THORNTON ESTATES LTD V THE REGISTRAR OF COMPANIES HC AK CIV 2006-404-2256

THORNTON ESTATES LTD V THE REGISTRAR OF COMPANIES HC AK CIV 2006-404-2256 17 August 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-2256UNDER the Companies Act 1993 IN THE MATTER OF an application to restore Shrimpton and Lipinski Limited to the register under s329 Companies Act 1993 BETWEEN THORNTON ESTATES LIMIED Plaintiff AND THE REGISTRAR OF COMPANIES Defendant Hearing: 10 August 2006 Appearances: O G Paulsen for the Plaintiff P J Crombie for the former shareholders and directors of Shrimpton and Lipinski Limited (interested parties) No appearance for the Registrar of Companies or the Attorney- General Judgment: 17 August 2006 at 12:00 noonJUDGMENT OF ANDREWS JIn accordance with r540(4) I direct that the Registrar endorse this judgment with the delivery time of 12:00 noon on 17 August 2006._________________________________Deputy Registrar / RegistrarSolicitors: Cavell Leitch Pringle & Boyle, PO Box 799, Christchurch Cooney Lees Morgan, PO Box 143, Tauranga[1] The plaintiff (Thornton) seeks an order under s 329 of the Companies Act 1993 to restore Shrimpton and Lipinski Limited (Shrimpton) to the register. The purpose of the application is so that Thornton can issue proceedings against Shrimpton. The application is opposed by the former directors and shareholders of Shrimpton ("the Shrimpton parties").Background[2] In 1996 Thornton, a land developer, purchased land for development near Hamilton, intending to subdivide it into approximately 300 lots over five stages. It engaged Shrimpton, a firm of consulting engineers, surveyors and planners, as consultant for the surveying, planning and engineering aspects of the development. [3] The third stage of the development included a street named Wimbledon Close, to be constructed on land comprising peat soils. Shrimpton designed the carriageway, kerb and channelling, and gravity services to deal with the peat soils. [4] It became evident some time during 2000 that there had been significant settlement, deformation and cracking of the carriageway and kerb and channelling. There was a failure of sewer and stormwater systems. There were discussions and correspondence between Thornton and Shrimpton, and the Hamilton City Council became involved. [5] On 9 April 2001 Thornton's solicitors wrote to Shrimpton, in essence putting it on notice that it held Shrimpton responsible for any costs incurred or losses suffered as a result of delays caused. Thornton continued to send letters periodically to Shrimpton, culminating in December 2005 when Thornton instructed its solicitors to issue proceedings against Shrimpton. It was then that Thornton learned for the first time that Shrimpton had been removed from the Register of Companies on 17 December 2003. So far as Thornton could determine, the removal was on the grounds of Shrimpton's failure to file annual returns.[6] I note at this point that Thornton has since 2003 received correspondence from, and had dealings with, "S & L Consultants Limited". It thought this was the same company as Shrimpton, but with a changed name. Indeed the letters referred to above were sometimes addressed to Shrimpton and at other times to S & L Consultants Limited. Thornton apparently neither sought nor was offered any explanation as to the name.The statutory framework[7] Section 329 Companies Act 1993 provides (as relevant to this application):329 Court may restore company to New Zealand register(1) The Court may, on the application of a person referred to in subsection (2) of this section, order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,— (a) At the time the company was removed from the register,— (iv) The applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; (b) For any other reason it is just and equitable to restore the company to the New Zealand register. (2) The following persons may make an application under subsection (1) of this section: (a) Any person who, at the time the company was removed from the New Zealand register,— (iv) Had an undischarged claim against the company; (3) Before the Court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with. (4) The Court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any otherpersons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.