Order of St John Northern Regional Trust v Gemini 10 Limited HC Auckland CIV 2002 404 1559
[2010] NZHC 387
•9 March 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2002 404 001559
BETWEEN THE ORDER OF ST. JOHN NORTHERN
REGIONAL TRUST Plaintiff
ANDGEMINI 10 LIMITED First Defendant
ANDTWINS 10 LIMITED Second Defendant
ANDJUNE 10 LIMITED Third Defendant
ANDQIN RUI KENNETH JOHN LU Fourth Defendant
Hearing: 2 March 2010 8:30-10:00am
Counsel: Michael S Cole with Jurrian R Kiewik for plaintiff
No appearance 1st-3rd Defendants
Evgeny Orlov for 4th defendant
Judgment: 9 March 2010 at 12:30pm
RESERVED JUDGMENT OF HUGH WILLIAMS J
[Re: application to strike out the corporate defendants]
This judgment was delivered by
TheHon. Justice Hugh Williams on
9 March 2010 at 12:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………..
Registrar/Deputy Registrar
THE ORDER OF ST. JOHN NORTHERN REGIONAL TRUST V GEMINI 10 LIMITED AND ORS HC AK
CIV 2002 404 001559 9 March 2010
A.Leave is granted to the 4th defendant to bring this application to strike out the 1st-3rd defendants, but the application is granted only to the extent of an order being made under r 15.1(1) striking out those parts of the pleading against them as detailed throughout this judgment and their statements of defence.
B. Leave is granted to each of the parties to file and serve their directed amended pleading in the time limits set out in this judgment
C. The costs of this application are to lie where they fall.
Issue
[1] The central issue in this case relates to gaming machines which were owned
by the plaintiff, the Order of St John, and operated at relevant periods by the first-third defendants, companies in which the fourth defendant, Mr Lu, was the director. The claim relates to the circumstances surrounding the way in which the corporate defendants dealt with their obligations to the plaintiff in quitting the sites at which they operated the plaintiff’s machines.
[2] When the Order of St John commenced this proceeding in 2002 it focused on whether the corporate defendants breached their site agreements and the extent to which Mr Lu, as their director, might have induced them to breach the agreement or wrongfully interfered with the plaintiff’s contracts with them.
[3] For some time prior to the hearing of this matter on 2 March 2010
Mr Lu’s counsel, Mr Orlov, said the corporate defendants had been removed from the register of companies but, up until now, there has been no proof that such was the case.
[4] Companies Office documents put in evidence by Mr Lu as exhibits to his affidavit supporting his application to strike out the names of the corporate defendants shows that each was struck off the register on 14 October 2008 (Gemini 10 Ltd was previously struck off the register from 17 September 2003-
12 July 2004 and June 10 Ltd was struck off the register from 22 October 2003-
26 August 2004 but those matters do not affect the present issue). No application has been made to restore any of them to the register since then.
[5] This judgment deals with an application by Mr Lu dated 22 February 2010 to strike out the plaintiff’s claims against the corporate defendants made in reliance on
rr 4.1 and 4.56 and s 27 of the New Zealand Bill of Rights Act 1990. An alternative application for the plaintiff to be ordered to amend the pleadings so as not to include claims against the corporate defendants was not pursued.
[6] Leave is required to bring the application as the claim was set down for hearing as long ago as 2006 and is now approaching a fixture in May 2010.
Evidence
[7] The only evidence on the application was an affidavit from Mr Lu exhibiting the companies’ search printouts and claiming an interest in the application because the claims against the corporate defendants “will take up a lot of Court time” and, being legally aided, he did not wish to be in a position of having to pay the Legal Services Agency for any Court time taken up with those defendants. He also commented on his medical problems.
Timetable
[8] For reasons which will appear, it is pertinent to note that at a conference on
23 February 2010 timetable orders were made leading to the hearing of Mr Lu’s application filed the previous day. They required any notice of opposition to be filed
by midday on Thursday 25 February 2010, a synopsis of Mr Lu’s submissions to be filed by 5:00pm the following day with a synopsis of the plaintiff’s submissions to
be filed by 5:00pm on Monday, 1 March 2010, the evening before the hearing.
[9] The submissions of Mr Cole, leading counsel for the plaintiff, were served on Mr Orlov at 3:36pm on 1 March 2010, some eleven minutes after they were filed in Court. Both in the submissions and in the accompanying letter, the plaintiff
suggested that, because it no longer objected to the making of the orders sought by
Mr Lu, the matter could be decided on the papers and the fixture vacated.
