Mockingbird Properties Limited v Jhim Homes Limited

[2023] NZHC 737

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV2022-404-2242

[2023] NZHC 737

BETWEEN

MOCKINGBIRD PROPERTIES LIMITED

Plaintiff

AND

JHIM HOMES LIMITED

First Defendant

LASHMAN RAM JHIM

Second Defendant

Hearing:

7 March 2023

Appearances:

P Muir for the Plaintiff

D G Collecutt for the Liquidator of the First Defendant No appearance by or for the Second Defendant

Judgment:

4 April 2023

JUDGMENT OF GAULT J

This judgment was delivered by me on 4 April 2023 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors / Counsel:

Mr P Muir and Mr D Hoskin, Steindle Williams Ltd, Auckland Mr D G Collecutt, Barrister, Auckland

Mr T Meggitt (liquidator’s instructing solicitor), SDM Law, Auckland

MOCKINGBIRD PROPERTIES LTD v JHIM HOMES LTD [2023] NZHC 737 [4 April 2023]

[1]    The plaintiff applies for summary judgment against the first defendant to recover losses following the first defendant’s failure to settle on the purchase of a property at 32 Heathdale Crescent, Papakura, Auckland.1 The plaintiff also claims against the second defendant for inducing the breach of contract but does not seek summary judgment against the second defendant.

[2]On 6 December 2022, a freezing order was made on a Pickwick basis.2

[3]    On 19 December 2022, the first defendant was placed into liquidation by shareholders’ resolution.

[4]    The plaintiff seeks leave to continue the summary judgment proceeding against the first defendant.

[5]The liquidator abides the Court’s decision as to:

(a)whether leave should be granted to continue with the claim against the first defendant; and

(b)if leave is granted, what quantum should be awarded in relation to the core claim, interest and costs.

Factual background

[6]The plaintiff is the owner of the property.

[7]    The property was listed for sale by auction on 9 November 2021. The second defendant, the sole director of the first defendant, signed an auction bidding registration form. The first defendant agreed to purchase the property for $1,108,000 with a settlement date of 9 May 2022.

[8]    In subsequent correspondence, there were requests to vary the terms of the agreement, but no variation was agreed.

1      Record of Title NA68C/400, Lot 4 DP 119307.

2      Mockingbird Properties Ltd v Jhim Homes Ltd [2022] NZHC 3247.

[9]    On 9 May 2022, the plaintiff’s lawyer confirmed to the defendants’ lawyer that the plaintiff was ready, willing and able to settle and served a settlement undertaking.

[10]The first defendant failed to settle on the settlement date.

[11]On 10 May 2022, the plaintiff’s lawyers served a settlement notice.

[12]   The first defendant did not settle its purchase of the property within 12 working days of the date of the settlement notice or subsequently.

[13]   On 4 July 2022, the plaintiff’s lawyer emailed the defendants’ lawyer cancelling the agreement.

[14]   The plaintiff relisted the property for sale by auction. On 12 July 2022, following an auction, the plaintiff entered into an agreement for sale and purchase of the property with  a third party for $730,000.  Settlement  of that sale occurred on   20 September 2022.

Leave to continue proceedings following liquidation

Applicable principles

[15]   Section 248(1)(c)(i) of the Companies Act 1993 relevantly provides that once the liquidation of a company has commenced, a person must not continue legal proceedings against the company or in relation to its property unless the liquidator agrees or the Court orders otherwise.

[16]   In determining whether to grant leave under s 248, the key question for the Court is whether there are any circumstances that render it necessary for the legal proceedings to continue, or, put another away, whether the plaintiff’s claim is not one that can be easily dealt with in liquidation.3

3      Tobem Holdings Ltd v Kid Country Holdings Ltd (in liq) [2022] NZHC 2367 at [17] citing Sharnick Holdings Ltd (in liq) v Sharnick Investments Ltd (in liq) (2003) 9 NZCLC 263, 264 (HC) at  [19]-[22];  Hook  v  Gulf  Harbour  Development  Ltd  HC  Auckland  CIV-2002-404-1931, 23 November 2005 at [56]-[60].