[8] Thornton's application was served on the Registrar of Companies and the Attorney General. Both gave notice that they would abide the decision of the Court. Neither appeared at the hearing. The application was also served on the Shrimpton parties, as parties having an interest in the proceeding. They filed a statement of defence and appeared at the hearing to oppose restoration. The evidence on behalf of Thornton was, in the main, in the form of two affidavits sworn by Mr A C Sisson, a shareholder and director of Thornton. On behalf of the Shrimpton parties, there was an affidavit sworn by Mr G E Kelly.Issues[9] At the hearing, it emerged that the issues were the following: a) Whether it is just in the circumstances for the Court to exercise its discretion to restore Shrimpton to the register; and b) If so, what ancillary order should the Court make as to the operation of the Limitation Act 1950. [10] On its terms, s 329(1) provides that the Court may make an order for restoration if it is satisfied that: a) Thornton had an undischarged claim against Shrimpton at the time Shrimpton was removed from the register (s 329(1)(a)(iv)); or b) "For any other reason it is just and equitable" to restore Shrimpton to the register (s 319(1)(b)). [11] It being acknowledged that Thornton had an "undischarged claim" at the time Shrimpton was removed from the register, the question then becomes whether the Court should make the order for restoration.Exercise of the Court's discretion[12] Counsel for both Thornton and Shrimpton acknowledged that the Court exercises a discretion in deciding whether a company should be restored to the register. Both referred to the principles set out by Hammond J in Re Saxpack [1994] 1 NZLR 605. These have been cited and applied subsequently (see e.g. John Hammonds & Co Limited v Registrar of Companies [1999] 3 NZLR 690; Re West(HC, Napier, M37/02, 15 May 2003, Ronald Young J); Trade Indemnity New Zealand Limited; McSwain v Registrar of Companies (HC Auckland, CIV2003-404- 6684, 12 December 2003, Heath J); Metal Building Systems Pty Limited v Registrar of Companies (2005) 9 NZCLC 263, 909). [13] In the present case, the following were submitted as being relevant to the exercise of the Court's direction: a) Whether there had been undue delay by Thornton; i) In respect of its decision to issue proceedings; and ii) As to bringing this proceeding for restoration. b) Whether Thornton's substantive claim against Shrimpton would be nugatory. c) Where the overall justice of the case lay.Delay[14] With respect to delay on the part of Thornton prior to deciding to issue proceedings, Mr Kelly in his affidavit referred to a letter from Thornton to Shrimpton, dated 25 May 2001, in which Thornton withdrew its threat of a claim against Shrimpton. However Mr Sisson exhibited a series of letters, dating from 9 July 2002 through to 18 June 2004, in which the problems with Wimbledon Close were referred to. The first letter (9 July 2002) made it clear that Thornton's hope that matters could be resolved without the intervention of solicitors might not be ableto be realised. In each letter, Thornton sought Shrimpton's response and suggestions for a solution. [15] In the circumstances, I find Thornton's deferral in giving instructions for proceedings to be issued until late 2004 does not constitute undue delay. [16] With respect to the period after Thornton's solicitors learned that Shrimpton had been removed from the register, Mr Sisson's explanation was that Thornton's solicitors wrote to Shrimpton, almost immediately, advising of its intention to either apply for restoration or bring proceedings against Shrimpton's insurers. There then ensued correspondence concerning Shrimpton's insurance, and an application for pre-commencement discovery. Information was provided pursuant to a Court order on 31 March 2006. After receiving advice from its solicitors, Thornton's statement of claim was filed in late April 2006. Again, I find that there has been no undue delay on the part of Thornton.Would a claim against Shrimpton be nugatory?[17] Mr Crombie argued that the Court's discretion should be exercised against restoring Shrimpton to the register for the reason that, if Thornton were to succeed in a proceeding against Shrimpton, Shrimpton has no assets to meet a judgment. He relied on Civil & Civic Pty Limited v R W Bass Pty Limited [1996] 14 ACLC 1015 (FC), where Olsen J noted, at p1018:As any damages awarded against R W Bass would be recoverable against [its insurer] the proceeding would not be nugatory.[18] Mr Paulsen noted that the only evidence as to Shrimpton's financial position was the following statement in Mr Kelly's affidavit:If Shrimpton was restored to the register, it has no assets to meet any claim.Further, he pointed out that Thornton has options open to it under various provisions of the Companies Act, including s 56 (in relation to distributions to shareholders) and under ss 131-138 (in relation to breaches of duties, following restoration and liquidation of Shrimpton).