OLIPHANT & ANOR V N J G HOLDINGS LTD HC AK CIV 2007-404-002856

OLIPHANT & ANOR V N J G HOLDINGS LTD HC AK CIV 2007-404-002856 16 October 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-002856UNDER the Companies Act 1993 BETWEEN DAVID JAMES OLIPHANT AND IAN ROBERT ROSS AS TRUSTEES OF THE PARNELL TRUST Plaintiff AND N J G HOLDINGS LIMITED Defendant Hearing: 12 October 2007 Counsel: T Allan for plaintiff G Thwaite for defendant Appearances: K Smith for Commissioner of Inland Revenue Holmden Horrocks, creditor in support Standard Finance Limited, creditor in support Judgment: 16 October 2007 at 1600JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to put company into liquidation and appoint a liquidator]Solicitors: Grove Darlow, PO Box 2882, Auckland for plaintiff Gregory J Thwaite, PO Box 2062, Auckland for defendantThe proceeding[1] The plaintiff applies to put the defendant into liquidation and appoint a liquidator. [2] The application is based on non-compliance with a statutory demand which was served on the defendant on 10 April 2007 at the defendant's registered office. [3] The statement of claim, notice of proceeding and affidavit verifying the statement of claim were served on the defendant on 11 June 2007 at the defendant's registered office. The proceeding was advertised as required by the High Court Rules. [4] A statement of defence was filed on 31 May 2007. [5] The proceeding was called in the liquidation list on 23 August 2007. Because one of the grounds of defence pleaded was an appeal from the judgment on which part of the statutory demand was based, the proceeding was adjourned to 27 September 2007 to await judgment in respect of the appeal. [6] The appeal was dismissed by the Court of Appeal on 28 August 2007. [7] An amended statement of defence was filed on 24 September 2007. [8] On 27 September 2007, after hearing counsel for the plaintiff, counsel for the defendant and counsel for Holmden Horrocks, a creditor in support, and counsel for the Commissioner of Inland Revenue, a creditor in support, I issued a minute. I noted that there was no argument concerning quantification of the claim for costs set forth in the statement of claim. What was required was an analysis of affirmative defences and, in particular, whether the defendant had a set-off or counterclaim in relation to chattels and stock and matters pertaining to a lease. In addition, an issue arose as to whether there were any matters unresolved in these areas by the judgment of Justice Allan delivered on 1 December 2006. I allocated a fixture and gave directions for the preparation for it.[9] The plaintiff has filed three further affidavits, all of which have been read for the purpose of this application.The application to put the defendant into liquidation and appoint a liquidator[10] This is an application to put the defendant into liquidation and to appoint a liquidator. [11] Section 241 of the Companies Act 1993 gives the Court a discretion to appoint a liquidator if it is satisfied that the company is unable to pay its debts. Section 287 of the Companies Act 1993 provides that:unless the contrary is proved and subject to s288 of this Act, a company is presumed to be unable to pay its debts if – (a) the company has failed to comply with a statutory demand [12] The approach that the Court should take in considering an opposed application to appoint liquidator has been examined in a number of authorities. InBateman Television Limited (in liq) & Anor v Coleridge Finance Company Ltd[1971] NZLR 929 (PC) the Privy Council referred to the general rule that no order will be made on a petition founded on a debt which was genuinely disputed. To apply to wind up a company in such a circumstance is an abuse of the Court's process. The Court has an inherent jurisdiction to prevent such an abuse of process. The position has been considered in a number of cases both in relation to opposed applications to wind up and in respect of applications for orders restraining advertising and staying proceedings. Exchange Finance Co Ltd v Lemington Holdings Ltd [1984] 2 NZLR 242; Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; Edge Computers Ltd v Colonial Enterprises Ltd 9 PRNZ 621. [13] From the authorities I extract the following specific principles which are applicable to such applications: a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court; c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available; d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure. [14] The plaintiff's case is that there has been non-compliance with a statutory demand which seeks payment of $23,620.94 plus interest pursuant to a Court judgment plus other moneys, which I need not detail specifically. [15] The judgment debt has not been satisfied.Background facts[16] The defendant was the lessee in respect of the Huntly Hotel. It made application to the High Court for relief against forfeiture for non-payment of rent due under its lease. The application was heard by Allan J. He refused the application in a judgment delivered on 1 December 2006. An appeal was filed. The appeal was dismissed by the Court of Appeal on 28 August 2007. [17] This proceeding, as already observed, followed the refusal of the application