Stor-Co Mini Storage Systems Pty Ltd v Parnell Storage Lease Ltd HC Auckland CIV 2008-404-2202

[2008] NZHC 2622

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-2202

IN THE MATTER OF     the Companies Act

BETWEEN  STOR-CO MINI STORAGE SYSTEMS PTY LTD

Plaintiff

ANDPARNELL STORAGE LEASE LTD Defendant

Hearing:         29 September 2008

Appearances: Mr Hucker for Applicant

Mr Colthart for Respondent

Judgment:      13 October 2008 at 12 noon

JUDGMENT OF ASSOCIATE JUDGE DOOGUE [Interlocutory application for leave to file statement of defence]

This judgment was delivered by me on

13.10.08 at 12 noon, pursuant to

Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Hucker & Associates, P O Box 3843, Shortland Street, Auckland
Mr Colthart, P O Box 535, Shortland Street, Auckland

STOR-CO MINI STORAGE SYSTEMS PTY LTD V PARNELL STORAGE LEASE LTD HC AK CIV 2008-

404-2202  13 October 2008

Background

[1]      The background to the claim for liquidation order is as follows.

[2]      The plaintiff’s claim arises out of construction work carried out to build a storage facility located in Parnell.  The contracting parties were the plaintiff and the defendant. The plaintiff asserts that it completed the construction on the Parnell project in December 2007, which was the handover date.   This assertion is not contradicted. The plaintiff also entered into a contract with a separate company called St Lukes Property Trust Limited to install similar storage units at St Lukes. The plaintiff claims to be owed the sum of $57,000 approximately in respect of that contract and it has brought liquidation proceedings against St Lukes Property Trust which will be heard later this year.

[3]      The plaintiff made demand for payment of what it claimed was owing under the contract, but the defendant did not pay.   In March 2008, the plaintiff served a statutory demand on the defendant pursuant to s 289 of the Companies Act 1993 claiming payment of $106,498.26.  That demand remaining unsatisfied, and no steps having been taken to set aside the statutory demand, the plaintiff filed a statement of claim for putting the defendant company into liquidation on 18 April 2008.   The statement of claim and notice of proceedings were served on the defendant 8 May

2008.  The defendant did not file a statement of defence until 8 August 2008, which was the date when the proceeding was first called.  A statement of defence was due, in conformity with Rule 700Q, within 14 days, that is, by 23 May 2008.

[4]      The defendant has since filed an application for special leave to file statement of defence out of time. I will refer to the defendant as the “applicant” and the plaintiff as the “respondent” for the remainder of this judgment.

[5]      The liquidation proceedings were advertised on 30 May and 5 June 2008 respectively.

Authorities and rules

[6]      The defendant requires “special leave” from the Court to file a statement of defence outside the time limits prescribed by r 700Q. Rule 700T sets out the requirement for “special leave:

700T Effect of failure to file statement of defence or appearance

Where any person, being a person who is entitled to file a statement of defence or an appearance in a proceeding commenced by the filing of a statement of claim pursuant to rule 700C, fails to file a statement of defence or an appearance within the time prescribed by these Rules, that person shall not, without an order for extension of time granted on application made under rule 700V or the special leave of the Court, be allowed to appear on the hearing of the proceeding.

[7]      The nature of special leave has been considered in a number of cases.  I have derived assistance from the judgment of Senior Master Mahony in Re Property Growth Securities Ltd (1991) 4 ACSR 783 – a decision of the Supreme Court of Victoria on the rationale for the imposition of a requirement for special leave, as opposed to leave simpliciter. I will make reference to passages shortly. I note that the Re Property Growth decision considers the reason why it is important in liquidation cases that participants strictly comply with time limits and give a proper explanation of the reason if they fail to do so.   While Re Property Growth was concerned with the need to give a proper explanation for delays, that is only one of the factors that is relevant.  It is a necessary but not sufficient requirement for leave.

[8]      The Re Property Growth judgment was given in a case where a creditor, wishing to  appear  in  support  of  a  petitioning  creditor,  had  not  given  notice  of intention to do so within the permissible time limits.  The principles which were the basis of the decision are equally applicable to a case where the defendant seeks special leave to file a defence out of time.

