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GPC Electronics (New Zealand) Limited v Sensys Limited [2019] NZHC 2004 (15 August 2019)

Last Updated: 20 August 2019

JUDGMENT OF ASSOCIATE JUDGE LESTER

(on application for non-party costs)

This judgment was delivered by me on 15 August 2019 at 3.30pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 15 August 2019

GPC ELECTRONICS (NEW ZEALAND) LTD v SENSYS LTD [2019] NZHC 2004 [15 August 2019]

Introduction

[1] The plaintiff, GPC Electronics (New Zealand) Ltd (“GPC”), applies for a costs award against Richard Warwick Jones, the director of the defendant company, SenSys Ltd.

[2] GPC was the supplier of goods to another company of Mr Jones’ called Design Electronics Ltd. Design Electronics Ltd traded as SenSys. By May 2018, the indebtedness of the company GPC supplied was such that GPC instructed its solicitors to send a letter of demand for the outstanding amount.

First demand

[3] On 7 May 2018, GPC’s solicitor wrote to Mr Jones addressing the letter to “SenSys Limited” at its registered office. The letter was in standard form for a letter of demand. The letter stated that:

Since May 2017 our client has supplied you with electronic products at your request ...

The letter went on to record the indebtedness that was demanded.

[4] The letter had the desired effect and following the demand Mr Jones contacted GPC’s general manager seeking further time to comply with the demand. The granting of time was agreed and on 1 June 2018 the amount demanded was paid.

[5] Accordingly, after receiving a letter addressed to “SenSys Limited” rather than to “Design Electronics Ltd trading as SenSys”, Mr Jones responded to the demand and arranged for payment.

Second demand

[6] Unfortunately, further arrears arose. On 19 October 2018, a further solicitor’s letter was written, again addressed to “SenSys Limited” for the attention of Mr Jones. Mr Jones responded to the email, his name appearing above the word “SenSys” on the
email. The email does not refer to “SenSys Limited”, nor does it refer to “Design Electronics trading as SenSys”.

[7] On 19 November 2018, GPC instructed its solicitors to write to Mr Jones – the email advised:

Please see attached a copy of the s 289 notice which was served at SenSys registered office on 30 October 2018.

[8] The email concluded with a recommendation that Mr Jones take legal advice.

[9] The statutory demand was addressed to “SenSys Limited” and was described as:

... being the amount due and owing by you in respect of goods supplied and orders made by you for the supply of goods between 12 July 2018 and 19 September 2018, full particulars of which have been advised to you in writing.

The “you” referred to is SenSys Ltd.

[10] In reply to the solicitor’s email providing a copy of the statutory demand, Mr Jones replied to the solicitor in an email dated 20 November 2018:

SenSys expects funds available for payment in our account this week. May I phone you on this matter today please.

[11] No funds were forthcoming, and GPC issued liquidation proceedings against SenSys Ltd on 29 November 2018. Those proceedings were served at the registered office of SenSys Ltd, which is also the registered office of Design Electronics Ltd. The service address is Mr Jones’ home.

Liquidation proceedings

[12] The proceedings served on 14 January 2019 had a first call date in Court of 14 February 2019.

[13] The day before the call of the liquidation, Mr Jones sent an email to GPC’s solicitor asking for an adjournment of the proceedings against SenSys. The email
asserted that liquidation would fail to produce any payment for GPC given security commitments said to be already in place.

[14] In response to the reference to security commitments, GPC’s solicitors wrote to Mr Jones on 13 February 2019 asking for details of the secured creditor referred to and said:

Please note that an updated PPSR search today confirms there is no financier with a registered interest against Sensys Limited ...

[15] The reply from Mr Jones of the early evening of 13 February 2019, which again does not refer to “SenSys Ltd” or to “Design Electronics Ltd”, instead refers to the “SenSys Team”. It refers to a gentleman as a secured creditor and says:

We have not been able to access contract documents; these are in a fire evacuated zone in Redwood Valley, Nelson for ourselves and [the secured creditor].

[16] The request for an adjournment was declined, and the application was heard by the Court on 14 February 2019. No appearance was entered for SenSys Ltd and an order placing SenSys Ltd into liquidation was made.

[17] It is common ground that Mr Jones was present in Court for at least part of the call of the application to liquidate SenSys Ltd. Mr Jones did not attempt to let the Court or counsel for GPC know that the liquidation proceeding was against the wrong company.

