Sol Management Limited (in liquidation) v RFD Finance Limited [2015] NZCA 254 (17 June 2015)

Last Updated: 25 June 2015

IN THE COURT OF APPEAL OF NEW ZEALAND
CA269/2014 [2015] NZCA 254
BETWEEN	SOL MANAGEMENT LIMITED (IN LIQUIDATION) Appellant
AND	RFD FINANCE LIMITED Respondent

Hearing:	14 May 2015
Court:	Cooper, Mallon and Dobson JJ
Counsel:	K P Sullivan for Appellant J Moss for Respondent
Judgment:	17 June 2015 at 2 pm

JUDGMENT OF THE COURT

1. The applications for leave to adduce fresh evidence are declined.

2. The appeal is dismissed.

100. The appellant is to pay the costs of the respondent for a standard appeal on a band A basis, together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Dobson J)

[1] On 7 August 2013, the liquidator of the appellant, Sol Management Ltd, (Sol) served a statutory demand on the respondent, RFD Finance Ltd (RFD), requiring repayment of $80,000. The demand characterised the sum as monies that had been advanced to RFD by Sol. RFD applied to set aside the statutory demand. After hearing evidence including cross-examination and argument, Associate Judge Osborne granted RFD’s application to set the demand aside.^[1]
[2] This judgment deals with the liquidator’s appeal from that decision.

Factual background

[3] The transactions in issue occurred in September 2010. At that time, various property development activities were pursued by two groups of companies under the effective control of Mr David Henderson, a Christchurch property developer. Mr Henderson was adjudicated bankrupt in late 2010. His wife, Ms Buxton, was the director of some of the companies involved.
[4] Sol was a subsidiary of Property Ventures Ltd (PVL), and part of the PVL Group. All of the other companies involved in these transactions were in the FTG Group, another group utilised by Mr Henderson.
[5] In mid-September 2010, one of Mr Henderson’s companies, Tomanovich Holdings Ltd (THL), completed an agreement with the Queenstown Lakes District Council (QLDC) pursuant to which THL became entitled to a payment of $150,000 plus GST. Instead of THL receiving that amount, Mr Henderson directed that $135,216.05 was to be paid to Sol’s account with Westpac Bank. The credit to Sol’s account occurred on 17 September 2010. The sum of $26,453.10 was applied to pay off Sol’s overdraft. On the same day, Sol transferred $80,000 to the trust account of Cousins & Associates, the Christchurch solicitors who acted for Mr Henderson’s companies, for the credit of RFD.
[6] Within the same banking day, acting on instructions from Mr Henderson, his solicitors effected a transfer within their trust account from RFD to another Henderson company, GP96 Ltd (GP96). They then made a further transfer from GP96 to Livingspace Properties Ltd (Livingspace) in consideration for the purchase by GP96 of a business that had been operated by Livingspace.
[7] RFD as lender, and GP96 as borrower, completed a loan agreement for the advance of $80,000. GP96’s obligations were guaranteed by Livingspace. The loan was recorded to be for a term of five years, with interest charged at 20 per cent per annum.
[8] The narration in Cousins & Associates’ trust account ledger recorded the receipt of the $80,000 for RFD from Sol as “credit of account”, and the transfer of the same amount from RFD to GP96 as “loan”. In the ledger maintained for GP96, the credit into that account from RFD was also recorded as “loan”, and the transfer out to Livingspace was simply noted as a transfer to that other entity.
[9] There was no record of the terms on which THL had diverted to Sol the amount that THL was entitled to from QLDC. Also there was no record beyond the trust account narration of the nature of the transaction between Sol and RFD.
[10] Statements for Sol’s account with Westpac Bank for the day of this transaction and the following week were in evidence. The entries confirm the deposit into the account from QLDC of $135,216.05 on 17 September 2010, and a withdrawal going to Cousins & Associates on the same day for $80,000. The entries also record a deposit into Sol’s account on 22 September 2010 from Cousins & Associates’ trust account for $48,000, and a further deposit the following day from Livingspace for $32,341.53. We note that the total of these two deposits is $80,341.53.
[11] The Associate Judge considered that the documentation of the payments by THL to Sol and by Sol to its solicitors was completely inadequate. He cited the expectation that the records of a company speak for themselves, and referred to the Board’s responsibility to ensure that proper accounting records are kept under s 194 of the Companies Act 1993 (the Act).^[2]
[12] To support his statutory demand, the liquidator in this case has relied on the inadequacy of Sol’s accounting records. Mr Henderson wished to characterise the transactions differently from the inference that the liquidator took from the records that were available. In response, the liquidator argued that the absence of other documents that ought to have supported such a characterisation were Mr Henderson’s responsibility, and their absence should be held against him. Arguably, he should not be able to benefit from his own failings.

