Gca Legal Trustees (2004) Limited v Consultant Management Services Limited HC Dun CIV 2007 412 000056

[2008] NZHC 2404

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV 2007 412 000056

UNDER  the Companies Act 1993

BETWEEN  GCA LEGAL TRUSTEES (2004) LIMITED AND BROOKSIDE FARM NO.2 LIMITED AS TRUSTEES OF THE BROOKSIDE TRUST

First Plaintiff

ANDEWAN ROBERT CARR Second Plaintiff

ANDCONSULTANT MANAGEMENT SERVICES LIMITED

First Defendant

ANDBIG SKY DAIRY FARMS LIMITED Second Defendant

ANDCASCADE CAPITAL LIMITED Third Defendant

ANDMAIN FARM LIMITED Fourth Defendant

ANDTERCIO DAIRY LIMITED Fifth Defendant

ANDBIG SKY LIVESTOCK LIMITED Sixth Defendant

Hearing:         2 July 2008

Appearances: D P Robinson for Plaintiffs

R J Gordon for R J Humphries and the Receivers of the First to Fourth
Defendants
T J Whittfield (in person) for the former Interim Liquidators
No appearance for the Fifth and Sixth Defendants

Judgment:      9 July 2008

GCA LEGAL TRUSTEES (2004) LIMITED  AND ANOR V CONSULTANT MANAGEMENT SERVICES LIMITED AND ORS HC DUN CIV 2007 412 000056  9 July 2008

JUDGMENT OF CHISHOLM J

[1]      The Court appointed interim liquidators for all the defendant companies on 2

March 2007 and later discharged them (on 3 May 2007) without making any order for payment of their costs and expenses.  Subsequently Associate Judge Christiansen ordered the second plaintiff to pay $6,000 plus GST towards their costs and expenses and the defendants to pay the balance of $54,442.61 plus GST.

[2]      Rodney  Humphries,  supported  by  the  receivers  of  the  first  to  fourth defendants, now seeks review of those orders pursuant to s26P of the Judicature Act

1908 and Rule 61C of the High Court Rules.  He contends that the Associate Judge erred, first, by applying rule 700 ZA of the High Court Rules, second, by failing to recognise that the interim liquidators had exceeded the scope of their appointment and, third, by failing to order the second plaintiff to pay the whole of the interim liquidators’ costs and expenses.

Background

[3]      In  January  2007  the  plaintiffs  made  an  ex  parte  application  for  the appointment of interim liquidators pursuant to s246 of the Companies Act 1993 on the ground that such appointment was necessary or expedient for the purpose of maintaining the value of assets owned or managed by the defendant companies. Those  companies  form  part  of  the  “Big  Sky  dairy  group”  which  was,  and  is, involved in a substantial dairy farming operation.  Underlying this application was a serious dispute between two shareholder factions within the defendant companies: the Carr faction and the Humphries faction.

[4]      When the application came before me on 7 February 2007 I declined to make orders on an ex parte basis and instead directed that the matter was to proceed on a “Pickwick” basis.   However, during the Chambers hearing (by way of telephone conference  with  counsel  for  the  applicant)  I  left  open  the  possibility  that  the applicant might be able to come up with further evidence that would justify reconsideration.

[5]      Within a few days the plaintiffs made a further ex parte application, this time for a Mareva injunction and Anton Piller orders.   It was alleged that there was an immediate risk that the assets of the companies might be dissipated and the records destroyed by Mr Humphries.  On 16 February 2007 I granted a Mareva injunction, ex parte, but declined to make an Anton Piller application.

[6]      This was followed by a further application by the plaintiffs for the Court to reconsider, in light of additional affidavits that had been filed, whether interim liquidators should be appointed on an ex parte basis.   For reasons traversed in his affidavit Mr Carr alleged that as long as Mr Humphries continued to be in control of the group there was a very real risk to the companies, their assets, and creditors.  On

2 March 2007 I concluded that the orders already made were unlikely to maintain the value of the assets owned or managed by the defendant companies and that the appointment of interim liquidators was necessary or expedient for the purpose of maintaining the value of the assets owned or managed by the companies.   John Whittfield and Peri Finnigan were appointed as interim liquidators accordingly.

[7]      The  order  appointing  the  interim  liquidators  specified  the  powers  of  the interim liquidators and approved a graduated hourly rate for the remuneration of them and their staff.  The plaintiffs were directed to serve Mr Humphries and leave was reserved to Mr Humphries to apply to have the appointment set aside.

