PATRICK DEAN NORRIS V JOHNSON PRICE HOLDINGS LIMITED COA CA519/2012

PATRICK DEAN NORRIS V JOHNSON PRICE HOLDINGS LIMITED COA CA519/2012 [19 November 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA519/2012[2012] NZCA 541BETWEEN PATRICK DEAN NORRISApplicantAND JOHNSON PRICE HOLDINGS LIMITEDRespondentHearing: 23 October 2012Court: Arnold, Ellen France and French JJCounsel: S P Bryers for ApplicantG P Malone for RespondentJudgment: 19 November 2012 at 3 pmJUDGMENT OF THE COURTA The application for leave to appeal is dismissed.B The applicant must pay the respondent costs for a standard application on a band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by French J)Introduction[1] Mr Norris seeks leave to appeal a decision of the High Court.1 Leave is required under s 67(1) of the Judicature Act 1908 because the proposed appeal would be a second appeal. The High Court decision at issue concerned an appeal from the District Court.2[2] The application is made against the following background.Background[3] Mr Norris was appointed as liquidator of Trafalgar Top Ltd. The company went into liquidation on 19 December 2008.[4] Mr Norris wanted to sell the company's business as a going concern. He accordingly entered into an agreement with the company's landlord, Johnson PriceHoldings Ltd, to continue the company's lease. The terms of the agreement wererecorded in an email which read:...[I]n the order of priority, the landlord will rank with the Liquidator for the current building rental for the months of January and February 2009, and from thereon on a month to month basis. ...[5] Mr Norris failed to find a buyer and ran out of funds.[6] In the meantime a dispute had arisen over payment of the rent for the period January to April 2009. Johnson Price issued proceedings against Mr Norris personally in the District Court and following a contested hearing obtained judgment against him in the sum of $23,342.34 being the arrears of rent together with interest and costs.1 Norris v Johnson Price Holdings Ltd [2012] NZHC 370.2 Johnson Price Holdings Ltd v Norris [2012] DCR 31.[7] Dissatisfied with that outcome, Mr Norris then appealed to the High Court.[8] The key grounds of his appeal were:It was the company that was liable for any debt, not him. He was only thecompany's agent.The District Court did not have jurisdiction to hear the claim. Any claims should have been brought in the High Court under s 284 of the Companies Act 1993.Under the email agreement, rent ranked equally with his own remuneration and because his remuneration had never been paid, nothing was owing to Johnson Price.Even if the rent ranked as a liquidator's expense and so had higher prioritythan liquidator's remuneration, liability should only be quantified at the endof the liquidation and not when rent fell due for payment under the lease. The liquidation has still not concluded.The District Court Judge had been wrong to find on the evidence that the agreements did not end until 1 May 2009.[9] The appeal was heard by Miller J.[10] Justice Miller held that although the supervisory jurisdiction over liquidators under s 284 of the Companies Act can only be exercised by the High Court, that did not mean the District Court was acting without jurisdiction in hearing JohnsonPrice's claim. Johnson Price had not purported to invoke s 284. Rather, its claimwas in contract for a sum well within the jurisdiction of the District Court. The Judge accepted that Johnson Price would have been entitled to invoke the statutory procedures but was not required to do so. Nothing in s 284 precluded an action in contract being brought against a liquidator for an obligation incurred in the conduct of the liquidation.[11] The Judge further held that although the obligation to pay rent was an expense Mr Norris incurred in the liquidation, it was nevertheless a personal obligation. It was his decision to assume that liability and he presumably did it in the belief he would have funds to meet it. He might be sued in his own name by the creditor and he would be personally liable to pay.[12] As regards the interpretation of the email, Miller J said Johnson Price had made it clear it would only agree to continue the lease if it was given an assurance that it would not rank with pre-liquidation creditors. The email gave that assurancebut also limited Mr Norris' liability by ensuring that he need pay only if realisations permitted. In Miller J's view, the phrase "rank[ing] with the Liquidator"encompassed both liquidator's expenses and liquidator's remuneration. He therefore rejected the argument that the email agreement relegated the landlord's priority to that of the liquidator's remuneration only. Rather, it ranked equally with expenses.[13] The significance of the remuneration/expenses distinction was that if the rent ranked equally with expenses, then Mr Norris accepted he would have been able at the time to pay the rent from realisations.[14] Justice Miller went on to find that even if the rent did rank with liquidator's remuneration, Mr Norris was wrong to claim that liquidator's remuneration had never been paid. The Judge considered that certain payments made to Mr Norris' management company constituted payment of liquidator's remuneration. He also found that Mr Norris had paid wages of $38,696 owed by the company pre- liquidation. That should not have been done before paying post-liquidation rent.[15] Justice Miller also rejected a further argument raised by Mr Norris namely that he was not required to pay the landlord until realisations had been completed and all expenses quantified. The Judge said that was not standard liquidation practice and it was contrary to the email agreement. The natural meaning of the email was that in return for the landlord's co-operation, rent would be treated as aliquidator's expense and paid when due.