G E Finance and Insurance v Heath HC Auckland CIV 2006 404-4903
[2007] NZHC 1768
•30 May 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006 404-4903
UNDER the Companies Act 1993
IN THE MATTER OF Phoenix Freight Limited (in liquidation) BETWEEN G E FINANCE AND INSURANCE
Applicant
AND AARON LESLIE HEATH AND JEFFREY PHILIP MELTZER
Defendants
Hearing: 21 May 2007
Appearances: Mr J Toebes for plaintiff
Mr Gustafson and Mr Broad for Cardinal Freight and Distribution
Limited
Mr Hucker and Mr Cummings for defendant
Judgment: 30 May 2007 at 12.15 p.m.
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
30.05.07 at 12.15 pm, pursuant to
Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Buddle Findlay, P O Box 2694, Wellington
Hucker & Associates, P O Box 3843, Shortland Street, Auckland
Kensington Swan, Private Bag 92101, Auckland- daniel[email protected]
,
G E FINANCE AND INSURANCE V HEATH AND MELTZER HC AK CIV 2006 404-4903 30 May 2007
[1] The liquidator of Phoenix has given notice to GE that a payment which Phoenix made to GE was a voidable transaction. GE does not accept the liquidator's determination and has filed an amended application to obtain an order pursuant to s 294(2) of the Companies Act 1993 that the transaction not be set aside.
[2] GE seeks that Cardinal be added to the proceedings as a plaintiff. GE also seeks orders dismissing itself from the proceedings.
Background
[3] This is a proceeding in which the liquidators of a company called Phoenix Freight Limited (in liquidation) which I shall refer to as Phoenix – have served notices pursuant to s 294 of the Companies Act 1993. Those notices were directed to GE Finance and Insurance which I will refer to as “GE”. The notice was signed by the solicitor for the liquidators on 14 August 2006. It gave notice that the liquidators set aside three transactions or securities as follows:
a) A general security agreement dated 10 June 2004 granted by Phoenix to GE;
b) The granting of a guarantee by Phoenix to GE on or about 13 October
2004 in respect of advances that GE made to Concord Storage and Distribution Limited (“Concord”) and to Cardinal Freight Distributors Limited (“Cardinal”);
c) Payment of money that Phoenix made to GE in the sum of
$282,418.25 on 13 September 2004.
[4] On 7 September 2006 GE filed an originating application in which the liquidators of Phoenix were named as defendants. By that application, GE sought orders that all three of the above transactions for securities not be set aside as voidable under s 292 of the Companies Act 1993.
[5] On 16 April 2007 an amended originating application was filed. In the latest application, an order was sought only in the respect of the payment of $282,418.25. Therefore, GE no longer intends to continue with its applications in respect of the other transactions or securities.
[6] GE has now filed interlocutory applications in which it seeks two orders:
a) To join Cardinal as a plaintiff in the proceedings;
b) To dismiss GE from the proceedings.
Principles
[7] A company can be added as a plaintiff where its proprietary rights will be directly effected by the proceedings: Arklow Investments Limited v The Ngai Terangi Iwi Incorporated Society (1/6/94 CA42/94). In that case the Court of Appeal considered the decision in Penang Mining Company Limited v Choong San (1969) 2 MLJ 52 where Lord Diplock said the test of joinder on the application of an intervenor was to be decided on the basis of:
…will his rights against or liabilities to any party to the action in respect of the subject matter of the action be directly effected by any order which may be made in the action?
[8] In Arklow the Court of Appeal then said:
To put the question as it applies in the present case, will the proprietary rights of the intervenor be directly affected by the judicial review proceedings and in particular by the proposed validation of arguably illegal contractual arrangements. In Dollfus Mieg Et Compangnie SA v Bank of England [1951] 1CH 33,42 the Court held in determining whether or not the applicants had a proprietary right in the subject – matter of the action sufficient to entitle them to be joined as defendants, the true test lay, not so much in an analysis of what were the constituents of their rights, but rather in what would be the result on the subject matter of the action if their rights could be established. It was noted that, although the applicants did not assert title to the gold bars which were in issue, the result of a successful intervention by them would be that, as between the company and themselves, they would, for all practical purposes be the true owners.
[9] It is necessary to make some additional brief remarks about this aspect of the matter. The factual background is that Phoenix, Cardinal and Concord were all members of the same group of companies which were owned by trusts associated with a Mr A Gorton. In the only affidavit filed in the proceedings thus far, Mr Gorton has deposed that in July 2004 arrangements were entered into with a discounting business which agreed to factor Phoenix’s debts. In order to provide the factor company with security, the proposal required that GE, an existing security- holder over Phoenix, accept lesser value securities. This was because it was proposed that there be a subordination of the securities and for other reasons. As part of the agreement, GE stipulated that Phoenix was to apply the first tranche of money received from the factoring of its debts to discharge a debt which Cardinal owed to GE. This debt was in the sum of $282,418.25. All of the proposals that I have mentioned were duly put into effect.
