Satara Co-operative Group Limited v FUS Limited (Formerly Apollo Fruit Limited) (in liq) HC Napier CIV-2008-441-856
[2011] NZHC 1582
•28 July 2011
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2008-441-856
BETWEEN SATARA CO-OPERATIVE GROUP LIMITED
Plaintiff
ANDFUS LIMITED (FORMERLY APOLLO FRUIT LIMITED) (IN LIQUIDATION) Defendant
CIV-2010-441-698
AND BETWEEN SATARA CO-OPERATIVE GROUP LIMITED
Plaintiff
ANDBRUCE MCDONALD BEATON First Defendant
ANDROSS MCDONALD BEATON Second Defendant
Hearing: 16 June 2011 (Heard at Napier)
Counsel: R.E. Kettelwell - Counsel for Plaintiff
M. Macfarlane - Counsel for Defendant
Judgment: 28 July 2011 at 4:30 PM
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 28 July 2011 at
4.30 pm under r 11.5 of the High Court Rules.
Solicitors: Sharp Tudhope, Solicitors, Private Bag 12020, Tauranga
Sainsbury Logan & Williams, Solicitors, PO Box 41, Napier
SATARA CO-OPERATIVE GROUP LIMITED V FUS LIMITED (FORMERLY APOLLO FRUIT LIMITED) (IN LIQUIDATION) HC NAP CIV-2008-441-856 28 July 2011
Introduction
[1] Before the Court are two applications:
(a) An application by the defendants in proceeding 698, Bruce McDonald Beaton and Ross McDonald Beaton (―the Beatons‖) for defendants‘ summary judgment against the plaintiff in that proceeding; and
(b)An application by the plaintiff in both proceedings for an order consolidating the proceedings.
[2] In each case the applications are opposed.
Background Facts
[3] Around June 2006 the plaintiff and FUS Limited (at that time named Apollo Fruit Limited) (―FUS‖) entered into a contract for the transportation and cool storage of kiwifruit controlled by the plaintiff and owned by its growers. At all material times the Beatons were directors of FUS.
[4] In the course of this contract, some 71,585 trays of the plaintiffs kiwifruit were transported to and held in FUS‘s store at Whakatu Road, Hawkes Bay and while in the bailment of FUS the kiwifruit suffered damage. As a result of this damage the plaintiff says it suffered losses of $368,212.00 plus administrative costs, interest and other costs. Around 23 August 2006 the plaintiff notified FUS that it held it accountable for the loss of the kiwifruit.
[5] With regard to proceeding 698 against the Beatons, the plaintiff alleges that between August 2006 and September 2007 $5,193,951.00 was transferred from FUS to a parent company owned by the Beatons, namely Beaton Group Limited.
[6] Then, around September 2006 under the directorship of the Beatons, FUS merged with United Fruit Packers Hawkes Bay Limited and on 19
February 2009 Apollo Fruit Limited changed its name to FUS.
[7] Later, on 8 June 2009 FUS was placed into liquidation by special resolution of its shareholders.
[8] Then, around 3 November 2010 the plaintiff filed its proceedings numbered 698 (claiming to be a contingent creditor of FUS) against the Beatons as directors of FUS under s 301 Companies Act 1993.
Defendants‟ Summary Judgment Application – Counsels‟ Arguments
and My Decision
[9] It is appropriate to deal first with the Beatons‘ summary judgment application against the plaintiff with respect to proceedings 698. Essentially it raises a short point which arises out of the interpretation of the word
―creditor‖ in sections relevant to the claim by the plaintiff against the Beatons as directors of FUS. Shortly I will address this point.
[10] But first, some general principles relating to the Beatons‘ summary judgment application. This is brought pursuant to r 12.2(2) High Court Rules which provides:
12.2 Judgment when there is no Defence or when no Cause of
Action Can Succeed
(2) The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff‘s statement of claim can succeed.
