LEWIS HOLDINGS LIMITED v STEEL & TUBE HOLDINGS LIMITED [2014] NZHC 2708

LEWIS HOLDINGS LIMITED v STEEL & TUBE HOLDINGS LIMITED [2014] NZHC 2708 [31 October 2014]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2013-485-6104[2014] NZHC 2708UNDER Part 18 of the High Court RulesIN THE MATTER of ss 271(1)(a) and 272(1) of theCompanies Act 1993BETWEEN LEWIS HOLDINGS LIMITEDFirst plaintiffBORIS VAN DELDEN and PERIMICAELA FINNIGANSecond plaintiffsAND STEEL & TUBE HOLDINGS LIMITEDDefendantHearing: 20-24 October 2014Counsel: K J Crossland and J S Langston for PlaintiffsS A Barker and P J Niven for DefendantJudgment: 31 October 2014INTERLOCUTORY JUDGMENT OF MACKENZIE JI direct that the delivery time of this judgment is4.55 pm on the 31st day of October 2014.Solicitors: Shieff Angland, Auckland, for Plaintiffs.Buddle Findlay, Wellington, for Defendant[1] This judgment deals with an interlocutory issue on which I heard argument on 24 October 2014.[2] Stube Industries Limited (Stube) was a wholly owned subsidiary of the defendant Steel & Tube Holdings Limited (STH). It was the lessee, under a perpetually renewable ground lease, of a property owned by the first plaintiff Lewis Holdings Limited (Lewis) at Mt Wellington, Auckland. Stube was put intoliquidation by a shareholders' resolution on 4 June 2013. On 10 June 2013, theliquidators appointed by the shareholders disclaimed the lease under s 269 of theCompanies Act 1993 (the Act) as onerous property. Lewis filed a proof of debt withthe previous liquidators. Subsequently, the original liquidators were replaced by thesecond plaintiffs (the liquidators).[3] On 13 September 2013 Lewis and the liquidators commenced the presentproceedings, an application under pt 18 of the High Court Rules for an order unders 271 of the Act against the defendant. In a joint memorandum filed for the first casemanagement conference, it was agreed:8. The issues to be resolved are:(a) Pursuant to s 271(1) of the Companies Act 1993 ("the Act"),whether it is just and equitable for the defendant to pay the second plaintiffs, as liquidators of Stube Industries Limited("SIL"), the first plaintiff's claim in SIL's liquidation ("Claim").(b) Pursuant to s 272(1) of the Act, the assessment of what is just and equitable turns on an assessment of:(i) the extent to which the defendant took part in the management of SIL:(ii) the defendant's conduct towards the creditors of SIL;(iii) the extent to which the circumstances that gave rise to the liquidation of SIL were attributable to the actions of the defendant; and(iv) any other matters the Court thinks fit.(c) If the defendant is liable to pay the amount set out in the Claim, whether, and if so, to what extent, the first plaintiff has failed to take reasonable steps to mitigate its loss.[4] The liquidators have not made a decision to admit or reject Lewis' claimunder s 304(3) of the Act. One of the liquidators, Ms Finnigan, said in evidence that this had not been done because there are presently no assets, so that the expense of considering the claim and assessing the quantum of it was considered to be a fruitless exercise, unless and until an order is made under s 271. Quantum is one of the agreed issues in this proceeding, under paragraph 8(c) of the memorandum.[5] By a memorandum dated 14 October 2014, Mr Barker for the defendant raised an issue as to the jurisdiction of the court to make an order under s 271 of the Act in this case. I heard argument on that question on 24 October. The jurisdictional issue is stated in Mr Barker's submissions in these terms:2.1 Before the Court can decide whether to make the order sought under s 271(1)(a) of the Act in this proceeding, it must first be satisfied that it has jurisdiction to do so. The jurisdictional issues are as follows:(a) Does the Court have jurisdiction to make an order under s 271(1)(a) of the Act when the liquidator has not admitted the Lewis claim in the liquidation?(b) Does the Court have jurisdiction to determine theliquidators' application for a decision on quantum in thecontext of the application under s 27(1)(a)?[6] Mr Barker submits that the wording of s 271(1)(a) presupposes the existence of a valid claim, and that the court does not have jurisdiction unless and until a claim has been admitted in the liquidation by the liquidators. He submits that until a claim has been admitted, there are no claims, there are no creditors, and there is therefore no object for an order under s 271(1)(a). He submits that the court cannot make an order under s 271 for a related party to pay a claim that may not ultimately be admitted to prove in the liquidation. He further submits that even if the validity of a claim has been admitted, the court cannot make an order that a related party pay a claim that has not be quantified, because the quantum may be less than that claimed by the creditor, and may be nil.[7] Section 271 provides that application may be made by, inter alia, a creditor. Under s 240, a creditor is a person who, in a liquidation, will be entitled to claim in accordance with s 303 that a debt is owing to that person by the company. Section 303 provides that a liability for damages may be admitted as a claim. Aclaim by a lessor following disclaimer of a lease is a claim for damages.1 An order can be made under s 271 that the related company must pay to the liquidator "the whole or part of any or all of the claims made in the liquidation". Neither thereference to "creditor", nor the reference to "claims made" in s 271 limits the operation of the section to creditors whose claims have been admitted, or to claims which have been admitted in the liquidation. Mr Barker submitted that the reference made to claims made is an error in the statute and that the reference should be to claims admitted in the liquidation. I do not accept that submission. The jurisdiction under s 271 is not limited to admitted and quantified debts, as Mr Barker submits.