[10] On Phoenix’s liquidation occurring, the liquidators apparently took the view that the payment of the $282,418.25 ought to be set aside under s 292. That is one of the reasons why they gave the notice under s 294. GE filed an originating application in which it sought orders that the transactions/securities not be set aside. It did so pursuant to s 294 (2) of the Companies Act 1993 which provides:
(2)A person—
(a) Who would be affected by the setting aside of the transaction or charge specified in the notice; and
(b) Who considers that the transaction or charge is not voidable—
may apply to the Court for an order that the transaction or charge not be set aside
[11] After commencing its proceedings, GE changed tack. It decided that it did not wish to proceed with its originating application. That was for the reason that GE could apparently recover the amount of the debt directly from Cardinal. I am not entirely clear as to the basis upon which it has made that judgment but it would appear that under the arrangements that the parties entered into, the payment which Phoenix made to GE would be treated as extinguishing a debt which Cardinal owed
to GE. It may be that the reversal of the payment had the effect of reconstituting Cardinal as a debtor of GE, or alternatively, it may be that there is an arrangement between GE and Cardinal to answer for the $282,418.25 on the basis that Cardinal has guaranteed an obligation of Phoenix. Certainly, Mr Gustafson submitted that:
Cardinal potentially as a co-debtor may be unfairly required to account to GE Finance for a debt that should properly be paid by Phoenix. If Cardinal is required to pay off GE then under the law of subrogation it is entitled to step into the shoes of the secured creditor. If the payments and the charge given by Phoenix are set aside in these proceedings then those rights will be unavailable to Cardinal upon such subrogation occurring. Accordingly, in the order in respect of the voidable charge claim and/or voidable payment claim directly effects Cardinals rights.
Discussion
[12] The first point to be noticed is that that submission appears to assume that the proceedings are still concerned with security given by Phoenix. But the amended originating application no longer seeks orders in respect of that matter. The only transaction which is being considered in the proceedings is the payment of
$282,418.25.
[13] It is doubtful that a party is entitled to make any application unless it has been served with a notice setting aside a transaction. The wording and scheme of the section seem to point to that conclusion. However, I cannot determine that issue conclusively on this application. I will assume for the purposes of argument, that Cardinal would be able to obtain the order that it wishes to if it was added to the proceedings.
[14] Then there is an issue as to whether if Cardinal is joined as a plaintiff, it would be open to it to amend the proceedings so that they would again seek orders to set aside all of the transactions which were the subject of the original application. The issue to which I refer is the time limit specified in the Act. Thompson and Brookers commentary on the relevant section, 290, reads:
Application that transaction not be set aside
Every person who would be affected by the setting aside of the transaction or charge that is specified in the notice and considers the transaction or charge
is not voidable may apply to the Court for an order that the transaction or charge not be set aside. Such application needs to be made not later than the twentieth working day after the date of the service of the notice on that person.
[15] But I accept that if the effect of the liquidator’s notices is in fact in effect to reverse the payment that Phoenix made on account of what is arguably a liability owed by Cardinal, then Cardinal does come within the scope of s 294(2) of the Act. That being so, there would be jurisdiction to order the joinder of Cardinal as a plaintiff.
[16] Cardinal only wishes to be in the proceedings if GE remains a party. It cannot therefore be viewed as a party who has given consent to joinder. Its consent is conditional. I do not consider that is a consent within the requirements of the rules.
[17] In case I am wrong about the foregoing point, I next consider whether or not the Court should exercise its discretion to join Cardinal.
[18] The first reason which points against granting the order sought is that there is apparently a fixture for the originating application in June. It now seems virtually certain that the fixture will be lost. The reason why GE wants Cardinal in the proceedings is because it has changed its mind about the desirability of continuing with its application to set aside the liquidator’s notice. This is not a case where GE appears to have been caught by surprise by a late change of circumstances.
[19] It is virtually certain that that adding Cardinal as a plaintiff at this late stage will derail next week’s fixture.
[20] In my view, therefore, the discretion should not be exercised in favour of admitting Cardinal as a plaintiff.
[21] The next issue is whether or not the plaintiff should be dismissed as a party from the proceedings. Given that I do not intend to add Cardinal as a plaintiff, there is an easy way for the plaintiff to resolve matters and that is to discontinue the
proceedings as against the defendants. That being the case, I decline to make the
order which GE seeks dismissing it from the proceeding.
J.P. Doogue
Associate Judge
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