TIME3 GLOBAL LIMITED v NORRIE as liquidator of Pakiri Investments Limited [2013] NZHC 3007 [13 November 2013]

TIME3 GLOBAL LIMITED v NORRIE as liquidator of Pakiri Investments Limited [2013] NZHC 3007 [13 November 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-2176[2013] NZHC 3007IN THE MATTER of the Companies Act 1993IN THE MATTER of an application to set aside a statutorydemandBETWEEN TIME3 GLOBAL LIMITEDApplicantAND MARK HECTOR NORRIE as liquidatorof Pakiri Investments LimitedRespondentHearing: On the papersSubmissions filed 5 November 2013Counsel:Appearance:RB Hucker for applicantMH Norrie, respondent in personJudgment: 13 November 2013JUDGMENT OF ASSOCIATE JUDGE FAIRE[on costs]This judgment was delivered by me on 13 November 2013 at 4:30pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Hucker & Associates, Auckland 1140And To: Norrie & Daughters, Auckland 1642[1] On 26 July 2013 I made an order by consent that a statutory demand be set aside. The order was made during a fixture that had been allocated to determine theapplicant's application to set aside the statutory demand.[2] In addition, I made an order for costs on a 2B basis together with disbursements to be fixed by the Registrar against Pakiri Investments Ltd. That company is the company for whom the liquidator was appointed and is nominally the respondent. I reserved the question of costs against the liquidator in person and inrespect of the liquidator's application for an enforcement order. I gave directions forthe filing and service of memoranda if a party sought costs.[3] The applicant seeks costs against the liquidator in person. Memoranda have been filed and served. I have sought clarification from the parties. Additional memoranda have been filed covering the points that I have raised.[4] The application for costs in this case raises several issues, namely:(a) In issuing the statutory demand was the liquidator acting for himself or as agent for the company?(b) If the liquidator was acting as agent for the company, are the circumstances of this case such that an order for costs should be made against the liquidator personally?(c) Was the issue of the statutory demand by the liquidator in this case fundamentally flawed because there was no contractual basis for the demand that was made? If so, do such circumstances justify an order for costs against the liquidator in person?(d) Should there be any departure from Band B in respect of each of the steps that are referred to in Schedule 3 of the High Court Rules?(e) Should there be a reduction in costs because the applicant failed to comply with the court's order relating to the exchange of submissionsfor the fixture which default became the subject of a separate application by the respondent which was duly filed and served seeking an order striking out the application to set aside the statutory demand?[5] I deal with each issue.[6] The alleged debt in this case was a debt due to the company. Anyenforcement action that was justified could only be taken on the company's behalf.The demand itself specifically claimed that the applicant was indebted to Pakiri Investments Ltd in liquidation. Although the demand was signed by the liquidator, I conclude that the liquidator in this instance was acting as agent for the company. He was not, and in fact could not, enforce any statutory right vested in himself topersonally recover the company's debt.[7] Having reached the conclusion I have on the first issue, it is necessary then to move on to consider whether the circumstances justify an order against a liquidator, in this case, personally.[8] In Mana Property Trustee Ltd v James Developments Ltd the Supreme Court stated the position where costs are sought against a liquidator.1 The court observed:[10] A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. In the case of a liquidator that is a principle of very long standing. There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order will not be made unless there has been some relevant impropriety on the part of the liquidator.[11] The Privy Council recognised that in some cases where a non-party may have both controlled the proceeding and funded it, or is to benefit from it, justice will require that if the proceeding fails, the non-party will pay the successful party's costs.1 Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011] 2 NZLR 25.The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.Such a person is the real party to the litigation. But that is not ordinarily the position of a liquidator, although it may be the position of a creditor or shareholder who funds a liquidator. As the Privy Council remarked, where the non-party is a liquidator, he or she can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his or her own interests. The reluctance of courts to make awards against liquidators who are non-parties is for the very good reason that otherwise they may not be prepared to take on the role and enter into litigation that may be beneficial for the company and thus for creditors.{Citation omitted][9] Having regard to that statement of principle, it is necessary to look at the third issue which I have identified.[10] In this case there was the issue of a statutory demand signed by the liquidator that appears to be fundamentally flawed. It is flawed because there was in fact no contractual basis for the amount that is demanded in the statutory demand.[11] In Rembrandt Custodians Ltd v Pro-Drill (Auckland) Ltd the High Court, at [37] and following of the judgment said of statutory demands and the need for careful scrutiny of how they are constructed as follows:2[37] The issuing of a statutory demand is a very serious matter. As this Court has often pointed out, the recipient of a statutory demand must act quickly in order to avoid the statutory consequences of failing to comply with the demand: see for example Keystone Ridge Ltd v City Sales Ltd (Unreported, High Court, Auckland, M549/02, 9 July 2002, Heath J) and Isolare Investments Ltd v Fetherston(Unreported, High Court, Auckland, M1042/02, 17 October 2002, Master Lang).