THE COUNTRY CHANNEL LIMITED (IN LIQUIDATION) V SKY NETWORK TELEVISION LIMITED HC AK CIV-2011-404-5319

THE COUNTRY CHANNEL LIMITED (IN LIQUIDATION) V SKY NETWORK TELEVISION LIMITED HC AK CIV-2011-404-5319 [28 February 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-5319[2012] NZHC 285BETWEEN THE COUNTRY CHANNEL LIMITED(IN LIQUIDATION)PlaintiffAND SKY NETWORK TELEVISIONLIMITEDDefendantHearing: 3 February 2012Counsel: R J Hollyman for PlaintiffL A O'Gorman for DefendantJudgment: 28 February 2012JUDGMENT OF POTTER JIn accordance with r 11.5 High Court RulesI direct the Registrar to endorse this judgmentwith a delivery time of 3.30 p.m. on 28 February 2012.Solicitors: Dominion Law, Auckland – lawyers@dominionlaw.co.nzBuddle Findlay, Auckland – laura.ogorman@buddlefindlay.comCopy to: R J Hollyman, Auckland – rjhollyman@shortlandchambers.co.nzIntroduction[1] On 16 September 2011 Sky Network Television Limited (Sky) applied for security for costs in the sum of $40,000 and for leave to join as a third party to the proceeding, Country 99 TV Limited (C99). With the consent of the plaintiff, The Country Channel Limited (In Liquidation) (TCCL), leave was granted to join C99 asa third party on 13 February 2011. TCCL opposes Sky's application for security for costs.Background[2] TCCL and Sky were parties to a channel supply and distribution agreement dated 10 July 2008 (the agreement), under which TCCL agreed to supply a televisionchannel called "The Country Channel" to Sky for broadcast. The agreement was for a term of five years until 30 September 2013. However, Sky terminated the agreement on 12 April 2010 on the basis of a liquidator having been appointed for TCCL.[3] TCCL began broadcasting in October 2008. On 3 September 2009 the board of directors of TCCL resolved that it would cease trading, but not be put into liquidation. The board minutes refer to a proposal by one of the shareholders anddirectors of TCCL to provide a proposal for acquisition of the company's assets.C99 was incorporated by Mr Harvey, the shareholder and director concerned.Apparently no proposal to acquire TCCL's assets was delivered but C99 took overthe performance of the agreement with Sky in respect of The Country Channel.[4] In his affidavit filed in support of the notice of opposition, Mr Dennis Parsons, the liquidator of TCCL, says the company intends to pursue a claim against C99 which involves separate facts and issues from its claim against Sky. Those issues include that, according to Mr Parsons, the promised proposal was never delivered by Mr Harvey, no money or other value has been proffered or provided forthe assets of TCCL and C99 has retained and used the company's rights and assetswithout proper authorisation to do so.[5] Sky continued to pay subscriptions to TCCL for September and October 2009. By email on 23 October 2009, Sky advised C99 that it did not have evidence which would enable it to terminate the contract with TCCL and that until otherwise advised, Sky would treat the existing contract with TCCL as still applying to the relationship.[6] In February 2010 Sky paid into C99's bank account subscriptions amounting to $72,198.50 payable for November 2009 to February 2010. Sky explained in a letter to the liquidator dated 30 April 2010 that it mistakenly acted on a request to pay to a different bank account, which may not have been authorised by TCCL, andthat the payment was made "inadvertently".[7] Sky has placed in a solicitors' trust account, on interest bearing deposit, subscriptions for the period March to 12 April 2010, when it terminated the contract on the basis of TCCL being placed in liquidation on 15 March 2010.The proceedings[8] In its statement of claim TCCL pleads the agreement, the relevant terms thereof, the termination of the agreement on 12 April 2010 and that Sky has breached the terms of the agreement in:(a) Paying to C99 the sum of $72,198.50 without authority from TCCL; and(b) Wrongly retaining subscriptions for March 2010 ($104,888.21) and the portion of the monthly payment due for the period 1 April to 12 April 2010.[9] TCCL seeks judgment for these amounts.[10] A statement of defence has not yet been filed. Apparently Sky asserts that TCCL was not entitled to receive payments after it ceased trading on 3 September2009 as it was no longer performing its obligations under the agreement, which were being performed by C99.Legal principles[11] Rule 5.45 of the High Court Rules provides that a Judge may order the givingof security for costs "if the Judge thinks it is just in all the circumstances".