MANAWATU- WANGANUI REGIONAL COUNCIL V EASTON AGRICULTURE LIMITED HC PMN CIV-2012-454-708

MANAWATU- WANGANUI REGIONAL COUNCIL V EASTON AGRICULTURE LIMITED HC PMN CIV- 2012-454-708 [20 February 2013]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYCIV-2012-454-708[2013] NZHC 209UNDER the Companies Act 1993IN THE MATTER OF the liquidation of Easton AgricultureLimitedBETWEEN MANAWATU- WANGANUI REGIONALCOUNCILPlaintiffAND EASTON AGRICULTURE LIMITEDDefendantHearing: 14 February 2013(Heard at Palmerston North)Counsel: A. Bell - Counsel for PlaintiffM. Dobson - Counsel for DefendantJudgment: 20 February 2013JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLUnder r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 3.30 pm on 20 February 2013.Solicitors: Heaney & Co, Solicitors, PO Box 105391, AucklandWadham Goodman, Lawyers, PO Box 345, Palmerton NorthIntroduction[1] Before the Court is an application by the defendant for a stay of the plaintiff'sliquidation proceeding brought against it, and for an order restraining advertising. This application is made pursuant to r 31.11 High Court Rules.[2] Also before the Court is the plaintiff's liquidation application. In terms of submissions from counsel for the plaintiff before me, it seems the plaintiff wished to proceed as well with a hearing of this application, notwithstanding that the application has obviously not as yet been advertised.[3] I will deal first with the defendant's application for a stay and to restrainadvertising. As will become clear later in this judgment, in view of the outcome that is to be reached on that particular application, it will at this stage for present purposes dispose also of the liquidation application before me.Background Facts[4] The defendant Easton Agriculture Limited (Easton) is a Palmerston North company which operates a farm in the Moutoa area between Shannon and Foxton. As I understand the position, it grows mainly crops but also fattens stock. In February 2004 the southern stop bank of the Moutoa floodway adjoining thedefendant's farm breached under the Whirokino trestle bridge. The Moutoa basin, including a large part of the defendant's farm was flooded. Potato, squash, onion crops and pasture were ruined.[5] The defendant's losses it is said were in the vicinity of $1.4 million.[6] In 2008, the defendant and another party, Eveleigh Farming Company Limited (Eveleigh) issued proceedings in the Palmerston North High Court against the Manawatu-Wanganui Regional Council (the plaintiff in these proceedings – the Council). The defendant's claim in that proceeding was for $1.4 million and Eveleigh's was for approximately $1.2 million.[7] In May/June 2011 there was a two week trial in this Court before His Honour Justice Kos. His Honour handed down a reserved decision on 7 September 2011. The plaintiffs Easton and Eveleigh were unsuccessful. In summary, His Honour found the Council negligent but preferred its expert's view that negligence was notcausative of the breach.[8] The plaintiffs Easton and Eveleigh appealed. The appeal was argued on 13 November 2012 but a decision from the Court of Appeal is awaited.[9] Costs on the original hearing could not be agreed. Memoranda were filed and His Honour Justice Kós handed down a judgment dated 22 December 2011 in which costs were awarded in favour of the Council against the plaintiffs as follows:Category 2B scale costs $ 93,000.00Disbursements $ 11,746.00Witness expenses $111,937.00$216,683.00[10] The plaintiffs Easton and Eveleigh appealed the costs award and applied to the High Court for a stay of execution. In a judgment dated 15 August 2012 His Honour Justice Kós rejected that application and refused the stay sought.[11] The total costs award of $216,683.00 has now been paid. One half of this amount being $108,341.50 was paid by Eveleigh on 3 September 2012. The balance of $108,341.50 was in turn paid by Easton the defendant in this proceeding, on 18 October 2012.[12] Notwithstanding this, on 19 October 2012 the plaintiff commenced the present liquidation proceedings against the defendant Easton based upon what was said to be its failure to comply with a statutory demand issued for this total $216,683.00 costs award. The original statement of claim alleges that the defendant Easton continued to owe this $216,683.00 to the plaintiff pursuant to the costs judgment, but this is an error acknowledged by the plaintiff now. As noted above, one half of this amount was paid by Eveleigh on 3 September 2012 being within the15 working day period following service allowed for in the statutory demand itself, with the balance paid on 18 October 2012. Although this is denied by the plaintiff in its reply dated 21 December 2012, the defendant in both its statement of defence dated 28 November 2012 and amended statement of defence dated 12 December2012 submits that ".... on 17 October 2012 an agreement was reached betweencounsel for the plaintiff and counsel for the defendant to the effect that if the balance of the debt was paid the following day proceedings would not be issued ..... (and) .... the defendant company paid $108,341.50 on 18 October 2012.