[10] However, because Mr Orlov’s submissions sought increased or indemnity costs against the plaintiff, Hugh Williams J directed - at about 8:10am on 2 March
2010 - that the issues could not be determined on the papers and the fixture was accordingly still required.
Submissions
[11] After repeating a submission which has formed part of his defence throughout much of this case - namely, that the proceedings are brought against Mr Lu for an ulterior purpose unconnected with any financial return - and the cases and statutory provisions later discussed, Mr Orlov broadened his reliance on the rules to include r 15.1, the usual rule invoked to strike out a pleading. The combination of rules on which Mr Lu relied entitled him, Mr Orlov submitted, as of right to an order striking out the corporate defendants. That submission was fortified by reference to the Court’s inherent jurisdiction and s 27 of the New Zealand Bill of Rights Act 1990. It would be contrary to natural justice, Mr Orlov submitted, for non-existent companies to remain in the pleadings as they could not retain counsel or defend themselves.
[12] Mr Orlov submitted that Mr Lu should be awarded costs on the “highest possible scale basis” as the plaintiff’s opposition was an abuse of process. He elevated that submission orally to an application for indemnity costs and suggested the Court should re-visit whether the claim is brought “in order to abuse the processes of the Court and ulterior motives other than the ends of this litigation”. Orally, he made clear that his application for costs on the “highest scale” was based on his submission that it was an abuse of the Court’s process for the plaintiff or counsel for the plaintiff to oppose this application. Despite dissuasion, Mr Orlov made clear his view that any abuse of process in relation to this application was that
of counsel for the plaintiff not just the plaintiff itself.
[13] In response, Mr Cole submitted rr 4.1 and 4.56 and s 27 were irrelevant to the application though he accepted r 15.1 was of assistance to the fourth defendant.
[14] Because the corporate defendants no longer existed, he submitted there was
no basis for the Court’s jurisdiction either to grant leave or grant the application. He also pointed to the lengthy and unexplained delay on Mr Lu’s part since the corporate defendants were removed from the register.
[15] Mr Cole noted that r 4.56 provides for a party to be struck out “because the party was improperly or mistakenly joined” and here, he submitted, there could be
no doubt the corporate defendants were neither improperly nor mistakenly joined when the proceeding was commenced. Thus there was, again, no jurisdiction to make the order sought.
[16] There was no basis, he submitted, to conclude that striking out the corporate defendants would abbreviate the trial since their actions were inextricably mingled with those of the fourth defendant.
[17] Counsel took strong exception to Mr Orlov’s submissions concerning a suggested ulterior purpose - including racism - in bringing these proceedings. He dealt with the authorities to which Mr Orlov had drawn attention and concluded his submissions by saying that if the Court considered leave should be granted to Mr Lu
to bring the application despite his unexplained delay and if the Court was of the view it had jurisdiction and that it was appropriate to strike out the corporate defendants, the plaintiff had no objection to that course.
[18] He submitted that because of the way the application proceeded, the late change of the rule on which the application was based which led to the plaintiff’s change of attitude to the order sought and Mr Lu’s legally-aided status coupled with the contents of Mr Orlov’s memorandum, each party should pay their own costs.
Discussion and decision
[19] “Company” is defined in s 2 of the Companies Act 1993 as a “company registered under Part 2 of this Act” or a re-registered company. In Part 2, s 11 gives any person the right to apply for “registration of a company under this Act”, the formal requirements for which appear in s 12. And s 13 provides that as soon as the Registrar receives a properly completed application for registration the Registrar must register it and the issue of certificate of incorporation. Section 14 provides that the issue of certificate of incorporation is “conclusive evidence” that all the statutory requirements for registration have been completed and, “on and from the date of incorporation” the company is “incorporated under this Act”. Every company, once registered, “continues in existence until it is removed from the New Zealand register” (s 15).
[20] It is therefore clear that, in human terms, registration is the corporate equivalent of parturition and, once issued, the certificate of incorporation is the rough equivalent of a birth certificate. However, unlike humans, companies have perpetual existence and, unless removed from the register, a death certificate is never issued for them.
[21] Removal from the register occurs when the Registrar signs a notice of that fact (s 317) on one of the grounds appearing in s 318. When that happens, its property “vests in the Crown with effect from the removal of the company from the register” (s 324(1)) subject to the right of those who would have been entitled to its property or the proceeds of its realisation to apply to the Court for vesting of the property in them or payment of compensation by the Crown (s 324(4)).
