Link Technology 2000 Limited (in liquidation) v Peterland Limited
[2021] NZHC 428
•9 March 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-432
[2021] NZHC 428
BETWEEN LINK TECHNOLOGY 2000 LIMITED
(in Liquidation) First Plaintiff
AND
HARRY MEMELINK
(as trustee of Link Trust No 1) Second Plaintiff
AND
PETERLAND LIMITED
First Defendant
AND
PETER JEREMY DAWSON GOODSON
Second Defendant
Hearing: 22 February 2021 Counsel:
D G Livingston for First Plaintiff P D Barrett for Defendants
Judgment:
9 March 2021
JUDGMENT OF GRICE J
(Application to vest proceedings in second plaintiff: s 119 of the Insolvency Act 2006)
[1] Mr Memelink has applied for an order that these proceedings vest in him. Link Technology 2000 Ltd (Link), the first plaintiff, is in liquidation. Mr Memelink is an undischarged bankrupt.1
[2] The Official Assignee who placed the first plaintiff in liquidation on 23 May 2020, has disclaimed any interest the Assignee may have in this litigation
1 Mr Memelink was declared bankrupt on 28 August 2018.
LINK TECHNOLOGY 2000 LTD v PETERLAND LTD [2021] NZHC 428 [9 March 2021]
regarding the second plaintiff.2 On 19 June 2020, the Official Assignee, as liquidator of Link, disclaimed any interest in this litigation under s 269 of the Companies Act 1993.
[3] The intituling of the application refers to s 269 of the Companies Act, which allows a person “suffering loss or damage as a result of a disclaimer” to apply to the Court for an order that the disclaimed property be delivered or vested in that person.3 However, Mr Memelink seeks to rely on s 119 of the Insolvency Act 2006, which allows a person “suffering loss or damage as a result of a disclaimer” by the Official Assignee in bankruptcy to apply for an order that the disclaimed property be delivered to or vested in the bankrupt.4
Background
[4]The following general background is largely based on the statement of claim.
[5] Link leased premises from GPI (2002) Ltd (GPI) being a unit in Hutt Park Road, Lower Hutt. The deed of lease was dated 18 February 2008. The term was for six years with a commencement date of 18 August 2008. Two further terms of renewal of three years each were available on 18 August 2014 and 18 August 2017. The final expiry date of the lease was 17 August 2020.
[6] The statement of claim pleads that Mr Memelink, on behalf of Link, provided notice to GPI that Link was exercising its right to extend the lease in July 2014.
[7] GPI sold the lease premises to the first defendant, Peterland Ltd (Peterland), with settlement in September 2015.
[8] Peterland issued Link with a notice to quit on 14 March 2017. On 27 July 2017, the second defendant, Mr Goodson, on behalf of Peterland removed various items of stock, components, dyes, tools and other items used in the manufacturing process belonging to Link.
2 Insolvency Act 2006, s 117.
3 Companies Act 1993, s 269(5)(b).
4 Insolvency Act 2006, s 119(1) and (3).
[9] Link was only able to operate at about 5 per cent of its pre 27 July 2017 rate from that date, due to the loss of the stock and product.
[10] On 19 March 2018, Peterland removed all of Link’s machinery, plant, equipment and stock from the premises. Machines were destroyed by the elements when left outside. It is alleged that Peterland still holds a range of chattels belonging to Link such as cranes, water reticulation equipment and electrical wiring.
[11] The statement of claim alleges that Mr Memelink has now had a new dye made. It is held by a Hamilton manufacturer who is now manufacturing on a subcontracting basis to Mr Memelink and Link.
[12] Since the issue of these proceedings on 8 June 2018, Link has gone into liquidation and Mr Memelink has been made bankrupt.
[13] Mr Memelink seeks to take over the claim under the Insolvency Act as a person “suffering loss or damage as a result of disclaimer”.5 He does not seek to have vested in him the first plaintiff’s claim. If he sought that he would need to make an application under s 269 of the Companies Act.