[13] And, no doubt to the defendant's surprise, on 19 October 2012, being the same day as the present proceedings were issued, the defendant received a letterfrom the plaintiff's solicitors which acknowledged payment of the total $216,683.00costs award but, for the first time, made a claim for interest on one-half of this costs award totalling $4,570.72. Payment of this interest was required to be made by 24 October 2012. But, that interest claim has not been paid as yet.[14] Instead, on 9 November 2012 the defendant filed the present application for an order for stay and to restrain advertising. An interim order for stay and restraining advertising was made to cover the situation until the hearing of this matter which took place on 14 February 2013.[15] The plaintiff then on 3 December 2012 sought to file an amended statement of claim to the effect that instead of the outstanding default being the $216,683.00 costs judgment as pleaded originally, the default complained of was now said to be non-payment of the sum of $8,251.04 as interest on the original costs award.[16] In the meantime as noted above at para [8] another important event had occurred. The defendant Easton and Eveleigh had appealed the substantive decision against them in favour of the plaintiff Council together with the costs award upon which this proceeding was originally based. That appeal was heard before the Court of Appeal on 13 November 2012. A decision on the appeal is still awaited.Counsels' Arguments and My Decision[17] The power to stay liquidation proceedings is provided for in r 31.11 High Court Rules which reads as follows:31.11 Power to stay liquidation proceedings(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—(a) for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and(b) for an order staying any further proceedings in relation to the liquidation.(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.(3) The inherent jurisdiction of the court is not limited by this rule.[18] The general principles to be applied by the Court in considering applications under r 31.11 are noted in McGechan on Procedure at para HR31.11.02 as follows:HR31.11.02 Applicable principlesRelevant legal principles concerning the Court's jurisdiction to stay liquidationproceedings are discussed in relation to interlocutory and interim injunctions, in the commentary to r 7.53. The relevant authorities are: Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR 242, (1984) 2 NZCLC 99,195 (CA);Anglian Sales Ltd v South Pacific Mfg Co Ltd [1984] 2 NZLR 249, (1984) 2 NZCLC 99,220 (CA); Fletcher Development & Construction Ltd v New Plymouth Hotels Holdings Ltd [1986] 2 NZLR 302 (CA); Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297, (1989) 1 PRNZ 390; Pink Pages Publications Ltd v Team Communications Ltd [1986] 2 NZLR 704, (1986) 3 NZCLC 99,764. In Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 at 385, Wallace J provided a classic summary of the principles:(a) The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.(b) The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.(c) The governing consideration is whether the proceedings suggest unfairness or undue pressure.(d) It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normallynecessary to demonstrate "something more" than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.[19] I turn now to consider the broad grounds advanced by the defendant in support of the present application. These were outlined at para [2] of the application as follows:[2] The grounds on which each Order is sought are as follows:(a) The amount claimed has been paid in full.(b) The application is an abuse of process.(c) The Defendant Company is solvent ...[20] Before considering these grounds, however, before me counsel for the defendant raised a preliminary matter. This concerned an issue of procedure and related to r 31.5(4) High Court Rules which requires a verifying affidavit in support of a liquidation application to be sworn by a plaintiff or, "if the proceeding is brought by a corporation, by a person who meets the requirements of r 9.82".[21] Rule 9.82 provides that a person can make an affidavit on behalf of the corporation if that person knows the relevant facts and is authorised to complete the affidavit. The person deposing must establish they have the knowledge, and thecorporation's authority, to do so – Hempseed v Durham Developments Limited[1998] 3 NZLR 265. Here, Mr Dobson for the defendant complained that the verifying affidavit in this proceeding being one sworn by Mr Thomas Clifford Wood does not comply with the High Court Rules. It is alleged Mr Wood has not been involved in the present litigation which has now been in progress for some four or five years, and further that he does not depose he has knowledge of the file or whatinvolvement he may have had. Further, the defendant complains Mr Wood does not depose that he has the authority of the plaintiff Council to swear the affidavit.[22] As to these matters, Mr Wood has now sworn a further affidavit dated 13 February 2013 explaining and he contends answering those complaints advanced by the defendant.[23] In my view for present purposes that is adequate here and disposes of thedefendant's procedural argument. I dismiss that argument. And I simply note at this point that, as will appear later in this judgment, in view of the final outcome of this application, any procedural omission, even if established here, would make little difference.[24] I turn next to consider the first ground in support of its present application advanced by the defendant as outlined at [19] above. This is to the effect that the amount claimed has been paid in full.