[11] McGechan on Procedure at para HR12.2.07 addresses a defendant‘s
summary judgment application such as the present one and notes:
HR12.2.07 Onus on defendant
(1) Effect of material disputes of fact
Where the defendant applies for summary judgment, the position is rather different from an application by the plaintiff. A defendant‘s application is similar to a striking-out application in that the defendant has to show that the plaintiff cannot succeed. The difference between an application for summary judgment and an application to strike out is that the summary judgment application requires affidavit evidence to be provided. It will therefore be possible to obtain judgment on the basis of material other than that contained in the pleadings. As in the case of an application by the plaintiff, if there are material disputes of fact which cannot be resolved on affidavit, summary judgment will have to be refused.
The Courts have noted the similarity between the two types of application and the difficulty of succeeding where there is a material dispute of fact: Ferrymead Tavern Ltd v Christchurch Press Ltd (1999) 13 PRNZ 616. In A-G v Jones (2001) 15 PRNZ
347 (CA), the Court of Appeal adopted a robust approach to disputes of fact, and held that summary judgment ought to have been granted. The Privy Council overruled the Court of Appeal (A- G v Jones (2003) 16 PRNZ 715 (PC)) on the basis that there was a hypothetical scenario in which the factual differences might make a defence arguable. The decision emphasises the need to avoid factual disputes if judgment is to be obtained.
Summary judgment will not be appropriate where it is possible for the plaintiff to amend its claim so as to remedy the defects relied on by the defendant; it should be used only where the defendant has a clear answer to the plaintiff which cannot be contradicted: Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2
NZLR 298; (2000) 14 PRNZ 631 (CA); A-G v Jones (2003) 16
PRNZ 715 (PC). Where the claim is untenable as a matter of law, it will generally be appropriate to apply to strike it out: Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).
The defendant has to show that none of the plaintiff‘s causes of action can succeed. While the plaintiff may obtain summary judgment on one of several causes of action, the defendant must be able to knock out the entire claim in order to be able to apply for summary judgment. If the defendant is only able to show that some of the causes of action cannot succeed, the proper course will be to apply for striking out.
[12] Essentially, r 12.2(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. Caution should be exercised, however, in using the procedure to dispose of novel or developing points of law: Westpac Banking Corp v M M Kembla New Zealand Limited [2001] 2 NZLR 298. And, the application of r 12.2(2) is clearly unsuited to situations where there are material disputes of fact: AG v Jones (2003) 16 PRNZ 715 (PC).
[13] The claim in this proceeding 698 by the plaintiff against the Beatons as directors of the defendant, is essentially for what is said to be a breach of their duty as directors of FUS to act in good faith with respect to the plaintiff‘s position as a contingent creditor of FUS. The claim is brought under s 301(1)(b) Companies Act 1993 for payment of an amount to the liquidator of FUS (either for the plaintiff‘s benefit or for the liquidator
generally), or under s 301(1)(c) for payment direct to the plaintiff by the
Beatons as directors.
[14] At the outset, it is important to note that FUS and the liquidator are not parties to the plaintiff‘s proceeding 698 claim. The liquidation of FUS as I understand it is continuing but it seems there is no suggestion that the liquidators of this company intend at this point to take proceedings against the Beatons as directors of the company.
[15] Section 301 Companies Act 1993 provides as follows:
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—
(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].
(4) In making an order under subsection (1) against a past or present director, the Court must, where relevant, take into account any action that person took for the appointment of an administrator to the company under Part 15A.
Is the Plaintiff Satara a “creditor” of FUS in terms of s 301 Companies
Act 1993?
[16] The primary matter for consideration here is whether the plaintiff may be a ―creditor‖ in terms of s 301 Companies Act 1993 and thus have capacity to bring this action against the Beatons. Clearly the plaintiff is not the liquidator or a shareholder of FUS. Relevant sections of Part 16 of the Companies Act 1993 on this aspect are ss240, 301 (already outlined above) and 303.
[17] Section 240 of the Companies Act 1993 provides:
240 Interpretation
(1) In this Act, unless the context otherwise requires,—
[Creditor means a person who, in a liquidation, would be entitled to claim in accordance with section 303 of this Act that a debt is owing to that person by the company; and includes a secured creditor only—
(a) For the purposes of sections 241(2)(c), 247, 250 and 289 of this Act; or
(b) To the extent of the amount of any debt owing to the secured creditor in respect of which the secured creditor claims under section 305 of this Act as an unsecured creditor:
[18] Section 303 Companies Act 1993 provides as relevant:
303 Admissible claims
(1) Subject to subsection (2) of this section, a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim against a company in liquidation.
