Phillips v Plumley HC Auckland CIV 2009-404-4755
[2010] NZHC 556
•30 April 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2009-404-4755
UNDER the Insolvency Act 2006
IN THE MATTER OF the bankruptcy of Richard Scott Phillips of Auckland
BETWEEN RICHARD SCOTT PHILLIPS
Debtor
AND HAROLD CHARLES FRANCIS
PLUMLEY
Creditor
Hearing: 22 March 2010
Appearances: Mr S Barter for Debtor Mr P Bryers for Creditor
Judgment: 30 April 2010 at 3 p.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on 30.04. 10 at 3 pm, pursuant to Rule 11. 5 of the High Court Rules.
Registrar/Deputy Registrar Date...............
Counsel:
Mr S H Barter, Barrister & Solicitor, Albany, Auckland – by email: [email protected]
Mr S Bryers, Barrister, P O Box 5444, Wellesley Street, Auckland – by email: [email protected]
PHILLIPS V PLUMLEY HC AK CIV-2009-404-4755 30 April 2010
Background
[ 1 ] The judgment creditor, Mr Plumley, served a bankruptcy notice dated 3
August 2009 on the judgment debtor, Mr Phillips, claiming the sum of $103,237.50. The bankruptcy notice stated that the amount claimed was the unpaid amount of a final judgment which Mr Plumley obtained against Mr Phillips in the High Court at Auckland on 20 March 2003. The particulars given of how the amount was made up were as follows:
Judgment debt
$221,244.47
Interest accrued under Judicature Act up until 30 June 2009
$ 85,993.03
Amount repaid
$204,000.00
Balance $103,237.50
Mr Phillips filed an application to set-aside the bankruptcy notice. Not all of the grounds relied upon in that application were proceeded with at the hearing before me on 22 March 2010. Essentially the grounds which he relied upon were the following. In the first place, Mr Phillips accepted that the judgment which Mr Plumley had obtained against him arose out of his causes of action in which Mr Plumley sued for breach of obligation owed by Mr Phillips as the solicitor acting for Mr Plumley. However, Mr Phillips contended that he was able to set-off against the amount of the judgment so obtained on cross claims which he had against Mr Plumley which arose out of the conduct of Mr Plumley in relation to the affairs of two related companies which the parties had been involved in in Australia, Brambletye Stud Pty Limited (BSPL) and Brambletye Holdings Pty Limited (BHPL).
The following summary of the facts (in paragraphs [4] – [19], is taken from the memorandum which Mr Bryers, counsel for Mr Plumley, filed. I shall make reference to other factual matters, at the appropriate point in this judgment.
Mr Phillips had been appointed as the managing director of the Brambletye
companies. BSPL was engaged in Australia in breeding and farming Lowline cattle. Its objective was to make profits from the sale of cattle and also frozen embryos. It carried on an artificial breeding enterprise for the latter purpose.
Between about November 1998 and November 2000 the debtor, Mr Phillips,
acted as solicitor for the creditor, Mr Plumley.
In March 1997, Mr Phillips was the Managing Director of BHPL (a New
Zealand company) and BSPL (an Australian company). BHPL owned all of the shares in BSPL. Mr Phillips’ trust owned 50 percent of BHPL.
Mr Phillips held the position of Managing Director of the Brambletye
companies from 10 March 1997 to 3 April 2000.
Mr Plumley lent A$84,000 to BSPL by advances made on 15 March 1999, 22
March 1999 and 10 May 1999.
Mr Plumley then made further advances to the Brambletye companies of:
(a) NZ$30,000.00 on 14 May 1999.
(b) NZ$28,000.50 on 9 June 1999.
(c) NZ$15,518.10 on 14 June 1999.
[10] In February 2001, Mr Plumley commenced proceedings seeking judgment for the total amount of his advances, plus interest and costs. Judgment was sought against both the Brambletye companies and Mr Phillips.
