The Syrup Company Limited (in liq) v Retail Innovations Limited HC Auckland Civ-2010-404-5121

[2011] NZHC 11

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-5121

BETWEEN  THE SYRUP COMPANY LIMITED (IN LIQUIDATION)

Plaintiff

ANDRETAIL INNOVATIONS LIMITED Defendant

Hearing:         By memoranda

Appearances: Mr M R Crotty for plaintiff

Mr R B Hucker for defendant

Judgment:      6 January 2011 at 3 pm

JUDGMENT OF LANG J [on costs]

This judgment was delivered by me on 6 January 2011 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:
Russell McVeagh, Auckland

Hucker Associates, Auckland

THE SYRUP COMPANY LTD (IN LIQUIDATION) V RETAIL INNOVATIONS LTD HC AK CIV-2010-

404-5121  6 January 2011

[1]      The plaintiff in this proceeding was placed into liquidation by an order of this Court on 7 July 2010.  The liquidators of the company are Mr Peter Jollands and Mr Robin Jolliffe of the firm Jollands Callander.

[2]      In this proceeding the plaintiff seeks the return of the sum of $114,986 that it claims that the defendant wrongfully received from Progressive Enterprises Limited, formerly a customer of the plaintiff.  The basis of the plaintiff’s claim is to be found in the following paragraphs from the statement of claim:

6.In or around March 2010 Mr Folcarelli [the director of the defendant] contacted Progressive and requested that payments for goods supplied by the Plantiff to Progressive no longer be made into the Plaintiff’s bank account.

7.Mr  Folcarelli  requested  instead  that  payments  made  for  goods supplied by the Plaintiff be made into an account in the name of the Defendant (“the Retail Innovations Account”).

8.Between about March 2010 and August 2010, Progressive paid a total of $114,986 into the Retail Innovations Account.

Particulars

(i)     $15,986 was paid into the Retail Innovations Account in or around March 2010;

(ii)     $24,000 was paid into the Retail Innovations Account on or around 13 April 2010;

(iii)    $18000 was paid into the Retail Innovations Account on or around 3 June 2010;

(iv)    $18,000 was paid into the Retail Innovations Account on or around 30 June 2010;

(v)     $18,000 was paid into the Retail Innovations Account in or around July 2010; and

(vi)    $21,000 was paid into the Retail Innovations Account on or around 2 August.

(together, “the Payments”).

9.     The  Payments  relate  to  goods  supplied  by  the  Plaintiff  to

Progressive.

10.    The Defendant has been enriched by the receipt of the Payments which belong to the Plaintiff

11.    The Plaintiff has been denied the benefit of the Payments.

12.     In these circumstances, it is unjust that the Defendant retains the benefit of the Payments.

Claim for relief

The Plaintiff seeks:

(a)     If (and to the extent that) the Payments are still in the Retail Innovations Account, an order for the return of the Payments to the Plaintiff;

(b)     If (and to the extent that) the Payments are no longer in the Retail Innovations Account, an order that the defendant pay the sum of $114,986 to the Plaintiff; and

(c)     Costs.

[3]      On 6 August 2010 the plaintiff applied on a without notice basis for a preservation order in respect of the defendant’s bank account.  That application was granted by Priestley J on the same day.

[4]      The defendant subsequently applied for an order discharging the preservation order.  The plaintiff opposed the application, and filed documents in opposition to it. Shortly before the defended hearing, however, the plaintiff withdrew its opposition and the preservation order was eventually discharged by consent.

[5]      The defendant now seeks costs in relation to the application for the discharge of the preservation order.  The plaintiff opposes any award of costs being made in favour of the defendant.  It says that costs should lie where they fall.  The proceeding has been referred to me as Duty Judge to resolve this dispute.

[6]      Counsel for both parties have filed extensive submissions regarding the issue of costs.   I am satisfied, however, that the issue must be determined on a narrow basis.

[7]      Although costs remain within the discretion of the Court, the Court must exercise its discretion in accordance with the principles prescribed by Rule 14 of the High Court Rules.  In the case of interlocutory applications, the unsuccessful party should generally be required to contribute to the costs incurred by the successful party: r 14.2(a).   I consider that the defendant succeeded in relation to the present application, because it obtained the order that it sought.  For that reason the plaintiff

should be required to contribute to the defendant’s costs in relation to the application unless some other factor or principle renders that outcome inappropriate.

