AWARUA FARM (MARLBOROUGH) LTD (In Rec) v MARLBOROUGH DISTRICT COUNCIL [2015] NZHC 1109

AWARUA FARM (MARLBOROUGH) LTD (In Rec) v MARLBOROUGH DISTRICT COUNCIL [2015] NZHC 1109 [21 May 2015]IN THE HIGH COURT OF NEW ZEALANDBLENHEIM REGISTRYCIV-2015-406-000004[2015] NZHC 1109UNDER Section 290 Companies Act 1993IN THE MATTER of an Application to set aside a statutorydemandBETWEEN AWARUA FARM (MARLBOROUGH)LIMITED (IN RECEIVERSHIP)ApplicantAND MARLBOROUGH DISTRICTCOUNCILRespondentHearing: 13 May 2015Appearances: B Fletcher for ApplicantJ W Maassen for RespondentJudgment: 21 May 2015JUDGMENT OF ASSOCIATE JUDGE MATTHEWSIntroduction[1] On 24 February 2015 the respondent (MDC) served on the applicant (Awarua) a demand under s 289 of the Companies Act 1993 that it pay to MDC the sum of $35,000. This sum is described as:the agreed amount of costs payable by [Awarua] in an application pursuant to s321 of the Resource Management Act 1991 (Act) to change an Enforcement Order which agreement is recorded in the Decision of the Environment Court in Auckland on 20 January 2015.[2] Awarua applies to set aside this demand under s 290. It says there is a substantial dispute on whether or not the debt is owing or is due, which is one of the grounds in s 290(4) for setting aside a statutory demand.[3] It is not the role of the Court, on an application under s 290, to determine any dispute which may be found to exist. The role of the Court is to determine whether Awarua has shown a fairly arguable basis for the proposition that the debt is disputed.[4] The approach the Court is to take to this application is described in these terms in Industrial Group Ltd v Bakker:1[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a). No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications toremove caveats, leave to appeal an arbitrator's award and opposition to summary judgment.[25] The approach required by the "appearance" test in s 290 is a reviewwith a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily abar to a remedy. As with leave to appeal an arbitrator's award, the hearingshould, in the normal course, be short and to the point, and the judgment likewise.[5] The demand issued by MDC stems from a case before the Environment Court brought by Awarua against MDC. Awarua sought to amend an enforcement order made by that Court in 2014. The effect of the original enforcement order was to prevent dairy farming operations on a property owned by Awarua. Awarua applied to vary the enforcement order to enable farming operations to commence before the 2014/15 milking season.[6] Initially the variation application was brought on the basis that the owners of Awarua who had operated the farm previously would continue to do so, but on a basis which would avoid the adverse environmental effects which had occurred. As matters unfolded during the case, however, Awarua proposed that different operators take over, Ms C A Jordan and Mr R L Jordan. Those operators were known to MDC1 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413.(footnotes omitted)and accepted as farmers who would recommence the operations of the farm on a basis that would, given compliance with terms approved by MDC, result in a much improved and acceptable environmental outcome. One of the ways this could occur would be by waste materials being taken to and disposed of in the MDC sewerage treatment plant.[7] After it became apparent that a change of management as proposed would be acceptable to MDC and also to the Environment Court, counsel discussed settlement with a view to putting before the Court a draft consent order, and after some negotiation, that occurred. The Court then made an order finally resolving the application before it.[8] MDC's claim for costs of $35,000 arises from this settlement.Background[9] Prior to this case, there had been extensive litigation between Awarua and MDC and at the time the Court finally determined the application to vary the enforcement order, costs orders had already been made against Awarua by the Environment Court and the High Court, totalling $184,622.80. No part of this sum had been paid.[10] On 30 October 2014 the Environment Court issued an oral decision to which was attached the exact terms of the enforcement order which was then put in place, in substitution for the earlier enforcement order.2 It contains detailed requirements for the operation of the farm aimed at avoiding or mitigating the adverse effects on the environment which had occurred prior to the Court issuing its initial enforcement order, closing down the operation of the dairy farm. It also contains two provisions relating to costs.