[19] The effect of ss 240 and 303 would seem to give contingent creditors status as creditors under the Companies Act 1993. If the plaintiff is a contingent creditor of FUS then there is a reasonable argument, in my view, that it must prima facia be a ―creditor‖ for the purposes of s 301 of the Act.
[20] A starting point here, as I see it, must be the fact that, on the evidence
before me, the liquidator of FUS (―the Liquidator‖) at one point ―understood‖
that the plaintiff Satara was a contingent creditor of the company. This was
noted in the liquidator‘s first report on FUS dated 10 June 2009 at page 2.
[21] Putting to one side however, this comment by the Liquidator of the plaintiff‘s status as a contingent creditor, and focusing on the Courts‘ interpretation of what would qualify as a contingent creditor, the earliest expressed view appears to be that of Pennycuick J. in the English Court of Appeal case of Re William Hockley Limited [1962] 1 WLR 555. There, His Honour noted:
The expression ‗contingent creditor‘ is not defined in the Companies Act, 1948, but must, I think, denote a person towards whom under an existing obligation, the company may or will become subject to a present liability on the happening of some future event or at some future date.
[22] This definition was considered and applied in Community
Development Pty Limited v Engwirda Construction Co Limited (1969) 120
CLR 455 and Re Austral Group Investment Management Limited [1992] 2
NZLR 692.
[23] The definition of the term ―contingent creditor‖ for the purposes of the Companies Act 1993 was also considered in New Zealand by the High Court in Gray v Wilson (1998) 8 NZCLC 261,530. There, in not entirely dissimilar circumstances to the present case, Elias J. was of the view that:
The plaintiff was a contingent creditor at the time Gone Away Gray ceased trading and its assets were transferred. As such, she was able to apply to wind the company up and was entitled to prove in any liquidation of Gone Away Gray because she could demonstrate a real prospect of becoming a creditor of the company on the basis of the referee‘s report and the litigation then on foot.
[24] On that basis, the definition of a ―contingent creditor‖ for the purposes of what is now Part 16 of the Companies Act 1993 might be said to be someone who can ―demonstrate a real prospect of becoming a creditor of the company‖.
[25] In my view, a reasonable argument exists here that the plaintiff is a contingent creditor of FUS on either definition. If Justice Pennycuick‘s
definition is adopted then, the existing obligation he spoke of can be found in the bailment contract. This obligation manifests itself in a requirement to pay damages if at some point in the future it is found by the Court that the bailment contract has been breached in some way by the company. Alternatively, if Justice Elias definition is adopted, then the plaintiff, who like Mrs Gray in Gray v Wilson, has litigation on foot for the debt in question, has
―a real prospect of becoming a creditor of the company‖ and is therefore a
contingent creditor of FUS.
Does the context nonetheless exclude the Plaintiff, Satara from bringing its claim under s 301
[26] Section 240 of the Companies Act 1993 provides that the definition of creditor shall be determined in accordance with s 303 of the Act (which includes contingent creditors) ―... unless the context requires otherwise‖. In their present application, the Beatons argue that the Plaintiff‘s status as an unproven or contingent creditor of FUS is a context that demands a more restrictive definition of the term ―creditor‖ for the purposes of s 301 of the Act.
[27] The Beatons‘ position seems to be that, taken to its logical conclusion, the plaintiff‘s claim under s 301 may pull up short at trial if that point is arrived at before the company proceeding has been determined. Thus, the plaintiff may not ultimately have a quantified entitlement as creditor to payment of a sum by FUS. In my view, there are three possible answers to this, namely:
a. First, the claim against the Beatons is capable of standing on its own. It is for the return of money or property to FUS said to be wrongfully transferred by, or taken from, the company.
b.Secondly, the Court has jurisdiction under s 301 of the Act to order the Beatons to ―restore the money or property or any part of it‖ to the company in liquidation. Any moneys transferred
from FUS to the Beaton Group Limited between the date on which the Beatons first had notice of the plaintiff‘s claim and the date of liquidation could be restored to the company pending the outcome of Satara‘s claim against the company.
c. Thirdly, even without the above answers, as I see the position, the application which might best have fitted the Beaton‘s present complaint could have been an application for a stay of proceedings under r 10.12 High Court Rules. The Beatons have not made such an application here.
