Stylo Medical Services Limited v Hum Hospitality Limited
[2023] NZHC 463
•16 March 2023
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2022-470-154
[2023] NZHC 463
UNDER Section 241, Companies Act 1993 BETWEEN
STYLO MEDICAL SERVICES LIMITED
Plaintiff
AND
HUM HOSPITALITY LIMITED
Defendant
Hearing: 20 and 23 February 2023 Appearances:
R O Parmenter for Plaintiff
C Harpur for Auckland Council R Armitage in person
Judgment:
16 March 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 16 March 2023 at 10.00 am.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors / Counsel:
Winston Wang & Associates, Auckland R O Parmenter, Auckland
Rice Spier, Auckland
STYLO MEDICAL SERVICES LIMITED v HUM HOSPITALITY LIMITED [2023] NZHC 463 [16 March 2023]
Introduction
[1] The plaintiff, Stylo Medical Services Limited (Stylo), is a creditor of the defendant, Hum Hospitality Limited (Hum), by virtue of three judgments obtained by Stylo against Hum in CIV-2019-404-365 for $106,184.82, $21,968.58 and $16,384.
[2] On 14 November 2022, Stylo served a statutory demand on Hum at Hum’s registered office at 124 Hynds Road, Gate Pa, Tauranga, demanding payment of the judgment debts. Hum took no steps in respect of the statutory demand.
[3] On 8 December 2022, Stylo filed this proceeding seeking an order putting Hum into liquidation (the liquidation proceeding). On 12 December 2022, Stylo served Hum with the notice of proceeding, statement of claim and affidavit verifying the statement of claim, at Hum’s registered office. Hum has taken no steps in respect of the liquidation proceeding.
Procedural background
[4] On 21 December 2022, Stylo advertised the liquidation proceeding in the New Zealand Gazette and the Bay of Plenty Times. The hearing date for the first call of the liquidation proceeding was 3 February 2023 at 10 am, correctly stated in the advertisements.
[5] Prior to the first call of the liquidation proceeding, counsel for Stylo filed a memorandum drawing various matters to the Court’s attention, including a potential conflict on the part of Associate Judge Sussock, who was to hear the matter on 3 February 2023.
[6] On 18 January 2023, Associate Judge Sussock issued a minute acknowledging that she had previously acted for Hum, and making the following directions:
(a)The liquidation proceeding would be called in open Court on 3 February 2023, but appearances for the plaintiff and the defendant were excused.
(b)On 3 February 2023 the liquidation proceeding would be adjourned to 20 February 2023, to be heard by me.
(c)A copy of the directions were to be made available to the defendant’s director and shareholder, Ms Rosanne Armitage.
[7] On 20 January 2023, Auckland Council filed an appearance in support of the application for putting Hum into liquidation. Auckland Council is a creditor of Hum for the sum of $11,488.84.
[8]On 31 January 2023, Ms Armitage filed four documents:
(a)A “First Filing Memorandum” in her capacity as a creditor of Hum, together with a notice of appearance opposing the application for putting Hum into liquidation. The appearance states that Ms Armitage is a creditor of Hum for $2,471,189.58.
(b)A “First Filing Memorandum” in her capacity as a shareholder of Hum, together with a notice of appearance opposing the application for putting Hum into liquidation. The appearance confirms that Ms Armitage holds all of the shares in Hum.
[9] On 3 February 2023, the liquidation proceeding was called in Court and adjourned to 20 February 2023. Appearances for the plaintiff and defendant were excused. The purpose of dealing with the matter in that way was to ensure that any other party that wished to appear, following advertising of the proceeding, had the opportunity to do so on 3 February 2023. No party appeared.
[10] Prior to the call of the liquidation proceeding on 20 February 2023, Stylo and Ms Armitage filed further documents:
(a)On 7 February 2023, counsel for Stylo filed a memorandum.
(b)On 17 February 2023, Ms Armitage filed an application requesting an extension of time to apply to stay or strike out the liquidation proceeding, and an affidavit in support.
(c)On 20 February 2023, Ms Armitage filed a memorandum requesting that the liquidation proceeding be adjourned “pending proper service and so that Stylo can comply with r 31.10 [of the High Court Rules 2016] as to the affidavit of evidence being sworn …”.
