Enviro Dynamics Civil Limited v Assured Contracting Limited (in liquidation)

[2020] NZHC 2247

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-000059

[2020] NZHC 2247

IN THE MATTER

of an Originating Application by ENVIRO DYNAMICS CIVIL LIMITED for leave of the court to continue an appeal against the Disputes Tribunal’s decision dated

28 February 2019 and for other substantive relief

UNDER

Sections 248 and 284 of the Companies Act 1993

BETWEEN

ENVIRO DYNAMICS CIVIL LIMITED

Applicant

AND

ASSURED CONTRACTING LIMITED (In

Liquidation)
First Respondent

AND

STEVEN KHOV and KIERAN JONES,

Liquidators of ASSURED CONTRACTING LIMITED (In Liquidation)

Second Respondents

Hearing:	19 August 2020
Appearances:	D J Ballantyne for Applicant J D Savage for Respondents
Judgment:	31 August 2020

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

ENVIRO DYNAMICS CIVIL LTD v ASSURED CONTRACTING LTD (In Liquidation) [2020] NZHC 2247

[31 August 2020]

This judgment was delivered by me on 31 August 2020 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

The application

[1]    Enviro Dynamics Civil Ltd (Enviro) applies under s 248(1)(c) of the Companies Act 1993 for leave to continue with an appeal against a decision of the Disputes Tribunal  (the  appeal).  In  the  alternative,  Enviro  seeks  an  order  under s 284(1)(b) of the Companies Act reversing the decision of the liquidators of Assured Contracting Ltd (in liq) (Assured) to refuse their consent to the appeal continuing.

The background

[2]    Enviro engaged Assured to lay concrete pathways and driveways. Assured did work for Enviro at Weston Road and Wychbury Street and Enviro was invoiced for that work.

[3]    Assured also did work at Courtenay Road. The Courtenay Road property is owned by directors of Enviro, Mr Dion Wiremu and Mrs Lisa Wiremu, as trustees of the Takk Family Trust (the Trust). Assured invoiced the Trust for that work.

[4]    Assured’s invoices were not paid, and it filed a claim in the Disputes Tribunal to recover the amounts of its invoices. Mr Wiremu filed counterclaims against Assured seeking compensation for Assured’s poor workmanship at Weston Road and Courtenay Road. There was no complaint about Assured’s work at Wychbury Street. Regarding Weston Road, it was alleged Assured had washed acid onto grass killing it and requiring replacement with turf. Regarding Courtenay Road, however, the counterclaim stated that Assured was engaged by the Trust to pour a concrete pad and the concrete pad was not to the required height and has to be replaced. There was also an allegation that concrete was put on the garage door at the property.

[5]    There was a hearing in the Disputes Tribunal on 26 February 2019. The Referee issued a written decision and found:

(a)Assured was entitled to payment for the work at Wychbury Street;

(b)Assured was entitled to payment for the work at Weston Road but Enviro was entitled to deduct $1,041.04 as compensation for the cost of replacing the grass; and

(c)Assured had failed to lay the concrete pad at Courtenay Road to a uniform thickness and Mr and Mrs Wiremu were entitled to compensation for the removal and replacement of one-quarter of the pad that was thinner than it should have been. They were awarded the sum of $1,589.24 representing one-quarter of the cost to replace the entire concrete pad less Assured’s contract price. The claim for the cost of removing concrete from the garage door was disallowed.

[6]The end result of the hearing was that:

(a)Enviro was ordered to pay Assured $6,766.19 for the work at Wychbury Street and Weston Road (which included interest and a late payment fee); and

(b)Assured was ordered to pay Mr and Mr Wiremu as the trustees of the Trust the sum of $1,589.24 as compensation for the defective work at Courtenay Road.

[7]    On 19 March 2019, Mr Wiremu filed an appeal from the Referee’s decision. He advanced detailed grounds of appeal but did not challenge the Referee’s finding that Assured had been engaged by Mr and Mrs Wiremu as trustees of the Trust to perform the work at Courtenay Road. Upon filing the appeal, enforcement of the Referee’s decision was stayed.1

[8]    The Referee issued her  report under s 51 of the Disputes Tribunal Act  on     2 April 2019. There matters rested while the parties awaited a hearing of the appeal in the District Court.  Despite months  passing,  there  was  to  be  no  hearing.  On 10 October 2019, Assured went into liquidation.