[ 11 ] In June 2001 Mr Plumley learned that BSPL intended to hold an auction in Australia on 28 July 2001 with a view to disposing of all of its assets, and that the company then intended to use the proceeds of sale to pay all creditors other than Mr Plumley. Accordingly, Mr Plumley applied for an interim injunction and/or a charging order. As a result, a settlement was agreed whereby BSPL provided Mr Plumley with a security for his claim in the form of a second debenture over the assets of BSPL. In the end, the auction scheduled for 28 July 2001 did not take place. Instead, BSPL’s then director, a Mr Visser, entered into a written agreement whereby BSPL sold its main asset, a herd of cattle, to an American company, American Loala Management Inc (American Loala), for US$75,000. US$25,000 of this sum was paid to BSPL and was used to pay off the first debenture held by another company which is not a party to these proceedings.. However, American Loala never paid the balance owing of US$50,000. Mr Plumley says that because he had not agreed to the sale of the herd he appointed a receiver under his debenture in October 2001.
[ 12] On 20 March 2002, Mr Plumley obtained judgment by default against the Brambletye companies for the full amount of his claim plus interest and costs. The amounts awarded were:
a)A$84,000 + A$53,644.93 = A$137,644.93;
b)NZ$73,518.60 + NZ$42,543.54 + NZ$17,810 + NZ$1,350 = NZ$135,222.14.
[13] That judgment included interest to the date of judgment at the rate of 21 percent, which Mr Plumley claimed to be entitled to under the lending agreement.
[ 14] Mr Plumley had also made claims against Mr Phillips personally arising out of legal and business advice that Mr Phillips had given to him. The case was dealt with by Williams J. He dealt with the remaining claims between Mr Plumley and Mr Phillips on a defended basis. As part of his claims in the proceedings, Mr Phillips sought to recover fees which Mr Plumley owed him for legal services which he, Mr Phillips, had provided. Mr Plumley claimed in the same proceeding that Mr Phillips had been in breach of obligations that he owed to Mr Plumley arising from fact that a solicitor-client relationship had existed between the two men. There were other claims as well which the Judge, in a reserved judgment Plumley v Phillips HC Auckland CP54-SD01, 18 October 2002, described in the following way (at [4]):
Causes of action pleaded include a failure in contract to repay the loans[which Mr Plumley had made to the Brambletye companies] and interest on demand. A claim for monies had and received against all defendants was abandoned. Mr Phillips is sued personally in negligence and breach of fiduciary duty as Mr Plumley’s solicitor in obtaining the loans from Mr Plumley for his personal benefit for companies in which he held a substantial personal interest; failing to ensure Mr Plumley received independent legal advice and the loans were properly documented and secured; and in inducing Mr Plumley to make the loans to the defendants in circumstances where Mr Plumley was likely to have difficulty obtaining repayment because of the defendants’ suspect financial position and because a dispute was likely to arise between Mr Phillips and a Mr Vissers, the other director of Brambletye Stud, as to whether the loans had been utilised for company purposes. This was said to arise because Mr Phillips allegedly failed to advise Mr Vissers or obtain his consent to the loans being made.
[15] The Judge concluded that:
(a)The advances that Mr Plumley had made were not personal advances to Mr Phillips;
(b)However, Mr Phillips was in breach of fiduciary duties and duties of care owed to Mr Plumley;
(c)The quantum of relief for these breaches was adjourned for further consideration;
(d)Mr Phillips was entitled to set off certain sums owed to him by Mr Plumley for fees.
[ 16] On 14 November 2002, Williams J issued a minute in the proceeding in which he recorded:
[2] As the Court sees it, there are the following issues of substance still
requiring resolution:
[a]The amount of the judgment to be entered in Mr Pumley’s favour against Mr Phillips on the claim for breach of fiduciary duty/negligence, particularly having regard to Mr Plumley taking judgment against both Brambletye companies on 13 March 2002 for the full amount of his loans plus interest and costs and the terms on which that judgment should be entered to avoid any possibility of double recovery. It is to be noted that Mr Bryers, for Mr Plumley, has already made submissions on that topic, supported by references to Halsbury and the authorities to which that publication relates and has given the Court a statement of assets and liabilities for Brambletye Stud obtained from the receiver.
