IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE	
CIV-2018-404-002013
[2020] NZHC 2009	

BETWEEN	FTG SECURITIES LIMITED
Applicant	
AND	BANK OF NEW ZEALAND
Respondent	

Hearing:	8–10 June 2020	
Appearances:	A J Forbes QC and H M Weston for Applicant K M Paterson and A E Cao for Respondent	
Judgment:	10 August 2020	

JUDGMENT OF OSBORNE J

This judgment was delivered by me on 10 August 2020 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

FTG SECURITIES LIMITED v BANK OF NEW ZEALAND [2020] NZHC 2009 [10 August 2020]

Introduction

[1]	FTG Securities Ltd (FTG) applies for an order setting aside a statutory demand issued by the Bank of New Zealand (BNZ).

[2]	BNZ opposes the application.

The judgment debt

[3]	The judgment debt (the debt) arose as an order of this Court dated 16 August 2018, by which FTG was ordered to pay to BNZ costs and disbursements of $43,133 (the costs order).1

[4]	In the substantive proceedings to which the costs order related FTG had entitlements by reason of an assignment of interest in the indebtedness of and securities granted by Tuam Ventures Ltd (in rec and in liq) (Tuam). This Court found that there had not been a valid statutory assignment.2 FTG was without standing to seek the declarations it sought as to priorities under the Priority Deed.

[5]	The costs order was subsequently made on 16 August 2018.

[6]	FTG appealed the High Court judgment, but the appeal was dismissed.3 FTG then applied for leave to appeal to the Supreme Court, but leave was declined.4 In relation to each of the appeals further costs and disbursements were awarded. Those costs do not form part of the debt which is the subject of the statutory demand.

[7]	In the meantime, upon the issuing of the costs order, BNZ had issued its statutory demand for payment of the debt.

[8]	FTG responded with this application for an order setting aside the statutory demand.

1	FTG Securities Ltd v Bank of New Zealand [2018] NZHC 2108 at [11].
2	FTG Securities Ltd v Bank of New Zealand [2018] NZHC 1516.
3	FTG Securities Ltd v Bank of New Zealand [2019] NZCA 16, [2019] 3 NZLR 607.
4	FTG Securities Ltd v Bank of New Zealand [2019] NZSC 93.

[9]	For a lengthy period thereafter, the setting aside application was not brought on for hearing while appeal rights were pursued and this proceeding was consolidated with other proceedings involving the parties.

Name of respondent

[10]	In FTG’s setting aside application, BNZ was incorrectly named as “Bank of New Zealand Limited”. As that error has not been formally corrected I make an order pursuant to r 1.9 High Court Rules 2016 amending the respondent’s name to read “Bank of New Zealand”.

FTG’s grounds of application

[11]	In its notice of application, FTG asserted that:

(a)	FTG is solvent;

(b)	BNZ has already been paid because BNZ recovered the debt from funds that are owned in equity by FTG; and

(c)	it is in the interests of justice that the statutory demand be set aside.

[12]	FTG relied upon a brief affidavit of David Henderson, whose wife Kristina Buxton is the director of FTG. He deposed that he has direct knowledge of the matters in his affidavit. His affidavit was sworn in September 2018 at a time when FTG was awaiting its ultimately unsuccessful hearing in the Court of Appeal.

[13]	Mr Henderson explained: “FTG claims that it has equitable ownership of the debt and securities in [Tuam] and the surplus funds that are held by the receivers of [Tuam].”

[14]	Mr Henderson went on to note that FTG had issued a further proceeding    (the -1710 proceeding) to establish its equitable ownership of the debt and securities. FTG’s claims in that -1710 proceeding are the subject of the separate judgment issued today, by which this Court has ruled that the assignment of interest to FTG had been

ineffective to transfer to FTG any equitable interest in the Priority Deed.5 That judgment contains a declaration as to FTG’s entitlement to proceeds of realisation of Tuam’s assets which may come into the hands of Crown Asset Management Ltd (CAML) but, on the evidence, no such funds are in CAML’s possession.

[15]	Mr Henderson exhibited to his affidavit correspondence from BNZ’s solicitors which indicated that all costs incurred by BNZ in the earlier proceeding had been met out of funds held by the receivers of Tuam.

[16]	Mr Henderson concluded his affidavit by stating that FTG considers that the debt has been paid with funds to which FTG is entitled.