[8]      Receivers of the first to fourth defendants were appointed by the Bank of New Zealand on 12 March 2007.  It is not disputed that from that time the receivers had control of the assets of those companies.  Although receivers were not appointed in relation to the fifth and sixth defendants, it is common ground that for practical purposes all the assets of the group were held by the first to fourth defendants.

[9]      On 14 March the interim liquidators lodged a memorandum with the Court advising that the  BNZ had  appointed receivers in relation to the  first  to  fourth defendants.  The liquidators also indicated that they were encountering difficulty in securing Mr Humphries compliance with a notice they had served on him pursuant to s261 of the Companies Act (which required him to produce all books, documents, records and files relating to the defendant companies to the interim liquidators).  The

same day Mr Humphries lodged an application to rescind the appointment of the interim liquidators and this application was set down to be heard by Asher J on 3

May 2007.

[10]     Immediately before the scheduled fixture a settlement was reached and on 3

May Asher J made orders by consent discharging the interim liquidators (and also the Mareva injunction).   Unfortunately everyone overlooked that in their second report to the Court of 27 April 2007 the interim liquidators had asked the Court to make an order for payment of their costs and disbursements.   Consequently they were discharged without such an order and without being afforded an opportunity to be heard by Asher J before he made an order discharging them.

[11]     Once  they  became  aware  that  they  had  been  discharged  the  interim liquidators sought an order for their costs and expenses to be paid by Mr Carr and/or Mr Humphries jointly and severally.  Mr Whittfield’s affidavit in support recorded a brief history of the matter including the fact that they had specifically sought an order of the Court for payment of their costs and disbursements because they did not have access to the cash flow of any of the defendant companies.

[12]     The interim liquidators’ application for costs and expenses was opposed by Mr Carr, Mr Humphries and the receivers of the defendants.   Basically no-one wanted to meet the costs, but they did not mind if the costs were met by another party.  In support of their application the interim liquidators provided an affidavit by Graeme McDonald, an Auckland chartered accountant with expertise in insolvency matters, indicating that he had reviewed the history of the matter and the time and attendance records of the interim liquidators (which are exhibited to his affidavit). Mr McDonald deposed that the interim liquidators had taken appropriate steps to exercise the rights and powers vested in them by the Court and that the amounts claimed were fair and reasonable.

[13]     It is not disputed that the first to fourth defendants have the financial ability to pay the interim liquidators’ costs and expenses.

Associate Judge’s Decisions

[14]     The application was determined by the Judge on the papers.  Submissions had been filed by all interested parties.

[15]     In his interim decision of 1 November 2007 Judge Christiansen concluded that in terms of  Rule 700ZA of the High Court Rules the interim liquidators were prima facie entitled to be paid by the defendant companies.  He considered that the following were of “limited” relevance:     whether or not the appointment of the interim liquidators was appropriate;  the fact that receivers had been appointed;  and the fact that Mr Carr had undertaken, as part of his settlement with Mr Humphries, to pay the interim liquidators’ costs.

[16]     As Judge Christiansen saw the matter everybody, including the Court, had overlooked the issue of the interim liquidators’ costs when the order was made for their discharge.   On the strength of Mr McDonald’s affidavit he rejected the proposition that there had been excessive charging by the interim liquidators.  The Judge said that he was satisfied that the appointment of the interim liquidators, which had been for the benefit of all parties, had required “intense and immediate investigation” and that the steps undertaken by them had been for the purpose of protecting assets.

[17]     Judge Christiansen concluded that Rule 700ZA enabled the Court to make such award as it considered appropriate.  He decided that the majority of the interim liquidators’ costs and expenses should be paid by the defendant companies, but that there should be a contribution by Mr Carr of “about 10%”.  However, he adjourned the matter to a telephone conference so that he could receive an indication from counsel about how the costs should be apportioned and how quickly they could be paid.

[18]     Having been advised by counsel at the telephone conference that a hearing before Randerson J was imminent, Judge Christiansen decided to defer any final order until Randerson J had delivered his decision in relation to the enforceability or otherwise of the settlement between Mr Carr and Mr Humphries. After that decision

became available Judge Christiansen concluded that it did not affect the matter that he was required to resolve and on 31 March 2008 he made orders for the payments referred to in [1] without further reference to counsel.

Issues

[19]     It is necessary to determine whether the Associate Judge erred by: (a)           Relying on Rule 700ZA.

