IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000548
[2020] NZHC 2125
UNDER
the Companies Act 1993
IN THE MATTER
of an application under section 301 of the Act
BETWEEN
R J CAIN and R G LOGAN as Liquidators of Stonewood Homes Limited (in
Receivership and Liquidation) First Plaintiffs
AND
R J CAIN and R G LOGAN as liquidators of Stonewood Homes New Zealand Limited (in Receivership and Liquidation)
Second Plaintiffs
AND
R J CAIN and R G LOGAN as liquidators of Holmfirth Group Limited (in Receivership and Liquidation)
Third Plaintiffs
AND
B A METTRICK
First Defendant
AND
J BOULT
Second Defendant
Hearing:
28 July 2020
Appearances:
M G Colson, J I Taylor and J W A Johnson for Plaintiffs O Peers for First Defendant
A Galbraith QC and G J Ryan for Second Defendant
Judgment:
21 August 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
CAIN v METTRICK [2020] NZHC 2125 [21 August 2020]
This judgment was delivered by me on 21 August 2020 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
The application
[1] This is an action by the plaintiff liquidators (the Liquidators) against the defendants, alleging breach of directors’ duties. The Liquidators have entered into a litigation funding agreement with PLF Services Ltd (PLF) in respect of the proceeding. The second defendant (Mr Boult) applies for a stay of the proceeding on the ground it is an abuse of process due to factors related to the identity of PLF as funder and the terms of the funding arrangement.
Background
[2] The Liquidators are the liquidators of Stonewood Homes Ltd (in rec and in liq) (SHL), Stonewood Homes New Zealand Ltd (in rec and in liq) (SHNZL) and Holmfirth Group Limited (in rec and in liq) (HGL) (together, the Companies). The Companies were part of the Stonewood Homes group. SHL carried on business as a residential home builder. SHNZL carried on business as the franchisor of residential home building systems. HGL was the ultimate holding company of SHL and SHNZL.
[3] The defendants were directors of the Companies at relevant times. Mr Boult has since October 2016 also been the Mayor of the Queenstown Lakes District Council.
[4] In 2016, the Stonewood Homes group collapsed with large sums owing to unsecured creditors. On 22 February 2016, the Companies were placed into receivership by ASB Bank. The Liquidators were appointed to HGL on 10 March 2016 and to SHL and SHNZL on 21 April 2016.
[5] The Liquidators believe SHL and SHNZL became insolvent no later than 30 June 2014 and 31 July 2014 respectively and that the defendants allowed them to trade for around 20 months while insolvent during which period their financial positions deteriorated by many millions of dollars. They allege breaches of directors’ duties under ss 131, 135 and 137 of the Companies Act 1993 and seek orders the defendants contribute to the assets of the Companies for the benefit of…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Cain v Mettrick [2020] NZHC 2125
Case
[2020] NZHC 2125
Decision Date
CaseChat Overview and Summary
This case is an application by the liquidators of several companies against their former directors, alleging breach of directors’ duties. The liquidators have entered into a litigation funding agreement with PLF Services Ltd (PLF) in respect of the proceeding. The second defendant, Mr Boult, applies for a stay of the proceeding on the ground it is an abuse of process due to factors related to the identity of PLF as funder and the terms of the funding arrangement. The court considered the legal issues of whether the funding arrangement between PLF and the Companies is an abuse of process on traditional grounds, or as effectively an assignment of a cause of action in circumstances where such an assignment is impermissible. The court found that the funding arrangement did not constitute an abuse of process on traditional grounds. However, the funding arrangement amounted to an assignment of the Companies’ bare causes of action to PLF for profit, which was impermissible under an established exception to the policies behind the torts of maintenance and champerty. The court ordered a stay of the proceeding, and the liquidators may apply on notice to lift the stay once satisfactory steps have been taken to address the matters in paragraph [65]. The court reserved leave to apply for further directions in respect of any matters arising from this judgment.