Riccarton Construction Limited v Coljon Limited HC Christchurch CIV 2010-409-848

[2010] NZHC 1183

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-000848

BETWEEN  RICCARTON CONSTRUCTION LIMITED

Applicant/Defendant

ANDCOLJON LIMITED Respondent/Plaintiff

Hearing:         28 June 2010

Appearances: R P Harley for Applicant/defendant

S W Rollo Respondent/Plaintiff

Judgment:      6 July 2010

RESERVED JUDGMENT OF ASSOCIATE JUDGE DOHERTY

on application for order for stay of proceedings in relation to liquidation

Background

[1]      Riccarton Construction Limited (Riccarton) has filed a statement of claim seeking to put Coljon Limited (Coljon) into liquidation (the proceeding).

[2]      The statement of claim relies upon a statutory demand for $300,320 served on 11 September 2009 in respect of a deposit Coljon alleged it was owed under an agreement for sale and purchase of land.  The sum was later the subject of an order of this Court on 19 March 2010 when Riccarton applied for an order setting aside the statutory demand.   The order followed a judgment of Associate Judge Osborne (CIV-2009-409-002301) of 4 March 2010.

[3]      A second statutory demand was served on the defendant on 25 March 2010 for costs of $6960 awarded in CIV-2009-409-002301.

RICCARTON CONSTRUCTION LIMITED V COLJON LIMITED HC CHCH CIV-2010-409-000848  6 July

2010

[4]      The statement of claim also alleges the company is insolvent.

Application/Opposition

[5]      Riccarton had applied for an order staying proceedings, upon the grounds:

i)This Court’s judgment of 4 March 2010 in CIV-2009-409-002301 is the subject of appeal which ought to be allowed to take its course.

ii)       If the proceeding is not stayed, the appeal may be rendered nugatory. iii)      The proceeding savours of unfairness.

[6]      Coljon opposes the application because:

i)As Riccarton did not file its application in accordance with the time limits in r 31.11, there is no jurisdiction to hear the application.

ii)As costs of $2440 have not been paid (rr 15.24 and 1.6) following the discontinuance by Riccarton of an application for order restraining the application for order appointing a liquidator in CIV-2009-409-002301 (“the second application”), Riccarton cannot bring this application.

iii)The application is an abuse of process (because the costs order has not been paid).

iv)Even if the judgment debt of $300,320 in CIV-2009-409-002301 is set aside following a successful appeal, Coljon remains a creditor in respect of unpaid costs.

v)Riccarton’s appeal of the judgment of 4 March 2010 is not being prosecuted diligently.

vi)      Coljon is not acting unfairly in filing the proceeding.

vii)All  creditors,  including  Coljon,  will  be  potentially  prejudiced  by delay.

viii)     The balance of convenience favours Coljon.

ix)      Riccarton has failed to demonstrate clear and persuasive grounds for a stay.

Principles to be applied

[7]      There is no argument concerning the general principles applicable in respect of an application such as this.   The principles were referred to by the Court of Appeal in Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 when discussing the forerunner to the current r 31.11 High Court Rules (r 700K). That decision referred to the earlier Court of Appeal decision in Exchange Finance Co Ltd v Lemington Holdings Ltd [1984] 2 NZLR 242 and to the Court of Appeal and Privy Council decisions in Bateman Television Limited (in liq) & Anor v Coleridge Finance Company Ltd [1971] NZLR 794 (CA); [1971] NZLR 297 (PC). The principles were confirmed also in Edge Computers Ltd v Colonial Enterprises Ltd (1996) 9 PRNZ

621 (CA).

[8]      From those authorities I extract the following specific principles:

•   A  winding up  order  will  not  be  made  where  there  is  a  genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up.

•   In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court.

•   The assessment of whether there is a genuine and substantial dispute is made  on  the  material  before  the  Court  at  the  time  and  not  on  the hypothesis that some other material, which has not been produced might, nonetheless be available.

•   The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

•   Rule 33.11 directs the Court to deal with the application as if it were an application for an interim injunction.

•    Rule 33.11 enables the Court to impose terms on any order it makes.

•   These applications are interlocutory in nature and accordingly it would be wrong to express a concluded view of the merits of the dispute.

•   A refusal of a stay does not bar the defendant from adducing a defence based upon the stay grounds when the application to appoint a liquidator is heard.