(b)       Directing payment of the whole of the costs and expenses claimed.

(c)       Rejecting  the  submission  on  behalf  of  Mr  Humphries  and  the receivers that Mr Carr should meet the costs.

Each of these matters will now be addressed.

Whether Rule 700ZA Applies

[20]     Rule 700ZA of the High Court Rules provides:

“700ZA        Costs,  charges,  and  expenses  of  interim  liquidator  and  Official

Assignee

(1)    Subject to any order of the Court, if—

(a)      No order for putting the defendant company into liquidation is made in the proceeding; or

(b)        An order for putting the defendant company into liquidation is rescinded; or

(c)     All proceedings for putting the defendant company into liquidation are stayed—

the person holding office as interim liquidator shall be entitled to be paid, out  of  the  property  of  the  defendant  company,  all  costs,  charges,  and expenses properly incurred by that person as interim liquidator, or, where that person is the Official Assignee, such sum as the Court directs.

…”.

Although this Rule had not been referred to by counsel, the Associate Judge had located it and decided that it applied in this case

[21]     In support of the proposition that the Judge had erred by applying the rule, Mr Gordon submitted that it is only triggered if one of the three situations referred to in (a) – (c) applies.  He submitted that on a straightforward and literal interpretation, none of those pre-requisites had been satisfied in this case.  In particular, (a) did not apply because the substantive application for the defendant companies to be put into liquidation had not yet been determined and it was only if, and when, the Court declined to put the company into liquidation that Rule 700ZA would come into play.

[22]     That proposition was rejected by Mr Robinson on behalf of the plaintiffs.  He submitted that the Rule should be given a purposive interpretation and that once that approach is adopted it becomes obvious that the Court can deal with the issue of liquidators’  costs  in  advance  of  any  final  disposition  of  the  application  for liquidation.   He argued that if the Court was obliged to wait until the substantive liquidation application was heard and determined, supervening factors arising from the passage of time (for example, the loss or sale of assets) might erode the ability of an interim liquidator to recover costs and expenses.   Moreover, it would be unreasonable for interim liquidators who had been discharged to have to wait for payment.

[23]     While I accept that a plausible argument can be mounted to support either of the competing interpretations advanced by counsel, it seems to me that the proper approach is to construe the rule in light of its purpose.   Once that approach is adopted I am satisfied that on its proper construction the Rule applied in this case. The purpose of the Rule is to ensure that, unless the Court directs otherwise, interim liquidators are able to recover their costs, charges and expenses out of the assets of the company even though the company has not been put into liquidation.  When the company concerned is not in liquidation and is able to meet the interim liquidators’ costs and expenses there is no logical reason why interim liquidators who have been discharged by the Court should have to wait until the substantive application is dealt with before they receive payment.

[24]     This interpretation is consistent with Rule 4 of the High Court Rules which provides that the Rules are to be so construed as to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application.   Plainly the  interim   liquidators’   application   for   costs   and   expenses   qualifies   as   an interlocutory application.  In my view an interpretation of Rule 700ZA that required deferral of the application until the substantive proceeding is determined, which could involve a delay of months or even years, would be incompatible with the construction indicted by Rule 4, especially when the interim liquidators’ request for costs to be determined was overlooked when they were discharged on 3 May 2007. Apart  from  that  it  would  hardly  be  just  for  interim  liquidators  who  had  been appointed and then discharged by the Court to have to wait months or even years for payment.

[25]     Even if I am wrong about my interpretation of Rule 700ZA and the proper conclusion is that the Rule does not apply on this occasion, I cannot accept that this would mean the Court is incapable of providing a timely response to the liquidators’ application for costs and disbursements.   In that situation there are two possible paths that the Court could follow.  Either it could proceed on the basis that there is no Rule covering the matter in which case Rule 9 would entitle the Court to dispose of the matter in such manner as the Court thinks is best calculated to promote the ends of justice.   Alternatively it could use its inherent jurisdiction to achieve the same outcome.  Either way the Court would provide a timely response that would enable the interim liquidators to receive proper reimbursement after they have been discharged by the Court.

[26]     Thus I am satisfied that the Associate Judge did not err when he decided that he had the necessary power to determine the interim liquidators’ application for costs and expenses.  Moreover, I am satisfied that he was entitled to proceed on the basis that Rule 700ZA supported a prima facie presumption that those costs and expenses should be met by the defendant companies.  This ground of review fails.