[18] The Court appointed the liquidators nominated by GPC who are experienced liquidators routinely appointed by the Court.

[19] The evidence of the liquidators is that on the day after the liquidation order, one of the liquidators’ team contacted Mr Jones who advised the liquidators’ assistant that the liquidation order had been made against the wrong company.

[20] Accordingly, GPC had in error issued a statutory demand to and liquidated SenSys Ltd whereas its dealings were in fact with Design Electronics Ltd trading as SenSys.
[21] Mr Jones has explained that the company SenSys Ltd does not trade and was incorporated by him in a practical sense to protect the name “SenSys”.

Costs application

[22] Upon GPC learning that the incorrect company had been liquidated, it applied to the Court to have the liquidation order terminated and in the course of that application made an application for non-party costs against Mr Jones. Mr Jones was served with the application and he opposes the application for non-party costs.

[23] GPC seeks the following costs:

(i) wasted costs on the original liquidation application;

(ii) additional costs incurred to have the liquidation terminated;

(iii) costs incurred by the liquidators; and

(iv) costs on this application.

[24] Mr Jones has filed an affidavit. What is conspicuously missing from it is any explanation as to why he did not raise the fact that the letters of demand, statutory demand and liquidation proceedings were addressed to the wrong company.

[25] This absence of evidence is, in my view, telling. Indeed, Ms Jamieson who appeared for Mr Jones was realistic in acknowledging that the Court may well have criticism of Mr Jones for his conduct.

[26] The clear picture painted by GPC’s counsel was that Mr Jones was aware of the error and chose to take advantage of the error by having GPC focus on the non-trading company, SenSys Ltd. The absence of any rebuttal from Mr Jones or even the claim that there was a mistake or confusion speaks for itself.

[27] Also telling is the fact that the day after the company was put into liquidation, Mr Jones advised the liquidators that the wrong company had been liquidated. That
Mr Jones advised the Liquidators of that on his first contact with them is consistent with GPC’s case that Mr Jones was well aware that the wrong company had been targeted but chose to say nothing about it.

[28] I accept Ms Jolliffe’s submission that Mr Jones’ conduct leading up to liquidation affirmed GPC’s belief that the debt was owed by SenSys Ltd. Mr Jones’ conduct in that regard:

(a) was to pay the first demand dated 7 May 2018 addressed to “SenSys”;

(b) when forwarded the statutory demand for the second debt by email from GPC’s solicitors, replying saying that SenSys expected funds would be forthcoming shortly;

(c) then to correspond with GPC’s solicitors in the face of the liquidation proceedings; and

(d) seeking an adjournment the day prior to the call.

[29] There is some merit in Ms Jamieson’s submission that it was the creditor applicant that first referred to “SenSys Ltd”. I accept the mistake has its origins with GPC’s actions. That, however, in my view is relevant to contribution, not liability. GPC must accept some responsibility for the state of affairs that came about. The correct company, Design Electronics Ltd trading as SenSys, completed GPC’s account opening form accurately. It was an error within GPC’s business that led to the account name only being recorded as “SenSys”. That said, I consider it was incumbent on Mr Jones to correct the name of the debtor company in his dealings with GPC. This is not a case of Mr Jones sitting back passively taking advantage of the misapprehension of GPC. Mr Jones’ actions in responding to documents addressed to the incorrect company and without referring to that error, led GPC to believe it was dealing with the correct entity.

[30] If Mr Jones had left disclosing that GPC was addressing its documents to the wrong party until the eleventh hour, substantial costs would have been avoided.
[31] It is also noteworthy that none of Mr Jones’ correspondence after the letter of 7 May 2018 referred to either SenSys Ltd or Design Electronics Ltd trading as SenSys.

Section 25 Companies Act 1993

[32] GPC relies on s 25(1)(a) of the Companies Act 1993 (“the Act”) which provides:

(1) A company must ensure that its name is clearly stated in –

(a) every written communication sent by, or on behalf of, the company; and

(b) every document issued or signed by, or on behalf of, the company that evidences or creates a legal obligation of the company.