[b]The rate of interest to be awarded on the amount of the judgment and the dates from which it runs. Mr Bryers was granted leave to file an affidavit on that topic from an ANZ bank official.
[c] Questions of costs and whether judgments on the respective
claims should be set-off against each other such that costs are only payable on the net amount due from one party to the other.
[ 17] As I understand it, Williams J’s concerns were that, because Mr Plumley was seeking compensation for breach of fiduciary duties from Mr Phillips, and because the measure of that compensation was tied to the amount that Mr Plumley had lost as a result of making irrecoverable advances to the company, the Court needed to be cautious to ensure that once having obtained his compensation, Mr Plumley did not obtain “double recovery” by successfully recovering all or part of his advances under the delinquent loans as well as compensation against Mr Phillips, which had been ordered on the assumption that the loans would in fact prove to be irrecoverable.
[ 18] In 20 March 2003, Williams J delivered a further judgment (the No 2 judgment). Pursuant to this judgment it was held that:
(a)Mr Plumley was entitled to judgment for the full amount of his claim subject to a condition that before any execution process was issued against Mr Phillips, Mr Plumley was to file an affidavit seeking leave of the Court to issue such process and in that affidavit to declare the full amount of any recoveries received by him under his judgment against BSPL and BHPL. This condition was imposed “in order to avoid the possibility of double recovery” (at [11]);
(b)Interest was to be paid at 8 percent per annum from the date of the first demand to the date of judgment and on the net judgment sum to the date of payment;
(c)Mr Phillips was entitled to set off sums owing to him for fees and disbursements of $96.50, $7,003.12 and $1,530.87 – a total of $8,630.49;
(d)Mr Plumley’s claim was to be further reduced by the sum of A$11,550;
(e)Mr Plumley was to be entitled to costs on a 2B basis.
[ 19] The judgment against Mr Phillips was sealed on 20 July 2004. The total amounts awarded (as later amended) were:
(a)A$72,855.25 + A$15,888.43 = A$88,743.68.
(b)NZ$64,466.51 + NZ$14,059 + NZ$40,950 + NZ$8,244.12 = NZ$127,719.63.
[20] During the period 2001 to 2009 the receivers of the Brambletye companies endeavoured to recover the sums owing. A summary of the relevant events is as follows:
a)The first receiver was a Mr Chamberlain. However, since 18 April 2005, the receiver has been Mr RM Sutherland of Jirsch Sutherland, Chartered Accountants, Sydney, Australia.
b)BSPL (in rec) obtained judgment against American Loala for the amount owing under the cattle sale contract in the Supreme Court of New South Wales. American Loala took no steps to defend the proceedings and judgment was entered by default on 12 March 2003 for US$61,486 (inclusive of interest) and costs. The sealed judgment was served on American Loala on 2 April 2003.
c)The receiver then instructed a law firm in North Dakota to enforce the judgment in the United States. Proceedings were filed in the District Court of North Dakota in May 2003.
d)In September 2003, the District Court of North Dakota granted summary judgment and costs to BSPL for the full amount of its claim against American Loala.
e)Judgment enforcement proceedings then commenced. The outcome was that American Loala was found to have little or nothing in the way of assets and that there was no hope of recovering the amount of the judgment. This had become apparent by January 2004.
f)Subsequently, the receiver commenced proceedings in the District Court of North Dakota against Mr Effertz, the principal of American Loala, personally with a view to having him made liable for the amount of the judgment against American Loala. These proceedings are defended and are pending.
g)The other main known asset of BSPL was a number of cattle embryo held by Colorado Genetics Inc, Colorado, USA. In June 2009, Colorado Genetics Inc accounted for the sales of the embryos. There has been a net realisation of US$24,955 for sales of 116 embryos between January 2005 and May 2009. The net proceeds were arrived at after deduction of storage charges, commission and insurance.
h)The latest information is that the net amount received, after deduction of the receiver’s costs, was A$16,967.76, which was received by Mr Plumley’s solicitors from the receiver on 11 November 2009.
i)This sum is insufficient to cover the costs that Mr Plumley has incurred in relation to the receivership of BSPL, which he deposes as having cost him to date:
i) A$25,583.26 paid to the receivers and their solicitors; and
ii) US$14,615 paid to US attorneys.
