RFD Finance Limited v Sol Management Limited (in liquidation) [2014] NZHC 2983 (27 November 2014)

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UNDER	the Companies Act 1993
BETWEEN	RFD FINANCE LIMITED Applicant
AND	SOL MANAGEMENT LIMITED (in liquidation) First Respondent
AND	ROBERT BRUCE WALKER AS LIQUIDATOR OF SOL MANAGEMENT LIMITED (in liquidation) Second Respondent
AND	PROPERTY VENTURES LIMITED (in liquidation) _{Third Respondent}

Hearing:	24 November 2014
Appearances:	J Moss for Applicant K P Sullivan for Second and Third Respondents
_Judgment:	_{27 November 2014}

_{application, this Court set aside the statutory demand in a judgment
dated 16 April}

RFD FINANCE LIMITED v SOL MANAGEMENT LIMITED (in liquidation) [2014] NZHC 2983 [27

[2] Sol was ordered to pay RFD’s costs and disbursements relating to the latter stages of the litigation,²the agreed total of which was $14,709.75.

[3] Sol has not made any payment on account of the costs judgment. Robert Walker, the liquidator of Sol, has invited RFD to file a proof of debt in Sol’s liquidation. RFD has no reasonable expectation of payment from that source because Sol has identified no assets and no apparent ability to pay the costs.

Ventures Limited (in liquidation) (PVL) to pay (jointly) the fixed sum of $14,709.75.

[5] RFD, by the application as filed, also sought a setting aside of the original costs judgment as well.

[6] On reflection, Mr Moss did not pursue the setting aside. The costs judgment against Sol had been properly given. Although the judgment has been sealed, there is support in the Court of Appeal judgment in Packing In Ltd (in liq) v Chilcott for the proposition that even where a costs order against a party to the litigation is sealed, the jurisdiction of the Court to make an order for costs against a non-party is not exhausted.³In Chilcott, the Court of Appeal proceeded to consider the costs issue on its merits (before declining to make an order). While the dicta in Chilcott as to jurisdiction are not binding, they are entitled to respect and appear to accord with the distinction between finality and non-finality of judgments.

[7] The jurisdiction to make orders against the non-parties in this case is supported by the following authorities:

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

³Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 958 (CA) at [9]–[13] [(Chilcott)].

(a) In Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd judgment, including for costs, was given against Caboolture after a very long trial.⁴Caboolture went into liquidation after judgment was sealed. White applied for an order that its costs be paid by the solicitors who had acted for Caboolture. The Full Court of the Federal Court of Australia rejected an argument that the entry of judgment precluded the making of an order for costs against the solicitors. The Court recognised that the principle behind

the Court not having power to vary or alter a judgment regularly given and entered is the need for finality of litigation.⁵The Court stated:⁶

Critical to the jurisdiction of the Court is first that the application not be one in any way to vary or alter the initial order. The present application does not seek to do this. It is, in the sense used in the cases, a supplemental order.

But the issues involved where a claim is made against a solicitor for costs by a party to the litigation have not been determined by the judgment which has been entered. They remain yet to be resolved.

(b) In Wilson v Selwyn District Council Fogarty J applied Caboolture in rejecting an argument that the Court was functus officio because it had not awarded an appellant costs in the appeal judgment^.8The application for costs was supplemental.⁹

... make it clear that there is jurisdiction to make supplemental orders provided that they do not offend the principle of finality. It is not open to a party to seek to vary

⁴Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117

or alter a judgment but, in a proper case, further or consequential relief may be sought, including an order for costs.

[8] Sol’s application for costs orders against the non-parties does not offend the principle of finality. The orders sought are supplemental.

[9] The Court’s costs jurisdiction includes a jurisdiction to award costs against non-parties.¹¹

[10] The principles applicable to an award of non-party costs have been identified by both the Privy Council and the Court of Appeal, and are reflected in the Court of Appeal’s judgment in S H Lock (NZ) Ltd v New Zealand Bloodstock Leasing Ltd:¹²

(a) cost orders against non-parties are exceptional in the sense that they are outside the ordinary class of cases where parties pursue claims for their own benefit and at their own expense;

(b) the ultimate question in any exceptional case is whether in all the circumstances it is just to make the order, thereby requiring a fact specific inquiry;

(c) as a general rule, third party litigation funders are only liable for costs where they not only fund proceedings but substantially control it or “at any rate [are] to benefit from them” – that is because the funder is gaining access to justice for its own purposes and is in effect the real party to litigation;

(d) the most difficult cases are those where non-parties fund receivers or liquidators in litigation which is designed to advance the funders’ own financial interests – in that case, again as a general rule, the funder pursuing its own interests should not be able to escape without risk to liability for costs if the proceeding fails.

