Jollands v Mad Butcher Holdings Limited

[2019] NZHC 1964

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-946

[2019] NZHC 1964

UNDER

section 97 of the Property Law Act 2007 and s 177 of the Personal Property Securities Act 1999

IN THE MATTER

of the Liquidation of SONCAM LIMITED (IN LIQUIDATION)

BETWEEN

CATHERINE JANE JOLLANDS AND PETER REGINALD JOLLANDS as

liquidators of SONCAM LIMITED (IN LIQUIDATION)

Plaintiffs

AND

MAD BUTCHER HOLDINGS LIMITED

Defendant

Hearing:	20 June 2019
Appearances:	R B Hucker and R F Selby for the plaintiffs M J Tingey for the defendant
Judgment:	13 August 2019

JUDGMENT OF PALMER J

This judgment was delivered by me on 13 August 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Hucker & Associates, Auckland Jackson Russell, Auckland

JOLLANDS v MAD BUTCHER HOLDINGS LIMITED [2019] NZHC 1964 [13 August 2019]

Summary

[1]    Soncam Ltd (Soncam) is a franchisee of Mad Butcher Holdings Ltd (Mad Butcher). The liquidators of Soncam, the plaintiffs Ms Catherine Jollands and Mr Peter Jollands, are in a commercial dispute with Mad Butcher, the defendant. The liquidators seek a mandatory interim injunction. I do not consider the interests of justice require the injunction sought. I continue the existing interim interim injunction which was granted by consent and I make timetabling orders to a hearing.

What happened?

[2]    The franchise agreement between Mad Butcher and Soncam contains a general security agreement (GSA) in favour of Mad Butcher over the assets of Soncam. The GSA contains an obligation that, if the Soncam assets are sold, they must be offered to Mad Butcher first and, if that option is not exercised, any purchaser has to execute a franchise agreement with Mad Butcher. The franchise agreement was due to expire on 31 March 2019. The parties appear to agree the franchise agreement continued to roll over on a month-by-month basis following that though they differ on why.

[3]    I am advised by counsel that Soncan entered into a conditional sale and purchase agreement with Lieben Meats Ltd. It provided for a new franchise agreement with Mad Butcher for just under five years. Mad Butcher objected that not requiring the purchaser to become a franchisee breached the franchise agreement and Mad Butcher intended to acquire all or part of the franchise business. Mad Butcher then agreed to grant Lieben Meats a franchise agreement if they purchased the business. Around 12 April 2019, Lieben Meats entered a second sale and purchase agreement with Soncam, conditional upon entry into a franchise agreement with Mad Butcher.

[4]    On 24 April 2019, Soncam was placed into voluntary liquidation by resolution of its shareholders. The liquidators stopped running the business, asked staff to leave, and closed the shop door. Lieben Meats cancelled its agreement. The liquidators then agreed to sell the business and stock to a third party, possibly on 1 May 2019. The landlord gave notice to the liquidators that any leasing arrangement was cancelled as at 30 April 2019.

[5]    The same day that Soncam went into liquidation, Mad Butcher provided the liquidators with a copy of the franchise agreement and advised it wished to exercise its option to purchase the assets and business, subject to Mad Butcher securing a lease. It considered it had agreement from the landlord to provide a lease, though that could not be finalised until the terms of sale were agreed with the liquidator.

[6]    Mad Butcher advised the liquidators the amount due under the GSA on 15 May 2019 was $20,684.68 and advised, if the liquidators accepted it, Mad Butcher would provide an undertaking “as to the release of the security interest on payment of the secured amount”. On 17 May 2019, Mad Butcher advised the liquidators the amount due as at that date was $40,021.59. Mad Butcher says the amount has since increased by legal fees. The liquidators accepted the $40,021.59 and requested Mad Butcher sign a Deed Poll release before payment. On 20 May 2019, Mad Butcher served the liquidators with notice under s 120 of the Personal Property Securities Act (PPSA) seeking to take possession of fixed assets subject to its security interest.

[7]    The parties differ over a variety of legal issues. The liquidators submit the Deed Poll release represents routine compliance with ss 97 and 83 of the Property Law Act 2007 (PLA) and their obligations as liquidators. Mad Butcher submits the Deed Poll release goes considerably further than what is required under the PLA, because it fully and finally discharges the debt and provides Mad Butcher will not register a further security in respect of the secured property. Mad Butcher submits it has a claim of at least $500,000 which is secured and would be released if it enters the deed poll. The parties also appear to differ as to: whether Mad Butcher’s option to purchase the business survived termination of franchise agreement; whether the option could survive under s 248 of the Companies Act 1993; whether the option related to any business that could be sold; whether the liquidators had the right to sell the assets; and whether the liquidators converted the assets.

The proceeding and interim interim orders

[8]    In this proceeding, Soncam (in liquidation) applies for an interim injunction, under s 97 of the PLA, ss 177 and 181 of the PPSA and in equity, and for summary judgment. The order sought is:

AThe plaintiff is to pay the sum of $40,021.59 into Court within 24 hours of the order being made;

BThe defendant is to tender to the Court a fully executed Deed Poll release in the form annexed to the Affidavit of Peter Jollands dated 20 May 2019 as annexure S or such other document that complies with sections 97(2) and 83 of the Property Law Act 2007 releasing the security claimed by the Defendant within 24 hours of the order being made;

CThe document referred to in paragraph B is to be released to the plaintiff’s solicitors and the $40,021.59 is to be released to the defendant’s solicitors upon the filing of a Joint Memorandum by the plaintiff and defendant’s solicitors or further order of the Court.