The Application of Rule 12.2(2) High Court Rules
[28] Consideration of the Court‘s jurisdiction under r 12.2(2) High Court Rules (formerly r 136) was undertaken by the Court of Appeal in Bernard v Space 2000 Limited & Ors where Thomas J held:
[21] Rule 136(2), as indicated in Kembla (at 313), is only appropriate where the defendant has a ‗clear answer‘ to the plaintiff which ‗cannot be contradicted‘. Summary judgment for a defendant (will arise where the defendant can offer evidence which is a
‗complete defence‘ to the plaintiff‘s claim). [Thomas J‘s emphasis] The requirement that there be a clear answer which cannot be contradicted and a complete defence before judgment is entered for a defendant under r 136(2) is not to be disregarded. Examples which are given of appropriate cases for summary judgment under this subrule are where the wrong plaintiff has proceeded (Coastal Tankers Limited v Southport New Zealand Limited (17/5/99, Master Venning, HC Invercargill, CP184/98). Thus, the subrule contemplates an answer which is clear-cut; what in colloquial language would be described by counsel as a ‗king hit‘.
[29] In this application, in my view, the Beatons are asking the Court to deny s 301 of the Companies Act 1993 the full available ambit of the definition of the term ―creditor‖ provided for at ss 240 and 303 of the Act. The initial contention by Mr MacFarlane for the Beatons in his submissions before me that a ―creditor‖ under s 301 had to be someone who has a quantified and certain entitlement to payment of moneys from the company in my judgment cannot be right. And his later argument that there is no realistic basis or real prospects of success in the plaintiff‘s claim against FUS such
that it could claim to be a contingent creditor of the company, in my view, cannot be properly determined at this early stage of these proceedings.
[30] And the present application, as I see it, also depends to a degree on context in terms of s 240 of the Act. That argument, by definition, will require the Court to consider the full factual matrix, an exercise plainly unsuited to an application for a defendant‘s summary judgment application - AG v Jones.
[31] In summary, the position is this:
a. Arguably, the effect of s 240 and 303 of the Companies Act
1993 is to give contingent creditors status as creditors under the Act.
b. The plaintiff is arguably a contingent creditor of FUS.
c. The plaintiff‘s status as a contingent creditor of FUS is not a context that demands a more restrictive definition of the term “creditor” for the purposes of s 301 of the Act.
[32] In an application under r 12.2(2), any doubt in respect of the above points must mitigate against the applicants (the Beatons here) who must be able to show a “clear answer” which “cannot be contradicted” and a “complete defence” to the claim. In my judgment, they have not been able to dispel the real doubts that attach to their short point argument here that the plaintiff does not have jurisdiction to bring this s 301 application against the Beatons as it is not a ―creditor‖ of the company in terms of that section.
[33] For all these reasons, the Beatons‘ summary judgment application must fail and is dismissed.
Application for Consolidation – Counsels‟ Arguments and My Decision
[34] Turning now to the second application before me, this application by the plaintiff to consolidate proceedings 856 and 698 is brought pursuant to r
10.12 High Court Rules which states:
10.12 When order may be made
The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied—
(a) that some common question of law or fact arises in both or all of them; or
(b) that the rights to relief claimed therein are in respect of or arise out of—
(i) the same event; or
(ii) the same transaction; or
(iii) the same event and the same transaction; or
(iv) the same series of events; or
(v) the same series of transactions; or
(vi) the same series of events and the same series of transactions; or
(c) that for some other reason it is desirable to make an order under this rule.
[35] The guiding principles are usefully summarised by the High Court in Medlab Hamilton Ltd v Waikato District Health Board (2007) 18 PRNZ 517 at [8] where the Court states:
The discretion to make orders under r 382 is a wide one, to be exercised broadly in the interests of justice. Among the factors which will favour an order (if grounds are made out) are the savings that will be achieved in time and cost to the parties (and, I would add, in judicial resources) and removing the risk of inconsistent decisions – see CallPlus v Telecom New Zealand Ltd (2000) 15 PRNZ 14 (HC) and Amalgamated Finance Ltd v Wyness 19/02/87, McGechan J, HC Wellington CP156/86 where McGechan J made orders that four proceedings be heard concurrently for reasons of, convenience, expedition and to reduce the risk of inconsistent decisions.
