Federal Geo Limited v Hadlow [2013] NZHC 727 (11 April 2013)

Last Updated: 11 July 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-5688 [2013] NZHC 727

IN THE MATTER OF the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of Cameron Hadlow

BETWEEN FEDERAL GEO LIMITED Judgment Creditor

AND CAMERON HADLOW Judgment Debtor

Hearing: 26 February 2013

Counsel: L G Cox for judgment creditor

R B Hucker for judgment debtor

Judgment: 26 February 2013

Reasons: 11 April 2013

_{REASONS FOR JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 11 April 2013 at 4.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

Solicitors:

L G Cox, Morgan Coakle, PO Box 114, Shortland Street, Auckland 1140

R B Hucker, Hucker & Associates, PO Box 3843, Shortland Street, Auckland 1140

FEDERAL GEO LIMITED V CAMERON HADLOW HC AK CIV 2012-404-5688 [26 February 2013]

[1] Federal Geo Limited, the judgment creditor, commenced this application for adjudication in November 2012, after Mr Hadlow, the judgment debtor, failed to comply with a bankruptcy notice.

[2] Mr Hadlow paid the judgment sum, together with some statutory interest, by direct credit into the trust account of the solicitors for Federal Geo two days before the application was called for a second time. At the ensuing hearing, counsel for Federal Geo indicated its intention to withdraw its application subject to payment of costs. On the other hand, counsel for Mr Hadlow argued that the basis for the application had fallen away with Mr Hadlow’s payment, and the application should be dismissed.

[3] The application was adjourned for counsel to present written argument. When the application came back before the Court on 26 February 2013, I ruled that Federal Geo was entitled to pursue its application for costs, and awarded costs on a scale 2B basis. I also ruled that the application remained alive, in respect of the liability for costs, notwithstanding payment of the core debt, pending payment of the costs. These are my reasons for those decisions (which were given orally, but in outline only, at the hearing).

Background

[4] Federal Geo obtained judgment against Mr Hadlow on 14 August 2012 for the sum of $5,535.64. It served a bankruptcy notice on him. Mr Hadlow failed to comply with that notice. Federal Geo filed its application for adjudication on 5

November 2012, relying on that act of bankruptcy.

[5] The application was given the date of hearing of 11 December 2012. Mr Hadlow did not file any opposition to the application, but appeared at the hearing through counsel to seek an adjournment to allow him time to pay the debt. The application was adjourned to 24 January 2013.

[6] On 12 December 2012 Federal Geo’s solicitors wrote to Mr Hadlow’s solicitors setting out the amount it was claiming, including statutory interest on the judgment debt and costs on the application on a scale 2B basis. They also stated that statutory interest continued to accrue, and that costs would increase if payment was not made by 22 January 2013 (as a further Court appearance would be required). They enclosed a copy of a deposit slip for their trust account to facilitate payment.

[7] On 22 January 2013 Mr Hadlow paid the sum of $5,610.04 (the judgment

debt plus statutory interest up to the date of Federal Geo’s solicitor’s letter of 12

December 2012) directly into the trust account.

[8] Upon identifying that payment the following day, Federal Geo’s solicitors sent an email to Mr Hadlow’s solicitors noting that Mr Hadlow had not paid the costs and disbursements (as set out in their letter of 12 December 2012), nor the interest that had accrued since the letter was sent, and stated that Federal Geo required full payment of those sums prior to commencement of hearing the following day. Those sums were not paid.

[9] When the application was called on 24 January 2013, Counsel for Federal Geo sought an order for costs and an adjournment to allow time for payment, and counsel for Mr Hadlow sought dismissal of the application. A timetable was set for filing of written argument, and the application was adjourned to 26 February 2013.

[10] On 26 February 2013 I ruled that Federal Geo was entitled to pursue its application for costs, I made an order that Mr Hadlow was to pay costs on a scale 2B basis, and I ruled that the application remained alive. I also ruled, in the circumstances of the case including the relatively modest amount of the debt, that no costs would be awarded on the argument as to costs.