[11] First, in the record of the formal decision of the Court at the beginning of the decision, described as paragraph C in the Order, the Court stated:32 Awarua Farm (Marlborough) Ltd v Marlborough District Council [2015] NZEnvC 9.3 At 2.C. Beyond the terms of the amended Enforcement Order no further costs are sought.[12] Secondly, in Annexure A under the heading "Conditional Order", paragraph 2provides, in relation to costs:2. The conditions precedent to these orders having force and effect are:...(b) Payment to the MDC the costs ordered by this Court and the High Court totalling $184,622.80 and the costs of this application in the agreed amount of $35,000...[13] This provision precisely mirrors the terms of a draft enforcement order submitted to the Court by counsel, by consent.[14] On 21 November 2014, Awarua was placed in receivership. Other conditions precedent to the order taking effect had not been met, milking had not commencedand Awarua's financier elected to act under its security. Awarua remains in receivership. As a result, the varied enforcement order has never taken effect and the original enforcement order is still in effect.Discussion[15] Neither Awarua nor MDC contends that the order of the Environment Court is an order by that Court to pay costs. The position of MDC is that, prior to a draft order being submitted to the Court by counsel, by consent, agreement had beenreached that Awarua would pay the sum of $35,000 in respect of MDC's costs on thevariation application and that the order made by the Court was phrased to ensure that this sum, and indeed other court costs already ordered against Awarua but not paid, would be paid before Awarua was able to rely on the variation and recommence milking on its property.[16] It follows, therefore, that it is necessary to determine, first, whether the evidence supports the view that, in advance of the court order being made, there wasan agreement that Awarua would pay costs to MDC in the sum of $35,000. This is the first issue in this case.[17] In deciding this issue it is necessary to consider two further submissions on behalf of Awarua. First, that some of the evidence put before this Court is privileged under s 57 of the Evidence Act 2006, and secondly, whether any agreement reached was only as to quantum, not as to liability to pay the costs of $35,000 in any event.[18] Depending on the Court's decision on the first issue, two further issues are also raised:(a) Awarua says that if an agreement was entered, it has merged in the judgment of the Environment Court. This is the second issue.(b) Awarua argues that if there was an agreement to pay costs, the conduct of the Council after that agreement was reached is such that the Council cannot now take the benefit of that agreement. This is the third issue.First issue: did Awarua agree to pay costs of $35,000 to MDC?[19] The application to vary the enforcement order was heard in Nelson. At lunchtime on the first day of the hearing, the Environment Court Judge suggested that the parties meet during the lunch adjournment to discuss whether agreement could be reached on a basis by which the Council would support the resumption of milking at Awarua farm.[20] Ms Jordan, Mr Jordan, Mr Besley, the Chief Executive Officer of MDC, and their respective counsel, had lunch together and discussed whether this might be possible. Mr Besley says that agreement was reached quickly. The proposal he put forward on behalf of the Council was that the Jordans, and not the shareholders of Awarua, had to be responsible for milking on a day to day basis at the farm, and for managing the effluent. In relation to costs, Awarua was to be liable for the Council'scosts in addressing the application to vary the enforcement orders, and the Council'scosts would need to be paid before milking recommenced. This would include High Court and Environment Court costs which had already been awarded but wereunpaid, and the costs of the current application to vary the enforcement orders. According to Mr Besley, agreement was reached in principle on these issues, and the Judge was informed of that position. The application was adjourned, and reconvened the following afternoon at 2.15 pm.[21] Later in the day, counsel worked on preparing a draft consent order. At 9.17 pm, Ms Radich, counsel for MDC, sent an email to Mr Fletcher, counsel for Awarua, in these terms:As discussed, Council would expect its actual costs to be paid on this application in order for the ponds to be used.Costs as at yesterday were at about $32,000 excluding tomorrow andexcluding Glen Thomas's invoice and excluding officer time ...So that's the ballpark. Probably $40K.Thanks.The reference to use of "ponds" is to the use by Awarua of Council effluent ponds,for waste.