Norris v Johnson Price Holdings Limited
[2012] NZHC 370
•8 March 2012
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2011-442-517 [2012] NZHC 370
BETWEEN PATRICK DEAN NORRIS Appellant
ANDJOHNSON PRICE HOLDINGS LIMITED Respondent
Hearing: 23 February 2012
Counsel: P D Norris (In person)
S Sansom and G P Malone for Respondent
Judgment: 8 March 2012
JUDGMENT OF MILLER J
[1] Mr Norris, having been appointed liquidator of Trafalgar Top Limited, decided soon after his appointment to offer the company’s panel beating business for sale as a going concern. To do that he needed the co-operation of its landlord, Johnson Price Holdings Limited.
[2] Rent not having been paid before Mr Norris was appointed liquidator on 18
December 2008, the landlord took steps to terminate the lease. Its director, Mr Glenny Johnson, advised Mr Norris that he saw no advantage in allowing the company to remain in the premises without paying rent, since he could re-let the premises himself.
[3] On 14 January 2009 Mr Norris accordingly emailed the landlord’s solicitor,
Mr Malone, advising that he had two interested buyers of the business and stating:
I can confirm that in the order of priority, the landlord will rank with the Liquidator for the current building rental for the months of January and February 2009, and from thereon a month to month basis. I trust this will
PATRICK DEAN NORRIS V JOHNSON PRICE HOLDINGS LIMITED HC NEL CIV-2011-442-517 [8 March
2012]
satisfy your client in the interim and allow us to progress for the benefit of all the creditors.
[4] Mr Malone responded, also by email:
Our client accepts the offer not to cancel the lease at the end of January on the basis that from January will be in the same priority as the Liquidator; for the avoidance of doubt we note that the rent date is the 6th of each month so if either party wishes to cancel that arrangement they would need to give notice on or before the 5th of the month in respect of the following month.
[5] Rent was not paid, and Mr Norris’s attempts to sell the business as a going
concern soon foundered. He gave notice indicating that he wished to vacate on 31
March. The evidence, however, is that not all of the tenant’s fixtures were removed by that time; indeed, they were not removed until a new tenant went into possession on 1 May 2009 under a new lease with the landlord.
[6] Mr Norris offered to pay rent for the months of February and March, and it is not in dispute that he was in funds to pay the rent at the time it fell due. However, he made his offer conditional upon acceptance in full and final satisfaction of his liability under the email agreement, and that was not acceptable to the landlord, who duly sued in the District Court, and won. In the meantime, Mr Norris says, he ran out of money and no longer has any funds available to pay the judgment debt. He explained that the liquidation has been a disaster for him, principally because he banked on setting aside a security taken by a shareholder shortly before the liquidation but the shareholder has sued to have the security validated. In the result, the liquidation has not been concluded.
[7] Mr Norris brings this appeal from the District Court judgment. He raised many legal and factual issues in his lengthy submissions, but the appeal depends on five of them. They are:
a) whether Mr Norris assumed a personal liability to the landlord in the email agreement;
b) whether the High Court alone had jurisdiction to deal with the
landlord’s claim against him;
c) what is meant by “rank with the liquidator” in the email agreement; specifically, whether the liquidator’s obligation to pay the landlord was an expense of the liquidation, to be paid in priority to the liquidator’s remuneration, or whether it ranked with the liquidator’s remuneration. There is a secondary issue, whether monies paid to the liquidator’s management company are included in liquidator’s remuneration for this purpose. It arises because Mr Norris says he personally has received no fees so has no liability to pay rent under the email agreement, but money was paid to his management company from the proceeds of the liquidation;
d) what sum is payable under the email agreement; and
e) whether Mr Norris’s ability is to be quantified at the end of the liquidation or when rent fell due for payment under the lease.
Did Mr Norris assume a personal liability to the landlord?
[8] It is not in dispute that under the email agreement Mr Norris assumed an obligation to the landlord for valuable consideration. Although the lease pre-dated the liquidation, the rent in issue was incurred after it and Mr Norris and the landlord reached an agreement under which the lease would not be terminated in return for his promise to pay rent.
[9] In his written submissions, however, Mr Norris emphasised that everything he did was done as agent for the company, claiming that in the result the company alone was liable for debts he incurred as liquidator.
[10] I reject this submission. The obligation that Mr Norris assumed, post- liquidation, to pay rent was an expense he incurred in the liquidation, certainly, but it was a personal obligation, albeit one for which he was protected in that it became,
with other expenses, a first claim on available funds.[1] It was his decision to assume
[1] Waimate Investments Ltd (In Liquidation) v O’Dea [2004] 2 NZLR 433 (CA); and Strachan v
Marriott [1995] 3 NZLR 272 (CA).
that liability, and he presumably did it in the belief that he would have funds to meet it. He might be sued in his own name by the creditor, and he would be personally liable to pay.