BNZ’s grounds of opposition

[17]	By its notice of opposition BNZ asserted that:

(a)	FTG produced no evidence in support of its assertion as to solvency;

(b)	there is no genuine or substantial dispute as to whether the debt is due and owing; and

(c)	even were any of the grounds in s 290(4) Companies Act 1993 established (which was denied), the Court should refuse to exercise its discretion to set aside the statutory demand.

[18]	BNZ adduced affidavit evidence from Peter Adamson (BNZ manager – Strategic Business Services) of the arrangements in relation to the costs which had been paid to BNZ by the receivers of Tuam out of receivership funds. The payments had covered the costs incurred by BNZ in FTG’s unsuccessful proceeding. BNZ has confirmed that any funds to be received by BNZ from FTG pursuant to the costs order will be repaid to the receivers of Tuam and will form part of the surplus funds to be distributed by the receivers.

5	FTG Securities Ltd v Crown Asset Management Ltd [2020] NZHC 2007.

The jurisdiction to set aside a statutory demand – the principles

Section 290 Companies Act

[19]	The Court's jurisdiction to set aside a statutory demand is contained in s 290 Companies Act, and I refer specifically to the basis upon which the Court may grant an application as contained in s 290(4), which reads:

290	Court may set aside statutory demand

…

(4)	The court may grant an application to set aside a statutory demand if it is satisfied that –

(a)	there is a substantial dispute whether or not the debt is owing or is due; or

(b)	the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)	the demand ought to be set aside on other grounds.

[20]	For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction the following principles.

[21]	As to s 290(4)(a):

(a)	The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. Put another way, the applicant must show that there is a real and not a fanciful or insubstantial dispute.

(b)	The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.

(c)	If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.

(d)	It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[22]	As to s 290(4)(c):

(a)  There exists a residual discretion under the “other grounds” jurisdiction of 290(4)(c) which enables the Court to do justice between the parties. As Tipping J indicated in Commissioner of Inland Revenue v Chester Trustee Services Ltd, the exercise of the discretion comes down to the Court’s judgement as to whether the creditor’s prima face entitlement to liquidate the company is outweighed by some factor making it plainly unjust for liquidation to occur.6

Solvency

[23]	There is scope for the proven solvency of a debtor to be taken into account in the assessment of “other grounds” under s 290(4)(c) but the scope is limited. Such is clear from the judgment of the Court of Appeal in AMC Construction Ltd v Frews Contracting Ltd.7 There, the Court of Appeal stated:8
If there is no dispute as to the company’s liability, so that para (a) or (b) of the Act cannot be invoked, it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed.

[24]	Counsel for FTG placed reliance on the judgment of the High Court in Rothschild Properties Ltd v New Zealand Customs Service as establishing solvency as a proper ground in itself for setting aside a statutory demand pursuant to s 290(4)(c).9 The apparent breadth of observations in that decision, however, must be read in the light of the subsequent judgment of the Court of Appeal in Pioneer Insurance Co Ltd

6	Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3].
7	AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].
8	At [7].
9	Rothschild Properties Ltd v New Zealand Customs Service HC Napier CIV-2004-441-398, 23 February 2005.

v White Heron Motor Lodge Ltd.10 The Court of Appeal there observed that statutory demands are issued to obtain payment of a debt. If payment is not made the demand fulfils the “secondary purpose” of providing a basis on which the debtor’s inability to pay its debts as they fall due may be proved, in the event liquidation proceedings are brought.11

Has the debt been paid already?

Submissions

[25]	For FTG, Ms Weston referred to the evidence which confirms that BNZ has had its costs incurred in the earlier proceeding met out of funds held by the receivers of Tuam. On that basis she submitted that there is no debt outstanding to BNZ and that, were FTG to pay the judgment debt, BNZ would be “double dipping”.

[26]	For BNZ, Ms Cao submitted that the circumstances in which BNZ received payment are no different from those in which a party to litigation, whose lawyer has been paid through legal aid, recovers the costs which are awarded at the end of the litigation. That party then pays the costs recovery on to Legal Aid Services.

[27]	This Court’s judgment in Taunoa v Attorney-General is an example of a costs award in favour of a legally-aided plaintiff.12 In Taunoa the Court awarded the plaintiff $358,000, representing the total fees paid by the Legal Services Board to the plaintiff’s lawyer.

