AUCKLAND CITY COUNCIL V SOUTHBOURNE HOLDINGS LIMITED HC AK CIV-2010-404-4076

AUCKLAND CITY COUNCIL V SOUTHBOURNE HOLDINGS LIMITED HC AK CIV-2010-404-4076 8 November 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-404-4076UNDER the Companies Act 1993BETWEEN AUCKLAND CITY COUNCILPlaintiffAND SOUTHBOURNE HOLDINGS LIMITEDDefendantJudgment: 8 November 2011 at 4:45 PMJUDGMENT OF ASSOCIATE JUDGE SARGISSON(On costs)This judgment was delivered by me on 8 November 2011 at 4.45 pm pursuant toRule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate ..........................Solicitors:Auckland City Council, Legal Services Group, Private Bag 92516, AucklandFoley & Hughes, PO Box 4069, AucklandIntroduction[1] Auckland City Council and Southbourne Holdings Limited have withdrawn their respective applications and seek orders for costs against one another.[2] The Council claims costs on a 2B basis after discontinuing its application to put Southbourne into liquidation. The Council discontinued the application when Southbourne paid the remaining portion of the rates debt on which the application was based. The Council contends it was effectively the successful party, and relies on r 14.2 of the High Court Rules, which states:(a) The party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:[3] Southbourne opposes the Council's costs application. It contends that costsshould lie where they fall, save for costs that it seeks on an updated affidavit andmemorandum that it filed in opposition to the Council's costs application. The basison which Southbourne's costs application is formulated is essentially twofold. First, that neither side was successful (Southbourne was not placed into liquidation, nor was an order made restraining the publication of advertising or staying the proceeding) and secondly, that it acted reasonably throughout and had the Council accepted as much and agreed to settle the proceeding with no issue as to costs, the filing of the affidavit and memorandum would have been unnecessary. It relies onthe court's broad discretion to award costs under r 14.1.[4] The Council opposes Southbourne's costs application.Background[5] On 5 May 2010, the Council served Southbourne with a statutory demand for payment of $374,959.76 that Southbourne owed for rates arrears on several properties it owned, plus related penalties. In terms of the demand and s 289 of the Companies Act 1993, Southbourne had until 26 May 2011 to apply for an order to set aside the demand, or to make payment, or to take other steps set out in the demand (including entering into a compromise under Part 14 of the Act, or otherwisecompounding with the Council, or securing payment by way of a charge over itsproperty, to the Council's reasonable satisfaction).[6] Southbourne took no steps to have the statutory demand set aside because it accepted it was liable for the amount demanded and thought it would be possible tosecure the Counsel's agreement to a payment plan. On 6 May 2010, Southbourne sent an email to the Council setting out its proposed plan and to initiate negotiations. The Council rejected the proposal but said it would defer steps if Southbourne agreed to repay the rates debt in full within a further eight weeks. The Council informed Southbourne that if it did not agree, further steps would be taken once the statutory time for compliance with the statutory demand expired. Southbourne did not agree to this. Instead, it made two payments. The first was for $90,000, paid on 7 May 2010. The second was for $76,445.24, paid on 28 May 2010. Southbourne tagged the cheque for the second payment by stating, in the accompanying letter, thatthe payment was to be "accepted and applied" on the basis of a payment plan set outin the schedule to the letter.[7] The Council banked the cheque. It gave no indication to Southbourne that it accepted the cheque on the basis Southbourne's letter stipulated but nor did it indicate the contrary. Southbourne says that, on that basis, it expected to pay the balance in eight consecutive monthly instalments of $27,514.59, the first commencing on 1 July 2010. The Council says that it made its position clear and that Southbourne had no basis for assuming it was released from its obligation to make full payment within the time stipulated in the statutory demand.[8] On 30 June 2010, the Council applied to the court to place Southbourne into liquidation. It served Southbourne with the application on 5 July 2010.[9] On 6 July 2010, the Council advised Southbourne it would contact its mortgagee, should payment in full not be made, pursuant to ss 60-62 of the Local Government Act 2002 by 30 July 2010. The Council did not carry through on the threat.[10] On 12 July 2010, Southbourne filed an application for interlocutory orders to restrain advertising and stay the liquidation proceedings. In supporting affidavit evidence, Southbourne stated that:(a) It was solvent, with substantial equity in its property portfolio and surplus cash from rental income. Its accountant opined that Southbourne satisfied the solvency test in s 4 of the Companies Act 1993;(b) It was not willing to disclose its accounts for reasons of commercial sensitivity and confidentiality;(c) The debt had been reduced to $182,357.70, as $192,602.06 had been paid by instalments. It genuinely believed a payment plan was in place for the balance, rendering a lump sum payment unnecessary at that time.[11] Southbourne filed a statement of defence four days later essentially reiterating its position.[12] On 26 July 2010, the Council filed documents in opposition challengingSouthbourne's contentions.[13] The parties' respective applications were set down for hearing on a defended basis on 22 October 2010. However, in the interim, Southbourne paid further instalments in reduction of the outstanding balance. On 18 October 2010, it offered to pay the then outstanding amount of $59,091.96 immediately. It also proposed that each party bear its own costs. The Council accepted this offer, save as to the proposal on costs. The parties agreed that costs issues would be referred to the court.[14] Southbourne paid the outstanding amount in full on 20 October 2010, two days before the defended hearing was to take place.[15] The parties' respective applications are withdrawn with leave. I am thereforeleft to determine the outstanding costs issues.[16] Relevant to the issue of costs in the event a plaintiff discontinues is r 15.23 which 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.[17] The rule creates a presumption that a plaintiff who discontinues must pay costs, unless there is sufficient reason to displace the presumption. The presumption will be displaced where such is just and equitable in the circumstances.