Leading Edge Group NZ Limited v Propellor Property Investments Limited
[2024] NZHC 1074
•3 May 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-72
[2024] NZHC 1074
BETWEEN LEADING EDGE GROUP NZ LIMITED
Plaintiff
AND
PROPELLOR PROPERTY INVESTMENTS LIMITED
Defendant
Hearing: (On the papers) Counsel:
M Keil for Plaintiff
D Hoskin for Defendant
Judgment:
3 May 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
LEADING EDGE GROUP NZ LIMITED v PROPELLOR PROPERTY INVESTMENTS LIMITED [2024] NZHC 1074 [3 May 2024]
Introduction
[1] The plaintiff, Leading Edge Group NZ Limited (Leading Edge), having issued an unanswered statutory demand, filed liquidation proceedings against Propellor Property Investments Limited (Propellor). Propellor filed an application to restrain advertising which, while received by Leading Edge’s lawyers, was treated as being, without more, incapable of requiring them to refrain from advertising. The issue for the Court is whether that was an abuse of process that warrants the striking out of Propellor’s proceedings.
Is advertising a liquidation after receipt of an application to restrain advertising an abuse of process?
[2] Leading Edge’s liquidation proceeding was served on 21 February 2024 (subject to an issue I address below). The proceeding did not immediately come to the attention of Propellor, through no fault of Leading Edge. The five working day time limit to bring an application as of right to restrain advertising expired. There was correspondence between the parties’ solicitors as to resolution but such was not reached leading up to the first call date for the liquidation application on 14 March 2024.
[3] Pursuant to r 31.9(1) of the High Court Rules 2016 (the Rules), for Leading Edge to proceed on the first call date, advertising of its proceeding had to be completed at least five working days before the hearing date. The fifth day before the hearing was 7 March 2024.
[4] The following is a summary of the communications between the parties’ solicitors from 6 March 2024:
(i)On 6 March 2024 at 11:14am, solicitors for Leading Edge advised Propellor’s solicitors that “We are proceeding to instruct the Gazette to proceed with advertising at 3:00pm today”.
(ii)On 6 March 2024 at 1.39pm, Propellor’s solicitors wrote to Leading Edge’s solicitors explaining that an application to restrain advertising
had been filed and sending a copy by way of service together with proof of filing. (I note an affidavit in support was not sent but the email said it was bring served).
(iii)On 6 March 2024 at 2.31pm, Leading Edge’s solicitor emailed Propellor’s solicitors advising: “The application is filed late and cannot restrain the advertising due to take place tomorrow morning”.
(iv)On 6 March 2024 at 2.54m, Propellor’s counsel sent a further email seeking confirmation of receipt of service.
(v)On 6 March 2024 at 5.20pm, Leading Edge’s solicitor emailed Propellor’s solicitor noting:
(a)they did not accept service of the application to restrain advertising;
(b)the deadline for advertising was 7 March 2024; and
(c)they had been instructed to proceed with advertising.
(vi)On 7 March 2024, the Court allocated a first call date for the application to restraining advertising on 14 March 2024, alongside the liquidation application;
(vii)Advertising in the Gazette took place on 7 March 2024 and in the Christchurch Press on 8 March 2024.
[5] The advertisement in the Press was, on any view of it, within the five working day period specified in r 31.9 of the Rules. The liquidation on 14 March 2024 would therefore need to be adjourned unless an abridgement of time was sought and granted. As McGechan notes at HR31.9.04; “… it is rare for the Court to consent to an abridgement of time for advertising”.1
1 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters).
[6] With the advertising in the Gazette having taken place, Propellor’s solicitor requested an urgent telephone conference which took place with me on 8 March 2024. At that conference I requested further information and a further telephone conference was held on 13 March 2024. I said in the Minute after the 13 March telephone conference:
[3] I again expressed the view that it is not for a plaintiff to pre-empt the Court’s jurisdiction and raised the possibility that this proceeding should be struck out as an abuse of process.
