EXTERIOR BUILDING CARE GOLEMAN LIMITED v AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) [2014] NZHC 1163

EXTERIOR BUILDING CARE GOLEMAN LIMITED v AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) [2014] NZHC 1163 [26 May 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2013-409-000046[2014] NZHC 1163BETWEEN EXTERIOR BUILDING CAREGOLEMAN LIMITEDPlaintiffAND AFO INDUSTRIAL LIMITED (INLIQUIDATION) (FORMERLY CALLEDAIR FLUID OTAGO LIMITED)DefendantAND LIQUIDATOR ONLYAssociated RespondentAND TREVOR EDWIN LAINGAssociated RespondentHearing: 26 May 2014Appearances: D A Webb and R G McCrea for PlaintiffNo Appearance for DefendantD W Sim for Liquidator of DefendantJudgment: 26 May 2014Reasons: 29 May 2014JUDGMENT OF GENDALL J(Reasons for Decision)Introduction[1] This matter relates to an application filed by the defendant on 19 May 2014 for a stay of this substantive proceeding following the lodging of an appeal with the Court of Appeal. The appeal itself is against a decision of this Court given on 28 April 2014:(a) Granting leave under s 248 Companies Act 1993 to the plaintiff to continue this proceeding against the defendant company (now in liquidation) despite the statutory stay; and(b) Declining to adjourn the trial set down for this proceeding for 26 May 2014.[2] In an oral judgment I gave on 26 May 2014, I dismissed the defendant'sapplication for a stay pending appeal. In that decision I indicated that my detailed reasons for the decision would follow. I now give those reasons.Stay application[3] The application by the defendant which was before me was brought pursuant to r 12(3) Court of Appeal (Civil) Rules 2005 which deals with a stay of proceedings and execution when an appeal to the Court of Appeal is pending. The rule states:12 Stay of proceedings and execution(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or(b) grant any interim relief.[4] The present application before me was brought by the defendant on the grounds that:(a) The defendant lodged an appeal against the decision of this Court on 16 May 2014;(b) Irreparable harm will occur if the proceeding is not stayed; and(c) To continue with the proceeding would lead to a judgment which will not be sustainable in the event of a successful appeal.[5] This application for a stay is opposed by the plaintiff. The application is effectively brought by the liquidator of the defendant company Mr T Laing on behalf of the company in liquidation, and his counsel Mr Sim appeared before me to argue in favour of the application. Mr Webb and Mr McCrea appeared for the plaintiff in opposition to the application.[6] The general approach to be taken to an application under r 12(3) Court of Appeal (Civil) Rules 2005 is set out in McGechan on Procedure at para CR12.01:CR12.01 Principles(1) General approach(a) An application under r 12(3) requires the Court to balance the competing rights of the party who obtained the judgment appealed from (ie the benefit of that judgment) against theneed to preserve the appellant's position against the event ofthe appeal succeeding: Duncan v Osborne Buildings Ltd(1992) 6 PRNZ 85 (CA) at 87.(b) "The object, where it can be fairly achieved, must surely beso to arrange matters that, when the appeal comes to be heard, the appeal Court may be able to do justice betweenthe parties, whatever the outcome of the appeal may be", perBuckley LJ at 676, in Minnesota Mining and Manufacturing Co v Johnson & Johnson [1976] RPC 671 (CA), cited by the Court of Appeal in New Zealand Insulators Ltd v ABB Ltd(2006) 18 PRNZ 459, at [13].(c) Factors to be taken into account in the balancing exercise include:(i) Whether the appeal may be rendered nugatory by the lack of a stay;(ii) The bona fides of the applicant as to the prosecution of the appeal;(iii) Whether the successful party will be injuriously affected by the stay;(iv) The effect on third parties;(v) The novelty and importance of questions involved;(vi) The public interest in the proceeding; and(vii) The overall balance of convenience.Keung v GBR Investment Ltd [2010] NZCA 396 at [11]; Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].(d) While not included in this list, the apparent strength of the appeal now appears to be generally recognised as an additional factor: Keung v GBR Investment Ltd at [11].Defendant's arguments[7] In support of this application the defendant refers first to some general factors which it says support the argument that a stay should be granted here. This is said to take into account the particular difficulties faced by the liquidator in this case, first, he having been appointed when the proceeding was at an advanced stage and secondly, given his duty to consider the interests of all the defendant's creditors. Inthis regard, the evidence before me indicates that the only creditors of the defendant are the Inland Revenue Department as to approximately $15,000, a claim from the trustees of a family trust held for the benefit of the Andrews family (Mr Andrews being the director and principal of the defendant company) as to approximately $400,000, and the plaintiff's present claim which had been the subject of a proof of debt filed with the liquidator in April 2013 which he has neither accepted nor rejected.