MOTEL HOLDINGS LTD v TAIRUA PACIFIC HARBOUR LTD [2018] NZHC 1992

MOTEL HOLDINGS LTD v TAIRUA PACIFIC HARBOUR LTD [2018] NZHC 1992 [6 August 2018]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2017-419-0251[2018] NZHC 1992BETWEEN MOTEL HOLDINGS LIMITEDPlaintiffAND TAIRUA PACIFIC HARBOUR LIMITEDDefendantHearing: On the papersCounsel: D Grove for the PlaintiffJ Savage for the DefendantJudgment: 6 August 2018COSTS JUDGMENT OF ASSOCIATE JUDGE SMITHThis judgment was delivered by me on 6 August 2018 at 4.45pm,pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors / Counsel:Foy & Halse, AucklandDaniel Grove and Samuel Moore, AucklandNorris Ward McKinnon, Hamilton[1] In August 2017 the plaintiff applied to put the defendant to liquidation. At thesame time, it applied for an order appointing an interim liquidator. The application toappoint an interim liquidator was dismissed by Associate Judge Doogue in an oraljudgment given on 25 September 2017.1 Costs on that application were reserved.[2] The defendant filed a statement of defence on 28 September 2017. It deniedliability for the debt of $72,169.21 that was said to be owing to the plaintiff. Itadmitted that $8,094 had been owing to the plaintiff, but said that it had paid that suminto its solicitor's trust account with instruction to pay it to the plaintiff. It denied thatany further sum was owing to the plaintiff. Further, it said that it had notified theplaintiff by emails dated 15 May 2017 and 27 July 2017 that the alleged debt wasdisputed.[3] The liquidation claim was due for call on 6 November 2017. However counselsubmitted by memorandum that the liquidation claim should be adjourned, to allowtime for the Court to determine a related proceeding (proceeding CIV-2017-419-0314"the injunction proceeding") in which the defendant sought relief against cancellationby the plaintiff of a relevant lease. The case was adjourned to the list on 26 February2018.[4] On 21 February 2018 counsel filed separate memoranda. They advised that apayment had been made by the defendant to the plaintiff, but there was an outstandingissue regarding a claim by the plaintiff against the defendant for GST on paymentspreviously received. The parties had agreed (at least in principle) that that issue shouldbe resolved by way of arbitration. The plaintiff sought an adjournment of theliquidation claim.[5] The defendant did not agree to the adjournment – it wanted the liquidationclaim struck out. It referred to the injunction proceeding, contending that it had beenthe successful party in the injunction proceeding, and that it was awaiting adetermination on its application for costs in the injunction proceeding.1 Motel Holdings Limited v Tairua Pacific Harbour Limited [2017] NZHC 2327.[6] In the event, no costs were awarded in the injunction proceeding to either party.The injunction proceeding was resolved without any determination by the Court, andJagose J considered that in the absence of any determination on the merits he wasunable to assess the utility of the defendant's settlement offers. His Honour dismissedcosts applications made by both parties in a judgment given on 12 March 2018.2[7] The defendant submitted that it was likely that the GST dispute would besubmitted to arbitration, but considered that it was likely that it would be at least fourmonths before the arbitration took place. The defendant submitted that there was noreason for the proceeding to languish in the Court for that length of time.[8] The liquidation claim was further adjourned when it was called on 26 February2018, to 16 April 2018. The case was called before me on that date, but there was noappearance for the plaintiff. I adjourned the matter to the list on 28 May 2018. Whenthe plaintiff failed to appear again on 28 May 2018, I made an order dismissing theliquidation claim. I directed that counsel could file submissions on costs.[9] Counsel have both filed memoranda. I now give judgment on their respectiveapplications for costs.The costs applicationsThe defendant[10] The defendant seeks costs on a 2B basis, with an uplift on the basis that theapplication to appoint an interim liquidator was unjustified, and constituted anunnecessary step, or argument lacking merit, under r 14.6(3)(b)(ii) of the High CourtRules. Further, the defendant says that the liquidation claim was based on a disputeddebt, and not on any failure to comply with a statutory demand. The substantivedispute has now been referred to arbitration, and that (the reference to arbitration)should have been the first step taken.2 Tairua Pacific Limited v Motel Holdings Limited [2018] NZHC 384.The plaintiff[11] The plaintiff says that the application to appoint an interim liquidator was madebecause it had real concerns, and still does, about the defendant's solvency. Also, theproceeding resulted in a payment being made by the defendant. The defendant saysthere are ongoing issues relating to alleged breach of fiduciary duties and breach ofthe unit letting agreements by the defendant and its directors, and that that dispute isnow the subject of an arbitration with a substantive hearing to be dealt with inSeptember.[12] Based upon the payment received, issuing the proceeding was justified. Andshould the plaintiff succeed at the arbitration its claim will be seen to have beenjustified in an additional amount.