[11] When the liquidation proceeding was called on 20 February 2023, Mr Parmenter appeared for Stylo, Ms Harpur appeared for Auckland Council, and Ms Armitage appeared in person. Ms Armitage accepted that the substance of the grounds advanced by her in her application for a stay or strike-out are all of the grounds that she advances in opposition to Stylo’s application for an order putting Hum into liquidation. I proposed to counsel and Ms Armitage that the substantive liquidation proceeding and the application for a stay or strike-out could be dealt with together, requiring a short fixture. All parties agreed. On that basis, I adjourned the proceeding for a 1.5 hour fixture on 23 February 2023 at 10 am.
[12] On 23 February 2023, Mr Parmenter, counsel for Stylo, Ms Quinn, counsel for Auckland Council, and Ms Armitage all appeared by VMR. Prior to the hearing, all parties filed written submissions. By consent, Ms Armitage presented her oral submissions first, followed by Mr Parmenter and Ms Quinn, with Ms Armitage having a right of reply. By consent, and pursuant to a direction during the hearing, Ms Armitage filed further written submissions on the issue of the legal test for service of a statutory demand under s 387(1)(c) of the Companies Act 1993. Those submissions were received by the Court on 2 March 2023.
[13] On 6 March 2023, counsel for Auckland Council filed a brief memorandum responding to Ms Armitage’s submissions dated 2 March 2023, confined to the issue of service of the statutory demand on Hum. Ms Armitage replied with two further memoranda, both dated 6 March 2023, which included as attachments various photographs of the property at 124 Hynds Road. Finally, Ms Armitage filed an
“Updating Memorandum” dated 13 March 2023. I have considered all of those submissions.
A snapshot of the litigation between Stylo and Hum
[14] Stylo, Auckland Council and Hum have been embroiled in litigation since 2014. I will not set out the factual background in full because it has been traversed in several decisions of this Court and the Court of Appeal.1 For present purposes, the parties’ dispute can be summarised as follows: Hum leased an old Grafton villa from Stylo, fell into arrears in paying rent and made various allegations against Stylo, including pre-contractual misrepresentation and breach of the covenant of quiet enjoyment.
[15] I will not endeavour to set out a full history of the numerous proceedings and applications commenced by Stylo and Hum. Suffice to say that this matter has taxed the Courts on numerous occasions.2 I will, however, mention some aspects of the history of the litigation to provide context to this liquidation proceeding.
[16] In 2016, Hum commenced CIV 2016-404-636 against Stylo alleging that Hum was induced to enter into the lease by precontractual misrepresentations and alleging that Stylo had breached the landlord’s covenant of quiet enjoyment (the misrepresentation proceeding). Other defendants were added later, including Auckland Council. On 2 June 2021, Associate Judge Bell ordered Hum to pay $50,000 in security for costs in respect of Hum’s claim against Auckland Council.3 In addition, Hum was ordered to pay Auckland Council’s costs on its successful application for security for costs,4 an amount of $11,688.44. Hum has not paid the security for costs, and as a consequence Hum’s proceeding against Auckland Council is stayed.
[17] Auckland Council served a statutory demand on Hum to enforce the costs order of $11,688.84, and subsequently commenced a liquidation proceeding. As at the date
1 For a succinct summary, see Hum Hospitality Ltd v Stylo Medical Services Ltd [2022] NZCA 251 at [2]–[6].
2 For example, some of the previous decisions are listed in Hum Hospitality Ltd v Stylo Medical Services Ltd [2021] NZHC 1287 at [13], footnote 2.
3 Hum Hospitality Ltd v Stylo Medical Services Ltd [2021] NZHC 1287 at [64].
4 At [65].
of this judgment, that proceeding is extant and awaiting a review by Associate Judge Taylor of procedural orders made by him on 27 October 2022.5
[18] Hum’s claims against Stylo in the misrepresentation proceeding remain extant, and the proceeding is awaiting further case management directions. On 14 July 2022, Venning J ordered that Ms Armitage is not to represent Hum in that proceeding.6 At present, Hum is effectively unable to pursue its claims in the misrepresentation proceeding, because the company does not have legal representation.
[19] From at least 2013, Stylo has made repeated efforts to recover allegedly outstanding rent from Hum and to terminate the lease. Ultimately, Stylo was successful in CIV-2019-404-365:
(a)On 11 November 2020, Brewer J gave a liability judgment in favour of Stylo (the liability judgement).7
(b)On 11 February 2021, Brewer J made an order cancelling the lease and requiring Hum to vacate the property.8
(c)On 20 December 2021, Brewer J gave judgment in favour of Stylo in the sum of $106,184.82 (the quantum judgment).9 That is one of the judgment debts that is demanded in the statutory demand in this case.