[9]    Mad Butcher applied for disclosure of a sale and purchase agreement of the business assets subject to the security interest, under r 8.4 of the High Court Rules 2016 but that application was settled before the hearing.

[10]   On 10 June 2019, Hinton J made an interim interim restraining order sought by the liquidators, which was not then opposed by Mad Butcher, as follows:

The defendant is restrained from acting on its s 120 Personal Property Securities Act 1993 notice dated 20 May 2019 or to otherwise take steps to exercise any rights it may have under its general security conferred under a Franchise Agreement dated 24 April 2014 and contained at annexure G to the Affidavit of Peter Reginald Jollands sworn 20 May 2019 in relation to the present and after acquired property said to be secured under that general security pending further order of the Court.

[11]   Hinton J reserved leave for the defendant to apply to rescind the order on 24 hours’ notice if necessary. At the hearing, I continued that interim interim injunction.

Law of interim injunctions

[12]   Rule 7.53 of the High Court Rules 2016 entitles a party to a proceeding to apply for an interlocutory injunction if certain conditions are fulfilled. The court must examine whether there is a serious question to be tried, consider the balance of convenience on the parties, pay particular attention to whether damages would be an adequate remedy, and assess the overall justice of the position.1

1      NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].

[13]   An injunction usually restrains its subject from doing something. An application for an interim mandatory injunction, requiring a party to do something they would not otherwise do, does not usually accord with that purpose. They have been described as rare.2 But, as I have said before, the legal test is the same.3 Similarly, the effect of interim orders in finally disposing of a proceeding does not change the legal test but simply makes success less likely on the facts.4

Should there be an interim injunction?

Submissions

[14]   Mr Hucker, for the liquidators, submits that the liquidators seek an interim injunction to give effect to ss 97(2) and 83 of the PLA and enable redemption under the s 120 notice that has been served. He submits the injunction sought would do no more than provide for a declaration of rights required to be recognised under the redemption provision of the PLA, does no more than Mad Butcher’s solicitors have maintained they will do, applies only to the liquidators’ collateral on the date of liquidation and ensures expeditious resolution of the proceedings. He submits the liquidators have not acted illegally and there has been no damage caused to Mad Butcher

[15]   At the hearing, Mr Tingey, for Mad Butcher, did not initially consider the application for an interim injunction was to be argued then. But he submitted the balance of convenience weighs against granting an interim injunction because: neither the liquidators nor Lieden Meats has the right to possess the assets; they have acted illegally and do not have clean hands; Mad Butcher has suffered loss and damage of more than $500,000, which is greater than the amount the liquidators hold; the injunction sought goes further than required; and there is no reason to believe Soncam

2      Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC) at 684.

3      Bacon Holdings Ltd v Bally McCahill Ltd [2018] NZHC 2507; Clode v Oliphant [2018] NZHC 1442 at [21]–[23]; and see Pilkington v Fidelity Life Assurance Co Ltd HC Wellington CIV-2007- 485-2270, 14 April 2010 at [18] and Fidelity Life Assurance Co Ltd v Pilkington [2010] NZCA 424 at [26].

4      McKay Electrical (Whangarei) Ltd v Hinton [1996] 1 ERNZ 501 (CA) at 507, citing NWL Ltd v Woods [1979] 1 WLR 1294 (HL) at 1306. This was approved in Wilfred v Gan [2013] NZCA 457 at [21].

will be able to pay any amounts ordered by the court. He submits the terms of the injunction sought would dispose of the proceeding, which Mad Butcher opposes.

Should there be an interim injunction?

[16]   I agree there are serious questions to be tried here if necessary, though I suspect commercial common sense would see them resolved most easily by negotiation. I do not consider the balance of convenience favours me granting the interim injunction sought. There is dispute over the effect of the Deed Poll release and ordering it may dispose of the proceeding. Damages may be an adequate remedy either way. But I do consider granting the mandatory injunction sought would go further than simply maintaining the position of the parties in this dispute. Instead, I continue the interim interim injunction ordered by Hinton J, with leave to either party to apply to vary it on 24 hours’ notice.

Timetabling

[17]   On the basis of my understanding that the hearing can be conducted by an Associate Judge, I make the following orders:

(a)By 5 pm Monday 14 October 2019 Mad Butcher is to file and serve:

(i)affidavits in support of its notice of opposition to the liquidators’ application for summary judgment;

(ii)any application by Mad Butcher for summary judgment and affidavits in support; and

(iii)any counterclaim or application to join further parties and any affidavits in support.

(b)By 5 pm Tuesday 29 October 2019, the liquidators are to file and serve:

(i)any affidavits in reply; and

(ii)any notices of opposition to Mad Butcher’s applications or replies to counterclaims and supporting affidavits.

(c)By 5 pm Monday 11 November 2019, the applicant’s submissions should be filed in respect of each application for summary judgment.

(d)By 5 pm Wednesday 13 November 2019, the respondent’s submissions should be filed in respect of each application for summary judgment.

(e)At 10 am Monday 18 November 2019, there will be a one-day fixture before an Associate Judge to determine the application(s) for summary judgment.

Palmer J