Pakiri Investments Limited v Adroit People Limited

[2012] NZHC 3088

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-004510 [2012] NZHC 3088

BETWEEN  PAKIRI INVESTMENTS LIMITED Applicant

ANDADROIT PEOPLE LIMITED Respondent

Hearing:         19 November 2012

Appearances: E J H Morrison and E Y Y Ho for Applicant

K P McDonald for Respondent

Judgment:      19 November 2012

ORALJUDGMENT OF VENNING J ON DISCONTINUANCE

Solicitors:           Focus Law Limited, PO Box 3993, Shortland Street, Auckland 1140

Kevin McDonald & Associates, PO Box 331065, Takapuna, Auckland 0740.

PAKIRI INVESTMENTS LTD V ADROIT PEOPLE LTD HC AK CIV-2012-404-004510 [19 November 2012]

Introduction

[1]      The applicant has applied to set aside a statutory demand issued against it by the respondent.   The application was scheduled for a substantive hearing this afternoon.   At the outset of the hearing counsel for the applicant submitted the substantive proceeding could not continue as the applicant had discontinued its application with the consequence that the statutory demand served was stale and could not be relied on by the respondent so that the only issue remaining was the issue of costs. The applicant sought costs against the respondent.

Background

[2]      The statutory demand was served on 21 July 2012.   It claims a sum of

$79,634.87.  The application to set the statutory demand aside was filed on 3 August

2012.  It was accompanied by an affidavit by the applicant’s chief financial officer.

[3]      The  application  to  set  the  statutory  demand  aside  was  opposed  by  the respondent. The respondent initially filed an affidavit in opposition dated 15 August.

[4]      The matter was before the Court on 17 August 2012 for call at which time Associate Judge Christiansen made directions for the exchange of further affidavits and the allocation of a fixture.  Further affidavits were then filed on behalf of the respondent on 24 and 27 August 2012 with reply affidavits by the applicant on 25

September.

[5]      The parties then exchanged submissions directed at the  resolution of the substantive merits of the case on the application to set aside the statutory demand.

[6]      This morning the applicant filed a memorandum headed “Memorandum of counsel for the applicant to discontinue proceedings and seek costs”.   In that memorandum counsel notes that no order extending compliance was ever sought by any of the parties or made by the Court.  In the circumstances counsel submits the statutory demand in issue became stale pursuant to s 288(1) of the Companies Act

1993 (the Act) on or around 21/22 September 2012.

[7]      As the statutory demand is no longer admissible as evidence the applicant resolved to discontinue its application to set it aside relying on its right to do so under r 15.19.  It is noted in the memorandum that a party can only rely on s 290(3) to extend the time of compliance while an application to set aside a statutory demand is on foot.

Discussion

[8]      At  the  outset  of  the  hearing  this  afternoon  Mr  Morrison  repeated  his submission  that  the  Court  could  not  extend  the  time  for  compliance  with  the statutory demand and thereby effectively retrospectively extend the life of the statutory demand  at  this  stage of the proceedings.    He submitted there was  no jurisdiction or authority to do so.  He relied on and referred the Court to a decision of Associate Judge Faire in the case of Indiana Publications Ltd v World Commerce NZ

Ltd[1]  and particularly the passages at [5] and [6] of the judgment where the Judge

[1] Indiana Publications Ltd v World Commerce NZ  Ltd  HC Auckland CIV-2006-404-001022,

6 June 2006.

said:

[5]       If reliance is to be placed on a statutory demand in this case, the proceeding had to be commenced by 16 February 2006. In fact, it was not commenced until 28 February 2006.

[6]       The evidential basis pleaded to support the application in this case cannot be relied upon because of s 288 of the Companies Act 1993.

[9]      I agree with Mr Morrison’s submission to the extent that the failure to comply with a statutory demand which subsequently becomes stale cannot be relied on as proof of the inability of a company to pay its debts.  That was the issue Associate Judge Faire was addressing in the Indiana Publications Ltd case.  However, that is a different issue to whether, on hearing an application to set aside a statutory demand, the Court may extend the time for compliance with the statutory demand under s 290(3).

[10]     Section 290(3) reads:

No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.

