Polyethylene Pipe Systems Limited v Bosch Irrigation Limited HC Christchurch CIV 2010-409-885

[2010] NZHC 2182

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-000885

BETWEEN  POLYETHYLENE PIPE SYSTEMS LIMITED

(In Receivership and in Liquidation) Plaintiff

ANDBOSCH IRRIGATION LIMITED Defendant

Hearing:         29 November 2010

Appearances: D J C Russ for the Plaintiff

R G Smedley for the Defendant

Judgment:      29 November 2010

[ORAL] JUDGMENT OF WYLIE J

Solicitors:

Fletcher Vautier Moore, P O Box 90, Nelson 7040
Anthony Harper Lawyers, P O Box 2646, Christchurch (Fax [phone])

POLYETHYLENE PIPE SYSTEMS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) V BOSCH IRRIGATION LIMITED HC CHCH CIV-2010-409-000885  29 November 2010

[1]      Polyethylene Pipe Systems Limited is in receivership and in liquidation.  The receiver — Mr Stapley — seeks leave to continue proceedings that have already been commenced in the company’s name against Bosch Irrigation Limited.

[2]      The receiver was appointed by a Mr D C Browne pursuant to a general security agreement he had with the company dated 28 July 2008.  Mr Browne was also a shareholder in the plaintiff company and a director prior to the company being placed into liquidation.

[3]      Leave is required pursuant to s 248 of the Companies Act 1993 and s 31(2) of the Receivership Act 1993.

[4]      The application was initially opposed by Bosch, but in the event a consent memorandum has been filed as between the receiver and Bosch.

[5]      The  liquidator  has  not  filed  a  notice  of  opposition.     Nevertheless  a memorandum has been filed by counsel on his behalf, and in addition he has filed an affidavit.

[6]      Initially the liquidator gave consent on a conditional basis.   The liquidator was concerned to ensure that the general body of creditors of the company was not exposed to costs and expenses, and that the position of unsecured creditors was not adversely affected.   To that end, the liquidator sought various undertakings from Mr Browne.

[7]      There is no dispute about the essential facts.  They are as follows:

a)       Mr Browne’s general security is a first ranking general security over all of the present and after acquired property of the company.   The amount secured is $523,579 plus interest.

b)Mr Browne has been paid out $256,922.  The sum of $266,657 plus interest remains owing.

c)       Mr Stapley has prepared an interim report as at 7 October 2010.   It records  that  the  company  has  unsecured  creditors  in  the  sum  of

$3,040,367.75.

d)The only asset of the company that remains available for recovery is the claim against Bosch.   The proceedings have been issued.   The amount claimed by the company is $551,083.14.   Bosch has filed a counterclaim in the sum of $957,734.95.

[8]      The liquidator has stated that he is not opposed to the receiver continuing the proceeding in the name of the company.  Moreover, he has accepted that the Court should determine the dispute, and that it is the appropriate forum for the matter to be advanced.   He was concerned that Mr Browne as the secured creditor should undertake to cover all costs incurred in continuing the proceeding, including any adverse costs award and expert witness costs, and further that Mr Browne should not be entitled to claim those costs from the company under his general security agreement.

[9]      Mr Browne is happy to agree to a condition that he meet all of the costs involved in prosecuting the proceedings against Bosch, including payment of all legal costs and witness expenses and other associated disbursements.  He is however concerned as to the status of any costs that he incurs in the course of prosecuting the proceedings against Bosch.   He refers to the general terms and conditions of the security  agreement,  and  asserts  that  any  costs  he  incurs  are  secured  by  that document.

[10]     I have received helpful submissions from Mr Russ for the receiver and from

Mr Smedley for Bosch.  There was no appearance by the liquidator.

[11]     A secured creditor has a right to take proceedings to enforce rights against property forming part of the security holder’s security.   Here, the general security agreement between the company and Mr Browne extends to all of the company’s present and after acquired property, being all the company’s personal property and all other property.   Pursuant to the general terms and conditions of the security

agreement, the security extends over contractual rights, including choses in action of every kind due to or owned by the company.   In my judgment it is clear that the general security held by Mr Brown extends over the company’s right of action against Bosch.

[12]    Where enforcement of security rights is pursued through a company in liquidation, it is generally accepted that leave should be granted to the security holder to enforce those rights.[1]    Further, leave can be granted where proceedings have already been issued.[2]

[1] Haupiri Courts Limited (in liquidation) v Piako Construction Limited [1969] NZLR 401 at 406 (SC).