Decision of the Associate Judge

[13] The provision relied on for setting aside the statutory demand is that in s 290(4)(a) of the Act, namely that there is a substantial dispute whether or not the debt is owing to Sol.
[14] The Associate Judge adopted a statement of principles from Brookers Company Law as the approach to determining the issue. It was expressed in the following terms:^[3]

• The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
• 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.
• If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
• It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[15] Counsel agreed the summary accurately records the correct approach.
[16] RFD denied any obligation to repay the amount it had received from Sol. It argued that Mr Henderson was directing the affairs of all the companies involved, so Sol received the amount from THL to be dealt with at THL’s direction, and Sol simply carried that out in paying the money on to RFD. Mr Henderson’s explanation before the High Court was that he had directed the money to go into Sol’s bank account because THL did not have an account of its own at the time. In
cross-examining Mr Henderson, Mr Sullivan put to him indirect evidence that, in January 2011, Westpac maintained bank accounts for a range of Mr Henderson’s companies, including THL and Sol.
[17] The evidence comprised a letter from Westpac to the director of another of Mr Henderson’s companies, dated 10 January 2011, advising of the bank’s intention to close that company’s account. The letter was accompanied by an email to Mr Henderson and others from one of his employees, Mr Patel, advising that letters in the same terms had been received for both THL and Sol, along with other related companies. Despite having those documents put to him, Mr Henderson was not prepared to accept that THL had operated its own bank account. In
cross-examination, Mr Henderson recalled that there had been considerable issues with Westpac for several months. The bank had either closed, or wanted to close, accounts, and advised Mr Henderson’s companies that the Inland Revenue Department had served the bank with notices and had “cleaned out the accounts”, and that certain accounts were of no use.
[18] The Associate Judge treated the issue as to whether THL had its own bank account when the transactions occurred in September 2010 as unresolved. He observed that evidence on the point was incomplete, and that a definitive answer on the point would be available from Westpac, but the absence of such evidence reinforced the uncertainty of the information actually before the Court.^[4]
[19] The Associate Judge accepted the prospect that Sol’s bank account had been used as a mere conduit for the payment of money that belonged to others. He concluded that RFD had provided material short of proof to support its dispute of a debt owing to Sol for $80,000.^[5]

Applications to adduce fresh evidence

[20] Both parties to the appeal sought leave to adduce fresh evidence in support of their positions, and each party opposed the other’s application. For his part, the liquidator sought to adduce evidence of the efforts he had made since the hearing before the Associate Judge to obtain additional information about the existence of a bank account for THL with Westpac. Those efforts were frustrated by Westpac’s refusal to cooperate in the absence of authority from those authorised to speak for THL. Ms Buxton, as the person with that authority, is said by the liquidator to have refused to cooperate in his getting access to the relevant records.
[21] For its part, RFD sought to adduce evidence of a letter written to the police by the liquidator in March 2012, in which he expressed the view that Sol had been used as a “cash conduit” or “clearing house”. RFD also sought to adduce a volume of accounting material concerning the PVL and FTG Groups to which it was contended the liquidator had access, but had not been discovered by him prior to the argument before the Associate Judge. This was arguably relevant to refute arguments advanced by the liquidator that the factual material necessary to analyse the issues remained incomplete.
[22] In addition, after the argument before the Associate Judge and in the context of the costs argument in the High Court, the liquidator disclosed two pages of accounting material in relation to Sol. RFD sought to adduce that as evidence of the extent of accounting material in the liquidator’s possession but which had not been put in evidence when the argument was being prepared in the High Court. The liquidator did not oppose the admission of this last category of new evidence and accordingly it was received by the Court on that basis.
[23] We indicated a provisional view to counsel at the outset of argument that we were disinclined to accept the remainder of the proposed further evidence, but counsel were given leave to make reference to it in the course of their submissions, in support of arguments that it ought to be admitted. We reserved our decision on its admission until it could be assessed in light of the argument. We have decided that it should not be admitted, and briefly address our reasons for that decision at the end of the judgment, where the potential relevance of the further evidence can be explained more efficiently.

