Link Technology 2000 Limited v Peterland Limited
[2022] NZHC 3506
•16 December 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-000432
[2022] NZHC 3506
BETWEEN LINK TECHNOLOGY 2000 LIMTIED
First Plaintiff
AND
HARRY MEMELINK
Second Plaintiff
AND
PETERLAND LIMITED
First Defendant
AND
PETER JEREMY DAWSON GOODSON
Second Defendant
Hearing: On the papers Appearances:
D G O Livingston for Plaintiffs
P D Barrett and A Dalzell for Defendants
Judgment:
16 December 2022
JUDGMENT OF GRICE J
(Judgment on applications for leave to appeal)
Introduction
[1] Mr Memelink, the second plaintiff in these proceedings, seeks leave to appeal against two judgments refusing to make an order that the rights of the first plaintiff in this litigation vest in him.
[2] Link Technology 2000 Ltd (Link), the first plaintiff, went into liquidation on 23 May 2020. The Official Assignee was appointed liquidator. Mr Memelink is an
LINK TECHNOLOGY 2000 LIMTIED v MEMELINK [2022] NZHC 3506 [16 December 2022]
undischarged bankrupt.1 Counsel for Mr Memelink noted that Mr Memelink would in the usual course have been discharged from his bankruptcy in February 2022. However, Mr Memelink remains in bankruptcy at the present time.
[3] The applications for leave to appeal relate to two judgments dismissing Mr Memelink’s applications, firstly under s 119 of the Insolvency Act 2006 (s 119) (the s 119 judgment), and secondly under s 269 of the Companies Act 1993 (s 269) (the s 269 judgment).2 Both provisions allow 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 to or vested in that person.3
[4] At the 22 February 2021 hearing when these two applications were originally heard, the Court gained the impression that Mr Livingston had abandoned the application under s 269 of the Companies Act. Although the application itself was intituled under both s 119 and s 269, and the notice of application referred to being under both of those sections, the matter was argued only on the basis of s 119 of the Insolvency Act. Mr Livingston’s synopsis of submissions related entirely to his arguments under s 119, and this was the approach he indicated to take at the hearing.
[5]In the course of the s 119 judgment I said:4
[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. 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.
[6] However, I subsequently became aware that Mr Livingston was under the impression he had not abandoned the s 269 application and that it would be considered along with the s 119 application. In view of Mr Livingston’s position that it had not been abandoned (although he acknowledged that it had not been the subject of
1 Mr Memelink was declared bankrupt on 28 August 2018.
2 Link Technology 2000 Ltd v Peterland Ltd [2021] NZHC 428 [the s 119 judgment]; and Link Technology 2000 Ltd v Peterland Ltd [2021] NZHC 2550 [the s 269 judgment].
3 Insolvency Act 2006, s 119(1)(b); and Companies Act 1993, s 269(5)(b).
4 The s 119 judgment, above n 2 (footnotes omitted).
submissions), counsel for the defendants agreed that the appropriate step was to hear the application under s 269 before the application for leave to appeal of the s 119 application judgment was heard. Accordingly, the application under s 269 was heard separately and I delivered a judgment on that matter, dated 28 September 2021, dismissing the application.5
[7] A further point of clarification by Mr Livingston was that although the intituling of the application and other documentation had described Mr Memelink, as second plaintiff, as a trustee of Link Trust (No 1), it was not argued that he was acting in his capacity as a trustee in these proceedings.
[8] Mr Livingston noted that Mr Memelink held the shares in Link in his personal capacity. On his bankruptcy that shareholding became part of his estate in bankruptcy, and the Official Assignee in bankruptcy holds those shares.
Statutory framework
[9] The Official Assignee has disclaimed any interest it may have regarding the second plaintiff in these proceedings under s 117 of the Insolvency Act. The Official Assignee has not disclaimed its interest in the shares in Link which are owned by Mr Memelink.
[10] On 19 June 2020, the Official Assignee, as liquidator of Link, disclaimed any interest in this litigation under s 269 of the Companies Act.
[11] The provisions under s 119 of the Insolvency Act and s 269 of the Companies Act provide for a person who suffers loss or damage as a result of a disclaimer to apply to the court for an order that the disclaimed property be delivered to, or vested in, that person. Section 119 is in terms as follows:
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—
…
5 The s 269 judgment, above n 2.
(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.
[12]Section 269 of the Companies Act provides (insofar as relevant here):
269 Power to disclaim onerous property
…
(5)A person suffering loss or damage as a result of a disclaimer under this section may—
…
(b)apply to the court for an order that the disclaimed property be delivered to or vested in that person.
