PMT 20210 Ltd (In liquidation) v Mark
[2022] NZHC 169
•11 February 2022
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE
CIV-2021-406-13
[2022] NZHC 169
UNDER The Companies Act 1993 IN THE MATTER OF
The liquidation of PMT 2010 Limited (in liquidation)
BETWEEN
PMT 20210 LTD (in liquidation) First Plaintiff
MURRAY GEORGE ALLOTT, as liquidator of PMT 2010 LIMITED (IN
LIQUIDATION)
Second PlaintiffAND
PETER MARK AND JEANETTE PATRICIA MARK
First Defendant
WISHEART MACNAB & PARTNERS TRUSTEE COMPANY LIMITED AND DAVID JOHN PAUL AS TRUSTEES OF THE MARK FAMILY TRUST
Second Defendants
Hearing: 10 November 2021 Appearances:
D A Bleier for the Plaintiff
P A Morten for the Defendants
Judgment:
11 February 2022
JUDGMENT OF GRICE J
(Joinder of plaintiff and amended Statement of Claim)
PMT 20210 LTD v MARK [2022] NZHC 169 [11 February 2022]
Contents
Introduction [1] Background [8] Against Mr and Mrs Mark (the first defendants): [18](a) Against the Mark Family Trust as second defendants: [18](d) Issues [28] Joinder of liquidator [28] Limitation issues [29] Factual background [30] Issues [33] Joinder of liquidator as second plaintiff [33] First cause of action [41] Third cause of action [59] Application to join second plaintiff [77] Second cause of action [84] Exercise of discretion [106] Fourth cause of action [111] Conclusion [117] Costs [119] Next steps [122]
Introduction
[1] PMT 2000 Ltd (in liquidation) (PMT), the original plaintiff, applies to join Mr Allott, as an additional plaintiff. It also seeks leave to file an amended statement of claim now in draft dated 13 August 2021 (ASOC).1 The original claim was filed on 23 April 2021.
[2] The defendants oppose the applications. They have raised limitation issues in relation to the joinder and some of the causes of action in the ASOC.
[3] The plaintiff responds saying those causes of action are not statute-barred because the liquidator only became aware of the matters giving rise to the action in circumstances that amount to late knowledge. This extends the primary limitation period.
[4] In relation to the second cause of action a defence raised is that both the primary and long stop limitation periods have expired. The plaintiff says that under s 50 of the Limitation Act 2010 (the Act) that claim is ancillary to the claims made in the first and/or third causes of action. That effectively extends the limitation defence for the ancillary claim.
[5] The defendants also say that the second and third causes of action are “fresh”, having arisen since the filing of the original claim in April 2021. Therefore, the plaintiff must obtain leave to file the ASOC.
[6] There remain outstanding, but not for consideration here, applications for summary judgment and strike out brought by the defendants.2
[7] I approach the applications in a robust way in accordance with the overall objective of the High Court Rules 2016 to secure the just, speedy and inexpensive determination of the applications.3
1 The ASOC is technically a draft filed for the purposes of this application.
2 PMT (2010) Ltd v Mark HC Te Waiharakeke | Blenheim, CIV-2021-406-13, 20 September 2021 [“Minute of Ellis J”].
3 High Court Rules 2016, r 1.2.
Background
[8] On 25 May 2008, the plaintiff, whose directors and shareholders were Mr and Mrs Mark, sold its flooring business to a third party. Part of the purchase was funded by a vendor finance loan back to PMT.
[9] On 16 February 2009 PMT issued proceedings against Mr and Mrs Harnett to recover a business debt. The Harnetts counterclaimed on 5 August 2009. Judgment for a sum of a little over $100,000 was entered in the Harnetts’ favour in the District Court on 3 December 2013. The judgment debt related to goods and services provided by PMT and has never been paid.
[10] A deed dated 31 March 2012 purported to assign from PMT to Mr and Mrs Mark personally the benefit of the vendor finance loan. The defendants say that assignment had been agreed with PMT at the time of sale. The Marks have received the interest and the principal repayments of the loan from the purchasers.
[11] The Harnetts initiated liquidation proceedings to retrieve the judgment debt. On 24 March 2015, Mr Allott was appointed as liquidator of PMT.
[12] On 11 May 2015 the PMT accountant (Mr Peter Boon), the PMT lawyer and Mr and Mrs Mark personally as directors were served with letters requiring them to provide company documents to the liquidator.
[13] On 1 March 2018, three years from appointment, the liquidator brought proceedings against Mr and Mrs Mark (the 2018 proceedings),4 claiming:
(a)breaches of s 194 of the Companies Act 1993, with relief sought under s 300 of that Act;
(b)that distributions were made at a time when PMT was unable to satisfy the solvency test seeking relief under s 56 of the Act; and
4 CIV-2018-406-10.
(c)that the transfer of three company vehicles had been effected under value, seeking relief under s 297 of the Companies Act.
[14] The distributions related to dealings with the funds received from the sale of the PMT business. The claims amounted to approximately $600,000, including
$500,000 of resident withholding tax.
[15] In January 2019 a copy of a March 2008 sale and purchase agreement relating to the sale of the plaintiff’s business was disclosed by the defendants.
[16] The 2018 proceeding was set down for trial for four days in July 2020 but was adjourned. The 2018 proceeding was further set down for hearing on 19 and 20 May 2021.
[17] Following a number of requests, in June 2020, Mr Mark provided the liquidator with a copy of the Deed dated 31 March 2012 assigning the vendor finance loan (the Deed). The defendants said that they had legitimately received repayment of the vendor finance loan under the terms of the Deed.
