Oraka Technologies Limited v Geostel Vision Limited

[2016] NZHC 2001

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2005-419-000809

CIV-2016-404-001647 [2016] NZHC 2001

BETWEEN

ORAKA TECHNOLOGIES LIMITED

First Plaintiff

ORAKA GRADERS LIMITED Second Plaintiff

MICHAEL WILLIAM SCHWARZ Third Plaintiff

AND

GEOSTEL VISION LIMITED First Defendant

P DAYNES AND G ROBERTSON Second Defendants

NAPIER TOOL & DIE LIMITED Third Defendant

Hearing:	18 August 2016
Appearances:	B P Henry for the Plaintiffs K T Glover for First and Second Defendants P G Skelton QC and T OʼBrien for the Third Defendant
Judgment:	26 August 2016

JUDGMENT OF HINTON J

This judgment was delivered by me on 26 August 2016 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Counsel/Solicitors:

……………………………………………………………………

Registrar/Deputy Registrar

Brian Henry, Barrister, Auckland Kevin Glover, Barrister, Auckland Philip Skelton QC, Auckland Hudson Gavin Martin, Auckland

ORAKA TECHNOLOGIES LIMITED v GEOSTEL VISION LIMITED [2016] NZHC 2001 [26 August 2016]

[1]      The defendants seek a stay of enforcement of my judgment dated 2 June

2016, awarding damages of $4.1 million to the first plaintiff, pending determination of the defendants’ appeal to the Court of Appeal.  The judgment was as to quantum only.  Prior to that, the Court of Appeal had entered judgment in favour of the first plaintiff as to liability, and the Supreme Court had refused leave to appeal.

[2]      The first plaintiff (Oraka), served statutory demands on the first and third defendants consequent  upon the judgment.   All parties accept that the first and third defendants’ applications to set aside the statutory demands will stand or fall on the outcome of the stay application.  (Mr Henry submitted that the application to set aside the demands should then be adjourned, but did not pursue that point in reply.)

[3]      Oraka is opposed to the application for stay.  Oraka undertakes to hold any sum paid, in a solicitor’s trust account, pending the outcome of the appeal, to cover the  concern  as  to  ability  to  repay.    Further,  Mr  Henry accepts  that,  if  suitable conditions are imposed on the defendants, specifically either security or a guarantee (whether  in  full  or  in  part),  from  the  parent  company  of  the  third  defendant, Tru-Test Corporation Ltd, that would suffice in lieu of actual payment.  In my view, Oraka has taken a realistic approach to the application for stay.

[4]      I note the underlying principle that the discretion to allow a stay is:1

to be exercised by balancing the competing right of the successful party to the fruits of success in litigation against the need to preserve an appellant’s position against the event of a successful appeal.

[5]      Beyond  that,  there  are  the usual  factors  to  be  taken  into  account  in  the balancing exercise.2   Ostensibly, these factors favour a stay:

1      Van Heeren v Kidd [2015] NZCA 574 at [12].

2      See Andrew Beck (ed) McGechan on Procedure (Thomson Reuters, online looseleaf ed) at CR12.01(1)(c)-(d),  citing  Keung  v  GBR  Investment  Ltd  [2010]  NZCA  396  at  [11]  and Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].

(a)      The third defendant (NTD) says the appeal will be rendered nugatory by the lack of a stay.   NTD says it has a net asset position of approximately $327,000,  excluding  the  judgment  sum,  but  after  a

$1 million provision for the (now not contingent) liability to Oraka.  If a stay is not granted, NTD will be balance sheet insolvent.  It says its inability to meet the statutory demand may lead to liquidation and liquidators would have no incentive or funds to pursue an appeal over a liability when the assets (it is alleged) will go to BNZ as a secured creditor.

(b)I  accept  that  the  appeal  is  bona  fide  and  that  the  judgment  is appealable.

(c)      I return to the question of whether Oraka will be injuriously affected by a stay.

(d)I  accept  there  may  be  some  effect  on  third  parties,  being  the employees of NTD, if it goes into liquidation.

