CIR V KADESH FARM LIMITED HC ROT CIV-2006-463-000019

CIR V KADESH FARM LIMITED HC ROT CIV-2006-463-000019 27 July 2007IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY CIV-2006-463-000019BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND KADESH FARM LIMITED Defendant Hearing: By memoranda Counsel: M B Beech for liquidators S M Kai Fong for defendant Judgment: 27 July 2007 at 11.00amINTERIM COSTS JUDGMENT OF ASSOCIATE JUDGE D H ABBOTTThis judgment was delivered by me on 27 July 2007 at 11.00a.m. pursuant to Rule 540(4) of the High Court Rules.Registrar/ Deputy RegistrarSolicitors: Sharp Tudhope, Private Bag 12020, Tauranga McKechnie Quirke, P O Box 242, Rotorua[1] The liquidators of Kadesh Farms Limited (the defendant) seek an order fixing costs payable to them in respect of their work in this liquidation. [2] The liquidators were appointed on 12 June 2006 on application of the Commissioner of Inland Revenue. On 27 June 2006 the directors and shareholders of Kadesh applied for an order terminating the liquidation on the grounds that Kadesh's debt to the Commissioner and the liquidators' costs had been paid, and that it had no other unsecured creditors. [3] The liquidators consented to the application subject to a further debt due to a secured creditor (Allied Finance Limited) being paid in full, and to all of their costs and disbursements being paid. Allied Finance Limited also consented to the application, on terms set out in a letter to Kadesh's solicitors and accepted by Kadesh. [4] An order was made at the hearing of the application on 10 July 2006 setting aside the liquidation subject to Kadesh meeting the conditions stipulated by Allied Finance Limited, and paying the liquidators' costs within fourteen days. [5] Kadesh paid an initial amount to the liquidators. The liquidators have since rendered two invoices for further costs. Kadesh has refused to pay these further costs on the grounds that they have been incurred unreasonably (having regard to the steps taken to pay debts and bring Kadesh out of liquidation), and because the liquidators had accepted a payment in full and final satisfaction of their costs.Are the costs reasonable?[6] The liquidators seek confirmation of costs in the sum of $7,105.37, being the total of an invoice issued for the period ended 30 June 2006 for $4,750.31 and a further invoice for the period ended 31 July 2006 for $2,355.06. They have supported their claim with a summary of tasks carried out coupled with a breakdown of time expended by the liquidators and their staff. The liquidators have provided a breakdown of time and cost underlying the invoiced sums which shows work undertaken by them and their staff between 12 June 2006 and 28 July 2006. Thiswork includes carrying out their various statutory duties on commencement of liquidation, dealing with an intended legal action by Allied Finance, a visit to Kadesh's farm and on-going management of the liquidation, as well as considering and responding to the application for termination. [7] Kadesh challenges the level of costs on the grounds that the majority of the costs were incurred unnecessarily. It says that the liquidators knew within nine days of the liquidation (by 21 June 2006) that Kadesh was taking steps to pay its current creditors with a view to applying to set aside the liquidation order. It argues that from that point (when the liquidators' costs were only $1,594.69) only minimal performance of statutory duties was needed. It contends that those duties did not warrant further costs of $7,105.37. It compares the total sum claimed by the liquidators ($8,700.06 including the $1,594.69 paid before the invoices were issued) to a later indication of full liquidation costs of between $10,000 and $15,000. [8] I am satisfied that the amount being sought by the liquidators ($7,105.37) is reasonable, for the following reasons: a) The liquidators' advice of 21 June 2006 was clearly that the amount of $1,594.69 was for costs to that point only. b) The liquidators advised the directors on 5 July 2006 that since their earlier advice Allied Finance had commenced legal action against Kadesh and further costs had been incurred. In the same advice they sought an undertaking that their further costs would be met. c) Further costs included those for a visit to Kadesh's farm, which appears to have been related to the claim by Allied Finance and stock covered by its lien. d) The Allied Finance claim continued to be an issue until its solicitors wrote to the directors' solicitors on 7 July 2006 setting out conditions for its consent to termination of liquidation.e) At the hearing at which the order was made terminating the liquidation (10 July 2006) counsel for the liquidators advised that their consent was available on the condition that their costs to date and future costs and disbursements were met by Kadesh. Kadesh accepted that condition which is reflected in the order sealed on 12 July 2006. f) The liquidators' obligations under