RUAWAI PROPERTIES LIMITED AND ORS V DAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED HC AK CIV 2009-404-000454

RUAWAI PROPERTIES LIMITED AND ORS V DAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED HC AK CIV 2009-404-000454 13 May 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-000454BETWEEN RUAWAI PROPERTIES LIMITED First Applicant AND CHURCH ROAD CORPORATION LIMITED Second Applicant AND SANDHILLS DEVELOPMENT Third Applicant AND DAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED Respondent Hearing: 13 May 2009 Counsel: PT Finnigan for applicants SRG Judd for respondent Judgment: 13 May 2009 at 4:00pmJUDGMENT OF ASSOCIATE JUDGE FAIRE [on applications for statutory demands]Solicitors: Coast to Coast Law, PO Box 181, Wellsford for applicants Davies Law,PO Box 15 547, New Lynn for respondent[1] The three applicant companies apply to set aside statutory demands which were served on each of them on 21 January 2009. [2] The statutory demand addressed to Ruawai Properties Limited requires payment of $8,139,596.99, being the sum allegedly due to the respondent under a term loan agreement dated 6 December 2006. [3] The statutory demands addressed to Church Road Corporation Limited and to Sandhills Development Limited are each in identical terms to the statutory demand addressed to Ruawai Properties Limited. [4] Mr Finnigan confirmed that the application was made in reliance on s 290(4)(b) of the Companies Act 1993. Section 290(4)(b) provides:290 Court may set aside statutory demand(4) The Court may grant an application to set aside a statutory demand if it is satisfied that— (b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or[5] When a matter is to be determined pursuant to s 290(4)(b) of the Companies Act 1993, the Court's approach is as set out by the Court of Appeal in Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 at 274 where the Court said:Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance owing to the creditor or even off-sets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant's side, there is an indisputable liquidated sum, but the other party's claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for theclaimed set-off and that accordingly, the applicant's claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ inBryanston Finance Ltd v De Vries (No.2) [1976] Ch 63, 78, it must show that there are "clear and persuasive grounds" for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation procedures improperly because there is a "genuine and substantial dispute" about the net amount of the company's indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297, 299). The dispute should then be resolved in the ordinary – way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.[6] No issue arises as to the timeliness of the application.Background[7] The three applicant companies are property development companies incorporated for the purpose of owning and subdividing land at Mangawhai, Matakohe and Ruawai. They borrowed $6,626,812.30 from the respondent. They granted a first mortgage security over a number of properties. Additional borrowing was undertaken from another lender, which is referred to in the papers as the Odin mortgagee. The companies granted second mortgages over the properties to that lender. In addition to the mortgages, personal guarantees were given by Mr Craig Crawford and Miss Lois Yelcich. They are the directors and shareholders of the applicant companies. [8] The property development has not been successful. The applicants are unable to pay the loans. The second mortgagee sold the two titles at Ruawai. Those transactions were examined in a summary judgment application in respect of which I issued judgment on 17 October 2008. The defendants in those proceedings have lodged an appeal, which counsel advise has been argued. No decision has been released, however. Counsel confirmed that the outcome of that proceeding can have no direct bearing on the issues raised in this application. [9] The applicants have filed proceedings against the respondent. In those proceedings they allege a breach of a duty of care/breach of equitable duty of good faith because the respondent has not, after the issue of notices under s 92 of theProperty Law Act 1952, sold two of the properties over which it holds securities, namely the properties at Mangawhai and Matakohe. [10] The duty asserted runs contrary to existing authority. In Countrywide Banking Corporation Ltd v Robinson [1991] 1 NZLR 75 at 77 the Court of Appeal confirmed that it was for a mortgagee contemplating selling a secured property in the exercise of the power sale to decide if and when the mortgagee would sell. Delay is not a ground upon which the conduct of the mortgagee exercising the power of sale could be impugned. [11] Having regard to the above principle, I conclude that the foundation for the alleged set-off or counterclaim advanced by the applicants simply does not exist. Accordingly, they have not satisfied the ground pursuant to s 290(4)(b) of the Companies Act 1993 which would justify the setting aside of the statutory demands. [12] Section 291 provides the Court with an option where there is refusal to set aside a statutory demand. The Court may either order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation or, alternatively, on dismissing the application to set aside the statutory demand, the Court could forthwith make an order under s 241(4) of the Companies Act 1993 putting the company into liquidation. [13] In determining which of the two options to follow, I first observe that Mr Judd had with him no consent for the appointment of a liquidator other than the Official Assignee. Such a consent is required by virtue s 282 of the Companies Act 1993. In addition, if a person, other than the Official Assignee, is to be appointed a certificate in terms of s 280(4) of the Companies Act 1993 is required. In addition, however, I do not have any specific evidence before me which would justify invoking s 291(1)(b) and the ordering forthwith of the placing of the company into liquidation. In my view, unless the reason for doing so is clear the safe course is to follow the option provided by s 291(1)(a) and to order that, unless the debt is paid within fifteen working days of the date of this judgment, the respondent may make an application to put the company into liquidation. I intend to order accordingly.Order[14] The applications to set the statutory demands are refused. The applicant companies shall pay the debts specified in the statutory demands within fifteen working days of the date of this judgment. If there is a default in payment, the respondent may make an application to put each of the defendant companies into liquidation.Costs[15] The respondent has been successful. Counsel were agreed that this was a Category 2 case and the Band B was appropriate. Accordingly, the applicants shall pay costs based on Category 2 Band B, together with disbursements as fixed by the Registrar. For the avoidance of doubt, although each of the applicants is responsible for the order for costs, the order is for one amount based on one application. _____________________ JA Faire Associate Judge