[21 ] Mr Plumley also deposes that he has incurred substantial sums for fees charged by his New Zealand lawyers in relation to the receivership, and receiver’s fees incurred since the current receiver was appointed in April 2005 (for the period April to July 2005).
[22] According to the creditor’s calculations, as at 30 June 2009 Mr Phillips owed $103,237.50 in respect of the judgments given by the Court on 18 October 2002 and 20 March 2003. This sum will have increased as interest is running at 8 percent per annum on the judgments. The calculation of the $103,237.50 is attached to the bankruptcy notice dated 3 August 2009. Mr Phillips did not dispute the calculation but claimed he had a set-off cross demand or counter-claim.
The grounds advanced for setting aside the bankruptcy notice
[23] The debtor set out the following grounds in the application for an order setting aside the bankruptcy notice:
That the creditor requires leave of the Court to issue the enforcement process because a change has taken place in the parties’ entitlement under the judgments arising from the parties having settled the judgments on 28 January 2005;
That the creditor has failed or refuses to account to the debtor for the proceeds of sale by Colorado Genetics Inc of assets of BSPL (in rec) being embryos;
That the debtor has a claim against the creditor arising from the creditor’s breaches of the settlement contract made 28 January 2005, which claim exceeds the amount due by the debtor under the settlement contract and under the judgments;
That the creditor’s use of the bankruptcy process is oppressive, contrary to public policy and a miscarriage of justice.
[24] At the hearing before me grounds 1 and 3 did not proceed. Ground 2 was put in a rather different way from which it was stated in the application: that the way in which Mr Plumley (and/or the receivers whom he had appointed) dealt with the embryos which were sent to Colorado Genetics for sale amounted to “double-dipping”. Second, Mr Barter introduced a further ground, which was not referred to at all in the notice of application, that was concerned with the circumstances in which Mr Plumley appointed a receiver to the company and the effect that that had on the proceeds of sale for the sale of the company’s livestock herd. It was perhaps the more surprising that the second ground should be raised when it was not referred to in the notice of application, given the circumstance that Associate Judge Faire had on 17 September 2009 expressly noted, that the form of the application in its pre-amended state did not comply with r 7.9, which requires that an application must:
(a) State the relief sought and the grounds justifying that relief;
As a result of the matters given as grounds for the application, Mr Phillips claims that he has a counter-claim, set-off or cross demand against the judgment creditor which equals or exceeds the amount claimed by the judgment creditor.
Principles governing applications to set aside
I am guided by the principle that claims of applicants in the position of Mr Phillips must raise a triable issue with a reasonable possibility of success: Re Hedley, ex parte Milton Bradley (NZ) Ltd, HC Auckland B1394/89, 14 December 1989, Barker J.
A further requirement is that the debtor must “demonstrate that he has a claim of true substance which he genuinely proposes to pursue”: Sharma v ANZ Banking Grou (NZ) Ltd (1992) 6 PRNZ 386 (CA) at 389.
Defence or cross claim arising from circumstances of appointment of receiver
Mr Barter, counsel for Mr Phillips, contended that a claim against Mr Plumley arose out of the circumstances of the appointment of a receiver to BSPL. Mr Plumley acquired such a power when he took a debenture over BSPL in June 2001. As I have noted above, he said he did this when he learnt that the company was proposing to sell its herd of cattle. The debenture was granted to Mr Plumley by way of compromise of injunction proceedings which he brought to stop the sale. The debenture provided for security over ‘all cattle, stock and embryos’ for a priority amount of $500,000. As I have already noted, the auction which was to have taken place on 28 July 2001 was called off. Mr Plumley’s debenture was registered on 16 August 2001.
