Glots Limited v Tsang

[2019] NZHC 1568

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE

CIV-2018-404-002628

[2019] NZHC 1568

IN THE MATTER

of the Insolvency Act 2006

BETWEEN

GLOTS LIMITED

Judgment Creditor

AND

KENNETH KO FUNG TSANG

Judgment Debtor

Hearing:	3 July 2019
Appearances:	D J G Cox for the Judgment Creditor S Hamilton for the Judgment Debtor
Judgment:	9 July 2019

COSTS JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 9 July 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Auckland Property Legal Service, Auckland Rennie Cox, Auckland

A M Swan, Auckland

GLOTS LTD v TSANG [2019] NZHC 1568 [9 July 2019]

[1]    This   proceeding   concerns   an   application   for   adjudication   filed   on   5 February 2018. The application relies  on  an  act  of  bankruptcy committed  by Mr Tsang, the judgment debtor, when he failed to comply – within the time allowed – with a bankruptcy notice served on him by Glots Limited, the judgment creditor. The bankruptcy notice is founded on a final costs judgment for $3,289.04 entered against Mr Tsang in this Court on 31 October 2018.

[2]    A defended hearing was allocated for today. But on 2 July 2019, counsel filed a joint memorandum seeking that the fixture be vacated. They also sought orders:

(a)that the application be withdrawn by leave; and

(b)directing that costs be dealt with on memoranda to be filed in accordance with their proposed timetable.

[3]    At my direction, today’s hearing proceeded as a telephone conference to deal solely with the issue of costs.

[4]    Counsel helpfully filed costs memoranda shortly before the telephone conference and have made oral submissions at the conference.

[5]I now make orders as follows:

(a)The application for adjudication is withdrawn by leave.

(b)There will be an order for costs in favour of the judgment debtor on a 2B basis on the following steps, plus disbursements as fixed by the Registrar.

Reasons for costs order

[6]    Mr Tsang argues for either increased costs, or costs on a 2B basis following Glots’ discontinuance. Glots opposes the making of any order for costs, saying costs

should lie where they fall. In the alternative, without conceding that there should be an order for costs, Glots submits that if any order were made, costs should be limited to 2A costs.

[7]High Court Rule 15.23 is relevant. It states:

15.23 Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[8]    The presumption in the rule is that a plaintiff who discontinues a proceeding must pay costs, but the court retains a discretion to order otherwise. The rule is equally apposite where, as here, the parties are applicant and respondent.

[9]    Glots discontinues this proceeding because it acknowledges that an order of adjudication would no longer be warranted, and it would be pointless to continue. This state of affairs has come about because on 29 May 2019, Mr Tsang became the recipient of an award made by the Disputes Tribunal against Glots for $16,807.71. That award well exceeded the order of costs sought. Although that costs judgment stands, the amount ordered, and though that costs judgment stands, the amount ordered can properly be set off against  the  greater  amount  that  Glots  must  now  pay to Mr Tsang.

[10]   Counsel for Mr Tsang rightly points out that in these circumstances Mr Tsang is in effect the successful party in this proceeding. He also submits that the outcome of the Disputes Tribunal proceeding shows that Glots’ bankruptcy proceedings were always doomed to fail, and an abuse of process. He argues further that:

(a)Once the Disputes Tribunal proceeding  had  been  commenced  on  31 January 2019, Glots ought to have known it was premature to file the application for adjudication.

(b)The application was also inappropriate, as it was obvious Mr Tsang was able to pay the costs award. He went to some trouble to provide

security for the costs award. Around the same time as the Disputes Tribunal proceeding was filed, he paid security of $2,776 into the trust account of Glots’ lawyers. (The balance, he submitted, was obviously the small amount that had been awarded for disbursements and “could have been paid over time”). When, on 4 February 2005, Glots’ lawyers returned the part payment he took steps on 8 February to pay the security to the Court and advised Mr Tsang’s lawyers they had done that. Subsequently, once the proceedings were transferred to the Rotorua Registry he paid the full amount of the award to the Court on 12 April 2019.

[11]   As against all of these arguments, counsel for Glots submits that there are other factors that weigh against an award in Mr Tsang’s favour:

(a)As soon as Glots received the claim from the Disputes Tribunal (which was not sent out for several weeks after it was filed) Glots agreed to an adjournment of the adjudication proceeding in order to not put either side to unnecessary cost pending the Tribunal’s decision.

(b)Up until it received the claim, it acted on its rights and entirely reasonably:

(i)It served Mr Tsang with a bankruptcy notice on 16 January 2019 only after the costs judgment made by this Court had gone unchallenged and unpaid; and

(ii)It commenced this proceeding only after Mr Tsang failed to take any steps in response to the bankruptcy notice and committed an act of bankruptcy on 30 January 2019.

[12]   Counsel for Glots also submits that given Mr Tsang’s prolonged failure to prosecute his claim - which Glots had disputed since 2015 - and then only by the statutory demand procedure which he subsequently abandoned in October 2018, Glots naturally assumed there was no ongoing dispute about it. He points out that Mr Tsang

waited till several months after the costs judgment was issued in October 2018 - and two weeks after the last day for challenging the bankruptcy notice - to take his first appropriate step to prosecute his claim.

Decision

[13]   I find there is some force in the arguments of both sides. On the one hand,  Mr Tsang showed no inclination to take formal steps to prosecute his disputed claim for several years, and when he did finally take steps, he resorted to a statutory demand which he himself acknowledged was inappropriate to deal with the dispute. He can hardly have been surprised when his failure to pay the resulting costs award (made on Glots’ unchallenged application to set aside the demand) spawned a bankruptcy notice. Once served with the notice he did nothing within the time allowed to challenge it or to raise the counterclaim he ultimately prosecuted in the Disputes Tribunal. The result was he committed an act of bankruptcy. The fact that bankruptcy proceedings followed was also hardly surprising.

[14]   On the other hand, Glots had to have more than a suspicion that its bankruptcy proceedings would unfold in the way that they have. The evidence suggests the very reason Mr Tsang’s statutory demand was abandoned was because Glots itself had raised the argument that there was a genuine dispute about Mr Tsang’s claim and that it was not suitable for resolution by summary procedure. Further, it appears that was a dispute that would inevitably surface as a defence in proceedings intended to push Mr Tsang to the point of bankruptcy, and at that point an adjournment was highly probable to enable the dispute to be resolved in separate proceedings. The claim is also made in Mr Tsang’s affidavit that he is not in fact insolvent and that Glots “knows that”. Payment of security lends some support for his uncontested claim.

[15]   The fact is there are other ways of enforcing unpaid debts and the use of the bankruptcy procedure seems questionable in this case.

[16]    Weighing up all of these factors, I am satisfied that Glots should provide some measure of compensation for Mr Tsang’s costs, but I do not consider there is good

reason for it to pay increased costs. I consider Mr Tsang will be sufficiently compensated by an award of 2B costs amounting to $2,230 for the following steps:

(a)Filing and serving opposition to application - 0.6 of a day.

(b)Appearance at first call - 0.2 of a day.

(c)Preparation and filing of memorandum – 0.2 of a day.

[17]   I make no allowance for joint memoranda. I consider the costs involved in their preparation should lie where they fall. Mr Tsang is also entitled to his disbursements as fixed by the Registrar.

[18]   I add a postscript. This judgment was dictated on 3 July 2019, and references to “today” are accordingly references to 3 July.

Associate Judge Sargisson