[4] Ms Keil, counsel for the firm acting for the plaintiff, said that a defendant wishing to ensure advertising does not take place, should apply for an injunction on a without notice or pickwick basis if necessary. I am far from convinced that is the case as rr 31.9, 31.10 and 31.11 of the High Court Rules 2016 (the Rules) do not provide that even if an application to restrain advertising is made within the five working days, that acts as a temporary stay on advertising until the court can determine the application, yet an application made within the five working days in r 31.9(1) is treated by counsel as preventing advertising. That this application included a request for leave to apply out of time is not material. Yet, Ms Keil’s argument, taken to its logical extreme, would mean that any application to the court for relief of an injunctive nature could be pre-empted by a defendant taking matters into their own hands to prevent the court making a ruling.
[5] It is my understanding that the convention universally recognised is that when an application to restrain advertising is made, advertising will not occur until that matter is addressed by the court.
[6] Given that I am contemplating striking this proceeding out as an abuse of process, the parties are entitled to make written submissions and will confer as to a timetable for those with Mr Hoskin, counsel for the defendant, going first. I referred counsel to a number of authorities that I have found that touch on this issue.
[7]The requested submissions have now been filed.
Abuse of process
[8] Whether an abuse of process has taken place will of course depend on the circumstances of the particular case. The starting point is that the process in question, that is the step complained of, is one that was otherwise open to the party said to have abused that process. If that step or process was not in fact available then it would be invalid irrespective of any element of abuse as the legal or factual pre-conditions entitling that step to be taken did not exist.
[9] Counsel for Leading Edge emphasises that as there was no order preventing advertising the solicitors were entitled to advertise as instructed by Leading Edge. They emphasise an application to restrain advertising does not operate as a stay and if there is urgency and good grounds to restrain advertising then the application should be made on a without notice or Pickwick basis. The practical effect of the submissions for Leading Edge is that an application to restrain advertising accompanied by an application to bring it out of time, is of no effect on a plaintiff wanting to advertise.
[10] Leading Edge’s counsel do not address in their submissions the point made in the above extract from the Minute of 13 March 2024 that their approach amounts to an usurping of the Court’s jurisdiction. Bear in mind there was no time pressure to advertise – the five working day timeframe required by r 31.9 of the Rules could not be met by Leading Edge in respect of the newspaper advertisement. As I have said, the application to restrain advertising was in essence ignored.
[11] On the approach advocated by Leading Edge’s counsel, a party presented with an application for an injunction (an application to restrain advertising being treated as an injunction, see HCR31.11(2)), could (and on their case should) move to complete the steps sought to be restrained before the Court has a chance to intervene. The example I gave during the telephone conferences was an on-notice application for an injunction to restrain a defendant from cutting down a tree. On Leading Edge’s position, even upon that application being filed and served, a defendant could, indeed should, cut the tree down to prevent the Court dealing with the matter in a way the defendant may not like. Nor does the fact that an application is made on a Pickwick basis logically make any difference. All the Pickwick element adds is that the matter is brought before the Court on an urgent basis — the timing of an application coming before the Court does not justify a party setting out to frustrate the Court’s ability to deal with the matter.
[12] It is no answer for counsel to say they were instructed to take a step when their first duty is to the Court.
[13] In this case I come back to the fact the proceeding could not go ahead on 14 March 2024 because of the late newspaper advertising. What then was the point of
advertising in the face of the application? It can only have been to put pressure on Propellor. The consequences of advertising a liquidation are well known and were summarised by Justice Venning in NZPS Ltd v Evolo Ltd said:2
[18] The starting point is that advertising a liquidation proceeding is potentially highly prejudicial to a defendant company. It is for that reason that the Rules provide a period of time after service of the application before the advertising can occur. Once the proceeding is advertised it is difficult to quantify the particular prejudice to a defendant company but at the least it will come under pressure, both in relation to the existing proceedings and from other interested creditors.
