Blanchett v RBI Limited [2014] NZHC 2450 (6 October 2014)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

UNDER	Section 292 of the Companies Act 1993
IN THE MATTER	of the liquidation of TSSN LIMITED FORMERLY KNOWN AS KLN LIMITED AND THE STEPPING STONES NURSERY LIMITED (IN LIQUIDATION)
BETWEEN	DAVID MURRAY BLANCHETT and GRANT DAVID MCQUOID Applicants
AND	RBI LIMITED Respondent

Hearing:	(On the papers)
_Judgment:	_{6 October 2014}

This judgment was delivered by me on 6 October 2014 at 3.30 pm, pursuant to Rule 11.5 of the High

[1] RBI Limited (RBI) seeks indemnity or scale costs against Messrs Blanchett and McQuoid as liquidators of The Stepping Stones Nursery Limited (TSSN). Although the liquidators were successful in a claim against RBI, it claims an entitlement to costs as the judgment more or less mirrored RBI’s settlement offer of

[2] In a judgment delivered on 9 July 2014 Associate Judge Abbott allowed the liquidators’ application, ordering RBI to repay $9,623.29 plus interest. He directed that there be no order as to costs, reasoning as follows:¹

Neither party addressed me in the hearing in relation to costs. Both parties have succeeded to some extent. The liquidators established that TSSN was unable to pay its due debts, but only in respect of transactions in the second half of the specified period. RBI succeeded in establishing that there was a continuing business relationship, and I found against the liquidators on the application in New Zealand of the rule of peak indebtedness. On the other hand RBI did not succeed in establishing its entitlement to the s 296(3) exemption. Weighing all of these factors, I consider that there should be no order as to costs (so that each party is to bear their or its own costs).

[3] RBI sought the recall of the judgment as the Judge had not given the parties an opportunity to address the issue of a Calderbank offer. In the absence of Associate Judge Abbott, following his retirement, the file was referred to me. In a minute issued on 12 September 2014 I recalled the judgment to enable counsel to be heard further on the issue of costs. Further memoranda have now been exchanged. This is the final decision on costs.

[4] The liquidators applied to set aside as insolvent transactions 20 payments made by TSSN to RBI totalling $543,472. Associate Judge Abbott allowed the application in relation to six of those 20 transactions, ordering repayment of

[5] Prior to the issue of the proceedings on 6 August 2012 RBI made a without prejudice offer except as to costs of $10,000 in full and final settlement. That offer was in response to the liquidators’ earlier settlement offer of $186,324.05.

[6] RBI seeks indemnity costs of $174,778.15 plus disbursements of $28,984.69. In the alternative it seeks costs on a 2B basis with an uplift of 50 per cent which, together with disbursements added, total $79,729.63. RBI argues that the Calderbank offer mirrored the final result. The offer was clear and unambiguous and warned of the intention to seek indemnity costs if not accepted. It is submitted the liquidators’ refusal to accept the offer was unreasonable. RBI was largely successful in the proceedings as it was awarded to pay only $9,623.29 against a claim of

[7] Counsel relies on Hart v Stiassny²as authority for such an award where an offer is made prior to trial and the final outcome more or less mirrors the proposal. Counsel refers to a number of authorities where an uplift has been applied.

[8] The liquidators submit that little weight should be accorded to the offer. It is only one factor to be considered in determining costs. The liquidators acted reasonably and responsibly in not accepting the offer and in pursuing the claim. The liquidators ultimately succeeded in part and would themselves normally be entitled to costs. A determination that costs lie where they fall already imposes a result adverse to them.

[9] The liquidators suggest that it could equally be asked whether it was reasonable for RBI to have refused their settlement offer of $186,324.05 given that RBI spent more than that sum on its solicitor-client costs.

[10] The Calderbank offer was contained in a letter of 6 August 2012. It included the following terms:

1. I refer to your letter of 16 July 2012. RBI is not prepared to make the requested payment to settle all the voidable transaction claims made by the liquidators.

2. In your correspondence you have not taken into consideration the likelihood that the directors of RBI, who were not also directors of TSSN Limited [or TSSN], will be believed when they give evidence that they acted in good faith, that a reasonable person in their position would not have suspected, and did not have reasonable grounds for suspecting, that the company was or would become insolvent and delay, and that RBI gave value for the property or altered its position in the reasonably held belief that the transfer of the property to RBI was valid and would not be set aside.

3. Nor have you provided any sufficient basis for distinguishing the principle in El Ajou.

4. The running account defence is likely to succeed on the same basis as in the Richardson decision referred to in previous correspondence.

