NZPS Limited v Evolo Limited

[2013] NZHC 2309

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-2004 [2013] NZHC 2309

BETWEEN	NZPS LIMITED Plaintiff
AND	EVOLO LIMITED Defendant

Hearing:	5 September 2013
Appearances:	E Grove for Plaintiff T J Herbert for Defendant
Judgment:	5 September 2013

ORAL JUDGMENT OF VENNING J

Solicitors:           C P Burke, Dunedin

Baker Law, Auckland

Copy to:            B L Gray, Dunedin

T J Herbert, Auckland

E Grove, Auckland

NZPS LIMITED v EVOLO LIMITED [2013] NZHC 2309 [5 September 2013]

Introduction

[1]      Evolo Limited, (the defendant), seeks an order from the Court striking out NZPS Limited’s (the plaintiff’s) application to liquidate it.  It seeks the order on the basis  that,  in  breach  of  a  Court  order,  the  plaintiff  advertised  the  fact  of  the liquidation proceedings.

Background

[2]      Pursuant to an agreement between the parties the plaintiff was to act as agent to sell residential apartments on behalf of the defendant, the owner of the apartments. The plaintiff considers the defendant failed to meet its obligations under that agreement for the commission or fees due to it.  It issued a statutory demand on 12

March 2013 seeking in excess of $103,000.  The statutory demand expired without being satisfied by the defendant. These proceedings followed.

[3]      Shortly after the issue of the proceedings the defendant, through its solicitors, communicated  with  the  plaintiff’s  solicitors  to  discuss  the  claim.    There  were ongoing discussions between the parties for some time.  The liquidation proceedings were first to be called before the Court on 31 May 2013.  On that day, by consent, they were adjourned through to 19 June 2013.

[4]      On 19 June 2013 the matter was again before the Court.  Counsel filed a joint memorandum advising that negotiations were still continuing.  They sought a further adjournment. The Judge adjourned the matter until 14 August 2013.

[5]      Apparently there was an arrangement between the parties that, during the course of these negotiations, the plaintiff would not advertise the fact of the liquidation proceedings.

[6]      Before the matter was next due to be called on 14 August 2013, counsel filed a joint memorandum of 5 August 2013.  It was referred to Associate Judge Abbott. The Judge issued a minute on 6 August 2013 in which he noted that it appeared the parties were effectively inviting the Court to determine a dispute over the quantum of the debt.   The Judge correctly noted that is not a function of the Court on an

application for liquidation.  The only issue was whether there was a genuine dispute. The Judge noted that the defendant had put funds aside to make payment of the undisputed part of the debt.   However, he left the matter in the list for 14 August

2013.  He noted if there was no issue over the defendant’s solvency there should be

no reason to keep the application alive on that date.

[7]      It is not clear when, but at some stage the negotiations between the parties broke down and the plaintiff’s solicitors took steps to arrange advertising of the liquidation proceedings so that, if necessary, the plaintiff could proceed when the matter was before the Court on 14 August 2013.

[8]      When counsel for the defendant received the Court’s minute on 6 August

2013 he realised that steps would be required to prevent advertising and filed an urgent memorandum with the Court seeking an interim order staying advertising.

[9]      As discussed with counsel that was inappropriate.  The appropriate course of action was to make an application.  If necessary it could have been an ex parte application but an application was required.  Nevertheless, the Court dealt with the matter on the basis of the memorandum and Associate Judge Bell, after observing the defendant was making its run very late, made an order restraining advertising until 14 August 2013.  As a condition of the order he directed the defendant was to pay the plaintiff the costs of any advertising incurred which had been wasted as a result of the order.

[10]     When the matter was before the Court on 14 August 2013 Associate Judge Abbott made directions for a defended hearing and continued the interim order for restraint of advertising.

[11]     As noted, in anticipation of the matter proceeding on the 14th, the plaintiff’s solicitors had put in train the advertising of the proceedings.  On receipt of Associate Judge Bell’s minute on 6 August 2013 the solicitors took urgent steps to prevent the advertising proceeding.  They sent emails to both the New Zealand Herald and the Gazette seeking confirmation the advertisements booked would not be published. They  received  confirmation  from  both  the  Herald  and  the  Gazette  accordingly.

However, unbeknown to the parties and their advisers, the advertisement was run in the Herald on 7 August 2013.