In a judgment which he gave 20 March 2003, Plumley v Phillips HC Auckland CIV-2001-404-2264, 24 October 2003, Williams J, having noted that Mr Phillips had brought a new claim against Mr Plumley, said:
[ 10] In support of submissions that Mr Plumley should not be entitled to judgment for the full amount, Mr Barter submitted that Mr Plumley had partly caused the loss by becoming aware in June 2001 of an auction by the then first debenture holder of the company’s assets, then thought to be worth $A350,000-400,000 but failing to take steps to prevent the sale at a considerably less amount and doing nothing until November 2000 when he appointed a receiver on his subsequent debenture. He also submitted Mr Plumley should have been more active with the receiver in taking steps to recover the embryos and in relation to the proceeding against Loala.
Williams J commented on these claims:
[ 14] The claim then goes on to plead causes of action in negligence and
under the Fair Trading Act 1986 s9 against Mr Plumley saying the former was breached by his failing to register his debenture immediately, failing to have Mr Effertz and his company perform their obligations by accounting for the stock proceeds and failing to take steps under the debenture to recover assets of Brambletye Stud including not appointing a receiver until 2 November 2001 and affirming the livestock sale at $US75,000 instead of the potential sum earlier noted. It claims Mr Plumley consented to the livestock sale and knew Brambletye Stud could have cancelled it for nonpayment and might have re-sold the livestock to recover as much as $537,441. The claim also suggests Mr Plumley made no attempt to sell the embryos, failed to notify Mr Phillips of appointment of the receiver and failed to give him any information under the debenture or consult with him.
...
[ 19] Further again, although it would be inappropriate to comment on issues for determination in the new claim, it may do no disservice to Mr Phillips’ position to suggest the nub of the new claim revolves around an assertion that following the granting of the debenture to him by Brambletye Stud on 17 July 2001, Mr Plumley should have acted more speedily in registering the debenture and appointing a receiver on 2 November 2001 and that, had he done so, the cancellation of the auction on 28 July 2001 in favour of a private sale to American Loala Management would not have occurred, the stock would have been sold to considerably greater advantage, Mr Plumley’s losses would have been substantially reduced and accordingly his claim in judgment against Mr Phillips would have been correspondingly diminished. Although the debenture was not in evidence, those views face the further difficulties that no authority was suggested which requires a debenture-holder to appoint a receiver at any particular time (or at all) following default and it is clear that, absent improper intervention by the debenture-holder – of which there is no evidence in this case – decisions made after appointment are made by receivers and not by debenture-holders with the receiver having the obligation to exercise powers “in good faith and for a proper purpose” and “in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interests he or she was appointed” (Receiverships Act 1993, s18(1)(2)) but subject to the interests of the persons named in ss 18(3) and (19).
...
[23] The second question is that, although it is not possible at this stage to
form any definitive view as to the likelihood of success of Mr Phillips’s latest claim, it must nonetheless be observed that there has been ample opportunity to issue those proceedings years before now or to make them part of the claims and counterclaims in the previous proceeding if Mr Phillips were genuinely of the view that the matters he now pleads are provable. As observed in earlier judgments, the dispute between these parties covered what seemed then to have been every possible issue arising between them. It is accordingly very difficult to see how Mr Phillips could not have raised the matters he now pleads at an earlier date. He says he was unaware of some of the detail but nonetheless that information could have been obtained through interlocutory procedures in relation to the earlier hearings.
At one point in his submissions Mr Barter suggested that Mr Plumley caused loss to BSPL and, presumably, to Mr Phillips, because of the fact that he made late disclosure to Mr Effertz that he, Mr Plumley, held a debenture. The detail of this complaint is said to be that Mr Effertz contracted to buy the herd of livestock for the sum of US$75,000 on the basis that he understood the only encumbrance was that held by the first debenture holder, Elders. The claim is then made that because of the late discovery of the existence of Mr Plumley’s debenture that Mr Effertz would not pay the balance of the US$75,000 owing, namely US$50,000. The submission for the applicant continues that Mr Effertz “terminated” the sale.
