Strong v Hurunui Hotel (2004) Limited
[2013] NZHC 1924
•1 August 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-000975 [2013] NZHC 1924
BETWEEN ROGER EDMOND STRONG, NOLA ANN STRONG and AMELIA LYNETTE SPENCE SIMPSON
Plaintiffs
AND
HURUNUI HOTEL (2004) LIMITED Defendant
Hearing: 29 July 2013 (by telephone) Appearances:
A N Riches for Plaintiffs
K W Clay for DefendantJudgment:
1 August 2013
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to continuation of proceeding
Introduction
[1] The plaintiffs and the defendant are respectively lessor and lessee of hotel premises. The defendant has for periods since 2012 fallen into arrears of payments due under the lease.
[2] The plaintiffs first commenced this proceeding in May 2013. They relied for evidence of an insolvency upon unmet statutory demands.
[3] The demands were for a total more than $25,000.
[4] When the plaintiffs’ application for an order of liquidation was first called, the defendant had put its solicitors in sufficient funds to repay the debts but not the
costs. At the call, Mr Riches for the plaintiff indicated that the defendant had fallen
STRONG v HURUNUI HOTEL (2004) LIMITED [2013] NZHC 1924 [1 August 2013]
demand in relation to those.
[5] The proceeding was adjourned to the List on 18 July 2013 because of the
defendant’s commitment to clear the old debt.
[6] On 15 July 2013 the plaintiffs filed a document entitled “appearance in support of application for putting company into liquidation”, asserting that they are a creditors for a further sum of $8,989.16 pursuant to a June statutory demand less a payment of $1,091.38 made by the defendant.
[7] The first-named plaintiff has provided an affidavit deposing to the details of the further debt.
The future of this proceeding
[8] The plaintiffs wish to proceed.
[9] Through Mr Riches, they applied at the adjourned hearing date on 18 July
2013 for an order substituting themselves as plaintiffs under r 31.24 High Court Rules. I am satisfied for reasons similar to those expressed in the parallel jurisdiction of personal insolvency in Lane v Questnet Ltd1 that the concept of substituting the creditor for itself is neither semantically nor juridically appropriate.
[10] I explained my position to counsel that day and adjourned the proceeding for argument on 29 July 2013 (by telephone through counsel’s agreement).
[11] I had the benefit both of written submissions filed in advance and oral submissions heard.
The plaintiffs’ case
[12] Mr Riches did not abandon a request for substitution. However he also put
the plaintiffs’ case upon the basis that they should be granted leave to file an
amended statement of claim including the new debt. Mr Riches invoked the approach taken in earlier cases in the personal insolvency jurisdiction which recognised that the predecessor to r 7.77 High Court Rules could apply so as to allow a bankruptcy petition to be amended. On the facts of that case, the application to amend could not be granted as the petition was already out of time in relation to the bankruptcy notice (the notice having been issued more than three months before the application to amend).
[13] Leave to amend a statement of claim is required where the cause of action has arisen since the filing of a statement of claim (see r 7.77(4) High Court Rules).
[14] Mr Riches makes the practical submission that leave to file an amended pleading will produce the efficient outcome in relation to the issues between the parties. It avoids the costs of the filing fee of a fresh proceeding and of additional advertising costs. It also reduces the spectre of delay. Mr Riches might also have cited the objective of the High Court Rules under r 1.2, namely to secure the just, speedy, and inexpensive determination of any proceeding.
Submissions for defendant
[15] Mr Clay, for the defendant, continued to oppose an order of substitution or leave to amend.
[16] He submitted:
(a) The debt claimed in the statutory demand pleaded in the statement of claim has been paid in full.
(b)Notwithstanding that no order for costs has been made, the plaintiff paid costs on scale 2B as requested by the defendant.
(c) It is an inappropriate use of the liquidation process to continue amending the statement of claim by adding further causes of action as they allegedly arise during the court proceeding itself to keep the liquidation process alive as a mechanism to enforce payment.
unrelated to liquidation. It is being used to enforce payment of future rental not yet due, (which is apparent from the affidavit of Mr Strong paragraph 4, 18 July) incur costs for the defendant, and to further impact on the business of the defendant.
(e) The parties are in an arbitration process before Mr Whiteside.
[17] Mr Clay also invited the Court to adopt the observations of Wylie J in Jugum v Stevenson & Jugum Ltd,2 in which his Honour found that the joinder of several causes of action in the statement of claim is inconsistent with the nature of liquidation proceedings.
[18] Mr Clay concluded by noting that the purpose of a liquidation proceeding is to establish that a company is insolvent. He submits that insolvency has not been established in this case and the proceeding is “at an end”.