[12]     Counsel were unaware of that when before the Court on 14 August 2013. However, the matter was drawn to the attention of a director of the defendant, Mr Fawcet on 3 September 2013 when his solicitors in Wellington contacted him and referred him to the advertisement in the Herald.   Mr Herbert then filed a further urgent memorandum seeking an order striking out the proceeding citing overseas and New Zealand authority.   Again, as discussed with Mr Herbert, it is entirely inappropriate to make applications to the Court by way of memorandum. The appropriate form is a notice of application to the Court.  However, as the plaintiff has been able to respond to the matter I propose to deal with the application before the Court.

[13]     The authorities referred to are two United Kingdom and two New Zealand cases.  First, a decision Re Signland Ltd in which case Slade J stated:1

As I understand it, the principal reasons why the rules have directed that advertisement shall take place not less than seven clear days after service on the company are (1) to give a company served with a winding-up petition the opportunity to discharge the debt in question, if it is undisputed, before advertisement takes place, with all the necessarily potentially damaging consequences to the company, and (2) to enable the company, if it wishes to dispute the debt, to apply to the court to restrain advertisement. ...

It is the second of those features that applies in the present case.  I note that in the Signland case although there had been a breach it appears on the face to have been an innocent one.  There were supporting creditors, so although the Judge might have been minded to dismiss the petition for the breach, in the event he declined to do so.

[14]     The second is Re A Company No 001127 of 1992.2   A petition to wind up the company had been served.  The petitioner undertook not to advertise it before a set date.  However, letters mentioning the petition were then sent to the company’s bank and a number of its suppliers.   Mummery J considered that to be an abuse of the

Insolvency Rules and of the processes of the winding up court.  He considered the

1      Re Signland Ltd [1982] 2 All ER 609.

2      Re A Company No 001127 of 1992 [1992] BCC 477.

court’s strong disapproval of such actions required the striking out of the petition without investigating the merits of the petitioning creditor’s argument that the points raised by defendant to the petition were specious.  It was a clear case of a deliberate attempt to place pressure on the defendant company.  He struck the petition out.

[15]     In New Zealand the issue has been considered in Body Corporate 162791 v Mid City Apartments Ltd by Associate Judge Faire.3     In that case the plaintiff advertised the proceeding in the New Zealand Herald on 27 April 2004, one day inside the period prohibited by the Rules. Although the proceedings were not served on  the  company  until  20 April  they  had  been  served  the  previous  day  on  the solicitors  acting  for  the  company.     Following  receipt  of  the  proceedings  an

application  was  made  to  restrain  advertising.    However,  the  advertisement  had already run.

[16]     After  referring  to  the  authorities  of  Re  Signland  and  Re  A  Company, Associate Judge Faire considered that there were factors particular to the case before him, which in his view made it an exceptional case so that it was not necessary to strike out the proceeding.  In particular the Judge appears to have been influenced by the fact that there had been a determination by Master Lang, as he then was, in relation to the merits of the defence raised by the defendant.   The defendant had failed to take steps to prosecute an appeal from Master Lang’s decision.   A counterclaim issued by the defendant had not been proceeded with because the defendant had failed to comply with an order for security of costs.  There were also other complicating factors in relation to the defendant’s position.  When all those factors were taken into account, together with the fact that the plaintiff’s non compliance was accidental and not done for gain, the Judge considered the case before him to be exceptional so that strike out was not required.  He remedied the breach by application of the then Rules 5 and 6 of the High Court Rules.

[17]     The last case counsel drew my attention to was the case of Apparel by Design

Ltd v Team Kiwi Racing Ltd, a decision of Associate Judge Sargisson.4   In that case, although the issue was raised by the Judge, it was unnecessary for her to determine

3      Body Corporate 162791 v Mid City Apartments Ltd (2004) 17 PRNZ 289.

4      Apparel  by  Design  Ltd  v  Team  Kiwi  Racing  Ltd  HC  Auckland  CIV-2007-404-5790,  21

December 2007.

the matter because she was satisfied the application to strike out was made out on the ground that there had been no effective service of the statutory demand in the first place.  However, given the Judge considered there was a clear breach of the rule, which was not inadvertent, she would have struck the proceeding out.

[18]     The starting point is that advertising a liquidation proceeding is potentially highly prejudicial to a defendant company.   It is for that reason that the Rules provide a period of time after service of the application before the advertising can occur.  Once the proceeding is advertised it is difficult to quantify the particular prejudice to a defendant company but at the least it will come under pressure, both in relation to the existing proceedings and from other interested creditors.