Jurisdictional argument

Riccarton

[9]      In the course of argument Riccarton’s counsel submitted that the proceeding is a nullity because an affidavit in appropriate form verifying the allegations in the statement of claim has not been filed in accordance with r 31.5(2).  Counsel submits that failure means the proceeding has not been properly commenced, and thus the proceeding is void ab initio.

[10]     Counsel  for  Coljon  accepts  a  verifying  affidavit  has  not  been  filed,  but submits that does not make the proceeding a nullity.

[11]     Rule 31.3(1) provides that an application under Part 31 (to put a company into liquidation) “must be made by statement of claim in form C1”.  The statement of claim in this case is in the appropriate form.  Rule 31.1(3) means that the High Court Rules and the general practice of the High Court apply to the proceeding unless modified or inconsistent with either the Companies Act 1993 or Part 31 of the Rules.

[12]     I  consider  that  whilst  r  31.5(2)  makes  it  mandatory  to  file  and  serve  a verifying affidavit, it is not inconsistent to apply r 1.5 which is the general rule dealing  with  non-compliance.    The  failure  to  file  a  verifying  affidavit  is  an irregularity but does not nullify the proceedings (r 1.5(1)), particularly given the

imperative of r 1.5(4) (Court must not set aside when applicant has taken fresh step after becoming aware of irregularity), which applies in this case.   This issue has arisen in the course of argument and after Riccarton made the current application. The irregularity of the failure to file the verifying affidavit must have been apparent to Riccarton upon service of the proceeding.

[13]     Should Coljon prevail in this application, leave will be required to extend time to file the verifying affidavit.

[14]     There is also objection taken by Riccarton to the late filing of the affidavit of Robert More Lyall by Coljon, which is designed to show that there is at least one other contingent creditor of Riccarton.  Riccarton has also filed an affidavit out of time, purporting to bear upon Coljon’s position that Riccarton has not attempted to progress the appeal of the judgment of 4 March 2010 in CIV-2009-409-002301. Neither affidavit is controversial.  There is no prejudice to either party.  I grant leave for each affidavit to be read.

Coljon

Rule 31.3 jurisdiction

[15]     The rule provides that an application such as the one made by Riccarton should be made “within five working days after the date of service of the statement of claim on the defendant company”.  This did not happen in this case.

[16]     In a similar vein to the issue raised by Riccarton to the lack of a verifying affidavit, I am of the view that the failure to bring an application within time is an irregularity, but one that can be cured by the application of r 1.5.  In any event, the point was not taken when it ought to have been when the matter came before the Court for the first time on 14 June 2010.   At that time the Associate Judge noted appearances by both plaintiff and defendant, and made a timetabling order allowing this application to be filed by 4 p.m., 18 June 2010.

[17]     I reject the submission that it is in the interests of justice that there be no extension of time on the grounds that it is against the interests of creditors.  There is

no evidence that the interests of creditors have been detrimentally affected by this short delay.  There is no other prejudice to Coljon.

[18]     In the absence of a formal order, I make an order extending time for the application to have been filed by that time and date.

Rule 15.24

[19]     The  argument  that  because  costs  have  not  been  paid  on  the  previous application this rule precludes the filing of this application, must fail.  ‘Proceeding’ is defined in r 1.3 as “any application to the Court for the exercise of the civil jurisdiction of the Court other than an interlocutory application”.  This application clearly comes within the definition of interlocutory application in r 1.3, and complies with the form and content set out in r 7.19.   In ordinary parlance, an application under r 31.11 is an interlocutory application brought following the commencement of the application to put Riccarton into liquidation.   Rule 31.11(2) lends further weight to this conclusion when it enjoins the Court to treat a r 31.11 application “as if it were an application for an interim injunction”.   An interim injunction is an interlocutory application.

Is there a dispute?

[20]     The judgment of 4 March 2010, and subsequent orders, put an end to the dispute.  The primary plank for Riccarton is that the judgment, to the effect that there is not a real and substantial dispute as to the existence of the debt, has been challenged  by  appeal,  and  therefore  the  issue  of  the  existence  of  a  real  and substantial dispute is still live.  The judgment found there had not been a cancellation of an agreement for sale and purchase between Riccarton (purchaser) and Coljon (vendor), and thus there could be no dispute that the unpaid deposit of $300,320 was a debt owed by Riccarton to Coljon. Judgment was entered for that sum.

