CONE PEAK FARMS LTD v CRB TRANSPORT LTD [2020] NZHC 1739

CONE PEAK FARMS LTD v CRB TRANSPORT LTD [2020] NZHC 1739 [17 July 2020]IN THE HIGH COURT OF NEW ZEALANDBLENHEIM REGISTRYI TE KŌTI MATUA O AOTEAROATE WAIHARAKEKE ROHECIV-2020-406-000007[2020] NZHC 1739UNDER the Companies Act 1993IN THE MATTER of putting a company into liquidationBETWEEN CONE PEAK FARMS LIMITEDPlaintiffAND CRB TRANSPORT LIMITEDDefendantHearing: 16 July 2020 (List Court)Counsel: K Lawson for PlaintiffD J Clark for DefendantJudgment: 17 July 2020COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 17 July 2020 at 11.00 ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:The applications[1] The plaintiff made application that the defendant be put into liquidation. Atthe first-call the plaintiff applied to discontinue the proceeding. Both parties apply forcosts. I entered the discontinuance but reserved my decision on costs.Background[2] The plaintiff's application to liquidate the defendant was made unders 241(4)(a) of the Companies Act 1993 (the Act) which provides the court may appointa liquidator if satisfied the company is unable to pay its debts.[3] The plaintiff relied upon the presumption the defendant was unable to pay itsdebts under s 287(a) of the Act as it had failed to comply with a statutory demandserved upon it by the plaintiff on 12 March 2020. The statutory demand requiredpayment of $63,250 which it was said the defendant overcharged the plaintiff inrespect of the purchase of a Volvo Loader. This amount was an assessment of loss theplaintiff considers it suffered as a result of an alleged misrepresentation by thedefendant as to the hours the loader had operated.[4] After service of the proceeding the defendant filed an application under r 31.11of the High Court Rules 2016 seeking both a stay of the proceeding and an orderrestraining the plaintiff from advertising. As evidence of its solvency the defendantdeposited $55,000 with its solicitors and provided draft 2019 financial statements(which contain final figures for the 2018 financial year). The plaintiff had, as it turnedout, already advertised the proceeding so the latter part of the defendant's applicationwas rendered moot.[5] The case was listed to be called on 16 July 2020 and counsel were given priornotice it was my intention to deal with the stay application at the first-call. When thecase was called Ms Lawson advised the plaintiff wished to discontinue the proceeding(rendering a hearing of the stay application unnecessary) but sought costs. For thedefendant, Mr Clark also sought costs. I heard submissions from counsel.[6] Ms Lawson submitted the proceeding was filed because the defendant hadfailed to respond to the statutory demand (and an earlier statutory demand). Theplaintiff was "forced", she argued, to take action to recover what it is owed and shouldget costs.[7] Mr Clark argues the statutory demand was a nullity and the proceeding basedupon it should never have been filed and costs should follow the event.Analysis[8] The court has an overriding discretion in relation to costs. The discretion mustbe exercised in a principled manner and consistently with the costs regime in the HighCourt Rules.[9] The primary purpose of a costs award is to compensate a successful party forthe costs they have expended in having their legal rights recognised and enforced bythe court.[10] Relevant in this case are r 14.2(1)(a) and (g). They provide:14.2 Principles applying to determination of costs(1) The following general principles apply to the determination of costs:(a) the party who fails with respect to a proceeding or an interlocutoryapplication should pay costs to the party who succeeds:(g) so far as possible the determination of costs should be predictable andexpeditious.[11] The principle in r 14.2(1)(a), that costs should be paid by the unsuccessfulparty, is fundamental to the High Court Rules costs regime and will apply unless thereare exceptional circumstances.1[12] The court may refuse to make an order for costs or reduce costs otherwisepayable in circumstances set out in r 14.7. One such circumstance is r 14.7(g). Itprovides:1 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].Despite rules 14.2 to 14.5, the court may refuse to make an order for costs ormay reduce the costs otherwise payable under those rules if̶(g) some other reason exists which justifies the court refusing costsdespite the principle that the determination of costs should bepredictable and expeditious.