Allott v Mark

[2021] NZHC 1100

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2018-406-000010

CIV-2021-406-000013 [2021] NZHC 1100

UNDER

the Companies Act 1993

IN THE MATTER OF

an application by the Liquidator for declarations against Directors

BETWEEN

MURRAY GEORGE ALLOTT AS

LIQUIDATOR OF PMT 2010 LIMITED (IN LIQUIDATION)
Plaintiff

AND

PETER MARK AND JEANETTE PATRICIA MARK

First Defendants

AND

WISHEART MACNAB & PARTNERS TRUSTEE COMPANY LIMITED and

DAVID JOHN PAUL as Trustees of the Mark Family Trust

Second Defendants

Teleconference:

14 May 2021

Counsel:

A J Davis for the Plaintiff

P Morten for the Defendants

Judgment:

17 May 2021

JUDGMENT OF GWYN J

(Consolidation of proceedings)

Introduction

[1]    The plaintiff, PMT 2010 Limited (In Liquidation) (PMT), commenced the existing  proceeding  (CIV-2018-406-000010)  against  the  defendants,  Mr   and Mrs Mark, in 2018 (the 2018 proceeding).

ALLOTT v MARK [2021] NZHC 1100 [17 May 2021]

[2]    At a teleconference before me on 10 May 2021, Mr Morten for the defendants referred 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 first defendants,  and the trustees of the Mark Family Trust as second defendants, on     28 April 2021 (the new proceeding). The notice recorded that PMT had applied to the High Court at Blenheim for an order setting aside a disposition of property, being the assignment of a vendor or finance loan of $680,000.00 owed by Peter Mark Floorpride 2008 Limited (PMF).

[3]    At the time of the teleconference, the new proceeding had not been issued by the Court for service. I declined Mr Morten’s oral application for consolidation of the new 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 that he 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 he has made a formal application to consolidate the new proceeding with the 2018 proceeding and to adjourn the hearing on 19 and 20 May 2021. The application is opposed. Given the shortness of time, Mr Davis was willing to make oral submissions only and accordingly I heard argument on the application by way of telephone conference on 14 May 2020.

[5]    I gave an oral judgment in favour of Mr and Mrs Mark and now record my reasons 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 satisfied that:

(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 arise out of –

(i)the same event or transaction; or

(ii)the same event and the same transaction, or the same series of events, 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 order consolidating 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 under s 300 of the Companies Act;

(b)that distributions (comprising “dividends” and “other changes”) were made at a time when the company (in liquidation) was unable to satisfy the solvency test, with relief sought under s 56 of the Companies Act; and

(c)that a journal entry recorded in the Financial Statements indicates a distribution of three company vehicles at an undervalue, with relief sought under s 297 of the Companies Act.

[8]    Mr Morten also draws attention to [25(b)] of the statement of claim in the 2018 proceeding, where PMT alleges that the effect of the “other changes” was to eliminate as a liability owed to the company an advance from PMF of $680,000.00 (the vendor finance loan).

[9]In the new proceeding, PMT alleges:

(a)that the vendor finance loan was not validly assigned, remained an asset of 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 to the company (including the duty to keep accounting records), seeking relief under s 301 of the Companies Act;

(c)that, if the vendor finance agreement was validly assigned, the assignment was a disposition which defeated creditors, as a result of which the company became insolvent, with compensation sought from Mr and Mrs Mark under s 347 of the Property Law Act; and

(d)in respect of Wisheart Macnab & Partners Trustee Company Limited and David Paul as trustees of the Mark Family Trust, PMT seeks recovery of interest paid by PMF to the Trust on the vendor finance loan, which PMT claims ought to have been paid to the company. PMT pleads knowing assistance and conversion in respect of the interest received.