[16] Finally, as regards the date of termination, Miller J analysed the evidence andsaid he was not persuaded the District Court's findings of fact were wrong.[17] Having rejected all of Mr Norris' grounds of appeal, Miller J confirmed thedecision of the District Court and dismissed the appeal.[18] In a later decision, Miller J dismissed an application by Mr Norris for leave to appeal to this Court.3[19] Mr Norris then filed the current application for leave which is opposed by Johnson Price.Grounds of proposed appeal[20] It was common ground that in order to obtain leave, Mr Norris must demonstrate that the proposed appeal would raise some question of law or fact capable of bona fide and serious argument in a case involving some interest public or private of sufficient importance to outweigh the cost and delay of a further appeal.4[21] Counsel for the applicant, Mr Bryers, submitted that the reasoning in both the District and High Court decisions was fundamentally flawed because both decisions"mixed up" two separate procedures.[22] Mr Bryers argued that there are two ways in which a creditor can seek to enforce a claim arising out of a post-liquidation arrangement with a liquidator.[23] The first is to bring an ordinary common law action in contract against the company in liquidation or against the liquidator personally or both. It is well established that a liquidator acts only as an agent of the company in liquidation. As a result when a liquidator enters into a post-liquidation contract or financial arrangement he or she does so prima facie as agent for the company and not in his or her personal capacity, unless the circumstances show that the liquidator is assuming a personal liability. Where the creditor chooses to sue the liquidator personally then3 Norris v Johnson Price Holdings Ltd [2012] NZHC 1804.4 Waller v Hider [1998] 1 NZLR 412 (CA).it will be required to overcome the difficult hurdle of proving that the liquidator has made themself personally liable.[24] The second way is for the creditor to invoke the procedures under the Companies Act, in particular s 284. In such an application, which can only be made to the High Court, the liquidator is named as a party. Issues of agency are irrelevant. What will be involved is a review of the liquidator's conduct and a determination of whether the debt falls within liquidator's expenses.[25] In this case, Johnson Price opted to bring a common law claim. The Court was therefore required to apply orthodox agency principles to determine whether Mr Norris had made himself personally liable. In Mr Bryers' submission, neither the District Court nor the High Court did that. Instead, they assumed based on s 284 authorities that the liability of a liquidator for post-liquidation debts is by definition personal. Had they addressed the agency issue, it is unlikely they would have found Mr Norris had made himself personally liable. He was acting in his capacity as liquidator. Johnson Price knew he was acting on behalf of the company and there was nothing in the email contract to suggest otherwise.[26] Mr Bryers further submitted that the issue of a liquidator's liability for post- liquidation debt was a matter of general public importance and that the decisions of the lower courts in this case should not be allowed to stand because they created an"erroneous and misleading precedent". For Mr Norris personally, the matter was said to be one of significant importance because entry of judgment has adversely affected his professional standing and reputation.[27] Mr Bryers also submitted that if leave were granted Johnson Price would not be prejudiced because it was always free to pursue its remedy under the Companies Act.Discussion[28] We accept it is arguable that there may have been errors of reasoning as identified by Mr Bryers.[29] However, after careful consideration we have decided that leave should not be granted.[30] We have come to that conclusion for the following reasons:(a) the amount at stake is relatively small.(b) the primary function of a second appeal is not to correct error.5(c) it is far from certain that Johnson Price would have an alternative remedy under s 284 as claimed by Mr Bryers were it to be deprived of its judgment. It would only have standing if an expanded definitionof "creditor" were adopted. Commentators appear to assume that the s 240 definition of creditor applies which would limit standing under s 284 to a creditor who can prove in the liquidation, that is, a pre- liquidation creditor.6(d) Mr Norris' position is not a particularly deserving one. He gave anassurance which he did not honour and without which Johnson Price would never have agreed for the lease to continue. He had sufficient funds at hand to pay the rent at the time it was due but failed to do so. Moreover, although he failed to pay Johnson Price he did pay his own management company and other lesser priority debts.[31] In our view, the interests of justice do not favour granting leave.Outcome[32] The application is accordingly dismissed.5 Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355,[2008] 2 NZLR 591 at [33], approving the summary in Cooper v Symes (2001) 15 PRNZ 166(HC) at [12].6 Mr Bryers attempted to overcome this potential difficulty by submitting that Johnson Price would qualify as an "entitled person" for the purposes of s 284. However "entitled person" isdefined in s 2 as a shareholder.Costs[33] Mr Norris having failed in his application is ordered to pay the respondent costs for a standard application on a band A basis plus usual disbursements.Solicitors:Solutions Law Office, Nelson for Respondent