[14] The present director of Link, Mr Bassett-Burr, supports Mr Memelink in these proceedings and “stands by ready to do whatever is necessary so Mr Memelink may progress his claim”. The suggestion was also made that if this application is not successful, Mr Bassett-Burr may consider seeking leave as the director of Link to continue the proceedings, given the Official Assignee’s disclaimer.
The Insolvency Act
[15] Section 117 of the Insolvency Act allows the Assignee to disclaim onerous property. Onerous property includes:6
… a litigation right, that in the opinion of the Assignee has no reasonable prospect of success or cannot reasonably be funded from the assets of the bankrupt’s estate;
5 Insolvency Act 2006, s 119.
6 Section 117(4)(a)(iii).
[16] The Court has no information as to whether the Official Assignee in disclaiming these proceedings took the view that the litigation had no reasonable prospect of success or whether it could not be reasonably funded from the assets of the bankrupt’s estate.
[17] Following a disclaimer, s 119 provides that a person who suffers loss or damage as a result of the disclaimer may apply to the Court for an order that the disclaimed property be delivered to, or vested in, that person.7 The provision, so far as relevant, provides:
119 Position of person who suffers loss as a result of disclaimer
(1)A person suffering loss or damage as a result of a disclaimer by the Assignee may –
…
(b)apply to the court for an order that the disclaimed property be delivered to, or vested in, that person.
(2)The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.
(3)The court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.
[18] Mr Livingston for Mr Memelink pointed out there is little guidance as to when such a vesting order should be made.8 The factors to be taken into account are “broad and largely unfettered”.9 In Goldstone v Goldstone, Toogood J said “all of the surrounding circumstances should be taken into account so far as they bear on what the Court may consider just, but the Court’s decision must reflect the context in which the application is made”.10 His Honour noted that the circumstances in which the disclaimed property became vested in the assignee through bankruptcy, the rights and interests of third parties and whether they consented to the vesting, the consequences
7 Insolvency Act 2006, s 119(1)(b).
8 Burgess v Beaven [2020] NZHC 497 at [13]; citing Toogood J in Goldstone v Goldstone [2019] NZHC 1649 at [17].
9 Burgess v Beaven, above n 8, at [14]; citing Robinson v IAG New Zealand Ltd [2016] NZHC 3149 at [50].
10 Goldstone v Goldstone, above n 8, at [17].
of any vesting for the applicant and other persons as well as the nature of the interest at stake, were all relevant factors.11
[19] However, the factors will vary from case to case and each will be determined on its own facts.
[20] In Burgess v Beaven, the Judge considered the merits of the litigation in determining whether the vesting of those rights in the applicant would be fair. Lester AJ noted that in determining the fairness of the vesting rights he was entitled “to consider the strengths of the proposed claim, the effect of delay in the claim being brought and the interests of the proposed defendants”.12 The Judge concluded that if the proposed litigation rights were not reasonably arguable then it would not be appropriate for the Court to encourage such a claim by vesting the rights in the applicant. He commented that:13
This Court has said that liquidators and the Official Assignee in bankruptcy should not encourage meritless litigation by assigning causes of action which are frivolous or vexatious. In determining whether it is fair to make a vesting order of litigation rights, I consider I should heed the same warning.
[21] The Judge concluded that the applicant had no arguable claim and dismissed the application.14
The claim here
[22] The statement of claim pleads four causes of actions. Only one is relevant to Mr Memelink’s claim as the second plaintiff. That is the fourth cause of action, which pleads that Mr Memelink personally holds an international patent in relation to plastic injected passholders. Due to the removal of the tools by Peterland on 27 July 2017, orders for the passholder could not be met resulting in cancellation of several substantial orders. Therefore, the removal, according to the statement of claim, “undermined the protections associated with the patents held”.
11 Goldstone v Goldstone, above n 8, at [18].
12 Burgess v Beaven, above n 8, at [18].
13 At [18]; citing La Famia No 1 Ltd (in liq) v GAN [2014] NZHC 3158 at [50]–[54], and Callis v Pardington (1996) 7 NZCLC 261,211 (CA).