[22] Further emails were exchanged. Mr Fletcher's firm provided a draft with a blank space for the amount of costs, and the next day Ms Radich's firm inserted a figure of $35,000 and sent the draft orders back to Mr Fletcher's firm. He in turnresponded with four issues, none of which related to costs. Early in the afternoonMs Radich's firm emailed Mr Fletcher's firm:Dear Brian and Peta,Council has requested that all the costs payable by the Woolleys/Awarua be paid to our Trust account. Our Trust account deposit slip is attached.[23] Counsel then went back to the Environment Court and the Judge made an order in terms of the draft which was submitted. Later that evening, Ms Radich sent to Mr Besley and other parties a brief report by email:Hi CouncilEverything was fine today – orders made in terms of our proposal except 150 calves up to six months. Could someone forward to Gina as don't have heremail on phone. Apparently costs will be paid tonight. Peter meeting with Jordans tomorrow. Thanks Miriam[24] Ms Radich has also filed an affidavit in support of the position of MDC. She confirms that, at the meeting the Council's position was that Awarua must agree to pay all of MDC's costs, including the costs of the application to vary the enforcement order, in exchange for the Council agreeing to allow the use of its effluent ponds. She says:I was present at the lunch meeting at the Suter Gallery where Mr Besley put his terms to the Applicants, including a requirement that payment of costs of this Application and other outstanding amounts was a pre-condition to Council consenting to the use of its effluent ponds and changing its position in relation to the Application to vary Enforcement Orders. I was present when those terms were accepted by the Applicants.[25] Ms Radich then confirms that she sent the email to Mr Fletcher at 9.17 pm that evening, from which I have quoted.4 Ms Radich says that no objection was raised to this and the next day agreement was reached on a sum of $35,000 which was then inserted in the joint draft consent order. As a result, before she left her office in Blenheim the next day to travel to Nelson for the resumption of theEnvironment Court hearing, she sent to Mr Fletcher's firm trust account details forpayment of the costs which were due.[26] Ms Radich then says that at the hearing that afternoon a Ms Janette Walker"who was representing the Woolley's financial position at the hearing" told her thatcosts would be paid to MDC that evening. The orders jointly sought by counsel was made that afternoon.[27] On 7 November, Ms Radich wrote to Mr Fletcher:Hi BrianCould you please let me know what is happening with payment of Council'scosts? These obligations are payable independent of the enforcement order and Council has already made demand for payment. If payment is not imminent Council will need to enforce these obligations through separate processes.4 At [21].[28] Mr Fletcher responded:MiriamI have no particular instructions but have been told, and have set out before, that the bank has agreed to pay the costs and deposits required to our trust account when the conditions of the enforcement order are met to enable milking to resume.I am unable to assist otherwise. The Council has its remedies if it does not wish to wait on this.[29] Ms Radich says that over ensuing weeks it became apparent that Awarua was taking a new position, namely that no agreement had been reached to pay costs in relation to the variation proceedings.[30] Ms Walker, self-described as a rural advocate, swore an affidavit on this application in support of Awarua. First, Ms Walker refers to discussions with Ms Radich at court. She says:On 30 October 2014 I arrived at the Court before 2.15 pm when the matter was to resume. I received a call from Mr Fletcher, counsel for Awarua Farm (Marlborough) Ltd to say that he would be perhaps 10 minutes late. I told Ms Radich. Ms Radich and I then started going through the terms of the proposed order which had track changes on it. This was very confusing for me. Mr Fletcher then arrived and I withdrew from those discussions.I do not recall a discussion on 30 October 2014 in regard to costs.[31] Ms Walker then says that the following day she wrote to ASB Bank, which was evidently to be the source of the monies required to pay the costs orders. She told ASB:... that under the amended enforcement order there may be another $35,000 payable for which I was seeking clarification. This is a record of my position the day after the Court hearing. I was not clear as to the $35,000 costs but would let the bank know when clarified.