Did the District Court have jurisdiction over the landlord’s action against the
liquidator?
[11] Mr Norris’s argument on this point rested on s 284 of the Companies Act
1993, which deals with this Court’s supervisory jurisdiction over liquidators. There is no doubt that “Court” in that section means the High Court. Mr Norris argued that the landlord necessarily invoked s 284 by suing him.
[12] I reject this submission. The landlord did not purport to invoke s 284. The action was brought in contract, and it was well within District Court jurisdiction. So Mr Norris was required to argue that an action of this sort must be brought under s
284, if at all. But that section concerns, as I have said, the Court’s supervisory jurisdiction. It is invoked on application made by a liquidator or, with leave of the Court, a creditor. A creditor might get leave to seek an order that the liquidator pay a debt, I accept, but it does not follow that such is the only remedy available against a liquidator. Nothing in the section precludes an action in contract against a liquidator for an obligation incurred in the conduct of the liquidation. That being so, such an action may be brought in the District Court where it lies within that Court’s statutory jurisdiction.
Priority accorded rent payments under the email agreement
[13] Mr Norris argued that under the email agreement rent ranked equally with his own remuneration, which has never been paid because there are no funds left.
[14] His offer confirmed that in the order of priority the landlord would rank with the liquidator for the current building rental for January and February and thereafter on a monthly basis. Mr Norris’s purpose in making this offer was twofold. First, the landlord received an assurance that it would not rank with pre-liquidation creditors. It had been made clear that the landlord would not agree to that. Second, Mr Norris
limited his liability by ensuring that he need pay only if realisations permitted. His offer clearly placed rent in the same priority as the liquidator, but no distinction was drawn between the liquidator’s expenses and his remuneration. Both are naturally encompassed by the concept of ranking with the liquidator. I reject the submission that the landlord’s priority was relegated to that of the liquidator’s remuneration only.
[15] Mr Norris did not dispute that if this was the correct interpretation of the email agreement then he was able at the time to pay the rent from realisations.
[16] Against the possibility that I am wrong in this conclusion, I deal briefly with Mr Norris’s claim that the landlord is owed nothing because liquidator’s remuneration has not been paid. It is not in dispute that a distinction is drawn between expenses and remuneration notwithstanding that both appear in the same paragraph of the Seventh Schedule to the Companies Act, which fixes the statutory
priorities.[2] Expenses are paid before remuneration.[3] Further, there is no evidence
that Mr Norris has been paid fees calculated on an hourly rate basis for his own time.[4] Mr Sansom met the claim by arguing that the money paid to Mr Norris’s management company is remuneration as defined, and further that Mr Norris paid pre-liquidation wages which rank in priority below liquidator’s remuneration.
[2] Companies Act 1993, Schedule 7, para 1(1)(a).
[3] Re Circuit Developments Ltd, ex parte Mortimer [1981] 2 NZLR 243.
[4] Re Galdonost Dynamics (New Zealand) Ltd (In Liquidation) [1994] 2 NZLR 605 (HC).
[17] The Act does not define liquidator’s remuneration, and the term “remuneration” ordinarily means payment or recompense for services rendered.[5] A liquidator’s remuneration is by convention calculated on an hourly rate basis for fees, although some out of pocket expenses may be charged as disbursements. It is implicit in this model that overheads of the liquidators, such as wages and the expenses of running an office, are captured in the hourly rate. Mr Norris has chosen
in this case to charge differently, but that cannot alter the essential character of the payments. My attention was drawn to few details of the payments, but Mr Norris did
not dispute that they involved overheads of his business. Any expenses distinctly
attributable to the liquidation could have been, and presumably were, categorised separately as expenses. In the circumstances, I accept that money paid to his management company was liquidator’s remuneration.
[5] Spiller P Butterworth New Zealand Law Dictionary (7th ed, LexisNexis, Wellington, 2011) at 260, Lesley Brown (ed) The New Shorter Oxford English Dictionary on Historical Principles (4th ed, Oxford University Press, 1993) at 2543.
[18] Mr Norris did not dispute that he chose to pay staff for wages earned but not paid before liquidation. The amount involved was $38,696. Nor did he dispute that under the statutory priorities pre-liquidation wages rank in priority below liquidator’s remuneration. He claimed, rather, that he was entitled to pay the staff because a shareholder paid him $28,000 on the basis that he would pay outstanding wages to the staff. That might suffice, but there is no evidence of it in the record and no application was made for leave to call further evidence on appeal. Mr Sansom took the point, as he was entitled to do. I accept that, on the evidence, Mr Norris ought to have paid the landlord what was owed under the email agreement before he paid pre-liquidation wages.