[13] The plaintiff's proceeding faced insurmountable hurdles. The amount claimedin the statutory demand was not a "debt owing" or a "debt that is due",2 but an amountthat the plaintiff might seek by way of damages and which the defendant disputes.There are substantial grounds for the defendant to dispute the plaintiff's claim. At bestthe plaintiff is a prospective creditor of the defendant.3[14] Furthermore, but related to the point above, the plaintiff did not seek or obtainleave of the court to commence this proceeding under s 288(5) of the Act whichprovides:An application to the court for an order that a company be put into liquidationon the ground that it is unable to pay its debts may be made by a contingentor prospective creditor only with the leave of the court; and the court may givesuch leave, with or without conditions, only if it is satisfied that a prima faciecase has been made out that the company is unable to pay its debts.[15] The defendant was successful in this proceeding and is prima facie entitled tocosts. I do not accept Ms Lawson's submission the plaintiff was forced to take thisproceeding. The proper approach was to issue a claim in the District Court fordamages. The issue of the statutory demand and the filing of this proceeding in theliquidation jurisdiction of the Court was plainly inappropriate.[16] My only reservation was that the defendant did not respond to the statutorydemand and might be said to have brought the proceeding upon itself. On reflection,I have concluded this is not a relevant matter. There is an argument that the statutorydemand was a nullity in not complying with the mandatory requirements of s 289 ofthe Act and that no application to set it aside was necessary. I do not need to decide if2 Companies Act 1993, s 289.3 Precinct Properties Holdings Ltd v Golden Tower NZ Ltd [2019] NZHC 3225 at [6]; Re PrimeLink Removals Ltd [1987] 1 NZLR 510 (HC); Northern Crest Investments Ltd v Robt JonesHoldings Ltd (2009) 19 PRNZ 258 (HC).that is the case. If the criticism is the defendant should have applied to set aside thestatutory demand it is necessary to look at what would have happened had it done so.Any such application would have been successful, and the defendant would have beenentitled to costs. Furthermore, what I am concerned with here is the costs of thisproceeding. Notwithstanding the defendant's failure to respond to the statutorydemand the plaintiff was not entitled to issue this proceeding without leave of thecourt, which it did not seek or obtain.[17] In addition, having received the defendant's application for a stay the plaintiffdid not accept the merits of the defendant's position but opposed the application. Itwas only at the hearing, and after the defendant had filed submissions, that theproceeding was discontinued. The plaintiff put the defendant to needless cost.[18] There is no reason, then, to depart from the general rule that as the successfulparty the defendant is entitled to costs. It is usual in liquidation proceedings for coststo be awarded on a 2B basis. That is appropriate in this case also.Additional matters[19] After presenting submissions on costs, Ms Lawson asked if furthersubmissions could be filed by her principals (she was appearing as agent). I declinedthis request as Ms Lawson had already argued the matter before me. It was obviousthat upon the discontinuance of the proceeding costs would be in issue, andMs Lawson was prepared for that.[20] Ms Lawson also asked the Court to order that the $55,000 deposited by thedefendant with its solicitor not be released to the defendant. I was not prepared tomake such an order in circumstances where there is a substantial dispute in relation tothe plaintiff's claim, the only proceeding between the parties has been discontinuedand, the defendant has provided adequate proof of its solvency. In terms of theundertaking offered by Mr Gifford in his affidavit of 11 June 2020 for the defendant'ssolicitors to hold the sum of $55,000 pending resolution of the dispute, I consider therelevant dispute has been determined upon the discontinuance of this proceeding.Result[21] The defendant is entitled to costs of the proceeding on a 2B basis anddisbursements as fixed by the Registrar._______________________O G PaulsenAssociate JudgeSolicitors:Gresson Dorman & Co, Timaru for PlaintiffWisheart Macnab & Partners, Blenheim for Defendant