Gemmell v Norris
[2012] NZHC 3339
•3 December 2012
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV 2012-442-482 [2012] NZHC 3339
UNDER Part 33 of the High Court Rules
IN THE MATTER OF an application for a search order
BETWEEN BRUCE DONALD GEMMELL RHYS JAMES CAIN
Applicants
ANDPATRICK DEAN NORRIS First Respondent
ANDNORRIS MANAGEMENT SERVICES LIMITED
Second Respondent
ANDJACKSON ALEXANDER CHURCHILL Third Respondent
Hearing: 29 November 2012
Counsel: G K Riach for Applicants
First Respondent in Person
No Appearance for Second Respondent
D Ballantyne for Third Respondent
W F Freeman for R C Parr and NMSNZ, affected persons
Judgment: 3 December 2012
JUDGMENT OF SIMON FRANCE J
BRUCE DONALD GEMMELL V PATRICK DEAN NORRIS HC NEL CIV 2012-442-482 [3 December 2012]
Introduction
[1] The applicants are liquidators, appointed by the Official Assignee, of four companies in liquidation. Their appointment arose because the existing liquidator, the first respondent Mr Norris, was convicted of stealing from one of the companies. Because of the conviction he became ineligible to be liquidator and a vacancy thereby arose.
[2] The applicants obtained a without notice search order enabling them to enter two premises and seize records relating to the liquidation of the companies. The order was considered necessary because of the circumstances in which Mr Norris’ liquidation had come to an end.
[3] The search order was executed and documents taken. The three respondents, together with two other affected persons, have applied to the Court for return of the documents taken on the basis that the warrant should not have been issued. Although there are supporting arguments that will be addressed in due course, the primary proposition is that prior to becoming disqualified, Mr Norris had resigned as liquidator and appointed the third respondent, Mr Jackson Churchill, as his successor. It is therefore said that the purported appointment of the applicants was invalid, and they were not entitled to obtain the search order.
The various parties
[4] The various interested persons are now more fully described.
The applicants
[5] The applicants are experienced liquidators. They were appointed on
23 October 2012 by the Official Assignee, consequent on what was believed to be a vacancy due to Mr Norris’ conviction.
[6] The application for a search order was sourced in the circumstances in which the appointment of the previous liquidator had ended. As part of the application it was noted that:
(a) prior to the conviction, the Official Assignee had commenced litigation to have Mr Norris removed as liquidator of several companies, including these four, for alleged breaches of his obligations;
(b)the conviction related to misuse of money belonging to one of the four companies of which the applicants were now liquidators;
(c) in relation to that company, part of its file had gone missing for a period. The Judge, when convicting Mr Norris, had described Mr Norris’ evidence on this as unreliable, and found him to be untruthful;
(d)the Judge also found that Mr Norris and his partner, Ms Parr, had engaged in a blatantly dishonest course of conduct to try and cover up Mr Norris’ actions.
[7] The applicants submitted that these findings gave cause for concern as to the safety of documents if the normal channels of request were utilised to obtain the files.
[8] Kós J was satisfied as to the basis for the request, and on 30 October 2012 made the without notice orders. The orders authorised the search of two places:
(a) Mr Norris’ residence; and
(b) Mr Norris’ business address.
[9] As noted he was the former liquidator of the companies. Two were by shareholder appointment, one by court appointment, and one by transfer from another liquidator.
[10] Mr Norris says he had been planning for some time to shed himself of all his liquidations. Concerning the four companies in issue, he had had discussions with Mr Churchill prior to 16 October, that being the date on which the necessary forms were signed. The judgment imposing a conviction was issued at around 3.45 p.m. on
the 16th. Mr Norris and Mr Churchill say the forms were signed around 10.30 that
morning. The completed forms (resignation, and acceptance of appointment) were not lodged with the Registrar of Companies until 18 October.
[11] Regardless of the dispute about whether Mr Churchill was validly appointed, Mr Norris plainly has no interest in the records of the four companies. On either version he is not the liquidator. However, he says that unrelated business documents of his were taken during the search and he wants them back. His standing to challenge the warrant for the purpose of obtaining the return of documents comes from the alleged seizure of this material.
Norris Management Services Ltd
[12] This is Mr Norris’ business. Mr Norris is the shareholder, and prior to the conviction its director. Ms Parr is now the sole director. Mr Norris purported to be acting for it, but leave was not sought or given. It is to be treated as making no appearance. No applications have been properly made on its behalf. It is also unclear what interest it has in the matter.