(6)The court may make an order under subsection (5)(b) if it is satisfied that it is just that the property should be vested in the applicant.
[13] Therefore, both under s 119 and s 269 Mr Memelink was required to satisfy the Court that he was “[a] person suffering loss or damage as a result of a disclaimer” by the Official Assignee (in the case of Mr Memelink’s bankruptcy) or by the liquidator, also the Official Assignee (in the case of Link’s liquidation).
[14] I concluded that Mr Memelink was not a person suffering such loss or damage as required, in either the liquidation or the bankruptcy.6
[15] In the case of the bankruptcy, Mr Memelink argued firstly, that he had a personal interest and could show loss because he was a guarantor of the lease, secondly, he was entitled to mount a derivative action to claim personal loss as a shareholder, and thirdly, that he had a claim based on a patent he held personally which was “undermined” or devalued by the termination of the Link lease by Peterland Ltd
6 The s 119 judgment, above n 2, at [64], [67]–[68] and [75]; and the s 269 judgment, above n 2, at [34].
(Peterland). However, I held Mr Memelink was unable to establish the requisite loss or damage because he had no personal interest in the claim.7
[16] I also concluded that Mr Memelink was not a person suffering loss or damage as required under s 269 of the Companies Act in terms of the liquidation, as the only loss or damage he pointed to was as a shareholder of Link.8 I found that on the material before me that loss or damage had no basis. Mr Memelink was not entitled to bring a derivative action, as the Official Assignee had refused consent to that action. The Official Assignee as administrator of Mr Memelink’s estate in bankruptcy held the shares, not Mr Memelink. There was no evidence before the court as to the asset/liability position of Link nor of Mr Memelink’s estate in bankruptcy.
Background
[17] The background to this application is set out in the s 119 judgment.9 In simple terms, Link leased premises from a previous owner of a unit in Hutt Park Road, Lower Hutt. Peterland gave Link notice to quit in March 2017. On 27 July 2017, Mr Goodson, for Peterland, removed stock and plant from the premises, putting them into storage and advising Mr Memelink of the situation.
[18] Link’s claim is that the lease was wrongfully terminated, as a result of which Link’s machinery plant, equipment and stock was rendered useless and its business was disrupted. Mr Memelink’s personal interest in the claim is that he alleges he had a patent which was being used in the Link business. As a result of the alleged wrongful termination of the lease and removal of equipment, Mr Memelink says his patent was “undermined” by being unable to supply customers with the product from the warehouse and as a result “jeopardised his court successes in North America because he ha[d] been unable to supply patented passholders pursuant to the Court Orders and settlement agreements”.10 Relief was sought, including damages “for loss of patent production in an amount to be quantified prior to the hearing in court of this matter”.11
7 The s 119 judgment, above n 2, at [64].
8 The s 269 judgment, above n 2, at [11] and [33]–[34].
9 The s 119 judgment, above n 2.
10 At [23].
11 At [24].
Causes of action
[19] The first three causes of action in the Link proceedings were repudiation of lease, conversion and damages for loss of business. They were claims that could only be made by the first plaintiff. Mr Memelink was a guarantor of the original Link lease, but the guarantee gave him no rights to bring actions based on breaches of lease, nor did it expose him to any claims for damages or otherwise as a result of the termination of the lease.
[20] As to the claim in relation to the patent which Mr Memelink alleged he personally held, I noted that the pleadings did not make any reference to the patent details.12 There was no evidence of registration, ownership, or the right to use the patent, as well as termination, term or duration dates.13 There was a bare allegation but lack of information and detail. In addition, I noted a patent could not be revoked for non-use, as appeared to be the allegation in the statement of claim.14 Therefore, any claim based on the vulnerability of the patent, which appeared to be the pleading in the underlying claim brought by Link and Mr Memelink, was not reasonably arguable.15
[21] Mr Memelink argued in relation to the s 119 application that he had valuable rights by virtue of his guarantee and therefore had a basis for claiming that he was a person “suffering loss or damage as a result of [the] disclaimer by the Assignee.”16 I found that Mr Memelink could not claim to have suffered loss or damage by virtue of any claim through the guarantee, as the guarantee had not been called upon, and therefore he had no right of subrogation nor any other obligation that might be put in jeopardy of suffering loss or damage as a result of the disclaimer by the Assignee.17 This argument was not pursued in the submissions in support of the application under s 269. I consider there is no merit in the argument that as guarantor Mr Memelink was
12 At [32].
13 At [33].
14 At [34]. This is in contrast to a trade mark: see Trade Marks Act 2002, s 66(1)(a); and compare Patents Act 2013, s 114.
