Ogilvie v L Stevens Builders Limited HC Rotorua CIV 2010-463-000155

[2011] NZHC 1565

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2010-463-000155

UNDER  The Companies Act 1993

IN THE MATTER OF     an application to strike out a proceeding

BETWEEN  TREVOR OGILVIE AND GWENDOLYNNE ANNE OGILVIE Plaintiffs/Respondents

ANDL STEVENS BUILDERS LIMITED Defendant/Applicant

Hearing:         7 July 2011

Appearances: M Branch for the Plaintiffs/Respondents

AGW Webb for the Defendant/Applicant

Judgment:      7 July 2011

Reasons:        12 July 2011

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

12.07.11 at 1:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:
A Webb, Barrister, Auckland –  [email protected]

M Branch, Harkness Henry, Hamilton – [email protected]

TREVOR OGILVIE AND GWENDOLYNNE ANNE OGILVIE V L STEVENS BUILDERS LIMITED HC ROT CIV 2010-463-000155 7 July 2011

[1]      My minute dated 7 July 2011 records my brief reasons given at that time for appointing liquidators to the defendant company.  I indicated then that I would give fuller reasons for my decision and in that course would address some relevant parts of counsels’ submissions.

Background

[2]      The plaintiffs obtained judgment against the defendant (LSB) for costs in the sum of $7,476.67 pursuant to a decision of the Rotorua District Court dated 18

February 2011.   On 21 February 2011 the plaintiffs served a statutory demand on LSB.  LSB did not pay on the statutory demand and on 15 March 2011 the plaintiffs filed a notice of proceeding and statement of claim seeking an order for the liquidation of LSB.

[3]      On 29 March 2011 LSB filed a statement of defence.  It pleaded that pursuant to Rule 11.13 of the High Court rules it is stated:

(1)       A step may be taken on a judgment before it is sealed only with the leave of a Judge.

(2)       A party may appeal under rule 31 of the Court of Appeal’s (Civil) Rules 2005 against a judgment before it is sealed, but must take steps to ensure the judgment is sealed without delay once the appeal is brought.

[4]      The evidence discloses that counsel for LSB wrote to the plaintiffs on 28

March 2011 advising that the issue of a statutory demand (and the liquidation proceedings that followed) was premature and that the proceedings ought to be withdrawn because the order for judgment had not been sealed prior to those steps having been taken.

[5]      The plaintiffs solicitors responded by asserting that there was no requirement to have the judgment sealed in order to seek demand from LSB.

Considerations

[6]      Counsel for LSB submits there are two questions for determination:

(a)      Whether service of the statutory demand was, in the circumstances, a

“step taken on a judgment”.

(b)Whether  leave  (to  take  such  a  step  before  sealing)  can  be  given retrospectively.

[7]      In  support  of  the  former,  counsel  refers  to  a  decision  of  mine  in  Tiny Intelligence Limited v Resport Limited 1.   In that case the judgment sum had been paid and the liquidation proceedings had been struck out.  The issue for the Court was the plaintiff’s claim for costs upon the liquidation application.

[8]      That case concerned the proprietary of issuing liquidation proceedings on a judgment amount even though judgment had not been sealed.

[9]      I refused an order for costs in favour of the plaintiff nothing:

... It is my judgment that whilst it was not “illegal” or inappropriate to take the course of action the plaintiff did, and although the plaintiff was not arguably in breach of the Rules, it is inadvisable and to some extent logically inconsistent with the scheme of the Rules to take the pre emptive action [undertaken] in this case. [24]

[10]     I exercised the Court’s jurisdiction to refuse an order for costs in favour of the plaintiff.   I did not hold that the liquidation proceedings could not have been advanced in the manner they had been.  Rather I cautioned against that approach and indicated reasons why such caution should usually be undertaken.

[11]     Mr Webb for LSB submits that Rule 11.13 (1) clearly requires leave to be sought before any step is taken on a judgment prior to sealing.  He cited the reasons for which sealing a judgment are required, namely:

(a)       That action upon a judgment should not proceed before that judgment is sealed to enable the parties to confer and confirm there is no dispute

about the judgment.

1 Tiny Intelligence Limited v Resport Limited CIV 2003-409-352, 12 February 2007.

(b)To  ensure  there  has  been  confirmation  that  the  judgment  is  not contentious.

(c)       To ensure all other affected parties have been so notified.

[12]     LSB’s backup position addresses the efforts by plaintiffs’ solicitors to seal the judgment after the liquidation proceedings had been filed and served.  After sealing, the plaintiffs’ solicitors served a second statutory demand and then indicated to LSB’s solicitors that if necessary they would apply to pursue the current liquidation proceedings, relying upon the second statutory demand.

[13]     Mr Webb submits that the overall justice of this case requires that leave not be given retrospectively for the statutory demand to be issued.   Rather, that the liquidation proceedings should be dismissed.  Mr Webb submits that the appropriate course was for the plaintiffs to immediately abandon their current proceedings when the judgment was sealed, and further that they should independently pursue remedies under the second statutory demand and therefore a new proceeding should have been filed; because the second statutory demand was served while the current proceedings were on foot, and therefore service of that second statutory demand amounts to an abuse of process.  That is the reason, he says, why the second statutory demand has not been paid.