(e)      There is a novel and reasonably important question at issue in the appeal.

(f)      For the same reason, there is some public interest.  The judgment has been the subject of various media reports and at least one legal article.

[6]      However, there is a catch to all of this.   Not mentioned in the affidavit of Mr Hadwin   (in   support   of  the  application   for  stay),   immediately  after  the Supreme Court refused NTD leave to appeal, NTD did not only make the $1 million provision for the contingent liability.   The next day, it declared a dividend to its parent (Tru-Test) of $2.25 million and repaid a loan to its parent of $1.862 million, by  setting  that  loan  off  against  money  NTD  was  owed  by  a  related  Tru-Test company.  There is no suggestion that NTD had paid any dividend before, let alone a dividend of that magnitude.   Quite contrary to the making and quantum of that dividend, Mr Hadwin had sworn that NTD was a small business; he described the

company’s financial position; referred to the May 2016 balance sheet showing net assets of $327,000 and said “the financial position described above has been broadly consistent for the last decade”.

[7]      The directors of NTD had to sign a resolution of solvency at the time of making the dividend.

[8]      Had the dividend not been paid, NTD’s balance sheet would presumably have shown net assets of approximately $2.6 million, which, together with the $1 million provision, would be not far off the judgment debt.  NTD’s financial position would certainly be vastly different from that presented on the stay.

[9]      When I questioned Mr Skelton QC as to whether Tru-Test might provide a guarantee, at least of some part of the judgment debt, as a condition of the stay, he responded that Tru-Test would not, and further, could not, be compelled to do so. That is true, but it is equally true that the Court may not be prepared to grant an indulgence to a party who, with its parent, contrives the argument in support of the indulgence.

[10]     Mr Skelton submits that there is no prejudice to Oraka arising out of a stay, because there can still be proceedings taken against Tru-Test to recover the dividend, and against the directors on the solvency certificate, up until April 2020 (six years from April 2014).   The more straight-forward claim, to set aside the dividend as voidable, had already been lost prior to my judgment, because it would have had to be brought two years from April 2014.

[11]     Given that the voidable transaction claim in respect of the dividend is already lost through the passing of time, and given the strategising that is apparent to date, it could not be assumed that such strategising would not continue on the part of the potential defendants, to the on-going potential detriment of Oraka.

[12]     Coupled with this, Oraka sought a priority fixture in the Court of Appeal. This was opposed by the defendants, who say there were no grounds on which they could support it.  I do not accept that.  Before me, Mr Skelton argued there was real

concern over NTD’s trading while insolvent, if a stay is not granted.  If that were NTD’s principal concern, there would have been no reason why that same point could not have been argued in favour of a priority fixture in the Court of Appeal. Instead of that, the defendants opposed priority.  They did not even take a mutual position.

[13]     At the hearing, I was advised by Mr Henry that any fixture in the Court of Appeal was likely to be in February 2017, or later, based on recent enquiries he had made in connection with another one-day fixture.

[14]     I had come to the view that a stay would be refused for the above reasons. However, since the hearing, and as a consequence of (now) urgent enquiries made by the defendants, the Court of Appeal has set a firm fixture of 11 October 2016.

[15]     In light of the fact that presumably little further prejudice can be caused to Oraka by a delay of less than two months, I grant a stay of the judgment against all defendants.

[16]     It follows that the statutory demands are set aside.

[17]     I reserve leave for Oraka to come back to this Court in the event that the matter  is  not  heard  as  quickly  as  anticipated,  or  judgment  not  given  within  a relatively short timeframe, or in the event of any other material developments.

[18]     As I would have found for Oraka, were it not for the intervention of the Court of Appeal  fixture,  I  award  costs  in  Oraka’s  favour  on  a  2B  basis,  plus disbursements set by the Registrar.

[19]     Lastly,  I  order  that  the  file  relating  to  the  statutory  demand  against  the first defendant, currently in the Hamilton Registry, be transferred to the High Court at Auckland.

----------------------------------------------- Hinton  J