[9]      The Judge said at p 791-3:

A proceeding whereby the winding up of a company is sought may have ramifications for many apart from the immediate parties to it. There are those whose transactions with the company may be challenged by the liquidator as void against him because they involved the giving and taking of

a preference. There are those whose transactions with the company after the proceeding has been commenced may require validation. There are those whose own financial situation is dependent on a continuing business relationship with the company. There are those who, but for the existence of the proceeding, would have such a relationship. If a trading company is alleged to be insolvent, it is usually in the public interest that it be placed in liquidation as soon as possible if the allegation is well-founded; and it is usually in the company's interest to have the proceeding terminated as soon as possible if the allegation is misconceived or made by a person who lacks standing to seek its winding up.

It follows from this that "winding up" proceedings should not be protracted for procedural reasons. The applicant is under a duty properly to prosecute the proceeding. The company--if it seeks to oppose its being wound up--is under a duty properly and fully to prepare its case so that it may be presented without there being a need for a series of adjournments to enable it to reach that point. The Rules of Court are designed to assist the speedy resolution of such  proceedings.  In  particular,  the  rules  governing  the  intervention  of others--concerning the giving of notice by gazette and advertisement, the giving of notice of intention to appear, and the requirement of special leave if there is a failure to give notice of intention to appear--operate in this context. In other words, the intervention of others who, in the interests of justice,  deserve  to  be  heard  is  intended,  through  the  operation  and application  of  those  Rules,  not  to  be  a  source  of  undue  delay  in  the disposition of such proceedings. Such proceedings ought not develop the sort of history which this case has.

Accordingly, "winding up" proceedings are such that when they come to trial all who would desire to be heard ought be properly before the Court and able to be heard. It is only if special reason is shown--reason justifying the grant of special leave--that an entitlement to participate in the proceeding should be extended to a person who is then not properly before the court. …..

…..

It may therefore be concluded that the purpose of the requirement of special leave to appear in "winding up" proceedings is to conduce to their speedy resolution by confining appearances to those who appear properly before the court at trial and those who can make out a special case to be permitted to appear notwithstanding that they have failed to comply with the Rule requiring notice of intention to appear.

…

It is fundamental to any application for leave--"special" or "general"--to do something which formerly one might have done as of right, to explain fully and frankly why it was not done at that time and any further circumstances which may be relevant in consequence, such as delay in making the application for leave. Carter Newell have not done this. This is much more significant that a mere factor going to the exercise of the discretion. It leaves on foot the hypothesis that Carter Newell knew about the proceeding but elected to stand by until "the twelfth hour" before seeking to participate in the  proceeding.  A  supporting  creditor  who  follows  that  course  cannot, without more, be granted special leave to appear because if it were otherwise

the purpose for which the rules stipulate that special leave is required, supra, would thereby be undermined.

[10]     The above extracts explain the rationale for the requirement that defendants obtain “special leave” to file a statement of defence out of time.

[11]     The New Zealand Courts have developed guidelines of their own that are to be applied when determining applications for special leave.

[12]     In Auckland City Council v Stonne Ltd HC AK CIV 2007-404-4208, 30

November 2007 I summarised the three relevant factors that I considered should be take into account when exercising the discretion to extend time for the filing of a statement of defence, namely:

(a)       Is it reasonably arguable that the defendant is not liable? (b)        Is the defendant solvent?

(c)       Has the defendant advanced a reasonable explanation for his/her failure to file and serve a statement of defence in time?

Applying principles to facts of present case  - A reasonably arguable defence?

[13]     The applicant submitted at paragraph [22] of its Synopsis of Submissions that “on the evidence there is a dispute of fact that is sufficient to raise an arguable defence.” The factors said to give rise to an arguable defence were:

(a)  There has been no denial of there being defects in the Parnell premises on the second floor at Parnell (BOD 41 defect list of second floor);

(b) The defects have not been fixed by the Defendant;

(c)  In respect of the St Lukes Property it is common ground that there are defects although a dispute over who caused the defects;

(d) The Defendant has provided a copy of the reported defects on the St Luke Premises and has quantified the costs of those defects;

(e)  The workmanship was not up to the standard contracted and there are warranties provided with any the Agreement in respect of St Lukes.