[18] Based on this information, on 28 April 2021, a new proceeding was filed by PMT (the 2021 proceeding). It contained four causes of action, three against Mr and Mrs Mark and one against the trustees of the Mark Family Trust. PMT alleged the following:
Against Mr and Mrs Mark (the first defendants):
(a)PMT’s assignment to them of a vendor finance loan made by PMT to a related company (PMF) on 2 May 2008 was not valid and remained an asset of the company. PMT sought judgment against Mr and Mrs Mark for the value of the loan assigned of $680,000 as a debt due and owing (first cause of action).
(b)As directors, they had breached their fiduciary and statutory duties to PMT, including the duty not to allow trade to be carried on in a manner likely to create a substantial risk of loss to creditors. PMT sought
restoration of the $680,000 principal and relief under s 301 of the Companies Act (second cause of action).
(c)In the alternative, in the event that the vendor finance loan was found to be validly assigned, the plaintiff alleged it was a disposition that defeated creditors, leading to the company becoming insolvent. It sought compensation from Mr and Mrs Mark under s 347 of the Property Law Act 2007 (PLA) (third cause of action).
Against the Mark Family Trust as second defendants:
(d)That interest on the vendor finance loan from 31 March 2009, through to the day of liquidation, was wrongly paid by PMT to the trustees of the Mark Family Trust, rather than to PMT. The Trust knowingly assisted and converted the interest. Recovery of the interest paid was sought (fourth cause of action).
[19] At the time the 2021 proceeding was filed the 2018 proceedings were ready to go to trial and scheduled to begin in less than a month. Mr Morten, for the defendants, applied to consolidate the 2018 and 2021 proceedings and to adjourn the scheduled hearing. The adjournment was granted on 14 May 2021.5 The proceedings were consolidated and set down for a four-day fixture, commencing 20 September 2021.6
[20] On 10 June 2021, the defendants filed a statement of defence in the 2021 proceeding, pleading:
(a)at some time in May 2008, PMT equitably assigned all interest payable under the vendor finance agreement to the trustees of the Mark Family Trust, who returned those payments as income and paid tax on them;
5 Allott v Mark [2021] NZHC 1100.
6 Costs and disbursements were awarded against the plaintiff in the sum of $7,050.50 and $500 respectively: Allott v Mark [2021] NZHC 1917.
(b)PMT assigned the vendor finance loan to Mr and Mrs Mark by deed of assignment (which met the requirements of the PLA) dated 31 March 2012; and
(c)in accordance with that deed, PMF (the purchaser of the business) repaid the $680,000 principal owing under the loan to Mr and Mrs Mark on 8 May 2015 (two months after PMT was put into liquidation but in accordance with the repayment date in the original loan agreement).
[21] The defendants also pleaded affirmative defences under the Act to the first (invalid vendor finance loan assignment), second (s 301 of the Companies Act) and fourth causes of action (interest on loan). They pleaded:
(a)the first cause of action is a money claim, which has a six-year limitation period running from the date of disposition, being 31 March 2012;
(b)the second cause of action under s 301 of the Companies Act had a limitation long-stop period of six years from the date of the appointment of the liquidator, which expired on 24 March 2021, a month before the 2021 proceedings were filed; and
(c)the fourth cause of action (against the second defendant) is also a money claim, with a six-year limitation period running from the date of disposition of 31 March 2012.
[22] On 29 June 2021, PMT filed a reply to the statement of defence, stating that it was not required to respond to pleadings of law, and it pleaded a bare denial of the pleading of the affirmative defences.
[23] On 23 July 2021, the defendants filed an application to strike out and/or for summary judgment in relation to the 2018 proceedings on limitation and other grounds.7 No application for leave under r 12.4 of the High Court Rules was filed.
7 Minute of Ellis J, above n 2, at [33](b).
This was said to be necessary given the setting down date had passed. On 2 August, the parties filed a joint memorandum proposing a timeline for the filing of a notice of opposition and for affidavits and submissions. Those orders were made on the same day.
[24] On 13 August 2021, the plaintiff filed a notice of opposition to the summary judgment application. The notice of opposition said:
(a)PMT’s liquidator “does not accept the validity” of the assignment of either the interest payments or the vendor finance loan from PMT to the defendants.
(b)The first cause of action is not time-barred because the principal repayment of the vendor finance loan was received by the first defendants on 8 May 2015 (within six years of the date of filing of the claim on 21 April 2021). The first cause of action was to be amended by adding a claim for unjust enrichment (based on the money had and received in relation to the invalid assignment) in an amended statement of claim filed the same day.
(c)The third cause of action (relating to s 348 of the PLA) is not time- barred because Mr Allott:
(i)only became aware of the purported assignment on 17 June 2020, after the primary period had expired under s 11 of the Act; and
(ii)is entitled to (and does) rely on s 14 of the Act to invoke a late knowledge period (that does not expire until 17 June 2023).
(d)As to the fourth cause of action, the interest payments were received on dates unknown to PMT but, to the extent they were received on or after 21 April 2015, they are within six years of the filing of the claim.
(e)As to the second and fourth causes of action, “…if necessary, the plaintiffs hereby seek relief under s 50 of the Limitation Act 2010 to allow any ancillary claims that are filed out of time to be continued along with the claims that have been filed within time”.
[25] At the same time, the plaintiff filed a memorandum requesting an order joining Mr Allott as a second plaintiff together with an amended statement of claim naming him as second plaintiff with the carriage of the second and third causes of action, which could not be brought by the company.