[11] The particular position of the liquidator of a company in an insolvent liquidation has been dealt with authoritatively and consistently both in New Zealand

¹¹Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757; see also

¹²S H Lock (NZ) Ltd v New Zealand Bloodstock Leasing Ltd [2011] NZCA 675 at [14], per Harrison J delivering the judgment of the Court; see also Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25].

and England. The English Court of Appeal dealt with such a situation in Metalloy Supplies Limited v MA (UK) Ltd.¹³Millett LJ recognised that directors involved in company litigation are not rendered liable to awards of non-party costs in the absence of some impropriety or bad faith. His Lordship continued:¹⁴

The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. If he does so in his own name, he is personally liable for the costs in the ordinary way, though he may be entitled to an indemnity out of the assets of the company. If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay his costs as well as his own if the proceedings fail.

2)¹⁵approved that part of the judgment of Millett LJ in Metalloy Supplies which contains the observation I have cited. Lord Brown, delivering the Privy Council’s judgment, referred to authorities as to non-party costs before concluding:¹⁶

... As explained in the cases ... that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.

[13] More recently, the New Zealand Supreme Court in Mana Property Trustee Ltd v James Developments Ltd dismissed an application for costs against the liquidators of James Developments Ltd.¹⁷James was the unsuccessful party in appeals to the Court of Appeal and the Supreme Court. James had gone into liquidation while the hearing in the Court of Appeal was pending. The liquidators at that point elected to have James continue its active role in the appeal (and the subsequent appeal). Blanchard J, delivering the judgment of the Supreme Court on costs, observed that the liquidators had merely been the agents of James in relation to

_{the litigation, having taken over the conduct of its affairs from its
director.}¹⁸

¹³_{Metalloy Supplies Ltd v MA (UK) Ltd [1996] EWCA Civ 671; [1997] 1 WLR
1613 1 All ER 418 (CA).}

¹⁵Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 12. In Alpers Frozen Food Ltd v Ali [2007] EWHC 469, 6 Costs LR 818 (Ch) at 19, Warren J recognised that the law as stated in Dymocks represents the law in both New Zealand and England.

¹⁶_{Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2),
above n 12, at [29].}

¹⁷_{Mana Property Trustee Ltd v James Developments Ltd
[2010] NZSC 124 [2011] NZLR 25.}

[14] Turning to the considerations which arise when costs are sought against a liquidator, Blanchard J then continued:

[10] A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. In the case of a liquidator that is a principle of very long standing. There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order will not be made unless there has been some relevant impropriety on the part of the liquidator. The courts recognise that the other party can protect its position, should it be successful, through its ability to seek in advance an order for payment of security for costs. In Metalloy Supplies Ltd v MA (UK) Ltd Millett LJ summarised the position: [Blanchard J here setting out two paragraphs from the judgment of Millett LJ at 1620].

[11] That passage has the approval of the Privy Council in what is now the leading case in this country on costs orders against a non-party, Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2). The Privy Council recognised that in some cases where a non-party may have both controlled the proceeding and funded it, or is to benefit from it, justice will require that if the proceeding fails, the non-party will pay the successful party’s costs:

The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.

Such a person is the real party to the litigation. But that is not ordinarily the position of a liquidator, although it may be the position of a creditor or shareholder who funds a liquidator. As the Privy Council remarked, where the non-party is a liquidator, he or she can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his or her own interests. The reluctance of courts to make awards against liquidators who are non-parties is for the very good reason that otherwise they may not be prepared to take on the role and enter into litigation that may be beneficial for the company and thus for creditors.

[15] I recognise that the Courts, in affording a substantial measure of protection to liquidators, have (as the Supreme Court did in Mana Property) identified the fact that a party faced with proceedings pursued by a company in liquidation can protect its future costs position by obtaining in advance an order for the payment of security for costs.