[11]     In my judgment, at such a hearing, (which is what this afternoon’s event was to be), it would have been open for the Court as a matter of application of the plain statutory language in s 290(3) to have extended the time for compliance with the statutory demand if the Court considered that there was no proper dispute about the debt.  Alternatively, if the Court was satisfied at such a hearing that there was a debt due, even if less than that claimed in the statutory demand then the Court could, under s 291, order the applicant company to pay that sum within a specified period in default of which the respondent could apply to place the company into liquidation. I see no reason why, on such an application to set aside the statutory demand, the Court cannot retrospectively extend the time for compliance with the statutory demand where the interests of justice require that.  To interpret s 290(3) in that way is in my view consistent with the intention of the legislature.

[12]     I am advised from the Bar that the practice is for Associates Judges to make interim orders under s 290(3) when these matters are first called.  There was no such order made in the present case but I do not consider that to be determinative, given that I consider the Court can retrospectively make an order under s 290(3) extending the time for compliance with the statutory demand.   Indeed, that seems to be acknowledged in the judgment of Associate Judge Faire Mr Morrison relied on.  At [11] the Judge went on to say:

[11]      By contrast, the power to extend time for compliance given by s 290 is directed specifically at a demand which complies with the definition in s 289 and has already been served. The power to extend time arises in the special circumstances which arise where an application to set aside has been filed and, in fact, is being heard. It is limited to that specific circumstance.

[13]     The practical position is that the hearing of an application to set aside a statutory demand can, as in this case, occur sometime after the time limits in s 288 have expired.   In the absence of an interim order under s 290(3) the respondent would  have  been  entitled  to  apply  to  liquidate  the  applicant,  even  though  the applicant had filed its application to set the demand aside.   Any such application would inevitably have been met with an application for stay which would have been

granted pending hearing of the application to set aside.  In my judgment the interests of justice support orders extending the time to be made at hearings such as was contemplated this afternoon.

[14]     In short I conclude that if there is an application to set aside the statutory demand before the Court then there is jurisdiction for the Court to extend the time for compliance.

[15]     That then leads to the issue of the discontinuance.   If the proceedings are properly discontinued and remain discontinued then there is no application to set aside before the Court and the Court could not extend the time in compliance with s 290(3).

[16]     The first point in relation to the discontinuance is that the memorandum filed with the Court is not a notice of discontinuance as is required by rr 15.19(1)(a) and

15.19(2).

[17]     However, when I raised that matter with Mr Morrison he then noted that r 15.19(1)(b) permitted an applicant to orally advise the Court at the hearing that the proceeding is discontinued.   He advised the Court the applicant discontinued its proceedings accordingly.

[18]     In  response  to  that  development  Mr  McDonald  relied  on  r 15.22  which entitles a party against whom a proceeding is discontinued to make an application for an order setting the discontinuance aside.  Rule 15.22 provides:

15.22   Court may set discontinuance aside

(1)       The court may, on the application of a defendant against whom a proceeding is discontinued, make an order setting the discontinuance aside if it is satisfied that the discontinuance is an abuse of the process of the court.

(2)       An application under subclause (1) must be made within 25 working days after discontinuance under rule 15.19.

[19]     Given the way this matter has developed I accepted an oral application from

Mr  McDonald  to  set  the  discontinuance  aside.    I  note  that  the  rule  applies  in

circumstances  where  the  Court  considers  the  discontinuance  to  be  an  abuse  of process of the Court. I  also note the Commentary to McGechan on the High Court Rules records that:[2]

Cases  in  which  an  abuse  of  process  are  able  to  be  established  for  the purposes of this rule will be rare and likely to be confined to cases where the discontinuance is intended to frustrate another party seeking some form of relief to which it would otherwise be entitled: Telstra New Zealand Ltd v Commissioner   of   Inland   Revenue   HC   Auckland   CIV-2009-404-120,

6 December 2010.

[2] McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.22.01].

[20]     In the present case, prior to the developments today, both parties actively engaged with the merits of the application to set aside.  Affidavits and submissions were exchanged in readiness for the substantive hearing.   At that hearing, either under s 290(3) or s 291 the Court could effectively have made an order requiring payment of whatever sum may ultimately be held to be due, if any.  I consider that to deny  the  respondent  the  opportunity  of  obtaining  an  extension  of  the  statutory demand in that way, would be to deny the respondent relief and would effectively be an abuse of process in the circumstances of this particular case.

[21]     I therefore grant Mr McDonald’s application and set aside the discontinuance of the proceedings.  The result is that there is an application before the Court by the applicant to set aside a statutory demand issued by the respondent.  I will now hear

that application on its substantive merits.

Venning J