A1 Commercial Services 2012 Limited (nka City United Taxis Limited) v Freedom Tours & Taxis Limited [2018] NZHC 1034 (11 May 2018)

Last Updated: 23 May 2018

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-000010 [2018] NZHC 1034

UNDER	the Contract and Commercial Law Act 2017
IN THE MATTER	of a sale and purchase agreement
BETWEEN	A1 COMMERCIAL SERVICES 2012 LIMITED (now known as CITY UNITED TAXIS LIMITED) Plaintiff
AND	FREEDOM TOURS & TAXIS LIMITED (In Liquidation) Defendant

Hearing:	8 May 2018
Appearances:	G A Paine and S Cumming for Plaintiff B Nevell for Defendant
Judgment:	11 May 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1] The plaintiff, A1 Commercial Services 2012 Limited (A1) sues the defendant, Freedom Tours & Taxis Limited (Freedom) under an agreement for sale and purchase dated 5 October 2017. A1 agreed to buy Freedom’s business as a taxi call centre. It alleges breach of contract by Freedom in various ways. Sensing that Freedom may seek to re-enter the business premises and take control of the business because it had not paid part of the purchase price, on 2 February 2018 it obtained, without notice, an interim injunction and freezing order.¹ Freedom has applied for orders setting aside the orders made on 2 February. A1 applies for security for costs on this application.

¹ See reasons for these orders, dated 7 February 2018.

A1 COMMERCIAL SERVICES 2012 LTD (now known as CITY UNITED TAXIS LTD) v FREEDOM TOURS & TAXIS LTD (In Liquidation) [2018] NZHC 1034 [11 May 2018]

[2] Freedom is now in liquidation. The liquidator is continuing to engage in this proceeding. She accepts that should any costs award be made against Freedom it is not likely that such an award could be met.

[3] High Court rule 5.45 provides that if a judge is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful on the plaintiff’s proceeding, the judge may, if the judge thinks it is just in all the circumstances, order the giving of security for costs.

[4] The consequence of the concession by the liquidator is that the threshold test for the making of an order for security for costs is met. Therefore the issue in this case is whether it is just in all the circumstances to order the giving of security.

[5] The purchase price of the business was $440,000. A1 paid part in cash, and Freedom agreed to advance A1 the sum of $150,000 to be repaid over 23 months without interest, though with a default interest rate of 12 per cent. This was the subject of a term loan agreement and A1 gave security to Freedom by way of a general security agreement.

[6] It was also agreed that whilst A1 would pay the balance of the price to Freedom, Freedom’s solicitor would retain in its trust account as a stakeholder the sum of $65,000. The basis of the retention was that if within three months from settlement, 10 or more taxis paying a single shift fee to Freedom had given notice that their contract would be terminated, the purchase price would be reduced by $65,000 and the retained sum would be returned to A1.

[7] The liquidator of Freedom is prevented by the freezing order from recovering from A1 either the sum advanced to A1 of $150,000, or the retained monies. The liquidator’s position is that she is under a statutory duty to recover these sums as they are assets in the liquidation of Freedom. In respect of the retained monies, she says that the period of three months from settlement having passed, she can establish that fewer than 10 taxis have given notice of termination so Freedom is entitled to retain this portion of the purchase monies.
[8] The approach the Court is to take to an application for an order that a liquidator give security for costs is summarised in Cory-Wright and Salmon Ltd v KPMG Peat Marwick.² The liquidator of Freedom is not a party, but given the principles to be applied I am satisfied that I should approach the question of directing security for costs against Freedom on the same basis. Given that it will only be in a rare case that an order for costs would be made against a liquidator, it should also be a rare case where an order for security for costs is made against a company in liquidation.

[9] In Cory-Wright and Salmon, after noting that the duty of the Court is to take into account all factors which are relevant to the application, Gallen J said:³

I accept that for the reasons which have been emphasised in a number of cases, it will only be an exceptional case where costs are awarded against an Official Liquidator. That follows from the fact that the Official Liquidator is a public officer carrying out a public function. Nevertheless I do not consider that to be an absolute bar. In each case all of the surrounding circumstances must be considered. That will involve a consideration of the persons on whose behalf the litigation is being conducted and the general background to the litigation.