[20] Hum appealed the quantum judgment and applied for a stay of execution pending appeal. The Court of Appeal declined to order a stay of execution, noting that Hum is insolvent:10
[7] The second relevant contextual matter is that Hum is insolvent. Ms Armitage confirms in her supporting affidavit that Hum has no income and is effectively moribund:
5 Hum Hospitality Ltd v Auckland City Council CA54/2023, 3 February 2023 at [5].
6 Stylo Medical Services Ltd v Hum Hospitality Ltd [2022] NZHC 1683 at [41].
7 Stylo Medical Services Ltd v Hum Hospitality Ltd [2020] NZHC 2969.
8 Stylo Medical Services Ltd v Hum Hospitality Ltd HC Auckland, CIV-2019-404-365, 11 February 2021 at [10]–[12].
9 Stylo Medical Services Ltd v Hum Hospitality Ltd [2021] NZHC 3552.
10 Hum Hospitality Ltd v Stylo Medical Services Ltd [2022] NZCA 251.
74.The only source of income Hum had was the villa and all the monies was going back to [Stylo].
75.However, I am creative and resourceful, if matters were stayed I could bring Hum back to life.
[8] Hum’s liabilities also appear to far exceed its assets. Draft accounts submitted by Ms Armitage in support of Hum’s application for a waiver of the
$1,100 filing fee disclose that it traded at a loss of $158,896 in the year to 31 March 2021 and had negative equity of $519,443 taking account of current liabilities at that date of $2,466,803.
[21] The Court of Appeal did not overlook that Stylo might seek to place Hum in liquidation if a stay was not granted:
[15] If a stay is not granted, the only practical consequence is that Stylo may seek to place Hum in liquidation. However, we were advised that at least one other creditor, Auckland Council, is currently pursuing winding up proceedings against Hum in any event. On the information available to us, Hum is plainly insolvent. Success on this appeal would not change that and it may well be that the company should be wound up. Moreover, if there is any merit in the appeal, which we doubt, the liquidator would be able to pursue it. Ms Armitage has been accorded considerable indulgence in being permitted to file documents and appeal on behalf of Hum. We do not consider this should be allowed to continue. There appear to be good reasons why control of Hum should now be placed in the hands of an independent liquidator.
[22] Ms Armitage was not, however, prepared to let matters rest. She subsequently attempted to file further documents in CIV-2019-404-365 on Hum’s behalf, effectively seeking to represent Hum in the absence of legal representation. On 4 July 2022, Toogood J made an order that the Registry should not accept the documents for filing and that no application or memorandum related to CIV-2019-404-365 could be filed without the leave of a Judge.11 It appears that the documents that Ms Armitage sought to file were attempts to relitigate matters already disposed of by Brewer J in the liability and quantum judgments.12 Toogood J held that the documents that Ms Armitage wished to file were an abuse of process.13
[23] Ms Armitage was undeterred and proceeded to file “an application for stay by way of interim relief pending appeal against the strike-out decision made on 5 July 2022”. Venning J dismissed the application, noting that the application by Hum was
11 Stylo Medical Services Ltd v Hum Hospitality Ltd HC Auckland, CIV-2019-404-365, 4 July 2022 at [19].
12 At [12]–[14].
13 At [17].
“premised on a misapprehension of the impact of Hum’s appeal against the orders of Toogood J”14 and that an appeal against Toogood J’s decision “does not open the door to Hum to enable it to revisit matters on appeal which have been finally determined against it, such as the liability decision and Stylo’s right to possession of the property in issue.”15 Venning J noted that it was too late for Hum to seek to challenge the liability judgment.16
[24] Hum, by its agent Ms Armitage, then applied to the Court of Appeal, seeking orders restraining Stylo from auctioning the subject property. The Court of Appeal refused to accept the documents for filing.17 The Court of Appeal required any further documents filed in the Court of Appeal to be by counsel retained by Hum.18 Dobson J summarised Ms Armitage’s various initiatives in the Court of Appeal to challenge the liability judgment and the quantum judgment, concluding:
[22] A recurring feature of Ms Armitage’s numerous initiatives, including the scope of orders sought by way of interim relief, is a refusal to accept that Hum cannot now seek to challenge Brewer J’s original liability judgment. That feature of the steps taken is now at a point that is reasonably characterised as vexatious.
