Auckland Council v Forest Trustee Limited
[2012] NZHC 3425
•14 December 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-003253 [2012] NZHC 3425
BETWEEN AUCKLAND COUNCIL Plaintiff
ANDFOREST TRUSTEE LIMITED Defendant
ANDPETER WILLIAM MAWHINNEY Second Defendant
Hearing: 24 October 2012
Appearances: J A Hilario for Plaintiff
M J Collier for Defendant
P W Mawhinney in person
Judgment: 14 December 2012
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 14 December 2012 at 4:30 pm
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………….
Solicitors: Auckland Council, Legal Services Group, Private Bag 92300, Auckland
Fax: (09) 366-2532 – J Hilario
Davenports West, P O Box 21248, Henderson, Auckland 0650
Fax: (09) 837-2671
Copy: P W Mawhinney, P O Box 95157, Swanson, Auckland
Email: [email protected]
AUCKLAND COUNCIL V FOREST TRUSTEE LTD HC AK CIV-2012-404-003253 [14 December 2012]
Introduction
[1] The defendant, Forest Trustee Limited (FTL), is the registered proprietor of
131-149 Anzac Valley Road, Waitakere. The plaintiff, the Auckland Council, has applied for an order liquidating FTL. The application was initially based on FTL’s failure to comply with a statutory demand for rates arrears and penalties owing in respect of the property. I am satisfied that the statutory demand was not served on FTL and that the application cannot succeed on that ground. At the hearing the Council also advanced its application on the further grounds that FTL cannot pay its
debts1 or, alternatively, that it is just and equitable that FTL be wound up.2 For the
reasons that I come to shortly, I decline to determine the application on either of those grounds. The application must therefore fail.
[2] FTL did not appear at the hearing to oppose the application. However, one of its shareholders, the second defendant, Peter Mawhinney, appeared. Mr Mawhinney’s standing to oppose the application was in issue. However, because I have concluded that the Council’s application must fail in any event, that issue is not determinative and nor is Mr Mawhinney’s assertion that he has a counterclaim against the Council that precludes an order being made. Nevertheless, because it seems likely that the Council will make a fresh application, I deal briefly with these issues.
Was the statutory demand served on FTL?
[3] The Council asserts that FTL owes $41,854.17 in rates and penalties in relation to the property. It purported to serve a statutory demand pursuant to s 289 of the Companies Act 1993 requiring payment of that amount. FTL’s registered office is at 131 Anzac Valley Road, Waitakere. I am, however, satisfied (and the Council now accepts) that the statutory notice was not served on FTL’s registered office, but on a neighbouring property.
[4] Although the error in service was brought to the Council’s attention by Mr Mawhinney’s affidavit dated 17 July 2012 the Council steadfastly resisted any acknowledgement of it until finally producing a further affidavit by its process server on 27 September 2012 after being directed to do so by Lang J. That affidavit stated that the signposting in the area led the process server to believe, in good faith, that the house where service was effected was the registered office of FTL. The signposting on a common driveway is confusing and it was understandable that the process server made an error.
[5] Mr Hilario argued that the Council had “substantially complied” with the legal requirements for service, or alternatively, that the statutory demand ought to be deemed to have been served because it was “served in good faith on a building that, from the viewpoint of a reasonable person, appeared to be the registered office of FTL”.
[6] Mr Hilario did not provide me with any authority that might support these submissions and they have no merit. Section 289 is clear that a statutory demand must be served on the company and s 387 identifies the means by which that can be effected. Leaving the document at a neighbouring property in good faith is not one of the options. The application cannot, therefore, succeed on this ground.
Application based on FTL’s inability to pay its debts and on the just and equitable ground
[7] The fact that the Council cannot rely on the statutory demand does not preclude it from proving by other means that a company is unable to pay its debts.3
In September 2012 Mr Mawhinney sought an order staying the proceeding on the ground that the statutory demand had not been served on the registered office of FTL. The Judge refused Mr Mawhinney’s application, in part because:4
[7] Even if the statutory demand was not served at the correct address, however, the Council may still prove that Forest Trustee is insolvent. It is not bound to rely solely on the statutory presumption as to insolvency created by non-compliance with the statutory demand. It will be for the
Council to determine whether it wishes to proceed in this alternative manner after making further inquiries with its process server.