14 Burgess v Beaven, above n 8, at [29].
[23] The statement of claim goes on to allege that Mr Memelink has had his “international patent undermined by being unable to supply passholders. Further, Mr Memelink “has jeopardised his court successes in North America because he has been unable to supply patented passholders pursuant to the Court Orders and settlement agreements”.
[24] Relief in damages is sought “for loss of patent production in an amount to be quantified prior to the hearing in court of this matter”.
[25] The first three causes of action (repudiation of lease, conversion and damages for loss of business) are claims that can only be made by the first plaintiff. Only the lessee is able to bring those claims. Mr Memelink although a shareholder of Link, has no direct interest in the claims. Therefore he does not suffer loss or damage as a result of the disclaimer.
[26] Mr Livingston says it may be possible to provide Mr Memelink, personally, with causes of action by amending the statement of claim. These would be based on, first, the fact he was a guarantor of the lease. The second basis would be that, as a shareholder of Link whose property was damaged through the actions of the defendants, Mr Memelink has suffered loss.
[27] However, the current application must be dealt with on the basis of the pleadings before the Court at present.
[28] The suggested basis for the amended claims to enable Mr Memelink to bring the claims personally, in any event, do not appear to be sustainable. First, Mr Memelink has no direct right as guarantor to bring actions based on the breach of the lease. It is not suggested that Mr Memelink as guarantor has obtained a right of subrogation or an assignment under the guarantee so cannot be said to be at jeopardy of suffering loss or damage as a result of the disclaimer.
[29] In addition, a director or shareholder of a company is not entitled to take a claim in his name when it is properly brought by the company. The option suggested
by Mr Livingston is by way of a derivative action. However, no application for leave for Mr Memelink to pursue a derivative action has been made.
Loss or damage as a result of the disclaimer
[30] Section 119(1) requires the applicant to be “suffering loss or damage as a result of disclaimer by the Official Assignee” before it may apply to have the disclaimed property vested in it. The Court may then make an order vesting the disclaimed property in the bankrupt if it is satisfied that it is “fair” that the property should be so vested.15
[31] Mr Barrett for the respondents, (the first and second defendants) submitted that in this case the first to third causes of action were causes of action that could only be brought by Link. The litigation rights belong to Link and they are the company’s choses in action. Mr Barrett said any benefit that might be realised from them would accrue to the company only. Mr Barrett pointed out that it was essentially the right to the renewal of the deed of lease of the lessor (Link) that has been disclaimed. He said the assignee’s disclaimer denied Mr Memelink personally nothing. He had lost nothing as he had no right to claim in the first place.16
[32] Mr Barrett also submitted that the only cause of action17 that is personal to Mr Memelink as the second plaintiff could not possibly succeed. He pointed out that Mr Memelink alleged that he personally held an international patent in relation to plastic injected passholders. However, the pleadings do not make any reference to:
(a)patent number; and/or
(b)an international classification code; and/or
(c)journal publication dated; and/or
(d)the registration abstract.
15 Insolvency Act 2006, s 119(3).
16 Lewis Holdings Ltd v Steel & Tube Holdings Ltd [2014] NZHC 3311, [2015] 2 NZLR 831 at [123]; citing Re Park Air Services [2000] 2 AC 172 (HOL) at 180 per Lord Hobhouse.
17 The fourth cause of action.
[33] Further, Mr Barrett submitted there was no evidence of registration, ownership or the right to use the paten., termination term or duration dates for the patent or annual renewals. Therefore, there is a lack of information as to the details of the patent.
[34] However, even if there were a patent, the allegation in the fourth cause of action is that patents are upheld on the “ability of the patent holder to provide the product to meet supply”. Mr Barrett pointed out that was incorrect. Unlike trademarks, which can be revoked for non-use,18 there is no basis or statutory ground to revoke a patent for non-use or “[in]ability of the patent holder to provide the patented product to meet supply”.19
[35] Further, Mr Memelink says that the alleged patent had been undermined as a result of the second defendant’s actions, presumably, relating to the alleged conversion of Link’s property, so preventing the manufacture of plastic injected passholders. Mr Barrett submits it is not clear what the term “undermined” means in the context of the pleading but that a plain language interpretation would conclude that it is alleged that the patent has become vulnerable to revocation but has not been revoked, nor is the basis for such possible revocation clear.