[22] Again, unlike humans, a company which has “died” in the sense that it has been removed from the register, may be restored to the register on registration of notice by the Registrar to that effect (s 330(1)). If the human analogy is maintained, however, the somewhat curious consequences of restoration to the register lie in s 330(2) which reads:
(2)A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.
and s 331(1)):
331 Vesting of property in company on restoration to register
(1) Subject to this section, property of a company that is, at the time the company is restored to the New Zealand register, vested in the Crown pursuant to section 324 of this Act, shall, on the restoration of the company
to the New Zealand register, vest in the company as if the company had not been removed from the register.
[23] This is neither novel – similar provisions have been in statute since at least the Companies Act 1903 ss 266ff – nor unprecedented. In Re Saxpack Foods Ltd
[1994] 1 NZLR 605, Saxpack had been removed from the register despite having proceedings extant for infringement of its patent. When its majority shareholder learnt of its removal, he applied for restoration to pursue the litigation. In granting the application, Hammond J held (at 608):
The law
Individuals die. There is a significant ongoing debate as to whether they can
be resurrected. If the answer is in the affirmative, it is by an Agency or
Person with significantly greater powers than those of this Court. Companies are different. Notwithstanding that they have a separate corporate personality, they can be struck off. This is effectively the death of the company. But because their creation was an act of law, they can be brought back to life again, under s 366(7) of the Companies Act, if necessary on terms (which, intriguingly, raises the possibility that they be required to undergo a personality transformation in the process).
There are well over a hundred thousand companies on the register in New Zealand. Indeed, by the standards of most western countries, New Zealand has a very high number of company registrations per capita. Much of this is driven by the form of financing commonly adopted by lenders in New Zealand.
[24] Amongst the principles relating to restoration applications listed by
Hammond J (at 609-610) is the Judge’s observation that restoration -
“invalidates retrospectively all acts done in the name of or on behalf of the company during the period between dissolution and restoration: Tyman’s Ltd v Craven [1952] 1 All ER 613”.
[25] The other cases on which Mr Orlov relied are of little assistance since they all involved applications for restoration – not in issue here – but it is noteworthy that in Wire Supplies Ltd v Commissioner of Inland Revenue (HC Auckland CIV-2003-404-
6401, 1 September 2005 para [19]) Courtney J said that a company’s “removal from the register finally extinguishes any legal status” irrespective of the possibility of
later restoration. Similarly, in Miao v Unifen International Fiance Group Ltd (Struck Off) (H C Auckland, CIV-2009-404-3926, 15 July 2009, para [17]) Wylie J similarly said that once Unifen was removed from the register “it ceased to exist”.
[26] Whilst human analogies for company registration, removal from the register and restoration graphically illustrate the status of the company concerned, companies nowadays are creatures of statute and their status is to be determined by applicable statutory provisions.
[27] Once the corporate defendants in this case were removed from the register, they no longer existed or had any legal status. Proceedings cannot be brought against such a company (Deutsche Bank and Disconto Gesellschaft v Banque des Marchands de Moscou (1938) 158 LT 364, 367 cited (with the incorrect date) in Brookers: Companies & Securities Law CA317.01(1) p 1-2001) and the authority of any person to act on behalf of the company terminates on removal (Salton v New Beeston Cycle Company [1900] 1 Ch 43, 49).
[28] Turning to the rules relied on in support of this application, there can be no doubt the corporate defendants were neither improperly nor mistakenly joined when the proceeding was commenced and accordingly r 4.56 only empowers their striking- out if an ambulatory interpretation of “joinder” were adopted (Big River Paradise Ltd v Congreve [2008] 2 NZLR 402, 408-409 paras [25], [26]). That possibility was discussed with counsel during argument but, with less strained relief being available, that seems an inappropriate course to follow.
[29] Similarly, there is an obvious illogicality in making an order striking out an entity which does not exist at law.
[30] After reflection, the appropriate course would appear to be to utilise the power conferred by r 15.1 to strike out part of a pleading, namely the references in the fourth amended statement of claim to the corporate defendants as “first”, “second” and “third” and substituting their names, deleting them from the entituling and the sub-headings and striking out the relief sought against them. That will have the effect of amending the entituling to show only the current parties, substituting the
names of the former corporate defendants for a description of their former status in the claim, and deleting any relief currently sought by the plaintiff against them. Not only would this accord with the plaintiff’s long-standing advice it no longer seeks relief against any of the corporate defendants, but would appear to be the most appropriate order in relation to former parties, properly named when the proceeding was commenced, but no longer in existence.
[31] For completeness, it follows that any statements of defence filed by the corporate defendants are similarly to be struck out under s 15.1 as disclosing no reasonably arguable defence to the claim.
