McIver & Veitch Limited v Awataieri Holdings Limited HC Dunedin CIV-2007-412-000254
[2007] NZHC 1794
•6 June 2007
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2007-412-000254
IN THE MATTER OF the Companies Act 1993
BETWEEN MCIVER & VEITCH LIMITED Plaintiff
ANDAWATAIERI HOLDINGS LIMITED Defendant
Hearing: 31 May 2007
Appearances: R Kelly & C Hay for Plaintiff
B C Nevell for Defendant
Judgment: 6 June 2007 at 1 pm
In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 1 pm on the 6th day of June 2007
JUDGMENT OF ASSOCIATE JUDGE D I GENDALL
Introduction
[1] On 28 February 2007 the plaintiff served a statutory demand upon the defendant for the sum of $18,585.04 plus certain costs and interest. This represented debts said to be owing by the defendant under lease financing agreements entered into in August 2005 for two farm motorbikes which debts were originally due to Motor Trade Finance Limited and have now been assigned to the plaintiff.
[2] The demand was not met, and on 28 March 2007 the plaintiff commenced proceedings seeking an order placing the defendant company into liquidation.
MCIVER & VEITCH LIMITED V AWATAIERI HOLDINGS LIMITED HC DUN CIV-2007-412-000254 6
June 2007
[3] On 24 April 2007 the liquidation proceedings were advertised in the Otago Daily Times, and on 27 April 2007 they were advertised in the New Zealand Gazette.
[4] Regrettably, the plaintiff overlooked serving the proceedings on the defendant prior to placing these advertisements. It seems this omission resulted from an oversight by the solicitors to the plaintiff.
[5] This has culminated in four applications being made to the Court with respect to this proceeding. These applications are:
i)an application for relief by the plaintiff under r 5 High Court Rules excusing the plaintiff from failure to comply with the service requirement under r 700J High Court Rules;
ii)an application directing that the present proceedings continue in the High Court at Dunedin, and deeming that to be the proper office of the Court;
iii)an application by the defendant for leave to apply to set aside the proceedings; and,
iv) an application by the defendant to set aside the proceedings.
[6] I now turn to consider each of these applications. In doing so, it is appropriate to consider first the application noted in paragraph [5](ii) above.
Application regarding proper office of the Court
[7] The defendant’s position advanced before me was that as the registered office of the defendant company is in Auckland, the plaintiff has filed these proceedings in the wrong Court registry.
[8] The defendant noted r 700D High Court Rules, which states:
700D Proper Office of the Court
(1) Notwithstanding anything in rules 106(1) and 107(1) to (3), the proper office of the Court for the purposes of the filing of a statement of claim pursuant to rule 700C shall be –
(a) The office of the Court in the town where, or the office of the Court in the town nearest to where, the defendant company’s registered office is situated; or
(b) If the defendant does not have a registered office, the office of the Court in the town where, or the office of the Court in the town nearest to where, the defendant company’s principal or last known place of business is or was situated.
(2) Nothing in this rule limits the provisions of rule 107(4) and (5).
[9] The registered office of the defendant company is in Auckland and therefore the defendant argues the proceedings have been filed in the wrong registry.
[10] In response, the plaintiff maintains that r 107(4) should apply here, and that indeed the Dunedin registry is the proper office for filing these proceedings.
[11] Rule 107(4) High Court Rules states:
(4) Where it appears to the Court on application made to it that the statement of claim has been filed in the wrong office of the Court or that any other office of the Court would be more convenient to the parties, it may direct that the statement of claim be filed in such other office, or that all documents filed in the proceeding be transferred to the proper office or, as the case may be, to such other office which shall thereupon be deemed to be the proper office.
[12] As to this, counsel for the plaintiff contends that there is a proper basis for the present liquidation proceeding to be heard in Dunedin. The plaintiff resides in Dunedin, and the defendant company, although having its registered office in Auckland, carries on business in Otago. The governing director of the defendant is resident in Ranfurly. As I understand the position, the defendant company owns farmland, all of which is situated in the Otago region. Further, it seems that all aspects of the cause of action in this proceeding have arisen in Dunedin or the Otago region, and that most if not all witnesses reside there.
[13] That said, I am satisfied that in this case the Dunedin office of the Court would be more convenient to all parties, and that notwithstanding r 700D High Court
Rules, this is an appropriate case for the statement of claim and present liquidation proceedings to be filed and proceed in the Dunedin Registry of this Court.
[14] An order to this effect is now made pursuant to r 107(4) High Court Rules. [15] This disposes of the first application before the Court.
Application by the plaintiff for relief under r 5 excusing failure to comply with service requirement under r 700J
[16] Rule 700J High Court Rules states:
700J Restriction on advertising of proceeding
Except where a statement of claim filed pursuant to r 700C is filed by the defendant company, no person shall, unless the Court otherwise directs, publish any advertisement required by r 700I or any other information relating to that statement of claim until at least 7 days after the date on which the statement of claim in the proceeding is served on the defendant company.