[28]	Ms Cao submitted that there is a further analogy with the situation of a litigant whose legal costs are covered for the time being by a litigation funder. As between the parties, the unsuccessful party is susceptible to an award of costs. I awarded costs in that situation in Deo Gratias Developments Ltd v Tower Insurance Ltd.13 Although the appropriateness of awarding such costs in that situation was not made an issue on

10	Pioneer Insurance Co Ltd v White Heron Motor Lodge Ltd [2008] NZCA 450, (2008) 19 PRNZ 286.
11	At [24].
12	Taunoa v Attorney-General (2004) 8 HRNZ 53 (HC).
13	Deo Gratias Developments Ltd v Tower Insurance Ltd [2018] NZHC 767.

the costs application (because it had been conceded by the defendant), I was satisfied that the successful plaintiffs were entitled to costs.

Discussion

[29]	The submission for FTG – to the effect that the debt has been discharged – involves a fundamental misconception. What have been paid are the costs and disbursements which BNZ incurred with their solicitors through successfully defending the previous proceeding. As it happened, BNZ had the benefit through that period of an indemnity under its contractual arrangements with Tuam as a result of which payments from the receivers of Tuam covered the legal fees and disbursements.

[30]	Had FTG wished to assert that there should be no costs order by reason of the full payment made of BNZ’s legal fees and disbursements, then such argument should have been raised at the time the parties made their submissions in relation to the costs order which was then made. There is now a judgment debt which has not been paid. The payment made (by a different party) was of the legal costs incurred by BNZ.

[31]	The costs order was made and the judgment debt remains unsatisfied. The order has not been appealed. FTG is estopped from asserting that the judgment debt was incorrectly created.

[32]	Had it been open to FTG to challenge the making of the costs order (which it has not), then the two situations identified by Ms Cao (situations of legal aid and litigation funding) illustrate the misconception in FTG’s submissions.

[33]	A fully reasoned answer is also found in the judgment of Mildren J in Johnson v Santa Teresa Housing Association.14 In that case, the party claiming costs (J) was entitled to indemnity for his costs by the Territory Insurance Office under applicable legislation. The headnote to the reported case accurately summarises Mildren J’s reasoning:

Even if J was entitled to indemnity for his costs under the Act, the fact that a party was entitled to indemnity for his costs from a third party not a party to

14	Johnson v Santa Teresa Housing Association (1992) 83 NTR 14 (NTSC). See also Lawrie v Lawler [2016] NTCA 3, (2016) 39 NTLR 1 at [477] and [256].

the suit did not preclude J seeking an order for his costs against the first defendant. Where a party was indemnified as to his costs by a third party that party may obtain an order for his costs against another party, unless it was proved that there was an agreement by that party with his legal representatives that in no circumstances was the party to be liable to pay his legal costs. There was no evidence of such an agreement in the present case, indeed, the fact that J would have been indemnified was the evidence to the contrary. The first defendant should therefore pay the costs of J on the third party notice.

[34]	The relationship of this right of costs recovery to the underlying rationale of costs awards was explained by McClure JA, delivering the leading judgment of the Western Australian Court of Appeal in Altorfer & Stow (a firm) v Lindsay, where her Honour stated:15
The general rule is that costs are recoverable on a party and party basis where the party on the record is liable for costs incurred by his or her solicitors; the underlying rationale being that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred: Latoudis v Casey.16 The principle is sometimes referred to as the indemnity principle (see Dyktynski v BHP Titanium Minerals Pty Ltd).17 The indemnity principle is not breached if the litigant is in turn indemnified by a third party for his or her legal costs: see Davies v Taylor (No 2);18 Hudgson v Endrust (Australia) Pty Ltd.19

[35]	There are numerous decisions illustrating the entitlement of a successful party to a costs award notwithstanding a regime or arrangement which provided them with cover for the payment of their legal fees. These examples include parties who were:20

(a)	legally aided under New Zealand legislation;21

(b)	legally aided as members of a trade union;22

(c)	indemnified by an insurer;23

15	Altorfer & Stow (a firm) v Lindsay [2005] WASCA 73 at [61] (footnotes added).
16	Latoudis v Casey [1990] HCA 59, (1990) 170 CLR 534 at 567 per McHugh J.
17	Dyktynski v BHP Titanium Minerals Pty Ltd [2004] NSWCA 154, (2004) 60 NSWLR 203 at 216.
18	Davies v Taylor (No 2) [1974] AC 225 (HL).
19	Hudgson v Endrust (Australia) Pty Ltd (1986) 11 FCR 152 (FCA).
20	See also G E Dal Pont Law of Costs (4th ed, LexisNexis, Chatswood, 2018) at [7.16].
21	Taunoa v Attorney-General, above n 12.
22	Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 (CA).
23	Johnson v Santa Teresa Housing Association, above n 14.