[26] At a case management conference before Ellis J, on 20 September 2021, the plaintiff, without prejudice to its ability to pursue its applications under r 4.56 and 7.77 in relation to the joinder and ASOC, consented to the second and third cause of action in the original 2021 statement of claim being struck out.8 That order was expressly made without prejudice to the plaintiffs’ pursuit of the present applications.9
[27] For that reason, I put that consent order to one side for the purposes of the present applications.
Issues
Joinder of liquidator
[28] For the joinder of Mr Allott, as liquidator, leave is required under r 4.56 of the High Court Rules. The main issue arising is whether the joinder would introduce statute-barred claims.
Limitation issues
[29]The limitation issues are:
(a)whether the amended first, second and fourth causes of action are statute-barred and therefore fall foul of r 7.77(2); and
8 This is because the plaintiff has accepted those claims can only be brought by Mr Allott, not the company.
9 Minute of Ellis J, above n 2, at [33].
(b)whether the second and third causes of action are causes of action that have arisen “since the filing of a statement of claim” such that leave is required by r 7.77(4). The defendants say both causes of action have “arisen” since the filing of the claim in April 2021.
Factual background
[30] The parties have filed affidavits. Whether the liquidator knew or whether he ought reasonably to have gained knowledge of the disposition by PMT of the benefit of the vendor finance loan is a central issue for the determination on the late knowledge extension to the limitation period.
[31] It is not for the Court in this application to resolve disputed issues of fact. I rely on the assertions and allegations of the liquidator as to his inquiries and knowledge at this stage. Of course at trial with the benefit of cross-examination and the full evidence the Judge may reach a different conclusion.
[32]The facts relied upon by the plaintiff are as follows:
(a)In January 2019, the liquidator was provided with the agreement for sale and purchase of PMT’s business to purchases, dated 18 March 2008, including a reference to the vendor loan repayable to PMT.
(b)At the date of the alleged disposition of the vendor finance loan by PMT to the Marks personally, alleged by the defendants to have occurred in 2012 or 2013, PMT knew of the Harnett’s claim against it. Without the vendor loan as an asset, PMT had no means to pay the judgment sum to the Harnetts.
(c)Mr Allott knew nothing of the disposition of the benefit of the vendor finance loan to the defendants until discovery took place in the 2018 proceedings.
(d)Mr Allott knew nothing of the existence of the deed now produced until 17 June 2020, a date after the expiry of the primary limitation period.
[33]I now turn to deal with the issues.
Issues
Joinder of liquidator as second plaintiff
[34] Leave to join the second plaintiff, Mr Allott, is sought under r 4.56 on the grounds that the presence of Mr Allott before the Court is necessary and he ought to have been joined as a plaintiff from the outset.
[35] Only the liquidator is entitled to bring the second (s 301 of the Companies Act) and third (s 348 of the PLA) claims.10
[36]The defendants oppose the joinder for the following reasons:
(a)The addition of Mr Allott will defeat the limitation rules.
(b)The two-stage test applies. The applicant must satisfy:
(i)that there has been a misnomer; and if so
(ii)is the respondent substantially prejudiced, such that the access to the Court should be refused?
[37] In this case, only Mr Allott not the company (in liquidation) is entitled to bring the second and third causes of action. However, limitation issues apply and time for limitation purposes does not relate back to the time the 2018 proceedings commenced (15 March 2018) but from the 2021 proceedings filed in 2021. Mr Allott was appointed liquidator on 24 March 2015.
[38]The plaintiff filed submissions on 13 September 2021 responding. It says:
10 Section 347(1)(b) of the Property Law Act 2007 (PLA) allows the liquidator to make an application to the Court for compensation if prejudiced by a disposition under s 348 of the PLA.
(a)The validity of the assignment and, in particular, the “legitimacy” of the 2012 deed is in issue.
(b)The date on which the first (unjust enrichment) cause of action arose was 15 May 2015 when the vendor finance loan was repaid to the Marks. This would mean that this cause of action was not statute- barred.
(c)Mr Allott’s claim in the second cause of action (s 301 of the Companies Act) would be out of time but for s 50 of the Act, which applies to extend the long stop limitation period
(d)The late knowledge period for the third cause of action applies under s 14 of the Act because:
(i)Mr Allott was first provided with a copy of the March 2008 sale and purchase agreement pending sale of the business as part of discovery in 2018 or January 2019;
(ii)it was only after making enquiries that, on 17 June 2020, Mr Allott was provided with a copy of the March 2012 deed; and
(iii)the plaintiff seeks relief under s 50 (ancillary claim) in relation to the second cause of action.
[39] The allegation in [38](a) is tantamount to an allegation of fraud. Section 48 of the Act says that time does not run until discovery of the fraud or concealment. However, fraud is not explicitly pleaded and the plaintiff has not based its submissions on that provision.
[40] I now turn to deal with each of the causes of the action, starting with the first and third causes of action, which the defendants say are statute-barred. The plaintiff argues the limitation defence does not apply because it is able to take advantage of the late notice period provisions of the Limitation Act.
First cause of action
The amended first cause of action pleads:
First Cause of Action: by First Plaintiff against First Defendants – unjust enrichment
…
22.The Vendor Finance Loan was received by the First Defendants on or about 8 May 2015.
23.The First Defendants, including by virtue of their appointments as directors of the company, knew or ought to have known the Vendor Finance loan was not due and owing to them, but was a debt due and owing to the company.
24.Accordingly, in all of the circumstances, it would be unjust for the First Defendants to retain the benefit of the Vendor Finance Loan.
WHEREFORE THE FIRST PLAINTIFF CLAIMS AGAINST THE FIRST DEFENDANTS:
(a)Judgment in the sum of $680,000.00;
(b)Interest under the provisions of Section 10 of the Interest on Money Claims Act 2016 from 8 May 2015 to the date of judgment;
(c)The costs of and incidental to this proceeding; and
(d)Such further or other relief as may to this Honourable Court seem just.