[14] Counsel for Leading Edge emphasised the application to restrain advertising was made outside the five working day period in r 31.9 of the Rules.
[15] Counsel for Propellor, include in their submissions rr 31.9, 31.10 and 31.11 of the Rules. Those rules provide:
31.9Advertisement of application
(1)A proceeding commenced by a statement of claim under rule 31.3 must be advertised at least 5 working days before the hearing.
(2)In this Part, working day means any day of the week other than—
(a)a Saturday, a Sunday, Waitangi Day, Good Friday, Easter Monday, Anzac Day, the Sovereign’s birthday, Te Rā Aro ki a Matariki/Matariki Observance Day, and Labour Day; and
(ab)if Anzac Day or Waitangi Day falls on a Saturday or a Sunday, the following Monday; and
(b)a day in the period commencing with 25 December in any year and ending with 15 January in the following year.
(3)This rule is subject to rule 31.10 and to any order made on an application under rule 31.11.
(4)If the registered office of the defendant company, or, if there is no such office, the principal or last known principal place of business of that company, is or was situated within a town in which there is a registry of the court, the advertisement must be published—
(a)once in the Gazette; and
(b)at least once—
(i)in a daily newspaper published in that town; or
2 NZPS Ltd v Evolo Ltd [2013] NZHC 2309 at [18].
in another newspaper as the Registrar directs.
(5)In the case of a defendant company to which subclause (4) does not apply, the advertisement must be published—
(a)once in the Gazette; and
(b)at least once—
(i)in a local newspaper circulating in the locality where the registered office, or principal or last known principal place of business, as the case may be, of the defendant company is or was situated; or
in another newspaper as the Registrar directs.
The advertisement, which must be in form C 6, must state—
(a)the day on which the application to put the defendant company into liquidation was filed; and
(b)the name and address of the plaintiff and of the plaintiff’s solicitor (if any); and
(c)the plaintiff’s address for service; and
(d)the place, date, and time of the hearing of the application; and
(e)that the statement of claim and the verifying affidavit may be inspected at the registry of the court or at the plaintiff’s address for service; and
(f)that any person, other than the defendant company, who wishes to appear on the hearing of the application must file an appearance not later than 2 working days before the day appointed for the hearing of the application.
(7)If the plaintiff or the plaintiff’s solicitor does not within the prescribed time, or within any extended time allowed by the Registrar, duly advertise the proceeding in the manner prescribed by this rule, the appointment of the time and place of hearing must be cancelled by the Registrar, and the proceeding must then be removed from the list, unless the defendant company has been served or the court otherwise directs.
31.10Restriction on advertising of proceeding
(1)No person may, unless the court otherwise directs, publish any advertisement required by rule 31.9 or any other information relating to the statement of claim until at least 5 working days after the date on which the statement of claim is served on the defendant company.
(2)Subclause (1) does not apply when a statement of claim has been filed by the defendant company.
31.11Power to stay liquidation proceedings
(1)If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—
(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b)for an order staying any further proceedings in relation to the liquidation.
(2)The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3)The inherent jurisdiction of the court is not limited by this rule.
[16] As I noted in my Minute of 13 March 2024, the Rules do not state that an application to restrain advertising made within the five working day period operates as a stay on advertising pending the application being determined. Therefore, that the application here was not outside the five working day period, did not justify advertising.
[17]Counsel for Leading Edge refer to the decision of Associate Judge Faire in
Body Corporate 162791 v Mid City Apartments Ltd,3 where his Honour said:
What is self-evident from a reading of r700k (now HCR 31.11) is that the
actual filing of the application does not cause a stay and restraint to apply. An
order of the Court is required or, alternatively, as often happens, the agreement
of the parties not to advertise.