[38] One of the most significant potential consequences is the establishment of jurisdiction to immediately place the company in liquidation. If a company wishes to avoid those consequences it must either persuade the issuer of the statutory demand to withdraw it or, alternatively, apply to the Court for an order setting the demand aside. The timeframe for the filing of such an application is very tight. There is no room for error, because the Court has no power to extend the time within which an application to set aside a statutory demand may be filed. In those circumstances, it is obviously encumbent on the issuer of a statutory demand to ensure that the demand is being issued on a proper basis. In particular, it must take care to ensure that the debt which is claimed in the statutory demand2 Rembrandt Custodians Ltd v Pro-Drill (Auckland) Ltd HC Auckland M337-IM03, 13 June 2003is not the subject of a genuine dispute: see First Light Construction Ltd v Glenn's Glass &Aluminium Ltd (Unreported, High Court, Rotorua, M33/02, 15 August 2002, Master Lang).[39] For this reason the Court takes the view that a statutory demand ought to be issued by the creditor's solicitor rather than by the creditor itself or a debt collection agency. This was emphasised by Master Gambrill in Ebert Construction Ltd v Advanced Windows Ltd14 PRNZ 681 where the Master said:[2] ... The company is not entitled to represent itself in this Court (Re G J Mannix Ltd [1984] 1 NZLR 309) unless there are exceptional circumstances of urgency. In my view the statutory demand process and the statutory demand forms the initial legal step in the proceeding and the company should issue these demands through their solicitors who are both officers of and accountable to this Court. They have an overriding obligation to the Court to evaluate whether, in law, a demand is sustainable before they take the responsibility of issuing the same.[3] I am aware of the development of a practice of companies themselves issuing these demands without evaluating the legal consequences and identification of whether a demand is properly issued and the sum is deemed and owing. The document in my view forms part of the Companies Act procedures laid down for liquidation and should only be issued by the company's legal representatives.[40] I bear in mind also the fact that solicitors are subject to ethical obligations which require them to ensure that a debt is not disputed before a statutory demand is issued.[12] I bear in mind that Mr Norrie says that he did obtain advice before issuing the demand. There is no independent verification of this. What is readily apparent, however, is that the statutory demand simply could not succeed and had no proper basis for its issue.[13] The result is that we have a situation where a statutory demand has been issued which bears no proper basis for it. The decision to do so was taken by the liquidator himself. He filed the notice of opposition. In all the circumstances of the case, in my view, this fits within the exceptional circumstances where a liquidator is personally responsible for the costs.[14] The next issue raised is whether there should be any departure from Band B n respect of the steps that have been taken and are the subject of the applicant's claim.Subject to one matter which I will shortly refer to, I do not regard there being a basis for departing from a Band B assessment in respect of Items 37, 40, 41 and 42 of the Third Schedule to the High Court Rules. That, as I say, is subject to the next point that I discuss.[15] The next point is whether there should be a reduction because the applicantfailed to comply with the court's order for the filing and service of the casebook andsubmissions. That failure led to an application being filed by the liquidator seeking an order striking out the case.[16] It is appropriate that the court mark its displeasure at the applicant's failure tocomply with an order of the court. That failure, in fact, is a matter that fits within the justification for refusal or reduction of costs set out in r 14.7(f) and, in particular, the following parts of the Rule:14.7 Refusal of, or reduction in, costsDespite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—(f) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—(i) failing to comply with these rules or a direction of the court; or[17] In the circumstances of this case I do not consider it appropriate to allow theapplicant's claim for the preparation of the written submissions in view of theapplicant's default. The applicant's assessment, based on a Category 2 Band B was 4.35 days. That included 1.5 days for the preparation of the written submissions pursuant to Item 40. That is the item that I disallow applying r 14.7.[18] The result is that the quantum of costs is 2.85 days times $1,990, or $5,671.50. That, in my view, is the appropriate quantum of costs that should be ordered in this case.[19] A further matter was raised by Mr Norrie. He submitted that I should allow a set off if and when costs are awarded in respect of a related proceeding. I am not prepared to do that. No cost order has been made to which that applies. This is a stand-alone originating application. It is appropriate that costs be fixed in relation to it.[20] Accordingly, I enter judgment for costs against the liquidator, Mark Hector Norrie, in the sum of $5,671.50 together with disbursements as fixed by the Registrar._____________________JA FaireAssociate Judge