[21]     At about the same time as delivery of the 4 March 2010 judgment, Simon France  J  heard  another  case  in  respect  of  the  same  transaction  (Riccarton Construction v Commissioner of Inland Revenue HC Wellington, CIV-2009-485-

001930, 20 April 2010).   Riccarton took judicial review proceedings against the Commissioner of Inland Revenue in relation to GST treatment of the sale and purchase transaction.   Counsel in this application submitted that, contrary to the 4

March 2010 judgment, in Riccarton v CIR the Court found there had been a cancellation of the contract, and thus there were two inconsistent judgments of this Court on the same subject matter.

[22]     With respect, I am not sure that the submission in the way it was made by counsel is correct.   The only observations on the point I have gleaned from the judgment of Simon France J are at [28]:

… Further, the contract has been cancelled so the taxpayer seeks relief from the Court that would have the effect of requiring the Commissioner to pay out $750,000 on a cancelled sale, it being indisputable that the money would have to be returned because the contract is cancelled.

and at [82], when discussing whether or not he would grant the relief sought:

…  However,  here  the  basis  for  the  original  GST  return  has  gone.  The contract to which it related has been cancelled. There is no obligation on the plaintiff to pay GST and it has not done so. Nor can any obligation subsequently arise. I am not willing to make a declaration which is intended to have the effect of requiring the Commissioner to pay across $750,000 in circumstances where it is accepted the taxpayer no longer has any obligation to pay GST because the agreement for sale and purchase has been cancelled.

[23]     The issue in Riccarton v CIR was whether Riccarton should receive GST credits on two agreements for sale and purchase including the one which was the subject  of  the  judgment  in  CIV-2009-409-002301.     For  the  purpose  of  the proceeding, whether the agreement between Coljon and Riccarton had or had not been cancelled had no direct bearing on the issues before the Court.

[24]     The  Riccarton  v  CIR  judgment  gives  no  analysis  as  to  the  issue  of cancellation, whereas the judgment of Associate Judge Osborne does.  The reference by Simon France J appears to be almost an aside.  There appears to have been no argument as to the status of the agreement.   His Honour’s references are quite consistent with the evidence of Kevin Frances McGoverne on behalf of Riccarton filed in support of the second application, wherein he states that Riccarton accepted Coljon’s repudiation and elected to cancel the agreement even though Coljon did not

accept that election.  It may well be that Simon France J was relying upon a fact or concession in Riccarton’s proceeding against the Commissioner; a proceeding to which Coljon was not a party.   In that sense there are not conflicts of a reasoned decision in respect of the same set of facts between the judgments of Simon France J and Associate Judge Osborne.

[25]     There is a further complication.  The judgment in Riccarton v CIR has also been  appealed  (and  cross-appealed).    From  the  information  available  to  me,  it appears the cancellation point is not at issue.  Further, the principle at issue in that appeal is being dealt with by the Supreme Court in an appeal by a third party (Contract Pacific Limited v Commissioner of Inland Revenue SC114/2009).  Counsel in the appeal of Riccarton v CIR have accepted that that appeal not be pursued until after the outcome and consideration of the appeal of Contract Pacific Ltd v CIR to the Supreme Court.

[26]     There has been no analysis of the case on appeal from CIV-2009-409-002301 presented to this Court.  Associate Judge Osborne’s judgment was categorical in its terms and viewed Riccarton’s arguments as meritless.  I note also in a judgment of

19 March 2010 in the same proceeding, when discussing costs, the Court said at

[19]:

The Court also found that the Riccarton argument which suggested Coljon had no entitlement to payment of the deposit during a default period was untenable, nonsensical and contrary to commercial commonsense.

[27]     In the face of the initial judgment and these latter observations I am unable to find there is a substantial dispute that exists between the parties.   There is an unsatisfied judgment against Riccarton in Coljon’s favour, and the fact that an appeal has been lodged takes the matter no further.

[28]     I am left with the distinct impression that this appeal has been lodged in an attempt to preserve the status of Riccarton in the hope the appeal in Riccarton v CIR will succeed either on its own merits or through the judgment of the of the Supreme Court if the appeal in Contract Pacific Ltd v CIR is successful.