(counsel’s emphasis)
[18] No doubt Judge Faire’s comment reflects the legal position. Again, that is not the point. The facts of Mid City Apartments Ltd were unusual — there advertising took place within the initial five working day period but his Honour in the exceptional circumstances of that case did not strike out the proceeding as an abuse of process.
3 Body Corporate 162791 v Mid City Apartments Ltd [2004] 17 PRNZ 289 at [11].
[19] The above observations should not be seen as a licence to parties to make meritless applications to restrain advertising, such would be an abuse of the principle that parties should not usurp the jurisdiction of the Court. Of course, such an application would be an abuse of process exposing counsel and their clients to the appropriate sanctions.
[20] Counsel for Leading Edge here are critical of the merits in substance of the application to restrain advertising. The application does have more of the appearance of an application for an adjournment for settlement discussions to continue but again, that is not the point. It is not for parties to assume the outcome of an application to the Court.
[21] In submissions, counsel for Leading Edge seeks that the application to restrain advertising by Propellor itself be struck out as an abuse of process. It was unclear to me why that submission was made when the application to restrain advertising has been overtaken by the fact advertising has already occurred.
[22] This liquidation proceeding was filed on the last day for and commencing a liquidation proceeding that relied on Leading Edge’s statutory demand. However, only a statement of claim and notice of proceeding were filed. The affidavit verifying the statement of claim was not filed until three working days later. Rule 31.5 of the Rules provides:
A notice of proceeding in form C 3 and an affidavit in form C 4 or C 5 verifying the allegations in the statement of claim must be filed and served with a statement of claim filed under rule 31.3. (my emphasis)
[23] Counsel for Propellor note that the purpose of a verifying affidavit is to prevent the casual filing of an application to exert pressure for payment. The affidavit provides the necessary evidence on which the court may be able to decide the matter in the absence of an opposition.4
[24] Counsel for Leading Edge does not dispute that the verifying affidavit was late. They submit, however, that the Courts have traditionally adopted a practical approach
4 McGechan on Procedure, above n 1 at [HR34.5.02].
regarding the filing of the notice of proceeding and verifying affidavit. Leading Edge’s counsel refers to White J’s decision in Re Martenel (No. 17),5 where his Honour said it would be inconvenient to insist that the affidavit always be sworn the same day as the application is filed. That, however, is a different point. It may well be the case that in assembling the papers for filing, the verifying affidavit is sworn in the days prior to filing but that is different from whether the verifying affidavit is filed late.
[25] Another case relied on by Leading Edge is Re Bond Motors.6 The procedure applying to an application to liquidate a company was quite different in the mid-1970s being:
Rule 19 of the Companies (Winding Up) Rules 1956 provides that every petition shall be verified by an affidavit in form 10 or form 11. Such affidavit “shall be sworn after and filed within seven days after the petition is presented”.
[26] However, at the end of the day that case still concerned the timing of the filing of the affidavit in support. The Court concluded the late filing in that case was an irregularity that could be addressed by making an order to extend time.
[27] There are authorities where the late filing of the verifying affidavit has been found to cause no prejudice, for example, Akai Pty Ltd trading as Akai New Zealand Limited v Colin Townshend Ltd,7 where the essentially “formal status of the affidavit” was recognised.
[28]Rule 1.5 of the Rules provides:
1.5 Non-compliance with rules
(1)A failure to comply with the requirements of these rules—
(a)must be treated as an irregularity; and
(b)does not nullify—
(i)the proceeding; or
(ii)any step taken in the proceeding; or
5 Re Martenel (No. 17) [1992] 8 ACSR 125 at 133 line 7.
6 Re Bond Motors [1976] 1 NZLR 368.
7 Akai Pty Ltd trading as Akai New Zealand Limited v Colin Townshend Ltd [1989] NZLR 76 pg 6.
(iii)any document, judgment, or order in the proceeding.