[8] Before the liability of a related company to contribute to the debts of a company in liquidation can be quantified, a number of steps are involved. There must be an order under s 271. The claims made in the liquidation which the related company is liable to pay must be quantified, under s 304 of the Act, or by some other means. The quantification of the claims may therefore involve a process separate from the s 271 application. There is nothing in the wording of s 271 which mandatesthat the quantification of the creditors' claims must precede the making of the orderunder s 271.[9] The order in which the issues involved in quantifying the liability of the related company where s 271 is invoked may vary, depending on the circumstances of the case. In some circumstances, it may be appropriate to have the claims quantified before the s 271 order is considered. In others, it may be better to have the s 271 issue of liability to contribute determined first. I consider that in this case there would be a risk of injustice to the defendant if the issues were addressed in the order for which Mr Barker contends. It is STH's contention that Lewis has notsuffered damage as a result of the disclaimer. That is a claim which it is entitled to make, and upon which it ought to be heard. If the claim by Lewis for damages resulting from the disclaimer of the lease were first considered by the liquidator under s 304, STH would not be able, as of right, to participate in the consideration of that claim.2 The wording of s 271 does not on its face enable the related company to1 Christopher Moran Holdings Ltd v Bairstow [2000] 2 AC 172 (HL).2 Mr Barker submits that, in this case, STH could itself claim as a creditor in the liquidation of Stube. That would not, on the face of it, entitle STH to be heard under s 304 on the quantum ofLewis' claim.challenge directly a claim admitted by the liquidator. The correctness of theliquidator's decision to admit the claim is not one of the matters specified in s 272 to which the court must have regard. Any challenge would therefore necessarily be indirect, by challenging whether the claim is one which the related company shouldpay "in whole or in part". That seems a less than ideal mode of challenge to the quantum of the claim. I express some doubt as to whether the general reference to"such other matters as the court thinks fit" would justify the court in embarking upon a reconsideration of a liquidator's decision to admit a claim in liquidation, or adecision as to the amount of that claim.[10] I am satisfied that the jurisdiction of the court to hear an application for an order under s 271 by a creditor is not limited to a creditor whose claim has been accepted by the liquidators in the liquidation, both as to liability and quantum.3[11] I have held that s 271 is not limited in its application to cases in which the claims made by creditors in the liquidation have earlier been quantified. I have also observed that quantification of the creditors' claims is a necessary precondition to the quantification of the liability of the related company. However, there is no express provision in s 271 which enables the court, on a s 271 application, to address the issue of the quantum of the claim of any or all of the creditors. It must thus be open to question whether the court could, in a s 271 order, direct payment of a particular sum. When the jurisdiction issue was raised by the defendant, counsel for the plaintiffs considered that point and sought leave to amend the statement of claim by adding a prayer for relief under s 307 of the Act. That section provides:Claim not of an ascertained amount(1) If a claim is subject to a contingency, or is for damages, or, if for some other reason, the amount of the claim is not certain, the liquidator may—(a) make an estimate of the amount of the claim; or(b) refer the matter to the Court for a decision on the amount of the claim.3 That conclusion makes it unnecessary to address Mr Crossland's submission that STH has, in itsstatement of defence, admitted that Lewis is a creditor of Stube.(2) On the application of the liquidator, or of a claimant who is aggrieved by an estimate made by the liquidator, the Court shall determine the amount of the claim as it sees fit.[12] Under that section, the court may make a decision on the amount of acreditor's claim.[13] I would ordinarily be hesitant to allow what is potentially a substantive amendment at this late stage, when the case is part heard. However, it has been clear from the outset that the extent of Lewis' damage arising from the disclaimer, andwhether it has suffered any damage at all, have been in issue. The statement of agreed issues reflects that. The evidence addresses quantum. I consider that the amendment is necessary to ensure that the issue of whether or not Lewis has suffered damage, and the extent of the damage, can be addressed in this proceeding, as the parties had contemplated throughout.[14] The jurisdictional objection by STH is accordingly dismissed. The amendment sought by the plaintiffs is granted, by amending the prayer for relief to read:A. A declaration that Lewis be admitted as a creditor of Stube pursuant to s 307 of the Companies Act 1993 in the amount to be assessed by the Court.B. An order pursuant to s 271(1)(a) and s 271(2) of the Companies Act 1993 that the defendant pay the amount assessed to the second plaintiff.C. Interest on the amount so assessed from the date of liquidation until payment of the judgment under the Judicature Act 1908.D. Costs of and incidental to this action.[15] The defendant has also sought leave to amend its statement of defence. That is not opposed, and the application is granted."A D MacKenzie J"