The opposing contentions

[11] Counsel for Mr Hadlow advanced two arguments for dismissal of the application. First, he argued that Federal Geo had accepted the payment tendered by Mr Hadlow with knowledge that its application was outstanding, did not reject the

tender and return the money, and was precluded from proceeding further on its application (relying on Re Peacock ex parte Provincial Discounts Ltd).1

[12] Secondly, he submitted that as a consequence of the payment, Mr Hadlow was no longer indebted in a sum in excess of the prescribed amount,2 and the fact on which the application was brought (that Mr Hadlow was indebted in the sum of

$5,572.84), which had to be true at the time of the hearing, were no longer true. He submitted that that was a complete jurisdictional bar to an order for adjudication on the authority of this Court in Lane v Questnet Ltd.3

[13] Counsel submitted that there was support for this second proposition in the following:

(a) Form B5 of the High Court Rules (replicated in paragraph 4 of the summons to debtor) which gave notice to the debtor of the circumstances in which the Court could proceed to adjudicate the debtor bankrupt did not refer to the creditor being entitled to pursue an application for adjudication if the costs of the adjudication application were not paid:

If, by the hearing date, you have not paid the amount of ... or you have paid or disputed the amount of the costs claimed in the bankruptcy notice served on you, The Creditor will be entitled to ask the Court to adjudicate you bankrupt.

(b) The costs of the application were fixed only at the time of determining the application, and a debt did not arise until an order was pronounced, so to allow the creditor to proceed to an adjudication would effectively be allowing the creditor to substitute one debt for another (expressly prohibited in Lane v Questnet Ltd)4, and would also contravene r

11.13(1) of the High Court Rules (that no step could be taken on a judgment

_{before it is sealed).}

1 _{Re Peacock ex parte Provincial Discounts Ltd [1956] NZLR 365, particularly at 367.}

2 _{Insolvency Act 2006, s 13(a).}

3 _{Lane v Questnet Ltd HC Auckland CIV-2007-404-6164, 5 November 2008 at [19] and [20].}

4 At [22] – [26].

[14] As an alternative submission, counsel argued that in light of the small judgment debt, costs should be ordered on a scale 1A basis.

[15] Counsel for Federal Geo argued that Re Peacock did not apply for the following reasons:

(a) Federal Geo had had no opportunity to accept or reject Mr Hadlow’s payment: it had been made by direct credit (with no basis on which it could have been returned directly).

(b) Mr Hadlow had not stipulated that the payment was to be returned if it was not accepted in full payment, nor had he given information to enable that to occur directly (for example by provision of bank account information).

(c) Federal Geo had previously set out (in its solicitor’s letter of 12

December 2012) the sums it was seeking, which included costs.

(d) There had been no election to receive the lesser payment (the basis upon which Re Peacock had been determined): to the contrary, Federal Geo had responded immediately as soon as it identified the payment, and told Mr Hadlow that it was not accepting the payment in full settlement.

(e) Accordingly, there was no accord and satisfaction.5

(f) This Court rejected an analogy with Re Peacock in Commissioner of Inland Revenue v Ashby,6 where the debtor paid the judgment debt but left unpaid further tax, penalties and interest that had accrued since the judgment. The Court took the (obiter) view that the High Court rules as they presently stand (with the overarching principle that costs are in the discretion of the Court in each case7) militated against a rigid application of old authorities

_{such as Re Peacock.}

5 _{HBF Dalgety Ltd v Morton [1987] 1 NZLR 411.}

6 _{Commissioner of Inland Revenue v Ashby [2012] NZHC 176 at [19].}

7 R 14.1.

[16] In terms of Mr Hadlow’s second proposition, counsel argued that Lane v Questnet Ltd was distinguishable because it dealt with additional debts that were not mentioned in the original application, whereas the claim for legal costs was included in Federal Geo’s application. He also argued that the language of the summons to debtor on which counsel for Mr Hadlow relied (referring to costs on the bankruptcy notice) did not necessarily preclude costs on the application itself, and in that respect he relied on paragraphs 5 – 7 of the summons to debtor which indicated that it was imperative that the costs of the application be paid by hearing date “unless the debtor applies to have costs fixed prior to or at the hearing”. He submitted that if costs were granted against Mr Hadlow, the application should be adjourned to allow time for the costs order to be paid and, if it was not the Court should be empowered to adjudicate Mr Hadlow bankrupt. He argued that the logical consequence of dismissing the application, and leaving the costs to be pursued later meant that the process could potentially be repeated “in perpetuity”, and submitted that the appropriate course was to ensure that the payment of costs of the action be dealt with in the same application.

The issues

[17] Three issues arise out of these opposing contentions:

(a) Whether Federal Geo was entitled to pursue an application for costs after payment had been made of the underlying debt.

(b) If costs were payable, what was the appropriate quantum.