[8]      I am also satisfied, however, that the plaintiff was justified in originally applying for the preservation order.   The liquidators had  reasonable  grounds to believe that Mr Folcarelli, the director of the defendant, had arranged for funds that were owing to the plaintiff to be diverted to a bank account in the defendant’s name. It was also reasonable for the plaintiff to apply on a without notice basis, because there was a risk that, if the application was made on notice, the funds in the account could be dissipated.

[9]      By  11  August  2010,  however,  the  liquidators  were  aware  that  the  bank account in question held no funds.   As a result, there was nothing to which the preservation order could attach.  As the learned authors of McGechan on Procedure note at HR 7.55.01, the purpose of a preservation order is to preserve property or a fund involved in the litigation itself.  Such an order ensures that the litigation is not rendered nugatory as a result of the fund being dissipated before the Court can determine the plaintiff’s claim.  A preservation order is not to be used as a means of freezing unrelated assets of a defendant: Rapid Development Metals (New Zealand) Ltd v Rusher (1987) 2 PRNZ 85.  This means that a preservation order could only be justified in the present case to the extent that it preserved funds that the defendant received from Progressive Enterprises between March 2010 and 2 August 2010.

[10]     The liquidators say that they sought a continuation of the preservation order after 11 August 2011 because they were aware that it was likely that further funds would be paid into the account later in August and in September 2010.   The correspondence that they entered into with the defendant at about this time related to the terms upon which the defendant might be able to gain access to those funds to meet its trade creditors.

[11]     Any funds that were paid into the account after 11 August 2010 could not, however, be the subject of a preservation order.   This flows from the fact that the plaintiff’s claim does not extend to payments that the defendant was to receive after

2 August 2010.

[12]     Once  the  liquidators  became  aware  that  there  were  no  funds  in  the defendant’s  account,  they  could  not  justify  the  continued  existence  of  the preservation order unless they amended the statement of claim so that it extended to payments made into the defendant’s bank account after 2 August 2010.   The liquidators never amended the plaintiff’s claim, however, and it remains as originally pleaded in the statement of claim filed on 6 August 2010.

[13]   I therefore consider that the plaintiff was not justified in opposing the defendant’s application for an order discharging the preservation order.   The liquidators ought to have consented to that application (or amended the plaintiff’s claim) once it became evident that the bank account did not contain any funds that could comprise the subject of the plaintiff’s existing claim.  Although the liquidators endeavoured to reach some middle ground regarding the release of part of the funds paid into the account after 11 August 2010, this does not affect the fact that those funds should never have been subject to the preservation order at all.

[14]     For  that  reason  I  have  concluded  that,  in  opposing  the  defendant’s application, the plaintiff contributed unnecessarily to the expense of the proceedings by pursuing an argument that lacked merit.   It also failed without reasonable justification to accept the defendant’s assertion that the preservation order should be discharged.  For that reason I am satisfied that an order for increased costs is justified in terms of 14.6(3)(b)(ii) and (iii) of the High Court Rules.

[15]     I do not consider, however, that justification exists for an award of costs to be made against the liquidators personally. In this context I bear in mind the following observations  that  the  Supreme  Court  made  recently  in  Mana  Property  Trustee Limited v James Developments Limited [2010] NZSC 124 at [10]:

A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.   In the case of a liquidator that is a principle of very long standing.   There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally  but such an order will not be  made unless there has been some relevant impropriety on the part of the liquidator.

[16]     The evidence demonstrates that the liquidators acted in good faith in bringing the original application, and that they had earlier encountered some difficulty in obtaining information about the company’s affairs from the defendant’s director and shareholder.    As  I have already indicated,  they also  had  reasonable  grounds  to believe that funds belonging to the plaintiff had been paid into the defendant’s bank account.  Although their subsequent opposition to the application for discharge of the preservation of the order could not be justified, that fact can be adequately marked by an increased award of costs against the plaintiff.  I do not consider that an award of costs against the liquidators personally can be justified.

[17]     I therefore make an award of costs in favour of the defendant against the plaintiff on a Category 2B basis in respect of all steps taken in relation to the application for discharge of the preservation order.  That award is to be subject to a

50 per cent uplift to reflect the matters to which I have referred above.

[18]     The defendant is also entitled to costs against the plaintiff on a Category 2B basis in respect of the preparation of the memorandum filed in relation to the present application for costs.

Lang J