510 Investments Limited v CHK Hospitality Limited

[2014] NZHC 1510

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-001349 [2014] NZHC 1510

BETWEEN

510 INVESTMENTS LIMITED

Plaintiff

AND

CHK HOSPITALITY LIMITED Defendant

Hearing:	27 June 2014
Appearances:	A Gilchrist for the Plaintiff A Ho for the Respondent
Judgment:	27 June 2014

COSTS JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 2 July 2014 at 10.00 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

A Gilchrist, Auckland

Waterstone Insolvency, Auckland

510 INVESTMENTS LIMITED v CHK HOSPITALITY LIMITED [2014] NZHC 1510 [27 June 2014]

[1]      The applicant’s application to set aside the respondent’s statutory demand was listed in today’s list.

[2]      Counsel advised that there is agreement that the application should be set aside.  I make an order by consent setting aside the demand accordingly.

[3]      Both sides seek costs.

[4]      Counsel for the respondent submits that costs should lie where they fall if the Court is not minded to award 2B costs to the respondent.  He relies on my decision in JPL Trading Ltd v James Products Ltd1  and submits that this is a similar case in that the respondent has acted reasonably in issuing the demand and the applicant has delayed in providing grounds to substantiate its claim that the debt is genuinely disputed.  The result is, he submits, that the respondent’s liquidators have expended

cost unnecessarily in issuing the demand.

[5]      Counsel for the applicant seeks costs on a 2B basis.  He submits that there are no exceptional reasons why there should be a departure from the usual statutory presumption  that  costs  should  follow  the  event.    He  says  that  it  is  plain  the respondent treated the statutory demand as a debt collection mechanism when the claimed debt was always in dispute and that the conduct of its liquidators smacks of inappropriate pressure to force the applicant into paying a disputed debt.  He submits that:

(a)       The  liquidators  caveated  the  title  of  the  applicant’s  property  and

tellingly allowed the caveat to lapse when it was challenged.

(b)They then relied on a wholly different argument about money had and received,  and  in  the  statutory  demand,  issued  on  behalf  of  the

respondent.

1      JPL Trading Ltd v James Products Ltd (in rec) [2012] NZHC 2390

[6]      Counsel for the applicant also submits that though the  JPL Trading case correctly summarises the principles applicable to cases of this kind, the facts of this case are quite different from the facts in that case.

[7]      Counsel for the respondent acknowledges that its case for costs comes down to whether the applicant delayed giving notice to the respondent’s liquidators of its grounds of dispute, and thereby put the liquidators to unnecessary time and cost of issuing the statutory demand.  Counsel submits that if the application had raised its grounds of dispute earlier, the liquidators would not have filed the demand.  Counsel also submits that it is clear from the correspondence attached to the affidavit of Mr Singh filed in support of the application to set aside, that the liquidators do not concede the basis for the claimed dispute is right; merely that the dispute cannot now be resolved by use of a statutory demand.

Decision

[8]      There is no dispute as to the principles applicable to the application for costs. It is sufficient to refer to the statement of Associate Judge Gendall (as he then was) in  Telecom  New  Zealand  Limited  v  Landmark  Technologies  Limited2,  where  he states:3

For the purposes of a costs consideration, a statutory demand that is withdrawn is commonly equated to a discontinued proceeding, requiring the withdrawing party to pay costs:   Furnz Ltd v Goode Industries Ltd HC Auckland CIV-2008-404-1024, 13 October 2008 at [6], r 15.23 of the High Court Rules and North Shore City Council v Local Government Commission

9 PRNZ 182. There is a presumption that a discontinuing party will be liable for costs.

This rule is of course subject to the Court’s general discretion as to costs in r 14.1. It may be, for example, that the creditor acted reasonably in issuing the statutory demand, and that the demand is merely withdrawn because it is rendered futile by the alleged debtor’s subsequent actions.

[9]      And to Associate Judge Faire (as he then was) in Information Airline Trading

(NZ) Ltd v Rohling New Zealand Ltd4, where he noted:5

2      Information Airline Trading (NZ) Ltd v Rohlig New Zealand Ltd HC Auckland CIV-2003-404-

3464, 23 February 2004.

3      At [26] and [27]

4Telecom New Zealand Limited v Landmark Technologies Limited (2010) 10 NZCLC 264, 619 (2009) 20 PRNZ 744.

… An application made to set aside a statutory demand … is an originating

application.  In short it is a discrete, stand-alone application.

Because of its special nature, an order on the application concludes the specific application to the Court.   Generally it will not be appropriate to reserve costs pending some other event.   However, because the Court is required to exercise the discretion, each case will be determined on the facts before the Court.  Nevertheless, there needs to be good reason for departing from the general principle that the party who fails should pay costs to the party who succeeds.

[Emphasis added].

[10]     His Honour added:6

… statutory demands should only be issued in cases which are appropriate, that  is  where  there  is  a  genuine  basis  for  establishing  the  evidential foundation so that an application can ultimately be made to appoint a liquidator.   It  is quite improper for the  procedure  to  be  used as a debt collection device or as a device to embarrass a party in a situation where there is a contest as to liability for a given debt.

[11]     There will be instances where it is appropriate to depart from the general principle that the party withdrawing a statutory demand will be required to pay costs. JPL Trading v James Products Limited7  was such a case.   In that case, it was not until some months after the applicant was served with a statutory demand that it filed evidence sufficient to demonstrate that the claimed debt was in dispute. Additionally the director had failed to disclose relevant information when requested by the respondent’s receiver.

[12]     I do not think however that this case is analogous.

[13]     Relevantly,  Mr  Burney,  the  solicitor  for  the  applicant,  sent  a  letter  on

7 May, some days before the statutory demand was issued, in which he set out that the  sum  of  $122,000  comprised  two  sums,  the  origin  of  those  sums,  and  the

applicant’s contention that both sums were held by trustees.

5      At [14] and [15]

6 At [16].

7      JPL Trading v James Products Limited (in rec) [2012] NZHC 2390

[14]     Though the lawyers for the respondent set out in their letter of 22 May that they do not accept the explanation, nonetheless the respondent’s liquidators subsequently saw fit to withdraw the statutory demand they had issued on 19 May.

[15]     I can  only assume that the respondent’s  liquidators concluded they were obliged to accept that the letter of 7 May was sufficient to raise a dispute.  Plainly, they could have reached that conclusion before 19 May when they elected to issue the demand.  The fact that they issued the demand after receiving the letter and then withdrew it before today’s hearing does suggest an intention to use the demand in the hope that the applicant would concede.

[16]     In reaching this conclusion I do not overlook the liquidators’ criticism that the applicant provided no early or adequate response to the requests said to be made under s 261.  But that is not sufficient to justify the issue of the statutory demand in circumstances where:

(a)       The liquidators of the respondent plainly did recognise the letter of

7 May as one that was sufficient to raise a dispute.

(b)The liquidators have not explained why they apparently treated the recipients of their s 261 notices as persons they were entitled to serve with such notices.  It is unclear on the material before me whether Mr Singh and his solicitor, the recipients, are persons who are said to have knowledge of the affairs of the company in liquidation.  It may well be that they are – in which case there were further options open to  the  liquidator  under  s  261  to  secure  the  information  they  are seeking to enable them to form a safer view on whether to pursue the sum they were seeking by the statutory demand.

Result

[17]     In these circumstances I am not satisfied that there is good reason to depart from the usual presumption.

[18]     The applicant is entitled to costs on a 2B basis plus debts as fixed by the

Registrar.  I order accordingly.

Associate Judge Sargisson