[10] Based on this principle, a significant factor for the Court to take into account is the public function of the liquidator. In her capacity as liquidator for Freedom she seeks to have the freezing order set aside so she can access funds which she has a statutory obligation to gather in, and distribute them in accordance with her obligations under the Companies Act 1993. A principal creditor of Freedom is the Commissioner of Inland Revenue to whom a debt in excess of $300,000 is owed. It is not known whether there are any other creditors, but this demonstrates that in addition to the public function of the liquidator, there is also a public interest in the Commissioner of Inland Revenue recovering taxation which has been assessed as owing by Freedom.

[11] In this case there is no evidence that the liquidator is backed financially by any contributions from any secured or unsecured creditors. The only evidence of any financial contribution to the liquidator’s position is that her present solicitors are conducting this application on a contingency basis and, as I understand it, will also conduct the application to set aside the freezing order on the same basis. Whilst Mr Paine suggested this may be inappropriate because there could be an element of

² Cory-Wright and Salmon Ltd v KPMG Peat Marwick [1993] 2 NZLR 701 (HC).

³ At 706.

personal gain to the solicitors concerned, there is no evidence to back up that suggestion, and I reject it. The solicitors concerned are entitled to act on a contingency basis within the confines of the rules laid down by the Law Society.

[12] In the absence of any financial backing, or cash in the liquidation, the liquidator is unable to fund payment of a sum by way of security for costs. The making of an order would thus deprive the liquidator of the ability to continue the application to set aside the freezing order in accordance with her duty as liquidator under the Companies Act.

[13] A further factor I take into account is that the freezing order was made on a without notice basis. So far Freedom has not been heard by this Court in relation to whether or not its assets should be frozen. The effect of making an order that security for costs be paid would therefore prevent the other side of the argument in relation to the claims made by A1 being heard at all.

[14] Mr Paine says that little weight should be accorded to this factor because the prospect of the freezing order being set aside is not substantial. So far as the vendor finance is concerned, he says that A1 has cancelled the agreement for sale and purchase and therefore Freedom cannot recover this sum from A1. This argument is not based on a strong foundation. The funds were not advanced under the agreement for sale and purchase. They were advanced under a term loan agreement which contains a clear and binding obligation on A1 to repay the sum borrowed, together with all interest and other charges. That agreement has not been cancelled. Mr Paine says that the advance was part of the cancelled sale agreement, but even if that is so (which I do not accept) there is scope for the Court to make an order by way of relief under s 43 of the Contract and Commercial Law Act 2017.

[15] So far as the retention is concerned, Mr Nevell argues that cancellation of the agreement for sale and purchase does not prevent the Court making an order returning this sum to A1. I agree: again, s 43 will apply.

[16] The final point argued by Mr Paine is that unless security for costs is ordered, A1 will be exposed in relation to its own costs because it will not be able to recover
any part of those costs from Freedom if successful. Whilst that is evidently correct and is generally a significant factor to be taken into account, it does not weigh sufficiently heavily in this case to warrant an order being made. Costs on a 2B basis on the application to set aside the freezing order amount to $5,760. That is the maximum exposure that A1 has, and even if this were a case where the Court was prepared to direct the giving of security, it would not likely be in the full amount of a potential adverse costs award. The exposure of A1 in the absence of security is therefore lower than that figure. Further, by bringing this application A1 has exposed itself to an adverse costs award, in the event of it being unsuccessful, in exactly the same amount but does not seem to be sufficiently concerned about that prospect to weigh up the advisability of doing so. At the very least, the fact that there is established authority that only rarely will the Court direct a liquidator to give security for costs should have highlighted that risk. Given this, it is at least a possible inference that this application is an attempt to prevent the liquidator being heard by the Court on the very issues which A1 brought to the Court without notice.

[17] Weighing up all factors, therefore, I am satisfied that this is not a case where the Court should order Freedom to give security for costs.

Outcome

[18] The application is declined.

[19] A1 will pay costs to Freedom on this application on a 2B basis together with disbursements fixed by the Registrar.





J G Matthews Associate Judge

Solicitors:

Wilkinson Rodgers Lawyers, Dunedin Guest Carter Law Limited, Dunedin