BERNARD STREET PROPERTIES (2007) LTD v REBUILD AND REPAIR CANTERBURY LIMITED [2015] NZHC 2096

BERNARD STREET PROPERTIES (2007) LTD v REBUILD AND REPAIR CANTERBURY LIMITED [2015] NZHC 2096 [1 September 2015]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2015-409-000233[2015] NZHC 2096UNDER the Companies Act 1993IN THE MATTER of an application under s 290 of theCompanies Act 1993 to set aside astatutory demandBETWEEN BERNARD STREET PROPERTIES(2007) LIMITEDApplicantAND REBUILD AND REPAIRCANTERBURY LIMITEDRespondentCIV-2015-409-000234UNDER the Companies Act 1993IN THE MATTER of an application under s 290 of theCompanies Act 1993 to set aside astatutory demandBETWEEN KI COMMERCIAL LIMITEDApplicantAND REBUILD AND REPAIRCANTERBURY LIMITEDRespondentHearing: 31 August 2015Counsel: G A Hair and M J McKay for ApplicantsS G Graham for RespondentJudgment: 1 September 2015COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS[1] In these proceedings, the two applicant companies seek to set aside notices of demand issued against them by the respondent company in respect of the same debt. Both applications were set down for a fixture before me today. I explained to counsel before the commencement of the fixture that both demands under s 289 were fundamentally flawed, and that therefore the applications must succeed. Counsel accepted that position. I make orders setting aside each demand issued by the respondent company.[2] Neither of the notices issued in reliance on s 289 of the Companies Act 1993 could succeed, given the issuing of the other. This is because in issuing a notice against KI Commercial Limited, the respondent was necessarily accepting that Bernard Street Properties (2007) Limited had a defence to the claim against it based on the debt being owed by another company – and visa versa. The use of the procedure provided for by s 289, and earlier by s 218 of the Companies Act 1955, has always been recognised by the courts as unavailable where there is a dispute of substance on whether a debt is owing. This is because the statutory notice procedure is not intended as a debt collection mechanism. Rather, it lays a foundation for an application to appoint liquidators to a company on the basis that the company is unable to pay its debts. Where the creditor has a doubt about whether the company to whom it might send a notice owes the debts, doing so is an abuse of process. For this reason both the notices were flawed, and must be set aside.[3] In this circumstance the applicants seek costs. Mr Hair says that both companies should be awarded costs on a 2C basis, though he recognises some overlap in the evidence. He says that in the alternative to 2C costs being awarded, there should be an uplift because of the abuse of process which I have described.[4] Mr Graham says that costs should be allocated to one proceeding only, though with two sets of disbursements, and says that there was no deliberate abuse of process. He notes that neither applicant actually relied on the point which I have discussed in this judgment.[5] Both counsel accept that costs should be in Category 2, and I agree. I am not prepared to award costs in Band C, a step which is available if a comparatively large amount of time is considered reasonable, because in my opinion that is not the position despite the very substantial volume of affidavit evidence which was presented. It is correct that the applicants did not identify the fundamental difficulty standing in the way of the applicants. If they had, that may have resulted in the case being presented on a much simplified basis, though that is not certain.[6] In this context, too, I observe that there are substantial differences between the deponents on key issues of fact. On the face of the affidavits, there are significant material disputes which would, in all probability, have led to the notices being set aside in any event. In my opinion this is a case where it is not evident that the requisite degree of careful analysis was undertaken by either party. In the case of the respondent, this lapse was before the notices were issued, and at the time of responding to the applications to set aside, as well as throughout the evidence exchange process. In the case of the applicants, this was at the time of considering and formulating the grounds for setting aside the notices and, as with the respondent, at various points throughout the affidavit exchange process. I cannot stress too highly the fundamental need for parties who seek to rely on notices under s 289, and those who are placed in a position of dealing with them, to focus on the fundamental purpose of a notice under that section and long-established case law which makes it crystal clear that notices are not to be utilised unless there are sound grounds for believing, at the time of their issue, that there is no dispute of substance, and no qualifying counterclaim or set-off available to the alleged debtor.[7] In all the circumstances I am not prepared to award an uplift of costs on the ground of the notices being an abuse of process.[8] This leaves the question of whether there should be one award of costs, or two. It would be unfair to award two full sets of costs. The documents filed on the two proceedings are materially identical. However, the respondent is responsible for issuing two notices, putting the applicants in a position where they had to file twoproceedings. There should be an allowance for the costs of so doing.1 In my judgment an award of 10 per cent of scale 2B costs on certain steps in the second proceeding is appropriate.[9] I therefore direct that the respondent will pay one award of costs assessed on a 2B basis in respect of one proceeding, plus a further 10 per cent in respect of the notice of application and affidavits on the second proceeding, though not preparation for the hearing. The costs will not include fees for the hearing which did not proceed. The respondent will pay the disbursements incurred by each applicant._______________________J G MatthewsAssociate JudgeSolicitors:Malley & Co, Christchurch.Young Hunter, Christchurch.1 Rule 14.15 does not apply as this is not a case of several defendants defending one proceeding.