(f)  There was communication of the requirements of the Parnell premises which the Plaintiff says were not fulfilled (see BOD 98 to 100.

[sic]

[14]     The contracts maintenance period clause states:

(a) Any defects or other faults which may appear and be notified in writing to the Builder within a period of thirteen (13) weeks after the date of practical completion which are due to materials or workmanship which are the responsibility of the builder and not in accordance with this Contract will be amended and made good by the Builder at his own cost.

[15]     Mr Colthart said that the applicant cannot have any claim available to it under the Parnell contract because the applicant did not comply with the requirement that it notify defects to the respondent within the time limit prescribed by the contract. Specifically, the applicant was required to give the builder notice of any defects within a period of 13 weeks from the date of practical completion of the contract (the “contracts maintenance period”).

[16]     On the evidence before me, it is established that practical completion took place about mid-December 2007.   The ‘owner’ had 13 weeks from that period to give notice of defects.   That was not done. Mr Hucker said that the limited time within which the applicant was required to notify the respondent of defects would not bar a claim in damages.  He said quite apart from contract, it was possible the claim could be made in Court.  He further said that a limitation of this kind was not necessarily enforceable because of the provisions of the Contractual Remedies Act

1979.

[17]     The contract maintenance period relates to defects or other faults ‘which may appear and be notified in writing to the builder within a period of 13 weeks’.  Other defects are apparently not covered by the 13-week period.   The applicant has not given any evidence as to when the various defects manifested themselves.   Such defects  as  the applicant  claims  existed  with  the  building  might  be  barred  by a provision in the contract.  There is an onus on the applicant to establish that it has a

reasonably arguable defence.   It therefore needs to establish that the defects came within the contract maintenance period.   If, because of the vagueness of the applicant’s evidence concerning defects the position is left uncertain as to when these defects manifested themselves, the applicant has not made out that it has reasonably arguable defence.  That is because there is no doubt in my mind that the contractually imposed limitation period would be a defence to any claim by the applicant.  The applicability or otherwise of the limitation period is not something that  the  applicant  can  say  is  reasonably  arguable  either  way.    The  limitation provision is explicitly stated in the contract.  A reasonably arguable defence must be able to confront and overcome the contractually provided limitation period.   The evidence of the applicant does not go far enough in this regard.

[18]     I do not accept Mr Hucker’s submission, either, that the applicant could side- step the contract maintenance period by framing his claim in tort.  Presumably Mr Hucker made his submission on the assumption that the applicant would have a claim in negligence.  Without the benefit of any submissions on this point, I would regard it as being unlikely that where the parties had contractually agreed to limit their claims that the Court could conclude that the applicant would be nonetheless owed a duty of care by the respondent which the applicant could enforce regardless of any time limit set out in the contract.

[19]     Mr Hucker also made reference to s 4 of the Contractual Remedies Act 1979 providing an answer for the applicant on this point, but that section seems to apply only to the issue of whether a statement, promise or undertaking was made or given or whether a representation was made and if it was relied upon.

[20]     My conclusion is that the applicant does not have a reasonably arguable defence to the respondent’s claim based on the alleged defects of performance under the Parnell contract.

[21]   The alternative basis upon which Mr Hucker asserted that there was a reasonably arguable case was by reference to a separate catalogue of defects which was said to have occurred in construction of the St Lukes storage facility.  However I agree with Mr Colthart that it has not been properly proved that even if there were

defects they were actionable at the suit of the applicant.  Before the applicant could get such a claim off the ground, it would need to establish it had rights arising out of the contract for construction of the St Lukes facility.  It was not in dispute that the applicant was not a party to the original contract.  However the applicant claims that, by a series of assignments, it acquired the rights of the original contracting party. This argument falls down in my view because the only evidence on this point which was given by Ms Ita Vuletic was to the following effect:

12.As the St Lukes operations and also the Parnell operations trade under  the  same  trade  name  and  as  each  of  them  are  different branches of the same business it was decided that the agreement for the St Lukes property should be assigned from Wagener Place Investments Limited to the defendant in this proceeding.