[36] Mr Barrett submits the fourth cause of action fails to disclose a reasonably arguable cause of action and is frivolous or vexatious.
Fairness
[37] Mr Livingston submits that the factors supporting why it was fair to vest the proceedings in Mr Memelink are as follows:
(a)It has not been established that the causes of action are unarguable, on the contrary, the pleaded facts indicate the case is strong.
(b)Mr Memelink has already invested significantly in pleadings, affidavits and disclosure, and he should now be afforded a reasonable opportunity
18 Trade Marks Act 2002, s 66.
19 Patents Act 2013, s 114.
to take up that investment, which the Official Assignee has elected not to take up.
(c)The applicant has ample assets to progress the case and meet any adverse costs award.
[38] While Mr Memelink says he has invested significant cost in the proceedings, there is no evidence on the costs that he says he has personally incurred. In addition, the proceedings were not pursued in a timely manner even allowing for Mr Memelink’s bankruptcy.
Strength of claim
[39] Insofar as the strength of the cause of action is concerned, Mr Livingston took me to a number of documents, which he said supported Link’s claims that the lease was renewed for a further two terms.
[40] The deed of lease was prepared on the Fifth Edition (2008) of the ADLS Deed of Lease Form. This provided for two renewal dates with a final expiry of 17 August 2020. The renewal clause at 33.1 of the Deed of Lease stated:
If the Tenant has given to the Landlord written notice to renew the lease at least three calendar months before the end of the term and is not at the date of the giving of such notice in breach of this lease (including any maintenance obligations) then the Landlord will grant a new lease for a further term from the renewal date …
[41] Therefore, the renewals are actually to be in the form of new leases for the further terms.
[42] Mr Memelink said he had spoken to Murray Horlor who was one of the directors of the then landlord, GPI, in April 2014 and Mr Horlor had agreed on behalf of the landlord to a lease renewal. Mr Memelink produced a handwritten copy of a note which says:
Thanks Murray Re our decussion [sic] To confirm Lease Renewal from this year on wards to end of Lease plus 17 August 2020 and Rent discounted Re Roof damages. …
[43] Mr Memelink also said that the police had spoken to Mr Horlor who had confirmed that a renewal had been granted. However, the case summary report produced to support that contention by Mr Memelink appears to recount a conversation with Mr Memelink and there is no reference to direct discussion by the police officer with Mr Horlor. The police had been called by Mr Memelink following his discovery on 29 July 2017 that the unit had been entered and items taken.20
[44] The third piece of evidence to which Mr Memelink pointed to was an email that was not produced in evidence but formed part of the disclosure. This appeared to be an email from Mr Horlor confirming that he “believed that an exercise of the renewal under deed of lease had been done”. The email was dated 25 July 2017 and appears to be a part of a series of exchanges of email between Mr Horlor and Mr Haines, who was Mr Memelink’s former lawyer, but the email trail is not available.
[45] Mr Barrett for the respondents points out that nothing was ever done to formalise any new lease pursuant to the exercise of renewal (if indeed it was exercised). Mr Barrett said when Link was given 28 working days’ notice of the lease’s termination on 17 March 2017, it did not immediately respond saying it had renewed the lease in 2014. Its initial response was that it was too difficult and expensive to relocate. It was not until 13 July 2017 that claimed that it had renewed the lease in April 2014. Mr Barrett says the previous registered owner and the landlord at the time deny the lease was renewed.
[46] Mr Barrett said that from the respondent’s point of view, Link had continued to occupy the premises under the holding over provisions in the deed of lease after the lease expired on 18 August 2014. That holding over was terminable by at least 20 working days’ notice, which was given on 17 March 2017 by the first defendant to Link.