[32] Ms Walker then says that she assumes Ms Radich had misunderstood or was mistaken. She says that she was very clear about not only the position of the Woolleys/Awarua Farm, but also the bank and that the costs for which orders had already been made and fees in regard to the use of the Council's effluent pondswould be deposited in the solicitor's trust account if agreement could be reached, or court orders made, to allow milking.[33] Evidence was also given by Mr Jordan and Ms Jordan. They were present at the lunchtime meeting at which agreement was reached on resolution of the variation application, which led to the consent orders. They do not give evidence, however, in relation to that meeting. They say that they were satisfied that, not only payment of costs but also approval of a traffic management plan by MDC (which had been with MDC for some weeks before the hearing) were conditions precedent to the orders having any force. They describe this as sufficient protection for themselves, as well as an incentive for the Council to process the approval of the traffic management plan. They say, therefore, that when Ms Radich sent a letter raising issues aboutcosts on 13 November, they were very surprised as they were "clear that the costs were only payable as part of the conditions precedent to the Enforcement Order coming into force. Essential to this was the approval of the traffic managementplan".[34] The Jordans then refer to another email from Ms Radich's firm on23 December stating that there was an agreement to pay costs in the sum of $35,000. In respect of this, the Jordans say:We are puzzled by this comment. We know of no agreement to pay costs to the Council of any amount including the $35,000. The only obligation that we have authorised as attorneys or are aware of is that contained in the Order of Judge Smith dated 30 October 2014....The Council's position that the costs are payable or that in some way therehas been an agreement which we are unaware of is not accepted.[35] The Jordans say that the amount of $35,000 was agreed, but only as part of the conditions precedent to the order having effect, as set out in the Order itself. Their position is that the issue of costs is as contained in the Court Order, and that there is no other position.[36] It can be seen from the above that the evidence of Ms Radich and Mr Besley in relation to the meeting at lunchtime on 29 October differs from the evidence of Mr and Mrs Jordan in relation to whether there was an agreement to pay costs on the variation application in any event.[37] As appears from the passage cited from Industrial Group Ltd v Bakker, the Court is required to make a prompt judgment on whether there is a genuine and substantial dispute. However, in making that judgment, the Court is not infrequently faced with conflicting evidence. Generally, the Court is not able to resolve conflicts of evidence on the basis of affidavit testimony, but that is not invariably the case. In the context of an application to set aside a statutory demand, the Court of Appeal inUnited Homes (1988) Ltd v Workman, said:5[34] The Court is not required in cases of this character meekly to accept without question whatever unvarnished statements may happen to be made on affidavit. The Court is entitled to act in a more robust and commonsense manner. The principles developed in cognate fields such as applications to remove caveats, and opposition to summary judgment (e.g. Eng Mee Yong v Letchumanan s/o Velayutham [1980] AC 331; Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84) apply by analogy.[38] I am satisfied that approaching the evidence in this case in that way, there was an agreement on behalf of Awarua to pay to MDC costs in the sum of $35,000 on the variation application before the Environment Court, and that the condition expressed in the order of that Court made payment in accordance with that agreement a precondition to the varied enforcement order taking effect. My reasons are these.[39] First, the context in which the discussions at lunchtime took place is relevant. Because of adverse environmental effects of the milking operation carried out on Awarua Farm, the Council had obtained an enforcement order which had the effect of closing down the farming operation which caused those effects. It is a fair inference from the extent of the adverse costs orders already made, some $184,000, that there had been extensive litigation prior to this position being reached. By lunchtime on the first day of the hearing of the application to vary the enforcement order, there had emerged a way in which milking might be able to recommence under the management in all respects of new operators and using the Council's own effluent ponds as a repository for waste. To reach this point, the Council had been put to additional expense notwithstanding the fact that Awarua had not met existing Court orders for payment of costs. In this circumstance, it is entirely credible that5 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447.the Council would require payment of its costs on the application in any settlement of the issues then before the Environment Court.