Tempest Litigation Funders Limited v BF7 Holdings Limited t/a Filled Roles
[2020] NZHC 2320
•7 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000393
[2020] NZHC 2320
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of BF7 Holdings Limited
BETWEEN
TEMPEST LITIGATION FUNDERS LIMITED
Plaintiff/Respondent
AND
BF7 HOLDINGS LIMITED trading as FILLED ROLES
Defendant/Applicant
Hearing: 7 September 2020 Appearances:
W van Roosmalen-Werie for Plaintiff/Respondent
P Cornegé for Applicant, Spencer Bishop (By VMR)
Judgment:
7 September 2020
JUDGMENT OF VENNING J
This judgment was delivered by me on 7 September 2020 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:Tempest, Auckland iCLAW, Hamilton
Counsel: P Cornegé, Hamilton
Copy to: Liquidator, Ryan Eathorne, Wellington
TEMPEST LITIGATION FUNDERS LTD v BF7 HOLDINGS LTD trading as FILLED ROLES [2020] NZHC
2320 [7 September 2020]
Introduction
[1] BF7 Holdings Limited (the company) was placed into liquidation on 24 July 2020. Mr Ryan Eathorne was appointed liquidator.
[2]Spencer Bishop, a shareholder and director of the company, applies for orders:
(a)recalling the liquidation order and joining Mr Bishop as a party to the proceeding so that he can take an appeal against the liquidation order; and
(b)a further order staying the liquidation pending determination of an appeal to the Court of Appeal.
[3] The applications were opposed by the plaintiff creditor Tempest Litigation Funders Limited (Tempest).
Background
[4] Tempest took an assignment of a debt of $382,806.44 owing by the company to Radius Contracting Limited. On 28 January 2020 Tempest served a statutory demand on the company. The company failed to pay the sum or to compromise or compound for it to the satisfaction of Tempest. In fact it took no steps whatsoever. Pursuant to s 287 of the Companies Act 1993 (the Act) the defendant company was deemed unable to pay its debts as they fell due.
[5] Tempest then issued liquidation proceedings. The day before the hearing of the application for liquidation the company purported to file a statement of defence (out of time) accompanied by an affidavit from Mr Bishop. The basis of the defence as set out in Mr Bishop’s affidavit was that, excluding Tempest’s debt, the company was solvent.
[6] When the matter was before the Court on 24 July 2020 the Court declined the company’s request for an adjournment. The Court noted the statement of defence was substantially out of time. In the circumstances the Court needed to be convinced the
interests of justice required leave to be granted to file the statement of defence out of time and for the matter to go to a full hearing. The “very bare” affidavit of Mr Bishop did not satisfy the Court that that was the position. Mr Bishop’s affidavit suggested that without the Tempest debt the company had a net asset position of some $6,620.00 and so was solvent. The Court noted the only substantial assets it had were accounts receivable of $22,721.00. In the absence of any explanation as to why the company failed to challenge the substantial claim claimed by Tempest and given the very limited financial information provided the Court was not satisfied the interests of justice required the grant of leave to file the statement of defence. The application for adjournment was therefore declined and the liquidation order made.
[7] Mr Bishop wishes to appeal that decision, but is not a party to the proceeding at present. For those reasons he seeks the orders referred to above.
Parties’ positions
[8] Mr Bishop seeks to recall the liquidation order and to have him added as an additional defendant to the proceeding. Counsel submits that is a settled procedural approach and the Court should adopt it in this case.
[9] Tempest opposes the application to recall. It suggests Mr Bishop should instead have applied to terminate the liquidation under s 250 of the Act.
[10] Tempest does not however, oppose Mr Bishop being joined as a defendant. It opposes the application for stay.
The proposed procedure
[11] Mr Cornegé referred in his submissions to a settled procedural approach, which supports a recall for the purpose of adding a defendant based on the cases of Buxton v Mainline Contracting Ltd; Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd; and The Commissioner of Inland Revenue (in liq) v Chesterfields Preschools Limited.1
1 Buxton v Mainline Contracting Ltd HC Auckland CIV-2010-404-1224, 22 October 2010; Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd HC Tauranga CIV-2011-470-697, 3 February 2012; and The Commissioner of Inland Revenue v Chesterfields Preschools Ltd (in liq) [2015] NZHC 2667.
[12] In the Buxton case Woodhouse J was faced with an application by Ms Buxton for leave to bring a derivative action.2 Ms Buxton’s ultimate purpose was to appeal against the decision to place Mainline into liquidation. As the Court noted, following the order for liquidation the effect of s 248(1)(b) of the Act was that Ms Buxton ceased to have the powers, functions or duties of a director, other than those set out in Part 16 of the Act dealing with liquidations.