section 253 of the Companies Act 1993 continued until the liquidation was terminated. Their indication of consent to the application did not remove those obligations. They ceased only with the order terminating the liquidation. g) The overall costs of $8,700.06 include $2,102.25 paid by the liquidators to their solicitors (which I take to include advice on the claim by Allied Finance as well as on the proposed termination and appearances associated with it), together with office disbursements of $249.69. The liquidators' recorded time cost for the liquidation was $6,855.75 but a sum of $506.25 has not been charged. h) The indication of overall costs of $10,000 - $15,000 was no more than an indication of the average costs of a liquidation. The liquidators made it clear when providing that advice (in November 2006) that they had no idea how much it would have cost in fact to have undertaken the liquidation had it proceeded, as each liquidation had different issues requiring different timeframes.Have the liquidators compromised their claim?[9] On 26 November 2006 the directors of Kadesh wrote to the liquidators enclosing a cheque for $3,044.09, being their estimate of a reasonable sum to settle the liquidators' claim. They stipulated that if this cheque was banked they would take that an acceptance as full and final payment of the account. The liquidators banked it. Some three weeks after the letter and cheque were sent to the liquidators, the liquidators' solicitors wrote back to the directors advising that the cheque wasaccepted as partial payment, and was not accepted in full and final settlement of the outstanding sum. [10] Kadesh contends that an accord and satisfaction arose on the banking of the cheque and the delay in responding. It says that the cheque should have been returned if not accepted on the terms on which it was sent. [11] It is well established that accord and satisfaction is a matter of agreement. Before a person will be taken to have accepted a smaller sum in satisfaction of a larger disputed one, that person's agreement must be clearly spelt out. It is a question of fact as to whether the parties are in agreement: HBF Dalgety Ltd v Morton [1987] 1 NZLR 411. [12] Where a cheque is sent on condition that banking the cheque will be taken to be acceptance of that sum as full and final payment of a greater amount, it is not an accord and satisfaction if the recipient creditor makes it clear that the banking is not acceptance of that stipulation. That will clearly be the case if the creditor tells the debtor before, or contemporaneously with, banking the cheque that it is not accepted in full and final satisfaction: HBF Dalgety Ltd v Morton. If the cheque is banked before the creditor makes known to the debtor that the condition is rejected, the banking can be presumptive evidence that the creditor accepts the debtor's terms. It remains a question of fact whether or not that is the proper inference. The delay in advising that the term was not accepted is one of the factors to be taken into account:Magnum Photo Supplies Ltd v Viko NZ Ltd [1991] 1 NZLR 395. Delays of ten and six days have been found to be too long to rebut the inference arising from the banking: Haines House Haulage Co Ltd v Gamble [1989] 3 NZLR 221 (cheque sent after long negotiations and with a careful justification for its amount); Turner's Horticulture Supplies Ltd v Waitui Holdings (1990) 3 NZBLC 102,485 (cheque for a reasonable sum and sent "without prejudice" in a serious attempt to settle the account). [13] There is no evidence before me as to the date that the liquidators banked the cheque. If it was not banked until the letter was sent, the banking did not constitute accord and satisfaction. However, if it was banked upon receipt or shortly afterwardsthe delay in rejecting Kadesh's terms is likely to be too long to rebut the inference from banking in the circumstances of this case: the letter sent with the cheque followed a period of negotiation over the disputed invoices and contained a reasoned basis for the amount being offered. If the cheque was banked within a day or two of the letter rejecting Kadesh's terms, and the delay is a consequence only of the liquidators' wishing to have their solicitors prepare their response, that is likely to be a sufficient rebuttal of any inference from the prior banking.Decision[14] For the reasons I have given I find the costs charged by the liquidators to Kadesh to be reasonable. I am unable to make a finding on the facts before the court as to whether or not the liquidators compromised their claim for those costs by banking the cheque. [15] Counsel are to file further memoranda within fourteen days advising when the cheque was banked, and raising any other factors which may be relevant to whether a contract was concluded on accord and satisfaction. I will fix the sum payable to liquidators for costs upon receipt of those memoranda._______________________________Associate Judge D H Abbott