IAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC INVESTMENTS LIMITED (IN LIQUIDATION) V KILBIRNIE PLYMOUTH INVESTMENTS LIMITED HC WN CIV 2009-485-2397

IAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC INVESTMENTS LIMITED (IN LIQUIDATION) V KILBIRNIE PLYMOUTH INVESTMENTS LIMITED HC WN CIV 2009-485-2397 9 March 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2009-485-2397UNDER the Companies Act 1993 IN THE MATTER OF the liquidation of Dermac Investments Limited BETWEEN IAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC INVESTMENTS LIMITED (IN LIQUIDATION) Applicants AND KILBIRNIE PLYMOUTH INVESTMENTS LIMITED Respondent Hearing: 8 March 2010 Counsel: K P Sullivan for Applicants R C Laurenson for Respondent Judgment: 9 March 2010JUDGMENT OF SIMON FRANCE JIntroduction[1] On 25 November 2009 a freezing order was made in relation to the proceeds of an agreement for sale and purchase that was to settle the following day. Orders ancillary to the freezing order were made. [2] The freezing order was continued by consent.[3] On 21 December 2009 the applicant liquidators filed an application for further ancillary orders. On 5 February 2010 the respondent replied: a) opposing the orders; b) seeking discharge of the freezing order. [4] As it happens the affidavit in support of the opposition provided most but not all of the information sought. Today's hearing proceeded on the basis that the liquidators were seeking modified orders concerning the information that was still outstanding.The order[5] The sale and purchase was for an open area of ground in central Wellington, currently used as a car park. The order read:4 The freezing order is made in respect of the following assets: (a) The proceeds of sale, up to a maximum amount of $2,140,278.00, received by the respondent or its solicitor from the sale of the St George car park land, more particularly described as the land in WN300/243 of Deposited Plan 6193, to be held in the trust account of the respondent's solicitor acting on the sale; such proceeds being after deduction of the costs of sale and repayment of the registered mortgage to ANZ National Bank Limited and any other amounts required to be paid to give clear title to the purchaser.[6] It is common ground that the amount received from settlement was almost wholly applied to a bank mortgage secured against the property. There was a small surplus that paid most but not all of the legal fees. [7] In terms of the freezing order there are no proceeds of sale.Today's hearing[8] The sale was for $6 million. In general terms $2 million was paid prior to settlement, and $4 million at settlement. The liquidator's case is that the $2 million paid in advance of settlement was really a set off of moneys already owed by the vendor to the purchaser. The liquidators claim it is a voidable transaction which gave the respondent purchaser preference over other unsecured debtors. [9] The liquidators accept that the freezing order is ineffective in that there are no proceeds of sale and no assets. It wishes to maintain it for the purposes of allowing the further ancillary orders to be made. Mr Sullivan explained the basis for the further orders sought. With the caveat that I did not hear orally from Mr Laurenson, I generally accept the merit of the orders sought. [10] However, whatever the merit of the ancillary orders, there is no basis for the freezing order. There are no assets to which it attaches. I do not accept it is proper to maintain it just because of the ancillary procedural advantages it yields. In a non pejorative sense, that appears to me to be an abuse of process. [11] Mr Sullivan referred to a decision of French J in Monastero and Moya v Bujak and Zalwowska-Spisak HC Christchurch CIV 2008-409-1901, 21 August 2009. There were in place in that case freezing orders in relation to Mr Bujak of $300,000. [12] The hearing before French J had two aspects: a) the adequacy of answers given by Mr Bujak to earlier orders; b) whether ancillary orders could be used to direct Mr Bujak to exercise his power of attorney for Ms Zalwowska-Spisak, and thereby provide a statement of her assets. [13] It is the part of the judgment dealing with the second issue from which Mr Sullivan draws support. Ms Zalwowska-Spisak is Mr Bujak's wife, but had longleft New Zealand and returned to Poland. Little was known about her financial situation, although at one point she had in New Zealand over $600,000 in an account. [14] At paragraph [42] her Honour observed:[42] I also do not accept the fact the existing Mareva injunction is limited to assets in New Zealand means of necessity the disclosure order must be similarly limited. It was not of course limited in the case of the disclosure order made against Mr Bujak personally. This is because the ancillary orders are designed to elicit information relating to assets relevant to aprospective freezing order as well as one actually made.[15] At issue was the capacity contained in Rule 32.5(5) to make orders against prospective judgment debtors. The case does not have relevance here where there is an order in place that is challenged. [16] In my view the respondent made plain by its documents of 2 February that it was no longer consenting to the freezing order and opposing both its existence and its ability to be the source of further ancillary orders. The applicants did not respond by seeking either variation or a different freezing order. [17] I accept there is some width to the wording of r 32. However here there is narrowly worded existing freezing order attaching to specific monies. It is common ground those monies do not exist. There is no basis to maintain it, and with its cancellation, the application for further orders ancillary to it must fail.Conclusion[18] The respondent's application to discharge the freezing order succeeds. Consequently, the applicant's application for further ancillary orders fails.Costs[19] Mr Laurenson seeks costs on the failed ancillary order application. He submits that considerable preparation in a short time was required, albeit the Court did not seek oral submissions from him. [20] Mr Sullivan says the applications were made before there was a challenge to the underlying order. Up until then the order has been extended by consent. The information sought was reasonable and has largely been provided. [21] In my view costs should lie where they fall. I am influenced by the fact that the ancillary orders were sought at a time when the freezing order was in place by consent. They were not on their face excessive orders, and the challenge to the freezing order (perfectly proper in itself) altered things subsequent the applicant's applications. [22] It was a very short hearing, Mr Sullivan put his client's position well but without any excess, and the orders sought, on their face, were reasonable. [23] In all these circumstances I consider that costs should lie where they fall. ______________________________ Simon France JSolicitors: K P Sullivan, DLA Phillips Fox, PO Box 2791, Wellington email: sean.osullivan@dlaphillipsfox.com R C Laurenson, Barrister, PO Box 5606, Wellington, email: resultlaw@xtra.co.nz