The evidence before me is not clear as to what happened with the sale to American Loala and what happened to the cattle. Because judgment was subsequently entered against American Loala for the full price, I infer that the contract was never cancelled and the herd resold. Mr Phillips has at various times, therefore, made inconsistent claims that Mr Plumley was at fault in two ways. First, it is claimed that Mr Plumley should have got out of the sale to American Loala and resold the cattle which might have been worth as much as AU$350,000 elsewhere for a higher price. Alternatively, as I have noted, his fault is said to have been not advising the agent of American Loala of the existence of this security until very late in the day causing alarm in that quarter which somehow contributed to the nonpayment of the price. This latter argument is not a particularly strong one. What ultimately happened was that American Loala reneged on paying the purchase price. They do not appear to have taken any point about the existence of Mr Plumley’s security being a problem. Mr Plumley certainly did not use his security to stop the sale proceeding.
[33] Mr Plumley has already brought proceedings against Mr Phillips alleging loss arising from his ownership of the charge which he acquired through his debenture. In a judgment he delivered 4 March 2004, Rodney Hansen J dealt with a claim to strike out Mr Phillips’ and BHPL’s claim against Mr Plumley. The Judge said Mr Phillips claimed that Mr Plumley owed Mr Phillips and BHPL duties of care, the former in his capacity as a preferential creditor, the latter as a creditor of and shareholder in BSPL. Various claims had been made in the proceedings before Hansen J. Mr Phillips alleged that Mr Plumley had an obligation not to “waste” the powers and entitlements arising from the charge, which was part of the debenture. The claim by Mr Phillips particularised the breaches by Mr Plumley. They included his failure to register the debenture immediately, delay in the appointment of a receiver and other omissions to take proper steps under the debenture to recover assets. It was also complained that he failed to notify the plaintiffs of his appointment of a receiver, to provide them with information about his actions under the debenture and to consult with them. It was further claimed that there was an obligation not to prejudice the possible claim that BHPL might have to “subrogate monies recovered under the debenture”. Rodney Hansen J noted that the claim went on to list as breaches of the duty delay in the appointment of a receiver and other omissions to take proper steps under the debenture to recover assets. He observed that the claims, while described as being breaches of a “duty of care”, extended to claims that Mr Plumley had an obligation as debenture holder to act in good faith and for proper purposes. But Rodney Hansen J took the view that the only duty which a security holder in the position of Mr Plumley owed were equitable duties to act in good faith and not for improper purpose, as discussed in Downsview Nominees Ltd v First City Ltd [1993] 1 NZLR 513. I respectfully agree with the conclusions that Rodney Hansen J came to.
In Downsview the Privy Council said at 526:
A mortgagee owes a general duty to subsequent encumbrancers and to the mortgagor to use his powers for the sole purpose of securing repayment of the moneys owing under his mortgage and a duty to act in good faith. He also owes the specific duties which equity has imposed on him in the exercise of his powers to go into possession and his powers of sale. It may well be that a mortgagee who appoints a receiver and manager, knowing that the receiver and manager intends to exercise his powers for the purpose of frustrating the activities of the second mortgagee or for some other improper purpose or who fails to revoke the appointment of a receiver and manager when the mortgagee knows that the receiver and manager is abusing his powers, may himself be guilty of bad faith but in the present case this possibility need not be explored.
The claim arising from an alleged failure of Mr Plumley to use his alleged powers under his debenture to stop the sale and obtain a higher price would seem to fall within the category of a claim in negligence which is not available to Mr Phillips.
Overall, it would seem that the grounds now advanced are of the same variety as those that have already been explored in the judgments of Williams J and Rodney Hansen J. The claims that Mr Phillips has rights of action because Mr Plumley did not properly exercise, or exercised the power of sale when he ought to have refrained from doing so, cannot succeed unless it is demonstrated that the power was used for an improper purpose and there is no evidence that was present here.