Discussion – r 7.77 High Court Rules
[19] The plaintiffs in this case wish to file an amended pleading before trial. This is expressly permitted under r 7.77(1) (but subject to r 7.77(4), because the plaintiffs’ proposed draft amended statement of claim relates to a new cause of action).
[20] The relevant provisions of r 7.77 are:
7.77 Filing of amended pleading
(1) A party may before trial file an amended pleading and serve a copy of it on the other party or parties.
(2) An amended pleading may introduce, as an alternative or otherwise,—
(a) [relief in respect of] a fresh cause of action, which is not statute barred; or
(b) a fresh ground of defence.
(3) An amended pleading may introduce a fresh cause of action whether or not that cause of action has arisen since the filing of the statement of claim.
(4) If a cause of action has arisen since the filing of the statement of claim, it may be added only by leave of the court. If leave is granted, the amended pleading must be treated, for the purposes of the law of limitation defences, as having been [filed] on the date of the filing of the application for leave to introduce that cause of action.
[21] There is no need to read down r 7.77(1). The rule is clearly intended to be remedial. It enables the parties and the Court to avoid the delay, cost and inconvenience of fresh proceedings where an amendment of the existing proceeding would enable issues between the parties to be justly resolved.
[22] The requirement, where the amendment is brought about through the accrual of a fresh cause of action since the filing of the original statement of claim, is again remedial. It does away with the requirement under earlier rules of procedure whereby a plaintiff had to issue his or her proceeding after the cause of action had arisen. In considering whether to grant leave, there is a broad discretion in the Court which will be informed by balancing matters such as delay or prejudice arising from one course or the other. The “just, speedy, and inexpensive” considerations of r 1.2 will be important touchstones.
The defendant’s specific grounds of opposition
[23] I examine the defendant’s specific grounds of opposition in order.
(a) Payment of the debt identified in the statutory demand
Mr Clay submits that leave to amend should be refused because the originally demanded sum has been paid in full, together with costs. He submitted that there is therefore no ground for liquidation.
Mr Clay’s submission misses the point of the statutory demand process. By failing to pay the demanded sum within the statutory period, the defendant was presumed to be unable to pay its debts. The subsequent payment does not remove the presumption. Another creditor, if substituted, could have relied on the presumption (even if the substituted creditor had not itself
issued a statutory demand). The position of an amending plaintiff is no different.
(b) Costs have been paid by the defendant on a 2B basis
Mr Clay submitted that the Court ought to take into account the defendant’s
payment of costs incurred to the time when it repaid the demanded debt.
The Court, in the exercise of the discretion as to leave might take into account the fact that a defendant had fully discharged at least a first tranche of indebtedness.
In this case, however, the defendant had not completed the payment of the outstanding debt as initially claimed or of the costs before the plaintiffs’ signalled (through counsel at the hearing on 3 July 2013) the fact that there were further arrears accruing. In such circumstances, the defendant’s apparent hope that its payment might be “the end of the matter” was not responsible and certainly not one upon which it could place unbridled confidence.
(c)Liquidation proceedings an inappropriate vehicle for pursuing accruing debts through amended claims
Mr Clay submitted that the plaintiffs are making an inappropriate use of the liquidation proceeding to enforce periodic payments (being the rental payments). He effectively invited the Court to require the plaintiff to treat any new arrears of rent as having to be pursued (if through the liquidation process) by a new proceeding rather than amendment of the old. There also appeared to be an implication in Mr Clay’s submission that the Court should not allow use of a liquidation proceeding at all for the collection of periodic payments such as rent. Mr Clay however offered no authority for that proposition and there is nothing in the legislation to support it. A landlord is entitled to issue statutory demands for monthly tranches of rent just as much as, say, a car-dealer who sells two cars to a single purchaser a month apart.
(d) Ulterior purposes
Mr Clay submitted that the proceeding is being used for an ulterior purpose unrelated to the litigation, namely the enforcement of the payment of future rental not yet due.
This submission does not address the basis on which any amended pleading will be permitted. The amendment will be permitted in relation to the status of the plaintiff as an existing creditor, that is to say in relation to a debt which is due and owing. The Court will not be granting leave to amend in relation to future debt. To the extent that Mr Strong, in his affidavit, referred to an intention to issue a further statutory demand if further rental payments are missed, I do not take into account the plaintiffs’ intention as to further demands in relation to later rental.
(e) The existence of an arbitration process
Mr Clay refers to an arbitration which has taken place between the parties and in relation to which they await the arbitrator’s award. I do not have in this proceeding any detailed evidence as to that process. It is not uncommon in commercial lease agreements for rental obligations to run on, even at increased interim rates, while the outcome of an arbitration is pending. The rights on which the plaintiffs proceed are contractual rights. It is not for the Court to treat the rights as of less value simply because the eventual outcome of an arbitration may call for a different form of accounting at that point.
