Omid Construction Management Group Limited v Target Painters & Decorators Limited
[2019] NZHC 3189
•5 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002337
[2019] NZHC 3189
BETWEEN OMID CONSTRUCTION MANAGEMENT GROUP LIMITED
Plaintiff
AND
TARGET PAINTERS & DECORATORS LIMITED
Defendant
Hearing: 22 November 2019 Appearances:
J McBride for Plaintiff
C Smith for the Defendant
Judgment:
5 December 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 5 December 2019 at 10.30 am pursuant to Rule 11.5 of the High Court Rules.
…………………………………
Deputy Registrar
Solicitors:
Greenwood Roche, Auckland J McBride, Auckland
OMID CONSTRUCTION MANAGEMENT GROUP LTD v TARGET PAINTERS & DECORATORS LTD [2019] NZHC 3189 [5 December 2019]
[1] This is an interlocutory application by the defendant for orders restraining advertising of a liquidation proceeding and staying the proceeding under r 31.11 of the High Court Rules 2016.
[2] The application for restraint and stay was filed on 4 November 2019, along with a supporting affidavit from Sid Sek Yin Cheah, the director of the defendant, in response to the plaintiff’s application for the defendant’s liquidation which was filed and served a matter of a few working days earlier, on 25 October 2019.
[3] The application for liquidation followed the defendant’s unsuccessful attempt to challenge the plaintiff’s statutory demand for unpaid invoices. On 7 October 2019, after a defended hearing, Associate Judge Andrew declined to set aside the statutory demand.1
[4] On 11 November 2019 the defendant filed a statement of defence; and on 19 November 2019 the plaintiff filed a notice of opposition to the restraint and stay application (without a supporting affidavit).
[5] At issue is whether I should exercise the Court’s discretion to grant the application for restraint and stay. It is not in dispute that the defendant has the onus of showing grounds for such an order.
[6]The defendant’s case in support of dismissal is founded on three factors:
(a)There is a genuine and substantial dispute between the parties which is currently being resolved by judicial review proceedings challenging the validity of an adjudicator’s determination made pursuant to the Construction Contracts Act 2002 on or about 23 July 2019. If the judicial review succeeds, the defendant will not owe the plaintiff any debt.
1 Target Painters & Decorators Ltd v Omid Construction Management Group Ltd [2019] NZHC 2544.
(b)The defendant has traded successfully for over 18 years, its assets exceed its liabilities and it is manifestly able to pay its debts as they fall due, as shown by the fact that it has paid the sum owing pursuant to the determination ($78,687.23) into its solicitor’s trust account.
(c)There is a real risk of irretrievable prejudice to the defendant if forced to pay the debt before the judicial review proceeding is determined as the plaintiff is unlikely to be able to refund it if required to do so.
[7] For reasons I will come to, I am not satisfied that the defendant has established sufficient grounds to warrant staying the liquidation application or for restraining advertising of the application.
Some preliminary matters
[8] I pause to refer to some preliminary matters before turning to refer briefly to the principles applicable to the defendant’s application and my reasons for declining the application.
[9] At the hearing counsel for the defendant advised that the defendant would pay out the sum of $78,687.23 without further argument about its liability for that sum if the judicial review fails. The hearing for the judicial review is now scheduled for 5 December 2019.
[10] Under r 31.11 an application to stay advertising is required to be filed within 5 working days of service of the statement of claim. The defendant acknowledges that the statement of claim was filed and served on 25 October 2019. The application for restraint and stay was filed and served on 4 November 2019, and therefore in time (as 28 October 2019 was a public holiday).
Relevant principles
[11]Rule 31.11 states:
31.11 Power to stay liquidation proceedings
(1)If an application for putting a company into liquidation is made under rule 31.3, the defendant company … may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—
(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b)for an order staying any further proceedings in relation to the liquidation.
(2)The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3)The inherent jurisdiction of the court is not limited by this rule.
[12] The relevant principles concerning the Court’s jurisdiction to stay proceedings are well-established.2
[13] In Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd Wallace J set out the principles:3
(a)The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b)The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.
(c)The governing consideration is whether the proceedings suggest unfairness or undue pressure.
2 See Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA). These authorities remain relevant to the present approach.
3 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd, above n 3, at 385.
(d)It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits they are required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.
[14] It is clear also that the power to restrain advertising may be exercised separately from the power to stay the proceeding. Advertising may be restrained where “on the face of it” there is a genuine dispute, the Court will then fix a date to finally determine the issue of whether there is in fact a genuine dispute.4 But the Court retains a discretion. It may be appropriate to give notice by advertisement to potentially interested persons, since such persons may be aware of potential difficulties within the company.
Discussion
Is there a genuinely disputed debt?
[15] The plaintiff says the defendant’s case – for the existence of a substantial dispute about the debt – is ill founded. This is on the basis that:
(a)There have been two decisions – the adjudicator’s and Judge Andrew’s
– which have found that the plaintiff’s claim for payment of the debt is not the subject of any substantial dispute.