[25] On 29 August 2022, Hum’s appeal to the Court of Appeal against the quantum judgment expired and was deemed abandoned.
Ms Armitage’s grounds for opposing the liquidation of Hum
[26] Ms Armitage, in her capacity as the sole shareholder and a creditor of Hum, opposes Hum’s liquidation on the following grounds:
(a)The statutory demand was not validly served.
(b)The statement of claim, notice of proceeding and affidavit verifying the statement of claim, were not validly served.
14 Stylo Medical Services Ltd v Hum Hospitality Ltd, above n 6, at [24].
15 At [25].
16 At [26].
17 Hum Hospitality Ltd v Stylo Medical Services Ltd CA333/2022, 19 July 2022 at [28].
18 At [27].
(c)Stylo failed to comply with the rules for advertising the liquidation proceeding.
(d)Stylo failed to serve Ms Armitage with other documents filed in the liquidation proceeding.
(e)Hum has a set-off that exceeds the debt.
(f)There is inadequate proof of the debts that are the subject of the statutory demand.
Service of the statutory demand
[27] Stylo conceded that it was required to serve its statutory demand in compliance with s 387(1)(c) of the Companies Act, which provides:
387 Service of documents on companies in legal proceedings
(1)A document, including a writ, summons, notice, or order, in any legal proceedings may be served on a company as follows:
…
(c)by leaving it at the company’s registered office or address for service; or
…
[28] Stylo relies on service by a process server, Arthur Twyford. Mr Twyford provided a sworn affidavit dated 17 November 2022, confirming that he delivered the statutory demand to Hum’s registered office at 124 Hynds Road, Gate Pa, Tauranga on 14 November 2022. The documents were accepted by Mrs Grace Armitage, who told Mr Twyford that she was the “usual occupant” of 124 Hynds Road, and the mother of Ms Armitage.
[29] Ms Armitage’s affidavit evidence is that she did not become aware of the statutory demand until around 22 November 2022, and that she was unwell at the time of service.
[30] Mr Twyford provided an affidavit in reply, dated 20 February 2023. Mr Twyford’s evidence is that during his visit to 124 Hynds Road, Mrs Grace
Armitage told him that Ms Armitage was sick in bed and could not come to the door. Mr Twyford says that when he explained the reason for his visit, Mrs Grace Armitage retreated inside the house saying, “I’ll have a talk to her”. She then returned to the door a few minutes later, told Mr Twyford that Ms Armitage was unable to come to the door, and then accepted the statutory demand without protest.
[31] In her submissions, Ms Armitage relied on Associate Judge Doogue’s decision in Richard Zhao Lawyers Ltd v Chen.19 That case was concerned with service on a company of an application to set aside a bankruptcy notice. The company’s registered office was commercial premises.20 However, the company no longer carried on business from the premises, which were occupied by a different business.21 The application to be served was left with an employee of the new business who was on the premises when the process server attended.22 Associate Judge Doogue held that there was no compliance with s 387 because the document had been left with an employee of a company that was not the defendant company, and there was no compliance with s 387(1)(c) because the document was not physically left at the registered office.23
[32] Ms Armitage submitted that when Mr Twyford left the statutory demand at Hum’s registered office, but with her mother, that was a “hybrid” method of service and therefore invalid.
[33] For Stylo, Mr Parmenter relied on the subsequent decision of Hinton J in Denize Trustee Company Ltd v Waimauri Ltd.24 That case was concerned with service of a notice under s 119 of the Property Law Act 2007, by leaving the notice at the company’s registered office, which was a residential property. The directors of the company no longer resided at the property. The notices were handed to the occupant, who told the person serving the notice that the directors of the company to be served no longer resided at the address.25
19 Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230.
20 At [14].
21 At [14].
22 At [15].
23 At [26]–[27].
24 Denize Trustee Company Ltd v Waimauri Ltd [2020] NZHC 1718, (2020) 21 NZCPR 247.
25 At [12]–[14].
[34]Hinton J did not challenge Associate Judge Doogue’s conclusion in
Richard Zhao Lawyers but disagreed with his analysis, stating:
[29] Without departing from the Associate Judge's conclusion I disagree with his analysis. I agree with Mr Chisholm that s 387(1)(c) had been complied with in that the documents were left at the premises, regardless of their having been handed to a third party. That is a common-sense construction of the section. Any further analysis around the detail or efficacy of the service process should then have formed part of a second stage inquiry. My impression from the judgment is that the Judge was not aware that he had a residual discretion to determine that service was not valid.