[14]     Much of the focus of Mr Webb’s submissions is upon the service of the second statutory demand and the expressed intention of the plaintiffs to seek leave to proceed on the second statutory demand, if it is necessary for them to do so.

[15]     It is in this context that Mr Webb’s submissions focus upon a claim of an abuse of process.   He submits that the liquidation proceedings based on the first statutory demand needed to be withdrawn before there could be a proceeding upon the second statutory demand.  Hence the strike out application filed by LSB which is the concern of this hearing.

[16]     LSB submits that the proceedings amount to a duplication of proceedings once the second statutory demand was served, and that the plaintiffs should continue

with those amounts to implicit acknowledgement that the first statutory demand was defective and is an abuse of process.

[17]     I disagree with that submission and I see no purpose at all of reviewing principle or case law about when it is and is not appropriate to strike a proceeding out on the basis of a claim of abuse of process.

[18]     The issue of a statutory demand constitutes the start of a “proceeding”.  As such service of same must be completed in terms governed by s 387(1) of the Companies Act 1993.   Hence, Mr Webb submits, because service of a statutory demand  starts  the liquidation  process,  the  plaintiffs  have by the service of two statutory demands initiated two sets of proceedings against LSB, both in respect of the same debt and both seeking precisely the same relief.  That Mr Webb submits, amounts to an abuse of process.

[19]     Respectfully I disagree.  The argument for LSB proceeds upon the basis that the plaintiffs accept their first statutory demand was defective for the purpose of initiating the current liquidation proceeding.   Clearly the plaintiffs have out of an abundance of caution issued the second statutory demand in case the first should be held to be an a nullity because it was based on a judgment that was not at that time sealed.  I do not think it is implicit by the issue of the second statutory demand that the first was a nullity.  For reasons I shall briefly review, I do not consider that the first statutory demand was a nullity.

[20]     There  is  not  a  requirement  that  a  judgment  be  sealed  before  issuing  a statutory demand. A statutory demand is issued pursuant to the Companies Act 1993 as a means of creating an evidential presumption of insolvency.  It is distinct from enforcement or appeal rights available under the District Court Rules.  Confusion has arisen by the attribution of there having been a “step”, by the issue of statutory demand.   In fact LSB’s liability to pay the cost judgment arose at the time of the judgment and is not delayed pending the sealing of it.

[21]     The interpretation urged on behalf of LSB is inconsistent with the purposes of the Companies Act 1993.  The failure to comply with the statutory demand raised a

presumption of insolvency that could be relied upon to place the company into liquidation now.  Therefore it is an action that arises within the Companies Act for the purpose of raising a presumption of insolvency.  It has no connection with the District Court Rules or the Court processes.

[22]     A condition precedent to the issue of a statutory demand is that there is a debt due to the creditor.   It is not necessary for it to be a debt that should rely upon a judgment being obtained prior to service of a demand for payment.

[23]     My judgment in the Tiny Intelligence case is not authority for the proposition that a statutory demand cannot be issued until a judgment is sealed.

Conclusion

[24]     The plaintiffs’ statutory demand dated 21 February 2011 was not defective. Therefore, the plaintiffs did not ere in law by issuing a statutory demand without the judgment being sealed.

[25]     As alluded to in my minute dated 7 July 2011 LSB’s position is not based upon a claim that the judgment debt is not payable but rather that it is not payable just yet.   To its mind it would pay the debt once the recovery process had been perfected.

The orders for liquidation and costs

[26]     On 7 June 2011 I issued a minute in response to a request from  LSB’s counsel to vacate the fixture scheduled for [as it then was] 8 July 2011.  My minute noted my view that the strike out application and the liquidation proceedings could both be heard in half a day and that therefore there was no reason to adjourn the hearing because more hearing time would be needed.   At the conclusion of my minute I suggested to counsel that their written submissions should address the options available under s 291(1)(a) and (b), in the event the strike out application failed.

[27]     As would have been clear from my reference to those provisions  of the Companies Act,  the  Court  was  prepared  to  give  consideration  to  an  immediate liquidation if the circumstances warranted it.

[28]     My minute dated 7 July 2011 alluded to an indication given by LSB’s counsel regarding the company’s solvency, or lack of it.

[29]     Despite a clear indication given by me on 7 June 2011 that the question of solvency would be a focus for the Court if the strike out application failed, no evidence of solvency has been advanced on behalf of LSB although at the eleventh hour LSB has deposited the sum of $8,000 with its solicitor to be held pending the determination of its strike out application.  This factor itself is not persuasive of the company’s solvency.

[30]     During my telephone conference with counsel at 2:00pm on 7 July 2011 it was  clear  counsel  had  agreed  that  2B  costs  amounting  to  $8,157.80  would  be payable if an order for liquidation was made.

[31]     In terms of the undertaking given when LSB’s $8,000 was deposited with its

solicitor, that sum, arguably, is now payable to the plaintiffs.  That is not a matter with which the Court now need concern itself.

Associate Judge Christiansen