[13] The plaintiff seeks costs on a 2B basis for the commencement of the liquidationproceeding. Alternatively, it asks either that costs be reserved pending the arbitrationhearing, or that there be no order for costs. In the latter regard, Mr Grove referred tothe judgment of Jagose J, in which His Honour declined to make any award of costsin the injunction proceeding.Discussion and conclusion[14] First, I do not consider this is a case where costs can be simply determined inaccordance with the usual rule that costs follow the event.3 A payment was made bythe defendant after the liquidation claim was commenced, and to that extent at least itappears that there was an undisputed amount which had been owing to the plaintiff forsome time when the liquidation claim was commenced.[15] Nor do I consider that I am now in any better position than was Associate JudgeDoogue when he heard the application for appointment of an interim liquidator andconcluded that "there is a reasonable prospect that the plaintiff could establishinsolvency" (on the basis that it would be possible for the plaintiff to establishinsolvency even if it could only prove that one debt had not been paid timeously).43 High Court Rules, r 14.2(1)(a).4 Motel Holdings Limited v Tairua Pacific Harbour Limited, above n 1, at [6].[16] There has been no further evidence directed to the solvency issue, apart fromthe fact that it appears that the debt claimed by the plaintiff has been paid (apart fromthe claimed GST component, which will be addressed in the arbitration proceeding).[17] There are three possible orders the Court could make on the costs applications:(i) the applications could be reserved pending the issue of an award in thearbitration proceeding (now due for hearing in September 2018);(ii) costs could be awarded to one side or the other (or to both);(iii) the Court could decide to make no order for costs.[18] I do not see a basis for reserving costs. First, I do not understand that thearbitration award will address the question of whether or not the defendant was or issolvent. I accept the defendant's submission that, to the extent the plaintiff's claimswere known to be genuinely disputed by the defendant, a liquidation claim should nothave been brought in the first place. That will remain the position regardless of whatmight be the outcome of the arbitration on the disputed issues.5 On the other hand, thedefendant owed the plaintiff an undisputed sum (of at least $8,000) when theliquidation claim was commenced, and I do not think it can be said that the liquidationclaim should never have been brought. That would depend on an assessment of thedefendant's solvency, and, as I have said, I do not think I am in any better position tomake a finding on that now than Associate Judge Doogue was on 25 September 2017.[19] For those reasons, I do not consider that there is a basis for reserving costs untilthe arbitration proceeding has been concluded. The outcome of the arbitration seemsunlikely to assist.[20] Looking at the application to appoint an interim liquidator, it seems to me thatthat application failed because the plaintiff failed to establish that it was necessary or5 Mainzeal Property and Construction Ltd (in receivership and in liquidation) [2014] NZCA 190,and South Waikato Precision Engineering Limited v Ahu Developments Limited HC AucklandCIV-2008-404-970, 10 December 2008 at [22]. If there is a genuine and substantial dispute overthe defendant's liability to pay, the matter is not likely to be suitable for resolution in the liquidationlist.expedient for the purpose of maintaining the value of assets owned or managed by thedefendant, to appoint an interim liquidator.6 The application did not fail because thedebt was disputed, or it was otherwise clear that the plaintiff would not succeed at thehearing of the substantive liquidation claim. In those circumstances, it seems to methat the defendant would be entitled to some costs on the application to appoint aninterim liquidator, and that those costs would be on a 2B basis. (I do not have sufficientbefore me to conclude that the application was so clearly hopeless and unnecessarythat an award of increased costs would be justified.)[21] On the other hand, it may be that the commencement of the liquidation claimwas fully justified, on the basis that there was an undisputed unpaid amount whichwas large enough to form the basis for a liquidation claim, and that (as Associate JudgeDoogue accepted) there was a reasonable prospect that the plaintiff could establishinsolvency. In that case, the plaintiff would, on my calculation, have been entitled tocosts and disbursements somewhere in the order of $3,000 for the commencement ofthe proceeding, considering the statement of defence (in which an undisputed debt wasacknowledged), and say, one appearance.[22] Beyond that, the position appears to be as Jagose J found it to be when he dealtwith the costs issue in the injunction proceeding – there has been no judicialdetermination on the parties' substantive allegations, and there is therefore nothing tosay who has been successful in the liquidation proceeding. But for one thing, I wouldsay that the parties' respective costs claims (the plaintiff's claim for the commencementof the liquidation proceeding, and the defendant's claim for costs on the application toappoint an interim liquidator) cancel each other out.[23] The exception relates to the two calls on 16 April 2018, and 28 May 2018,where the plaintiff did not appear. In my view it is appropriate to mark that failure byan award of costs against the plaintiff, and I do that on a 2B basis. Two appearances(at $892.00 each) total $1,784, and there will be an award of costs to the defendant inthat sum.6 Companies Act 1993, s 246(1).Result1. The plaintiff's application for costs is dismissed.2. Costs are awarded to the defendant in the sum of $1,784.00.Associate Judge Smith