[8] Although it is evident from the submissions it later filed that the Council did decide to proceed on the alternative grounds available under s 241, it did not amend its statement of claim. In its written submissions filed on 15 October 2012 the Council raised as issues FTL’s inability to pay its debts and winding up on the just and equitable ground. In his submissions in reply Mr Mawhinney opposed the Council being permitted to proceed on these alternative grounds on the basis that the statement of claim did not comply with the High Court Rules requiring the applicant
to specify the facts on which it is relying.5 Even in the face of those explicit
submissions the Council made no effort to amend or seek leave to amend its statement of claim.
[9] Whilst the wide-ranging material that Mr Mawhinney has filed in opposition to the Council’s application does touch on the issue of FTL’s ability to pay its debts, the Council should have given fair warning of its intention to advance this ground by way of a proper pleading that complied with the High Court Rules. Lang J’s judgment could in no way be interpreted as allowing the Council leave to advance the alternative grounds; Lang J was clear that it was for the Council to make that decision after it had further considered the issue regarding service of the statutory demand. In these circumstances I decline to consider the application on the ground that FTL is unable to pay its debts or on the just and equitable ground.
[10] However, for completeness, and because the Council is likely to make a fresh application, I do make some comments regarding FTL’s ability to pay its debts, as it appears from the information currently before me. The evidence in support of the rates owing comes from a variety of sources. First, Geoff Powell, a rates debt specialist with the Council, swore an affidavit verifying the statement of claim in which he stated that the “sum of $41,854.17 is due and owing by the defendant company to the plaintiff”. Secondly, in his affidavit dated 17 July 2012, Mr
Mawhinney said:
5 High Court Rule 31.3 requires applications for putting a company into liquidation to be in form CI, which requires the plaintiff to set out the facts on which it relies.
The plaintiff’s statutory demand is for a demand of rates tax. The only way the defendant company and co-trustees could pay such rates tax is by the sale of part of the property subject to such rates tax.
[11] Thirdly, in an affidavit by Joanne Lannigan, the Council’s credit control rates team leader, Ms Lannigan referred to Mr Powell’s affidavit and confirmed that as at
14 August 2012 “the debt that is the subject of these proceedings remains unpaid”. There was no challenge to this evidence; although Mr Mawhinney required the process server to be available for cross-examination and could have required any other witness to be available for cross-examination, neither Mr Powell or Ms Lannigan were required.
[12] Mr Mawhinney submitted that FTL does not owe the rates because the person that owes the rates is the ratepayer,6 defined by s 10 of the Local Government (Rating) Act 2002 as “the person who is named as a ratepayer in the rating information database and the district valuation roll”. He argued that Ms Lannigan’s affidavit evidence dated 11 September 2012 that “the defendant company is the ratepayer of the land in question” is insufficient to prove that FTL is named as the
ratepayer on the rating information database and district valuation roll. Further, he argues that there was no explanation as to when or how FTL became the ratepayer given that, as at 12 January 2012, another person, Mr R G Vesey, was the ratepayer and the land was sold by FTL to an unrelated party on 20 January 2012.
[13] Mr Mawhinney’s argument does raise doubts as to whether FTL is liable for the amount claimed in the statutory demand. FTL was not the registered proprietor of the property during the period in which those rates accrued, and the fact that demand was initially made on Mr Vesey casts doubt on whether it was the ratepayer.
[14] In addition to the assertion of actual liability in respect of rates, Mr Hilario also relied on contingent liabilities in the form of costs that may be awarded against FTL in litigation and rates currently being incurred. Mr Hilario also referred in his memorandum to action being taken by one of the mortgagees (Nags Head Horse Hotel Limited). The only evidence of this is a reference to it in a statement of claim
in different proceedings in which Mr Mawhinney, FTL and Mr Vesey are plaintiffs
6 Local Government (Rating) Act 2002, s 12.
and the Council a defendant. This falls short of admissible evidence on which I could place weight. Without further information about the litigation in which FTL is involved nor could I have placed much weight on the likelihood of costs being awarded against FTL.