[33] This supports GPC’s submission that Mr Jones had a duty to refer to Design Electronics Ltd trading as SenSys when he corresponded with GPC or its solicitor in relation to the sum claimed by GPC. I accept that submission. It is consistent with the common law duty on an agent who wants to contract on behalf of a company having to make it clear they are acting as agent for a company.¹

[34] The consequence of a breach of s 25(1)(a) is not to make Mr Jones liable in the same way as a breach of s 25(2) of the Act. The significance of s 25(1)(a) is that it supports GPC’s submission that Mr Jones had an obligation in his correspondence to accurately record the name of the company he was writing on behalf of. This is not as submitted by Ms Jamieson to say that Mr Jones had:

... a positive obligation to assist in the liquidation of [his] company by pointing out that the Applicant’s course [was] wrong.

Mr Jones was under a statutory duty to be clear as to the identity of the company on whose behalf he was corresponding.

[35] Again, none of the correspondence from Mr Jones from the time of the 7 May 2018 letter of demand to the liquidation order referred to “Design Electronics Ltd” or “SenSys Ltd”.

¹ Papanui Timber Ltd v Parsons HC Christchurch CP19/86, 9 April 1987.

[36] This breach of s 25 is a matter relevant to determining whether the threshold for an order of non-party costs has been met.

Legal principles in relation to non-party costs

[37] The thrust of the application is that Mr Jones had a duty to make clear in his correspondence that he was writing on behalf of Design Electronics Ltd even if it could be said he did not have a duty to specifically bring to the attention of GPC that it had targeted the wrong company. The submission is that had Mr Jones complied with his obligation under the Act, the liquidation proceedings would not have been filed, and indeed the statutory demand would not have been served on the wrong company, avoiding all of the costs associated with the pursuit of the incorrect company.

[38] GPC seeks non-party costs under Part 14 of the High Court Rules. In Carborundum Abrasives Ltd v Bank of New Zealand (No 2),² this Court confirmed that such orders will only be made where the non-party has some connection with or involvement in the proceedings. It is not necessary to show that the non-party has acted with impropriety or mala fides.

[39] In Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), the Privy Council emphasised that that the ultimate question is whether it is just to make the order.³ Their Lordships noted that:⁴

... a non-party could not ordinarily be made liable for costs if those costs would in any event have been incurred even without such non-party’s involvement in the proceedings.

[40] In this case, GPC’s submission as noted is that the wasted costs on the liquidation proceeding would have been avoided if Mr Jones had complied with his obligation to make clear on whose behalf he was corresponding.

² Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 (HC).

3. Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25].

⁴ At [20].

[41] In Minister of Education v H Construction North Island Ltd (in rec and liq),⁵ the Court referred to the Court of Appeal in Kidd v Equity Realty (1995) Ltd,⁶ where it was stated that in addition to it being “just” to award the costs, the Court needed to consider whether there was “something more” about the non-party’s conduct that warranted a costs award.

[42] GPC relies on a number of factors including that the orders sent by Mr Jones only referred to SenSys and not Design Electronics Ltd. I am not persuaded that this is a compelling point. Design Electronics Ltd completed an accurate Account Opening Form recording that it was Design Electronics Ltd trading as SenSys that was the contracting party. However, once GPC had got its solicitors involved to demand payment of overdue accounts, I am satisfied that the situation changed. As it was clear on the face of the correspondence that the wrong company was being targeted and where Mr Jones did not in his correspondence refer to Design Electronics Ltd, I consider this is a case in all the circumstances where Mr Jones’ conduct was a significant cause of wasted costs.

[43] It is also significant that Mr Jones did not attempt to say that he was somehow unaware of GPC’s mistake. Indeed, the fact that the day following liquidation he advised on first contact from the liquidators that the wrong company had been liquidated strongly suggests he was aware that the wrong company was being pursued and chose to remain silent to buy time. He does not suggest he had a revelation as to GPC targeting the wrong company between the date of liquidation and first contact with the liquidators.

[44] This was not Mr Jones being passive in not encouraging the error.

Submissions for Mr Jones

[45] Against those submissions, Ms Jamieson referred to the following passage from Carborundum Abrasives Ltd:⁷

⁵ Minister of Education v H Construction North Island Ltd (in rec and liq) [2019] NZHC 1459.

⁶ Kidd v Equity Realty (1995) Ltd [2010] NZCA 452 at [16].

⁷ Carborundum Abrasives Ltd v Bank of New Zealand (No 2), above 2, at 765.