[16] Mr Moss noted that in the speedy context in which applications to set aside a statutory demand are normally dealt with, there is little scope for a successful

application for security for costs. As occurred in this proceeding, the setting aside application will generally proceed promptly to a hearing without any consideration of security.

[17] Mr Moss effectively invited me to conclude that there ought to be an exception to the general approach to non-party costs against liquidators to provide for situations in which a party could not realistically obtain protection through an award of security for costs.

[18] I do not accept that the authorities to which I have referred permit of such an exception. On the authority of Mana Property, “some relevant impropriety” on the part of the liquidator must be established.

[19] There is also a practical consideration militating against the creation of an exception. Many of the cases involving a consideration of non-party costs arise after trials. By their nature, the costs and disbursements exposure of ultimately successful parties will often in those cases be substantial. Statutory demand proceedings on the other hand will generally by their nature be dealt with relatively swiftly at a reasonably short hearing.

[20] I accordingly view the unlikelihood of security for costs on a setting aside application as not being a matter which justifies the Court in departing from the approach that the Courts have laid down for exceptional awards of non-party costs against liquidators.

[21] The fact that costs will be awarded against a liquidator personally only in exceptional cases is reflected in the observation of Waller LJ in Metalloy Supplies that counsel had not referred the Court of Appeal to any case, prior to the first instance decision in Metalloy Supplies itself, (that is prior to March 1995), where a Judge had awarded a liquidator to pay non-party costs in relation to the liquidated

company’s litigation.¹⁹Mr Moss referred me to a single instance of such an award in

New Zealand. In Time3 Global Ltd v Norrie, Associate Judge Faire in 2013 awarded costs against a liquidator who had himself (not through a solicitor) issued a statutory

demand for which there was no proper basis, his Honour finding that there was no contracted basis.²⁰

[22] It is common ground that Sol has identified no assets and no apparent ability to pay the awarded costs.

[23] I summarise RFD’s grounds for claiming non-party costs against Mr Walker personally:

(b) Mr Walker controlled the issuing of the demand and the opposition to the application to set it aside;

(c) the grounds of Sol’s opposition to an order setting aside the demand were weak and/or involved impropriety on Mr Walker’s part as evidenced by:

(ii) the characterisation of Sol’s bank account in a report of Mr Walker to the New Zealand Police on 9 March 2012, as “a cash conduit” or “clearing house”;

(iii) a Balance Sheet of Sol as at 31 March 2011 produced by Mr Walker in evidence for this hearing which does not identify as an asset of Sol any loan to Sol of $80,000 or otherwise; and

(d) there has been a recovery of costs in other proceedings in which Mr Walker has been involved as liquidator rendering it unjust that Sol be unable to recover its costs in a proceeding in which Mr Walker has been associated and unsuccessful.

[24] RFD’s ground for recovering non-party costs from PVL specifically is that a statutory demand was pursued by Mr Walker for the benefit of PVL which, as the sole shareholder of RFD, stood to benefit from the claim against Sol.

[25] Mr Walker and PVL take issue with the various grounds relied upon by Sol. They say there are no exceptional circumstances justifying a non-party award of costs in this case.

[26] Additionally, they say that the application for non-party costs should have been pursued when the costs of the proceeding were dealt with, and that the lateness of the application counts against the making of an award of costs now.²¹

[28] The hearing of the application to set aside the statutory demand was heard on

7 April 2014. Mr Moss sought an award of costs against Sol. No request was made for costs against non-parties. As a result, the only order considered and made was

²¹As occurred when the Court awarded costs against the liquidator in Time3 Global Ltd v Norrie,

[29] In June 2014, Sol’s solicitors had the costs order against RFD sealed and then demanded payment from RFD. There followed a correspondence between lawyers. Sol’s barrister explained that RFD had no assets to meet the debt. The liquidator invited RFD to complete a creditor’s claim form. RFD’s barrister indicated that a costs order would be made against Mr Walker personally unless the costs were paid. There was an exchange as to how the principles applying to non-party costs would operate on the facts, RFD’s barrister noting that Mr Walker had been pursuing avenues of recovery of funds for the creditors of the PVL companies of which he is liquidator. RFD’s barrister then indicated that a non-party costs application would be made not only against Mr Walker but also against PVL, which application was filed the following day (17 July 2014).

