Gower v FTG Securities Limited
[2019] NZHC 1610
•10 July 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000229
[2019] NZHC 1610
BETWEEN C A L GOWER and S J TUBBS as receivers of TUAM VENTURES LIMITED
ApplicantsAND
FTG SECURITIES LIMITED
First Respondent
R B WALKER as Liquidator of TUAM VENTURES LIMITED
Second Respondent
Hearing: 13 March 2019 Appearances:
A J Forbes QC for FTG Securities Limited
K C Francis for R B Walker as Liquidator of Tuam Ventures Limited
Judgment:
10 July 2018
JUDGMENT OF GENDALL J
[1] This is an application by FTG Securities Ltd (FTG) to strike out the Notice of Appearance for Ancillary Purposes dated 30 April 2018 of Mr Robert Walker (Mr Walker) the liquidator of Tuam Ventures Limited (TVL) filed in the present proceeding. In the alternative, FTG seeks security for costs on the liquidator’s Notice of Appearance.
Background
[2] The present and related proceedings are somewhat complex and protracted. It is not necessary here to set out all the issues in detail. But essentially, the
C A L GOWER and Anor v FTG SECURITIES LIMITED [2019] NZHC 1610 [10 July 2018]
substantive claim is about who is entitled to the surplus in the current receivership or liquidation of TVL.
[3] Originally, TVL was managed by David Ian Henderson (Mr Henderson). It owned property in Christchurch’s central city hospitality sector. TVL financed this property itself with mortgage loans from Canterbury Finance Ltd (CFL) and Bank of New Zealand (BNZ). In 2008, A Deed of Subordination and Priority (the Priority Deed) was entered into between CFL and BNZ. That Priority deed gave BNZ priority over CFL in respect of securities held over TVL, up to a value of $7.5 million.
[4] In 2009, TVL was placed into receivership. At the time it was in default in its payments to BNZ, which sought to exercise its power of sale over TVL’s property as Mortgagee. The Christchurch Earthquake Sequence however interrupted that mortgagee sale. This gave rise to a protracted dispute between a range of parties including the insurers and receivers as to the entitlement to TVL’s assets and in particular its property, the buildings on which had suffered significant earthquake damage.
[5] In the meantime, in 2011 CFL was acquired by Crown Asset Management (CAML). CAML took over the debt and security interests CFL held in TVL. FTG claims that on 15 June 2015 (while the dispute with TVL’s insurer was ongoing), it acquired from CAML, all its debt and security interests held in TVL, for a price of $100,000.
[6]Eventually there was an insurance pay-out the total amount of which was over
$12 million. Under the Deed of Priority, BNZ as first mortgagee has received $7.5 million of this plus interest. FTG relies on its gained security interests as second charge holder over TVL’s assets to justify a claim it makes to what it says are the remaining assets of TVL. These assets it seems are cash to a value of something between $3.5 million and $4.5 million, following repayment of BNZ’s priority sum as first charge holder.
The originating application and the liquidators notice to appear
[7] On 16 April 2018 in this proceeding the receivers of TVL applied by originating application seeking orders specifically described:
(a)As to the priorities for distribution of the surplus arising from the receivership of TVL in accordance with s 30A(2) and 30B of the Receivership Act 1993 after repayment of all amounts BNZ (is entitled to) as first-ranking creditor.
(b)As to whether the appointment of Brenton Hunt (as receiver) by FTG in relation to TVL is a valid appointment pursuant to s 34(2)(c) of the Receiverships Act 1993.
[8] Mr Walker is the Liquidator of both TVL and a number of other companies purportedly controlled particularly in the past by Mr Henderson under the Property Ventures Ltd group (PVL Group). On 30 April 2018, Mr Walker applied to appear in these proceedings by way of a Notice of Appearance for Ancillary Purposes.
[9] In addition to the orders sought by the receivers of TVL noted at [7] above, Mr Walker in that Notice requests declarations from this Court to the effect that:
(a)the surplus arising from the receivership of TVL, following repayment of the sums to which BNZ is entitled, is held by the receivers for the benefit of TVL.
(b)any claims FTG may have against TVL are subject to:
(i)rights of set-off of TVL and/or PVL Group entities against claims by FTG and/or related entities; and/or
(ii)the application of the rule in Cherry v Boultbee that a person claiming funds in the liquidation of a company must first make good any obligation they owe the company.
(c)the rights of FTG against TVL, if any, are beneficially held for the PVL Group and/or TVL. Any rights of FTG to the surplus arising should be paid to Mr Walker as liquidator for the benefit of the PVL group entities.
(d)the surplus arising should consequently be paid to Mr Walker as liquidator to be distributed in accordance with his statutory obligations.
(e)Brenton Hunt was not validly appointed as receiver of TVL or alternatively under s 31(1) of the Receiverships Act, he should immediately cease to act as receiver of TVL.
[10] FTG has applied to strike out this Notice of Appearance for Ancillary Purposes of Mr Walker as liquidator of TVL.