1      Disputes Tribunal Act 1988, s 50(7).

[9]    At that point, the appeal could not continue unless the liquidators agreed, or the court granted permission under s 248(1)(c) of the Companies Act. The liquidators did not agree. Instead, perplexingly given the effect of s 248(1)(c), they applied to the District Court for an order staying the appeal. On 11 November 2019, a District Court Judge issued a direction the appeal be stayed.

[10]   Then on 20 November 2019, again on the application of the liquidators, the Referee made an order under s 50(7) of the Disputes Tribunal Act that the order that Enviro pay Assured $6,766.19 was no longer stayed. I understand Enviro may not have been given notice of the application to lift the stay, but its solicitor was immediately advised of the order and Enviro has never challenged it.

[11]   On 20 November 2019, the liquidators’ solicitor, Mr Savage, in an email to Mr Wiremu made demand upon Enviro for payment of the $6,766.19. In an email of

22 November 2019, Enviro’s counsel, Mr MacKenzie, responded disputing the demand but stating that Mr Wiremu had decided not to seek the court’s consent to continue the appeal. He wrote:

I am aware that my client appelaed [sic] the DT decision. Assured then went into liquidation. Your client then refused consent for the appeal. Given the very high threshold involved in obtaining Court consent, my client left the matter there.

[12]   In an email of 26 November 2019, Mr Savage replied to Mr MacKenzie that there was no dispute as to Enviro’s indebtedness, that the award made in favour of the Trust did not affect Enviro’s obligation to pay Assured, that it was not unjust for the liquidators to insist upon payment and the liquidators considered litigation justified as any dispute raised by Enviro would be dealt with in a summary manner.

[13]   Further email correspondence between Mr Savage and Mr Wiremu did nothing to promote a resolution. Mr Wiremu made plain his intention to fight any steps taken by the liquidators to obtain payment from Enviro. He said the liquidators should “warm up their bank account”. He gave no indication that Enviro had reconsidered its decision that it would not apply to the court for leave to continue with the appeal.

[14]   On 10 December 2019, the liquidators had a statutory demand served upon Enviro. No application was made to set aside the statutory demand. On 3 February 2020, Assured filed proceedings seeking an order putting Enviro into liquidation (the liquidation proceeding). On 25 February 2020, the liquidation proceeding was served.

[15]On 2 March 2020, Enviro applied for:

(a)orders restraining publication of the liquidation proceeding and staying any further proceedings in relation to the liquidation; and

(b)originating orders in substantially the same form as this current application.

[16]   The court has made orders restraining publication of the liquidation proceeding and staying the proceeding until further order.

The law

[17]Section 248(1)(c) of the Companies Act provides:

248     Effect of commencement of liquidation

(1)With effect from the commencement of the liquidation of a company,

---

(a)…

(b)…

(c)unless the liquidator agrees or the court orders otherwise, a person must not ---

(i)      commence or continue legal proceedings against the company or in relation to its property; or

(ii)     exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:

[18]   The court’s power under s 248(1)(c) is discretionary. There is no definitive list of factors the court will take into account when considering whether to exercise its discretion. The court generally considers whether any circumstances exist which render it necessary that legal proceedings should continue or whether the claim is not one that can easily be dealt with in the liquidation.

[19]   In Fisher v Isbey, Master Faire summarised factors relevant to the exercise of the court’s discretion to allow proceedings to continue.2 The relevant principles to be applied were stated as:3

(a)It is a cardinal principle that there must be equality among various creditors and the bringing of proceedings should not produce an advantage to a particular creditor over other creditors.

(b)The assets of a company should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim.

(c)The onus is on the party seeking leave to satisfy the court that leave should be given.

(d)The claim should not be clearly unsustainable but the court will not investigate the merits of the claim.

(e)The court must determine whether the procedure for determining creditors' claims under the Companies Act, and the court's power of review pursuant to s 284(1)(b) of the Companies Act, is appropriate and if not whether the claims should be established in civil proceedings commenced by leave under s 248 of the Companies Act.