(2)Subject to subclauses (3) and (4), the court may, on the ground that there has been a failure to which subclause (1) applies, and on any terms as to costs or otherwise that it thinks just,—
(a)set aside, either wholly or in part,—
(i)the proceeding in which the failure occurred; or
(ii)any step taken in the proceeding in which the failure occurred; or
(iii)any document, judgment, or order in the proceeding in which the failure occurred; or
(b)exercise its powers under these rules to allow any amendments to be made and to make any order dealing with the proceeding generally as it thinks just.
(3)The court must not wholly set aside any proceeding or the originating process by which the proceeding was begun on the ground that the proceeding was required by the rules to be begun by an originating process other than the one employed.
(4)The court must not set aside any proceeding or any step taken in a proceeding or any document, judgment, or order in any proceeding on the ground of a failure to which subclause (1) applies on the application of a party unless the application is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity.
[29] However, what the present situation amounts to is Leading Edge effectively requiring an indulgence from the Court to validate the late filing of its verifying affidavit. At the same time, Leading Edge was not prepared to hold off advertising even when it was clear the advertising in the Press was going to be too late to permit it to proceed.
Outcome
[30] I have already noted that the application to restrain advertising has the flavour for an application for an adjournment. In all likelihood at its first call that would have been recognised and while an adjournment may have been granted, it may well have been on the basis that the true nature of the application to restrain was recognised at the time.
[31] Accordingly, in a practical sense, an adjournment has been obtained by Propellor albeit not in the way anticipated.
[32] Leading Edge has not sought, pursuant to r 1.5 of the Rules, to regularise the late filing of its verifying affidavit. Such, however, is implicit in its submissions. One option would be to decline that application and strike out the statement of claim on that basis. If Leading Edge wants to take a technical approach to procedure and timeframes then it can hardly expect to get the benefit of the doubt when it seeks to validate its failure to comply with the Rules.
[33] The application to restrain advertising refers to Propellor experiencing an increase in sales which it anticipates will enable it to pay its debts. The application says that Propellor is currently in the process of settlement negotiations with Leading Edge and that there is no prejudice to Leading Edge in delaying the liquidation proceedings to allow the parties time to advance settlement discussions.
[34] These grounds, as I have said, led me to take the view with counsel that the application to restrain advertising was in substance an application to adjourn the proceedings to allow settlement to occur.
[35] The proceedings are currently for call on 2 May 2024. The statutory demand was served by Leading Edge on 20 November 2023. The amount of the demand was just under $58,000.
[36] I am satisfied it was an abuse of process for this proceeding to be advertised in the face of an application made to this Court to restrain advertising. It was an abuse of process as that step was taken either to usurp the Court’s ability to deal with the application or it had that affect. Applications to restrain advertising are dealt with promptly. If the application is itself wholly without merit it will be met with short shrift by the Court. However Leading Edge’s position in this case means that unless and until an order is actually made, a party is free, without sanction, to take steps to prevent the Court making the very order that has been applied for. However, my conclusion that there was an abuse of process in this case does not automatically lead to a strike out being made.
[37] Propellor sought time to settle an undisputed debt. If it has not already taken steps to settle the debt, it must now do so.
[38] There is a final adjournment of this proceeding to Thursday 13 June 2024 at 10am. That is the next List date that I am dealing with. In a practical sense, the matter being dealt with on that day puts Propellor in the position it would have been in, had there been a hearing of its application to restrain advertising on the assumption that it was dismissed and the proceeding adjourned for advertising.
[39] I consider the above adjournment is a practical way of providing Propellor with what it, in substance, sought in its application. At the end of the day it does not dispute the amount owed to Leading Edge.
Costs
[40] Costs will lie where they fall. Given my conclusion that Leading Edge’s advertising was an abuse of process, it is not appropriate that it be awarded costs in respect of that issue.
Associate Judge Lester
Solicitors:
Turner Hopkins, Takapuna for Plaintiff
Steindle Williams Legal, Auckland for Defendant
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