ALLOTT v MARK [2021] NZHC 1100

ALLOTT v MARK [2021] NZHC 1100 [17 May 2021]IN THE HIGH COURT OF NEW ZEALANDBLENHEIM REGISTRYI TE KŌTI MATUA O AOTEAROATE WAIHARAKEKE ROHECIV-2018-406-000010CIV-2021-406-000013[2021] NZHC 1100UNDER the Companies Act 1993IN THE MATTER OF an application by the Liquidator fordeclarations against DirectorsBETWEEN MURRAY GEORGE ALLOTT ASLIQUIDATOR OF PMT 2010 LIMITED (INLIQUIDATION)PlaintiffAND PETER MARK AND JEANETTEPATRICIA MARKFirst DefendantsAND WISHEART MACNAB & PARTNERSTRUSTEE COMPANY LIMITED andDAVID JOHN PAUL as Trustees of theMark Family TrustSecond DefendantsTeleconference: 14 May 2021Counsel: A J Davis for the PlaintiffP Morten for the DefendantsJudgment: 17 May 2021JUDGMENT OF GWYN J(Consolidation of proceedings)Introduction[1] The plaintiff, PMT 2010 Limited (In Liquidation) (PMT), commenced theexisting proceeding (CIV-2018-406-000010) against the defendants, Mr andMrs Mark, in 2018 (the 2018 proceeding).[2] At a teleconference before me on 10 May 2021, Mr Morten for the defendantsreferred to a notice under s 347 of the Property Law Act 2007 (CIV-2021-406-000013), which had been served by PMT as plaintiff on Mr and Mrs Mark as firstdefendants, and the trustees of the Mark Family Trust as second defendants, on28 April 2021 (the new proceeding). The notice recorded that PMT had applied to theHigh Court at Blenheim for an order setting aside a disposition of property, being theassignment of a vendor or finance loan of $680,000.00 owed by Peter Mark Floorpride2008 Limited (PMF).[3] At the time of the teleconference, the new proceeding had not been issued bythe Court for service. I declined Mr Morten's oral application for consolidation of thenew proceeding with the 2018 proceeding, and directed Mr Davis, counsel for PMT,to provide Mr Morten with a copy of the new proceeding as a matter of priority so thathe could decide whether to make a formal application for consolidation.[4] A copy of the new proceeding has now been provided to Mr Morten, and hehas made a formal application to consolidate the new proceeding with the 2018proceeding and to adjourn the hearing on 19 and 20 May 2021. The application isopposed. Given the shortness of time, Mr Davis was willing to make oral submissionsonly and accordingly I heard argument on the application by way of telephoneconference on 14 May 2020.[5] I gave an oral judgment in favour of Mr and Mrs Mark and now record myreasons for that judgment.[6] The application is brought pursuant to r 10.12 of the High Court Rules 2016,which provides the Court may order the consolidation of two proceedings if satisfiedthat:(a) some common question of law or fact arises in both proceedings; or(b) the rights to relief claimed in the proceedings are in respect of, or ariseout of –(i) the same event or transaction; or(ii) the same event and the same transaction, or the same series ofevents, or the same series of transactions; or(iii) the same series of events and the same series of transactions; or(c) it is desirable in the interests of justice that the Court make an orderconsolidating the proceedings.What is alleged in the proceedings[7] The 2018 proceeding alleges:(a) breaches of s 194 of the Companies Act 1993, with relief sought unders 300 of the Companies Act;(b) that distributions (comprising "dividends" and "other changes") weremade at a time when the company (in liquidation) was unable to satisfythe solvency test, with relief sought under s 56 of the Companies Act;and(c) that a journal entry recorded in the Financial Statements indicates adistribution of three company vehicles at an undervalue, with reliefsought under s 297 of the Companies Act.[8] Mr Morten also draws attention to [25(b)] of the statement of claim in the 2018proceeding, where PMT alleges that the effect of the "other changes" was to eliminateas a liability owed to the company an advance from PMF of $680,000.00 (the vendorfinance loan).[9] In the new proceeding, PMT alleges:(a) that the vendor finance loan was not validly assigned, remained an assetof the company, and seeks judgment against Mr and Mrs Mark for$680,000.00;(b) that Mr and Mrs Mark breached their fiduciary and statutory duties tothe company (including the duty to keep accounting records), seekingrelief under s 301 of the Companies Act;(c) that, if the vendor finance agreement was validly assigned, theassignment was a disposition which defeated creditors, as a result ofwhich the company became insolvent, with compensation sought fromMr and Mrs Mark under s 347 of the Property Law Act; and(d) in respect of Wisheart Macnab & Partners Trustee Company Limitedand David Paul as trustees of the Mark Family Trust, PMT seeksrecovery of interest paid by PMF to the Trust on the vendor financeloan, which PMT claims ought to have been paid to the company. PMTpleads knowing assistance and conversion in respect of the interestreceived.Submissions[10] For the defendants, Mr Morten notes that the plaintiff (PMT) and firstdefendant (Mr and Mrs Mark) are the same in both proceedings, and the seconddefendant (the trustees of the Mark Family Trust) in the new proceeding consents toconsolidation. In his submission, the summary of the respective pleadings at [7]–[9]above clearly indicates that a common question of fact arises in both proceedings,namely the validity of the assignment of the vendor finance loan.[11] Mr Morten also submits that time and costs for both parties and the Court willbe saved if the proceedings are consolidated. Consolidation will eliminate or reducethe risk of inconsistent findings (of fact and/or law). Mr Morten says the defendantswill be prejudiced if the two proceedings are heard separately and, in contrast, nodisadvantage will be suffered by the parties if the proceeding is delayed.