[42] Before the amendment for which leave is sought here, the first cause of action was pleaded as follows:
First Cause of Action against First Defendants
19.By reason of the matters pleaded in paragraphs 1 to 18 hereof, the First Defendants, and by virtue of their appointments as directors of the company, knew or ought to have known the Vendor Finance loan was not due and owing to them, but was a debt due and owing to the company.
[43] The plaintiff says the deed was not held by the plaintiff or known to the liquidator until it was provided by Mr and Mrs Marks in June 2020.11 It further pleads that the Deed was not executed on 31 March 2012 and there was no valid assignment. Therefore, as at the date of liquidation, 24 March 2015, the vendor finance loan was
11 The deed was provided through the Marks’ lawyer who also drew up the deed.
an asset of the plaintiff. The payment of interest and principal (repaid on 8 May 2015) to the Marks’ interests, amounts to conversion by Mr and Mrs Marks.
[44] The first cause of action seeks to recover the principal from Mr and Mrs Mark. It is based on a claim for the repayment of principal. According to the allegation, the money was wrongfully paid to the defendants on 8 May 2015. A plea of unjust enrichment without any further detail was added in the amended statement of claim. The primary limitation period in a money claim expires six years after the act on which the claim is based.12 The primary limitation period had therefore not closed according to the plaintiff on the first cause of action as the original 2020 claim was filed in April 2021.
[45]Section 12 of the Act defines “money claim” as follows:
12 Money claim defined
(1) Money claim means a claim for monetary relief at common law, in equity, or under an enactment.
[46]A money claim limitation defence is available under s 11, which says:
11 Defence to money claim filed after applicable period
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
12 Both a claim in conversion (original first cause of action) or in unjust enrichment (second amended statement of claim) are money claims.
(a)3 years after the late knowledge date (the claim’s late knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s long-stop period).
[47] In relation to the application for leave to file an amended pleading before trial, r 7.77 of the High Court Rules applies. It says:
…
(2)An amended pleading may introduce as an alternative or otherwise,
(a)relief in respect of a fresh cause of action, which is not statute-barred;
…
[48] Therefore, a change in the essential nature of the claim by amending the pleading is not permitted if it introduces a fresh cause of action which is statute-barred.13 The test of whether an amended pleading is “fresh” is whether it is something “essentially different”.
[49] Whether a fresh cause of action is pleaded depends on a number of factors. The principles were set out in Transpower New Zealand Ltd v Todd Energy Ltd as follows:14
a)A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another (Letang v Cooper [1965] 1 QB 232 (CA) at 242-243 per Diplock LJ).
b)Only material facts are taken into account and the selection of those facts “is made at the highest level of abstraction” (Paragon Finance plc v D B Thakerar & Co (a firm) [1999] 1 All ER 400 (CA) at 405 per Millett LJ).
c)The test of whether an amended pleading is “fresh” is whether it is something “essentially different” (Chilcott v Goss [1995] 1 NZLR 263 (CA) at 273 citing Smith v Wilkins & Davies Construction Co Ltd [1958] NZLR 958 (SC) at 961 per McCarthy J). Whether there is such a change is a question of degree. The change in character could be brought about by alterations in matters of law, or of fact, or both.
13 High Court Rules 2016, r 7.77(3).
14 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61] as summarised in Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR7.77.04].
·A plaintiff will not be permitted, after the period of limitations has run, to set up a new case “varying so substantially” from the previous pleadings that it would involve investigation of factual or legal matters, or both, “different from what have already been raised and of which no fair warning has been given” (Chilcott at 273 noting that this test from Harris v Raggatt [1965] VR 779 (SC) at 785 per Sholl J was adopted in Gabites v Australasian T & G Mutual Life Assurance Society Ltd [1968] NZLR 1145 (CA) at 1151).
[50] For the purposes of the present application the underlying claim is wrongful retention of the funds by the Marks’ and recovery is sought on the basis of unjust enrichment. The principle of “unjust enrichment” is recognised in New Zealand as an underlying uniting principle for restitutionary responses.15 Unjust enrichment is concerned with isolating enrichment in the hands of the defendant determining whether or not is unjustly received, and then reversing that enrichment if it is unjust. The House of Lords accepted the existence of the principle of unjust enrichment in Lipman Gorman v Karpnate.16 The scope for the principle has been criticised by the House of Lords and academics.17
[51] In this case the underlying claim is knowing receipt where liability is imposed to compensate the loss suffered by the proper beneficiaries of the money, as pleaded in the first cause of action. While the pleading is not detailed, it is sufficient to articulate the claim in general terms. There is a tenable claim based on the facts for the claim as pleaded. This is not an application for a strike out nor was it argued as such. A strike out application has been filed and that will no doubt examine in detail the exact basis for the unjust enrichment claim added in August 2021.18
[52] In Chilcott, the Court of Appeal said that when a possible limitation defence arose in the consideration of an application for amendment, the issue was whether the “new case” varied so substantially from what had been previously set up that it would require different investigations from those already undertaken and fair warning had
15 Peter Blanchard Civil Remedies in New Zealand (Thomson Reuters, Te Whanganui-a-Tara | Wellington 2011) at 384.
16 Lipman Gorman v Karpnate [1991] 2 AC 548 (HL).
17 Alastair Hudson Equity and Trusts (9th ed, Routledge, Oxford, 2017) at 33, fn 161.
18 The High Court noted in an application for joinder of parties that there are differences between the principals applying to strike out applications in joinder applications: Kirkland v Jaco’s Timber Co Ltd HC Ōtepoti | Dunedin CP45/197, 1 May 1998. The same applies to the differences between an application for amendment of pleadings and a strike out application. See generally McGechan on Procedure, above n 14, at [HR4.56.09].