(c) If costs were fixed, whether the application should remain alive pending payment.

Discussion

[18] The passage in Re Peacock on which Mr Hadlow relies reads:

I do not think that there is any case here for an award of costs. A judgment creditor who files a petition in bankruptcy, on having tendered to him the

bare amount of the judgment debt without costs, may take either one of two alternative courses. He may refuse the tender and proceed on his petition unless costs are paid. If he does this, it will be for the Court to say whether in the circumstances an order of adjudication will be made, but the petitioning creditor will in this case keep his petition alive and may place before the Court argument supporting his claim to costs. Or, on the other hand, the judgment creditor may elect to take the money offered. In my opinion, if he does this, he cannot keep his petition alive after the receipt of the money so as to preserve any claim to costs. It is true that the petition does not absolutely lapse; for the Court may consider the interests of other creditors, and may in a proper case allow some other creditor to carry the petition forward. But so far as the petitioning creditor himself is concerned, by accepting the money, he engages that he will not proceed further upon the petition, and I think that he cannot after such acceptance be heard on an application for costs.

[19] I consider that Re Peacock does not apply in the present circumstances:

(a) It was predicated on the judgment creditor having had opportunity either to accept or reject the payment prior to (or at the time of) receipt. In Re Peacock the judgment debtor tendered a cheque which the judgment creditor banked (in other words, the creditor took an active step in relation to the tender of payment).

(b) Federal Geo’s solicitors had written to Mr Hadlow’s solicitors, immediately after the first call of the application, stating the costs that were being sought (on a scale 2B basis), and payment was to be made in full or it would proceed.

(c) The payment here was made by direct credit into the trust account of Federal Geo’s solicitors. There had been no prior indication to Federal Geo of the amount that was being direct credited, and Federal Geo was unaware of the payment until it showed in the solicitor’s trust account on the morning before the hearing. Federal Geo’s solicitors immediately informed Mr Hadlow’s solicitors (by email) that interest from 12 December 2012 and legal costs were still being sought. Mr Hadlow’s solicitors did not respond.

(d) It would be unduly onerous and impractical to place an onus on

Federal Geo to return the money in the circumstances:

(i) There was no stipulation made to Federal Geo that the payment was tendered in full and final settlement, nor was there a request for its return if not accepted (either before or at the time of payment or subsequent to receipt of Federal Geo’s solicitors’ email).

(ii) Its solicitors could not reverse the electronic transaction, as they had no knowledge of the account from which it was paid (it did not come from Mr Hadlow personally, but from a company in which Mr Hadlow was neither director nor shareholder).

(iii) Mr Hadlow was put on clear notice that the payment was not accepted as full and final settlement, by the solicitors’ email response.

(iv) There was clearly no election by Federal Geo (in the sense of Re Peacock) to receive the payment in full and final settlement.

(e) It is not apparent from the judgment in Re Peacock whether the judgment creditor in that case had claimed costs prior to receiving the payment, or only sought them after the event. If the latter, that is another basis on which to distinguish Re Peacock from the present case – here the cost claim was made in the bankruptcy notice, in the application and summons, and quantified by Federal Geo’s solicitors immediately after the first hearing when Mr Hadlow had sought time to pay. If the former applied, Re Peacock would be inconsistent with the law on accord and satisfaction as it has developed since Re

Peacock: see in particular HBF Dalgety Ltd v Morton,8 followed by

_{the Court of Appeal in Magnum Photo Supplies Ltd v Viko NZ Ltd.}9

8 _{Above, n 5.}

9 Magnum Photo Supplies Ltd v Viko NZ Ltd [1999] 1 NZLR 395.

[20] Lastly, I note that Re Peacock’s application in the present time was questioned in Commissioner of Inland Revenue v Ashby.10 I do not make a finding on this point as I consider that Re Peacock can be distinguished on the facts.

[21] On Mr Hadlow’s second point, I regard Lane v Questnet as distinguishable on the ground that in the present case the claim for costs was included in the creditor’s application and was quantified before, and up to the point that, payment was tendered. This case does not involve substitution of a new debt.

[22] The Court has a discretion in relation to the fixing of costs. I see no reason to depart from the usual award under scale 2B of Schedule 3 to the High Court Rules. Although the debt is not large, Federal Geo had to give the case extra attention in

_{light of Mr Hadlow’s resistance.}

_{Associate Judge Abbott}

10 Above, n 6.