15 At [36].
16 In terms of s 119(1) of the Insolvency Act.
17 The s 119 judgment, above n 2, at [28].
a person who would suffer loss or damage as a result of the disclaimer, either for the purposes of s 119 or s 269.
[22] In the s 119 application Mr Memelink submitted that he was entitled to bring a derivative action as the shareholder by virtue of his shareholding or directorship of the company. However, no application for leave from Mr Memelink to pursue a derivative action had been made. Mr Memelink as an undischarged bankrupt would also have required leave of the Official Assignee to bring a derivative action. In the submissions in support of the s 269 application, Mr Livingston indicated the Official Assignee had refused leave to bring a derivative action and had not disclaimed the shareholding. In the leave application, Mr Livingston on behalf of Mr Memelink submitted that the fact that Mr Memelink was a shareholder in Link should be sufficient to satisfy the requirement of “loss or damage” for the purposes of both s 119 and s 269.
[23] In the circumstances, I found that in relation to both applications Mr Memelink was unable to establish loss or damage as a result of the liquidator’s disclaimer of the action in relation to the first three causes of action. Link was disputing whether it had a right to renew the deed of lease. Any benefit from the first three causes of action would accrue to Link. Mr Memelink had lost nothing as he had no right in the first place. That was Link’s right and Mr Memelink in the circumstances had not satisfied the Court that he had an interest which could give rise to him suffering loss or damage as a result of the Official Assignee’s disclaimer in relation to either the s 119 or the s 269 application.
[24] I went on to look at the strength of the cause of action insofar as Link was concerned and concluded I was not prepared to say the claim was entirely without merit for the purposes of the application.18 I noted I had some reservations about the claim. The only piece of evidence which supported Mr Memelink’s claim that the lease had been renewed was that the landlord’s representative, Mr Horlor, had spoken to Mr Memelink and had confirmed that the lease was renewed. Mr Memelink produced a handwritten copy of a note it appears he sent to Mr Horlor thanking him
18 At [50]–[51].
for telling him the lease was confirmed.19 Mr Memelink also pointed to a third piece of evidence, formed part of his disclosure in the proceedings. It 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”.20 The email was dated 25 July 2017 and appeared to be part of a series of exchanges of emails between Mr Horlor and Mr Haines, who was Mr Memelink’s former lawyer. The email trail was not made available to the Court and therefore the context was not able to be examined. However, it appears nothing was ever done to formalise the lease which Mr Memelink said had been renewed in April 2014, until Link was given 28 working days’ notice of the termination on 17 March 2017. Even then, Link did not immediately respond by saying it had renewed the lease. Its initial response was that it was too difficult and expensive to relocate. It was not until 13 July 2017 that Link claimed it had renewed the lease in April 2014. However, the previous registered owner and the landlord at the time denied the lease was renewed.21 Other evidence that Mr Memelink pointed to as supporting his claim was a report made to a police officer, which on examination of the report, however, indicated that Mr Memelink had made the report himself.22
[25] Accordingly, the only piece of evidence that could in any way support Link’s claims in the substantive proceedings is an email, the full context and trail of which was not produced. It is by no means unambiguous, and was sent to a third party, Mr Haines, who did not provide an affidavit. As the lease required that the tenant had to give the landlord written notice to renew the lease at least three calendar months before the end of the term, I consider the claim by Link is weak.
[26] In addition, Mr Horlor has since died. No affidavit was obtained from him before he died to confirm that notice by the tenant for the renewal of the lease was given in writing.
19 At [42].
20 At [44].
21 At [45].
22 At [43].
Other factors
[27] In my assessment of whether it was fair or just that Link’s interest in the litigation should be vested in Mr Memelink, I considered the following factors:
(a)In terms of the merits of the proceeding by Link, I concluded the merits were weak.
(b)In terms of delay:
(i)The purported notice of renewal was alleged to be 14 April 2014. The lease expired on 18 August 2014, but Link continued to occupy the premises under the holding over provisions in the deed of lease. Peterland said the lease was terminable by either party on that basis on at least 20 working days’ notice. Peterland settled the purchase of the premises in September 2015. On 17 March 2017, Peterland gave Link 28 working days’ notice of the lease’s termination. Link responded that it was too difficult and expensive to relocate. It was not until 13 July 2017 that Link alleged it had renewed the lease in April 2014. In March 2018, Peterland removed Link’s trespassing goods and relocated them so they were available for Link or Mr Memelink to collect. Most of the goods were not collected. Link paid rent only to mid-July 2017. The nominal final expiry date of the deed of lease, if it had been renewed, was 17 August 2020.