[30] I regard the relevant period of delay before the non-party costs order was pursued as a little under three months (from 16 April 2014 when the setting aside application was dismissed).

[31] I recognise that the application for non-party costs was made soon after Sol’s barrister indicated that Sol had no assets to pay the costs. In some circumstances that would suggest that the delay was not significant. What marks this case is there had not been any basis from the outset to reasonably conclude that there would be funds in RFD’s liquidation to provide for payment of a costs award. The deponents for RFD had been integrally involved with the Henderson companies, Mr David Henderson having been a director of both RFD and Sol and Rajkumar Patel having been the accounts administrator for the Property Ventures Limited group of companies. Mr Moss’s submission at the setting aside proceeding was that Sol had not traded and had no assets. Consistently, in its present application one of Sol’s specific grounds says that “Sol never traded and has no assets”. (The allegation that Sol had never traded is not accepted by Mr Walker, and explained below at [38], but the contest on that issue is immaterial to the present discussion).

[32] RFD explains its failure to pursue non-party costs earlier by reason of a belief of Ian Hyndman as RFD’s director from December 2010 that any costs award against

Sol would be met by Mr Walker. Mr Hyndman has given evidence of mistaken belief. In his evidence he refers to two causes of the mistake.

[33] First, Mr Hyndman says that the proceeding was initially filed “against Mr Walker” and somewhere along the way the name of the proceedings was changed. He deposes that the change had not resonated with Sol. Somewhat similarly, in RFD’s application, it is stated that the proceeding was originally issued in the name of Mr Walker as Sol’s liquidator.

[34] In fact, the statutory demand was issued by Sol to RFD. It happens that Mr Walker signed the demand as liquidator of Sol (a fact recorded on the demand) but the demand was issued expressly in Sol’s name. When RFD applied to set the demand aside, it appropriately named Sol as the respondent.

[35] Accordingly, there was no confusion in relation to the parties in the way either the demand was issued or the setting aside application was commenced. Nor was there a change in the name of parties in the proceeding. Mr Hyndman is mistaken in what he says in his evidence. There was no reasonable basis for him to believe that Mr Walker was a party in the proceeding.

[36] The second explanation Mr Hyndman gives for thinking that Mr Walker would meet any costs award is that Mr Walker had indicated in previous proceedings that he would personally meet costs awards. Mr Hyndman refers to liquidation proceedings in 2013 between PVL (of which Mr Walker is liquidator) and Gibbston Downs Wines Ltd. In a judgment between those parties in April 2013, in which I granted a stay of a liquidation proceeding against Gibbston pending appeal, I recorded that Mr Walker had recognised his personal responsibility to have any costs to be paid by Gibbston as a result of the High Court judgment restored to Gibbston if

Gibbston’s appeal were successful.²²That is, as Mr Sullivan submitted, an entirely

different situation to the present. The issue in Gibbston’s case was not as to the

liquidator’s personal liability for the costs of the proceeding. Rather, what the

_{parties were addressing was the need for an assurance that Gibbston
would get its}

²²Property Ventures Ltd (in rec and in liq) v Gibbston Downs Wines Ltd [2013] NZHC 781 at [37].

paid costs back if it was ultimately successful on appeal. That was the context of Mr

[37] In this proceeding, neither Sol nor its lawyers could have had any reasonable expectation based on the Gibbston case that Mr Walker was in that case accepting a personal liability in relation to all litigation in which his liquidated companies were involved.

[38] In his submissions, Mr Moss sought to bolster the argument that Sol had made a mistake by referring to the content of ultimately unsuccessful settlement discussions which occurred in relation to RFD’s setting aside application. As my judgment in that case records Sol had offered to withdraw its statutory demand upon the basis that costs would lie where they fall.²³Sol rejected the offer, requiring that

2B costs on all steps to that point were appropriate. Mr Moss submits that because

Sol did not trade and had not recovered anything in the liquidation, then plainly any costs payable on the withdrawal of the proceeding would have had to be paid by Mr Walker personally. The conclusion offered by Mr Moss does not necessarily follow. In any event, the discussions in the unsuccessful settlement negotiation were specifically directed towards a settlement. The proposal could not have reasonably led Mr Hyndman or his advisers to conclude that Mr Walker was in some way accepting personal liability for the future.