Mr Churchill
[13] Mr Churchill claims to be liquidator, and seeks return of the company records so he can carry on his liquidation. He appears to have no experience as liquidator,
and is closely connected with Mr Norris. It appears that it was intended that
Mr Norris would continue to play a key role in assisting Mr Churchill.
[14] One possible outcome of this hearing was that the matter would need to be adjourned to a full hearing. The applicants, for example, dispute the respondents’ evidence as to when the documents were signed. At the hearing I indicated to counsel for Mr Churchill that if ultimately his appointment was confirmed, under the inherent jurisdiction to control these matters, conditions would likely be imposed on him, including restrictions on Mr Norris’ involvement.
Ms Parr and NMSNZ
[15] Ms Parr operates an accountancy practice under the umbrella of her company, NMSNZ Ltd. It shares premises with Mr Norris and his business, and Ms Parr provided accountancy services to him. In addition, she or her company had approximately 130 customers, and files relating to those were kept at the same business address.
[16] Ms Parr says that during the search personal items were seized, as were files and computer records of clients unconnected with the warrant. The computer files have been cloned and returned. The hard copy files not so. This is due in part to subsequent orders by Kós J freezing any access or dealing with the removed items pending resolution of these applications. At the hearing it was agreed that if any obviously personal items of hers are being held, access by consent could be arranged for them to be identified and returned.
[17] Mr Norris purported initially to be acting for Ms Parr and her company, as he had for Mr Churchill. Documents he filed purported to be filed on behalf of all. By the hearing Mr Freeman had been (very recently) instructed to appear for her and the company. Their standing to seek return of the goods comes from the claim that records of her business have been taken. Mr Freeman confirmed that they wish to be heard, but not joined as parties.
[18] If this issue turns on when the documents were signed, the matter would need to be adjourned for oral evidence. So at this stage it is assumed that they were signed when Mr Norris and Mr Churchill say they were – on the morning of the 16th prior to the time when Judge Behrens entered a conviction against Mr Norris.
[19] The applicants submit it does not matter when they were signed because the forms were not sent to the Registrar of Companies until 18 October, after the conviction, and by then it was too late.
[20] Section 283(2) of the Companies Act 1993 provides:
283 Vacancies in office of liquidator
...
(2) A person, other than an Official Assignee, may resign from the office of liquidator by appointing another such person as his or her successor and sending or delivering notice in writing of the appointment of his or her successor to the Registrar for registration.
[21] At issue is whether Mr Norris’ resignation and Mr Churchill’s acceptance of appointment are effective prior to the documents being lodged with the Registrar. I am satisfied they are not.
[22] The respondents referred to the absence in s 283(2) of a time frame for lodging the documents with the Registrar. I agree this is significant, but for the opposite reason. It signifies that the execution of the documents, standing alone, has no effect. Because it has no effect there is no need to stipulate a time by when they must be lodged. It is the lodgement that is the effective date.
[23] Section 283(8) illustrates the point. It deals with the situation where a Court appoints the liquidator. Absent any legislation to the contrary, that appointment will be effective from when the Court says it is – usually the day on which it is made. Because in these circumstances lodgement does not control when the appointment takes effect, s 283(8) stipulates a date (ten days) by when the liquidator (the person already enjoying that status) must advise of his or her appointment. In my view the
time when a person becomes liquidator is different under s 283(2) than under s
283(7).
[24] The interpretation of s 283(2) which I favour gives the section its obvious reading. Further, because the transfer of the liquidator’s role is a matter of private arrangement, as this case starkly illustrates, it would be unsatisfactory to have periods where the liquidator is different from that recorded by the Registrar. Service on the Registrar is not onerous, and I see no particular policy reason not to give the section its plain reading.
[25] If I were of this view, the respondents relied alternatively on s 281 to make effective Mr Churchill’s appointment. It provides:
281 Validity of acts of liquidators
The acts of a person as a liquidator are valid even though that person is not qualified to act as a liquidator.
[26] I do not consider this assists. From the time that the conviction was entered, by operation of law (s 283(1)) the position of liquidator was vacant. Mr Norris knew this. Section 281 does not apply to a person of no apparent standing purporting to act to give effect to his own wishes.
[27] The end result is that the power of the Official Assignee (s 283(6)) to appoint a liquidator was engaged. He validly appointed the applicants. No contrary order of a Court (s 283(7)) has been made, and the liquidators were entitled to seek a search order.
