Hosting Direct Limited v Orcon Limited

[2013] NZHC 1173

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-005830 [2013] NZHC 1173

BETWEEN  HOSTING DIRECT LIMITED Applicant

ANDORCON LIMITED Respondent

Hearing:         17 May 2013

Appearances: Mr S H Barter for Applicant

Ms A E Murray for Respondent

Judgment:      17 May 2013

ORALJUDGMENT OF ASSOCIATE JUDGE DOOGUE [Application for Stay]

Solicitors:

S H Barter, Barter & Co, Albany

A Murray, Simpson Grierson, Auckland

HOSTING DIRECT LIMITED V ORCON LIMITED HC AK CIV-2012-404-005830 [17 May 2013]

[1]      The parties were in a trading relationship up until July 2012.  The applicant apparently purchased computer based services from the respondent.  It appears there had been a number of disputes between the parties about the state of the applicant’s account with the respondent, the respondent asserting that the applicant had not paid what was due.

[2]      On 13 July 2012 availability of Orcon’s computer facilities ended by the connections with the applicant being disconnected, at the respondent’s end.

[3]      Subsequently the  respondent  served  a  statutory  demand  on  the  applicant claiming the sum of $46,884.74.  The applicant filed an application to set aside the statutory demand and the application was heard in this Court on 11 February 2013 with judgment following on 22 April 2013.

[4]      In his judgment Abbott AJ declined the application for an order setting aside the statutory demand.

[5]      The grounds, in brief, for the application had been that the applicant was not a debtor of the respondent or alternatively if it owed it a debt that was exceeded by the extent of a counterclaim which the applicant had available to it against the respondent.  It was said that the rights of the applicant under the contract arose out of the fact that the respondent had not met agreed service levels.  It was also alleged that the circumstances of the termination of provision of services which I have described was in breach of the contract and that entitled the applicant to damages against the respondent.   Associate Judge Abbott ruled against the applicant. Essentially his judgment, counsel tell me, involves certain conclusions he came to as to factual matters which, not being made out by the applicant, could not be used as the basis for an order setting aside the statutory demand.

[6]      The applicant has since filed a Notice of Appeal with the Court of Appeal.  It has also formulated in some detail a statement of the claims that it has against the respondent.

[7]     The respondent has evinced an intention of proceeding with liquidation proceedings and has not been persuaded that it ought to desist pending the hearing of the appeal.   That  being  the case the applicant  filed an  application  for “stay of enforcement” which relied upon r 17.29 of the High Court Rules.  The application also made reference to the judgment of Bell AJ in Industrial Group Limited v Bakker

& Anor.[1]   At the hearing before me today Mr Barter for the applicants sought leave

to add to the authority on the basis of which the application was made, a reference to r 12 of the Court of Appeal (Civil) Rules 2005.  That application, sensibly, was not opposed by Ms Murray.

[1] Industrial Group Limited v Bakker & Anor HC Auckland , 31 May 2010, CIV-2009-404-006432.

[8]      I will deal with the present application on the basis of the Court of Appeal Rules.  The criteria which the Court usually takes into account when dealing with applications for stay pending the hearing of appeal were discussed in a case of Duncan v Osborne Holdings Limited.[2]   I will make brief reference to these in the balance of this judgment.

[2] Duncan v Osborne Holdings Limited (1992) 6 PRNZ 85, at 87.

[9]      The first issue is whether the right of appeal will be rendered nugatory if a stay is not granted.  In his decision in Industrial Group Limited Associate Judge Bell made reference to how that ground is to be applied when considering applications for appeal against an order declining to set aside a statutory demand.   His Honour analysed the particular prejudice that a party would suffer which would render the rights nugatory in the following terms:

(21)     However, the normal step taken by the successful creditor if the company fails to comply with the order to pay within a specified time, is to present an application for the company to be put into liquidation.  The right to apply for the company to be put into liquidation is a means of enforcing the order for payment and may also be the subject of an order for stay under r  12(3)(a), but in case there is any doubt on that point, I also find that an order that the creditor not file a liquidation application may also be the subject of an interim relief order under r 12(3)(b).

[10]     I would accept that the appeal rights will be of substantially diminished value to the applicant if a stay is not granted because so long as there is no stay the road will be open to the respondent to proceed as though the presumption of insolvency

following from the service of the statutory demand is applicable.  That in turn will

facilitate an application to liquidate the applicant company.  If those proceedings are brought and  are progressed to any substantial  extent before the appeal decision becomes available from the Court of Appeal then it could fairly be said that the appeal rights will have been rendered nugatory.  For example if an application for liquidation is brought and the proceeding is advertised in the usual way there will be substantial prejudice caused to the applicant.

[11]     Other matters that the Court is required to take into account include the bonafides of the applicant as to the prosecution of the appeal.  Because the appeal has only recently been filed it is difficult to come to a view on whether the applicant is going to proceed in a bona fide way to prosecute the appeal.   Certainly, the grounds upon which the applicant seeks to bring the appeal cannot be dismissed as being frivolous.  Ms Murray was critical of the fact that the appeal in this case is essentially against findings of fact which Judge Abbott made which were contrary to the case for the applicant.  However where evidence is put before the Court on the basis of affidavits it essentially comes down to a matter of inferences to be drawn as to how contradictions in the evidence are to be resolved and in favour of which party. It is not quite the same as a case where a Judge at first instance hears oral evidence where dislodging findings of fact made at first instance is notoriously difficult.

[12]     The next issue concerns the balance of convenience.  The amount of the debt is not great but the question must always be asked in these cases what effect having to pay it would have on the appellant.   One can see that continuing liquidation proceedings could put the applicant in a position where it felt pressured into making payment  in  order  to  stave  off  the  liquidation  proceedings.    That  would  cause particular hardship to the applicant.  Obviously if matters went further and successful liquidation proceedings were brought there would be a destruction of the wealth of the company and that would probably be irreversible.

[13]     On balance I am of the view that the indications are that a stay ought to be granted.

[14]     It was the view of the respondent that if any stay were to be granted it should be on the condition that the sum of approximately $50,000 which is owing ought to

be paid into Court or into a trust account.  The Court has a discretion in these matters and again it would seem to me that would be an unreasonable condition to attach. This seems to be only a medium sized company and extracting a capital sum of around  $50,000  for  such  a  payment  could  have  a  very disruptive  effect  on  its continued existence.

[15]     At the same time I do not consider that there should be any illusions on the part  of the applicant  that  the stay order will  protect  it  even  if  it  is dilatory in prosecuting the appeal.  The order that I propose to make is that there should be a stay of proceedings in terms of r 12 of the Court of Appeal (Civil) Rules 2005 until further order of the Court.  This will enable the matter to come back before the Court if the respondent believes on reasonable grounds that the applicant is not making conscientious efforts to prosecute the appeal.

[16]     Costs are reserved and the parties are granted leave to make submissions on that matter once the appeal has been determined or, alternatively, discontinued.

J.P. Doogue

Associate Judge