GRANT BRUCE REYNOLDS AS THE LIQUIDATOR OF JAMES DEVELOPMENTS LTD (IN LIQUIDATION) V CHRIS JAMES CA608/2013 [2013] NZCA 413

GRANT BRUCE REYNOLDS AS THE LIQUIDATOR OF JAMES DEVELOPMENTS LTD (IN LIQUIDATION) V CHRIS JAMES CA608/2013 [2013] NZCA 413 [2 September 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA608/2012[2013] NZCA 413BETWEEN GRANT BRUCE REYNOLDS AS THELIQUIDATOR OF JAMESDEVELOPMENTS LTD (INLIQUIDATION)ApplicantAND CHRIS JAMESRespondentHearing: 12 August 2013Furthersubmissions:Court:13 August 2013White, French and Asher JJCounsel: A C Sorrell for ApplicantM R Sherwood King for RespondentJudgment: 2 September 2013 at 3.30 pmJUDGMENT OF THE COURTA The application for an extension of time to apply for the allocation of ahearing date and to file the case on appeal is granted.B The time for taking these steps is extended to 16 September 2013.C Costs on this application are reserved.____________________________________________________________________REASONS OF THE COURT(Given by Asher J)Introduction[1] The applicant, Grant Bruce Reynolds, is the liquidator of James Developments Ltd (in liq) (the company). The respondent is Chris James who, at thematerial times, was the sole director of James Developments Ltd.[2] Mr Reynolds as liquidator applied for orders setting aside payments totalling $60,904 that James Developments Ltd had made in 2009 to Mr James.[3] On 22 August 2012, Associate Judge Bell determined that those payments to Mr James should be set aside as voidable under s 292 of the Companies Act 1993.1However, he also determined that the liquidator's application for orders for paymentof that amount, plus interest, should be dismissed. There were also other ordersmade that are not relevant to this application.[4] A notice of appeal was filed within time on 19 September 2012. It was very full and set out the basis upon which it was submitted the judgment was incorrect.[5] However, no steps were then taken to obtain a hearing date and file the caseon appeal for in excess of six months. Pursuant to r 43 of the Court of Appeal (Civil)Rules 2005, which then applied in its pre-amendment form, an appeal is to be treatedas having been abandoned if an appellant does not take those steps within thatperiod.2[6] The applicant now applies for an extension of time in which to take these steps.3 Senior counsel for the applicant (who did not appear in support of theapplication) accepted that the delay was because of an error on her part. The partieswere involved in other difficult litigation at the time that led to her overlooking thetime limit. The application for an extension of time was filed approximately threeweeks after the appeal was deemed abandoned.1 Reynolds v James [2012] NZHC 2132.2 The time before an appeal will be deemed abandoned was reduced to three months as from 4 February 2013: Court of Appeal (Civil) Amendment Rules 2012, r 4(1).3 Pursuant to r 43(2). No extension of time is possible more than three months after an appeal is deemed abandoned: r 43(3).Context[7] James Developments Ltd was a property developer in Queenstown. InOctober 2007, the company entered into an agreement to buy a property from ManaProperty Trustee Ltd (Mana). The company ultimately refused to settle the purchaseand gave notice cancelling the agreement, claiming that the area available to betransferred was less than the represented size. Mana sued for specific performanceand obtained summary judgment and costs against the company.4[8] The company appealed, but before the appeal was heard it was placed involuntary liquidation by shareholder special resolution. Two liquidators wereappointed. There was no doubt that at the time of the voluntary liquidation,following the summary judgment decision, the company was unable to pay its debts.[9] In June 2009, between the date of the summary judgment and the hearing ofthe appeal and before the voluntary liquidation, the company made three paymentstotaling $60,904 to Mr James. At the time Mr James was a creditor of the companyand these payments reduced the company's debt to him.[10] The original liquidators continued with the appeal by the company, and on19 October 2009 that appeal was allowed.5 The company was discharged fromliability for not completing the purchase, and entitled to a return of its deposit of$450,000.[11] Mana appealed. The Supreme Court gave leave and ultimately Manasucceeded in the appeal.6 The cancellation by the company was held to be of noeffect and it lost its right to recover the $450,000.[12] In November 2010, the original liquidators resigned and Mr Reynolds wasappointed as liquidator. Amongst other things, Mr Reynolds issued a notice unders 294 of the Companies Act seeking to set aside the payments of $60,904. Mr Jamesobjected, asserting that the transaction was made with the express purpose of4 Mana Property Trustee Ltd v James Developments Ltd (2009) 10 NZCPR 295 (HC).5 James Developments Ltd v Mana Property Trustee Ltd [2009] NZCA 483.6 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90, [2010] 3 NZLR 805.allowing him to meet the company's ongoing legal expenses and the expenses of theliquidation.[13] It transpired that most of the invoices from the original liquidators and thelawyers who pursued the litigation on behalf of the company against Mana weremade out to Otago Real Estate Ltd, a company controlled by and, it seems, owned byMr James. Otago Real Estate Ltd made payments for those debts, and Mr Jamesclaimed he had effectively funded the litigation for the benefit of the company.[14] After a detailed analysis of the facts and law, Associate Judge Bell concludedthat the payments of $60,904 received by Mr James reimbursed him for payments ofliquidation expenses. He considered that if Mr James had not received those moniesthey would have been applied in payment of the remuneration of the originalliquidators for the costs of the litigation. As Mr James had applied funds for thebenefit of the company, he considered that:7The preferential effect of the original payments to him has been eliminated.The enquiry does not have to go further.[15] Thus, while the company payments to Mr James were voidable, the liquidatorwas not entitled to orders that Mr James pay them back to the company.Evaluation[16] As this Court said in Russell v Commissioner of Inland Revenue, non-compliance with r 43 and the resulting need for leave "requires the exercise bythis Court of a positive discretion".8 Relevant factors in the exercise of thatdiscretion include the length of the delay, the reasons for the delay, prejudice causedby the delay and the apparent merits of the proposed appeal.9[17] The delay of three weeks was not great. Senior counsel has acceptedresponsibility for the error and explained how it occurred. It is not suggested that7 Reynolds v James, above n 1, at [56].8 Schmidt v Ebada Property Investments Ltd [2012] NZCA 452 at [6]; Russell v Commissioner of Inland Revenue (2006) 22 NZTC 19,807 (CA) at [10].9 Schmidt v Ebada Property Investments Ltd.any specific prejudice has arisen as a consequence of the delay and we are satisfiedthat it has not.[18] The proposed appeal is not in that category of cases that are obviouslywithout merit, given the acknowledged payment of $60,904 to Mr James while thecompany was insolvent, and the treatment of those payments as reimbursement ofMr James eliminating the preference.[19] The prospect of any further delay can be dealt with by requiring any othernecessary matters to be dealt with promptly. In these circumstances, we consider itis appropriate to grant an extension of time to allow the appeal to proceed.Disposition[20] For these reasons the application for an extension of time to apply for theallocation of a hearing date and to file the case on appeal is granted.[21] The time for applying for the allocation of a hearing date and filing the caseon appeal is extended to Monday, 16 September 2013.Costs[22] In the circumstances, we consider costs should be reserved and determinedwhen the appeal is resolved.Solicitors:Whitlock & Co, Auckland for ApplicantMackay & Gilkison, Wellington for Respondent