[8] The defendant maintains at this point that the liquidator has not been in a position to either fully assess the plaintiff's claim or to prepare to defend that claimon behalf of the company. Thus proceeding with the trial on 26 May 2014 the date scheduled for this hearing it is said would effectively deprive the defendant of theopportunity to challenge the plaintiff's evidence at trial.[9] In addition the following further factors are noted in support of the application here:(a) It is said that if this Court refuses the present stay application and the appeal before the Court of Appeal is successful, any judgment given at trial of the substantive proceeding would be unsustainable. Although it could not be said that the lack of a stay would render the appeal nugatory, and this aspect is accepted by the defendant, it couldresult potentially in a wasted trial, this resulting in additional costs to the plaintiff and an inefficient use of Court time.(b) The decision of the liquidator on behalf of the defendant to prosecute this appeal to the Court of Appeal it is claimed, is in the interests ofthe defendant's other creditors. The effect of allowing the trial of thissubstantive matter to proceed, with what will be unchallenged evidence advanced for the plaintiff, could well result in a judgment for a significantly higher amount than if the defendant was in a position to defend the claim against it. This could in effect result in the plaintiff receiving a preference at the expense of the defendant's other creditors.(c) The defendant claims that the plaintiff would not be injuriously affected by the granting of a stay in relation to its potential for recovery of whatever sum might be owed to it, as this would be unchanged. The only possible prejudice to the plaintiff according to the defendant, if a stay is granted is its inability to gain what is said to be a tactical windfall as a result of obtaining judgment based on unchallenged evidence.(d) It is said also that the granting of a stay pending appeal would have no detrimental impact on any third parties. This of course however ignores the position of the creditors here. The defendant also states that there is no public interest in this proceeding.(e) Next, the defendant generally challenges the ability of the plaintiff to proceed to obtain a judgment in this matter on the basis of unchallenged evidence, given the situation whereby the defendant was only placed into liquidation shortly prior to the allocated trial date. The question is asked: should the Court allow the overriding of the statutory stay contained in s 248 Companies Act 1993 to remain in place notwithstanding the present appeal to the Court of Appeal given the circumstances prevailing in this case?(f) The defendant's position is that the overall balance of convenience favours the granting of a stay. In the event of a successful appeal, the expense incurred in the trial of this matter on the part of the plaintiff it is said would be wasted and also it is claimed this would amount to an inefficient use of judicial resources. Delaying the trial here ispreferable for all parties concerned and it is said the plaintiff'schances of recovery should it be found that it is in fact a creditor of the defendant would be unchanged despite this delay.(g) Lastly the defendant claims its appeal to the Court of Appeal is a strong one. It reaches this conclusion Mr Sim says, given that theliquidator's inability to challenge the plaintiff's evidence at trial couldlead in effect to a preference being given to the plaintiff here at the expense of other creditors.Plaintiff's submissions in response[10] At the outset, the plaintiff notes that in early April 2014 it filed a proof of debt form with Mr Laing the liquidator of the defendant company but it has received no response from him. The plaintiff does not know whether the liquidator either accepts or rejects its claim and thus the plaintiff cannot activate the necessary proceedings to challenge any decision and verify its claim at this point other than by continuing the present proceeding. The plaintiff suggests that the conduct of Mr Andrews particularly but also of the liquidator here must give some support to the suggestion that decisions both to place the defendant into liquidation and to progress the liquidation itself have not been taken in a proper and even-handed way.[11] Next, the plaintiff notes that the granting of the stay sought here would deprive the plaintiffs of their right to proceed given by the earlier decision of this Court. In addition, given that the defendant company is in liquidation and is in what is said to be a parlous financial state, to deprive the plaintiff of the right to proceed at this point would likely be final.[12] The plaintiff then complains that the defendant has provided no evidence to this Court of its intent or ability to proceed with the appeal to the Court of Appeal.Indeed Mr Webb for the plaintiff argues that all of the available evidence before the Court points in the opposite direction. There is no evidence of any assets (other than contingent assets) held by the company or funds available to the liquidator which might suggest that the defendant genuinely intends to pursue this litigation.