for relief against forfeiture by Allan J and was filed prior to the appeal to the Court of Appeal in respect of Allan J's judgment. [18] The defendant has, since the dismissal of the appeal to the Court of Appeal, purported to exercise the right to appoint an arbitrator under the lease. Indication of the desire to refer an issue to arbitration was given to the plaintiff's solicitors by the defendant's solicitor in a letter dated 17 September 2007. The plaintiff's position is that the issue sought to be raised has already been determined by the judgment ofAllan J. The defendant did not accept that and sought the appointment of an arbitrator by the President of the Waikato Bay of Plenty District Law Society. That request was made under the special provisions in the lease dealing with the appointment of an arbitrator. The President of the Waikato Bay of Plenty District Law Society appointed the Honourable Barry Paterson QC and advised that appointment by letter dated 25 September 2007. Perhaps, not surprisingly, there has not been great developments since that time. More particularly, no information is available on the method of funding of the arbitration and, no doubt, the arbitrator's costs. The existence of the arbitration is, nevertheless, one of the matters relied upon by the defendant in its opposition to the application to put the defendant into liquidation and appoint a liquidator.The defences[19] Mr Thwaite advances his submissions under the following specific headings: a) No jurisdiction has been pleaded or proven; b) Clause 51 – rent due to defendant – arbitration; c) Clause 51 – value of chattels, fixture and stock – valuer; d) Issue estoppel and res judicata. [20] The matters raised by Mr Thwaite cover the affirmative defences pleaded and will be dealt with in the order in which he has advanced them.The pleading and jurisdiction defences[21] Mr Thwaite submits that the plaintiff has not pleaded facts which establish the Court's jurisdiction to make an order. In addition, he submits that proof of the facts which would justify the Court making an order has not occurred. [22] The evidence before me is:a) On 10 April 2007 the plaintiff served the statutory demand on the defendant. That statutory demand complies with s 289(2)(a), (b), (c) and (d) save, that as Mr Thwaite pointed out, the statutory demand does not refer to the power of the Court to extend the time for compliance beyond the statutory fifteen working days for which provision is made in s 289(2)(d). If this was regarded as a defect then I say immediately I would cure it utilising the power given to me under s 290(6) of the Companies Act 1993. I do not regard the defect in the circumstances of this matter as being of any real significance. That is because there is simply no evidence of the payment of the debt or of compliance with any other of the matters that are referred to in s 289(2)(d) of the Companies Act 1993; b) The demand has not been complied with; and c) This proceeding was filed on 18 May 2007. [23] I am satisfied that when I apply ss 241(4)(a), 287, 288 and 289 of the Companies Act 1993 that the jurisdiction to make an order has been satisfied. Accordingly, the jurisdictional objection raised by Mr Thwaite based on the pleading point and on the evidence point, I reject. That conclusion disposes of the first and second affirmative defences.Abuse of process defence[24] It is next pleaded that the filing of this application when there was an extant appeal to the Court of Appeal in respect of the judgment on which the statutory demand was based is an abuse of process. Mr Thwaite advanced no particular submissions on this point. I should add that no stay of this proceeding was sought or, for that matter, granted. I reject it as having no proper foundation. That conclusion disposes of this affirmative defence.Fifth defence[25] Mr Thwaite confirmed that the fifth affirmative defence was no longer relied upon. No evidential basis for it is apparent in the material presented to me. It, therefore, can form no basis for opposing the orders sought by the plaintiff.Breach of lease by plaintiff defence[26] Both counsel were agreed that the fourth and sixth affirmative defences could be considered together. They rely on the allegation that the plaintiff has not complied with certain obligations said to arise on the termination of the lease and following the exercise of the option to purchase stock, plant and chattels. [27] For completeness sake, I set out the relevant paragraphs of the second amended statement of defence where these two defences are pleaded. Paragraphs 10, 11 and 12 deal with the fourth affirmative defence and provide:10. Outstanding issues remain between the parties. They include: (a) the liability of the plaintiff to the defendant under clause 51 of the Deed of Lease; (b) the liability of the plaintiff to the defendant for the chattels and stock, which plaintiff took over in the Huntly Hotel 11. Defendant has commenced the arbitration process in terms of the Deed of Lease. 12. The proceeding is vexatious, and/or frivolous, and/or an abuse of process.