IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-405 [2013] NZHC 1491

UNDER	the Companies Act 1993

the liquidation of B & J Iti Contracting
Limited

BETWEEN	HENRY DAVID LEVIN AND BARRY PHILLIP JORDAN AS LIQUIDATORS OF B & J ITI CONTRACTING LIMITED (IN LIQUIDATION)
Applicants

AND	ITI & SYDDALL ENTERPRISES LIMITED
Respondent

Hearing:	On the papers

Counsel:	CC Mansell for applicants
SC Potter for respondent

Judgment:	20 June 2013

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for costs]

This judgment was delivered by me on 20 June 2013 at 10:30am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:	Martelli McKegg, Auckland
Potter & Co, Auckland

LEVIN v ITI & SYDDALL ENTERPRISES LIMITED [2013] NZHC 1491 [20 June 2013]

[1]       On 1  September 2011  I delivered  judgment  on  the applicant  liquidators’ application  under ss 292,  294,  295  and  296  of the Companies Act  1993.    This judgment deals with the question of costs arising from that judgment.

[2]       In the paragraph of my judgment headed Conclusions I recorded:1

I conclude therefore that the payments recorded at [15] of this judgment and which were made were, in fact, made in the ordinary course of business. The fact that there was a rise in the indebtedness as at 13 June 2006 is consistent with the fact that there were substantial purchases undertaken between  31 May  and  13  June  2006.    Further,  I  note  that  there  was  an indebtedness recorded in the ledger as at 14 February 2006 of $59,316 and an indebtedness as at 16 August 2005 of $62,976.25.   Standing back, as I must, I am led to the position that there was no departure from the past pattern of behaviour that had been undertaken between the company and the respondent.   The contracting position that applied has been independently verified.   I conclude, therefore, that there was nothing out of the ordinary when these payments were made.
Accordingly, I find that they were made in the ordinary course of business. The conclusion I have reached disposes of the case and makes it unnecessary
to consider the application of s 296 to the facts of this case

[3]       On the question of costs I recorded:2

At the conclusion of the hearing I invited counsel to advise whether they were happy for me to make a ruling on costs or whether they required an opportunity to confer and to make submissions on same.  Counsel requested that I reserve costs so that they could discuss the position and that if they could  not  agree  that  memoranda  were  then  to  be  filed.    This  case  has involved the best part of two hearing days.  I have already mentioned that I regard  the  first  hearing  day  as  having  been  essentially  a  waste  of  time because of the fact that the respondent’s position had not been clearly articulated and clearly the liquidators’ position was prejudiced.  That factor has to be taken into account in any analysis of entitlement to costs in this case.   I make this comment in the hope that it assists the parties in their discussion on the question of costs.

[4]       My comment that:

the first hearing day as having been essentially a waste of time because of the fact that the respondent’s position had not been clearly articulated and clearly the liquidators’ position was prejudiced.

1	Levin v Iti & Syddall Enterprises Ltd HC Auckland CIV-2011-404-405, 1 September 2011 at
[66]–[68].
2	Ibid, at [70].

must be considered in conjunction with the minute I issued after the first day’s

hearing.

[5]	That minute, dated 5 July 2011 provided as follows:

[1]        The applicants’ application pursuant to s 292, 294, 295 and 296 of the  Companies  Act  1993  is  adjourned  part-heard  to  10am  on
29 August 2011.  This minute will record specific directions that I
make for the conclusion of the hearing.  I also record the history of the matter, which is unsatisfactory.

[2]        The respondent was in breach of orders first made by Associate Judge Sargisson on 23 March 2011.  Her Honour ordered the filing of an amended notice of application and further ordered that the respondent’s submissions be filed and served by 27 June 2011.  A fixture was made for the hearing of the application on 4 July 2011. Further minutes were issued on 6 and 20 May 2011, although no appearance  on  those  occasions  was  entered  on  the  respondent’s behalf.

[3]        In preparing for the fixture for this proceeding I was alerted to a number of problems.  First the notice of opposition was deficient and did not comply with the High Court Rules and, in particular, in my view, did not fairly indicate the grounds of opposition to the application.  After setting out the background in a minute, which I issued on 29 June 2011 I ordered as follows:

4.            The file discloses no submissions in opposition and copies of all authorities from the respondent.  They are now in default in that requirement. This must be attended to forthwith.