[17] Here, as I have noted above, advertising of this proceeding took place on 24
April 2007 (in the Otago Daily Times), and 27 April 2007 (in the New Zealand Gazette), before the statement of claim and proceeding was served on the defendant. This is a clear breach of r 700J.
[18] The plaintiff, however, seeks relief from this failure in terms of r 5 High
Court Rules, which states:
5 Non-compliance with rules
(1) Where, in beginning or purporting to begin any proceeding or at any stage in the course of or in connection with any proceeding there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form, or content or in any other respect, the failure—
(a) Shall be treated as an irregularity; and
(b) Shall not nullify—
(i) The proceeding; or
(ii) Any step taken in the proceeding; or
(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 such a failure as is mentioned in subclause (1), and on such terms as to costs or otherwise as 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 such amendments (if any) to be made and to make such order (if any) dealing with the proceeding generally as it thinks fit.
[19] In considering r 700J High Court Rules McGechan on Procedure at para
HR700J.03 states:
HR700J.03 Consequences of infringement
Advertisement in contravention of r 700J may be highly prejudicial to a company; the English Courts have accordingly taken a strict approach to infringement. In Re a Co No 001127 of 1992 [1992] BCC 477, the creditor’s solicitors sent letters advising several of the debtor’s suppliers and its bank of the winding-up petition it had filed. Mummery J struck out the petition to mark the Court’s strong disapproval of the creditor’s conduct.
In Body Corporate 162791 v Mid City Apartments Ltd (2004) 17 PRNZ 289, the Court confirmed that a party who breaches r 700J is at risk of having the proceeding struck out. In that case, the Court refused to strike out the proceeding because there was no merit in the position taken by the defendant.
[20] In the present case it seems to be accepted that it was the plaintiff’s solicitors who placed the advertisements prior to serving this proceeding on the defendant company. The plaintiff itself was entirely innocent in this matter and the early advertising of the proceeding was simply accidental.
[21] In the Body Corporate 162791 case Associate Judge Faire found that in the circumstances of that case which he regarded as “exceptional” the breach of r 700J restricting advertising was cured by the application of r 5 because there was no merit in the defence advanced by the defendant. In that case he also found that the breach
was accidental. He went on to note that the debt claimed by the plaintiff from the defendant had already been the subject of consideration by the Court when Master Lang (as he then was) after a full hearing granted summary judgment in favour of the plaintiff for the amount of the debt shortly prior to the issue of the statutory demand and, on this basis Associate Judge Faire found at paras 17 and 18:
…The analysis carried out by this Court in the statutory demand judgment, indicates that there was simply no merit in the position adopted by the defendant.
[18] Accordingly, I decline to strike out this proceeding and I decline the application to stay and restrain the proceeding.
[22] In my view the circumstances of the present case however, differ from those prevailing in the Body Corporate 167291 case to a significant extent.
[23] The debt claimed by the plaintiff is strongly disputed and has not been the subject of any judgment or consideration by this or any other Court. The debt claimed by the plaintiff here represents amounts owing on the leases of the two motorbikes ($30,585.04) less the value of the repossessed motorbikes ($12,000) totalling $18,585.04. In addition a repossession fee of $681.75 is claimed together with default interest under the motorbike leases from repossession to March 2007 ($5,713,29) and legal fees of $1,915.43.
[24] In essence the defendants’ opposition to the claim relates principally to quantum issues. Questions are raised over the $12,000 repossessed value placed upon the two motorcycles. Apparently this is only an estimated value provided as at February 2007, nine months after repossession occurred. No evidence is before the Court first as to what was happening to the bikes during this intervening nine month period, or secondly, given that the bikes have still not as yet been sold, as to whether the plaintiff had fulfilled its obligation here to obtain the best price reasonably obtainable for the bikes.
[25] Counsel for the defendant noted that the plaintiff had an obligation to account to the defendant for the fair value of the motorbikes on repossession either under the Credit (Repossession) Act 1997 or under the Personal Property Securities Act 1999. The defendant’s position is that the plaintiff’s failure to provide it with information
as to the fair value of the bikes post-repossession, has left an unresolved issue as to the quantum of the debt owed, and that issue must be resolved in the District Court before any liquidation proceedings should even be considered.
[26] There are also claims in the affidavits of Mr Rodney John Humphries, director of the defendant, that at no time has the defendant ever received proper statements of account identifying what amounts were owing and providing the plaintiff with an opportunity to repay.
[27] Further, it seems that the original base sum claimed in the plaintiff’s statement of claim totalling $18,585.04 has been paid into the defendant’s solicitor’s trust account. Mr Humphries in his affidavits maintains that the defendant company is not insolvent, that it owns a significant farm property in which it has a substantial equity and the payment of the $18,585.04 into the defendant’s solicitor’s trust account is evidence of its solvency.