Whether The Liquidators Acted Beyond Scope Of Their Appointment

[27]     Mr Gordon claimed that the appointment of the interim liquidators carried the entirely foreseeable consequence that receivers would be appointed and take over control of the assets of the companies on 12 March 2007.  Thus, although the interim liquidators were not formally discharged until 3 May 2007, they were effectively only able to act pursuant to the order appointing them for 10 days until 12 March. Thereafter  their  actions  were  not  necessary  or  desirable  for  the  purpose  of maintaining the value of the defendant companies’ assets (because the receivers had control) and they were thereby acting beyond the scope of their appointment after that date.  Under those circumstances they were not entitled to remuneration for most of the work undertaken by them after 12 March 2007.

[28]     It was submitted by Mr Gordon that the Associate Judge had failed to turn his mind to this issue.  In particular, he had failed to take into account:

(a)       The limited scope of the liquidators’ appointment;  and

(b)       The effect of the appointment of the receivers.

As a result, submitted Mr Gordon, the Associate Judge failed to appreciate that most of the costs and expenses beyond 12 March 2007 were not recoverable by the interim liquidators.

[29]     In response the interim liquidators contend that all the steps they took were within the scope of their appointment.  They maintain that their responsibilities did not cease when the BNZ appointed receivers but in fact continued until they were discharged by the Court.   Their stance is that the application for review of the Associate Judge’s decision reflects a fundamental misunderstanding of the duties resting on them as interim liquidators.

[30]     With reference to the record of their attendances (attached to Mr McDonald’s affidavit), Mr Whittfield noted that a large proportion of the attendances closely followed their appointment.  Those attendances reflected the importance of obtaining

information about the companies, assessing their solvency, and deciding what steps needed to be taken to preserve the companies’ assets.  Mr Whittfield emphasised that the group was involved in a major dairying operation with a staff of 28 on the properties.  He recorded that the role of the interim liquidators was complicated by the rift between shareholders and the difficulty in obtaining information.

[31]     Mr  Whittfield  also  emphasised  that  their  duties  as  interim  liquidators continued after the receivers were appointed.   Amongst other things there were ongoing discussions  with  the  receivers  and  numerous  legal  complications  to  be addressed.   Apart from that, said Mr Whittfield, the interim liquidators were still required to report to the Court in relation to each company and had to assemble the relevant information to enable them to do so.   The obligation resting on them as interim liquidators, both statutory and otherwise, only ceased upon their discharge.

[32]     The interim liquidators were expressly appointed by the Court as interim liquidators of the assets of each of the defendant companies until a liquidator was appointed or until further order of the Court.   Upon appointment the interim liquidators were:

“(2)      … given the rights and powers that would ordinarily vest in a liquidator to the extent necessary or desirable to maintain the value of the assets owned or managed by each of the defendant companies including (but not limiting the generality of the power or rights conferred):

(a) To  continue  trading  including  all  wholly  owned  subsidiaries  or associated entities;

(b) To  call  in,  collect  and  compromise  debts  owing  to  the  defendant companies;

(c)  To earn interest on money received.

(d) To  obtain  books,  records,  documents  and  information  from  the companies under section 261 of the Companies Act 1993

(e)  To calculate the settlement sum payable by the second plaintiff under the options to purchase the assets of the defendant companies, and to settle the purchase in accordance with those options; and

(f) To prepare proper books of accounts for the defendant companies.”

I do not accept that this was designed to limit the rights and powers of the interim liquidators in terms of s246(2).  Rather the interim liquidators were armed with all the rights and powers that were necessary for them to maintain the value of the companies’ assets.

[33]     Nor do I accept that the obligation of the interim liquidators effectively came to an end when the BNZ appointed receivers on 12 March 2007.  To the contrary, the obligation of the interim liquidators to maintain the assets of the group expressly remained until a liquidator was appointed or until further order of the Court.  In the event they were not discharged by the Court until 3 May 2007.  Given the scale and complexity of the multi-million dollar operation being conducted by the defendant companies, it is not at all surprising that there were ongoing discussions after the receivers were appointed.  Nor is it surprising that the interim liquidators felt obliged to continue with their efforts to obtain information, determine the solvency of the companies and provide the Court with a further report.