[13] And, the claim from the liquidator as to inadequate time to prepare for the trial of this matter according to Mr Webb must also be viewed with some suspicion.The plaintiff's briefs of evidence were served on the defendant company on 4 and 5November 2013. No briefs of evidence from the defendant in reply have been provided, despite many opportunities being given for this to occur. Even though the defendant was only placed into liquidation in March 2014, this occurred by way of ashareholder's voluntary liquidation instigated no doubt by Mr Andrews the shareholder/director of the company. Mr Andrews had been involved in this proceeding from the outset and indeed on his instructions two statements of defence and counterclaims were filed, the last being on 17 May 2013.[14] The real issue in this case must be where in all the circumstances the interests of justice lie. On this, Mr Webb suggested that Mr Andrews as director and controlling mind of the defendant company has fundamentally manipulated events to thwart this litigation throughout and indeed has stated that his purpose in placing thedefendant company into voluntary liquidation was motivated solely by the plaintiff'sproceeding against the company. The public interest here requires that any illegitimate attempts on the part of the defendant to avoid the present litigation, and more importantly to oust or delay the jurisdiction of this Court, must be constrained.[15] The plaintiff complains next that, despite his protestations to the contrary, the liquidator has not progressed the liquidation of the defendant company in any real way. Certainly it is clear that he has neither accepted nor declined the proof of debt provided by the plaintiff.My decision[16] On all of these matters it is clear that the general rule to be applied is that a party is entitled to enjoy the fruits of a judgment it has received in its favour. The burden of persuading the Court to grant a stay must clearly rest with an applicant. Itis also well established that broadly speaking an application for a stay will be determined with regard to the justice of the case in question – Dymocks Franchise Systems (NSW) Pty Limited v Bilgola Enterprises Limited.1[17] It is my view here that the defendant has not discharged the burden on it to persuade this Court to grant a stay. The plaintiff contends that the present application is mischievous and entirely unfounded. It seems also that the effect of granting the stay sought would be to allow a windfall benefit to Mr Andrews who it is claimed has dishonestly manipulated the affairs of the defendant company in an endeavour to avoid the present claim. Mr Andrews might also further benefit through his family trust which is the only other substantial creditor of the defendant. Before me, Mr Sim for the defendant went so far as to acknowledge that to asignificant extent the actions of Mr Andrews leading up to this litigation can only beregarded as entirely inappropriate. And further, Mr Sim also acknowledged that itdoes seem the liquidator is likely to accept that some claim against the company isproperly due to the plaintiff and the only real question here relates to the quantum ofsuch claim.[18] In my view there is also some substance in the submissions advanced for the plaintiff. I am satisfied that the appeal here would not actually be rendered nugatory by the lack of a stay if indeed that appeal is prosecuted. Should the appeal succeed then it seems that it is only the plaintiff (and perhaps this Court) which would have been put to additional cost in pursuing the trial scheduled for 26 May 2014.[19] And, in the circumstances of this case, in my view there must also be questions as to the bona fides of the defendant as to the prosecution of the appeal. I find too that, given the delay which has occurred in this matter to date, bearing in mind that the original claim was brought in this Court in January 2013, the plaintiff here as the successful party could well be injuriously affected by a stay. The liquidator and indeed all parties can benefit from a proper hearing in this Court of theplaintiff's claims and the counterclaims.1 Dymocks Franchise Systems (NSW) Pty Limited v Bilgola Enterprises Limited [1999] 3 NZLR 239.[20] The liquidator and indeed Mr Andrews' interests have had some time toconsider providing evidence in opposition for the scheduled substantive hearing.Indeed, the plaintiff's briefs of evidence were provided over six months ago in November 2013. Mr Andrews and his interests, as effectively the only other substantial competing creditors, could well fund a defence and a proper resolution of this dispute. They have chosen not to do so it seems and in my view it is wrong to restrict the plaintiff in pursuing its claim before this Court when it effectively has no other means of doing so. The overall balance of convenience and the interests of justice in this case require that the stay sought should be refused.Result[21] It is for all these reasons that the decision noted at [2] above was given in my judgment dated 26 May 2014 whereby I refused the application by the defendant for a stay pending its appeal.[22] As I noted also in that 26 May 2014 judgment costs were reserved. The directions given at para [9] of that judgment regarding the filing of memoranda on the issue of costs are confirmed....................................................Gendall JSolicitors:Lane Neave, ChristchurchRodgers Law, DunedinDonnie Stewart, Dunedin