[39] Once the Court rejects the basis of the alleged mistakes of RFD, as I have,

[40] The Court of Appeal in Chilcott found that the delay in an application for non-party costs in that case was a significant factor in rendering it inappropriate to award such costs.²⁴William Young J, delivering the judgment of the Court, observed that:

[20] There are good reasons why this Court and indeed any Court should discourage applications for supplementary orders for costs which are

made essentially as an afterthought ... It should have been obvious to Messrs Chilcott and Chatfield and their advisers that an order for costs against the appellant would not be met. In those circumstances, if there was to be an application for costs against Mr Hulst, it should have been made at the time the application for leave to appeal was heard.

[41] I infer that an aspect of the Court’s requirement for promptness reflects the view that justice requires such an application to be promptly made an assessment reflected in the Rules which apply to this Court in the express principle that:²⁵

So far as possible the determination of costs should be predictable and expeditious.

[42] In Chilcott the delay was substantially greater than in this case. The unsuccessful party in Chilcott against whom costs were initially ordered appealed the costs judgment unsuccessfully. It was only after the unsuccessful appeal that the application for costs against a non-party was made. What is similar about the circumstances in Chilcott and in this case was that at the relevant earlier point (in this case when costs were initially dealt with and in Chilcott when an application for leave to appeal out of time was being pursued) there was information available to the costs applicant which indicated that the party itself appeared to have no financial resources.

[43] In this case, as in Chilcott, the application against the non-parties has apparently occurred as an afterthought. I infer that a consideration underlying the determination of the Court of Appeal to discourage “afterthought” applications is that although there is no principle of strict finality operating against the making of a supplemental award of costs, the interests of practical finality, avoiding a duplication of hearings and a divergence of appeal rights, suggest that applicants for costs who have had the material information before them at a significantly earlier date are more likely, as a matter of the Court’s discretion, to have a late application for costs

[44] I find that in this case RFD ought to have made any application for non-party costs at the same time as costs were dealt with in relation to Sol itself.

[45] The claim for a non-party costs award against PVL appears to have been in the nature of a second afterthought, that is to say, after RFD’s lawyers sent their initial demand for non-party costs to be paid by Mr Walker personally.

[46] The basis of a claim against PVL was said to arise out of the July 2014 exchange between the lawyers. RFD’s barrister explained in his correspondence that in the light of the fact that Sol apparently had no creditors, the benefit of payment on the statutory demand would accrue to PVL as Sol’s only shareholder.

[47] I do not view this argument as having merit. While it is the case that Mr Walker was also liquidator of PVL, it is clear that in relation to this proceeding he acted as liquidator of Sol with duties to the creditors and shareholders of Sol. The fact that PVL might benefit from the execution of such duties is well outside the scope of circumstances in which an award of non-party costs should arise under consideration.

[48] The argument also suffers from the fact that Mr Walker’s further work in relation to Sol’s existing accounting records suggests there is at least a possibility that Sol had trade creditors. The figure shown for trade creditors on Sol’s trial balance figures is $110,651.00.

[49] As against PVL, I find the combination of the delayed application and the lack of any involvement by PVL in the proceeding stands against any award of non- party costs.

[50] The Privy Council recognised in Dymocks, that underlying the approach of the Courts in not encouraging non-party costs application against liquidators, is the fact that a liquidator can generally be regarded as acting in the interests of the company and more especially as shareholders and creditors than the liquidator’s own interests.²⁶What arguably distinguishes this case from other situations is RFD’s contention that Sol’s lack of finances means that the entirety of any recovery from Sol pursuant to the statutory demand was likely to produce funds from which Mr Walker could meet his personal fees and disbursements (which Sol otherwise had no

ability to pay). The Privy Council in Dymocks observed that the reluctance of the Courts to make non-party costs awards against liquidators lies in fact that the liquidators might not otherwise be prepared to take on their role and enter into litigation that might be beneficial for the company and thus for creditors. But in this case, as distinct from the more common-place situation identified in Dymocks, payment on the statutory demand does not appear likely to directly benefit the creditors or the shareholder of Sol. Mr Walker had a degree of personal interest in the statutory demand proceeding.

