Elite Construction Contractors Limited (In Liquidation) v Stewart HC Wellington CIV 2008-485-1635

[2008] NZHC 2423

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2008-485-1635

BETWEEN  ELITE CONSTRUCTION CONTRACTORS LIMITED (IN LIQUIDATION)

Plaintiff

ANDDEAN BRUCE STEWART AND HAINA GLADYS STEWART

Defendants

Judgment:      29 July 2008 at 3.00 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 29 July 2008 at

3.00 p.m. pursuant to r 540(4) of the High Court Rules 1985.

Solicitors:           Thomas Dewar Sziranyi Letts, Solicitors, PO Box 31-240, Lower Hutt

ELITE CONSTRUCTION CONTRACTORS LIMITED (IN LIQUIDATION) V DEAN BRUCE STEWART AND HAINA GLADYS STEWART HC WN CIV 2008-485-1635  29 July 2008

[1]      The plaintiff has applied ex-parte for leave to issue a Charging Order in this proceeding pursuant to r. 567 High Court Rules before judgment.

[2]      The Charging Order is sought against a property owned by the defendants at

23 Dell Road, Raumati South being Certificate of Title WN462/286.

[3]      In  the  substantive  proceeding  the  plaintiff,  a  company  in  liquidation (represented  by  its   liquidators),   is   taking   action   against   the   defendants   as shareholders on the basis that they have overdrawn their shareholders current accounts in the total sum of $295,049.00.  This is the judgment sum sought in the proceeding.

[4]     The plaintiff company was placed into liquidation on 12 May 2008 in proceedings brought by The Commissioner of Inland Revenue.  The Commissioner of Inland Revenue is apparently owed the sum of $218,412.87 and the plaintiff contends the only recovery realistically available to the company is from repayment of the shareholders’ current accounts.

[5]      The  defendant  shareholders  own  the  residential  property  in  question  at Raumati South.  As I understand it there is approximately $100,000.00 of equity in this house.  The plaintiff has also recently learned that the first-named defendant, Mr Dean  Bruce  Stewart  (“Mr  Stewart”)  the  majority  shareholder  of  the  plaintiff company has left New Zealand to go to Australia to work as a builder.  The second- named defendant, Haina Gladys Stewart (“Mrs Stewart”) his wife at present remains in New Zealand.  According to the plaintiff there is a significant risk however that she will leave New Zealand to join her husband.  The plaintiff says that the act of relocating to Australia raises a real concern that the Raumati South house in New Zealand will be sold or finance obtained against the security of the house, thereby extinguishing any equity the defendants have in it.  This is the reason the Charging Order is sought.

[6]      The present application is made pursuant to r 567 High Court Rules which

states:

“567 - Leave to issue charging order

Leave to issue a charging order before judgment shall be granted only on proof that the opposite party, with  intent  to  defeat  [either  his creditors or the party applying or both]—

(a)     Is making away with his property; or

(b)     Is absent from or about to quit New Zealand.

[7]      On r. 567, McGechan on Procedure makes the following comments:

HR567.01 Purpose

The purpose of the jurisdiction to issue a charging order before judgment is to prevent the defendant dissipating his or her assets, or removing them from the jurisdiction. The purpose is not to tie up a defendant’s  funds  in  New  Zealand  against  the  day  of  judgment: Harris v Davies29/4/03, Master Gendall, HC Masterton CP2/03.

HR567.02 Threshold requirement

A  preliminary  question  for  the  Court  before  granting  a  charging order is whether the plaintiffs have an arguable case or, depending on all the circumstances, whether there is any reason for reservations about the merits of the plaintiff’s case. There is “some analogy with interim injunctions and the normal requirement that there be a seriously arguable case”: Lennox-King v Johnson (1997) 10 PRNZ

664 at p 665.

HR567.03 Grounds

The rule sets out the only two circumstances in which the Court may grant leave to issue a charging order before judgment. Either ground is sufficient, and it is sufficient also that the opposite party is acting in either of the two ways specified with intent to defeat only the party applying, or to defeat that party’s creditors generally: Maree Finance Ltd v Wood (1992) 6 PRNZ 297. The purpose of securing funds to satisfy a judgment is not of itself a sufficient reason for making an

order: DF Hammond Land Holdings Ltd v Elders Pastoral Ltd (1989)

2 PRNZ 232  (CA). Nor will a charging order be made where clearly unnecessary, for example where a caveat already prevents a party disposing of real property: Grieve v City Developments Palliser Ltd

14/11/03, France J, HC Wellington CIV-2003-485-176.

HR567.04 Standard of proof

A high standard of proof is required: Joseph Lynch Land Co v Lynch (1992) 6 PRNZ 37, at p 44. Concrete evidence establishing one of the grounds  is  required;  conjecture  or  opinion  (even  very  positive opinion) will not suffice: Nelson & Robertson Pty Ltd v Niue Products Ltd 31/8/83, Chilwell J, HC Auckland A853/83 (following Pond v Glover  [1933]  GLR  358).  In  Chesterfield  Preschools  Ltd  v  CIR

13/9/05, Fogarty J, HC Christchurch CIV-2004-409-1596, the Court rejected a submission that “for all practical purposes the test to be satisfied (under r 567) is the same as a Mareva.”.