[20]    Other factors recognised include delay by the applicant, the amount and seriousness of the claim, the degree and complexity of legal and factual issues and, the stage proceedings have reached.

2      Fisher v Isbey (1999) 13 PRNZ 182.

3      At [19] and see also Insolvency Law and Practice, (online ed, Thomson Reuters) 2007 at [CA 248.03].

The parties’ submissions

Enviro

[21]   Mr Ballantyne explains that Enviro considers the Referee’s decision is wrong in two respects as follows:

(a)in joining the trustees to the proceeding; and

(b)in the factual and legal findings which underpin the quantification of the compensation awarded to the trustees in respect of the defective work at Courtenay Road.

[22]   Put simply, Enviro says it, and not the trustees, should have been awarded compensation and the compensation it is entitled to is the full cost of replacing the defective concrete pad.

[23]   Mr Ballantyne argues the liquidators should have granted consent to the appeal continuing and then abided the decision of the court. Allowing the appeal to proceed will not result in a comparative advantage to Enviro over Assured’s other creditors but is, he says, consistent with the principle of equality amongst creditors and avoids the dissipation of Assured’s assets in wasteful litigation.

[24]   Mr Ballantyne cautioned against a detailed consideration of the merits of the appeal as the question, he said, is not whether the appeal will be successful but whether it is clearly not sustainable. Relying on s 50(1) of the Disputes Tribunal Act, he submits the appeal is sustainable, as the Referee conducted the hearing in a manner that was unfair and prejudicially affected the result because she:

(a)confused Mr and Mrs Wiremu by introducing the trustees as parties and giving them no opportunity to clarify the parties to the contract in respect to Courtney Road;

(b)regularly cut off Mr Wiremu when speaking at the hearing;

(c)failed to give Mr Wiremu an equal opportunity to present his evidence;

(d)advised the parties that Assured was unable to claim penalty fees and interest and then awarded them; and

(e)arbitrarily divided by four the claimed remediation costs to relay the concrete pad at Courtenay Road.

[25]   Mr Ballantyne submits delay is not a factor here. Enviro’s decision to not immediately seek the court’s consent to proceed with the appeal was pragmatic given the amount at stake and the costs of making such an application.

[26]    He submits there are no options available to Enviro to establish its rights against Assured other than obtaining the court’s permission to proceed with the appeal. Practically, Enviro cannot submit a creditor’s claim in Assured’s liquidation as the liquidators will reject the claim. Any challenge to the liquidators’ decision in that regard must fail unless the Referee’s decision is quashed as it raises an estoppel against Enviro.

[27]   Mr Ballantyne is critical of the liquidators. He submits the liquidators acted improperly and the court should be mindful of, and exercise, its supervisory jurisdiction over them.

The liquidators

[28]    The liquidators argue that Enviro should not be granted leave to continue the appeal because:

(a)the appeal is clearly unsustainable;

(b)Enviro delayed in making this application causing prejudice to the liquidators; and

(c)the appeal will materially disadvantage the creditors of Assured.

[29]    The liquidators argue the appeal threshold under s 50(1) of the Disputes Tribunal Act has not been met as the grounds advanced by Enviro in the main challenge findings of fact or law which cannot be pursued on appeal. The only grounds advanced which could be the basis for an appeal are that:

(a)overall the Referee did not provide a fair opportunity for Mr Wiremu to be heard; and

(b)the alleged unfairness resulting from the imposition of a penalty fee and interest contrary to an indication given to the parties that they would not be payable.

[30]   In respect to the first matter, it is argued the transcript, the Referee’s decision and her s 51 report show that the hearing was conducted fairly. In respect to the second matter, the liquidators abandon their entitlement to the penalty fee and interest which amount to just $420.

[31]   The liquidators also note that Mr Wiremu’s allegations have changed since filing the appeal. His updating affidavit of 25 June 2020 made allegations not contained in the notice of appeal that:

(a)the Referee refused to look at a drawing that he had made;

(b)the Referee referred to him by an incorrect surname;

(c)there is racism in the legal system in Canterbury; and

(d)the Referee incorrectly involved the trustees.