[34]     Detailed records as to the attendances of the interim liquidators after 12

March 2007  were  before the  Associate  Judge.    He  also  had  the  benefit  of  Mr McDonald’s affidavit confirming that the interim liquidators had taken appropriate steps to exercise the rights and powers vested in them by the Court.  Mr McDonald specifically confirmed that there was a need to liase with the receivers after they were appointed.  He confirmed the overall remuneration was fair and reasonable and that the litigant shareholder interests of Mr Carr and Mr Humphries had benefited from the role of the interim liquidators.

[35]     With the benefit of that information, and having perused the timesheet data, I am satisfied that it was appropriate for the Associate Judge to approve the whole of the costs and expenses sought by the interim liquidator.  This ground of review has not been made out.

Whether The Costs Should Have Been Met By Mr Carr

[36]     Several factors were advanced in support of the proposition that the Associate

Judge  should  have  ordered  Mr  Carr  to  meet  the  interim  liquidators’  costs  and

expenses:  first, the falling out between the shareholders should have been addressed by “more orthodox litigation”, not by means of an ex parte appointment of interim liquidators;   second, the plaintiffs had effectively managed to “get around” the initial direction that the matter was to proceed on a “Pickwick” basis and that their actions  had  carried  the  entirely  foreseeable  consequence  that  receivers  were appointed on 12 March 2007, with the expense to the companies that that entailed; third, under the settlement agreement between the two factions Mr Carr was to pay the interim liquidators’ costs and expenses;  finally, the stance of Mr Humphries and the defendant companies had been vindicated by the consent order discharging the interim liquidators.

[37]     Those allegations were rejected by Mr Robinson who submitted that the Judge had correctly taken into account:   that the history of the matter is largely irrelevant;   although there had been no determination as to the appropriateness of appointing the interim liquidators, the fact remained that the Court had seen fit to appoint them and the appointment of the receivers by BNZ did not alter that fact;  the compromise  agreement  under  which  Mr  Carr  had  agreed  to  pay  the  interim liquidators had been cancelled by the receivers of the defendant companies and Randerson J had declined to order specific performance;  and the consent order made by Asher J for discharge of the appointment of the interim liquidators reflected a compromise between the parties  and not a concession by the plaintiffs  that  the liquidators should never have been appointed.

[38]     I now consider each of the matters raised by Mr Gordon and rejected by Mr

Robinson.

[39]     Whether or not the falling out between Mr Carr and Mr Humphries could have been approached differently, the fact remains that the Court was persuaded to appoint  the  interim  liquidators  on  an  ex  parte  basis.    The  suggestion  that  the plaintiffs managed to get around the initial order for the matter to proceed on a “Pickwick” basis is contrary to fact.  As mentioned earlier, the door had been left open for further evidence to be adduced and in light of the further evidence the Court was persuaded that the interim liquidators should be appointed.

[40]     Similarly the fact that the BNZ decided to appoint receivers is irrelevant to the question of who should meet the costs and expenses of the interim liquidators. For reasons already discussed the interim liquidators remained under an obligation to act in accordance with their appointment by the Court until they were discharged. That was the position regardless of whether receivers were appointed.

[41]     I also agree with Mr Robinson that Mr Carr’s commitment to pay the costs in terms of the settlement agreement is not a weighty factor.  Randerson J found that the agreement was validly cancelled by the receivers:  see Frost & Anor v Carr & Ors;   Carr & Anor v Humphries & Ors (High Court, Christchurch Registry, CIV

2007 412 507 and 510, 29 February 2008).

[42]    Finally, I also accept Mr Robinson’s submission that the consent order discharging the interim  liquidators  reflected  a  compromise  reached  between  the parties and did not mean that the interim liquidators should not have been appointed in the first place.

[43]     Given those factors, together with the prima facie presumption under Rule

700ZA that the costs and expenses should be met by the company, I am perfectly satisfied that the Associate Judge did not err when he decided that around 10% of the cost should be met by Mr Carr and the balance by the defendant companies.  Indeed, in all the circumstances it would have been open to him to order the defendant companies to pay the whole of the costs and expenses.  This ground also fails.

Outcome

[44]     The application for review of the Associate Judge’s decision is dismissed.

[45]     Although the interim liquidators have sought  costs, no details have been provided.  They are to provide details of the costs and disbursements sought within

14 days and the plaintiffs, Mr Humphries and the defendants will have a further 14 days to respond.

Solicitors:           Gallaway Cook Allan, Dunedin

Buddle Findlay, Wellington

Copy to:            T J Whittfield