[36] It is important to note, however, the comments of McGechan J in
Amalgamated Finance Limited v Wyness where he cautioned:
... however, as with all short cuts, the Court must take care to see that consolidation in this way will not in the end result in confusion through multiplicity of parties and issues, and will not in the end cause injustice by comparison with separate proceedings.
[37] In the present case the plaintiff contends that the FUS proceeding number 856 and the Beaton proceedings number 698 have common questions of fact, the relief claimed in each proceeding arises from the same series of events, and thus consolidation is desirable.
[38] The plaintiff says the 856 proceeding claims that FUS caused the kiwifruit losses as, whilst in the bailment of FUS, the plaintiff‘s kiwifruit was exposed to excessive ethylene gas and suffered damage causing it to be unfit for export and that the losses suffered of $368,212.00 arose through:
(a) breach of contract; and/or
(b) negligence; and/or
(c) misleading and deceptive conduct in breach of the Fair
Trading Act.
[39] The Beaton proceedings claim that, due to the plaintiff‘s claim against FUS for the kiwifruit losses, the plaintiff was a contingent creditor of FUS and as such the Beatons owed it and their other contingent creditors duties to act in good faith in respect of their positions and in particular:
(a) It needed to consider and where reasonably possible make provision for contingent creditors and not intentionally defraud its contingent creditors. The plaintiff contends the Beatons breached their duties of good faith with regard to the plaintiff during the merger of FUS with United Fruit Pickers Hawkes Bay Limited causing the plaintiff to suffer the losses in
question.
(b) In addition the plaintiff contends the parties to these proceedings will save considerable time if they are consolidated as this would eliminate the delay between the
determination of the Beaton proceedings and the FUS
proceedings.
[40] Counsel for the plaintiff does accept that if the proceedings were to be consolidated, FUS might suffer some prejudice through legal costs of its counsel whilst evidence specific to the Beaton proceedings is heard. He says, however, that excusing counsel for FUS during this portion of the hearing might remedy the situation.
[41] Addressing these issues, I need to say at the outset that, as I see the position, these two proceedings are unsuitable for consolidation as they relate to entirely different matters. The proceeding against FUS is effectively litigation of a civil claim for damages either under the bailment contract or for negligence. It is disputed both as to liability and quantum. The Beaton proceeding is an application under s 301 Companies Act 1993 alleging liability on the part of the directors who are claimed to have breached duties in the way they have managed FUS‘s affairs, in particular with respect to the transfer of assets of that company by way of sale or otherwise to United Fruit Packers Hawkes Bay Limited.
[42] This latter claim clearly involves a consideration of significant corporate and commercial history of FUS and the actions taken by the Beatons. The former 856 proceeding, commenced some 3 years ago, involves a discreet and single event surrounding the bailment of kiwifruit held for the plaintiff.
[43] In my view, to require the Beatons as directors of the defendant to participate in and wade through the discreet claim against the company in proceeding 856 while at the same time being obliged to provide discovery and address evidence on the significantly different issues arising under the s
301 Companies Act 1993 procedure is inappropriate. It would necessarily impose expenditure of time and significant costs on the Beatons when the very basis for the claim is not as yet established. In addition, the likely delay in hearing the well-advanced 856 proceeding, whilst discovery and other
interlocutory processes in the 698 proceeding (filed only in 2010) wend their
way through the Court‘s processes, would be undesirable.
[44] The appropriate procedure in my view is for the 856 claim against FUS Limited to be addressed first and determined separately, and once a decision is made, the 698 proceeding against the Beatons should be addressed.
[45] For these reasons, the consolidation application fails.
[46] As to costs on the matters before me, the plaintiff has succeeded in opposing the defendants‘ summary judgment application in proceeding 698, and the defendants have succeeded in opposing the plaintiff‘s consolidation application in both proceedings. Given both parties have been partly successful, I take the view there should be no awards of costs made here. Costs are to lie where they fall.
„Associate Judge D.I. Gendall‟
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