not been given to the other party.19 Further the Court needed to consider whether it would be unfair and unjust to the defendant to be put in peril of a judgment founded on a new matter.20
[53] That is not the case here. No unfair prejudice will accrue to the defendant, particularly given the early stage of the proceedings. The facts alleged remain as originally pleaded so the defendants have been on notice of the claim since it was filed within the limitation period in April 2021. The defendants have been on notice in general terms of ongoing investigations into the company’s transactions since the 2015 appointment of the liquidator. This claim has not come out of the blue. There is ample time for the defendants to take any steps necessary or make further inquiries before the matter is dealt with.
[54] The proposed amendment to the first cause of action does not cause it to become “essentially different” from the earlier pleading.21 It is merely a refining of the claim.
[55] The defendants suggest that leave to amend was required as the proceeding had been set down earlier. However, the trial date was vacated so the matter is no longer set down. I do not consider leave is necessary but if leave was necessary it is granted.
[56] The first cause of action is not a fresh cause of action which has arisen since the filing of the claim. The cause of action arose before the original claim was filed in April 2021. Therefore, in my view leave is not required for that reason. It would be granted in any event.
[57] The Court of Appeal noted that the underlying principle as to whether an amendment should be granted was the interests of justice. A powerful consideration is whether the amendment would cause significant prejudice to the defendant.22 No undue or significant prejudice to the defendants has been pointed to.
19 Chilcott v Goss [1995] 1 NZLR 263 (CA) at 263.
20 Chilcott v Goss, above n 19, at 273.
21 At 272.
22 At 272.
[58] I now deal with the third cause of action, which as amended is a claim by the putative plaintiff, the liquidator.
Third cause of action
[59]The third cause of action seeks relief as follows:
(a)Compensation in terms of s 347 of the Property Law Act 2007 in a sum equivalent to an amount, and which will be proven at trial, required to enable the Second Plaintiff to pay all the costs and expenses of the liquidation, those creditors who have filed proofs of debt for their claims, interest, and cost; and
(b)Such further or other relief is made to this Honourable Court seem just.
[60]Section 348 of the PLA says:
Court may set aside certain dispositions of property
1.A court may make an order under this section–
a.on an application for the purpose (made and served in accordance with section 347); and
b.if satisfied that the applicant for the order has been prejudiced by a disposition of property to which this subpart applies.
2.The order must do 1, but not both, of the following:
a.vest the property that is the subject of the disposition in the person (for any applicable purpose) specified in section 350:
b.require a person who acquired or received property through the disposition to pay, in respect of that property, reasonable compensation to the person (for any applicable purpose) specified in section 350.
3.If the order does what is specified in subsection (2)(a), it may also require a person who acquired or received property through the disposition to physically restore some or all of that property that is tangible personal property to 1 or more persons specified in the order.
4.Person who acquired or received property through the disposition
means a person who acquired or received property–
a.under the disposition; or
b.through a person who acquired or received property under the disposition.
[61] Therefore, the third cause of action as originally pleaded by the company could not succeed. The third cause of action must be brought by the liquidator.23
[62]Turning to the application for joinder, r 4.56 of the High Court Rules says:
4.56Striking out and adding parties
1.A Judge may, at any stage of a proceeding, order that–
a.the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
b.the name of a person be added as a plaintiff or defendant because–
i.the person ought to have been joined; or
ii.the person’s presence before the Court may be necessary to adjudicate on and settle all questions involved in the proceeding.
2.An order does not require an application and may be made on terms the court considers just.
3.Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[63] The defendants say the third cause of action in the amended statement of claim also falls foul of the limitation period. They say they have a defence to the claim because at least six years have passed since the date of the act or omission on which the claim is based. That is the primary period for limitation purposes under s 11(1). They say the plaintiff either gained knowledge or ought reasonably to have gained knowledge of the fact of the disposition in 2012/2013 or of the facts that the act or omission on which the claim is based was attributable to the defendants. Therefore the company/liquidator does not have late knowledge of the claim in terms of s 14 of the Act.
[64] For the purposes of the Act, the relief sought is a money claim under an enactment, being a claim for monetary relief under the PLA. Therefore, the third cause of action is a money claim for the purposes of s 11 of the Act.
23 Property Law Act 2007, s 347(1)(b).
[65] The defendants plead that a deed of assignment dated 31 March 2012 validly assigned the vendor finance loan from PMT to the directors, Mr and Mrs Marks’. On its face the six-year limitation period on the money claim elapsed in 2018, three years after the appointment of the liquidator.
[66] The plaintiff says it can rely on the late knowledge period provisions contained in s 11(3) of the Act. That enables the limitation period to be extended due to the late knowledge of the claim. The late knowledge period does not expire until well after the filing of the amended statement of claim.
[67] The defendants further say that the amended third cause of action requires leave to file as it is a claim which has arisen since the filing of the original claim under r 7.77 of the High Court Rules. In my view, the third cause of action has not arisen since PMT’s claim was filed in April 2021. The cause of action has existed since the disposition is alleged to have taken place at the latest in 2012.
[68] The main issue is whether the limitation defence bars relief.24 As the deed is dated March 2012 the question is whether the late notice provisions apply to allow the plaintiff (or the liquidator) to pursue the application for compensation arising from the disposition.
