The Country Channel Limited (in liquidation) v Sky Network Television Limited

[2012] NZHC 285

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5319 [2012] NZHC 285

BETWEEN  THE COUNTRY CHANNEL LIMITED (IN LIQUIDATION)

Plaintiff

ANDSKY NETWORK TELEVISION LIMITED

Defendant

Hearing:         3 February 2012

Counsel:         R J Hollyman for Plaintiff

L A O'Gorman for Defendant

Judgment:      28 February 2012

JUDGMENT OF POTTER J

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment

with a delivery time of 3.30 p.m. on 28 February 2012.

Solicitors:           Dominion Law, Auckland –  [email protected]

Buddle Findlay, Auckland –  [email protected]

Copy to:            R J Hollyman, Auckland –  [email protected]

THE COUNTRY CHANNEL LIMITED (IN LIQUIDATION) V SKY NETWORK TELEVISION LIMITED HC AK CIV-2011-404-5319 [28 February 2012]

Introduction

[1]      On 16 September 2011 Sky Network Television Limited (Sky) applied for security for costs in the sum of $40,000 and for leave to join as a third party to the proceeding, Country 99 TV Limited (C99).  With the consent of the plaintiff, The Country Channel Limited (In Liquidation) (TCCL), leave was granted to join C99 as a third party on 13 February 2011.  TCCL opposes Sky’s application for security for costs.

Background

[2]      TCCL and Sky were parties to a channel supply and distribution agreement dated 10 July 2008 (the agreement), under which TCCL agreed to supply a television channel called “The Country Channel” to Sky for broadcast.  The agreement was for a term of five years until 30 September 2013.   However, Sky terminated the agreement on 12 April 2010 on the basis of a liquidator having been appointed for TCCL.

[3]      TCCL began broadcasting in October 2008.  On 3 September 2009 the board of directors  of TCCL resolved  that  it  would  cease trading,  but  not  be put  into liquidation.  The board minutes refer to a proposal by one of the shareholders and directors of TCCL to provide a proposal for acquisition of the company’s assets. C99 was incorporated by Mr Harvey, the shareholder and director concerned. Apparently no proposal to acquire TCCL’s assets was delivered but C99 took over the performance of the agreement with Sky in respect of The Country Channel.

[4]      In  his  affidavit  filed  in  support  of  the  notice  of  opposition,  Mr  Dennis Parsons, the liquidator of TCCL, says the company intends to pursue a claim against C99 which involves separate facts and issues from its claim against Sky.   Those issues include that, according to Mr Parsons, the promised proposal was never delivered by Mr Harvey, no money or other value has been proffered or provided for the assets of TCCL and C99 has retained and used the company’s rights and assets without proper authorisation to do so.

[5]      Sky continued to pay subscriptions  to TCCL for September and October

2009.  By email on 23 October 2009, Sky advised C99 that it did not have evidence which would enable it to terminate the contract with TCCL and that until otherwise advised, Sky would treat the existing contract with TCCL as still applying to the relationship.

[6]      In February 2010 Sky paid into C99’s bank account subscriptions amounting to $72,198.50 payable for November 2009 to February 2010.   Sky explained in a letter to the liquidator dated 30 April 2010 that it mistakenly acted on a request to pay to a different bank account, which may not have been authorised by TCCL, and that the payment was made “inadvertently”.

[7]      Sky has placed in a solicitors’ trust account, on interest bearing deposit, subscriptions for the period March to 12 April 2010, when it terminated the contract on the basis of TCCL being placed in liquidation on 15 March 2010.

The proceedings

[8]      In its statement of claim TCCL pleads the agreement, the relevant terms thereof, the termination of the agreement on 12 April 2010 and that Sky has breached the terms of the agreement in:

(a)       Paying to C99 the sum of $72,198.50 without authority from TCCL;

and

(b)Wrongly retaining subscriptions for March 2010 ($104,888.21) and the portion of the monthly payment due for the period 1 April to 12

April 2010.

[9]      TCCL seeks judgment for these amounts.

[10]     A statement of defence has not yet been filed.  Apparently Sky asserts that

TCCL was not entitled to receive payments after it ceased trading on 3 September

2009 as it was no longer performing its obligations under the agreement, which were being performed by C99.