Application to strike out liquidator’s notice of appearance
[11] FTG relies on a number of potential grounds for striking out the Liquidator’s Notice of Appearance for Ancillary Purposes. Under High Court Rule 15.1(1):
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
[12] FTG submits the Notice of Appearance discloses no arguable cause of action; the arguments set out in the Notice of Appearance would cause delay; the Notice of Appearance is frivolous, vexatious and/or otherwise it is filed for an improper purpose; and that a consideration of the Notice of Appearance is outside the jurisdiction of the Court.
Notice of appearance for ancillary purposes
[13] The liquidator’s Notice of Appearance is brought under r 5.50 of the High Court Rules which provides:
Appearance for ancillary purposes
A defendant who does not oppose the plaintiff’s claim but who wishes to be heard on any ancillary matter (including costs) may, without filing a statement
of defence, file and serve an appearance stating those matters, which must not subsequently be determined without notice to that defendant.
[14] The authors of McGechan on Procedure state that this rule is designed to enable a defendant who has no interest in opposing the plaintiff’s claim, but who wishes to protect his or her position on “ancillary matters” to avoid needlessly filing a statement of defence. The authors describe the purpose as relief which is “incidental” to that principally claimed.1 The jurisdiction has been adopted in Genge v Visiting Justice at Christchurch Menʼs Prison and Prescott v District Court at North Shore for a party to reserve its position (in relation to costs).2
[15] The Court of Appeal in Trotter defined ancillary orders as “auxiliary, subordinate or subservient”. 3 The Court said that in the rules context, the word “ancillary” is used to mean collateral to but flowing out of the relief claimed in the pleadings.4
[16] Whether or not the liquidator’s claims here are ancillary thus depend on whether they fall within the scope of the primary relief claimed.
[17] The receivers’ originating application in this proceeding is brought under the Receiverships Act 1993 s 34(1). It seeks directions as to the priorities for distribution of the surplus arising from the receivership of TVL in accordance with ss 30A(2) and 30B after payment of amounts to BNZ, the final calculation of which it seems remains to be determined.
[18] The explicit purpose of ss 30A and 30B is to allow receivers to apply to the court for directions. I accept the submission from Mr Francis, counsel for the liquidator that s 34 is drafted in wide terms. On this, he cites a decision of the Court of Appeal Simpson v Commissioner of Inland Revenue where the court said:5
[66]Second, the agreed issue has reached the Court by way of an application for directions under s 34 of the Receiverships Act. In our
1 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.50.3].
2 Genge v Visiting Justice at Christchurch Menʼs Prison [2017] NZHC 3168 and Prescott v District Court at North Shore [2017] NZHC 2828, [2018] NZAR 307
3 Trotter v Telfer Electrical Nelson Ltd [2018] NZCA 231 at [21].
4 At [21].
5 Simpson v commissioner of Inland Revenue [2012] NZCA 126
view s 34(1)(a) gives the Court wide power to give directions in relation to any matter arising in connection with the performance of the functions of the receiver. The purpose of the provision is to facilitate the conduct of receiverships by enabling receivers to seek as much guidance as possible from the Court to allow the receivership to continue expeditiously. The width of the Court’s power is reinforced by s 34(4) which provides that the powers under ss 34(1) and 34(2) are in addition to any other powers the Court may exercise under the Receiverships Act, any other Act, or in its inherent jurisdiction.
[67]In Australia it has been said that a provision of this nature is to be widely interpreted: Re Odessa Promotions Pty Ltd (in liq) and Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd. While there are also limits on the Court‘s power under s 34, which are not applicable here, we agree with the view of Blanchard and Gedye that there is no reason to think that a New Zealand Court would take a different view in relation to the interpretation of s 34.
[19]As I see it, the power of the court to grant directions must:
(a)be exercised in a matter which is connected to the performance of the function of the receiver;
(b)facilitate the conduct of a receivership by enabling a receiver to seek as much guidance as possible from the Court to allow the receivership to continue expeditiously.
The strike out application
[20] FTG submits that the liquidator’s Notice of Appearance here is not for “ancillary purposes”. It says the relief claimed in the liquidator’s Notice of Appearance is not incidental to the receiver’s application. It contends that the claims made by the liquidator are far reaching, substantive and require proper pleadings.
[21] The use of the liquidator’s Notice of Appearance here it is argued is an improper use of the court’s processes. In other words, the filing of a substantial claim under the guise of a Notice of Appearance for Ancillary Purposes is an attempt to short cut due process.
[22] FTG maintains that the Notice of Appearance effectively seeks the equivalent of an injunction restraining any distribution by the receivers of the surplus arising
from TVL’s receivership or the equivalent of a freezing order under r 32.2. It says that an appropriate interlocutory application and an undertaking as to damages must be filed here. The liquidator rejects the submission that an interim order or restraining order is being sought. He says the issue is solely one as to how the funds are to be distributed.
[23] In my view, the directions sought by the liquidator (with the exception of the direction I have outlined above at [9](a) which is that funds should be retained by TVL rather than distributed) are not ancillary to the Court’s supervision of the receivers. As I see it, the questions the liquidator’s Notice of Appearance pose do not concern directions for the receivers. Essentially they concern claims between the parties after that distribution has been completed.