[28] In my view these matters advanced for the defendant are significant especially in the context here of the clear failure by the plaintiff to comply with the important requirements of r 700J. There is certainly a real issue over whether the amount claimed by the plaintiff in its statutory demand is indeed the subject of a genuine dispute. Questions also arise as to whether the defendant may in any event be solvent. It must be of assistance to the defendant’s position that it has paid the base disputed amount into its solicitor’s trust account.
[29] These factors all reinforce the conclusion that the circumstances of the present case are rather different from those which Associate Judge Faire faced in the Body Corporate 167291 case.
[30] As I see the position the present case is not therefore “an exceptional case” in the sense identified by Associate Judge Faire in Body Corporate 167291 and one where the plaintiff’s clear breach of the advertising requirements in r 700J should be cured by applying rr 5 and 6 High Court Rules.
[31] Although it does seem that the plaintiff at a late stage offered to publish a retraction of the offending advertisements, I am satisfied that the advertisements which were in clear contravention of r 700J may well prove to have been prejudicial to the defendant company.
[32] Associate Judge Faire in Body Corporate 167291 at para (15) stated:
It cannot be doubted that advertising may be highly prejudicial to a company. Any plaintiff who ignores r 700J is clearly at risk of having the proceeding struck out as an abuse of process.
[33] In my view under all the circumstances here the plaintiff’s failure to comply with r 700J should not be cured by applying rr 5 and 6 High Court Rules. Those circumstances as I see it do not result in the present case being seen as an “exceptional” one where the proceeding should not be struck out for breach of r 700J.
[34] I therefore decline the plaintiff’s application for relief under r 5 and note that an order striking out this proceeding for breach of r 700J is to follow.
Application by the defendant for leave to apply and for an order setting aside the proceedings
[35] Before me counsel for the defendant indicated that the application for leave and the application to set aside these proceedings were made effectively pursuant to r 5 or r 477 High Court Rules.
[36] The operative part of r 5 High Court Rules was set out at para [18] of this judgment. For the reasons which will follow, I am satisfied here that an order setting aside this proceeding in terms of r 5(2) should be made.
[37] As I have noted in para [28] above, the defendant arguably has done sufficient here to show first that there is a genuine dispute over the debt or at least a substantial part of the debt claimed against it in the statutory demand and secondly that the defendant company in any event is solvent.
[38] In North Island Freight Link Ltd v Performance Plus Fertilisers International Corporation Ltd HC Napier M92/96 5 November 1996 Master Thompson in a similar situation to the present where a technical breach of r 700J had occurred (and where unlike the present case a public apology from the plaintiff had been published) nevertheless still dismissed the proceeding. In doing so, he stated at pg 6:
…The English authorities show that even innocent breaches of the rule (r 700J) must be viewed seriously because advising other creditors that a winding-up proceeding had been issued and served during the seven day moratorium period could cause the company serious financial embarrassment particularly if it was in fact solvent and able and desirous of settling the debt.
[39] It is clear from English authorities that innocent breach of r 700J will still result in striking out of a proceeding – see Re Signland Limited [1982] 2 All ER 609.
[40] In the present case, in my view a decisive consideration also relates not to whether the breach of r 700J by the plaintiff was intentional, but rather the extent to which that breach has resulted in an injustice to the defendant. In this regard, I am satisfied under the circumstances prevailing here that the defendant has suffered significant prejudice in that had it been served with these proceedings prior to advertising taking place then it could have applied on the basis of an arguable case for a stay of that advertising on the grounds that:
a) There was a genuine dispute over the existence of the debt; and
b) The defendant company could show enough to suggest it was solvent. [41] On the other hand, so far as any injustice to the plaintiff in striking out these
proceedings is concerned, in my view this would be minimal. If the plaintiff still wishes to proceed it can start again and bring new proceedings afresh.
[42] I conclude that this an appropriate case for striking out the plaintiff’s proceedings under r 5(2) High Court Rules. That said, I do not need to consider the alternative ground under r 477 advanced by the defendant.
Conclusion
[43] It will be apparent therefore that the applications by the defendant first for leave to apply and secondly for an order setting aside these proceedings pursuant to r
5 High Court Rules succeeds.
[44] An order is now made that these proceedings are set aside pursuant to r 5
High Court Rules.
[45] As to costs, the defendant has been successful in bringing the applications noted at para [5](iii) and (iv) above. The plaintiff however has been successful in its application noted at para [5](ii) above but unsuccessful in its application noted at para [5](i) above. That said, the defendant is entitled to costs which are awarded on a category 2B basis together with disbursements as approved by the Registrar with respect to its application noted at para [5](iii) and (iv) above being for leave and to set aside these proceedings. There is to be no costs award with respect to those applications noted at para [5](i) and (ii) above.
“Associate Judge D.I. Gendall”
Solicitors: Wilkinson Adams, Dunedin for plaintiff
Dyer Whitechurch, Auckland for defendant
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