Shephard and Dunphy as Liquidators of Dermac Investments Limited (in liq) v Kilbirnie Plymouth Investments Limited HC Wellington CIV 2009-485-2397

[2010] NZHC 225

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

CIV 2009-485-2397

UNDER  the Companies Act 1993

IN THE MATTER OF     the liquidation of Dermac Investments

Limited

BETWEEN  IAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC INVESTMENTS LIMITED (IN LIQUIDATION)

Applicants

ANDKILBIRNIE PLYMOUTH INVESTMENTS LIMITED Respondent

Hearing:         8 March 2010

Counsel:         K P Sullivan for Applicants

R C Laurenson for Respondent

Judgment:      9 March 2010

JUDGMENT OF SIMON FRANCE J

Introduction

[1]      On 25 November 2009 a freezing order was made in relation to the proceeds

of an agreement for sale and purchase that was to settle the following day.   Orders ancillary to the freezing order were made.

[2]      The freezing order was continued by consent.

IAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF DERMAC

INVESTMENTS LIMITED (IN LIQUIDATION) V KILBIRNIE PLYMOUTH INVESTMENTS LIMITED HC WN CIV 2009-485-2397  9 March 2010

[3]      On  21 December 2009  the  applicant  liquidators  filed  an  application  for further ancillary orders.  On 5 February 2010 the respondent replied:

a)        opposing the orders;

b)        seeking discharge of the freezing order.

[4]      As it happens the affidavit in support of the opposition provided most but not

all  of  the  information  sought.      Today’s  hearing  proceeded  on  the  basis  that  the liquidators  were  seeking  modified  orders  concerning the  information  that  was  still outstanding.

The order

[5]      The sale and purchase was for an open area of ground in central Wellington, currently used as a car park.  The order read:

4        The freezing order is made in respect of the following assets:

(a)      The  proceeds   of   sale,   up   to   a   maximum   amount   of

$2,140,278.00,  received  by  the  respondent  or  its  solicitor from   the   sale   of   the   St George   car   park   land,   more particularly   described   as   the   land   in   WN300/243   of Deposited Plan 6193, to  be  held in the trust  account  of the respondent’s  solicitor  acting  on  the  sale;  such  proceeds being after deduction of the costs of sale and repayment of the registered mortgage to ANZ National Bank Limited and any other amounts required to be paid to give clear title to the purchaser.

[6]      It  is  common  ground  that  the  amount  received  from  settlement  was  almost wholly applied to a bank mortgage secured against the property.  There was a small surplus that paid most but not all of the legal fees.

[7]      In terms of the freezing order there are no proceeds of sale.

Today’s hearing

[8]      The sale was  for $6 million.   In  general terms $2 million was paid prior  to settlement, and $4 million at settlement.  The liquidator’s case is that the $2 million paid in advance of settlement was  really a set off of moneys already owed by the vendor  to  the  purchaser.   The  liquidators  claim  it  is  a  voidable  transaction  which gave the respondent purchaser preference over other unsecured debtors.

[9]      The liquidators accept that the freezing order is ineffective in that there are no proceeds of sale and no assets.  It wishes to maintain it for the purposes of allowing the  further  ancillary  orders  to  be  made. Mr Sullivan  explained  the  basis  for  the further orders sought.  With the caveat that I did not hear orally from Mr Laurenson, I generally accept the merit of the orders sought.

[10]     However, whatever the merit of the ancillary orders, there is no basis for the freezing order.  There are no assets to which it attaches.  I do not accept it is proper

to maintain it just because of the ancillary procedural advantages it yields.  In a non pejorative sense, that appears to me to be an abuse of process.

[11]     Mr Sullivan referred to a decision  of  French J  in  Monastero  and  Moya  v

Bujak and Zalwowska-Spisak HC Christchurch CIV 2008-409-1901, 21 August 2009. There  were  in  place  in  that  case  freezing  orders  in  relation  to Mr Bujak of $300,000.

[12]     The hearing before French J had two aspects:

a)        the adequacy of answers given by Mr Bujak to earlier orders;

b)whether ancillary orders could be used to direct Mr Bujak to exercise his power of attorney for Ms Zalwowska-Spisak, and thereby provide

a statement of her assets.

[13]     It is the part of the  judgment  dealing  with  the  second  issue  from  which

Mr Sullivan draws support.  Ms Zalwowska-Spisak is Mr Bujak’s wife, but had long

left  New Zealand  and  returned  to  Poland.         Little  was  known  about  her  financial situation,  although  at  one  point  she  had  in  New Zealand  over  $600,000  in  an account.

[14]     At paragraph [42] her Honour observed:

[42]     I also do not accept the fact the existing Mareva injunction is limited

to  assets  in  New Zealand  means  of  necessity  the  disclosure  order  must  be similarly limited.   It was not of course limited in the case of the disclosure order  made  against  Mr Bujak  personally. This  is  because  the  ancillary orders  are  designed  to  elicit  information  relating  to  assets  relevant  to  a prospective freezing order as well as one actually made.

[15]     At issue was the capacity contained in Rule 32.5(5) to make orders against prospective judgment debtors.  The case does not have relevance here where there is

an order in place that is challenged.

[16]     In my view the respondent made plain by its documents of 2 February that it was no longer consenting to the freezing order and opposing both its existence and

its ability to be the source of further ancillary orders.  The applicants did not respond

by seeking either variation or a different freezing order.

[17]     I accept there is some width to the wording of r 32.   However here there is narrowly worded existing freezing order attaching to specific monies.  It is common ground  those  monies  do  not  exist.   There  is  no  basis  to  maintain  it,  and  with  its cancellation, the application for further orders ancillary to it must fail.

Conclusion

[18]     The   respondent’s   application   to   discharge   the   freezing  order   succeeds. Consequently, the applicant’s application for further ancillary orders fails.

Costs

[19]     Mr Laurenson  seeks  costs  on  the  failed  ancillary  order  application. He submits that considerable preparation in a short time was required, albeit the Court did not seek oral submissions from him.

[20]     Mr Sullivan says the applications were made before there was a challenge to the underlying order.   Up until then the order has been extended by consent.   The information sought was reasonable and has largely been provided.

[21]         In my view costs should lie where they fall.  I am influenced by the fact that the ancillary orders were sought at a time when the freezing order was in place by consent.         They  were  not  on  their  face  excessive  orders,  and  the  challenge  to  the freezing  order  (perfectly  proper  in  itself)  altered  things  subsequent  the  applicant’s applications.

[22]     It  was  a  very  short  hearing,  Mr Sullivan  put  his  client’s  position  well  but without any excess, and the orders sought, on their face, were reasonable.

[23]     In all these circumstances I consider that costs should lie where they fall.

Solicitors:

K P Sullivan, DLA Phillips Fox, PO Box 2791, Wellington email:  sean[email protected]

R C Laurenson, Barrister, PO Box 5606, Wellington, email:  [email protected]

Simon France J