[28] I, therefore, confirm the applicants as liquidators, and confirm Mr Churchill is not, and never has been. His interest in these proceedings is, therefore, at an end.
Issue two – other challenges
[29] Mr Norris advanced various other points against the issue or execution of the warrant:
(a) the appointment of the liquidators was subject to Court approval which had not been given at the time of application for the search order;
(b)there was no evidence that the liquidators had consented to their appointments;
(c) the undertaking given by the liquidators was limited to their capacity as liquidators and, therefore, insufficient;
(d)the issuing of a search order was disproportionate, as other means of obtaining the information were available;
(e) there was material non-disclosure;
(f) those approved to execute were not independent. [30] I address each in turn.
[31] Court approval for liquidators appointed by the Official Assignee on the occurrence of a vacancy is not required (see s 283(6) of the Companies Act 1993). However, in this case in relation to two of the companies, the liquidators had a potential conflict in relation to a secured creditor. Accordingly, it was necessary for them to obtain a Court direction that they were not disqualified (s 280 of Act). That was done, and the orders to that effect were appended to the affidavit filed in support of the application for a search order. No other consent was required.
[32] It was not a requirement that the liquidators file the documentation attaching to their appointment, so the absence from the record before the Judge of their consent to appointment is irrelevant.
[33] The undertakings satisfied the Judge. It is not a ground on which to review the issuing of this executed search order.
[34] The Judge was satisfied that this type of order was needed. It is not appropriate on this type of application to review the sufficiency of the grounds or whether another Judge might have preferred other methods. That said the underlying claim of disproportion is hopeless. The case for an ex parte search order was obvious.
[35] Concerning material non-disclosure, the main focus was on developments in the proceedings brought by the Official Assignee against Mr Norris. The liquidators had appended the statement of claim from those proceedings, but did not provide any other information. In particular, a judgment of Mallon J in which Mr Norris had had some interlocutory success was not disclosed. The success achieved in that ruling arguably raised doubts about (significant) aspects of the Official Assignee’s claim.
[36] I consider the non-disclosure point is not without some merit. The liquidators chose to rely on the statement of claim as giving support to their application. To that extent I do not accept Mr Riach’s submission it was only evidence of allegations. That might be so, but if that was all it was it would be irrelevant. Clearly the applicants were seeking to take support from it, and, therefore, it is arguable matters that undermined its impact should have been disclosed.
[37] However, the issue bears not at all on the present application. It is not material non-disclosure of something that could have made a difference. The liquidators and the Judge had ample basis to be concerned, independent of the validity of any allegations being made by the Official Assignee. The findings made by the Judge who found Mr Norris guilty of theft were enough, leaving aside other matters.
[38] Other alleged non-disclosure likewise goes to matters that Mr Norris considers could have put him in a better light, or could have shown the liquidations to date were proper. These are not matters that could support the present application, and I have commented sufficiently on the need for a without notice order in the circumstances of this case.
[39] Finally, as regards who executed the order, the application set out who would execute the search and why. The people were named. Some were IT specialists from the applicant’s firm but based in Sydney and Auckland. The people who did the search were the persons approved by the Judge and named in the order. There is nothing here that could support the orders now being sought.
Conclusion
[40] All challenges have failed.
[41] The applicants are confirmed as liquidators. There is no basis to quash the search order or direct a general return of the goods seized.
[42] The liquidators are to file, for Kós J, a proposal as to how it is intended to examine the material seized. If Mr Norris, Ms Parr or her company are not satisfied, they have three days in which to file their objections, with reasons.
Costs
[43] Costs should follow the event.
[44] Concerning Mr Churchill, he took an active role to uphold his appointment, despite having deposed to a willingness to resign. When it was pointed out he could settle the dispute by resigning in favour of the applicants, this was resisted because of concern over the impact of his resignation on the challenge made by the other respondents to the search order. This rather reflects a misunderstanding of roles, and calls into question his independence from the first respondent. Mr Churchill involved himself in the proceedings, and I consider it is appropriate that, along with the other respondents, he be liable for costs.
[45] I consider scale costs are likely to be appropriate, but if agreement cannot be
reached, memoranda may be filed.
Simon France J
Solicitors:
G K Riach, Harmans, Lawyers, Christchurch, email: [email protected]
D Ballantyne, C&F Legal Ltd, Nelson, email: [email protected]
W F Freeman, Nelson, email: [email protected]
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