[30] As a matter of ordinary practice, handing a document to a person encountered inside the premises of a company's registered office, at least where that person appears to have some connection to those premises, is leaving that document there. It would be strange, as Mr Grove accepted, if that were non-compliant, when service can be effected by leaving documents on the ground; throwing them down at a person's feet; leaving them on a counter or table in front of the person; pushing documents through a letter box; wedging them under a door; or affixing them to a front door or front gate.
[31] The position is likely to be different where documents are handed to a third party on their way out of the premises of a registered office, or otherwise to someone clearly having no connection to the premises (such as a delivery person, a party guest, or the like). It may be in such a case that s 387(1)(c) is not complied with.
(footnote omitted)
[35] Hinton J held that s 387(1) requires a two-stage approach: first, determining whether there is technical compliance with s 387;26 and second, whether a residual discretion should be exercised to hold that service should not stand due to a miscarriage of justice.27 The second stage of the assessment might involve a consideration of the following matters:28
(a)whether any shortcomings in the ‘efficacy’ of service are attributable to honest mistake or ignorance or, conversely, sharp or otherwise deliberate conduct on the part of the notice giver;
(b)where the address for service contained multiple premises, whether the notice-giver left the documents at the part of the address actually in use by the recipient company;
(c)whether there was a sufficient connection between a person to whom the documents were handed and the address for service;
26 At [21].
27 At [35]–[36].
28 At [37].
(d)whether the recipient company’s unreasonable actions, especially any delinquency in registering a new address for service, have rendered achieving ‘effective’ service impossible or impracticable; and
(e)the consequences for the recipient company if relief is not granted, and the seriousness of those consequences for the recipient company.
(footnotes omitted)
[36] Service was upheld on the basis that there was technical compliance with s 387(1)(c) and, on the facts of that case, no miscarriage of justice.29
[37] In this case, the statutory demand was left with Ms Armitage’s mother, who lives at 124 Hynds Road with Ms Armitage, and who could reasonably be expected to promptly draw the demand to Ms Armitage’s attention. If Mr Twyford’s evidence is accepted, then the obvious inference is that Ms Armitage was made aware of the statutory demand on 14 November 2022.
[38] The photographs of 124 Hynds Road produced by Ms Armitage depict a typical residential dwelling. The photographs do not depict any signage which might suggest any separation of the property. The property is comprised in one certificate of title and is one unit for rating purposes.
[39] Hum had until 28 November 2022 to file an application to set aside the statutory demand. Even if Ms Armitage’s evidence is accepted, and she only became aware of the demand around 22 November 2022, she still had approximately four working days to file an application to set aside the statutory demand. Moreover, throughout the long history of litigation between Stylo and Hum, and particularly since Ms Armitage has been representing Hum, Ms Armitage has shown a propensity and an ability to file applications in courts on short notice.
[40] I find that the statutory demand was validly served on Hum on 14 November 2022, when it was left at Hum’s registered office. Allowing service to stand does not result in any miscarriage of justice.
29 At [33] and [38]–[40].
[41] Ms Armitage’s alternative submission is that if service was valid, then service was ineffective as a result of s 392(2) of the Companies Act, which provides:
392 Additional provisions relating to service
…
(2)A document is not to be deemed to have been served or sent or delivered to a person if the person proves that, through no fault on the person’s part, the document was not received within the time specified.
[42] Section 392(1) includes provisions which deem service in the case of documents that are posted, sent by fax or emailed. Section 392(2) applies when those deeming provisions are relied upon. That is not the case here. Accordingly, s 392(2) does not assist Ms Armitage.
Service of the statement of claim, notice of proceeding and affidavit verifying the statement of claim
[43] Mr Twyford served Hum with the statement of claim for putting Hum into liquidation, the notice of proceeding and the affidavit verifying the statement of claim on 12 December 2022, by handing the documents to Ms Armitage at Hum’s registered office at 124 Hynds Road. There is no issue as to service.