[2] Steel & Tube Co of New Zealand Ltd v Barker & Pollock Ltd and JBL-Sargent Construction Ltd [1973] 2 NZLR 30 at 32 (SC).

[13]     The leading authority on the grant of leave is the decision of Associate Judge Faire in Fisher v Isbey.[3]    I have considered the various factors that are there listed. Relevantly I note as follows:

[3] Fisher v Isbey (1999) 13 PRNZ 182 (HC); see also Satara Co-Operative Group Ltd v Fus Ltd

HC Napier CIV-2008-441-856, 28 January 2010.

a)       While it is a cardinal principle that there must be equality between various creditors, and that the bringing of proceedings should not produce a comparative advantage to any particular creditor, I cannot see that  that  will  occur  in  the present  case.    There are no  assets available to unsecured creditors at present.  If the proceedings which had been commenced in the company’s name are successful, then Mr Browne will be paid out further monies as a secured creditor.  The balance will be available for the unsecured creditors.   If Bosch succeeds in its counterclaim, then the unsecured creditors will not be disadvantaged, because there are no assets of the company available for recovery.

b)I  have  considered  the  statement  of  claim  and  the  statement  of defence.   While there is a factual dispute regarding the supply of product, and the effect of representations, and alleged quality issues, it cannot be said that the company’s claim is clearly not unsustainable.

[14]     In my view, it is appropriate to grant leave.  The Court can of course impose conditions on any grant.   Such conditions are usually for the benefit of unsecured creditors of the company in liquidation.

[15]     Provided Mr Browne pays security for costs as sought by Bosch, provides an indemnity for any adverse award of costs that exceeds the security paid, and agrees to meet all legal costs and witness expenses, there can, in my judgment be no detriment to the unsecured creditors.

[16]     I  am  not  persuaded  that  it  would  be  appropriate  to  require  by  way  of condition that Mr Browne should not be entitled to claim any costs he incurs from the company under his general security.  It seems to me that those costs are caught by the general security.   I refer in particular to clause 29(a)(ii).   It provides that Mr Browne’s legal costs arising from or relating to any default under the security, or the attempted enforcement or exercise of any of the security holders’ rights and remedies, are payable on demand.  As a consequence they will be secured under the security document.  The effect of the general conditions in my judgment is to afford Mr Browne priority in respect of the payment of any costs incurred by him in pursuit of the claim against Bosch.  I cannot see that Mr Browne is or should be under any obligation to expend costs for the potential benefit of the unsecured creditors.  In my view, he is entitled to rely on the security in recovering those costs as a priority sum.

[17]     Accordingly,  I  make  an  order  granting  the  plaintiff  company  leave  to continue proceedings under CIV-2010-409-885 on the following conditions; namely that:

David Charles Browne, being the appointor under a general security agreement  granted  by  the  company  in  favour  of  the  appointor   and dated 28 July 2008:

i)Pay into Court the sum of $50,000, such sum to be paid to the Registrar of the High Court, Christchurch Registry, by way of security for costs in the proceedings pursuant to r 5.45 of the High Court Rules.  The plaintiff company shall not be entitled

to continue with its proceedings until such payment is made. In the event that there are no costs payable by the plaintiff to
the defendant at the conclusion of the proceeding, the payment by way of security for costs shall be refunded to David Charles
Browne; and
ii)	David   Charles    Browne    shall    personally    indemnify    the
defendant  in  respect  of  any  costs  award  made  against  the plaintiff company that exceeds the amount of security paid
pursuant to subparagraph (i) above; and
iii)	David Charles Brown shall meet all of the costs of prosecuting
the proceeding against the defendant including payment of all legal   costs   and   witness   expenses   and   other   associated
disbursements; and
iv)	The  defendant  is  to  be  granted  leave  to  continue  with  its
counterclaim; and
v)	The costs of this application are to be reserved as between the
plaintiff company and the defendant.
[18]	By  consent,	I  also  make  the  following  timetable  directions  in  these

proceedings:

a)        The plaintiff company is to file and serve statement of defence to the defendant’s counterclaim by 5.00 pm on 23 December 2010.

b)        Both parties are to attend to discovery by verified list of documents.

Such lists are to be filed and served by 31 January 2011.

c)        Both    parties    are    to    attend    to   inspection    of    documents    by

28 February 2011.

d)There is to be a further telephone conference at the first available date after 28 February 2011.

[19]     I have canvassed the issue of costs with Mr Russ.  He does not seek costs and accordingly no order is made in that regard.

Wylie J