[69] The late knowledge date is either the date on which the claimant gained knowledge, or earlier date on which the claimant ought reasonably to have gained knowledge of the fact on which the claim is based and that it was attributable to the defendant.25
[70] The defendants say Mr Allott ought reasonably to have gained knowledge earlier than June 2020 when they gave him a copy of the March 2012 date. They say Mr Allott, as liquidator, had extensive powers and should have made enquiries which would have brought the deed to his attention.
24 Limitation Act 2010, s 43.
25 Section 14(1)(a) and (b).
[71] In response, Mr Allott says that nothing in the company documents, which were handed over in the liquidation, alerted him to the fact there had been an assignment of the benefit of the debt. The deed that was produced in June 2020 was not among the company’s documents. The deed had been in the hands of the defendants or their solicitors for some years. On 8 May 2015, two months after liquidation, a copy of the deed was supplied by the Marks’ solicitors to the purchaser’s lawyers to direct the repayment of the principal to the defendants.
[72] Mr Allott says he had made enquiries of the defendants and nothing was forthcoming in relation to this assignment until the deed was produced. He also had made enquiries of the purchasers of PMT when he obtained the agreement for sale of the business.
[73] Mr and Mrs Mark were the company directors. They were required under the Companies Act to keep proper records. Documents such as a deed recording an assignment of a vendor loan should have been handed over to the liquidator with the company records. The transaction should also have been clearly noted in the financial records and in the company minutes.26 It appears that the defendants did not volunteer the information to the liquidator. In those circumstances, I am satisfied the liquidator had made reasonable enquiries and, on the information before me Mr Allott could not reasonably have had knowledge of the relevant facts before June 2020.
[74] I am satisfied that the late notice limitation period applies to the third cause of action. On the evidence of the liquidator he did not become aware of the disposition until he received the Deed of Assignment in June 2020.
[75] The liquidator had made appropriate enquiries concerning the proceeds of sale of the company’s business based on the information he had been given. The liquidator could not be reasonably expected to know there had been an alienation of the benefit of the loan to the directors before receiving the Deed of Assignment in June 2020. That deed was under the control of the directors and their professional advisors
26 Companies Act 1993, s 300: liability arises if proper accounting records are not kept. There is also a wider obligation on directors to keep proper records. The minutes which were provided by the directors of the liquidator did not include any reference to this disposition.
apparently since March 2012 on their evidence, but at least since March 2015 when they provided it to the purchasers of the company’s business in order to ensure that the Marks were repaid the principal of the vendor finance loan rather than the repayment being made to the company.
[76] The late knowledge period runs from June 2020 for three years. The amended statement of claim was filed on 13 August 2021 and the original statement of claim was filed in April 2021. Both were filed within the late knowledge period. The close date for the late notice period of limitation for the third cause of action is June 2023. The claim is not barred by statute.
Application to join second plaintiff
[77] I now turn to consider the application to join the second plaintiff insofar as it relates to the third cause of action.
[78] A liberal approach is generally taken to an application for joinder by the Court once the jurisdiction is established.27 Turning to the other requirements of r 4.56, the liquidator consents to be joined, therefore r 4.56(3) is satisfied.
[79] If the presence of a person is necessary to enable the Court to adjudicate on the “precise issues raised in the proceeding”,28 the tendency is to regard them as a party who “ought to be joined”. A flexible approach is indicated.29 The joinder application should not be approached as a de facto strike-out application as there are differences between the two applications.30 Whether or not the plaintiff ultimately may succeed is not for determination in the joinder application although a tenable clause of action must be apparent.
[80] There is no doubt that it is necessary that the presence of Mr Allott, the liquidator, is required to determine the issues in the third cause of action as the company (in liquidation) cannot bring the claim. The limitation period has not expired
27 McGechan on Procedure, above n 14, at [HR4.56.10].
28 At [HR4.56.08].
29 At [HR4.56.09].
30 Kirkland v Jaco’s Timber Co Ltd HC Ōtepoti | Dunedin, CP456/97, 1 May 1998 at 6.
in view of my findings above. Mr Allott would be entitled to bring a separate action if he is not joined to this action. That step is unnecessary and inefficient and would merely lead to a further application for consolidation to have that proceeding heard with this one.
[81] I am satisfied Mr Allott should be joined as being a party who ought to be joined in order to determine the claim. In the circumstances, no undue prejudice accrues to the defendant. The proceeding is at an early stage. The defendants have been on notice of investigations into the company’s assets since the appointment of the liquidator in 2015. There is no allocated hearing date for this proceeding. Further interlocutory applications have been filed. The defendants are not taken by surprise by the joinder.
[82]Accordingly, I am satisfied that leave should be granted permitting:
(a)Mr Allott to be joined as the second plaintiff.
(b)Amending the third cause of action as proposed.
[83] I now turn to consider the second cause of action, which requires a determination in relation to both the joinder of Mr Allott and whether a long-stop limitation period applies to bar the claim.
Second cause of action
[84] An application under s 301 of the Companies Act may only be brought by a liquidator or a creditor.31 The amended second cause of action here can only be brought by the liquidator, Mr Allott, not the company. The original second cause of action brought by the company in liquidation cannot succeed unless the liquidator is joined.
[85] The amended claim pleads, as did the original second cause of action, that the defendants, as directors, breached certain fiduciary and statutory duties to the
31 Companies Act 1993, s 301(1).
company. They breached duties of good faith in not acting in the company’s interests, traded recklessly and failed to keep accounting records. The relief sought is compensation under s 301 of the Companies Act.
[86] Under the Limitation Act, a primary and long-stop limitation period for a claim under s 301 of the Companies Act has a period start date of the date of the appointment of the liquidator.32 The date of appointment here was 24 March 2015. Therefore, the long-stop limitation period expired on 24 March 2021, some five months before the amended statement of claim was filed and one month before the filing of the original statement of claim on 23 April 2021.