Arguments on appeal

[24] On the appeal, Mr Sullivan pursued similar arguments to those advanced on behalf of the liquidator before the Associate Judge. The essence of the liquidator’s position was that Sol’s transfer of the $80,000 to RFD created an obligation for RFD to repay that amount. In the absence of documentation reflecting a different arrangement, the default position was that the advance created a debt owed by RFD, which it was obligated to repay.
[25] Mr Sullivan supported this proposition with an analysis of the proprietary consequences of the money going into Sol’s bank account. As between the bank and its customer, Sol was able to control the money. Mr Sullivan submitted that was the primary indication of Sol’s ownership of the funds in its account.
[26] On Mr Sullivan’s analysis, the nature of Sol’s obligation to repay the $80,000, or any component of the larger amount of $135,216.05, to THL was irrelevant. The liquidator’s focus was on getting the money back from RFD. THL’s status as an unsecured creditor of Sol would relegate its entitlement to a share in Sol’s recovery from RFD, behind those with higher ranking claims in Sol’s liquidation.
[27] Mr Sullivan argued the Court should have rejected Mr Henderson’s characterisation of the transactions between THL, Sol and RFD. First, on the basis that he could not take advantage of the lack of adequate records for those companies under his control. Secondly, because there were grounds for rejecting Mr Henderson’s claim that he used Sol to deal with the proceeds of the payment from QLDC on THL’s behalf.
[28] The liquidator invited us to draw an inference adverse to Mr Henderson because of the refusal of Mr Henderson’s interests to cooperate with enquiries both before and after the High Court hearing.
[29] We address each of the liquidator’s grounds for challenging the Associate Judge’s decision.

Mr Patel’s evidence

[30] Mr Rajkumar Patel swore an affidavit in support of RFD’s application in August 2013. At that time he was the accounts manager for RFD and had previously worked for other companies controlled by Mr Henderson as an accounts manager or accounts administrator. His evidence relating to Westpac’s closing of accounts was without reference to documents and therefore “going off [his] memory alone ...”. His evidence was that THL had used Sol’s bank account to receive the settlement funds from QLDC because THL and other companies in the PVL Group did not have bank accounts of their own. Mr Patel described the amount credited to Sol’s bank account as being distributed “according to the wishes of [THL]”. He described the $80,000 as having been lent by THL to RFD.
[31] The hearing of RFD’s application to set aside the statutory demand was adjourned from December 2013 to April 2014 to accommodate the filing of further evidence on behalf of Sol shortly before the original hearing date. Three working days before the adjourned fixture date, Sol’s solicitors gave notice to RFD’s solicitors that Mr Patel would be required for cross-examination.
[32] It transpired that Mr Patel was no longer employed by any of the Henderson companies, and had left New Zealand. Mr Sullivan opposed RFD’s reliance on Mr Patel’s affidavit as evidence at the hearing, arguing that no reliance could be placed on it because of Mr Patel’s unavailability for cross-examination.
[33] Rule 9.74(3) of the High Court Rules provides:

The affidavit of a person who is not produced must not be used as evidence unless the evidence is routine, or there are exceptional circumstances, and in either case the court grants leave.

[34] The Associate Judge considered there were exceptional circumstances that warranted leave being granted to RFD to use the evidence of Mr Patel. He cited his reasons in the following terms:^[6]

(1) This application has taken a considerable time to come to a hearing, partly because of delays caused by Sol.

(2) It was open to Sol to give notice requiring cross-examination of Mr Patel at a much earlier point including at the point when the previous adjournment was granted.

(3) RFD may not have experienced the impossibility of calling Mr Patel if the hearing had proceeded as initially allocated in November 2013.