20 The police report read: “Harry renewed his lease last year with the xx Landlord who confirmed Harry’s lease had been renewed to the end of 22/2024 and all was good. However Goodson does not care and accused Harry’s lease was over”.
[47] Mr Barrett criticises the evidence pointed to by Mr Memelink in support of Link’s right to renew the lease and in particular in relation to the email from Mr Horlor, saying it is unclear and the full email trail was not produced.
[48] In response, Mr Livingston says the Court must, as it would in a strike out application, take the facts as pleaded in the statement of claim when assessing the merits of the claim for the purposes of this application.
[49] In my view, the Court is entitled to have a closer consideration of the merits of the litigation here than would be the case in a strike out application.21
[50] The issue here is whether the vesting of the litigation rights in Mr Memelink would be “fair”, therefore I consider I am entitled to consider the merits of the proposed claim as so far as is possible at any early stage of the proceedings. While I have some reservations about the claim against Link, I cannot conclude that the claim is without merit. Mr Memelink has pointed to some evidence in support of his claim that a renewal of lease had been agreed to by the landlord’s representative, Mr Horlor. Mr Horlor, the director of the landlord, died last year.
[51] In those circumstances, I am not prepared to say the claim is entirely without merit for the purposes of this application.
Delay
[52] An added factor in favour of the respondents in this case is delay. Standing back and looking at the position as a whole, the delay has been prejudicial to the respondents. The delay has been caused by the plaintiffs. The notice seeking renewal of lease is said to have been conveyed in April 201422 and the first defendant settled the purchase of the premises in September 2015. On 17 March 2017, the first defendant gave the first plaintiff 28 working days’ notice of the lease’s termination. The first defendant did not claim there was a renewal of lease until 13 July 2017. A year later, the first defendant moved Link’s goods and relocated them advising where they could be collected. No steps were apparently taken by Link to follow up
21 High Court Rules 2016, r 15.1(1)(c) and (d).
22 The lease expired on 18 August 2014.
Mr Memelink’s message to Mr Horlor in April 2014 and formally renew the lease. It was not until July 2017 that Link advised the lessor it considered it had triggered the renewal of lease.
[53] These proceedings were commenced in June 2018. Mr Memelink said he could not be responsible for the delays by the Official Assignee reaching a decision to disclaim the Link proceedings in June 2020.
[54] However, Link was not placed into liquidation until 23 May 2020 when the Official Assignee appointed himself as liquidator. The proceedings were filed on 15 June 2018. The Court ordered on 24 July 2018 that the plaintiffs provide initial disclosure by 27 July 2018. The disclosure when it was supplied was incomplete in a number of respects. The respondents also filed a notice seeking a more explicit statement of claim and for further particulars. The Court ordered the plaintiffs to comply with that notice by 1 August 2018. That has not been complied with to date. In addition, there has been no reply filed to the statement of defence and counterclaims, which were filed on 20 July 2018.
[55] On 18 October 2019, the respondent’s lawyers emailed a letter to the Official Assignee’s lawyer giving written notice that it intended to apply for an order dismissing the proceeding for want of a prosecution. Mr Barrett said that despite that warning, no further steps were taken to prosecute Link’s claims.
[56] Therefore, Mr Barrett submits that before Link’s liquidation in May 2020, the plaintiffs had delayed this matter at almost every step of the proceedings and offered no explanation for the delays.
[57] Mr Barrett submits that the delays have seriously prejudiced the defendants. In fact Mr Horlor, who would have been a principal witness, has died.
[58] In the circumstances I consider delay is a factor which weighs in favour of the respondents. Link has dragged its feet in these proceedings which it had commenced.
Other factors in Mr Memelink’s favour
[59] Mr Livingston pointed to the fact that Mr Memelink had access to his Link Trust’s funding to pursue these proceedings. Therefore, Mr Memelink could pay security for costs using the Trust’s funds if that were necessary to permit the vesting.