[40] As a related contextual point, the question of payment of costs is almost invariably an issue in litigation, and costs are either agreed or a costs order is sought on an opposed basis, even when a case is settled. There is no suggestion from any deponent on the present application that the issue of liability for costs on the variation application was to be reserved for later consideration, either by agreement or by the Court.[41] Secondly, the evidence of Mr Besley and the evidence of Ms Radich about the meeting is clear. It was followed up by a draft agreement and correspondence about the amount to be included in the draft order for costs. This is entirely consistent with the observations made in the preceding two paragraphs.[42] Thirdly, it is important to note that the order does not make payment of the outstanding costs, and the costs on the variation application, dependent on theEnvironment Court's order coming into effect. Rather, it provides the inverse that the order will not come into effect until the costs are paid (and other conditions are met).[43] Fourthly, Mr Fletcher, the solicitor who acted for Awarua in the Environment Court, who was present at the lunchtime meeting and was involved in the settling of the draft consent order over the following 24 hours, has not sworn an affidavit. Instead, and surprisingly, he appeared as counsel for Awarua on this application.[44] Fifthly, by reference to the email exchange recorded at [27] and [28], Mr Fletcher did not, in his email, contradict Ms Radich's assertion that the costs were payable "independent of the enforcement order".[45] Sixthly, I think it improbable that the agreement reached at the lunchtime meeting provided only for costs to be paid if farming recommenced. It is far more probable that the agreement reached was for costs to be paid and that payment was a precondition to the order having effect. The alternative would be that the Councilagreed to receive costs on the variation application only if the varied order in fact came into effect. In my view, that is very improbable and is not, anyway, what the order says. All the order says is that payment of the costs of this application in the agreed amount is a condition precedent to the order having force and effect.[46] Against this is the evidence of the Jordans. I am unable to accept that their view of the matter is correct. First, their role was to take over the running of the farm and responsibility, in particular, for its waste management, if the new order came into effect. As part and parcel of this, they were most concerned to ensure that there was a workable traffic management plan and much of their evidence is devoted to that issue. It would be entirely understandable if they were concentrating particularly on what would need to be achieved for farming to recommence and thus for their intended role to become reality. That being the case they may not have appreciated that the solicitors and MDC were discussing with a view to reaching agreement, not only on when payment of the costs would be made, but also that costs would in fact be paid to Awarua.[47] Finally, I am not assisted by Ms Walker's evidence on this point; she says she found the draft consent order confusing. I have little doubt that Ms Radich, Mr Besley and Mr Fletcher did not.[48] For these reasons I find that there was an agreement by Awarua to pay costs to the Council in the sum of $35,000.[49] Before concluding discussion of the first issue, I refer to Mr Fletcher'ssubmission that the evidence given on behalf of MDC of the discussions, which were without prejudice, but which led to the agreement it relies on, cannot be admitted as it is privileged under s 57 of the Evidence Act 2006. Whilst such material is privileged under s 57(1), s 57(3) provides that the section does not apply to evidence necessary to prove the existence of an agreement in a proceeding in which the conclusion of such an agreement is in issue.[50] In the present application, the first issue is whether an agreement was concluded. Evidence necessary to prove that is therefore admissible.Second issue - has the agreement merged in the judgment of the Environment Court?