[12] The general approach to the exercise of the Court's discretion is outlined inMcLachlan Ltd v MEL Network Ltd:1[13] Rule 60(1)(b)2 High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is no reason to believethat the plaintiff will be unable to pay costs if unsuccessful, "the Court may, if it thinks fit in all the circumstances, order the giving of security for costs".Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge, if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing "principles" from thefacts of previous cases.[13] The Court is reluctant to order security for costs against a company in liquidation. While there is no bar to ordering security against liquidators and receivers in appropriate cases, there must be "unusual circumstances" to justify theaward of a security in such cases.[14] A number of factors support the Court's reluctance to order security for costs in cases brought by liquidators:(a) Liquidators bring or support a proceeding to maximise returns for the benefit of all creditors;(b) The Court is generally concerned to ensure that parties are not prevented by their impecuniosity from taking action; and(c) An official liquidator is a public officer carrying out a public function and the Court requires liquidators to act on the advice of solicitors or1 McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 at 752 (CA).2 Now r 5.45 High Court Rules.counsel and to form their own views as to the bona fides of a claim so that their actions are not frivolous or seen to be so.[15] Nevertheless, as Associate Judge Gendall noted in RVGR Trustees Ltd v Perry & Associates Ltd,3 while courts are conscious of the need to acknowledge the liquidator's special position by limiting orders for security to exceptional circumstances, an order for security should be made where necessary to do justice between the parties. Such a situation may arise, for example, where major creditors are funding the liquidation and stand to benefit.[16] There are a number of well recognised factors which may guide the Court in the exercise of its discretion:(a) Threshold test. In this case, it is common ground that the plaintiff isclearly insolvent. The liquidator's interim report dated 20 December2010 shows funds in hand of approximately $65,000 which is being applied by the liquidator to pursue recoveries.(b) Merits. While it is difficult at the early stages of any claim for the Court to assess the merits and prospects of success, as Mr Hollyman for the plaintiff submitted, this case involves a debt recovery. Sky does not appear to deny liability to make payment of the amounts claimed, nor does it contest the quantum of the payments alleged to bedue. Rather Sky's difficulty, as it sees it, is to whom the paymentsshould properly be made. Sky has joined C99 being the recipient of part of the moneys claimed by TCCL. While that may be necessary to determine the issues between Sky and C99, those issues do not, as I assess the evidence and information currently available, have an impact on the plaintiff's claim for breach of contract against Sky. Ona preliminary assessment, I consider the merits incline in favour of the plaintiff.3 RVGR Trustees Ltd v Perry & Associates Ltd HC Wellington CIV-2010-485-1454, 28 February2011.(c) The cause of the plaintiff's impecuniosity. It must be the case that hadSky paid to TCCL the amounts retained in trust and paid to C99, TCCL would be that much better off. But given the extent of TCCL'sliabilities (approximately $2.5m at date of liquidation and approaching $7m in claims received) it could not be said that Sky has caused TCCL's impecuniosity.(d) Delay. Sky has not delayed in bringing its application.Balancing[17] Sky's concern that the liquidator will not be in a position to meet costs if Sky's defence is successful is well founded. But Sky has not established any circumstances of an exceptional or unusual nature which should persuade the Court, in the exercise of its discretion, to order the liquidator to give security. Sky has appropriately elected to join C99 because a sum of money which is the subject of the claim by TCCL against Sky has been paid, Sky says inadvertently, to C99. However, the suggestion in oral submissions by Ms O'Gorman, counsel for Sky, that C99 is the "proper" defendant in these proceedings, misjudges the issues. This is, as MrHollyman submitted, a straightforward claim by TCCL against Sky for breach of contract and the introduction of C99 as a third party does not change the fundamental nature of the claim.Conclusion[18] Balancing all relevant factors I conclude that this is not a case in which an order for security for costs should be made against the plaintiff company in liquidation.Result[19] The application is dismissed.Costs[20] The plaintiff is entitled to costs on a 2B basis payable by the defendant.