(d)	in receipt of litigation funding;24

(e)	represented by the Treasury Solicitor, intervening in the proceeding;25

(f)	really representing the Crown’s interests and represented by a Crown Solicitor;26

(g)	indemnified by the Crown as ministers or public servants;27 and

(h)	complainants, on behalf of a society.28

[36]	The common factor in such cases is that the party in question remains liable as principal for their own costs or, at the least, their liability to pay their lawyers’ costs is preserved to the extent of their entitlement to recover costs from the unsuccessful party with a “no win, no fee” or “no win, no recoupment” arrangement.

[37]	Accordingly, it would not have been an answer to BNZ’s successful costs application in the earlier proceeding that BNZ was entitled to or had received indemnification of the legal costs that it incurred. As it is, the costs order was made and has not been met. FTG’s assertion that the judgment debt has been paid is factually and legally incorrect.

Is FTG solvent?

[38]	Ms Weston’s submission on solvency was summarised in a single paragraph in FTG’s synopsis:

FTG is solvent. It is legally and beneficially entitled to the substantial surplus funds held by the receivers which are the subject of a separate proceeding … more detailed submissions will be filed in relation to that issue in the 229 proceeding which is to be heard at the same time as this application.

24 Deo Gratias Developments Ltd v Tower Insurance Ltd, above n 13; Dyktynski v BHP Titanium Minerals Pty Ltd, above n 17; Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd [2008] NSWSC 114.
25	R v Archbishop of Canterbury [1903] 1 KB 289 (CA).
26	Lenthall v Hillson [1933] SASR 31 (SASCFC).
27	Peters v Bennett [2020] NZHC 1734.
28	Backhouse v Judd [1925] SASR 395 (SASCFC).

[39]	Leaving aside the extent to which solvency may appropriately be brought into account on an application of the present nature, the minimum expectation where an applicant asserts solvency is that a person with detailed knowledge of the company’s financial situation declares on oath such solvency and provides a reasonable degree of supporting evidence. An accurate and up-to-date balance sheet represents a good but not necessarily adequate starting point.

[40]	The most significant aspect of FTG’s affidavit evidence is that Mr Henderson neither stated that FTG is solvent nor produced any information as to the state of FTG’s balance sheet.

[41]	Regardless of whether FTG may have claims against funds which it might at some time receive, the Court has been given no evidence to establish either the current financial state of FTG or the impact that receipt of further funds would have upon its solvency.

[42]	These were matters within the peculiar knowledge of Mr Henderson and/or Ms Buxton. The onus of proving solvency (if it were to be taken into account) lay on FTG.

[43]	FTG has failed to establish its solvency.

Do other considerations of justice arise?

[44]	Counsel did not point to any other specific grounds, the interests of justice as invoked by FTG appearing to be in the nature of a catch-all.

[45]	As it stands, the circumstances in which the various proceedings were consolidated and adjourned for hearing has led to a situation through which the judgment debt has become almost two years’ old.

[46]	By the Court’s other judgments delivered today it has been established that, just as the assignment of interest on which FTG relies for a future flow of funds was ineffective as a statutory assignment, it was also ineffective as an equitable assignment.

[47]	There is no injustice in BNZ now being able to pursue the statutory demand procedure under the Companies Act in order to obtain evidence of FTG’s insolvency.

Costs

[48]	Costs must follow the event.

Orders

[49]	I order:

(a)	The application for an order setting aside the statutory demand issued by BNZ dated 6 September 2018 is dismissed.

(b)	If FTG fails to make payment as required in the statutory demand within 10 working days after the date of this judgment, BNZ may file and serve a liquidation proceeding.

(c)	FTG shall pay to BNZ the costs of this application on a 2B basis together with BNZ’s reasonable disbursements.29

Osborne J

Barristers:
A J Forbes QC, Christchurch
H M Weston, Barrister, Christchurch Solicitors:
Buddle Findlay, Christchurch

29	High Court Rules 2016, category 2 under r 14.3(1) and band B under r 14.5(2).