Where is the balance of convenience?

[29]     Coljon accepts that it would be unusual for an order to be made to liquidate a company when the merits of the judgment debt in the statutory demand have been appealed.  However, there remains the issue of the outstanding costs on the second costs order.  Coljon has issued and served a further statutory demand in respect of that amount.  The time within which an application to set that aside must be filed has not yet run.   Those costs became payable when they were fixed (r 14.8(1)(b)). Coljon is therefore a creditor of Riccarton in respect of them.

[30]     Coljon alleges a lack of bona fides by Riccarton in respect of the appeal against the 4 March 2010 judgment in that:

i)        Riccarton has not paid the security for costs order in the Court of

Appeal.

ii)Riccarton has only recently (and in response to Coljon’s opposition to this application) sought that security be waived or deferred.

iii)Riccarton  has  not  sought  an  allocation  of  a  hearing  date  for  the appeal.

iv)Riccarton’s delay has motivated Coljon to make an application to strike out the appeal.

[31]     Riccarton has sought to rectify some of these criticisms, but belatedly and seemingly in direct response to them so as to mitigate that criticism before this Court (eg a recent application to defer payment of security for costs).

[32]     It is not sufficient merely to say there has been an appeal lodged, otherwise any applicant could merely lodge an appeal regardless of its merits and therefore buy time for itself.   In some situations an appeal might well mean the balance of convenience weighs in favour of an applicant, but there must be sufficient detail and analysis to tip the balance.  That is not the case here, and the balance of convenience favours Coljon.

[33]     There is evidence from Mr Lyall that his company is a contingent debtor by virtue  of  another  failed  agreement  for  sale  and  purchase  with  Riccarton.    His evidence is, however, equivocal in that it merely deposes that Riccarton has failed to settle on that sale and purchase.   There is no evidence of a demand being made, although Mr Lyall’s company has resolved to attempt to re-sell the property at an expected shortfall on the original contract price.

[34]     With the second costs order (of a minimal amount) in existence, with no appeal in respect of it or application for stay of it, for such a small sum, one would have to wonder whether Riccarton has the wherewithal to pay.  An affidavit of Kevin Frances McGoverne filed in support of CIV-2009-409-002301 attaches a price assessment  for  an  asset  of  Riccarton  at  $9.6m,  but  there  is  no  evidence  as  to solvency.

[35]     One of the arguments of Riccarton is that if it is placed in liquidation the appeal in Riccarton v CIR will be at risk.  That is, of course, by no means certain, as a liquidator would reassess his or her chances and proceed with the appeal if the incurring of costs was worth the risk.

[36]     It cannot be said that there is any downside to Coljon.  It retains the assets subject to the sale and purchase agreement and is marketing it at a figure not too far removed from that in the original Coljon/Riccarton transaction.

Outcome

[37]     It cannot be said that there is a real and genuine dispute in relation to the judgment funds.  There is an order of this Court both as to the judgment sum and costs on that judgment.  The dispute has been determined.  There has not been any argument before this Court as to the strength of the appeal.  The highest Riccarton has been able to put the argument is that there has been inconsistent judgments of the

4 March 2010 judgment and that of Simon France J.

[38]     The argument that the appeal be rendered nugatory if there is not a stay is premature.   The same argument can be promoted on the application to liquidate.

Riccarton may well have a developed argument on the merits which will convince the Court not to make an order.

[39]     At this stage Riccarton has not crossed the threshold so as to convince me there are clear and persuasive grounds for me to stay.  Nor is there anything about Coljon’s application to liquidate which savours of unfairness or undue pressure; it proceeds on the basis of an extant judgment.

[40]     The application is dismissed. [41]        I make the following directions:

i)Coljon is to file and serve an affidavit verifying the statement of claim by 5 p.m., 9 July 2010.

ii)Riccarton is to file and serve any evidence in support of its statement of defence by 5 p.m., 16 July 2010.

iii)      Coljon is to file and serve any evidence in reply by 5 p.m., 23

July 2010.

[42]     The proceeding is adjourned to the liquidation list at 10.30 a.m. on 2 August

2010.

Associate Judge Doherty

Solicitors:

Godfreys, Christchurch
Lane Neave, Christchurch