(ii)Despite multiple requests, the plaintiffs failed to provide initial disclosure, and when they eventually did so pursuant to a subsequent court order, it was incomplete. Further, despite the court ordering the plaintiffs to comply with a notice served on the plaintiffs requiring a more explicit statement of claim and further particulars, that has never been done. No reply has been filed to the statement of defence and counterclaim nor has there been a statement of defence to the counterclaims.
(iii)Though Mr Memelink was declared bankrupt on 28 August 2018, the remaining director took no steps in these proceedings before Link was placed into liquidation on 23 May 2020.
(c)More generally:
(i)Mr Memelink said that he had “invested’ significantly in the proceedings to date. He said he had paid his lawyer over
$1 million. However, there was no evidence that his lawyer’s bill included work on these proceedings, or as to the extent of the lawyer’s time that had been expended on these proceedings. The extent of the work that appeared to have been done, as apparent from the court file, did not to substantiate that claim.
(ii)Mr Memelink at the hearing of the s 119 application submitted that his trust would fund the proceedings. Subsequently, Mr Livingstone advised the Court that the affairs of Mr Memelink and his trust were so intertwined that the Official Assignee had put caveats on the trust property, and therefore the trust was not able to fund the proceedings. In any event, no evidence was produced as to the ability of the trust to fund the proceedings, as opposed to its asset position.
(iii)The evidence in support of Link’s claims was very weak. The only evidence, apart from Mr Memelink’s assertions, in support of there possibly being a renewal of lease was equivocal at best and the witness had since died.
Proposed grounds of appeal
[28]The proposed grounds for appeal are that the Court erred in:
(a)finding there was no application under s 269 of the Companies Act to vest Link’s causes of action in Mr Memelink;
(b)finding that direct damage to a closely held company does not cause it any loss to the shareholder, Mr Memelink being the sole shareholder and director of Link;
(c)finding no application for a derivative action was made;
(d)finding there was no evidence Mr Memelink had incurred legal expenses in relation to the proceedings;
(e)finding that Mr Memelink had not pursued the proceedings in a timely manner; and
(f)taking into account irrelevant matters and failing to take into account relevant matters, in particular, in considering delay, finding that there was a period of time between the bankruptcy of Mr Memelink and the liquidation of Link in which Link could have pursued the proceedings.
[29] I note at this point the original hearing dealt only with the application under s 119 of the Insolvency Act. However, as noted above, there has since been a further hearing which dealt with the application under s 269 of the Companies Act. Therefore, the first ground is no longer relevant.
[30] The parties requested this matter be dealt with on the papers, without further material. No new application for leave to appeal was filed. I have therefore dealt with all the grounds of appeal as if they related to both the s 119 and s 269 applications.
Approach to application for leave
[31] As a civil proceeding, an appeal to the Court of Appeal can only commence if this Court grants leave.23 This leave requirement is a “filtering mechanism”.24 In determining any application for leave the following considerations are relevant:25
(a)a high threshold exists;
23 Senior Courts Act 2016, s 56(3). If this Court refuses leave, the Court of Appeal may nonetheless grant leave on application made to that Court, pursuant to s 56(5).
24 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
25 At [6], citing Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [9]–[14].
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[32] The appeal should only be granted where the significance or implications of an arguable error of fact or law, whether for the particular case, the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.26
[33] With regard to the principles above that the alleged error be of sufficient importance to the plaintiff to outweigh any lack of general or precedential importance, and that the circumstances warrant incurring further delay, Palmer J in Li v Chief Executive, Ministry of Business, Innovation and Employment set out a “more detailed exposition”,27 as follows:28
… an application to appeal an interlocutory decision under s 56(3) is likely to be granted if:
(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in the context of an appeal of the substantive decision; or
(b)the appellant is likely to be prejudiced by a postponement to the substantive appeal; or
(c)the appeal may be dispositive of the case in law or as a practical matter; and
(d)the arguments in the appeal are capable of bone fide and serious argument; and
(e)the issue on appeal concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.
More pithily, perhaps, an application to appeal an interlocutory decision under s 56(3) is likely to be granted where (a) there is good reason to consider it
26 At [7], quoting Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [17].
27 Greenfields Internet Ltd v Rural Networks Ltd [2019] NZHC 645 at [12], citing Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171, [2018] NZAR 1134.