(b)The current challenge to the adjudicator’s determination is based on narrow, technical grounds concerning the adjudicator’s jurisdiction which were fully argued and rejected by Judge Andrew. Judge Andrew
4 Walls v Arbor Real Ltd (1994) 8 PRNZ 61 (HC) at 62.
found that rather than striking at the very validity of the determination, the factors complained of were of little consequence.5
(c)Further, the application for judicial review of the determination does not of itself constitute a ground for refusing the liquidation and the defendant has taken no steps to apply for a temporary stay of the determination under s 15 of the Judicial Review Procedure Act 2016 pending the outcome of the review.
(d)Though there is now an appeal against Judge Andrew’s decision, the defendant does not rely on that fact and tellingly has failed to make application for a stay under r 12 of the Court of Appeal (Civil) Rules 2005. That omission is tacit acknowledgement that any expectation of a stay would be misplaced. This is supported by the Court of Appeal’s remarks regarding its jurisdiction to stay judgments under the Construction Contracts Act 2002 in Salem v Top-End Homes:6
While the stay jurisdiction remains available in respect of judgments given under that Act, clearly the courts will need to be circumspect about exercising it; unless exercised carefully, the stay jurisdiction could significantly undermine the purpose and underlying principles of the Construction Contracts Act.
Circumspection is doubly appropriate here, where not one but two decisions have ruled against the defendant in respect of it liability for the claimed debt.
[16] In relation to the issue of solvency the plaintiff says there is no evidence that the defendant is solvent. The defendant’s contention that it has been in business for some years is not sufficient to rebut the statutory presumption of insolvency based upon its non-compliance with the statutory demand. Nor, the plaintiff says, is the payment into trust of the amount claimed as owing a sufficient rebuttal. The application for liquidation is not, in the circumstances, an oppressive use of the procedure to force a solvent company to pay the debt that has been found owing. It is
5 Target Painters & Decorators Ltd v Omid Construction Management Group, above n 1, at [58].
6 Salem v Top-End Homes (2005) 18 PRNZ 122 (CA) at [3].
a proper response to an expired statutory demand – that has withstood challenge – which the defendant refuses to pay.
[17] Regarding risk of irretrievable prejudice, the plaintiff acknowledges freely (through counsel) its own difficult financial circumstances and that there is a real risk it will be unable to repay the $78,687.23 if – upon the outcome of the judicial review
– it is ultimately required to refund it. But it says it says the defendant must expect such a risk where there has been an inexcusable refusal to withhold what it has been found, in unequivocal terms at adjudication and in this Court, to owe to the plaintiff.
[18] The plaintiff says that the risk must be viewed in the context of an alleged dispute which has been thoroughly argued and rejected. The application is nothing more than yet another attempt to evade payment of a statutory debt.
Assessment
[19] Taking collectively all the submissions for the plaintiff, I agree that the defendant has not made out sufficient grounds for staying the liquidation proceeding or restraining advertising under any of the three heads of its case for dismissal.
[20] Regarding the purported existence of a real and substantial dispute about the amount claimed, there is a debt that has been found owing not once but twice, with no stay in respect of either decision. The mere fact that there is a judicial review proceeding based on an alleged excess of jurisdiction does not found a basis for finding there is a substantial dispute as to the debt itself. If the defendant wants to delay or avert the liquidation proceeding it has it in its own hands to release the amount it has paid into trust. But if it chooses not to do so – and ultimately there are grounds to terminate the liquidation – the option remains of seeking to terminate under s 250 of the Companies Act 1993.
[21] The defendant’s claim of solvency also offers no support for its application for restraint and stay. There is no evidence to support the defendant’s general solvency. No financial data has been put in evidence to support a possible finding that the defendant meets the statutory solvency test or that goes any way to rebut the statutory
presumption of insolvency. The payment into a solicitor’s trust account of the sum claimed does not establish the defendant is able to pay its debts as they come due and the contention that the defendant has assets that exceed its liabilities, including contingent liabilities, is wholly unsubstantiated.
[22] The defendant is right about one thing – the plaintiff’s financial position appears precarious and it may not be able to repay money if called upon to do so. But in light of the circumstances that should not weigh heavily against the plaintiff. This is the kind of case where that risk is properly borne by a party who has been found to lack an arguable excuse for non-payment.7
[23] Taking all these matters together, the defendant has failed to demonstrate grounds that show it would be an oppressive use of the liquidation process or unfairly prejudicial to allow the liquidation proceeding to continue and not to make an order restraining advertising.
[24] For these reasons I am not satisfied I should exercise the discretion to order the restraining of advertising or the staying of the proceeding, whether temporarily or permanently.
Result
[25]The application for restraint and stay is declined.
[26]The application for liquidation is adjourned for advertising to
17 December 2019 at 11.45 am.
[27] If before advertising occurs the debt is paid, the parties may file memoranda or a joint memorandum and seek to have the matter discontinued.
7 See Salem v Top-End Homes, above n 7, at [12].
[28] The plaintiff is entitled to costs on a 2B basis on the defendants’ application. If there is any issue about the calculation of those costs, memoranda may be filed within 5 working days of the date of this judgment.
Associate Judge Sargisson
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