Submissions

[10] For the defendants, Mr Morten notes that the plaintiff (PMT) and first defendant (Mr and Mrs Mark) are the same in both proceedings, and the second defendant (the trustees of the Mark Family Trust) in the new proceeding consents to consolidation. 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 will be saved if the proceedings are consolidated. Consolidation will eliminate or reduce the risk of inconsistent findings (of fact and/or law). Mr Morten says the defendants will be prejudiced if the two proceedings are heard separately and, in contrast, no disadvantage will be suffered by the parties if the proceeding is delayed.

[12]   Overall, Mr Morten submits that the objective of the High Court Rules to secure the just, speedy and inexpensive determination of the proceeding will not be achieved if the two proceedings are heard separately.1

[13]   Mr Davis, for the plaintiff, opposes the application for consolidation and adjournment. He disputes that common questions of law or fact arise in the 2018 proceeding and the new proceeding: the 2018 proceeding concerns questions of distributions, liquidation processes and accounting procedures and is an action alleging breaches of record-keeping and financial position presentation (s 194 of the Companies Act), directors’ duties (ss 131-138 of the Companies Act) and the making of distributions (s 52 of the Companies Act).

[14]   In contrast, the new proceeding concerns the transfer of a company asset and revenue, namely interest being redirected to the Mark Family Trust. It is alleged that this occurred before and after the appointment of a liquidator. The new proceeding does not arise out of the same event or the same transaction as the 2018 proceeding and gives rise to a stand-alone cause of action. Mr Davis submits there is no risk of inconsistent 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 the scheduled hearing adjourned. The 2018 proceeding has been set down for hearing on two previous occasions, both of which have been vacated. It is not in the interests of justice 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 and that 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 the business of Peter Mark Limited (now PMT 2010 Ltd (in liquidation)) to PMF, in

1      High Court Rules 2016, r 1.2.

May 2008. The sale included the provision of vendor finance of $680,000 by PMT to PMF. 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 and has the same legal representation. The defendants in the 2018 proceeding are the same as the first defendant in the new proceeding and have the same legal representation. The second defendant in the new proceeding consents to consolidation, although representation 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 ended 31 March 2012 and equity statements recording movements through the account, by way of dividends paid and “other changes in shareholders’ funds”, which affected the vendor finance.

[21]   Both proceedings allege breaches of duty by the directors of PMT, particularly breaches of s 194 of the Companies Act 1993.

[22]   Both the 2018 proceeding and the new proceeding raise issues as to the dates on which documents were signed, and the validity and effectiveness of those documents.

[23]   I am satisfied that there is a common question of fact in the proceedings and that the rights to relief claimed will or are likely to arise out of the same series of events 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 is potential for delay further down the track if the proceedings are not consolidated now and any prejudice bears more on the defendants than the plaintiff.

[25]   For those reasons, I grant the defendants’ application for consolidation of the 2018 proceeding and the new proceeding. I direct that the consolidated proceedings be heard together.

Adjournment

[26]   The consequence of my order consolidating the two proceedings is that the fixture 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 as soon as possible. Accordingly, I confirm that the Registry has allocated a fixture for the consolidated proceeding, in the Blenheim High Court, on 20 September 2021, for four days.

[28]   Counsel are also agreed on the desirability of a tight timetable leading up to the new hearing date. Counsel are to confer and put forward a proposed timetable to the Court as soon as possible.

[29]   Mr Davis signalled that there may be an issue arising as to a potential conflict of Mr David Clark, who is the solicitor on the record for the defendants. He indicates that he has previously raised that issue but that it may be now be more acute, given that the second defendant in the new proceeding (now consolidated) is Mr Clark’s firm’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 direct that costs are payable to the defendant applicants on a 2B basis.2 If there is any reason why that standard approach should not apply, counsel are to file memoranda sequentially which are to be referred to me and, in the absence of any party indicating they wish to be heard on the matter, I will decide the question of costs on the basis of the material before the Court.

Gwyn J

Solicitors:

Clark Boyce, Christchurch

Wisheart Macnab & Partners, Blenheim

2      Rule 14.8.