[31] I consider therefore that it is just and equitable for the presumption in r 15.23 to be displaced.
If the presumption is displaced, what is the appropriate costs order?
[32] As I have found that it is just and equitable for the presumption is displaced, costs at least lie where they fall. The receivers in this case do not go further and seek costs from PHEL.
[33] As discussed above, the first time that oral variation of the loan agreement was raised was in reply evidence filed on 5 November 2021. A further affidavit was then filed by the liquidator, Mr Damien Grant on 28 January 2022 which raised questions as to whether there was still an amount owing to Quaestor Advisors LLC (Quaestor), the party who appointed the receivers. Mr Grant, says that although he had previously consented to the receivers pursuing PHEL in respect of the debt, his concerns about whether Quaestor’s claimed $2.8 million debt had been cleared and whether the receivers therefore ought to therefore remain in office, changed his position in relation to the receivers’ pursuit of PHEL.
[34] Both the reply evidence and the affidavit filed by Mr Grant raised issues that were unlikely to be able to be determined in the context of an application to set aside a statutory demand. The receivers therefore responsibly withdrew the statutory demand at that point.
[35] I conclude that costs ought to lie where they fall. PHEL brought the statutory demand on itself by its failure to respond to the questions of the receivers. The issue of whether there is a debt outstanding between the parties remains live. It has simply been acknowledged by the receivers that the issue is not appropriately determined in the context of the application to set aside. That position only became clear after the filing of the reply evidence by PHEL. Although that was in November 2021 and the statutory demand was not withdrawn until late January/early February 2022, there is no basis for awarding costs in respect of any further steps as no written submissions were filed and the correspondence in relation to the withdrawal of the statutory demand is not in evidence before the Court.
Application for costs to be paid personally by the receivers
[36] The applicant further seeks an order that any costs award ought to be made against the receivers personally rather than ORL. Because of the view that I have reached in respect of costs, it is unnecessary to consider this question.
Result
[37]PHEL’s application for costs is declined with costs to lie where they fall.
Associate Judge Sussock
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