5.           I  have  considered  the  document  which  is  entitled  Notice  of opposition to originating application for order that transaction be set aside and for recovery dated 31 March 2011. The document, as a notice of opposition, does not comply with r 7.24 in that it:

a.	Does  not  state  which  of  the  orders  sought  in  the application are opposed;

b.	Does not state the specific grounds of opposition to the orders sought;

c.	Does not refer to any particular enactment or principle of law or judicial decision on which the respondent relies.

[4]	The deficiencies in the respondent’s case continued up until almost
5pm on Friday, 1 July 2011.

[5]        The matter was called before me on 4 July 2011.   The notice of opposition had been filed late on the preceding Friday, together with a casebook.  Submissions were emailed to the court after the close of business on 1 July 2011.

[6]        I allowed the matter to be stood down so that each counsel could take instructions on what was obviously an unsatisfactory state of affairs. The respondent sought a further adjournment and indicated a desire to  file further  affidavit  evidence.    On  probing the  further affidavit evidence appeared to be restricted to the application of s 296 to this case.  Counsel for the applicants, with some reluctance, obtained instructions to proceed.   I can understand the difficult position that the applicants were placed in.

[7]        I invited counsel to proceed with the application restricted to the matters covered by ss 292 and 294 of the Companies Act 1993.  In essence, that would call for an examination of:

a.          Whether the payments, which were sought to be set aside, were made in the ordinary course of business; and

b.         The extent to which the respondent company had knowledge of the insolvent position of B&J Iti Contracting Ltd.

[8]        Unfortunately, it became evident as the hearing proceeded that there was insufficient evidence from which the court could, with any confidence, finalise a determination of the issues, even restricted to those raised relating to s 292 and 294 of the Companies Act 1993.

[9]        I do not intend any criticism of counsel for the applicants in this matter.   Counsel’s position had been significantly compromised by the fact that:

a.	There was no proper notice of opposition filed; and

b.         The opposition had as one of its major points an allegation that B&J Iti Contracting Ltd in some way were holding the moneys that were ultimately paid to the respondent on trust for the respondent.   Mr Sharrock, on 4 July 2011, advised me that that position was no longer pursued and, indeed, is not covered by the latest notice of opposition that has been filed.   Nevertheless, I was confronted with affidavits that were directed at an issue which was no longer of relevance.

[10]      Because of the timing of the transaction, the analysis which the court is  required  to  undertake  involves  the  provisions  of  s 292  and following of the Companies Act 1993 prior to the amendment which was substituted from 1 November 2007 by s 27(1) of the Companies Amendment Act 2006.  Accordingly, the specific issues that are now required to be determined by the court are:

a.	Whether some 63 payments and covering a sum in total of
$62,406.37  and  which  were  made  within  the  restricted period as defined in s 292(6) of the Companies Act 1993
were made in the ordinary course of business of B & J Iti
Contracting Ltd;

b.         Whether Iti & Syddall Enterprises Ltd knew that the intent or  purpose  of  the  payments  were  in  respect  of  matters referred to in s 292(4)(a), (b) and (c); and

c.          Whether the respondent received the payments in good faith and has altered its position in the reasonably held belief that the payments were validly made and would not be set aside and that it is inequitable to order recovery, or recovery in full.

[11]      Isolating the issues as I have, as a result of the notice of opposition in correct form now filed, meant that provision inevitably had to be made for the filing of further evidence in support, opposition and reply.   Counsel were agreed with the directions that I proposed in this respect. Accordingly I order:

a.          Any  additional  evidence  to  be  filed  by  the  applicant  in support shall be filed by affidavits which are filed and served by 15 July 2011;

b.         Additional affidavits in opposition may be filed and served no later than 29 July 2011;

c.          affidavits   from   the   applicant   strictly   in   reply   to   the opposition affidavits shall be filed and served no later than
12 August 2011;

d.         additional   submissions   in   support,   together   with   any additional authorities referred to and a supplementary casebook  which  is  indexed   and  paginated  and  which contains the additional affidavits shall be filed and served by
15 August 2011; and

e.          submissions in answer, in addition to those already filed, together with additional authorities that are referred to in the additional   submissions   shall   be   filed   and   served   by
22 August 2011.

[12]      These  directions  must  be  strictly  complied  with.    Any  party  in default is put on notice that a default may lead to an order being made pursuant to r 7.48 of the High Court Rules.

