Eastwood Farms Limited v Kitchener Group Management Limited HC Auckland CIV 2006-404-7807

[2007] NZHC 1564

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2006-404-7807

BETWEEN  EASTWOOD FARMS LIMITED Plaintiff

ANDKITCHENER GROUP MANAGEMENT LIMITED

Defendant

Hearing:         17 January 2007

Appearances: R Bell for Defendant/Applicant

A H J Commons for Plaintiff/Respondent

Judgment:      18 January 2007 at 3:00 pm

RESERVED JUDGMENT OF COURTNEY J

This judgment was delivered by me on

18 January 2007 at 3:00 pm

pursuant to r 540(4) of the High Court Rules

Registrary / Deputy Registrar

Date…………………………

Solicitors:           Hornabrook Macdonald Lawyers, P O Box 91845, Auckland

Fax: [phone]
Hesketh Henry, Private Bag 92093, Auckland

Fax: [phone]

EASTWOOD FARMS LTD V KITCHENER GROUP MANAGEMENT LTD HC AK CIV-2006-404-7807 18

January 2007

[1]      The defendant/applicant (Kitchener Group) has applied for orders staying and restraining the advertising winding up proceedings brought against it by the plaintiff/respondent (Eastwood).  Eastwood has declined to give an undertaking not to advertise the winding up application pending determination of the application for stay.  Kitchener Group therefore seeks interim relief pending the substantive hearing of its application.

[2]      The  grounds  for  Kitchener  Group’s  application  for  interim  relief  is  that Mr Henderson’s affidavit, filed on behalf of Kitchener Group, discloses an arguable dispute between the parties and a right of set-off which, if sustained, would eliminate the alleged debt.

[3]      Rule 700K of the High Court Rules allows a defendant company to apply for orders restraining publication of winding up proceedings and staying further proceedings.    The  principles  to  be  applied  are  those  summarised  in  Nemesis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 namely that:

The Court has an inherent jurisdiction to stay winding up proceedings where the debt upon which  proceedings  are founded is the  subject of  genuine dispute.   In those circumstances the plaintiff cannot show that it has the status of a creditor…that there has been neglect by the company to pay.  The decisions make it clear that the jurisdiction to stay is an inherent one to prevent abuse of process and that there is no inflexible rule.  The governing consideration is whether the proceedings savour of unfairness or undue pressure.  It is however a serious matter to stay winding up proceedings so that the decision to do so is never made lightly.  The onus is on the applicant and  it  is  normally necessary to demonstrate “something more”  than  the balance of convenience considerations which it is usually appropriate to consider on an application for an interim injunction.

[4]      A right of set-off against the plaintiff’s claim will be an appropriate case for the exercise of the Court’s inherent jurisdiction to stay the winding up proceedings because such a right would eliminate the very debt upon which the winding up proceeding  is  based:  Bean  Supreme  Limited  v  ASDA  Wholesale  Limited  (1989)

4 NZCLC 65,134.

[5]      Under  a  sale  and  purchase  agreement  22  August  2006  Kitchener  Group agreed  to  buy  certain  land  from  Eastwood.    A  deposit  of  $1.5m  was  payable

immediately.  By October 2006, however, Kitchener Group had not paid the deposit. It is common ground that Mr Henderson and Mr Herbert of Eastwood agreed that the time  for  payment  would  be  extended  to  5  pm  13  October  2006.    However,

13 October 2006 passed without the deposit being paid.

[6]      There was no written communication from Eastwood regarding this failure until  18  October  2006,  when  Eastwood’s  solicitors  faxed  Kitchener  Group’s solicitors purporting to cancel the agreement for non-payment of the deposit. However, Mr Henderson deposes that he and Mr Kernohan of Eastwood had agreed orally that the date for payment of the deposit would be further extended to 5 pm

20 October 2006.   If that were so, time for payment of the deposit had not yet expired.

[7]      Eastwood did not accept that that was the position and on 10 November 2006 served a statutory demand.  Kitchener Group did not apply to set aside the statutory demand.   However, Mr Henderson explains in his affidavit this was because, by then, he was negotiating with Eastwood to complete the purchase, despite their different view as to whether Eastwood had been entitled to cancel the contract.

[8]      Mr Commons urged on me that there was no genuine dispute and that Kitchener’s assertions as to the oral agreement to extend the date for paying the deposit were unsubstantiated and implausible.   He said that there was no basis on which a genuine dispute could be shown.  Further, he submitted that, if interim relief was granted, it should be subject to the condition that Kitchener Group pay the deposit into court pending the determination of its stay application.

[9]      Although Mr Commons suggested that the oral extension of time to pay the deposit had only now been raised, Mr Bell pointed to the fact that this was explained by Mr Henderson’s evidence about the ongoing negotiations between the parties to resurrect the deal and that Mr Henderson’s evidence was provided to Eastwood’s solicitors in an unsworn form on 5 January 2006.

[10]     Eastwood  has  not  filed  any  response  to  Kitchener  Group’s  application, although it does intend to oppose the application and to file affidavits in response to Mr Henderson’s affidavit.

[11]     However Eastwood has known of Mr Henderson’s assertions since 5 January

2007.  It could, had it wished, have given some response to them by today.  If what Mr Henderson says is right then there would be a genuine dispute between these parties as to whether the deposit was actually payable at the time the contract was cancelled.  In these circumstances, I am satisfied that an interim order is necessary to preserve the position pending determination of the stay application.

[12]     I therefore grant interim orders:

a)        Staying the winding up application; and

b)       Restraining advertising of the winding up application pending determination of Kitchener Group’s application for stay.

I also make the following timetable directions:

c)        Eastwood is to file any affidavits in opposition to the application by

1 February 2007;

d)       Kitchener Group may file any affidavit in reply by 7 February 2007. [13]     A half-day fixture should be allocated as soon as possible after 7 February

2007.  Costs are reserved.

P Courtney J