Croad v Rabson HC Wellington CIV 2010-485-793

[2010] NZHC 2114

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2010-485-793

UNDER  Section 301 of the Companies Act 1993

IN THE MATTER OF     the liquidations of Double Zero Holdings Limited (in liquidation) and Vision Limited (in liquidation)

BETWEEN  ANDREW CROAD AND CHRISTINE DUNPHY

Plaintiffs

ANDMALCOLM EDWARD RABSON First Defendant

ANDDAVID HITCHENS Second Defendant

Hearing:         25 November 2010

Counsel:         No Appearance for Plaintiffs

R P Harley for First Defendant
D A Bleier for Second Defendant

Judgment:      29 November 2010

JUDGMENT OF SIMON FRANCE J

Introduction

[1]      Messrrs Rabson and Hitchens were in business together.  Associated family trusts equally owned shares in a company called DZH.  This company in turn owned

100% of the shares in Vision Limited which was their trading company.  The two

men were directors of Vision.

ANDREW CROAD AND CHRISTINE DUNPHY V MALCOLM EDWARD RABSON AND ANOR HC WN CIV 2010-485-793  29 November 2010

[2]      Relations between the men deteriorated.  Mr Hitchens applied to have both companies placed in liquidation.  The Court made an order only in relation to DZH but the appointed liquidators subsequently put Vision into liquidation.

[3]      The liquidators filed proceedings against both men in relation to transfer of money that occurred prior to appointment of the liquidators.   The pleadings claim that property of Vision was transferred to the men’s interests:

Mr Rabson                $51,345.55

Mr Hitchens              $72,477.15

[4]      It is also alleged Mr Rabson has possession of Vision assets which he will not deliver up, and Mr Hitchens sold assets concerning which he refuses to account for the proceeds.

[5]      The liquidators:

a)        concerning  Mr Rabson  sought  an  inquiry  under  s 301  Companies

Act 1993 and an order for the $51,000, and also alleged conversion;

b)        concerning Mr Hitchens sought the same inquiry and an order for the

$72,000;

c)       concerning both men alleged breaches of their duties as directors of both companies in that each allowed the other to obtain these funds, and each took money for themselves.

[6]      Mr Rabson  believes  that  Mr Hitchens  has  acted  against  the  interests  of Vision Limited to an extent much greater than that claimed by the liquidators.  This point of view was reflected in his pleadings in different ways:

a)       in the statement of defence, to the paragraph in the statement of claim which sets out the respective sums of money the liquidators claim against each defendant, Mr Rabson pleads that the figure owed by Mr Hitchens is higher.  He then gives details which bring the total to

$233,395.  The liquidators have replied saying they have insufficient knowledge and therefore deny;

b)by claiming against his co-defendant, Mr Hitchens, alleging misuse of Vision property.  It is said Mr Hitchens formed another company, and then did various actions in breach of his duties as a director of Vision. These include removing property of Vision, selling property of Vision and misappropriating money owed to the company by creditors.

[7]      Mr Hitchens has applied to strike out the cross claim against him.   It is submitted that it is unclear on what basis Mr Rabson purports to bring the claim.  He is not a shareholder of Vision; he is a director but because Vision is in liquidation, s 248 of the Companies Act 1993 prevents him acting in that capacity; and he has no standing to sue personally in relation to alleged wrongs against the company.

[8]      On  behalf  of  Mr Rabson,  Mrs Harley submits  that  because  the  liquidator commenced proceedings against the directors on behalf of the company, as a defendant Mr Rabson is not precluded from expanding the scope of the liquidators’ claim.   Mr Rabson is not commencing or continuing proceedings on behalf of the company; the liquidators are doing that.  He is just properly defining the scope of those proceedings.

[9]      The strike out must succeed.   Rule 4.18 allows such claims so long as the defendant making the claim would be entitled to issue and serve a third party notice if the co-defendant were not already a defendant.  The points raised by Mr Bleier and outlined  above  are  in  my view  correct.    Mr Rabson  cannot  initiate  proceedings against Mr Hitchens in relation to company property.  He has not suffered or claimed loss; a company of which he is not a shareholder is the alleged victim.   He is a director of it but the rules applying to liquidation prevent him acting in that capacity. Nor can he unilaterally expand the scale of the liquidators’ claim.  He must convince them to do that or bring action against them for failing to do (which he has also done by way of counterclaim).

[10]     The application for strikeout of the claim by Mr Rabson against Mr Hitchens is granted.

[11]     The applicant is entitled to costs.  Mr Bleier seeks indemnity costs because he wrote on 25 August appending a draft of the strike out application.  The application identified the bases of opposition set out above.  Mr Rabson was invited to withdraw the counter-claim with costs to lie where they fell.

[12]     Mrs Harley resists on the basis that the letter only gave a window of two days in which to respond.

[13]     In my view the cross claim is plainly flawed.  However, I do not see it as a case for other than the application of scale costs.  The letter is no more than saying we do not accept that the cross claim is valid.  That has proved correct but scale costs suffice.

[14]     The applicant is entitled to 2B costs and reasonable disbursements.

Simon France J

Solicitors:

R P Harley, Barrister, PO Box 5241, Wellington 6145, email:  [email protected]

D A Bleier, Barrister, DLA Phillips Fox, PO Box 2791, Wellington, email:  david[email protected]