In many cases a major consideration will be the reason for the non-party causing a party, normally but not always an insolvent company, to bring or defend the proceedings.

[46] Ms Jamieson emphasised the reference to bringing or defending the proceedings. She said Mr Jones did not bring or defend the proceedings because the application to liquidate was unopposed.

[47] I do not accept that submission because in substance Mr Jones did attempt to defend the proceedings in the sense that he actively sought to buy time to reach a compromise at the time the statutory demand was issued and then actively sought an adjournment of the proceedings. In any event, causing a party to bring or defend proceedings is not an absolute requirement in respect of non-party costs. Ms Jamieson responsibly recognised in her submissions that jurisdiction to award non-party costs exists.

[48] Ms Jamieson also submitted that GPC brought winding up proceedings which were ultimately unsuccessful because SenSys Ltd, while liquidated, was restored to the Companies Register once GPC realised it had targeted the wrong company. Ms Jamieson submitted:

For the Applicant to now seek costs when those have been incurred because it liquidated the wrong company would be unjust and ignores the responsibility that was on the Applicant to have proceeded against the correct entity.

[49] While, as I have said, I agree that there is some responsibility on GPC, ultimately this submission in my view ignores that a major contributing factor to why the wrong company was liquidated was what I can only conclude was a decision by Mr Jones not to bring to the attention of GPC and its solicitor that they were targeting the wrong company.

[50] I agree with GPC that the circumstances of this case are unusual. Mr Jones’ conduct in breach of s 25(1)(a) of the Act affirmed GPC’s belief that the debt was owed by SenSys Ltd.

[51] No reason whatsoever has been advanced by Mr Jones as to why he did not correct the error of GPC. He does not explain why, when notwithstanding that he was
in Court at least for part of the liquidation hearing, he did not raise with the Court that the wrong company had been targeted. He does not deny that he was aware of the mistake throughout and having chosen to take that path, in my view he has to bear some of the responsibility for the costs incurred as a result of his action.

[52] However, as I have intimated, I consider there is contribution by GPC. Its error at the outset by incorrectly recording the name of its customer in its internal system was the error that meant the entire debt collection process got off on the wrong foot. I consider GPC’s contribution to be 25 per cent.

Recoverable costs

[53] I consider that it is appropriate there is a costs award against Mr Jones in respect of the costs incurred in the liquidation application along with any additional costs involved in obtaining the termination of the liquidation.

[54] I do not consider that the costs incurred by the liquidators in the course of the terminated liquidation are costs that can be subject to a non-party costs award under Part 14.

[55] Rule 14.1 is headed “Costs at discretion of court” and provides:

(1) All matters are at the discretion of the court if they relate to costs -

(a) of a proceeding; or

(b) incidental to a proceeding; or

(c) of a step in a proceeding.

[56] I do not consider the costs incurred by the liquidators following their appointment by the Court to be costs “incidental to a proceeding”. The proceeding must be extant before costs can be incidental to it.⁸

[57] The proceeding against SenSys Ltd came to an end when an order was made by this Court placing SenSys Ltd into liquidation. That order also dealt with costs on

8. Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668, 16 December 2011 at [14].

that application in the usual way. Accordingly, the proceeding came to an end when all of the orders sought in the statement of claim were made.

[58] The proceeding having been concluded the costs incurred by the liquidators following their appointment were not incidental to that proceeding, rather they were a consequence of the proceeding.

[59] This claim has the character of wasted costs as damages rather than a recovery of costs incurred in the liquidation proceeding. Whether a cause of action exists against Mr Jones for the recovery of these wasted costs as damages is something about which I need not speculate.

[60] Thus, there is a costs award against Mr Jones for 75 per cent of the costs incurred in the liquidation application along with any additional costs involved in obtaining the termination of the liquidation.

Costs of this application

[61] That leaves the costs of this application. Counsel did not make submissions on costs, but I see no reason why costs should not follow the event given GPC has been substantially successful.

[62] Accordingly, in the absence of either party making submissions on costs within five working days of this decision there is an order of costs in favour of GPC in respect of this application on a 2B basis.

[63] If either counsel wishes to make submissions on costs, then they are to be filed within the five working day limit above and not to be more than three pages in length.

Associate Judge Lester

Solicitors:

Anthony Harper, Christchurch

Tavendale and Partners, Christchurch