[87] The plaintiffs argue that the s 301 claim is merely an “ancillary claim”. The Court has a discretion to allow relief under the Limitation Act for the bringing of an ancillary claim if relief would otherwise be granted in respect of the original claim.
[88] The plaintiffs say the “original claim” is the first and/or third cause of action. The first cause of action in the amended statement of claim (August 2021) pleads unjust enrichment. The third cause of action seeks compensation based on a disposition contrary to s 348 of the PLA.
[89]Section 301 of the Companies Act 1993 as relevant provides:
301 Power of court to require persons to repay money or return property
(1)If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder,—
(a)inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b)order that person—
32 Limitation Act 2010, s 16(1)(i).
(i)to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii)to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c)where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
(2)This section has effect even though the conduct may constitute an offence.
(3)An order for payment of money under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.
[90] Section 301 of the Companies Act does not create any new cause of action. It has been described as a “summary way of examining and enforcing the claims within its ambit which could have been bought by the company prior to the commencement of its liquidation.”33
[91] Section 301 provides for the liability of a director who has “misapplied, or retained, or become liable or accountable for, money or property of a company, or been guilty of negligence, default, or breach of duty or trust in relation to the company”.34 The first and third causes of action relate to the defendants’ liability or accountability, and breach of duty or trust by the Marks as directors. Both the original and amended first cause of action pleads a wrongful retention by the Marks of funds from the repayment of the vendor loan owed to the company. The third cause of action alleges liability based on a default by the directors in disposing of the company’s property, so prejudicing the liquidator in his recovery of the assets of the company.
[92] I have concluded the first cause of action is tenable and inside the late knowledge period close date. I reached the same conclusion in relation to the third cause of action.
[93] The question here is whether those are the original claims and, for the purposes of s 301, the second cause of action is an ancillary claim.
33 John Farrar and Susan Watson (eds) Company and Securities Law in New Zealand (2nd ed, Thomson Reuters, Te Whanganui-a-Tara | Wellington, 2013) at [31.7.2].
34 Companies Act 1993, s 301(1).
[94]Section 50 of the Act provides:
50 Discretion to allow relief for ancillary claim when allowed for original claim
(1)This section applies to an ancillary claim made in a civil proceeding commenced in a specified court or tribunal if, and only if, —
(a)relief may be granted in respect of the original claim, because no defence under Part 2 or 3 has been or could be established against it, or because of an order under section 17, 35(5), or 36(4); but
(b)relief cannot be granted in respect of the ancillary claim because a defence under Part 2 or 3 has been or could be established against it, and because no order under section 17, 35(5), or 36(4) allows a court or tribunal to grant monetary relief in respect of it.
(2)The specified court or tribunal may, if it thinks it just to do so on an application made to it for the purpose, order that relief may be granted in respect of the ancillary claim as if no defence under Part 2 or 3 applies to it.
(3)The application for the order must be made before the specified court or tribunal has decided whether the defendant has established a defence under Part 2 or 3 against the ancillary claim.
[95] Section 50(2) of the Act requires an application to be made to the Court for the purpose of obtaining relief under that section. Section 50(3) provides that the “application for the order” must be made before the Court has decided whether a defendant has established a defence under part 2 of the Act.
[96] The jurisdiction under s 50 is established if the Court determines the claim is an “ancillary claim”. The definition in the Act is as follows:
4 Interpretation
In this Act, unless the context otherwise requires-
ancillary claim means a claim that relates to, or is connected with, the act or omission on which another claim (the original claim) is based, and is—
(a)a claim that arises from, or results in, the addition of 1 or more parties to the original claim; or
(b)a counterclaim; or
(c)a claim by way of set-off; or
(d)a claim that is added to, or substituted for, the original claim; or
(e)a claim made by way of a third party, fourth party, or subsequent party procedure; or
(f) any other claim that is ancillary to the original claim (Emphasis added.)
[97] The reasons for a limitation statute were set out in the Law Commission (now Te Aka Matua o Te Ture) report “Tidying the Limitation Act”.35 The reasons included setting a limitation period that was not so long as to disadvantage the intended defendant in certain respects including in relation to the destruction of records.36
[98] Commentary from the Limitation Act Handbook says that two conditions must be met before s 50 applies.37 First, the original claim must not be barred by any limitation defence and, secondly, the ancillary claim is or could be barred by a limitation defence.
[99]The commentary goes on to say that:38
·Before the court can exercise the discretion it must be shown that the ancillary claim is related to or connected with the act or omission on which the original claim is based. The statutory expressions do not require a close connection with the original claim, but the weakness of the connection may be taken into account in exercising the discretion.
·The relationship or connection is narrow; it is between the ancillary claim and the act or omission on which the original claim is based, not between the ancillary claim and the original claim.39
·What seems to be required is either a common act or omission on which both are based or some lesser relationship or connection between the ancillary claims and the act or omission on which the initial claim is based.40
[100] “Related to or connected with” has a wide meaning. There is no reason to read down or unduly restrict the meaning of “ancillary claim”. The original claim here is
35 Te Aka Matua o Te Ture | Law Commission Tidying the Limitation Act (NZLC PP61, 2000).
36 At 2 and 3.
37 JC Corry Limitation Act Handbook (LexisNexis, Te Whanganui-a-Tara | Wellington, 2011) at 127.
38 At 128.
39 Tidying the Limitation Act, above n 35, at [4.1.1](c).
40 Tidying the Limitation Act, above n 35, at [4.1.1](c).
the claim or claims set out in the first and third causes of action. The first cause of action is based on an omission, the failure to pay the vendor finance loan to the company by the Marks’. In the case of the alternative third cause of action the alleged disposition is evidenced in the deed of assignment dated, 31 March 2012.