[22]     This deposition does not state by whom this was decided or whether the decision to make an assignment was carried through.  The applicant has again failed to establish that there is an arguable defence to the respondent’s claim arising out of the St Lukes contract.   In any event, it does not necessarily follow that a claim arising out of the separate subject matter of the St Lukes contract will result in an equitable set off being available to the application in respect to the Parnell contract. In other words, the posited equitable set off does not satisfy the requirements of the principle as stated by Somers J in Grant v NZMC Limited [1989] 1 NZLR 8:

The principle is, we think, clear.  The defendant may set-off a cross-claim which so affects the plaintiff's claim that it would be unjust to allow the plaintiff to have  judgment without bringing the cross-claim to account.  The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant's claim calls into question or impeaches the plaintiff's demand.   It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.

[23]     Mr Hucker also submitted to me that the applicant was able to establish that even although the Parnell and St Lukes contracts were separate, there had been a course of dealing between the parties which meant that the parties themselves had proceeded on the basis that credits and debits from each contract were to be mutually set off.

The way in which this ground was stated in the notice of application was:

In communications between the [respondent] and the [applicant] they have treated the two different facilities as one in (sic) the same for contractual purposes.

[24]     I do not agree that the evidence shows that that was the case.  Certainly, the parties at the time of discussing their dispute over the Parnell project also made reference to the St Lukes project.  However the whole tenor of the correspondence from the respondent’s side was that the matters had to be kept separate.  In my view it  has  not  been  established  –  even  to  a  “reasonably  arguable”  level  –  that  the applicant  genuinely believed  that  the  two  lots  of  accounts  were to  be  taken  as common accounts with set offs of mutual credits and debits as occurred in Siteworks Ltd v IH Wedding & Sons Ltd (1998) 8 NZCLC 261,704.  Even if it did, that would not be sufficient.  It is not a matter of one party having a subjective expectation that that was how the parties were going to deal with the credits and debits that arose during the course of their trading history.  The Siteworks type of arrangement will govern the situation  where there is evidence that  all the parties proceeded on such a basis..    In  my  view  the  type  of  arrangement  that  was  under  consideration  in Siteworks is quite different from the state of affairs that existed in this case. This is particularly so in view of the fact that the respondent is pursuing separate liquidation proceedings against St Lukes Property Trust.

[25]     In my judgment this is a forlorn submission.   I can no find no evidence to support it.

Explanation for delay

[26]     The  question  that  needs  to  be  asked  under  this  heading  is  whether  the applicant has explained fully and frankly the delay in making an application for leave.

[27]     In my view the applicant has failed to satisfy me of the reasons for the lateness of taking steps in this proceeding.

[28]     The applicant claims that it has two grounds for disputing the claim which the plaintiff makes.  First it says that there were defects in the construction at Parnell.

Secondly, it says that there were also defects in the standard of the respondent’s work at St Lukes.  The first point at which the applicant raised the matter of defects at  either  site  appears  to  be  in  an  email  which  Ms  J  Vuletic,  a  director  of  the applicant, sent to Mr J Layton on 15 May 2008.

[29]     Ms Ita Vuletic, a director of the company, in an affidavit she gave in support of the application for leave on 8 August 2008 said:

18.No steps were taken in this proceeding at an earlier stage as we were assured (that is Josephine and myself and our operations manager) by Jonathan that he wanted to continue to build and maintain a good relationship with us and would remedy the defects and have the work completed as he had been shown on site where he took in our presence numerous photographs that he told us were for Mr Layton senior.

[30]     As with other aspects of the applicants’ affidavits there is an unsatisfactory lack of detail as to when these discussions were supposed to have taken place. Certainly, the conduct of the respondent would seem to reflect that it was taking a hard line to collect a debt that it believed it was owing rather than taking a conciliatory approach. The correspondence from the respondent stated on several occasions that any remedial work would not be undertaken until the amount outstanding on the Parnell project was paid.

[31]     As I have already noted, the statutory demand was followed by a statement of claim seeking an order putting the company into liquidation in April 2008.   The contemporary documents indicate that there was a site meeting on 15 May 2008 which is evidenced by entries in Mr Layton’s diary.  Certainly by 5 June 2008 when the second advertisement of the liquidation proceedings took place, it must have been clear to the applicants that there was not going to be a negotiated settlement of the claim in respect of the Parnell project.