[32] There will be orders to that effect. That will necessitate the plaintiff filing a further amended claim to comply with the terms of this order. It is to have 14 days from delivery of this judgment to do so and the, now, only defendant is to have a further 14 days to file and serve a further amended statements of defence to the plaintiff’s amended pleading. That means that leave should be granted to the defendant to bring this application and further leave granted to each of the parties to file and serve the directed amended pleadings.
Costs
[33] As noted, Mr Orlov sought costs on the “highest scale” or on an indemnity basis in the fourth defendant’s (now the only defendant) favour against the plaintiff
on the ground the plaintiff’s opposition to this application was an abuse of process.
[34] This was an application which was necessary in order properly to define the issues in contention between the now remaining two parties in advance of trial. It required proof of removal of the corporate defendants from the register. Proof was only adduced by exhibits to Mr Lu’s affidavit filed in support of this application. Once that was filed, the deletion of the corporate defendants from this proceeding was inevitable, but, as has been shown, the actual form of the appropriate order was not advanced by either counsel and not decided until this judgment was in preparation. Thus there is no basis for taking the view the plaintiff’s lack of consent to the application amounted to an abuse of process.
[35] Mr Orlov was strongly critical of the plaintiff not advising him of its lack of objection to the application until late on the afternoon before the hearing. However,
his criticism was misplaced in the sense that it was only when his submissions of
26 February 2010 incorporated reliance on r 15.1 that the plaintiff had cause to reconsider its stance. Its amended position was advised in a memorandum filed in accordance with timetabling directions made by the Court. The suggestion the matter might have been determined on the papers could not be taken up because of the other issues remaining for determination – especially Mr Lu’s application in Mr Orlov’s memorandum for increased or indemnity costs.
[36] In view of all of that, there is nothing about this application to warrant an award of costs on anything other than a 2B basis.
[37] In favour of whom should that order be made?
[38] There is an obvious absurdity in awarding costs in favour of the corporate defendants. They were not the applicants, they have taken no independent step in this proceeding since well before they were removed from the register and there seems no point in creating debts in their favour which would be vested in the Crown (even if that were possible, given s 324(1) makes the vesting of a removed company’s assets in the Crown effective “with effect from the removal”.
[39] Similarly, given Mr Lu had no office with nor can have had any authority from the corporate defendants since 14 October 2008, it would not be appropriate to make any order for costs payable to him in his capacity as a former director of the corporate defendants when he has not held that office for over 16 months.
[40] The only basis on which Mr Lu suggested he has an interest in this application and thus might, conceivably, be the appropriate recipient of any award of costs in this application as the applicant is because he asserted the claims against the corporate defendants “will take up a lot of Court time”.
[41] That would seem to be a view expressed by Mr Lu because of his concerns relating to the substantive hearing but one not likely to be borne out at that hearing
and now, as a result of this judgment, unable to be tested at trial. The factual matrix
to this claim – and thus the evidence – will be the same whether the corporate defendants remained in the claim or not. They are sued for their actions but they are actions which Mr Lu is alleged to have directed. As mentioned, it was appropriate – even necessary – for this application to be brought so as to tidy up the pleadings and ensure only matters truly in contention between the remaining parties be ventilated at the substantive hearing.
[42] For all those reasons, although an order for costs on a 2B basis against the plaintiff might otherwise have been appropriate in the circumstances of this application, the conclusion must be that the preferable course is to let costs lie where they fall.
[43] There will be an order to that effect.
Result
[44] In the result leave is granted to the fourth defendant to bring this application
to strike out the first-third defendants but the application is granted only to the extent
of an order being made under r 15.1(1) striking out those parts of the pleading against them as detailed throughout this judgment and their statements of defence. Leave is granted to each of the parties to file and serve their directed amended pleading in the time limits set out in this judgment.
[45] For lack of an appropriate person in whose favour any order for costs should
be made, the costs of the application are to lie where they fall.
.................................................................
HUGH WILLIAMS J.
Solicitors:
Simpson Grierson (Jurrian R Kiewik), Private Bag 92518 Auckland 1141
Email: [email protected]
Whitworth & Co Law, P O Box 5689 Auckland 1141
Email: [email protected]
Equity Law (E Orlov) P O Box 8333 Grafton, Auckland 1150
Email: [email protected] / [email protected]
Botany Law (Lavanya Dunraj), P O Box 64106 Manukau 2016
Email: lavany[email protected]
Copy for:
Michael S Cole, P O Box 651 Shortland Street, Auckland 1140
Email: [email protected]
Case Officer: SusanJ[email protected]
Schedulers: Corrina MacDonald/Michele Marquet, Auckland High Court
Corrina.MacDonald@justice.govt.nz / Michel[email protected]
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