[60] Mr Livingston made a further point in favour of fairness to Mr Memelink that he had already invested significant cost in pleadings, affidavits and disclosure and he should now be afforded a reasonable opportunity to take up that investment. I have my reservations as to the relevance of “sunk costs” in relation to an assessment of fairness.
[61] In addition, I note the proceedings were not progressed substantially once they were filed and there is little evidence before the Court in relation to Mr Memelink’s investment claim.
[62] In relation to Mr Memelink’s claim of funding by the trust there is no evidence of its commitment to this claim.
[63] However, for the purposes of this application I consider all those factors are relevant to some extent and provide some weight in favour of vesting the proceedings in Mr Memelink in a consideration of whether it is fair that the claim is vested in Mr Memelink. I refer to that issue below.
Analysis
[64] Fatal to Mr Memelink’s application is that he has been unable to establish that the applicant will suffer “loss or damage as a result of a disclaimer by the assignee”. The first to third causes of action are causes of action which can only be brought by Link, for the reasons I have set out above. Mr Memelink personally suffers no loss or damage as a result of the disclaimer by the Official Assignee.
[65] The suggestion that the pleadings be amended to support Mr Memelink’s argument would take matters further as I have indicted above. In any event this application must be dealt with on the pleadings before the Court.
[66] The only cause of action in which Mr Memelink has a personal interest and might suffer loss or damage is that relating to patents (the fourth cause of action). I have concluded that claim is without merit and cannot succeed.
[67] I conclude that Mr Memelink does not meet the threshold of suffering or loss or damage as a result of the disclaimer.
[68] Mr Memelink’s application fails at the threshold issue in that he cannot demonstrate “loss or damage as a result of the disclaimer by the assignee.”23
[69] Therefore as it is not necessary to consider the issue of whether “it is fair” that the claim be vested in Mr Memelink in terms of s 119(3) of the Act.
[70] However, if I were required to determine that, I am not satisfied that it is fair to so vest the claim.
[71] While I have indicated that on the information available the claim may have some basis, in my view the fact that there has already been substantial delay in progressing these proceedings and the lack of any proper evidence that funding is in place to progress the proceedings, I am not satisfied that it is fair that the proceedings vest in Mr Memelink.
[72] The Court must take into account the surrounding circumstances and reflect the context in which the application was made. Mr Memelink is a bankrupt, the proceedings have not been prosecuted in a timely way despite the fact that Link did not go into liquidation until May 2020. There is no evidence of funding being put in place by Link Trust, at its highest there are assurances through counsel that that will be the case and that the Trust has sufficient funds to do so. That is a very different thing from specific arrangements concerning funding to enable this matter to be properly progressed by counsel.
[73] Accordingly I am not satisfied that it is fair that the claim be vested in Mr Memelink. I would dismiss the claim on that basis as well as the fact that
23 Insolvency Act 2006, s 119(1).
Mr Memelink is not suffering loss or damage as a result of the disclaimer and so therefore does not meet the threshold requirement for vesting.
Conclusion
[74]The application for vesting the proceedings in the second plaintiff is dismissed.
[75] I have concluded that the present first to third causes of action pleaded in the statement of claim, are choses of action which accrue only to Link. Therefore, Mr Memelink personally does not suffer loss or damage as a result of the disclaimer by the Official Assignee.
[76]The fourth cause of action brought by Mr Memelink personally lacks merit.
[77] Therefore, Mr Memelink is not a person suffering loss or a damage as a result of the disclaimer by the Official Assignee.
[78]In addition, I am not satisfied it is fair to vest the claim in Mr Memelink.
[79]Accordingly, the application is dismissed.
Costs
[80]If the parties are unable to agree costs memoranda should be filed as follows:
(a)by the respondents/defendants on or before seven days of the date of this judgment;
(b)by the applicant/second plaintiff on or before a further seven days; and
(c)any reply on or before a further three days.
Grice J
Solicitors:
Livingston & Livingston, Wellington for the Second Plaintiff Morrison Kent, Wellington for Defendants
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