(4) While Mr Patel’s evidence cannot be described as “routine”, the substance of Mr Patel’s evidence reflects to a large extent the evidence of Mr Henderson, who was cross-examined on the matters which would have been put to Mr Patel.

[35] On appeal, Mr Sullivan did not identify any specific reliance the Associate Judge had placed on Mr Patel’s evidence. Nonetheless he was concerned that some reliance may have been placed on it in finding that there was a prospect that THL did not have its own bank account in September 2010.
[36] We are not persuaded that Mr Patel’s evidence was material to the Associate Judge’s decision. The fact that his evidence was largely corroborative of what Mr Henderson himself had deposed to, and therefore did not add anything to the remaining evidence before the Court, might have been treated as a factor against granting leave for it to be adduced. However, we consider that the Associate Judge was entitled to find the factors he relied on as constituting sufficiently exceptional circumstances to grant leave as he did. We are certainly not persuaded that permitting the Patel affidavit to be produced led the Associate Judge into error.

Consequences of the funds being in Sol’s bank account

[37] In support of his proposition that the crediting of funds to Sol’s bank account meant that the funds became an asset of Sol, Mr Sullivan referenced a textbook analysis on the effect of an electronic crediting of a sum to a bank account. The particular passage he cited included the following:^[7]

Regardless of how the originator’s intention to pay the money might have been vitiated, the starting point must be that the beneficiary has the primary legal title to the funds in his or her account. A defect in the transaction between the originator and the beneficiary cannot prevent the beneficiary from taking the primary legal title to the money if the credit to his or her account is irrevocable. The reason follows from the very nature of incorporeal money: the juristic act which makes the beneficiary the owner of the money in his or her account is the bank’s assumption of liability to him or her for the amount of the credit. ...

[38] That passage appears under a heading “The beneficiary always takes the primary legal title to incorporeal money” in a section of the text analysing how the originator of a bank transfer loses title to the funds in issue, and how attempts to revoke payment instructions might work.^[8] The rationale for this approach is that in the contractual relationship between the bank and customer, it is the customer in whose account the credit balance sits who can call for the bank to honour its commitment to pay out the credit balance at his or her direction.
[39] That cannot determine, on the incomplete state of the evidence on this appeal, whether Sol can claim the $80,000 as an asset for the purpose of asserting an ability to demand its repayment by RFD. The analysis in Mr Fox’s text is no more than a starting point to resolve the respective rights of a bank and its account holder. This primary position cannot exclude the prospect of other interests qualifying the account holder’s claim to unfettered property in money in its account.
[40] Mr Sullivan also argued that Sol’s ability to apply the amount in its bank account at its own direction was consistent with treating the $80,000 as Sol’s asset. Sol had exerted control of that amount for its own purposes by applying the first $26,453.10 to pay off its overdraft.
[41] However, bearing in mind the transactions were between a number of entities all under the control of Mr Henderson, it is artificial to view the steps taken in Sol’s name as evidencing its control of the money to the exclusion of THL or RFD. Mr Henderson was transferring monies between various companies to suit his overall purposes. If Sol had a bank account able to be utilised for a transfer that he intended to go from THL to RFD before it was on-lent to another entity under his control, then it might be wrong to treat Sol as being independently in control of its own participation in the transactions. We were also not persuaded that Sol applying part of the money to pay off its overdraft necessarily determines the status of the remaining amount.