[19] Although Mr Crombie in submissions referred to transactions that he said had occurred in 2001 and 2002, when Shrimpton's assets were disposed of, he produced no evidence of the nature or timing of any such transactions. The Court therefore has no evidence before it, other than Mr Kelly's bald assertion, as to Shrimpton's financial position at any time during its dealings with Thornton. [20] Mr Paulsen referred to the judgment of Master Thomson in Attorney-General v Registrar of Companies (HC Wellington, CIV-2003-485-344, 4 July 2003), in which he rejected an argument that an application for restoration should be dismissed because the evidence showed the company was insolvent and that restoring it to the register would therefore be a "vain thing". The Master's finding at para [17] was:I find that the company's financial position is not so plainly before the Court so that it can be completely satisfied that the company was in fact insolvent when it was struck off despite Mr Dickie's assertion that it was so. Therefore I consider the Attorney-General is entitled to have the companyrestored so that it can investigate the situation further.[21] I find that Mr Kelly's statement as to Shrimpton's financial position is not a sufficient basis for me to decline to order restoration. There are no grounds for concluding that restoring Shrimpton to the register so that Thornton can pursue a claim against it would be a fruitless exercise.Overall justice[22] In relation to the overall justice of the case, Mr Paulsen distinguished the present case from that of John Hammonds, which was noted by Hammond J to be "one of those rare cases" where it was appropriate to decline to restore the company to the register. Further, he submitted: a) Notice of Thornton's claim had been given to Shrimpton before it was removed from the register. b) It was clear that at the time Thornton's claim arose Shrimpton had assets.c) It appeared that Shrimpton had distributed its assets to the Shrimpton parties after notice of Thornton's claim had been given. d) Thornton's claim related to the adequacy of professional advice and services which could fairly be tried, despite the passage of time since that advice and those services was provided. e) Less time had passed between the events giving rise to Thornton's claim and the application for restoration than was the case in John Hammonds. [23] Mr Crombie did not point me to any other factors which would support an argument against restoration. I am, therefore, satisfied that Thornton is entitled to have Shrimpton restored to the register.Limitation Act[24] The parties are sharply divided as to what ancillary order should be made in respect of the operation of the Limitation Act. [25] In his judgment in John Hammonds Hammond J said (at 694):In my view, if Glenfern was to be restored to the register, and the prospective proceedings were issued forthwith, then the prospective claims would still be in time under the relevant limitations regimes.[26] Hammond J cited in support the judgments in Re Donald Kenyon Limited[1956] 3 All ER 596 and Tyman's Limited v Craven [1952] 1 All ER 613. He noted that in Re Donald Kenyon Roxburgh J concluded his judgment by saying:Accordingly I propose to put a proviso in the order that in the case of creditors whose debts were not statute-barred at the date of dissolution, the period between the date of dissolution and the date of restoration to the register should not be counted for the purposes of any statute of limitation.[27] However, Mr Crombie relied on the judgment of Ronald Young J in Re Westto submit that the period for which the operation of the Limitation Act is suspended is not necessarily to be set at the entire period from removal to restoration.[28] In Re West, the applicant sought restoration of a company so that he could recover unpaid wages. He had worked for a company, PPM Limited, for about five months. He had originally taken the view that a Mr Carpenter was his employer. He sued Mr Carpenter for wages. He was unsuccessful because the Employment Tribunal held that the company, PPM, not Mr Carpenter was his employer. PPM had been struck off the register in September 1998. In 2002 Mr West applied to have PPM restored to the register, so that he could make his claim. [29] In his judgment, Ronald Young J referred to the decisions in Tymans, Re Donald Kenyon, and John Hammonds. He noted that the intent of s 329(4) was to ensure in appropriate cases that neither the restored company nor any other person is unfairly adversely affected by the removal from the register. He then held that from May 1997 (when he was first employed) until February 2002 (when he learned that his employer was in fact PPM Limited not Mr Carpenter) Mr West had no intention of suing PPM Limited, because he believed his employer was Mr Carpenter. Therefore, Ronald Young J held that time should run for limitation purposes during that period. However, from February 2002 onwards, until PPM Limited was restored to the register, the operation of the Limitation Act was to be suspended. [30] On the basis of Re West, Mr Crombie submitted that he was entitled to an order that time should run for limitation purposes until 24 April 2006, the date on which Thornton filed its application for restoration. He submitted that Thornton did not decide to proceed with a claim against Shrimpton until December 2005. It learned on 12 January 2006 that Shrimpton had been removed from the register. However, he submitted that Thornton knew, or ought to have known, that the limitation period could expire at some point between early January 2006 and the end of April 2006 (the period of construction of the carriageway in Wimbledon Close). [31] He submitted that to suspend the operation of the Limitation Act over any period prior to 26 April 2006 would be to deprive Shrimpton of a defence it might otherwise have under the Limitation Act. The Shrimpton parties should not be prejudiced, he submitted, because Thornton chose to delay the filing of its application for restoration.