Service of other documents filed in the proceeding
[44] In her “First Filing” memoranda dated 31 January 2023, Ms Armitage advised that documents could be served on her by email to her nominated email address. From that date forward, Stylo and Auckland Council could serve any documents that were required to be served on Ms Armitage by email to that address. Ms Armitage’s submission that other documents filed by Stylo were not validly served on her, was based on her misunderstanding that documents such as the statement of advertising were required to be served on her by some form of personal service. For example, the statement of claim was emailed to Ms Armitage on 8 December 2022, a matter that I will return to. Ms Armitage cannot complain that she did not receive a copy.
Advertising the liquidation proceeding
[45]Rule 31.10 of the High Court Rules 2016 (HCR) provides:
31.10 Restriction on advertising of proceeding (1) No person may, unless the court otherwise directs, publish any advertisement required by rule 31.9 or any other information relating to the statement of claim until at least 5 working days after the date on which the statement of claim is served on the defendant company. (2) Subclause (1) does not apply when a statement of claim has been filed by the defendant company. [46]
Under
the rule, Stylo was prohibited from advertising before 20 December
2022. [47] On 8 December 2022, Mr Parmenter sent an email to Ms Armitage which included as attachments the statement of claim, notice of proceeding, affidavit of service of the statutory demand and affidavit verifying the statement of claim. That email was copied to Ms Quinn and Mr Colenbrander, both solicitors employed by Auckland Council. Ms Armitage submitted that Stylo breached r 31.10 by advertising the liquidation proceeding to Auckland Council by sending the email on 8 December 2022. Mr Parmenter accepts that when he copied his email of 8 December 2022 to the Council solicitors, it constituted advertising for the purposes of r 31.10.
[48] Ms Armitage submitted that the principal reason behind the rule was to provide a company served with a liquidation application the opportunity to discharge the debt, if undisputed, before advertising takes place. Ms Armitage submits that Hum suffered damage as a result because Hum continues to serve its community in Tauranga and in other areas, but no specifics were provided.
[49] Mr Parmenter submitted that Hum did not suffer any prejudice as a result of the breach, for the following reasons:
(a)advertising had previously occurred in Auckland Council’s liquidation proceeding against Hum;
(b)publication was limited to two of Auckland Council’s solicitors;
(c)Hum’s judgment debts to Stylo were already well known to Auckland Council and Auckland Council is a supporting creditor in this proceeding; and
(d)Hum has taken no steps in this proceeding.
[50] The prohibition on advertising is to provide the company served with an opportunity to discharge the debt, or to apply to restrain advertising before it takes place. Any plaintiff who ignores the prohibition is at risk of having the liquidation proceedings struck out as an abuse of process.30
[51] In NZPS Ltd v Evolo Ltd,31 the liquidation proceeding was advertised in breach of a Court order restraining advertising. The breach was inadvertent, due to an oversight on the part of the newspapers.32 A breach of a Court order is a more serious matter than a breach of the High Court Rules.33 Accordingly, Venning J struck out the liquidation proceeding, noting that advertising a liquidation proceeding is potentially highly prejudicial to a defendant company, and that it is difficult to quantify particular prejudice.34
[52] In Body Corporate 162791 v Mid City Apartments Ltd, a prohibition on advertising had been breached, however, the Court declined to strike out the liquidation proceeding.35 The plaintiff’s non-compliance was accidental.36 The Court took into account that the grounds in support of a set-off or a counterclaim by the defendant had already been examined by the Court in the proceeding in which judgment was entered against the defendant.37 The defendant had also filed a separate proceeding against the plaintiff, which was stayed as a result of non-compliance with an order for security for costs.38
30 Body Corporate 162791 v Mid City Apartments (2004) 17 PRNZ 289 (HC) at [15].
31 NZPS Ltd v Evolo Ltd [2013] NZHC 2309.
32 At [11].
33 At [23].
34 At [18] and [25].
35 Body Corporate 162791 v Mid City Apartments, above n 30.
36 At [16].
37 At [16].
38 At [16].
[53] Stylo breached the requirements of r 31.10 by providing a copy of the liquidation proceeding to Auckland Council on 8 December 2022. Under r 1.5(2)(b) and r 1.9(1) of the HCR, the Court may cure that procedural defect. I accept that it is appropriate to do so in this case because there was no prejudice caused to Hum by the breach.