[25] The plaintiff's original statement of claim in this proceeding filed on 19 October 2012 was based upon the alleged non-compliance by the defendant with the statutory demand issued for $216,683.00. In addition, this statement of claim pleaded that the debt was still outstanding. That statutory demand was itself served on 21 August 2012 and claimed the total costs amount awarded by His Honour Justice Kós specified to be the sum of $216,683.00. On its face, the statutory demand required payment of this sum within 3 weeks of the date of service being 11 September 2012. No interest on this sum was claimed in the statutory demand. Thiswas notwithstanding r 11.27 High Court Rules which deals with a party's right toclaim interest on a costs and disbursements award.[26] As I have noted above, that total costs judgment of $216,683.00 was in fact paid, one-half on 3 September 2012 and the balance on 18 October 2012. It was not until the next day, 19 October 2012, that the letter noted at [13] above was receivedfrom the plaintiff's solicitors making a claim against the defendant for interest of $4,570.72.[27] Then, several weeks later on 3 December 2002, the plaintiff purported to file an amended statement of claim in this proceeding specifying that, as at 18 October 2012, the defendant in fact owed $8,251.04 for interest. It is difficult to say the least to reconcile these amounts. Even if the $4,570.72 amount demanded in the 19October 2012 letter from the plaintiff's solicitors (as it was said to be) represented only one-half of the total interest due, this would mean total interest would be something over $9,100.00 as opposed to the $8,251.04 specified in the amended statement of claim.[28] The plaintiff's general claim against the defendant for interest on the costsjudgment is confusing to say the least. The demand outlined in the 19 October 2012letter from the plaintiff's solicitors differs significantly from the amount specified inthe 3 December 2012 amended statement of claim.[29] Whilst, pursuant to r 11.27 High Court Rules, the 15 August 2012 costs and disbursements judgment, although not specifying any interest component, would carry interest if required by the plaintiff, there is a reasonable argument here that no proper demand for any specific interest amount (or with any appropriate calculation justification) has been made on the defendant.[30] That said, given first, that the large costs amount which was the only sum originally claimed from the defendant in the statutory demand had been paid in full prior to the issue of these proceedings and secondly, that no clear and unequivocal demand for interest was made at the time (and arguably has still not as yet been made) in my judgment the Court is unable to rule out the possibility that the "amount claimed" here has in fact been paid in full by the defendant. Notwithstanding that it is always a serious matter to stay liquidation proceedings in my view this is sufficient to dispose of the present application, which must succeed.[31] I will go on however to consider briefly, the second ground advanced in support of the present application, which is that the plaintiff's liquidation proceedingis an abuse of process. On this, McGechan on Procedure at para HR31.11.03 states in part:An order may be granted under this rule where the Court finds that the proceeding has been instituted for a collateral purpose. In BNZ v Manor Inns Group LimitedHC, Auckland, M146/92, 30 November 1992, the Court considered that there were strong prima facie grounds for finding that the proceeding had been instituted solely for the purpose of extracting a payment to which the plaintiff was not entitled and which it would not otherwise receive.[32] In the present case, Mr Dobson for the defendant submitted that throughout this whole matter the actions of the defendant have been entirely proper and consistent. He maintains that early in the piece, the defendant asked the plaintiff for some time to pay the outstanding balance of $108,341.40 under the costs and disbursements award (after the other half of this amount had been paid by Eveleigh on 3 September 2012) and said they would make a payment on or about 18 October 2012.[33] Mr Dobson says this was agreed to by counsel for the plaintiff but, in any event, he suggests there is a strong implication that the plaintiff agreed to this course of action, even simply by acquiescence. He notes that the original statement of claim for these liquidation proceedings had attached to it a verifying affidavit which was sworn on 26 September 2012, but the proceedings themselves were not filed until 19 October 2012. He asks why else would the plaintiff simply delay bringing these proceedings unless it had agreed to give the defendant time to make the costs payment as requested.[34] Mr Dobson then goes on to submit that the actions of the plaintiff here can only be seen as high handed, cavalier and oppressive. To use non-compliance with a statutory demand as a means for a liquidation application when the amount demanded had been paid in full the day before proceedings were issued he contends was an abuse of process and oppressive.