[15] There is, however, a serious issue regarding the ongoing exposure to rates. Under s 61 of the Local Government (Rating) Act, the Council may recover rates from an owner in the event of a default by the non-owning ratepayer. The definition of “owner” in the Local Government (Rating) Act is wide:7
… the person who, whether jointly or separately is seized or possessed of, or
entitled to, any estate or interest in land constituting a rating unit.
[16] Under this definition FTL, as the current registered proprietor, plainly is an owner of the land. Its assertion that it has disposed of the beneficial interest in the land to another company does not affect this. Further, for reasons I gave in an interim injunction application involving that company and FTL, there must be concerns about the genuineness of that disposition.8 I accept Mr Mawhinney’s argument that the Council has failed to properly maintain the rating information database and district valuation roll and, as a result, has breached its statutory duty and is precluded from proceeding against FTL.
[17] On the information placed before me about the identity of the correct ratepayer, most of which is unchallenged, I would have concluded that FTL has continuing obligations to the Council in respect of accruing rates and no ability to pay them without selling the property.
Does Mr Mawhinney have standing to oppose the Council’s application?
[18] A shareholder may oppose an application to wind up a company. However, Mr Mawhinney is an undischarged bankrupt and does not have the Official Assignee’s approval to oppose the Council’s application.9 At the hearing
Mr Mawhinney maintained that he does not need the approval of the Official
7 Local Government (Rating) Act, s 5.
8 Nags Head Horse Hotel Ltd v Forest Trustee Ltd [2012] NZHC 2748 at [17]–[18].
9 Mr Mawhinney’s reply to notice to admit facts at paragraph 1.4.
Assignee because the one share that he owns is held in his capacity as a trustee of the Dilworth Trust. If correct, Mr Mawhinney would have standing to oppose the application. However, Mr Hilario, for the Council, submitted that there is insufficient evidence to support Mr Mawhinney’s claim that he holds the share on trust.
[19] Prior to the hearing, Mr Mawhinney had not given any details of his trusteeship. He had not produced the relevant Trust Deed. He had not produced evidence of appointment. He did, however, give evidence at the hearing before me, as did his brother, Anthony Mawhinney. In his evidence Peter Mawhinney confirmed that he held one share in FTL as a trustee of the Dilworth Trust, the beneficiaries of which are his son and niece. He said that he had a Trust Deed but that he had not included it in his affidavit evidence due to an oversight. He said he could easily produce it if given time to get it.
[20] Anthony Mawhinney confirmed in evidence that his brother held a share in FTL and that he had seen a Trust Deed to that effect. In answer to questions from me he said that it was the Forest Trust that he was the settlor of and that he had appointed his brother, Peter Mawhinney, as a trustee of that Trust. He did not appear to have knowledge of the Dilworth Trust, was vague about his brother’s appointment to the Forest Trust and made no mention of any deed or other document recording Peter Mawhinney’s appointment. When I asked him about Peter Mawhinney’s appointment he answered:
Peter is also part of the trust and he is able to appoint himself. The documents were before us, we went through what we were doing and it was decided that this year we’d go to Peter as a trustee.
[21] At the completion of evidence, I gave Peter Mawhinney leave to file a further affidavit annexing a copy of the Trust Deed by 12.00 pm the following day, 25
October 2012. Mr Mawhinney filed a memorandum rather than an affidavit, which attached a copy of a Trust Deed for the Dilworth Trust dated 20 January 2009 and was witnessed by Marianne McNiel. Following an objection from Mr Hilario, I directed that Mr Mawhinney file an affidavit producing the Trust Deed (as originally required) by 16 November 2012.
[22] Mr Mawhinney has failed to comply with that direction. The only evidence before the Court, therefore, is Mr Mawhinney’s claim that he holds the share as a trustee. In light of his unexplained failure to produce the deed in evidence and the confused evidence at the hearing regarding his appointment, I could not have been satisfied that Mr Mawhinney does hold that share as a trustee.