[28] Paragraphs 17, 18, 19, 20 and 21 deal with the sixth affirmative defence and provide:17. Plaintiff is occupying the premises which were the subject of the lease agreement; 18. Under the lease agreement, Defendant is entitled to continuing occupation of the premises until Plaintiff has paid to Defendant's solicitor the value of the chattels etc. 19. Plaintiff has failed to make such payment.20. Plaintiff is indebted to Defendant for a reasonable rent for the premises. 21. The accumulated liability of Plaintiff to Defendant exceeds the liability (if any) of Defendant to Plaintiff.[29] The foundation for both defences is clause 51 of the lease. Clause 51 of the lease provides:Landlords Option to Purchase Tenant's Plant and Stock51. The Tenant and the Landlord DO HEREBY COVENANT each with the other that upon the termination of this Lease the Tenant will offer to sell to the landlord and the Landlord may at the Landlord's option in all things purchase from the Tenant all of the Tenant's furniture fittings plant equipment and stock-in-trade as are used in the normal and ordinary operation of the said business and are in a fit and proper condition for such use at a price to be fixed by two valuers or their umpire in the usual way AND SUBJECT TO the Landlord's rights to set off. If the Landlord elects to purchase as aforesaid: (a) On the date of termination of the lease the Landlord shall pay to his Solicitor the following amounts: (i) The estimated value of wet and dry stock (ii) The estimated value of furniture, fittings, plant and equipment being purchased by the Landlord. (b) On the Tenant vacating the premises, the Landlord's Solicitors shall lodge the amounts referred to in clause (a) in the Trust Account of the Tenant's Solicitors, at which time the Landlord can resume the premises and be let into possession of the business. (c) On the determination of the values of furniture, fittings, plant, equipment and stock and trade: (i) The Tenant's solicitors shall release to the Tenant the amount of the determined value of such items; and (ii) Any surplus then remaining held by the Tenant's Solicitors shall be forthwith refunded to the Landlord in full; and (iii) In the event that the determined values are in excess of the amount of the estimated values then the Landlord shall forthwith pay to the Tenant the amount of such excess immediately following determination of values.(iv) Any interest accumulated on monies while held by the Solicitors in terms of (a) and (b) shall be apportioned pro rata. (d) Provided that the Landlord may nevertheless require the Tenant's Solicitors to withhold from the Tenant such amount as may fairly be required to remedy any breaches of Lease outstanding as at termination date until such time as the breaches are remedied. (e) The Tenant shall not be required to let the Landlord into possession and the Lease shall be deemed to continue on a month by month basis but at no rental unless and until the landlord has lodged the funds in accordance with (a) and (b) above. (f) In the event that any monies are not paid at the appointed time they shall carry interest from due date to date of actual payment at the default interest rate.[30] Mr Thwaite submitted that the issues raised by the fourth and sixth affirmative defences were matters covered by the arbitration process which the defendant had commenced. He referred to r 8 as contained in the First Schedule to the Arbitration Act 1996. Rule 8(1) provides:8 Arbitration agreement and substantive claim before court(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party's first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.[31] Mr Thwaite acknowledged that a request was not contained in the first statement of defence filed. Despite that, he submitted that I should either dismiss this proceeding or, alternatively, adjourn it or stay it pending the determination of the issues which he said are now part of the arbitration process and are currently to be determined by the Honourable BJ Paterson QC. [32] Mr Thwaite acknowledged to me that there was no figure in the papers before me dealing with what is loosely pleaded as chattels etc and stock in the two defences under review. That is significant. There has already been a finding by Allan J in therelief against forfeiture proceedings on this subject. At [57] of His Honour's judgment His Honour records:[57] The simple answer to that submission is, as Mr Allan submits, that the entitlement of the plaintiff to payment under clause 51 is subject to the first defendants' rights of set-off. The amount owing to the plaintiff in respect of chattels and stock is very significantly less than the amount owing by the plaintiff to the first defendants for rent. In consequence, the plaintiff is not entitled to any payment under clause 51. I am satisfied that, as at the date of re-entry, the first defendants were entitled to the sum of $30,427 for unpaid rent.