Adverse indicators on credibility

[42] On the basis of documents that suggest THL had its own bank account in January 2011, Mr Sullivan argued that the Court should reject Mr Henderson’s explanation that Sol’s bank account was used because THL did not have its own bank account in September 2010.
[43] Another point regarding the credibility of Mr Henderson’s explanation is to question why Sol was used at all. Given that QLDC was prepared to pay the amount other than to THL on Mr Henderson’s direction, why not direct the payment straight to his solicitors’ trust account for the credit of RFD? Mr Henderson was not
cross-examined on this prospect.
[44] We endorse the Associate Judge’s sympathy for the liquidator regarding the apparent grounds for finding Mr Henderson in default of his director’s obligation to maintain adequate financial records. Similarly we agree it was relevant that Mr Henderson and Ms Buxton were not cooperating in attempts to clarify factual matters that may be material to resolving the liquidator’s claim against RFD.^[9] However, we also agree with the Associate Judge that the state of the evidence was not sufficient to make a finding adverse to Mr Henderson about the existence of a bank account for THL that it could have used in September 2010. THL had been in liquidation between late 2009 and March 2010. On the evidence, the Associate Judge could not discount the reasonable prospect that, although Mr Patel recorded Westpac’s intention to close accounts for companies including THL in January 2011, THL indeed had not had its own account in the middle of September 2010.
[45] The Associate Judge had to assess, on the preliminary analysis involved in an application to set aside a statutory demand, the strands that tended to support Mr Henderson’s claim. First, it is tolerably clear from the transactions recorded in Sol’s Westpac account that, for a company that did not have its own assets and was not trading, its bank account was being used to meet commitments for other companies under Mr Henderson’s control.
[46] Neither party made anything of the two deposits into Sol’s account one week later amounting to a little more than $80,000.^[10] It is inappropriate to speculate that they were in repayment of the $80,000 paid out a week earlier. However, they do strengthen the impression that Sol’s account was in the nature of a clearing account, perhaps genuinely used as a conduit.
[47] In addition, the $80,000 did not go into Cousins & Associates’ trust account for Sol, but instead went directly into the trust account for RFD. The narration recording that credit contrasts with subsequent legs of the transaction where the narration recognised a loan had occurred.
[48] Further, to the extent that Mr Henderson’s governance of the two groups might draw a distinction between the interests of companies in the PVL Group and those in the FTG Group, Sol was the only company participating from the PVL Group, with all the others being in the FTG Group, as noted above. Within the FTG Group, terms for a loan from RFD to GP96 were documented, but no documentation was completed for the transfer between Sol and RFD.

Was it wrong to treat Sol as a conduit?

[49] The Associate Judge recognised the prospect of RFD making out a defence to the statutory demand on the basis that Sol had participated merely as a conduit for the payment of funds from THL to RFD.^[11] In oral argument in the High Court, Mr Moss for RFD had raised the prospect that Sol received the money as a mere conduit, referring to the recent decision of this Court in Lotus Gardens.^[12] Mr Sullivan objected in principle to entities in RFD’s position purporting to treat an associated company used for movement of monies as a “mere conduit”. He submitted it cut across established insolvency law. He also argued that the concept of a conduit in this context could not add anything to the recognised circumstances in which an entity handling money was fixed with obligations as trustee for an identified beneficiary.
[50] In Lotus Gardens, the liquidators of Quantum Grow Ltd, a company that had the same shareholders as Lotus Gardens, pursued recovery of 72 weekly payments that had been made by Quantum Grow to Lotus Gardens. The liquidators, receiving no response to enquiries as to the nature of those payments, issued a notice to set aside as a voidable transaction the payments that had been made within two years of Quantum Grow being placed in liquidation. The liquidators then issued a statutory demand. Those initiatives led to the liquidators of Quantum Grow applying to liquidate Lotus Gardens based on non-compliance with the statutory demand.
[51] In Lotus Gardens, this Court considered the lawfulness of the liquidators’ pursuit of liquidation on the basis of the unsatisfied statutory demand. The Court also considered whether Lotus Gardens would have had grounds for setting aside the statutory demand that required it to repay the amounts received from Quantum Grow. An argument for Lotus Gardens was that it had received the weekly payments, effectively in error, from Quantum Grow. Further, that the payments were intended to repay Quantum Grow’s indebtedness to BNZ and the pattern was for Lotus Gardens to have paid the amounts on to BNZ for that purpose.
[52] Before considering whether that explanation afforded a ground for resisting the statutory demand, this Court observed:^[13]

... We accept that, if in essence Lotus Gardens had not received the funds at all, and was just a conduit to pay them to the bank in settlement of Quantum Grow’s indebtedness, a Court would refuse to direct payment under s 295. Orders setting aside the statutory demand should be made.