[51] I must nevertheless recognise that the liquidation of Sol is incomplete. Mr Walker took over electronic records which had been corrupted and remain incomplete. He is still working to get the full records (including banking records) which may give him a more complete understanding of Sol’s affairs. Other assets may turn up. Other lines of enquiry may be established. There may be avenues of recovery. Any payment which Mr Walker is now able to make to cover his fees and expenses increases the prospect that Sol’s creditors or shareholder might ultimately benefit from the liquidation.

[52] Accordingly, it is not possible to suggest that Mr Walker’s pursuit of Sol’s opposition to this proceeding was for purely personal reasons. There is a potential benefit to creditors and/or shareholder involved if the statutory demand is ultimately

_{met. That said, it is appropriate that I have regard on this
application to a degree of}

²⁶Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2, above n 12, at [29].

personal benefit to Mr Walker provided I do not treat the opposition to the setting

[53] Mr Walker was undoubtedly in control of Sol. He is to be regarded as driving both the issuing of the statutory demand and the resistance to its setting aside. I regard Mr Walker as being in the same situation as the liquidator (Mr Hulst) in Chilcott where the Court of Appeal came to the same conclusion about Mr Hulst as to control as I reach about Mr Walker.²⁷

[54] The judgment of the Supreme Court in Mana established that the ultimate criterion for making an order that a liquidator pay costs personally is that there has been some relevant impropriety on the part of the liquidator.²⁸

[55] I upheld RFD’s assertion that there was material short of proof to suggest that RFD’s bank account was used as a mere conduit for the transfer of money owing to another and that RFD might therefore not be in indebted to Sol. But as my judgment indicated, substantial gaps existed in the evidence. That included in relation to the banking records of a relevant entity (Tomanovich Holdings Ltd) and the inadequacy of records kept by those who had previously controlled Sol. It was clear that Mr Walker’s investigative task as liquidator of Sol was significantly handicapped by the gross failure of others in relation to the financial dealings of Sol. While Sol and RFD sat within different groups of companies (Sol within the PVL group and RFD within the FTG Group) the companies were all closely associated with David Henderson. In the context of discretionary awards of costs it would be inappropriate to ignore the degree of relationships (both direct and indirect), Mr Henderson’s position as director of both RFD and Sol, and the measure of influence that existed between entities. Their dealings and a lack of complete documentation contributed substantially to difficulties in reaching clear conclusions about particular

While I have found in favour of RFD that there is a genuine dispute, the manner in which those responsible for Sol and RFD kept their contemporaneous records did not render Sol’s position totally unmeritorious. The finding I have made is simply that RFD has established a genuine and substantial dispute as to the existence of any debt to Sol.

[57] That disposed of an application which Mr Moss had made for increased costs. I therefore awarded costs on a 2B basis only and then limited it to the period after which RFD’s application and evidence were available.

[58] I make the same finding in relation to the present costs applications. The position adopted by Sol was not entirely unmeritorious in terms of the documentary record. This distinguishes this case from Time3 Global where the Court’s finding was that the liquidator had no proper basis for issuing the statutory demand.³⁰

Neither the pursuit of the statutory demand nor the opposition to its setting aside constitute unreasonable conduct on the part of Sol or its liquidator. I found against Sol in relation to its statutory demand because there was a genuine dispute. I did not find Sol’s demand to be entirely without merit.

[59] Mr Moss accepted in his submissions that Mana Property Trustee establishes that I am not entitled to award costs against Mr Walker unless there has been some relevant impropriety on his part.³¹

[60] I adhere to my earlier finding, when allowing the setting aside application, that Sol’s position had not been totally unmeritorious. This was not a case in which the Court has determined that a plainly hopeless case was pursued with room for an inference that it must have been pursued in bad faith.

[61] Instead, Mr Moss submitted that two additional items of evidence, not before the Court at the setting aside application, point to a failure of disclosure or

2012 sent by Mr Walker to the New Zealand Police in relation to a warrant which the Police executed in early 2011 in order to search Mr Henderson’s red zone premises. In the report Mr Walker described the nature of records obtained from the search. The report included the following passage:

On 9 February 2012 I liquidated Sol Management (in liquidation) (SML). I have since taken possession of bank statements for SML. I can see that it was being used in the same way as Dweller. That is as a cash conduit or

‘clearing house’. I am now in the same position again. I have to try and rebuild from incomplete information what has happened in SML. From the information I have retrieved in respect to PVL I can see that it was used in a similar [way] prior to its demise. I need the physical files to be able to rebuild the financial accounts as best I can.