[32]   In relation to delay, the liquidators submit Mr Wiremu had the opportunity to seek leave of the court to continue the appeal when the stay was lifted but he decided not to do so. It was more than three further months before this application was made during which period the liquidators incurred costs in taking steps to liquidate Enviro. The liquidators will incur further costs if Enviro is given permission to continue the appeal as they cannot be expected to abide the decision of the court (effectively

allowing the appeal to proceed unopposed) because any finding in favour of Enviro will disadvantage the creditors.

Discussion

[33]   The appeal was not filed by or on behalf of Enviro, yet it seeks leave to continue it. While this seems incongruous, Enviro was a respondent in the Disputes Tribunal and under s 50(6) of the Disputes Tribunal Act it is entitled to be heard on the appeal. On this basis, I accept, Enviro has standing to apply to continue the appeal.

[34]   As a first impression it appears unfair the liquidators will not consent to the appeal continuing yet require payment from Enviro. That the appeal is ready to be heard once a hearing date is given in the District Court would also ordinarily weigh in favour of the court granting the order sought.

[35]   That first impression does not withstand analysis. I will not exercise my discretion in favour of Enviro for the following three reasons:

(a)the appeal is not sustainable;

(b)Enviro’s delay in making this application is not excusable; and

(c)granting leave will result in prejudice for which Assured will not be adequately compensated.

The appeal is not sustainable

[36]   Consistent with the intention that the Disputes Tribunal will provide a simple, inexpensive and final resolution of disputes involving small sums, section 50(1) of the Disputes Tribunal Act provides that the only ground of appeal from decisions of a Referee is that there has been some procedural unfairness that has prejudicially affected the outcome of the proceeding.

[37]Section 50(1) provides:

50       Appeals

(1)Any party to proceedings before the Tribunal may appeal to the District Court against an order made by the Tribunal under section 18(8) or section 46(2) or section 47(3)(b) of this Act, or against the approval by the Tribunal of an agreed settlement under section 18(3) of this Act, or against the variation of a term of an agreed settlement under section 47(3)(a) of this Act, on the grounds that ---

(a)      the proceedings were conducted by the Referee; or

(b)      an inquiry was carried out by an Investigator ---

in a manner that was unfair to the appellant and prejudicially affected the result of the proceedings.

[38]   The grounds of appeal set out in the notice of appeal are substantially directed towards the merits of the Referee’s decision rather than to procedural unfairness. Importantly also, Mr Wiremu’s complaints have changed significantly from those made in the notice of appeal.

[39]   A central plank of Enviro’s case now concerns the introduction of the trustees as parties. The criticism made is directed to both the decision to join the trustees and an alleged failure to allow Mr and Mrs Wiremu to explain that it was Enviro, and not the trustees, who had contracted for the work at Courtenay Road. The significance of the issue, of course, is that there is no right to set off any award in favour of the trustees against what Enviro owes Assured.4

[40]   I do not have before me the notice of claim filed by Assured and do not know if the trustees were named as parties at the outset. I do have Mr Wiremu’s counterclaim that alleges that Assured was engaged by the Trust. In his evidence, Mr Boswell stated that the work was invoiced to the Trust. The trustees were persons with a sufficient connection with the proceeding requiring them to be joined as parties.5 No criticism can be made of the Referee for joining the trustees in those circumstances.

4      Companies Act 1993, s 310.

5      Disputes Tribunal Act 1988, ss 25(2) and (3).

[41]   I do not accept Mr and Mrs Wiremu did not have an opportunity to explain that the trustees were not the contracting parties in respect to Courtenay Road. The submission faces the obvious response that Mr Wiremu stated that Assured had been engaged by the Trust in his counterclaim. The transcript shows the Referee asked Mr and Mrs Wiremu if they were trustees and they acknowledged they were. The only possible relevance of this was in relation to Mr Boswell’s evidence that Assured contracted with the trustees. Later in the hearing, Mr Wiremu asked the Referee if it would be necessary for the trustees to file a separate claim in respect to Courtenay Road and he was told all claims were being dealt with in the one hearing. The Referee also explained to Mr Wiremu that any amount Assured owed the trustees could not be set off against an amount Enviro owed Assured. The challenge to the joinder of the trustees as parties is therefore without merit.