[32] In his submissions on behalf of Thornton, Mr Paulsen first noted that there were competing positions as to when Thornton's cause of action accrued. Rather than it being prior to the end of April 2000, as submitted by Mr Crombie, Mr Paulsen submitted that Thornton's cause of action did not accrue until December 2000, when it became aware of the deformation and potential inadequacies in Shrimpton's design. [33] In any event, he submitted, time should not run for limitation purposes from 17 December 2003 (when Shrimpton was removed from the register) until the date it is restored to the register. He noted that whilst Thornton's instructions to issue proceedings were not given until December 2005, it had put Shrimpton on notice well before the company was removed from the register of its intention to pursue a claim if a suitable solution were not found. Further, he said that the reasons the claim had not been pursued at that time were: a) Assurances that Shrimpton accepted liability and would find a solution ( I note that the Shrimpton parties deny that such assurances were given); and b) The failure on the part of the Shrimpton parties to advise Thornton that the company had ceased to trade and/or been removed from the register. [34] He then submitted that if the Court were minded to adopt a date later than removal from the register for the purposes of the Limitation Act, then that should be set from December 2005, when Thornton instructed its solicitors to issue proceedings. To order that the operation of the Limitation Act should be suspended only for the period from 27 April 2006 until registration would, he submitted, be unjust to Thornton. [35] Mr Crombie submitted that the facts of the present case were analogous to those in Re West, in that the period up until December 2004, when Thornton did not know that Shrimpton had been removed from the register could be viewed in thesame way as the period until February 2002 when Mr West had "no intention" of suing PPM because he believed his employer was Mr Carpenter. [36] An examination of the facts of John Hammonds, Re West and the present case, however, shows that the present case is more akin to John Hammonds, in which Hammond J found that John Hammonds had at an early stage, advised Glenfern of a possible claim. Thornton first indicated its intention to claim against Shrimpton in 2001. Notwithstanding its withdrawal in May 2001 it repeated this intention in July 2002 and again subsequently. On 17 December 2003 Shrimpton was removed from the register. As was the case in John Hammonds, Thornton was not advised that Shrimpton had been removed from the register. There was no absence of an intention to sue Shrimpton analogous to that which led Ronald Young J in Re West to limit the period during which operation of the Limitation Act was suspended. Accordingly, it is not appropriate to limit suspension of the Limitation act in the manner sought by Mr Crombie. [37] Further, there was no challenge to Thornton's submission that Shrimpton was removed from the register because of its failure to meet its statutory obligation to file annual returns and pay the required fees. Thornton has had to go to the trouble and expense of seeking restoration, through no fault of its own. In light of Shrimpton's failure, which Thornton has had to make good, it would be unjust not to exclude from the operation of the Limitation Act the entire period since removal.Decision[38] There will be an order pursuant to s 329(1) of the Act for restoration to the register of Companies of Shrimpton and Lipinski Limited. [39] I also order as follows: a) Time for Limitation Act purposes with respect to Thornton's claim against Shrimpton and Lipinski Limited should not run from 17 December 2003 until the date of restoration to the register.b) Thornton is to meet the reasonable costs of compliance with the Companies Act and Regulations for the purpose of restoring Shrimpton and Lipinski Limited to the register of Companies. [40] Costs are awarded to be paid to Thornton by the Shrimpton parties on a 2B basis, together with disbursements including counsel's travel expenses. _____________________________ Andrews J