[63] In my judgment on the setting aside application, I referred to Court of Appeal authority recognising that a recipient of funds may be “just a conduit to pay them” to another party.³²I concluded that the available evidence of the transactions might reasonably at trial lead to a conclusion that the legal character of the Sol/RFD transaction was not an advance or loan between Sol and RFD.³³

[64] Mr Moss initially submitted that the concept of a “conduit” or “clearing house” essentially arose after the statutory demand hearing when I had reserved my judgment. However, as Mr Sullivan submitted, the concept had been very much an issue at the hearing, RFD’s own expert witness speaking in terms of a “clearing account”.³⁴The issue was alive and it was for each party to make its submissions in the light of the evidence which was subsequently reviewed in my judgment.

[65] I do not find any impropriety in Mr Walker’s failing to advert to the fact that he had in March 2012 taken the view that Sol had appeared from its bank statements to have been used within the Henderson companies as a “cash conduit” or “clearing house”. But, as Mr Sullivan has submitted, with the central issue in relation to

_{statutory demand depending on such documentary evidence as exists, it
was open to}

Mr Walker with legal advice to defend the argument that the payment to RFD was in fact an advance. In the context of civil litigation it was not improper for Mr Walker to fail to point out or highlight a previously inconsistent view he had formed, particularly when Mr Hyndman does not suggest the relevant Police statement was unavailable to him or RFD’s legal advisers at the time of the statutory demand proceedings.

[66] Secondly, in his oral submissions Mr Moss referred to the balance sheet for Sol as at 31 March 2011. Mr Walker had had his staff prepare the balance sheet which showed that Sol on its own records appeared to have trade creditors. Mr Moss noted that the balance sheet did not identify a loan to RFD amongst the assets appearing in the balance sheet. Mr Moss submitted that that indicated a further failure by Mr Walker to accurately present the financial information which had been available to him at the time of the statutory demand proceeding.

[67] I accept Mr Sullivan’s submission that Mr Moss’s submission fails to take into account the inherent unreliability of the information from which Mr Walker and his staff were working. The evidence is that the electronic records taken over by the liquidator had been corrupted and remain incomplete. The balance sheet represents trial balances which themselves may be incomplete. The absence of a specific record of the payment to RFD as an advance within Sol’s trial balances does not establish that the transaction did not involve an advance. It simply reflects the fact that there is no narrative record of the characterisation of the payment, a fact that was clearly before the Court in the statutory demand proceeding. The non-production of a balance sheet at the statutory demand proceeding (in the form now produced by Mr Walker on this application) does not represent an impropriety on his part.

[68] As I will not be making non-party costs orders by reason of my previous findings, it becomes strictly unnecessary to deal with Mr Moss’s further proposition that the Court should take into account the fact that there has been a recovery of costs in other proceedings in which Mr Walker has been involved when successful

which would render it unjust that there be a non-recovery of costs in unsuccessful proceedings with which he is associated.

[69] I would not have concluded that anything ordered or achieved in relation to costs in other proceedings should come into play in this proceeding.

[70] I am not satisfied that it would be just to order costs to be paid by either Mr Walker or PVL in this proceeding. The primary reason for that finding against Mr Walker is that I am not satisfied that he has acted improperly. As against PVL its relevance in this proceeding is simply as the shareholder of RFD and it does not fall within the controlling or conducting category of non-parties. As against both, I am additionally influenced by the delay in the application for non-party costs, which very much appears as an afterthought.

[72] Given that Mr Walker and PVL cooperated and took together all steps in opposition to the application, Mr Sullivan accepted that there should be a single award of costs in favour of both Mr Walker and PVL, the allocation of which between Mr Walker and PVL will be a matter for them.

(b) RFD Finance Limited is to pay the costs of Robert Bruce Walker and Property Ventures Limited (in liquidation) on a 2B basis, together with disbursements to be fixed by the Registrar. I certify for Mr

High Court of New Zealand Decisions

RFD Finance Limited v Sol Management Limited (in liquidation) [2014] NZHC 2983 (27 November 2014)