[101] I have found each of these claims were made before the close date of the late knowledge limitation period. Therefore, they are not statute barred. The claims are based on acts or omissions. Both the failure to pay and the alleged disposition are closely related or connected to the s 301 claim in that they relate to arrangements alleged to have been entered into or occurred before liquidation and are alleged to have wrongfully taken money from the company. Section 301 is a mechanical provision providing a summary route for recovery of such funds.
[102] The acts and omissions were carried out by the defendants. In the case of the first cause of action, the Marks carried out the action as directors by receiving the repayment of the vendor finance loan with knowledge that it was company’s money according to allegations. In the third cause of action the assignment was undertaken by a company at a time when the Marks were active directors controlling company transactions, responsible for keeping proper company records and possibly in a situation of conflict of interest in authorising the assignment. They and their interests received the benefit of the assignment.
[103] Therefore, the original claims are related to and connected to the s 301 ancillary claim.
[104] Similar considerations apply as for exercising a discretion to grant leave to amend a statement of claim or joining a plaintiff. The overarching principle is whether the Court “thinks it is just to do so”.41
[105]I now turn to the exercise of my discretion under s 50 of the Limitation Act.
41 Limitation Act 2010, s 50(2).
Exercise of discretion
[106] This requires an assessment as to whether the defendants would be prejudiced by the exercise of the discretion. In this case, it is difficult to see how the defendants would be prejudiced except insofar as a claim is made against them at all. The proceeding is at the early stages. It is yet to be set down. The defendants were required to hand over the relevant company records to the liquidator at the time of liquidation and there is no evidence that there are documents which might have been lost over the passage of time. Although the evidence of Mr Allott suggests the directors have been less than forthcoming in assisting the liquidator. The prejudice might be argued to relate to the length of time over which matters have been under investigation by the liquidator. However, that is not prejudice to the defendants in defending the claim and in any event is not significant in the absence of any specific prejudice.
[107] It may be the evidence emerges differently at trial. It will be open to the trial Judge after hearing the evidence and cross-examination to make findings based on the evidence that do not accord with allegations upon which I have based my conclusions.
[108] For the reasons set out in relation to the third cause of action, I am satisfied that Mr Allott should be joined as second plaintiff to bring the claim under the second cause of action as an ancillary claim to the first and/or third cause of action. He is the liquidator who is entitled to bring this claim. The original claims are either not statute- barred or within the late knowledge limitation period for the reasons set out above. The liquidator ought to be joined as his presence before the Court is necessary to determine the issues in this proceeding.
[109] For the reasons set out in relation in to the third cause of action, I do not consider that undue prejudice accrues to the defendants in the present circumstances.
[110]I now turn to the fourth cause of action.
Fourth cause of action
[111] This is a claim for recovery of interest which has been paid to the Marks’ Trust by the purchasers under the vendor finance loan.
[112] The plaintiff says that it proposes only to pursue the recovery of interest paid within the limitation period, which would be within the six years preceding the filing of the claim. In those circumstances there is no limitation issue arising in relation to the fourth cause of action.
[113] In relation to the joinder, Mr Allott is a necessary party to the claim as liquidator. He should be joined. Secondly, there is no undue prejudice pointed to which will accrue to the defendants due to the joinder. The liquidator’s investigations have been ongoing since 2015. Therefore, the defendants have been on notice that there may be claims relating to the company’s transactions since then.
[114] In addition, Mr Allott would be entitled to file separate proceedings. It would be inefficient and time-consuming to then have to consolidate those proceedings which would almost be inevitable. This proceeding has not yet been set down for trial and remains in the interlocutory stages.
[115] There can be no objection to the joinder of Mr Allott for the purposes of the fourth cause of action, nor for the amendment of the statement of claim to reflect that claim.
[116] If leave to amend were necessary, I would grant it. No prejudice accrues to the defendants for reasons set out in relation to the earlier causes of action.
Conclusion
[117]As will be apparent, I am satisfied:
a)An order joining the liquidator as second plaintiff should be made.
b)The late knowledge limitation period in relation to the first, second and third causes of action applies so these claims are not statute barred.
c)The amended second cause of action is an “ancillary claim” to the either or both of the claims pleaded in the amended first and third causes of
action. Therefore, the long stop period has not closed. The claim is not statute barred.
d)Leave to file the amended statement of claim is granted.
[118]Orders are made accordingly.
Costs
[119] The costs occasioned by the original pleadings and application for amendment are payable by the applicant in the absence of an order to the contrary.42
[120] An application to add the second plaintiff was necessary due to the omission of the liquidator as plaintiff when the 2021 proceeding was filed. In addition, an application was necessary due to the long stop liquidation period expiry in relation to the second cause of action.
[121] My preliminary view is that the plaintiff should bear the costs of the applications on a 2B basis. If counsel are unable to agree, any application for costs together with an appropriate memorandum should be filed and served within five days of the date of this judgment. Any response should be filed within a further five days.
Next steps
[122] The matter should now be set down for a further case management conference. The applications for summary judgment and strike out remain parked.
[123] Counsel might also consider whether the piecemeal approach to the litigation taken to date is either effective or efficient.
42 High Court Rules 2016, s 7.77(8).
Grice J
Solicitors:
Clark Boyce Lawyers, Ōtautahi | Christchurch, for the plaintiff.
Wisheart Macnab & Partners, Te Waiharakeke | Blenheim, for the defendants.
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