[51] Mr Fletcher submits that any agreement existing prior to the Court making orders merges with the judgment of the Court. He says the Environment Court order is a res judicata. He relies on Damesh Holdings Ltd & Ors v Apple Fields Ltd.6[52] The proposition that the Order can found a res judicata is well-established.7When the issue of costs was raised a second time with the Environment Court by MDC, the Court ruled that it was unable to make a further order in relation to costs.[53] That principle is not, however, relevant to the present application. The Environment Court has made an order that the varied enforcement order sought by Awarua and consented to by MDC would not come into effect until agreed costs were paid. It also decided, as noted above, that beyond the terms of the amended enforcement order (which set out the condition referred to), no further costs were sought. I have no doubt that a claim for costs could not now be brought before the Environment Court.[54] In Damesh, the learned Judge went on to discuss whether the claim then before the Court was also barred by reason of an accord and satisfaction. After reviewing the facts, the Judge decided that the orders of the Environment Court in issue in that case had settled all issues relating to costs and that neither party reserved its position to pursue a subsequent application for costs before that Court.[55] That case is not authority for the proposition that, where there is an agreement to pay costs as part of an overall settlement of litigation, that agreement cannot be enforced as a separate contract at a later date. Put simply, a contract of that kind, which includes the contract at issue in this case, can be enforced.[56] I therefore reject Mr Fletcher's submission.6 Damesh Holdings Ltd & Ors v Apple Fields Ltd HC Christchurch CP 52-02, 30 August 2002 at 106-117.7 See Damesh Holdings Ltd & Ors v Apple Fields Ltd, above n 6; In Re South American and Mexican Company. Ex parte Bank of England [1895] 1 Ch 37 at [109].Third issue – is MDC barred from enforcing the agreement because of its subsequent conduct?[57] This submission is based on the length of time taken by MDC to approve a traffic management plan, having told the Environment Court in evidence that thetraffic management plan was not "a big issue".[58] The fourth precondition to the varied enforcement order coming into effect was the obtaining of agreement between Awarua and an organisation responsible for roading in the area (effectively MDC) to a traffic management plan which would enable the crossing of roads by stock at certain points, between two areas of farmland, and which adequately dealt with the consequences of such crossings.[59] It is said by Awarua that the Council unnecessarily and wrongly delayed approval of a traffic management plan and this contributed materially, as I understand the argument, to delays in the varied enforcement order coming into effect, to milking resuming, and therefore to the financial downfall of Awarua.[60] That is not established on the evidence in my view, but even if it were, Awarua did not satisfy the other conditions in the meantime. Awarua did not enter an irrevocable Power of Attorney in the form required by the Court with Mr and Ms Jordan whereby the latter were to accept responsibilities arising under the order, nor did they pay the costs which the Court required. It is not established, therefore, that even if there was any delay by MDC in arranging approval of a traffic managementplan as required, it had any effect on Awarua's ability to recommence farming. Asfar as I can gather from Mr Fletcher's submission, he says that MDC had acontractual obligation under the settlement agreement, to process the application for a traffic management plan promptly, did not do so, and is thus not entitled to recover any funds under the agreement.[61] Awarua has not established that MDC had any obligation under the agreed settlement agreement to process the traffic management plan promptly. Nor has it established that in all the circumstances it failed to do so. And even if that were established, delays in implementing the varied enforcement order were caused asmuch by Awarua failing to honour the other preconditions as by any delay in approval of the traffic management plan.[62] I find that the conduct of MDC in relation to the traffic management plan has no relevance to the issue now before this Court.Outcome[63] I decline to set aside the statutory demand dated 23 February 2015.[64] Pursuant to s 291(1) of the Companies Act 1993 I direct that Awarua is to pay the sum of $35,000 within five working days of the date of this judgment, failing which MDC may apply to put Awarua into liquidation.[65] Awarua will pay costs to MDC on a 2B basis together with disbursements fixed by the Registrar._______________________J G MatthewsAssociate JudgeSolicitors:Gascoigne Wicks, Blenheim.Cooper Rapley, Palmerston North.