(f) Joinder of multiple causes of action in a liquidation proceeding
Mr Clay referred to the judgment of Wylie J in Jugum v Stevenson & Jugum Ltd3 in which his Honour made an observation as to the inconsistency of having several causes of action in a statement of claim in liquidation proceedings. Mr Clay implied that the plaintiffs’ proposed reliance on its
new debt would involve the joinder of several causes of action.
3 Jugum v Stevenson & Jugum Ltd, above n 2.
What the plaintiff seeks to do in this case is not what Wylie J was describing in Jugum’s case. His Honour was referring to the inconsistency between one claim for an injunction relating to the distribution of the proceeds of sale to shareholders and a second claim for an order liquidating the company. There is one single focus in the present proceeding, which will remain the focus if the proceeding continues, namely the liquidation of the defendant.
Other considerations – limitation periods
[24] Rule 7.77 permits the introduction of a fresh cause of action through an amended pleading only if the fresh cause of action is not statute-barred (r 7.7(2)(a)). The High Court in Re Mailo ex parte General Finance Ltd4 and in Lane v Questnet Ltd5 discussed the application of that rule in bankruptcy proceedings. The discussion flowed from the requirement under s 16 Insolvency Act 2006 whereby the act of
bankruptcy relied on must have been committed within the period of three months before the creditor filed its application. The equivalent provision in relation to company liquidation is s 288(1) Companies Act 1993 which provides that evidence of failure to comply with statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand. There is substantive difference in the nature of the requirements in the two jurisdictions – failure to meet the bankruptcy notice in time creates the act of bankruptcy whereas failure to meet the statutory demand simply provides admissible evidence of insolvency.
[25] In Re Mailo, Henry J described the effect of the three-month rule of bankruptcy proceedings in this way:6
In effect, the amendment now sought is to introduce a new cause of action which is statutorily out of time, in that it pleads a different indebtedness, one which did not arise until after the expiry of the three month period, and more importantly, one which could not now, because of the lapse of time, have itself supported a petition based on the pleaded act of bankruptcy.
4 Re Mailo ex p General Finance Ltd HC Auckland B533/85, 15 April 1986.
5 Lane v Questnet Ltd, above n 1.
6 Re Mailo ex p General Finance Ltd, above n 4.
[26] Ahead of the hearing I referred counsel to the decision in Lane v Questnet Ltd. Mr Clay did not address submissions to me in support of a suggestion that the “statute-barred” limitation arises in this case. In any event, I conclude that it does not. The use of the statutory demand process in the Companies Act jurisdiction creates evidence of insolvency. It does not create the cause of action. That lies in the defendant’s insolvency from time to time and continues up to the date of hearing.
Conclusion
[27] The defendant has not denied that it now owes additional debt to the plaintiff. Mr Clay has indicated that there is some dispute as to components of the more recent statutory demands issued by the plaintiff in relation to further debt. But central aspects of the alleged debt such as the core rental do not appear to be in dispute.
[28] The reason or reasons for an apparently repeated failure to pay rent on time are not explained. It may be that because of the lack of finality in the arbitration process, the defendant has been taking it upon itself to simply fail to make payments until there is some measure of coercion to do so. Or it may be that the defendant is unable to meet its debts as they fall due. Whatever the reason for non-payment, it leaves the plaintiff from time to time as a creditor owed fresh debt.
[29] Rule 7.77 permits a creditor to pursue a fresh cause of action in an existing proceeding. Rule 7.77(4) permits the adding of a cause of action even if it has arisen since the filing of the statement of claim if the Court grants leave.
[30] There is no compelling reason against the granting of leave in this case. On the contrary, the plaintiff’s desire, as creditor, to adopt the existing liquidation proceeding has the benefit of allowing the Court to reach determination as to the defendant’s solvency or insolvency in a just, speedy, and inexpensive manner. The alternative of fresh proceedings will add cost and delay. I find no countervailing prejudice.
Order
[31] I order:
(a) The plaintiff has leave to file an amended pleading in this proceeding. (b) The plaintiff shall file and serve its amended pleading within four
working days.
(c) The proceeding is adjourned to the List at Christchurch at 10.00 am, 8
August 2013.
(d)I fix the cost of the application for leave on a 2B basis and they, together any disbursements, are to be costs in the cause.
Associate Judge Osborne
Solicitors:
Saunders & Co for Plaintiff MDS Law for Defendant Counsel: KW Clay
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