[54] The early publication was confined to Auckland Council, a judgment creditor of the defendant. Auckland Council had already commenced its own liquidation proceeding against Hum. Hum has taken no steps in this proceeding and Hum did not seek to restrain advertising in this proceeding.
Hum’s alleged set-off or counterclaim
[55] Stylo has satisfied the statutory requirements for obtaining an order putting Hum into liquidation and is prima facie entitled to the order, subject to the Court’s discretion as to whether a liquidation order should be made. In exercising that discretion, the Court must be mindful of the general principle that to enforce a genuinely disputed debt by liquidation may constitute an abuse of process.39
[56] This general principle is manifest in the procedure governing liquidations, for example:
(a)Section 290 of the Companies Act provides the Court with a discretion to set aside a statutory demand if it is satisfied that there is a substantial dispute whether or not the debt is owing, or there is a counter claim, set-off or cross demand that exceeds the debt.
(b)Where there is no application to set a statutory demand aside, and the defendant company seeks to rebut the presumption of insolvency by establishing a set-off.40
39 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20] citing Re Bayoil SA [1999] 1 WLR 147 (CA) at 156.
40 Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [80].
(c)Section 310 of the Companies Act provides for mutual credits and set- offs in a liquidation.
[57] In the present case, the grounds of set-off or counterclaim put forward by Ms Armitage on behalf of Hum amount to an alleged equitable set-off, on the basis of Grant v NZMC Ltd, where the Court of Appeal said:41
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.
[58] I am satisfied that alleged set-offs raised by Ms Armitage on Hum’s behalf do not render the liquidation of Hum an abuse of process. Hum is no longer able to challenge the liability judgment or the quantum judgment in CIV 2019 404-365. This includes challenges to the quantum judgment based on the Court’s findings on GST, insurance and rates payable under the lease. All of these matters are subject to issue estoppel.
[59] Hum’s claims against Stylo based on misrepresentation were described by Associate Judge Bell as “weak”.42 The Judge considered that Hum’s claims for a breach of the covenant of quiet enjoyment had “reasonable prospects”.43 However, there is no evidence as to the nature of any damages suffered. Hum is unable to progress that claim because to do so it must engage solicitors and it does not have the financial means to do so.
[60] If Hum’s claims against Stylo for misrepresentation or breach of the covenant of quiet enjoyment have merit, then a liquidator has the option of pursuing those claims. The liquidator has the advantage of being able to access litigation funding, or alternatively, Ms Armitage has the option of entering into a funding arrangement with the liquidator, in her capacity as a creditor of Hum. If Ms Armitage is indeed a creditor of Hum for the sum of $2,471,189.58, then Ms Armitage will be the major creditor in
41 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12–13.
42 Hum Hospitality Ltd v Stylo Medical Services Ltd, above n 3, at [26].
43 At [34].
the liquidation and therefore able to exercise the rights available to her under the Companies Act.
Hum is insolvent
[61] Dr Shen Tat Ooi, a director of Stylo, provided an affidavit sworn on 16 February 2023 confirming that the three judgment debts that are the subject of the statutory demand remain unpaid. On 23 January 2023, Stylo’s solicitor provided a certificate confirming that the debt which is the subject of the statutory demand remains unpaid, and undertaking to advise the Court if that position changed. During the hearing on 23 February 2023, Ms Armitage confirmed that Hum has not paid the judgment debts demanded in the statutory demand.
[62] During the hearing on 23 February 2023, Mr Parmenter advised the Court that if the Court intends to put Hum into liquidation, then he will file an updated solicitor’s certificate when the matter is called in open Court for that purpose.
[63] I am satisfied that there is prima facie evidence that the judgment debts demanded in the statutory demand remain unpaid. I am satisfied that Hum is insolvent and unable to pay its debts. It is appropriate that Hum is put into liquidation
Result
[64] I grant leave to Ms Armitage to file her late application for orders staying or striking out the liquidation proceeding.
[65] The application by Ms Armitage for orders staying or striking out the liquidation proceeding is dismissed.
[66] Stylo’s application for an order under s 241(4) of the Companies Act 1993, putting the defendant into liquidation, will be made when the proceeding is called in open Court on 21 March 2023 at 2.15 pm. I direct that on that date the plaintiff file an updated solicitor’s certificate when the matter is called.
[67] The question of costs will be dealt with when the proceeding is called on 21 March 2023 at 2.15 pm.
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Associate Judge Brittain
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