[53] The Court went on to roundly reject any tenable prospect that Lotus Gardens had received the payments from Quantum Grow only as a conduit for onpayment to BNZ. The common director of both companies, Mr Canavan, had provided three inconsistent explanations for the payments. His third characterised Lotus Gardens as a conduit for payments from Quantum Grow that were destined for BNZ. His story was rejected as inherently implausible. The Court noted that he had offered three different explanations, and that he had failed to produce bank records which should have been in his possession to demonstrate the correct position, if indeed Lotus Gardens had operated as a conduit.
[54] The compelling absence of any tenable basis for the claim distinguishes Lotus Gardens from the present case on the facts. In Lotus Gardens, there was a reasonable expectation that Mr Canavan would support his explanation by bank statements that ought to have been under his control. There was also scope for the complementary finding that the liquidators should not have been expected to adduce evidence to refute the third version of Mr Canavan’s claim, which so inherently lacked credibility and would have required investigation of matters going beyond records under their control. Those findings are not applicable in the different factual context of this case.
[55] Given the factual findings in Lotus Gardens, it was unnecessary for this Court to consider in any detail the rationale for recognising that where payments to a company may constitute transactions on behalf of another, the recipient of the payment does not incur an indebtedness to the payer.
[56] Mr Sullivan also cited the Federal Court of Australia decision in Re Ox Operations Pty Ltd for a rejection of the concept that a payment in inter-company transactions was received from a conduit.^[14] However, like Lotus Gardens, the Court in that case entertained the prospect of characterising the payer as a conduit, but rejected it on the facts.
[57] Mr Sullivan objected to the imprecision of the description of the payer in such situations as a “conduit”. He argued that use of the label could disguise the absence of a proper legal foundation which a company in RFD’s position ought to be required to identify and make out as tenable when it resisted a statutory demand for repayment.
[58] Where the facts permit a recipient of monies in RFD’s position to treat the role of the payer as a mere conduit so that the recipient did not assume an obligation to repay the amount received from the payer, then it will be open to such recipients to advance such facts as grounds short of proof, in seeking to set aside a statutory demand. Whether the material advanced raises a genuine and substantial dispute as to the existence of the debt will be a question of fact in each case.
[59] We are not persuaded that this ground for resisting liability for a statutory demand should be ruled out entirely on the basis that it opens an undesirable gate that would enable debtors to subvert or avoid the settled effect of insolvency laws. The validity of a claim that payment was received from a conduit will depend critically on the factual circumstances in which payments were arranged. The extent to which a party denying liability for a statutory demand will need to relate the involvement of the so-called conduit to a specific legal basis rationalising that will also depend on the facts. The robust analysis in Lotus Gardens illustrates the appropriate limitations on such an argument.

Conclusion

[60] We are not satisfied that the decision to set aside the statutory demand was wrong. The decision does not constitute a final determination of rights. Rather, it precludes the liquidator from relying on the summary procedure in recovering assets claimed to be owed to the company in liquidation. Whether this is an appropriate case in which to treat Sol’s participation as that of a conduit, and whether Mr Henderson can make out the explanation that would relieve RFD of an obligation to repay the $80,000 to Sol, must await substantive determination on those issues.

Applications to admit fresh evidence declined

[61] Applications to set aside statutory demands on the ground that there is a substantial dispute as to whether the debt was owing involve a threshold inquiry, not a final substantive determination of a contested liability. Proportionality considerations in keeping such arguments within sensible bounds can influence the court on appeal in determining whether new evidence should be adduced.
[62] The liquidator’s letter to the police in 2012, which described Sol’s involvement in the relevant transaction as a conduit, could not estop the liquidator from attributing a different character to it. This is what he has done on a later analysis of information available to him. The letter which RFD sought to adduce as fresh evidence is therefore not cogent.
[63] The examples of further accounting records available to the liquidator also lacked cogency on any issue as argued on the appeal.
[64] So far as the liquidator’s application to adduce fresh evidence is concerned, the detail of the steps taken to confirm the identity of bank accounts, and whether they were being operated at the relevant time, represents a continuation of efforts the liquidator had undertaken to reconstruct the events of relevant companies before the hearing in the High Court. Mr Henderson and those associated with him were already obstructing, or at least not assisting, these efforts. The details of the steps taken after the delivery of the Associate Judge’s decision also failed the cogency test.
[65] Both the appellant and the respondent’s applications for leave to adduce further evidence are declined.