The amount payable
[19] Mr Norris initially offered to pay only the two months rent due for February and March, reasoning that January had been the subject of an agreed rent holiday and he had given notice to terminate on 31 March. The landlord wanted rent for both January and April.
[20] Before me Mr Norris conceded that his obligation did extend to the month of
January. The remaining issue was when the obligation to pay terminated.
[21] After March, rent was payable under the email agreement on a month by month basis. Mr Norris maintained that he had several times advised the landlord that the arrangement would end on 31 March. It appears that he came close to negotiating an agreement for sale of the business under which the new tenant would remove tenant’s fixtures by that date, but those negotiations failed and a new tenant was arranged by the landlord. The evidence for the landlord was that Mr Norris indicated late in March that he wanted to vacate at the end of the month, but did not give notice. The landlord told him that he would need first to remove tenant’s fixtures and make good. He then announced on 9 April that he wanted to move out
that day. The landlord observed that certain tenant’s fixtures remained in the premises, notably a large fibreglass spray booth, and the premises had not been made good. It was not in dispute before me that both were tenant’s obligations under the lease. He inquired of Mr Norris’s office, and was told by a secretary that Mr Norris had been working towards 1 May. Late in April some making good work was done.
[22] The District Court Judge found that not until 1 May, when the new lease began, did the obligation terminate. That finding was based on the oral evidence of the parties and the documentary record, which established both that written notice of termination was never given and that work remained to be done as at the end of April.
[23] It is important to bear in mind that the obligation being terminated by Mr Norris was not the lease itself but the email agreement. Insofar as the tenant retained obligations under the lease that were not subject to the email agreement – such as the obligation to remove fixtures and make good - it would rank with other unsecured creditors. Further, notice of termination might have been given otherwise than in writing.
[24] However, the evidence is that Mr Norris himself accepted that he must comply with the tenant’s obligations on termination of the lease, and both parties conducted themselves on the basis that not until they were complied with would his liability cease. Mr Norris was banking on the new tenant taking over existing fixtures and/or removing them for him. His stance, confirmed by a letter sent as late as 1 May, was that by selling such items to the new tenant at a discount he was benefiting the creditors, including the landlord. He may well have wanted to vacate by the end of March, but in the interests of securing his own agreement with the new tenant he allowed matters to drag on. Even if I am wrong in that, the evidence that he told the landlord on 9 April that the arrangement ended as of that date confirms that he was too late to avoid liability for the month of April.
[25] In the circumstances, I am not persuaded that the District Court was wrong to conclude that notice of termination was not given.
[26] It follows that the liquidator’s liability under the email agreement was
properly quantified by the District Court at $23,342.34 plus interest.
Is priority to be assessed at the end of the liquidation, or as the liquidator’s
debts fall due?
[27] As noted, Mr Norris explained that the liquidation has been a financial disaster and he no longer has the funds to pay the landlord. Expenses, including unexpected legal costs, have consumed all of the realisations. He argued that not until the liquidation ends can the amount, if any, payable to the landlord under the email agreement be fixed. So if the rent is deemed to be an expense, the amount claimed would be reduced pro-rata so that it corresponded to the proportion, presently unascertained, which the rent bears to the total of all expenses.
[28] I reject this submission, which evidently came as an afterthought. It presumes that under the email agreement the landlord would not be paid at all until realisations had been completed and all expenses quantified. I can find no support for that in the email agreement, the natural meaning of which was that, in return for the landlord’s co-operation, rent would be treated as a liquidator’s expense and paid when due.
[29] Mr Norris further argued that in the ordinary way a liquidator may deal with all his expenses by delaying payment until the liquidation is concluded then pro- rating creditors where realisations are insufficient. I do not accept that. Liquidators assume their obligations personally having decided, presumably, that they have the resources to pay as debts fall due. They are better placed than their creditors to make that assessment. Nor is Mr Norris’s own behaviour consistent with his argument. He not only offered to pay the landlord two months rent at the time in full and final satisfaction but also paid many other creditors, presumably in full, as their claims fell due.
Decision
[30] For these reasons, which correspond in substance to those of the District Court Judge, the appeal is dismissed. The respondent will have costs in this Court on a 2B basis with provision for one counsel.
Miller J
Solicitors:
Solutions Law Office, Nelson for Respondent
0
0