Legal principles

[11]     Rule 5.45 of the High Court Rules provides that a Judge may order the giving

of security for costs “if the Judge thinks it is just in all the circumstances”.

[12]     The general approach to the exercise of the Court’s discretion is outlined in

McLachlan Ltd v MEL Network Ltd:[1]

[13]     Rule 60(1)(b)[2]  High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is no reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge, if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[1] McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 at 752 (CA).

[2] Now r 5.45 High Court Rules.

[13]    The Court is reluctant to order security for costs against a company in liquidation.   While there is no bar to ordering security against liquidators and receivers in appropriate cases, there must be “unusual circumstances” to justify the award of a security in such cases.

[14]     A number of factors support the Court’s reluctance to order security for costs in cases brought by liquidators:

(a)       Liquidators bring or support a proceeding to maximise returns for the benefit of all creditors;

(b)The  Court  is  generally  concerned  to  ensure  that  parties  are  not prevented by their impecuniosity from taking action; and

(c)       An official liquidator is a public officer carrying out a public function and the Court requires liquidators to act on the advice of solicitors or

counsel and to form their own views as to the bona fides of a claim so that their actions are not frivolous or seen to be so.

[15]     Nevertheless,  as Associate Judge  Gendall  noted in  RVGR Trustees  Ltd  v Perry & Associates Ltd,[3]  while courts are conscious of the need to acknowledge the liquidator’s special position by limiting orders for security to exceptional circumstances, an order for security should be made where necessary to do justice between the parties.  Such a situation may arise, for example, where major creditors are funding the liquidation and stand to benefit.

[3] RVGR Trustees Ltd v Perry & Associates Ltd HC Wellington CIV-2010-485-1454, 28 February

2011.

[16]     There are a number of well recognised factors which may guide the Court in the exercise of its discretion:

(a)       Threshold test.  In this case, it is common ground that the plaintiff is

clearly insolvent.  The liquidator’s interim report dated 20 December

2010 shows funds in hand of approximately $65,000 which is being applied by the liquidator to pursue recoveries.

(b)Merits.  While it is difficult at the early stages of any claim for the Court to assess the merits and prospects of success, as Mr Hollyman for the plaintiff submitted, this case involves a debt recovery.   Sky does not appear to deny liability to make payment of the amounts claimed, nor does it contest the quantum of the payments alleged to be due.   Rather Sky’s difficulty, as it sees it, is to whom the payments should properly be made.  Sky has joined C99 being the recipient of part of the moneys claimed by TCCL.  While that may be necessary to determine the issues between Sky and C99, those issues do not, as I assess  the  evidence  and  information  currently  available,  have  an impact on the plaintiff’s claim for breach of contract against Sky.  On a preliminary assessment, I consider the merits incline in favour of the

plaintiff.

(c)      The cause of the plaintiff ’s impecuniosity.  It must be the case that had Sky paid to TCCL the amounts retained in trust and paid to C99, TCCL would be that much better off.  But given the extent of TCCL’s liabilities   (approximately   $2.5m   at   date   of   liquidation    and approaching $7m in claims received) it could not be said that Sky has caused TCCL’s impecuniosity.

(d)      Delay.  Sky has not delayed in bringing its application.

Balancing

[17]     Sky’s concern that the liquidator will not be in a position to meet costs if Sky’s  defence  is  successful  is  well  founded.    But  Sky has  not  established  any circumstances of an exceptional or unusual nature which should persuade the Court, in the exercise of its discretion, to order the liquidator to give security.   Sky has appropriately elected to join C99 because a sum of money which is the subject of the claim by TCCL against Sky has been paid, Sky says inadvertently, to C99.  However, the suggestion in oral submissions by Ms O’Gorman, counsel for Sky, that C99 is the “proper” defendant in these proceedings, misjudges the issues.   This is, as Mr Hollyman submitted, a straightforward claim by TCCL against Sky for breach of contract  and  the  introduction  of  C99  as  a  third  party  does  not  change  the fundamental nature of the claim.

Conclusion

[18]     Balancing all relevant factors I conclude that this is not a case in which an order for security for costs should be made against the plaintiff company in liquidation.

Result

[19]     The application is dismissed.

Costs

[20]     The plaintiff is entitled to costs on a 2B basis payable by the defendant.