Red 9 Ltd v The Learning Ladder Ltd (in liq) - [2021] NZCA 284

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA702/2020
[2021] NZCA 284

BETWEEN	RED 9 LIMITED Appellant
AND	THE LEARNING LADDER LIMITED (IN LIQUIDATION) Respondent

Hearing:	13 May 2021
Court:	Clifford, Simon France and Edwards JJ
Counsel:	M J Fisher and T J Yoon for Appellant K J M Robinson and A A McCabe for Respondent
Judgment:	30 June 2021 at 11. 30 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

This is an appeal against a decision of the High Court declining an application by the appellant, Red 9 Ltd, for security for costs in High Court proceedings (the High Court proceedings) brought against it by the respondent, The Learning Ladder Limited (in liquidation) (TLL).[1]

Background

[1]Reynolds v Finnigan [2020] NZHC 2389 [High Court judgment].

TLL is the third plaintiff and Red 9 Ltd is second defendant in the High Court proceedings. The other parties are:
(a)as first plaintiff, Grant Reynolds, the liquidator of TLL;
(b)as second plaintiff, Joanne Young, one 50 per cent shareholder in TLL;
(c)as first defendants, Peri Micaele Finnigan and Boris Van Delden, as directors of McDonald Vague and Partners Ltd, the receivers of TLL immediately prior to its liquidation;
(d)as third defendant, The Learning Ladder (2018) Ltd (TLL 2018), a company in which Dayle Walker (the other 50 per cent shareholder in TLL) and her husband Kevin each own 50 per cent of the shares and are its two directors; and
(e)as fourth defendants, Peat Johnson Murray Ltd, an incorporated firm of accountants of which Mr Walker is one of four directors and through which Mr Walker provided accounting services to TLL and Red 9.
The High Court proceedings arise out of the circumstances in which Red 9, as a creditor of TLL, appointed McDonald Vague as TLL’s receiver and in which McDonald Vague sold the business of TLL to TLL (2018) Ltd. Those proceedings reflect a dispute over the control and ownership of TLL and its business between its two shareholders, Mrs Young and Mrs Walker.
Mrs Young and Mrs Walker incorporated TLL in 2015. TLL was established to purchase and operate a licensed early childhood centre in Howick, Auckland. Red 9 provided funding to TLL, which Red 9 had borrowed from its bank and which Red 9 secured by a General Security Agreement (GSA) from TLL. The TLL business would appear to have operated successfully for a number of years, but subsequently got into difficulties. By early 2018 the relationship between Mrs Young and Mrs Walker had broken down.
Against the background of the dispute between Mrs Walker and Mrs Young, Red 9 — as creditor and advised by Mr Walker and Peat Johnson Murray Ltd — determined TLL was insolvent and made demand on 8 March 2018. The next day, they appointed McDonald…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Keep reading for free

Create a free CaseChat account to read Red 9 Ltd v The Learning Ladder Ltd (in liq) and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2021] NZCA 284
Decision Date: 30 June 2021 at 11. 30 pm

CaseChat Overview and Summary

Red 9 Ltd appealed against the High Court's decision to refuse an application for security for costs in the sum of $50,000, in lieu of which the High Court ordered the liquidator of The Learning Ladder Limited (TLL) and one of its shareholders to provide a joint and several personal undertaking to accept liability for costs awarded to Red 9, up to a maximum of $35,000. The appeal raised several issues regarding the Associate Judge's exercise of discretion under r 5.45 of the High Court Rules 2016. Red 9 contended the Associate Judge had erred by placing an onus on Red 9 to show the liquidator might not be able to honour his personal undertaking, finding that the personal undertakings were the more appropriate form of security without evidence, affixing a sum for the purposes of the rules without taking into account costs incurred in taking steps after the date of filing of the application for security, and failing to take into account a relevant consideration in the assessment of the merits of the claim in defence, that consideration being TLL's omission to respond to the expert evidence on behalf of Red 9 to the effect that TLL's valuation report had a fatal flaw.

The Court of Appeal dismissed the appeal. The Associate Judge's assessment of the appropriateness of the personal undertakings was not flawed. The general approach taken by the court to balance the competing interests of the parties was not to be fettered by creating rules or principles of general application. The special position of official liquidators as regards provision of security for costs, as acknowledged by the Associate Judge, has long been recognised. The Court's longstanding disinclination to order security for costs in cases brought by liquidators has a twofold basis. First, that liquidators bring or support a proceeding to maximise returns for the benefit of all creditors and should not be inhibited in their statutory obligations by an order for security. Secondly, the Court's concern to ensure that people are not prevented by their impecuniosity from taking action. Only in an exceptional case will the official liquidator be ordered to give security. That follows from the fact that he or she is a public officer carrying out a public function. Nevertheless, there is no absolute bar, and an order for security will be made where it is necessary to do justice between the parties.

The Court of Appeal also disagreed with Red 9's argument that the Judge erred by failing to take into account costs incurred between the filing of the application for security for costs and before the hearing of that application. The setting of security for costs calls for an assessment in the round. The degree of precision Mr Fisher argued for, as regards subsequent costs, is not called for. Finally, the Court of Appeal disagreed with Red 9's argument that the Judge had erred by failing to take into account a relevant consideration, namely TLL’s “omission” to respond to Red 9’s expert valuation evidence that TLL’s valuation report, by reference to which its claim for damages had been quantified, had a fatal flaw. That Red 9 and TLL have competing valuation advice is hardly surprising. The upcoming trial will determine which prevails. Accordingly, the Court of Appeal saw no error in the Associate Judge's decision.

The appeal is dismissed. The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

Orders