ALLIED FARMERS INVESTMENTS LIMITED V FIVE MILE HOLDINGS LIMITED (IN RECEIVERSHIP) HC CHCH CIV 2010 409 522

ALLIED FARMERS INVESTMENTS LIMITED V FIVE MILE HOLDINGS LIMITED (IN RECEIVERSHIP) HC CHCH CIV 2010 409 522 3 February 2011IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV 2010 409 522BETWEEN ALLIED FARMERS INVESTMENTSLIMITEDPlaintiffAND FIVE MILE HOLDINGS LIMITED (INRECEIVERSHIP)First DefendantAND DAVID IAN HENDERSON (INBANKRUPTCY)Second DefendantAND PROPERTY VENTURES LIMITED (INRECEIVERSHIP)Third DefendantAND LICHFIELD VENTURES LIMITED (INLIQUIDATION)Fourth DefendantAND NAVAL LIMITEDFifth DefendantAND 92 LICHFIELD LIMITED (INLIQUIDATION)Sixth DefendantAND RFD INVESTMENTS LIMITED (INLIQUIDATION)Seventh DefendantHearing: 3 February 2011Counsel: J P Forsey for PlaintiffK W Clay for First, Third and Fifth DefendantsJudgment: 3 February 2011JUDGMENT OF ASSOCIATE JUDGE OSBORNEas to representation of defendants[1] The plaintiff in this proceeding is assignee of the contractual rights of Hanover Finance Limited and Carrera Investments Limited as lenders of monies to certain of the defendants with those defendants sued on the loan contracts and other defendants sued on guarantees.[2] The first defendant, Five Mile, is in receivership. The third defendant, Property Ventures, is also in receivership and has been put in liquidation by this Court subject to a stay during an appeal.[3] Issue has been taken by the plaintiff as to the basis upon which each of those defendants is represented in this proceeding. For reasons I will come to, one of those issues has effectively fallen away in the last 24 hours. I will deal with each company.Property Ventures Limited[4] Allied Farmers was the appointor of the receivers of Property Ventures. The directors of Property Ventures as shown in the register are David Ian Henderson and Adolph de Roos. Mr Henderson has been adjudicated bankrupt and is therefore disqualified from holding office as a director: s 151(2)(b) Companies Act 1993. Dr de Roos who is resident overseas remains a director. Ian Bruce Hyndman has provided evidence that he on 31 January 2011 was appointed as alternate by Mr de Roos in relation to occasions when the latter is unavailable or it is inconvenient for him to act as a director. Mr Hyndman deposes that his appointment will ensure the efficient giving of instructions by Property Venture given that Dr de Roos resides abroad.[5] For his part Grant Smith, solicitor for Property Ventures in this proceeding, has deposed that he has taken instructions from Dr de Roos. The receivership ofProperty Ventures did not terminate Dr de Roos's office as director: see Matai Industries Limited v Jensen (1988) 4 NZCLC at 64,536 – 64,537, Tipping J.[6] The directors of a company in receivership should not be prevented in taking steps in the interests of the company, including such steps as suing the debentureholder who appointed the receivers provided the proceeding does not imperil the assets subject to the charge. I refer again to Matai Industries at 64,536, (at that point Tipping J adopting a passage from the judgment of Shaw LJ in Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 (CA).[7] Today the issue before the Court is the constitutional basis upon which Property Ventures is instructing Mr Smith in this proceeding. I am satisfied, having regard to the matters I have set out that that basis is clearly established. The fact that this issue was before the Court at the instigation of the plaintiff today is not, despite the finding I have just made, to the discredit of the plaintiff. These matters and the evidence I have referred to have been filed only in the last 24 hours.Five Mile Holdings Limited[8] Five Mile is also in receivership. Mr Henderson has deposed that Property Ventures has performed the function of managing the affairs of its subsidiaries whichinclude Five Mile. Mr Henderson was Five Mile's sole director. Upon hisdisqualification through bankruptcy under s 151.1(2)(b) of the Act Five Mile has been without a functioning director. Property Ventures own all the shares in Five Mile. Mr Hyndman deposes that the receivers of Property Ventures have refused to appoint a new director for Five Mile.[9] In a memorandum filed when this issue first arose Mr Clay referred to authority on the question of the ability of a board of directors or a director todelegate directors' power. The suggestion was that a delegation once made would enure in the event of the director's disqualification through bankruptcy. Mr Clay did not pursue the argument before me today. In my judgment the argument would notassist. First, there is no evidence of a delegation prior to Mr Henderson'sbankruptcy. Secondly, any delegate would have only those powers (if any) which the director continues to hold, that is as a result of s 151(2)(b). Thirdly, there is an issue which would need to be the subject of submissions as to the extent to which any such delegation is effective.[10] Mr Hyndman has in his affidavit suggested three forms of Court relief which he might explore in relation to what I find to be the present inability of those who wish to have Five Mile defending this proceeding, and/or counterclaiming this proceeding. Mr Clay has further explored those in supplementary submissions to which he has spoken today.[11] I have no such application before me and it is not appropriate that I explore any of those three avenues without an application, without both sides having the opportunity to adduce evidence and without counsel having the opportunity to appropriate submissions. I therefore conclude that at least for the time-being Five Mile may not be represented in this proceeding in the manner it purports to be represented today.[12] I direct that its pleadings and any other documents filed on behalf of Five Mile not be further read in the proceeding until and unless there is further order of the Court in that regard.Costs[13] At the conclusion of my judgment I have indicated to counsel that on the representation issue I consider costs must follow the event. Mr Clay responsibly did not suggest otherwise.[14] I direct that the persons whom Mr Clay represents in relation to Property Ventures and Five Mile as identified in the affidavits filed yesterday accept responsibility for payment of costs on a 2B basis with a certificate for a quarter day hearing today and preparation being dealt with upon the basis of a memorandum being filed so that there will be two items only.[15] The costs order is not to be treated as a costs order against the companies themselves. I reserve leave to counsel to come back to the Court on these matters if the costs issue is not resolved promptly and satisfactorily_____________________________________SolicitorsDuncan Cotterill, ChristchurchCanterbury Legal Services, ChristchurchK W Clay, ChristchurchADDENDUM[16] After the making of this oral judgment there was filed at Court a memorandum of the receivers of Property Ventures dated 3 February 2011. It confirms the fact (as the Court had already understood) that Mr Smith is not instructed by the receivers. They advise the Court that Mr Smith's firm has been notified that no resources of Property Ventures are to be used in respect of theconduct of this proceeding. The Court's costs order, at [13] above, reflects theCourt's approach to that position.