Does Mr Mawhinney have a counterclaim that would preclude the winding up of FTL?
[23] The final issue that was raised was Mr Mawhinney’s claim to have a counterclaim that would preclude an order being made winding FTL up. The counterclaim is the subject of proceedings filed in this Court under CIV-2012-404-
4906. FTL was originally the third plaintiff but was struck out on 11 October 2012 for lack of representation (Mr Mawhinney not being permitted to represent it). Notwithstanding that, Mr Mawhinney maintains that his claim ought to be treated as a counterclaim for the purposes of a defence to the present proceeding.
[24] The basis for this argument is that FTL is a trustee, along with Mr Mawhinney, of the Forest Trust. The trustees have unanimously agreed to issue the proceedings against the Council, the law does not require all trustees to be named as parties10 and High Court Rule 4.24 allows one trustee to sue on behalf of all where they have the same interest in the subject matter in the proceeding.
[25] The claim alleges 17 breaches of various statutory duties by the Council in its handling of an application for resource consent for subdivision, an application for variation of conditions of a consent and a request for a certificate of compliance. These applications were made in respect of the property in 2006 and 1998. The various alleged breaches by the Council include:
(a) Omitting to grant the resource consent application in breach of s
77B(2) of the Resource Management Act 1991 (RMA) as in force at
10 Cadman v Visini HC Auckland CIV-2009-404-7925, 30 May 2001 at [37]–[38]; Visini v Cadman
[2012] NZCA 122, (2012) 21 PRNZ 70 at [18].
the time,11 omitting to process the application for variation12 and omitting to issue a certificate of compliance;13
(b)Failing to comply with certain procedural requirements, including statutory time periods for the giving of notice of its decisions and by purporting to deal with the application on the basis of a deferral without complying with requirements for notice and a hearing, demanding further information on the application for resource consent for subdivision after expiry of the time period of notification of its decision, and failing to comply with requirements for extending the relevant time periods;
(c) The Council’s “functionaries” commissioned reports of a scope
outside the information provided by the applicants in breach of s
42A(1) and that the commissioning of such reports required the applicant’s consent (which was not given) and amounted to a delegation of the Council’s powers of delegation in breach of s 34A(1) of the RMA, for which the Council is vicariously liable;
(d) Levying charges in breach of s 36(4) of the RMA:
(e) Operating two district plans in breach of s 73(1) and omitting to
observe the “district rules”.
[26] Mr Mawhinney claims that these breaches prevented the subdivision of the property into a number of allotments which would have added a total value of
$6,473,913 (after meeting the costs for subdivision and paying the applicable taxes) to the property. Mr Mawhinney says that, had the land been subdivided, and parts of the land could have been sold and the rates paid. The mortgage owed to Nag’s Head Horse Hotel Limited (which on 20 March 2012 issued a notice under s 119 of the Property Law Act 2007 alleging a default in respect of the obligation to pay tax
pursuant to the mortgage agreement) could also have been discharged.
11 Now s 87(A)(2) of the Resource Management Act 1991 (RMA).
12 In breach of s 127(3) of the RMA.
13 In breach of s 139(1) of the RMA.
[27] However, even if Mr Mawhinney’s claim were accepted as a bona fide counterclaim based on substantial grounds, that would not automatically preclude the winding up of FTL.14 The counterclaim is being pursued solely by Mr Mawhinney as a trustee for the Forest Trust (FTL and Greg Vesey Enterprises Limited having been struck off as plaintiffs). The liquidation of FTL does not interfere with the continuance of that claim. Had I been required to consider the exercise of the discretion I would not have regarded the counterclaim as justifying exercising it in FTL’s favour.
Result
[28] The Council’s application fails because:
(a) There has not been effective service of the statutory demand;
(b)The alternative grounds available to the Council were not pleaded and inadequate notice of them was given.
P Courtney J
14 Re Julius Harper Ltd, ex parte Winkler & Co (Hong Kong) Ltd [1983] NZLR 215 (HC) at 223;
Anglian Sales Ltd v South Pacific Manufacturing Co Ltd [1984] 2 NZLR 249 (CA) at 252.
2
0