Costs

[66] Counsel were agreed that costs should follow the event, and that costs for a standard appeal calculated on a band A basis together with usual disbursements would reflect the appropriate quantum.
[67] In the event that the appeal failed, Mr Moss sought an additional order that the liquidator be made personally liable for the costs ordered against the unsuccessful appellant. Subsequent to costs being ordered in favour of RFD in the High Court, Mr Moss had made a similar application for a costs order against the liquidator as a non-party. The Associate Judge heard separate argument on that application and delivered a judgment declining the application in November 2014.^[15]
[68] The Associate Judge had followed Supreme Court authority to the effect that an award of costs ought to be made against a liquidator personally only if there has been some relevant impropriety on his part.^[16] The Associate Judge found no impropriety on the liquidator’s part in this case and Mr Moss did not reargue that point. Instead, he argued that personal liability against an appellant liquidator could arise if there had been no merit in the appeal, to the extent that it could be characterised as “forlorn”. Mr Moss argued that here the liquidator had elected to take his chances in succeeding with the appeal for the sake of $80,000. If the appeal were resolved by confirmation of the Associate Judge’s reasoning, the liquidator ought to pay for what Mr Moss implicitly suggested would be a material error of judgement.
[69] Mr Sullivan disputed that personal liability should be attributed to the liquidator. He submitted that even if the appeal did not succeed, it could not have been entirely without merit. The liquidator’s attempts to realise Sol’s assets have been materially frustrated by Mr Henderson, and real issues were raised as to whether the grounds asserted for resisting RFD’s liability were sufficient.
[70] Despite our reasoning conforming relatively closely to the Associate Judge’s, there is no justification for condemning the appeal as being entirely without merit. The liquidator’s decision to pursue the appeal does not in our view warrant personal liability in costs for the consequences of losing.
[71] We note that security for costs has been paid in the usual way, and direct that the extent of security held by the Court is to be released to the respondent. Beyond that, the order for costs is simply against the appellant. The respondent is entitled to costs on a band A basis for a standard appeal, together with usual disbursements.

Solicitors:
Luke Cunningham Clere, Wellington for Appellant
Canterbury Legal Services, Christchurch for Respondent

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^[1] RFD Finance Ltd v Sol Management Ltd (in liq) [2014] NZHC 801.

^[2] At [4]–[5] citing Maloc Construction Ltd (in liq) v Chadwick [1986] NZHC 102; (1986) 3 NZCLC 99,794 (HC) at 99,802 on the equivalent provision in the Companies Act 1955. See also Grant v Lotus Gardens Ltd [2014] NZCA 127, [2014] 2 NZLR 726 at [54] and [56].

^[3] At [22] (footnote omitted); Brookers Company Law (online looseleaf ed, Thomson Reuters) at [CA290.02(1)].

^[4] At [40].

^[5] At [26]–[27] and [29].

^[6] RFD Finance Ltd v Sol Management Ltd (in liq), above n 1, at [64] (footnote omitted).

^[7] David Fox Property Rights in Money (Oxford University Press, Oxford, 2008) at [5.74].

^[8] Mr Fox’s text propounds different rules for corporeal money (bank notes and coins) and incorporeal money (“bank money”) as reflected in credit balances held by customers in banking institutions. See Fox, above n 7, at [1.31]–[1.42].

^[9] That is a reasonable inference on the evidence before the Associate Judge and does not depend on the further evidence sought to be adduced on the appeal for the liquidator.

^[10] Described above at [10].

^[11] RFD Finance Ltd v Sol Management Ltd (in liq), above n 1, at [26]–[28].

^[12] Grant v Lotus Gardens Ltd, above n 2.

^[13] At [47] (footnote omitted).

^[14] Re Ox Operations Pty Ltd [2008] FCA 61.

^[15] RFD Finance Ltd v Sol Management Ltd [2014] NZHC 2983 [Costs judgment].

^[16] Costs judgment, above n 15, at [18] and [59]; Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 124, [2011] 2 NZLR 25 at [10].