[33] Mr Thwaite, however, did not rely on the claims specifically in relation to chattels, etc and stock. He submitted that there was an extant claim for damages which were either in the nature of damages for trespass arising from alleged ejectment of the defendant from the premises by the plaintiff or, alternatively, damages for loss of possession by virtue of an alleged breach by the plaintiff of clause 51. That claim, again, relies on the premise that the defendant was entitled to possession of the premises until such time as the landlord had made the payment provided for in clause 51(a) of the lease. [34] There has been no precise quantification of what those damages might be. Mr Thwaite submitted that the defendant would be entitled to damages for trespass being damages for wrongful use calculated on the basis of a reasonable price. He referred to Roberts v Rodney District Council [2001] 2 NZLR 402. He submitted that the damages would be the higher of the amount of the rent received under the lease or a fair market value for the occupation of the premises by the plaintiff. [35] Mr Thwaite's submission, however, is dependent upon the defendant being able to establish that it was entitled to lawful possession. I do not overlook the fact that Mr Thwaite submits that this issue is something that should be resolved in the arbitration process. Despite that submission, I remind myself that my task in this application is to determine whether there is a genuine and substantial dispute which would justify the Court not appointing a liquidator. For that reason, it is necessary to make some assessment in relation to this issue. [36] I have already referred to the application made by the defendant for relief against forfeiture. The basis for that application is set out in the judgment of Allan J.In [1] of the judgment, His Honour records the fact that the defendant, the plaintiff in the relief against forfeiture proceeding:Applies for relief against forfeiture, for non-payment of rent in respect of its lease of the Huntly Hotel.[37] An application for relief against forfeiture arises where a lessee is in breach of its lease: Kim & Ors v Kwon CA 126-01 24 April 2002 at [12]. A claim for damages for wrongful eviction will only arise if the party making the claim is in fact entitled to possession. If a lease has been forfeited and relief from that forfeiture is denied, then, the tenant is not entitled to possession. The consequence is that there can be no damages which have as their first basis the tenant's entitlement to possession. That right has already been found to be forfeited by Allan J and relief from the forfeiture has been denied by him. [38] Mr Thwaite submitted that despite the refusal to grant relief from forfeiture the tenant was entitled to maintain a claim for possession by virtue of clause 51(e) of the lease. The immediate problem with that submission is that the clause refers to the lease:Being deemed to continue on a month by month basis.If, however, the lease has been forfeited and no relief from that forfeiture has been granted by the Court, there is no lease in existence which can be deemed to continue on a month-to-month basis. [39] The above leads me to the conclusion that there is no basis for a claim for damages based upon a right of possession. [40] The position can now be summarised: a) The defendant's right to possession of the premises of the Huntly Hotel was lost with the forfeiture. The Court has refused to grant relief from that forfeiture. The essential pre-requisite for the relief sought in the arbitration, namely a right to possession was lost finallywith the refusal to grant relief from forfeiture. Any claim based on a right of possession by the defendant will not succeed; b) There appears to have been no change from the finding made by Allan J in the relief against forfeiture proceedings that the tenant has no ability to meet rental arrears and costs; c) Even if one assumes that there is any extant issue between plaintiff and defendant concerning the chattels and stock, there is no present material before me which indicates that the tenant's claim in respect of these matters exceeds the amount the subject of the statutory demand; d) Notice has been given by other creditors supporting the appointment of a liquidator of the defendant. Whilst those debts have not been proved, the claims simply add to concerns about the solvency of the defendant; e) Non-compliance with the statutory demand raises the presumption that the defendant is insolvent; and f) The appointment of a liquidator will not prevent a claim against the plaintiff if some proper foundation for it can be found. [41] When I take the above matters into account and apply the specific principles applicable to applications to appoint liquidators, referred to in [13] of this judgment, the conclusion I reach is that this is an appropriate case to appoint a liquidator. I reach that position without having to examine the issue estoppel and res judicata points which Mr Allan raised and arising from the judgment of Allan J.Orders[42] I order that the defendant be wound up and that the Official Assignee be appointed the liquidator of the defendant company.Time of the order[43] This order is made at 4pm.Costs[44] In line with the request of counsel, I reserve costs. If counsel are unable to agree, the plaintiff shall file and serve its memorandum and a memorandum in answer from the defendant shall be filed and served seven days thereafter and any reply to that from the plaintiff shall be filed and served within a further seven days. The memoranda shall then be referred to me for decision on costs. _____________________ JA Faire Associate Judge