[19]     In the present case the period of time for the defendant to make application to restrain the advertising was effectively extended by agreement.   When that period expired, albeit belatedly and in the wrong form, the defendant took steps to obtain an order to protect its position.  It obtained an order from the Court protecting its position.  The plaintiff was aware of the order and properly, through its solicitors, took steps to ensure the advertisements, which had been lodged in anticipation of proceeding, were not run.

[20]     Mr Grove submits that this is not a case of an abuse of process.  He says if the Court was to strike the matter out, it would be to sanction the plaintiff and the plaintiff was effectively innocent.

[21]     In my view, there are a number of factors in this case which support the strike out sought by the defendant company.  First, as noted, there is the prejudice to a defendant facing a liquidation proceeding if the fact of that proceeding is advertised. Second, in this case there was an order of the Court which the plaintiff through its solicitors was well aware of.  I accept that the breach was by the Herald and that the plaintiff, through its solicitors took steps to prevent the Herald advertising the proceeding.  However, I consider that to be relevant to the issue of costs rather than determinative on the issue of strike out.

[22]     Third, it appears that the plaintiff’s solicitors became aware, or should at least have become aware, of the fact the proceeding had been advertised but did not take any steps to alert the Court or the defendant to that.  In the solicitor’s affidavit reference  is  made  to  a  communication  from  an  insolvency practitioner  dated  7

August offering his services and a communication from another solicitor on 28

August advising there was a reference to the application for liquidation in the Mercantile Gazette, referring to the advertisement to be published in the 7th August edition of the Herald.  At that stage, given that the plaintiff, through its solicitors, was on notice of breach of the Court order, the appropriate course was for the Court and the defendant to be advised.  I accept that the plaintiff did attempt to address the matter by making further inquiries of the Herald but again I consider that to be relevant to the issue of costs rather than relevant to the issue of whether a strike out is appropriate.

[23]     Fourth, I consider there to be some force in Mr Herbert’s submission that the fact that this was an order of the Court that was breached rather than a rule is relevant.   Breaches of rules can be addressed by the slip rule as Associate Judge Faire applied in the case before him.  A breach of an order of the Court is a more serious matter.  The Court could, in its inherent jurisdiction, excuse such breach but it is important that a message be sent that orders of the Court are to be complied with.

[24]     The last relevant factor that I take into account in determining whether a strike out is appropriate is my general assessment of these proceedings.  As noted they were issued some time ago, in April this year.  They have been the subject of lengthy negotiations and discussions between the parties.  The parties at one stage sought the assistance of the Court to determine the dispute over the appropriate quantum.  These are liquidation proceedings.  It is not appropriate that the Court be required to engage in resolution of disputes of quantum of debt.

[25]     If the matter was straightforward, and if the plaintiff had not become aware of the breach before being advised by the defendant of it, the matter might have been different but, weighing up the factors as best as I can, I consider that the appropriate response in this case is to strike out the proceeding.

Costs

[26]    That leads to the issue of costs.  Mr Herbert seeks costs on behalf of the defendant.  He suggests that if there is any issue in relation to the responsibility of the Herald then the plaintiff can always recover its wasted and any costs order from the Herald.  However, again in the exercise of the Court’s discretion I am satisfied that costs on this application and the proceeding generally should lie where they fall. I have come to that view for the following reasons.

[27]     Firstly, as noted the defendant has twice in this proceeding made applications to the Court by memorandum which is entirely inappropriate.  Next, the application to liquidate is only before the Court because the defendant failed to respond to the statutory demand.  The dispute was only raised at a very late stage.  Importantly, as I have said, once the plaintiff became aware of the order of the Court (which the defendant obtained at short notice), the plaintiff’s solicitor took steps to act responsibly  and  to  do  what  could  be  done  at  that  stage  to  withdraw  the advertisements that it had earlier sent to the newspaper.  To a degree the position has arisen because of the approach taken by the defendant itself.

[28]     For those reasons I am not prepared to make an order for costs against the

plaintiff in the defendant’s favour.

[29]     On this application and on the proceedings generally costs are to lie where they fall.

[30]     I make it clear that in striking out the proceedings I do so because of the breach of the Court’s order and the need for the court to respond to that.  I do so, however, without prejudice to the plaintiff’s claim against the defendant.  It follows from the brief discussion above that on the information before the Court at present it does not appear that liquidation proceedings are the appropriate form of redress for the plaintiff against the defendant, at least in relation to the sum currently sought in

these proceedings.

Venning J