[35] And, all this it seems is in the face of a decision being awaited from the Courtof Appeal on the defendant's appeal against the original judgments of His HonourJustice Kós on the substantive proceeding and his costs award.[36] In response, counsel for the plaintiff before me argued that the interest in question is now properly claimed and amounts to nearly 4% of the original amount claimed in the statutory demand which has been settled. He contends that theseproceedings are properly continued, that the defendant has been unsuccessful before His Honour Justice Kós in the stay application noted at para [10] above, and that the present application is effectively yet another attempt to get around that stay decision.[37] In my view the present application however has a different character from the stay application which was before His Honour Justice Kós. It is an application to stay only a liquidation proceeding rather than the application His Honour Justice Kós was required to consider, which was for a general stay of the costs and disbursements order. And, notwithstanding this, as I have noted above, a significant additional circumstance in the present case seems to me to be the outstanding decision on the appeal which is awaited by the parties from the Court of Appeal.[38] Leaving all these matters on one side, however, whether or not the liquidation application here may have been instituted for a collateral purpose is entirely unclear. But, given that over $216,000.00 has been paid to the plaintiff by way of costs on the earlier proceeding, the non-payment of a total interest amount of about $8,250.00 whilst the Court of Appeal decision on the appeals is awaited, would seem to me to be a relevant factor in all the circumstances here.[39] Finally and for completeness, I turn to consider briefly the third ground advanced by the defendant in support of the present application which I have noted at [19] above. This is the claim by the defendant that, in any event, it is solvent.[40] Although there is little by way of independent verification before me of thedefendant's financial position, Mr Ian Charles Easton a director of the defendant inhis 9 November 2012 affidavit does state that the defendant is "solvent and tradingwell". As evidence of this he notes the $108,351.50 payment to the plaintiff as one half of the costs award on 18 October 2012.[41] In addition, in his submissions before me, Mr Dobson noted that the defendant is a company which has been involved in a three generation farming operation in the Shannon area. He said that the defendant company employs over thirty people and has a reputation which he describes as "stellar". Mr Dobsoncontends that the defendant will be hugely affected and its reputation substantially tarnished if advertising of the present liquidation application was to proceed.[42] And on this Mr Easton in his 9 November 2012 affidavit, in noting also that the defendant is "actively trading" and "in good financial heart" deposes at paras [17] and [18]:[17] (The company) is heavily reliant on its reputation in the community. It has an established reputation as a company that pays its debts on time and it never has any problem obtaining credit from seed merchants, contracting companies and other suppliers of items which are necessary for (the company) to trade. It also has an extremely good reputation amongst those entities with which it contracts to grow the crops. If the liquidation proceedings are advertised significant damage will be done to its reputation and ability to trade.[18] My reputation is intimately bound up with (the company). It bears my name and people in the area all know that I am the Company's director andone of its major shareholders. I have lived in the area all my life. My father and grandfather lived and farmed the land before me. The Easton name has a solid and well-established reputation in the area which would be irreparably damaged if (sic) the proceedings are advertised.[43] Although counsel for the plaintiff quite properly noted that there was little byway of independent verification of the defendant's financial position before the Court, this is not enough in my view to require the Court to dismiss the defendant'spresent application. The claimed interest debt in question here is a little over $8,200.00 (and is shared equally with Eveleigh which itself promptly paid one half of the earlier costs order). Under all the circumstances here I am satisfied that theplaintiff's present liquidation proceeding, given that it is now amended to complain of an $8,251.04 non-payment of interest (which interest indeed may not as yet have been properly demanded) is a proceeding which taking a wide view may suggest unfairness or undue pressure against the defendant.[44] For these reasons also, the present application succeeds.Conclusion[45] The earlier order made in this Court staying any further proceedings in relation to this liquidation application and restraining publication of anyadvertisement required by r 31.9 High Court Rules or any other information relating to the statement of claim is now made permanent.[46] As to costs, the defendant has been successful in bringing this application and I see no reason why costs should not follow the event in the normal way.[47] Costs are therefore ordered on this application against the plaintiff here on a category 2B basis together with disbursements as fixed by the Registrar.'Associate Judge D.I. Gendall'