[42]   Turning to the other grounds advanced in support of the appeal, Mr Ballantyne realistically confined his submissions to the additional matters referred to in [24] above. The first two matters allege the Referee did not give Mr Wiremu the opportunity to present his evidence. The transcript of the hearing does not support this allegation. Mr Boswell and Mr Wiremu had an equal opportunity to speak and present evidence. The Referee’s questions to them both were fair. She explored the relevant issues. I can see nothing to suggest she was hostile towards Mr Wiremu or that she prevented him from speaking. To the contrary, the Referee took time to explain matters to Mr Wiremu that were of concern to him or that he said he did not understand.

[43]   The next matter relates to the Referee’s decision to award Assured a penalty fee and interest. The liquidators waive those amounts which total just $420.

[44]   Finally, it is alleged the Referee’s decision to award only a quarter of the cost of replacing the concrete pad is arbitrary. I do not accept that submission. The decision was reasoned and based on evidence as to the extent of the thinning of the concrete pad and that the concrete pad was laid in sections. While this evidence was disputed by Mr Wiremu, it was open to the Referee to arrive at the conclusion she did.

Delay

[45]   Mr Wiremu knew from 22 November 2020 of the need to apply for leave to continue with the appeal. He decided not to seek leave and the liquidators were informed of that. The liquidators cannot be criticised for the steps they then took to obtain payment. It was only after the liquidation proceeding was filed that Enviro made this application. There is no justification for the delay. The correspondence shows Mr Wiremu pursued a game of brinkmanship hoping the liquidators would walk away from Enviro’s debt. That is an important factor against exercising the court’s discretion in Enviro’s favour.

Prejudice

[46]   The consequence of Enviro’s delay in making this application is that the liquidators have unnecessarily incurred costs. There are the legal costs associated with steps taken to obtain payment and their own internal costs. Should this application be granted those costs could very well be wasted. In addition, the liquidators will be faced with costs associated with defending an appeal which is unsustainable.

[47]   The appeal concerns a modest sum. The amounts the liquidators have already had to expend to recover payment from Enviro and will have to expend defending an unsustainable appeal might very well exceed the amount at stake. It would be unjust in those circumstances to allow the appeal to continue.

Liquidators’ conduct

[48]   I do not accept Mr Ballantyne’s submission that the liquidators have not acted properly. The liquidators refused to give consent to the appeal continuing because they consider the appeal lacks merit. In hindsight, had consent been given the costs incurred may have been avoided but it was for the liquidators to determine what was the most appropriate means to recover a debt owed to Assured. They made a

commercial decision which the court, notwithstanding its supervisory jurisdiction, will be slow to second-guess.6

The application under s 284

[49]Section 284(1)(b) of the Companies Act provides:

284 Court supervision of liquidation

(1)On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may ---

(a)…

(b)confirm, reverse, or modify an act or decision of the liquidator:

…

[50]   In the alternative, Enviro applies under s 284(1)(b) for an order setting aside the liquidators’ decision to not  give their consent to allow the  appeal to proceed.  Mr Ballantyne accepted at the commencement of his submissions that if Enviro fails on the first application it will fail on this application also. He is correct in that assessment. Enviro has no standing to make an application under s 284 as it is not a creditor of Assured. Clearly the appropriate application to determine whether Enviro should be granted leave to continue the appeal is under s 248 in any event.7

Result

[51]Enviro’s applications are refused.

[52]   Costs are reserved. If the parties cannot agree on costs, then they may file memoranda within 14 days which are to be no longer than five pages.

O G Paulsen Associate Judge

6      Levin v Lawrence [2012] NZHC 1452 at [54].

7      Pacific Produce Company Ltd v Franklin Co-operative Growers Ltd (in liq) [1969] NZLR 65; Re QBE Insurance (International) Ltd HC Auckland CIV-2009-404-3637, 23 March 2011 at [27]- [28].

Solicitors:

Ronald W Angland & Son, Leeston Norris Ward McKinnon, Hamilton