[8]      The  principal  ground  put  forward  by  the  plaintiff  in  support  of  this application is that “the defendant’s intend to leave New Zealand imminently … and their only substantial asset is the property in question.”

[9]      Effectively therefore the application is made under the second ground set out in r 567(b) although there is also some suggestion in the material filed that the defendants may be “making away with their property” in terms of their first ground under r 567(a).

[10]     As noted above, the purpose of the r 567 jurisdiction to issue a Charging Order before judgment is clearly to prevent defendants dissipating their assets or removing them from the jurisdiction prior to judgment.  The purpose is not to tie up the defendants’ funds in New Zealand against an uncertain day of judgment – Jones v Poffenroth High Court Auckland, 10 March 1986, Smellie J. CP188/86 and see also McGechan on Procedure para. HR567.04.  It is clear too that a high standard of proof is required – Joseph Lynch Land Co v Lynch.

[11]     The threshold requirement to be satisfied before granting leave to issue a Charging Order is whether the plaintiff has an arguable case or depending on all the circumstances whether there is any reason for reservations about the merits of the plaintiff’s case.  In the present case, affidavit evidence has been provided by Craig Alexander Sanson (“Mr Sanson”) one of the liquidators of the plaintiff company.  As a chartered accountant and experienced liquidator, Mr Sanson has deposed that the last set of financial accounts prepared for the plaintiff company for the year ending

31 March 2007 show that the defendants’ current account with the company was in arrears in the sum of $295,049.00.   He deposes also that the shareholding in the company is held solely by the defendants and further, that on 19 May 2008 he met with the first-named defendant, Mr Stewart and indicated to him that he and Mrs Stewart were personally responsible for repayment of this debt.  No attempts were made to repay the debt however and on 2 and 3 July 2008 the liquidators of the plaintiff wrote to Mr Stewart and Mrs Stewart respectively making demand for repayment of the $295,049.00 debt.

[12]     Since that time no attempts have been made by the defendants to repay the debt, nor has there been any denial that the amount is properly due and payable to the plaintiff.

[13]     On 18 July 2008, however, the liquidators of the plaintiff received a letter from Mr Stewart (a copy of which is annexed to Mr Sanson’s affidavit) which states:

“As I have been unable to find work here due to the current economic climate and the building trade being as difficult as it is to find work, I am relocating to Australia where there is still opportunities for builders.”

[14]     Mr Sanson deposes that he also understands from enquiries made that Mr Stewart did relocate to Australia on 14 July 2008.  He says attempts have been made to make telephone contact with Mr Stewart since that time but these have been unsuccessful.  Messages have been left for Mr Stewart but he has not returned the liquidator’s calls.  Mr Sanson deposes that he has concerns that Mr and Mrs Stewart will either sell their house at Raumati South and shift the funds overseas or obtain finance against the security of it which will thereby extinguish the equity in it.

Consequently  the  plaintiff  seeks  a  Charging  Order  over  that  property  before judgment as a matter of urgency in order to protect the asset.

[15]     As I have noted above, r. 567 provides that a Charging Order can be obtained before judgment is received if the opposing party to a proceeding has left the country or intends to leave the country with an intention to defeat the interests of his or her creditors.

[16]     Although as I have noted above a high standard of proof is required in respect of applications under r. 567 here there is clear evidence before the Court that the first-named defendant, Mr Stewart has left the country.  In his letter received by the liquidators on 18 July 2008 he acknowledged that he was “relocating to Australia”.

[17]     The second-named defendant, Mrs Stewart, as I understand the position does however remain in New Zealand at present.  Notwithstanding this, given the fact that her  husband  has  left  for  Australia  (confirmed  also  as  I  understand  it  from information  provided  from  the  Inland  Revenue  Department)  and  the  clearly expressed general intention for the family to “relocate” as there are “still opportunities for builders” in Australia, in my view there is a justifiable basis for the assumption that Mrs Stewart too is likely to leave New Zealand shortly to join her husband in Australia.

[18]     The order passing the plaintiff company into liquidation was made on 12

May 2008.   The proximity of the making of this order, and the ignored communications  by  the  liquidators  to  Mr  and  Mrs  Stewart  regarding  their outstanding shareholders loan accounts and including the demand for repayment of these amounts which met with no response would seem to me to support the conclusion  that  all  this  demonstrates  a  possible  intention  on  the  part  of  the defendants to defeat the legitimate interest of their large creditor, the plaintiff.  The fact that Mr Stewart’s departure from New Zealand has come so close to action being foreshadowed against both he and Mrs Stewart in my view assists the Court to reach the conclusion that these actions demonstrate an intention to defeat their creditors.    The debt owing to the plaintiff is unquestioned.  I am satisfied too that there is a need for urgency in this matter.

[19]     For all these reasons the plaintiff’s application is successful.

[20]     Leave to issue a Charging Order against the estate, title and interest of the defendants, Dean Bruce Stewart and Haina Gladys Stewart in their property at 23

Dell Road, Raumati South being Certificate of Title WN462/286 to stand charged with payment of the amount for which the plaintiff may obtain judgment in these proceedings is now granted.

[21]     Costs are reserved.

‘Associate Judge D.I. Gendall’