Further, I respectfully consider that Williams J’s comments made in 2003, which I have noted in paragraph [29] have even greater force seven years on from when he gave his judgment on the stay. They concern events that happened in some cases nine years ago. One would have thought Mr Phillips had had more than adequate time to bring his claims to trial.
Claim arising from dealing with embryos
[37] Part of Mr Phillips’ claim concerns embryos. The background to this part of the case is that frozen embryos had been sent from Australia to the United States for
sale. These embryos were owned by the company and there is no doubt that they were covered by the debenture which Mr Plumley obtained over the company. In essence Mr Phillips says that Mr Plumley either failed to assist the company and the receiver to obtain timely profitable sales of the embryos, or that he obstructed that process.
[38] Mr Bryers for Mr Plumley stated that the following was the chronology of events relating to the embryos.
(g)The other main known asset of BSPL was a number of cattle embryos held by Colorado Genetics Inc, Colorado, USA. At the receiver’s request, and with some assistance from Mr Plumley, Colorado Genetics Inc were persuaded to sell these embryos and to account to the receiver for the proceeds.
(h)In June 2009, Colorado Genetics Inc accounted for the sales of the embryos. The relevant invoices are attached as exhibit “F” of Phillips’ affidavit of 18 August 2009. These show a net realisation of US$24,955 for sales of 116 embryos between January 2005 and May 2009. The net proceeds are arrived at after deduction of storage charges, commission and insurance.
(i)The latest information is that the net amount received, after deduction of the receiver’s costs, was A$16,967.76, which was received by Mr Plumley’s solicitors from the receiver on 11 November 2009.
[39] The ground stated in the application was that Mr Plumley had failed to account for the proceeds of sale of the embryos. But in his submissions, Mr Barter appeared to suggest that there was a claim available to Mr Phillips that Mr Plumley either did not take necessary steps to ensure that the receiver obtained a sale of embryos at a proper price or that he actually took steps to hinder the receiver doing so.
[40] It certainly seems that there were delays on the part of the receiver in obtaining payment from Colorado Genetics, which was authorised to sell the embryos on behalf of BSPL. Mr Barter submitted, with support from the evidence, that the receiver did not know as late as August 2006 of the whereabouts of the embryos. This, I should add, was the second receiver who was appointed in 2005. In August 2006, the receiver asked Mr Plumley whether he had any information about the address of Colorado Genetics.
[41 ] The allegation appears to be that, because Mr Plumley knew that Colorado Genetics had possession of the embryos, and the second receiver did not appear to know where the embryos were located, and the receiver was slow in obtaining payment from Colorado Genetics, it may be inferred that Mr Plumley had concealed from the receiver vital information about the embryos or failed to provide him with such information. As a result, Colorado Genetics were not followed up to make sure that they sold the embryo stock in a timely way. As a further consequence, such sales of the embryos as were achieved only realised lower than expected prices because there had been a fall in the market. Not only did the company suffer loss but Mr Phillips suffered a derivative loss. That was because the damages that had been ordered against him reflected the inability of BSPL to repay Mr Plumley. If a higher figure had been received for the embryos, the company would have been able to pay Mr Plumley a greater sum with such payment being made via the receiver to Mr Plumley, and Mr Plumley’s damages claim against Mr Phillips would have been proportionately reduced.
In his submissions, Mr Barter said:
Plumley knew from the time of trial the full details of the embryos at Colorado Genetics. He knew he could deal with these embryos himself by virtue of his security interest in them. He held back from his first receiver the whereabouts of the embryos or directed the receiver not to deal with them. He delayed visiting Colorado Genetics until July 2003 and January 2004 and thereafter dealt himself with the embryos despite holding out that his receiver was the only person who could do this. Plumley’s only purpose in such conduct can have been to ‘double dip’.