[24] FTG argues that the Liquidator should not be allowed to pursue those extensive and complex claims simply by filing a Notice of Appearance for Ancillary Purposes. FTG says the Notice is an abuse of process because it effectively seeks to obtain the relief of an injunction or freezing order without full pleadings being filed and without FTG being provided with a proper opportunity to respond.
[25] In response, the liquidator says that his arguments and intentions here will need to be addressed by this Court either in this proceeding or another. Mr Francis says that the liquidator’s position should not be separated to another proceeding when it can most appropriately be addressed on notice to all affected parties in the current proceeding.
[26] In passing, it is suggested that the liquidator may wish (and it may be helpful to the court for them to do so) to file a separate interlocutory application together with an application for that application to be joined to the main proceedings.
Should the claim at (9)(b) – (e) inclusive be struck out?
[27] For all the reasons I have outlined above, ultimately, I find that the claims [9](b)-(e) noted above should be struck out here. This is because I do not consider the questions those parts pose are properly within the scope of an ancillary order and they are arguably therefore an abuse of the court’s processes.
Should the claim at [9](a) be struck out?
[28] I accept however that the claim above at [9](a) provides an arguable ground for consideration here. To repeat, it says the surplus arising from the receivership of TVL, following repayment of sums due to BNZ, should be held by the receivers for the benefit of TVL. The liquidator has an interest in ensuring that TVL claims the surplus it says it is entitled to for the benefit of third parties. On that aspect I find here that TVL has a valid interest in appearing in this proceeding to reserve its rights and to be heard on this particular matter.
[29] I do not accept that the liquidator’s Notice of Appearance will cause considerable further delay to the determination of the receivers’ application. To the contrary, the ability of the liquidator to speak at the hearing of this particular matter is likely to clarify the issues before the court in relation to how the surplus should be distributed.
[30] I conclude that the direction or order sought by the liquidator under para [9](a) above is not to be struck out here.
Security for costs
[31] Rule 5.45 of the High Court Rules provides for awards of security for costs. If a Judge is satisfied that “there is reason to believe that a plaintiff will be unable to pay costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding”, and he or she considers it just in all the circumstances, the Judge may order the giving of security for costs.
[32] Busch v Zion Wildlife Gardens Ltd (in rec and in liq) summarised the four steps an application for security for costs typically follows:6
(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?
(b)How should the court exercise its discretion under r 5.45(2)?
(c)What amount should security for costs be fixed at?
6 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
(d)Should a stay be ordered?
[33] Mr Francis for the liquidator accepts that the threshold is met in the sense that TVL is an insolvent company. However, he maintains the present application for security for costs should be dismissed for three reasons:
(a)First, security for costs is ordinarily available only against plaintiffs or those in an analogous position. FTG has failed to identify any jurisdictional basis for security for costs to be ordered against the respondent to an originating application on the application of another respondent.
(b)Secondly, FTG disregards the general principle that security for costs should not be awarded against the liquidator of an insolvent company except in exceptional circumstances.
(c)Thirdly, FTG’s application and the brief evidence it has put forward simply asserts an entitlement to security for costs but states no basis for security to be calculated nor any analysis of what specific steps it should cover.
[34] I agree that at this point the liquidator is not a plaintiff in form or substance for this proceeding to the extent that he relies on the claim set out at [9](a) above. I also find that FTG has failed to point to a circumstance that shows this is an exceptional case where costs should be awarded against the liquidator.7
[35]In these circumstances I make no order as to security for costs.
Conclusion
[36] I do not strike out the liquidator’s Notice of Appearance so far as para [9](a) above is concerned and the request that this Court consider the question as to whether
7 Tasman Charters Ltd v Kamphuis HC Auckland CIV-2002-404-1642, 24 September 2004.
the surplus arising from the receivership of TVL, following repayment of sums properly due to BNZ, is held by the receivers for the benefit of TVL.
[37] I strike out the remainder of the liquidator’s claims however, relating as they do to paras [9](b)–(e) inclusive above.
[38] I dismiss FTG’s present application for security for costs against the liquidator of TVL.
[39] For pragmatic reasons I also stay the present proceeding but only for 10 working days from the date of this judgment first, to give the liquidator time to issue new proceedings to outline in detail his claim that on the merits the surplus realised by TVL’s Receivers is TVL’s money and secondly, to seek consolidation of these proceedings (on the basis that all the different proceedings here 229, 659, and 1710 are linked and should not be resolved on a piecemeal basis). If he wishes to pursue these claims, those new proceedings need to be specific. They will need to outline the basis on which he makes claims on behalf of TVL and/or third parties, which as I understand it, might well include a tracing claim, counterclaims against FTG and other possible legal and equitable claims.
[40] As to costs, each party here has achieved some success and in my view therefore costs should lie where they fall. There is to be no order of costs on the hearing of these matters.
Gendall J
Solicitors:
Austin Forbes, QC, Christchurch Meredith Connell, Auckland
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