[32]     The picture that I obtained from an overall consideration of the proceedings is that the applicant has been dilatory throughout.  The first detailed statement of the extent of alleged defects in relation to Parnell is to be found in an email which the operations manager for the applicant sent to the plaintiff on 4 June 2008 – at least five months after the applicants had taken possession of the property.

[33]     In her affidavit of 8 August 2008 Ms Ita Vuletic, after referring to the alleged defects, said:

[the applicant] has directed that costings for the remedial work be finalised. The initial assessment is that the workmanship is so poor that the costs of remedial works may exceed the original claim.   I can have those costings provided to the Court within 21 days of today’s date.

[34]     21  days  of  ‘today’s  date’  (8  August  2008)  came  and  went  without  the costings  being  provided.  Even  in  the  affidavit  of  Ms  Ita  Vuletic,  sworn  on  26

September 2008, the applicant had not obtained a detailed appraisal of the cost of remedial steps which it claimed needed to be taken  with respect to the Parnell project.  While that issue goes to the question of whether the applicant has a bona fide defence, it also throws light on why the applicant did not file a statement of defence in the time required.  Detailed costings still were not available at the date of the hearing before me on 29 September 2008.

[35]    I do not consider that the applicant has provided a frank and complete explanation as to why it failed to file the statement of defence in time.

Solvency

[36]     The applicant has also fallen well short of the mark in establishing that it is solvent.  The evidence as to solvency is in two parts.  In her affidavit sworn 8 August

2008, Ms Ita Vuletic deposed:

16.The company trades profitably and has sufficient resources available to meet payment of the debt in question.

[37]     This is not an adequate averment that the company is solvent and able to pay its debts generally.  Nor is the problem cured by the other deposition contained in the same affidavit where she says:

5.A copy of correspondence from Marac reflecting the size of the storage business is annexed to this Affidavit and marked with the letter A2.  The correspondence confirms the lending by Marac to the extent of $10,000,000.

[38]     The annexed letter from Marac is dated 4 April 2008 and says, so far as relevant:

I am pleased  to  confirm that  Ita  Vuletic,  via  Parnell  Storage  Holdings

Limited, has been a client of Marac Finance Limited’s since 31 January

2007, with a loan facility of $10,000,000 secured by a registered first mortgage over the property located at 30-38 The Strand, Parnell.

I can confirm that over this time her credit history with Marac has been impeccable, with all monthly repayments having been made on time. (emphasis added)

[39]     As Mr Colthart submitted the Marac letter does not refer to the applicant.  It refers respectively to another company and to Ms Vuletic in person.   It does not provide reassurance that the company is solvent.

[40]     In his judgment Fresh Cut Flower Wholesalers Limited v The Living and Giving Gift Company Limited (2001) 16 [PRNZ] 173, Paterson J was confronted with an averment by a director of the applicant for leave that:

The defendant company is solvent and able to pay its debts.

[41]     Paterson J described this as a ‘bland assertion’.  He said, at page 178:

The  onus  in  establishing  this  rested  with  The  Living  Co.     It  was endeavouring to obtain an indulgence by establishing solvency.  It produced no evidence initially in support of this assertion.   Bland assertions do not establish solvency.

[42]     Paterson J went on to note a second averment that was given by the same deponent:

I reiterate the defendant company is solvent and is willing to pay the amount in dispute into this Court …

[43]     Paterson J said that this was another bland assertion but it did not take the matter of solvency any further.

[44]     Similar comments can be made about Ms Vuletic’s depositions as to solvency in the present case.  An applicant for special leave must provide clear and detailed evidence upon which the Court can come to a conclusion as to its solvency.  What is important  is  persuading  the  Court  on  the  issue.    What  the  company  or  those associated with it believe about the solvency of the company is neither here nor

there.  In this case, the applicant has failed to adduce evidence that would justify the

Court concluding that the company is solvent.

Conclusion

[45]      In my view the claim for special leave is a weak one.  It should be declined and I so order.

[46]     I shall hear from the parties concerning costs by memoranda which are to be filed in the next 10 working days.  The memoranda should not exceed five pages on each side.   I invite the parties to consider not only the incidence of any order for costs but also the question of quantum and, specifically, whether the admitted breaches of the timetable orders in this case by the applicant have relevance to that

subject.

J.P. Doogue

Associate Judge