6. RBI is willing to pay the sum of $10,000 in full and final settlement of all voidable transaction claims. This offer will remain open for a period of 7 days, and will expire on 13 August 2012 at 5pm.

8. The proceedings will be strongly defended and indemnity costs will be sought should the liquidators fail.

(1) The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.

(c) apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).

(3) Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a) offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b) makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

[12] RBI would be presumptively entitled to costs under r 14.11(3) if the sum offered by it exceeded the judgment amount. However, the quantum awarded by Associate Judge Abbott was $9,623.29 plus interest as prescribed by the Judicature Act 1908. Interest was to run from the date of receipt of the payments. The interest accrued by 6 August 2012 was $681.11. The total value of the judgment at the offer date was $10,304.34.

offered in that case of $100,000 ‘all up’ did not exceed the amount of the judgment,

$100,000 plus interest. The $10,000 in this case was expressed to be in ‘full and final settlement’. I accept therefore the offer in this case did not exceed the judgment sum and accordingly r 14.11(3) does not apply. However, the offer may be taken into account under r 14.11(4) as it was close to the value of the judgment obtained by the liquidators.

[14] The particularly relevant factors in determining whether an order of costs in

(a) the closeness in value between the offer and the ultimate judgment obtained by the liquidators; and

(b) the timing of the offer. It was made very early in the piece and prior to the commencement of proceedings; and

(e) the reasonableness of the liquidators’ actions in refusing the offer and pursuing the claim having regard to the state of the law at the relevant time.⁴

[15] I reject at this stage the suggestion by the liquidators that the fact RBI could have settled at $186,324.05 which was close to the costs it actually incurred is of any relevance at all. To approach the matter that way is to look through the wrong lens of the telescope.

[16] The judgment and the reasons inform consideration of the above factors. Associate Judge Abbott made the following material findings in respect to the 20 payments in issue:

(a) Payments one to seven were not insolvent transactions. TSSN only became unable to pay its due debts in December 2009.

(b) RBI received more from the payments made from January 2010 than it was likely to receive in the liquidation save for the payments made in the course of a continuing business relationship.

2010 season between July and November 2010 and therefore, for the purposes of determining preference those transactions were to be considered as a single transaction. The point at which to compare preference was at the beginning of the continuing business relationship, not the point of peak indebtedness. On this assessment RBI was not preferred by payments nine to 15 (totalling approximately $302,000).

(d) Payments eight and 16 to 20 were insolvent transactions outside the continuing business relationship. While RBI acted in good faith and gave value for the payments, it was not entitled to rely on the statutory defence. RBI had grounds to suspect that TSSN was insolvent because the knowledge of TSSN’s financial state was attributed to RBI due to a shared common directorship between the two companies.

[17] Although the ultimate judgment was close to the offer made, in my judgment it is also particularly relevant that a factor which supports the reasonableness of the liquidators’ rejection of the offer was the uncertainty as to the application of the rule of “peak indebtedness” in New Zealand. There were conflicting decisions of the High Court at the time of the hearing. As noted above, it made a significant difference to the decision. The Court of Appeal has heard two consolidated appeals

[18] Related to this point, I note that in Hart v Stiassny, the liquidators were found to have acted unreasonably at least in relation to part of the proceedings. That is not the case here.

[19] A further relevant factor is the significance of the lack of the directors’ lack of knowledge. Although most of the directors of RBI (including the Chairman) had no knowledge of TSSN’s finances and acted in good faith in dealing with the company, there was a real issue over whether the knowledge of two of its common directors (who were also directors of TSSN) could be attributed to the company. Ultimately the Judge held that the knowledge could be attributed to those directors. A great deal of evidence (and time at the hearing) appears to have been directed to this issue which the liquidators ultimately succeeded on. I note Associate Judge Abbott’s comments at [45] and [46] of his judgment, in particular where the Judge accepted RBI had been responsible for an “ongoing evolution of the grounds of opposition”

[20] Next, it should not be overlooked that the liquidators actually did succeed.

[21] Having regard to the Judge’s findings and for the above reasons, I am satisfied that although the offer made to settle was very close to the sum subsequently obtained by the liquidators, the liquidators acted reasonably and responsibly in pursuing these proceedings. There was a proper basis for the claim which was not an extravagant one.

Abbott, the costs should, in the circumstances, lie where they fall. For the above reasons I rule that costs are to lie where they fall.

High Court of New Zealand Decisions

Blanchett v RBI Limited [2014] NZHC 2450 (6 October 2014)