In my view the claim allegedly arising from the dealings with the embryos does not provide a proper basis upon which to set aside the bankruptcy notice. First, as I have already noted, Mr Phillips cannot claim against Mr Plumley qua holder of the security on the basis of negligence. No duty of care is owed. Mere neglect to require Colorado Genetics to take steps to market the embryos, or requiring it to account for the proceedings of any sale, is not sufficient. For present purposes, Mr Phillips must demonstrate, as a minimum, bad faith or use of the security for an improper purpose and he has not done so.
Mr Plumley has deposed that he passed on such information as he had about the location of the embryos to the receiver. For example, he sent to his solicitors copies of the statements containing the address of Colorado Genetics and those were passed on to the receiver. Further, Mr Plumley has explained in uncontradicted evidence that delays in recovering funds from Colorado Genetics were due to difficulties in getting that company to recognise the receiver as the person entitled to receive the proceeds of sale of the embryos. According to Mr Plumley, the receiver could not get the company to respond to communications.
Mr Plumley also said, and his evidence is uncontradicted, that he did not involve himself in the sale of the embryos but only intervened when the receivers experienced difficulty in getting a response from Colorado. This, rather than being an alleged scheme on the part of Mr Plumley to drive down the amount recovered, would appear to explain the delays in selling the embyos and accounting for the proceeds of sale.
I can see no basis upon which Mr Phillips could suggest that he has a substantial claim against Mr Plumley that the latter acted in bad faith or for an improper purpose with relation to the debenture powers. In my judgment it is inherently improbable that Mr Phillips would have acted in a way which reduced the value of property which would be available to meet claims that he had against BSPL.
Double recovery as a ground to set aside the bankruptcy notice
There was discussion in the submissions made as to the effect of the proviso that Williams J inserted into his judgment of 20 March 2008. It is plain that what Williams J had in mind was ‘double recovery’. In fact, Mr Phillips has consistently claimed that it was Mr Plumley’s motive to “double dip”. That is, if the amounts which Brambletye owed to Mr Plumley was wholly or partly satisfied then to that extent, Mr Plumley’s entitlement to damages from Mr Phillips would be reduced.
The course of conduct alleged by Mr Phillips against Mr Plumley would not result in a double recovery. If, for example, the value of the embryos recovered by the company was driven down by Mr Plumley’s actions or neglect, Mr Plumley
would not recover twice. What the effect of reducing recoveries by the company would have would be that overall the amount of damages that Mr Plumley would receive would not be affected: they would not reduce nor would they increase. Had the value of embryo sales, for example, been reduced, the damages actually recovered from the company, in theory, would have decreased, and those from Mr Phillips increased. It is therefore difficult to see how Mr Phillips’ claims could have resulted in ‘double recovery’.
The references to “double dipping”, which is the expression Mr Phillips and his counsel use to refer to double recovery as I have explained it, are misplaced.
Conclusion
To summarise, my first conclusion is that the debt calculation attached to the statutory demand is correct. There is no substantial argument open to Mr Phillips that the default judgment claiming interest at 21 % can be ignored by the Court. So long as the judgment remains extant, not having been attacked by way of review or appeal proceedings, it must be recognised by the Court. Secondly, there is no viable counter-claim, set-off or cross demand arising out of the appointment of the receiver or the conduct of the receivership which equals or exceeds the amount due, whether arising from the circumstances of the appointment of the receiver and the effect that allegedly had on the sale of the cattle or the claim stemming from the claimed obstruction of the sale of the embryos. Third, in any case, the counter-claim concerned with the sale of the herd to American Loala arose many years ago. Mr Phillips has had more than adequate opportunity to bring proceedings based upon them. He has in some cases attempted to bring proceedings which have failed because they were struck out. I do not accept that Mr Phillips genuinely proposes to pursue the claim in relation to the herd.
For these reasons I therefore dismiss Mr Phillips’ application. The parties should confer on the matter of costs. If they are not able to agree, I shall hear them at 9 am on a date that is convenient to counsel and the Court.
J.P. Doogue Associate Judge
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