[18] The onus is on the plaintiff to satisfy the court that the relevant circumstances displace the normal presumption of costs in favour of the defendant.1[19] The general rule is that the Court will not speculate as to the likely outcome of a trial that never took place. Only in exceptional cases where the merits are clear,will they influence the court's costs decision on discontinuance.2[20] When dealing with costs on a discontinued claim, a relevant factor is whether or not the plaintiff acted reasonably in commencing the proceedings and whether a particular defendant acted reasonably in defending the proceedings.3[21] 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.1 North Shore City Council v Local Government Commission (1995) 9 PRNZ 182.2 Andrew Beck and Others v McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.01]3 Oggi Advertising Ltd v McKenzie (1998) 12 PRNZ 535 at 536.DiscussionCouncil's application[22] Southbourne does not invoke the r 15.23 presumption against the Council except to the extent of the costs it seeks in its own application. Otherwise, it accepts that the normal presumption is displaced. Putting aside that exception which I shall come to presently, the issue is whether it is just and equitable that the Council'sapplication should be granted.[23] I am satisfied that the Council should have an order for costs for the following brief reasons.[24] It is common ground that the statutory demand was properly made. Southbourne accepts that the rates debt set out in the demand was owing and overdue.[25] There can be no complaint that the liquidation proceeding should not have been commenced. When the proceeding was commenced the Council was entitled to proceed on the basis of the statutory presumption of insolvency. The greater part of the rates debt had not been paid and there had in fact been no agreement on or approval of the payment plan:(a) Following receipt of Southbourne's 6 May email, the Council had promptly rejected Southbourne's proposal to pay the debtby eight monthly instalments. It indicated the more limited indulgence it was prepared to give, which Southbourne did not accept:(b) Southbourne's subsequent letter and cheque of May 27, andcouncil's banking of the cheque, did not constitute:(i) good accord and satisfaction, or(ii) approval to an accommodation for the purpose of a Part 14 compromise.[26] There was no express agreement to the conditions that Southbourne purported to attach to acceptance of the cheque. Nor can any accord or approval be inferred from the banking of the cheque that Southbourne offered on terms that constituted nothing more than partial and delayed performance of its existing obligations. Southbourne offered no consideration in return for the indulgence it was seeking to fix upon the Council. Moreover an indulgence cannot be inferred simply because a rate payer attaches a tag to a payment that it has an existing obligation to make.[27] Nor can there be any plausible basis for the suggestion that the Council was disentitled from continuing with its proceeding to the point it discontinued. Payment in full remained outstanding until the final payment was made shortly before the day allocated for the defended fixture. The statutory presumption of insolvency stood, effectively unanswered. Southbourne argues that its affidavit evidence shows that it was solvent and that the fact that it was making payments by instalments was not evidence that it was insolvent. But the argument does not assist Southbourne. Its evidence, including that of its accountant, contains nothing of substance demonstrating solvency. It amounts to mere assertion that does not go any way to rebutting the statutory presumption of insolvency. Indeed, Southbourne's insistenceon payment by instalments and its unwillingness to disclose its financial accounts reinforced the presumption. The Council cannot be criticised for drawing the inevitable inference.[28] Conversely, I find that there is no real merit in Southbourne's submissions tothe effect that:(a) The Council seemed receptive to the idea of a payment plan. The parties were only at odds as to the appropriate amount and the regularity of payments;(b) It had previously paid rates in instalments and therefore believed that it could reach a sensible compromise with the Council and would be excused for not applying to have the statutory demand set aside;(c) By 20 October, there was only $59,091.69 outstanding and the payment plan provided for this to be repaid by 6 weeks after the scheduled hearing date.[29] This is one of those cases where the merits are plain. It would be splitting hairs to say, as Southbourne does, that the Council was not technically the successful party because it withdrew its proceeding. The proceeding was withdrawn because the Council was eventually paid the debt that was the foundation for the proceeding.[30] All of these factors satisfy me that the justice of the case requires that the Council should have an order for costs.[31] In reaching this finding, I have not overlooked the reliance that counsel for Southbourne places on Ford v First National Real Estate Network Ltd. 4 In Ford,McKenzie J considered the correct approach to costs when the proceeding was properly commenced but did not proceed to a hearing because the plaintiff obtained relief in another way:Because this matter did not proceed to trial, neither party has succeeded orfailed. The plaintiff has succeeded in that it has, by the second defendant'sactions, obtained at least part of the outcome it sought. That is not sufficient to put the plaintiff in the position of a successful plaintiff. The outcome does not carry with it any implication that the first defendant was unsuccessful.[32] Ford is distinguishable. As I have found in this case there was no binding compromise or accommodation that led to partial success. Here, the Council obtained not merely part of the desired outcome. It recovered the full amount of the rates debt it was seeking.Southbourne's application4 Ford v First National Real Estate Network Ltd (2006) 18 PRNZ 432, at [8].[33] Given the above finding, I agree with counsel for the Council that Southbourne brought the proceedings on itself. There is no call for costs to beordered against the Council on Southbourne's costs memorandum or the supportingaffidavit.Result[34] I make an order for costs on a 2B basis in favour of the Council for the plus disbursements as fixed by the Registrar.[35] Southbourne's application for costs is declined.___________________________Associate Judge Sargisson