Costs

[13]      I consider that the principal problem with this case arises from the actions,  or  inactions,  of  the  respondent.    Costs  at this  stage  are reserved but will be considered at the fixture for completion for this application.

[6]       Counsel have now filed memoranda.  They have been unable to agree on the question of costs.  It is regrettable that the Registry did not refer the file to me on receipt of counsel’s memorandum so that the matter could be completed without delay.  I understand that the Registry has apologised to counsel for this delay.

The principles applicable in awarding costs

[7]       Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding.  That discretion is generally to be exercised in accordance with the specific rules contained in rr 14.2-14.10:  Glaister v Amalgamated Dairies Ltd.3    In Mansfield Drycleaners  Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd4  the Court of Appeal said of the costs regime contained in what is now rr 14.2-14.10 that:

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary

The test to be applied is entirely an objective and not a subjective one.   The only reference which  it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the party claiming the costs: Glaister v Amalgamated Dairies Ltd.5     These principles were endorsed by the Supreme Court6.

[8]       Rule 14.2 lists the principles applying to determination of costs. Subrule (a) affirms the principle that the losing party should pay the costs to the successful party. Subrule (b) requires that the costs reflect the complexity and significance of the proceedings.   By inference it refers to the categorisation of a proceeding which is provided for in r 14.3.  Subrule (c) requires a consideration of each step for which costs are sought and an application of the daily rate having regard to the appropriate band which is to be applied after a consideration of r 14.5(2) and the Third Schedule to the High Court Rules.

[9]       Having  regard  to  the  comments  I  made  in  the  judgment  and  in  the memorandum of 5 July 2011 it is appropriate that I refer to r 14.7 which provides as
follows:

3	Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 at [19].
4	Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002)
16 PRNZ 662 at 668).
5	Glaister, above n 1 at 610 [14].
6	Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109.

14.7	Refusal of, or reduction in, costs 7

Despite 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—

(a)        the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or

(b)        the  property  or  interests  at  stake  in  the  proceeding  were  of exceptionally low value; or

(c)	the issues at stake were of little significance; or

(d)        although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or

(e)        the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or

(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

(ii)       taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)     failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or

(iv)       failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)        failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(g)        some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

[10]     For the respondent, Mr Potter submitted that the respondent is entitled to an order for costs based on Category 2B for each step undertaken but discounted by an allowance representing one-half day, ie $990.  That gave a figure, he submitted, of costs of $7,301.16.

[11]     Mr Potter  referred  to  the  actual  costs  incurred.    I do  not  regard  that  as relevant to the exercise that I must now carry out for the reason set out in [7]. Mr Potter also referred to two offers made by the respondent to settle the case for. The offers were made without prejudice except as to costs.  They were both rejected by the applicants.  As the applicants failed with their application the offers have no relevance.

[12]   Mr Mansell submitted that if due allowance was made for the wasted expenditure which occurred as a result of the first hearing, the proper approach was to let costs lie where they fall.  He completed an analysis of the steps taken applying Category 2 Band B as a justification for this position.  He also invited the court to take account of the fact that the liquidators were carrying out the duties imposed by their office.  He drew attention to the comments of Randerson J in Hart v Stiassny
where His Honour noted:8

the liquidators are fulfilling a public office and statutory duty and that is a factor which is relevant to quantum.

[13]     I have, of course, reviewed, in my minute of 5 July 2011, the completely unsatisfactory state of affairs caused by the respondent’s approach to this case which led to the first hearing effectively being a waste of time.  In addition, I bear in mind that this case turned on the question of whether the payments were in fact made in the ordinary course of business of the company.  In my view, this was an appropriate case to test whether the payments, which were the subject of challenge, were made within the ordinary course of business.

[14]     This is a case where I must apply r 14.7 to the determination of costs.  There has effectively been two hearings.   The respondent clearly has contributed unnecessarily to the time or expense of this proceeding by the way it approached the first hearing.  Whilst it was successful, as a result of the court allowing further time and convening a second fixture, the time spent seems to me to have been about equal in both.  I am therefore driven to the position that this is an appropriate case to refuse costs applying the principles set out in r 14.7.

[15]	Accordingly, I order that there will be no order for costs in this matter.

JA Faire
Associate Judge