28 Li v Chief Executive, Ministry of Business, Innovation and Employment, above n 27, at [21]–[22].
before, or separately to, the substantive appeal; and (b) it is sufficiently meritorious in substance and relates to a sufficiently important issue as to outweigh the cost and delay of appeal.
[34] In terms of interlocutory applications that determine the substantive rights of the parties, Dunningham J stated the following in Greenfields Internet Ltd v Rural Networks Ltd:29
… where the decision finally determines any aspect of the claim by either party, that would almost inevitably mean that leave to appeal should be granted. That is consistent with the fact that s 56(4) dispenses with the need to seek leave where the order or decision strikes out or dismisses the whole or part of a proceeding, claim or defence or grants summary judgment.
[35] The Court will also decline an application for leave in cases where the claim is very unlikely to succeed. In Burgess v Beaven the Court of Appeal considered an application for leave to appeal following an unsuccessful leave application in the High Court in relation to an application under s 119 of the Insolvency Act.30 The Court there stated:31
[8] An order can only be made under s 119 of the Insolvency Act if the Court is satisfied it is fair that the disclaimed litigation rights should be vested in Mr Burgess. We agree with the Associate Judge that in deciding what is fair, the Court is entitled to take into account the merits of the proposed claim, the effect of the delay and the interests of the proposed defendants. And when those considerations as well as the integrity of the Court processes taken into account, it is evident that it would be quite unfair for Mr Burgess’ application to be granted.
[36] In that case Mr Burgess’ claims had no prospect of success and the Court noted that the allegations were without “any evidential foundation”.32 Therefore, it concluded the Associate Judge was right to decline the application.33
29 Greenfields, above n 27, at [12].
30 Re appeal against a decision of the High Court, on the application of Burgess [2021] NZCA 300 [Burgess v Beaven].
31 Footnote omitted.
32 At [7].
33 At [10].
Analysis
[37] As I have found, Mr Memelink has not suffered loss or damage as required under s 119 or s 269.34 In addition, under s 119, I was not satisfied that it is “fair” that the disclaimed litigation rights should be vested in Mr Memelink.35
[38] When considering what is “fair”, the merits of the proposed claim and the effect of the delay in the interests of the defendants must be taken into account. The defendants have been tied up in litigation for four years, in relation to a matter which dates back eight years, in proceedings which have little merit. Moreover, such evidential foundation as they have cannot be tested by the defendants due to the death of a witness.
[39] While it is possible to argue in this case that the interlocutory decision would determine the proceedings, in that Link remains in liquidation and Mr Memelink is in bankruptcy, the claim is extremely weak and the only evidential foundation for the claim is an excerpt from an email, without the email trail surrounding it, from a witness who is now deceased. Given the delays, including those preceding the filing of the claim, but also the failure to comply with the requirements as to the rules in terms of disclosure and other directions, there is significant prejudice to the defendants.
[40] Mr Memelink argued that the matter is of sufficient significance to him as to justify leave to appeal. However, this is not a case where there is a question of law or of general principle of sufficient importance as to outweigh the cost and delay of the appeal. The claim is intensely fact-specific.
[41] As a final and distinct matter, Mr Memelink also submitted that his property had been damaged by the defendants leaving it out in the rain. Mr Livingston submitted that a valuation of $633,680 had been undertaken in relation to the extent of the damage to that property. However, there is no head of claim for the property which was said to be damaged. Moreover, while now in the leave application Mr Memelink says it was the second plaintiff’s property which was damaged, the
34 The s 119 judgment, above n 2, at [64], [67]–[68] and [75]; and the s 269 judgment, above n 2, at [34].
35 The s 119 judgment, above n 2, at [70]–[73].
pleadings and the underlying action plead that the property was owned by the first plaintiff. In any case, such a claim would need to be instituted separately.36
[42] I consider that to grant leave to appeal in this case would be inconsistent with the maintenance of the integrity of the Court process. I conclude that the applications for leave to appeal should be dismissed.
Conclusion
[43] The applications for leave to appeal the judgments relating to both the s 119 and s 269 applications are dismissed.
[44] It appears appropriate that costs be awarded on a 2B basis. If counsel are unable to agree on costs, any application and submissions should be filed within five working days of the date of this judgment, any response within a further five days and any reply within a further three days.
Grice J
Solicitors:
Livingston & Livingston Limited, Wellington Johnston Lawrence Limited, Wellington
36 The consent of the Official Assignee would of course be required to pursue proceedings in the name of Mr Memelink, unless the Official Assignee disclaimed its interest in the proceedings, in which case it would be open to Mr Memelink to make a further application under s 119 of the Insolvency Act.
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