[17]Considerations include:4

(a)whether the proceeding will produce an advantage to a particular creditor over other creditors;5

(b)whether the assets of the company in liquidation will be dissipated in wasteful litigation, particularly if there is a more convenient method for determining the claim;6

(c)the amount and seriousness of the claim, the degree and complexity of legal and factual issues and, if proceedings have already been commenced, the stage they have reached;7 and

(d)whether the liquidator is likely to require the claim to be proved, find it difficult to determine and, accordingly, reject it.8

[18]These principles are not exhaustive – delay is also relevant.9

[19]   Leave should be declined for a proceeding that is clearly unsustainable, but otherwise the Court will not enquire into the merits.10 However, leave will usually be declined if a claim will be ultimately fruitless.11

4      Tobem Holdings Ltd v Kid Country Holdings Ltd (in liq) [2022] NZHC 2367 at [18].

5      Satara Co-operative Group Ltd v Fus Ltd (in liq) HC Napier CIV-2008-441-856, 28 January 2010 at [12].

6      Fisher v Isbey (1999) 13 PRNZ 182 (HC) at [19(d)], citing Steel & Tube Co of NZ Ltd v JBL Construction Ltd [1973] 2 NZLR 30 and Langley Constructions (Brixham) Ltd v Wells  [1969] 1 WLR 503 (CA).

7      McPhail v Durbridge Developments Ltd (in liq) (1998) 8 NZCLC 261,610 (HC) at 261,612; Johnson v CBD Real Estate Ltd (in liq) (1999) 14 PRNZ 320,322 (HC) at [13]; Body Corporate 81381 v Trebe NZ Ltd (in liq) HC Wellington CIV-2003-485-332, 13 May 2003 at [22].

8      Clarence Holdings v Mt Albert TV (1993) Ltd (1999) NZCLC 262,072 (HC) at [4]; Hook v Gulf Harbour Development Ltd HC Auckland CIV-2002-404-1931, 23 November 2005 at [56]-[60].

9      Birchall v Project Works Construction Ltd (in liq) (2004) 9 NZCLC 263,547 (HC) at [24].

10 Fisher v Isbey (1999) 13 PRNZ 182 (HC) at [23], citing Saimei v McKay (1998) 6 NZBLC  102,611.   See  also   Bastin  Enterprises  Ltd  v  Graham   HC  Auckland  CIV-2008-404-4443, 4 November 2009 at [27].

11 Birchall v Project Works Construction Ltd (in liq) (2004) 9 NZCLC 263,547 (HC) at [24].

Discussion

[20]   Mr Muir, for the plaintiff, submitted that leave should be granted. In particular, he submitted:

(a)the wider factual matrix, including a cause of action against the second defendant for inducing breach of contract by the first defendant, provides persuasive reasons, outside of the liquidation of the first defendant, to grant leave;

(b)the summary judgment proceedings are factually and legally simple and should not incur significant unnecessary costs;

(c)the claim is strong, meeting the accepted threshold of not clearly unsustainable;

(d)the claim involves a large amount for a residential property transaction (approximately $400,000) which should not be curtailed by declining leave;

(e)judgment will not provide the plaintiff with any advantage over any other creditor of the first defendant; and

(f)the summary judgment proceedings are at a stage where judgment is ready to be entered.

[21]   I consider that leave should be granted in the circumstances of this case, for the following reasons.

(a)First, the claim is not clearly unsustainable. Indeed, the liquidator has accepted the plaintiff’s proof of debt filed in the liquidation for

$407,353.31.    There is a small quantum discrepancy between that amount and the plaintiff’s claim in this proceeding.

(b)Secondly, the proceeding will not produce an advantage to the plaintiff over other creditors.

(c)Thirdly, given the liquidator’s responsible position in relation to this proceeding, assets of the company in liquidation will not be dissipated in wasteful litigation. The unopposed application for summary judgment should not require a further hearing or significant court time. Indeed, given the submissions on the quantum discrepancy, there is some efficiency dealing with the matter in this proceeding.

(d)Fourthly, the inter-related nature of the claims against the first and second defendants means that the first defendant’s breach is a necessary prerequisite   to   the   claim   against   the   second    defendant.12    The liquidator’s (revocable) admission in the liquidation will not avoid the need for the plaintiff to prove the breach by the defendant in its claim against the second defendant (although the second defendant’s admission that the first defendant failed to settle should narrow the scope for dispute).

(e)Finally, since the first defendant was placed into liquidation by shareholders’ resolution, even vis-à-vis the first defendant I do not infer the proceeding is likely to be fruitless.

[22]   In relation to the terms on which leave is granted, the freezing order is relevant. I am advised that the liquidator has sold the Manurewa properties. Mr Muir indicated that the only matter holding up discharge of the freezing order is a costs order. Rather than discharge the freezing order now, I grant leave for the plaintiff to continue the claim for summary judgment only and leave the freezing order stayed.

12     Compare Weaver v HML Nominees Ltd [2015] NZHC 514 at [19]; and contrast McPhail (t/a Leaderbrand Produce) v Durbridge Developments Ltd (in liq) (1998) 8 NZCLC 261,610 (HC).

Result

[23]   Leave is granted for the plaintiff to continue the proceeding against the first defendant but only for summary judgment.

Gault J