[12] Overall, Mr Morten submits that the objective of the High Court Rules tosecure the just, speedy and inexpensive determination of the proceeding will not beachieved if the two proceedings are heard separately.1[13] Mr Davis, for the plaintiff, opposes the application for consolidation andadjournment. He disputes that common questions of law or fact arise in the 2018proceeding and the new proceeding: the 2018 proceeding concerns questions ofdistributions, liquidation processes and accounting procedures and is an actionalleging breaches of record-keeping and financial position presentation (s 194 of theCompanies Act), directors' duties (ss 131-138 of the Companies Act) and the makingof distributions (s 52 of the Companies Act).[14] In contrast, the new proceeding concerns the transfer of a company asset andrevenue, namely interest being redirected to the Mark Family Trust. It is alleged thatthis occurred before and after the appointment of a liquidator. The new proceedingdoes not arise out of the same event or the same transaction as the 2018 proceedingand gives rise to a stand-alone cause of action. Mr Davis submits there is no risk ofinconsistent findings, whether of fact or law.[15] Mr Davis notes the 2018 proceeding is ready for trial; a new proceeding is not.The plaintiff will be disadvantaged if the two proceedings are consolidated and thescheduled hearing adjourned. The 2018 proceeding has been set down for hearing ontwo previous occasions, both of which have been vacated. It is not in the interests ofjustice for there to be a third adjournment.Analysis[16] I am satisfied that the criteria in r 10.12 of the High Court Rules are met andthat it is appropriate to exercise my discretion to consolidate the proceedings.[17] Both the 2018 proceeding and the new proceeding relate back to the sale of thebusiness of Peter Mark Limited (now PMT 2010 Ltd (in liquidation)) to PMF, in1 High Court Rules 2016, r 1.2.May 2008. The sale included the provision of vendor finance of $680,000 by PMT toPMF. It is the validity of that vendor finance that is the subject of the new proceeding.[18] The plaintiff is the same in the 2018 proceeding and the new proceeding andhas the same legal representation. The defendants in the 2018 proceeding are the sameas the first defendant in the new proceeding and have the same legal representation.The second defendant in the new proceeding consents to consolidation, althoughrepresentation of the second defendant is not yet settled.[19] There is likely to be some commonality of witnesses in both proceedings.[20] Both proceedings relate to the financial statements of PMT for the year ended31 March 2012 and equity statements recording movements through the account, byway of dividends paid and "other changes in shareholders' funds", which affected thevendor finance.[21] Both proceedings allege breaches of duty by the directors of PMT, particularlybreaches of s 194 of the Companies Act 1993.[22] Both the 2018 proceeding and the new proceeding raise issues as to the dateson which documents were signed, and the validity and effectiveness of thosedocuments.[23] I am satisfied that there is a common question of fact in the proceedings andthat the rights to relief claimed will or are likely to arise out of the same series ofevents or the same series of transactions.[24] Consolidation will inevitably cause delay and potential prejudice for all parties,as well as loss of court hearing time. However, I agree with Mr Morten that there ispotential for delay further down the track if the proceedings are not consolidated nowand any prejudice bears more on the defendants than the plaintiff.[25] For those reasons, I grant the defendants' application for consolidation of the2018 proceeding and the new proceeding. I direct that the consolidated proceedingsbe heard together.Adjournment[26] The consequence of my order consolidating the two proceedings is that thefixture of the 2018 proceeding, on 19 and 20 May 2021, is vacated.[27] Counsel are agreed that it is important to have the consolidated matter heard assoon as possible. Accordingly, I confirm that the Registry has allocated a fixture forthe consolidated proceeding, in the Blenheim High Court, on 20 September 2021, forfour days.[28] Counsel are also agreed on the desirability of a tight timetable leading up tothe new hearing date. Counsel are to confer and put forward a proposed timetable tothe Court as soon as possible.[29] Mr Davis signalled that there may be an issue arising as to a potential conflictof Mr David Clark, who is the solicitor on the record for the defendants. He indicatesthat he has previously raised that issue but that it may be now be more acute, giventhat the second defendant in the new proceeding (now consolidated) is Mr Clark'sfirm's trustee company. If Mr Davis wishes to raise a formal objection on this basis,he is to do so promptly.Costs[30] I did not hear counsel on the question of the costs of this application. I directthat costs are payable to the defendant applicants on a 2B basis.2 If there is any reasonwhy that standard approach should not apply, counsel are to file memorandasequentially which are to be referred to me and, in the absence of any party indicatingthey wish to be heard on the matter, I will decide the question of costs on the basis ofthe material before the Court.Gwyn JSolicitors:Clark Boyce, ChristchurchWisheart Macnab & Partners, Blenheim2 Rule 14.8.