[13] There was no jurisdiction to grant the leave Ms Buxton sought because of the provisions of s 248(1)(b). However, the Judge accepted it was unnecessary to provide a fully reasoned judgment because counsel had “constructively facilitated an agreement”.3
[14] Instead, and on the basis of counsels’ agreement, the Judge made an order joining the Mainline shareholder to the liquidation proceeding in order to enable that shareholder to seek leave of the Court of Appeal to appeal against the liquidation decision. Neither the liquidators nor the creditor company opposed that course of action. The order was effectively made by consent.
[15] The case is not a compelling authority for the proposition there is a settled procedural approach. The issue was not fully considered or dealt with.
[16] In the case of Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd Associate Judge Bell did consider the matter in more detail.4 In that case the Judge was concerned that the right of appeal would be effectively rendered nugatory because the defendant company could only act through the liquidator and a liquidator would not appeal the decision to place the company in liquidation. In the Judge’s words:5
In this situation, the powers of this court have to be used in a way that will give those who have been adversely affected by the liquidation decision the power to challenge that decision by way of appeal in the Court of Appeal.
2 Buxton v Mainline Contracting Ltd, above n 1.
3 Buxton v Mainline Contracting Ltd, above n 1, at [6].
4 Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd, above n 1.
5 At [14].
[17] After referring to the decision of Woodhouse J in Buxton v Mainline Contracting Ltd, Associate Judge Bell noted that a court can recall a judgment under r 11.9 of the High Court Rules.6
[18] The leading authority on recall is the judgment of Wild CJ in Horowhenua County Council v Nash (No. 2) in which the Court said:7
Generally speaking, a judgment once delivered must stand for better or worse subject, of course, to appeal. Were it otherwise there would be great inconvenience and uncertainty. There are, I think, three categories of cases in which a judgment not perfected may be recalled – first, where since the hearing there has been an amendment to a relevant statute or regulation or a new judicial decision of relevance and high authority; secondly, where counsel have failed to the direct the Court’s attention to a legislative provision or authoritative decision of plain relevance; and thirdly, where for some other very special reason justice requires that the judgment be recalled.
[19] Associate Judge Bell was satisfied that the case before him was one of those rare occasions where it was open to the Court to use the power under the third category:8
– that is, that there is some other very special reason why justice requires that the judgment be recalled. That very special reason in this case is that the rights of appeal conferred by s 66 of the Judicature Act should be real rights and should not be thwarted by the effects of a liquidation order which is the subject of appeal. I am able to exercise the recall power in this case because the order of Associate Judge Christiansen has not been sealed.
[20] The Judge then considered Mr Norman had standing as a director and shareholder and made an order joining him as a party.
[21] In a subsequent decision Associate Judge Osborne (as he was) applied the reasoning of Associate Judge Bell to approve an unopposed application by a director of a company placed in liquidation for recall to enable the director to pursue an appeal against that liquidation.9 Again, no analysis was required.
6 Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd, above n 1, citing Buxton v Mainline Contracting Ltd, above n 1.
7 Horowhenua County Council v Nash (No. 2) [1968] NZLR 632 at 633.
8 Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd, above n 1, at [20].
9 The Commissioner of Inland Revenue v Chesterfields Preschools Ltd (in liq), above n 1.
[22] While I accept in principle that a liquidation order (just like any other judgment) may be recalled in an appropriate case each case must be considered on its merits, and the Court will need to consider whether the circumstances of the particular case before it establish there is a very special reason which requires the order to be recalled. There is no “settled pathway” as such. The authority on which the applicant relies for such a “settled pathway” in the case of liquidation orders is not compelling. As noted, the judgments of Woodhouse J and Associate Judge Osborne were effectively compromise arrangements agreed to by the parties without any reasoning.
[23] While Associate Judge Bell’s decision was a fully reasoned decision, it is apparent from reading the judgment that the Judge was concerned at and influenced by the process which had led to the liquidation in that case and was anxious to avoid an injustice. The company had been placed into liquidation by Associate Judge Christiansen immediately following the Judge’s decision on an application under s 290 of the Act to set aside a statutory demand. The Judge had dismissed the application and immediately gone on to make an order under s 291(1)(b) of the Act putting the company into liquidation. As Associate Judge Bell noted, an alternative would have been to have given the company time to pay, and if not, for the usual liquidation process to follow. That would have enabled interested parties to take steps in the liquidation proceedings. In the circumstances it is, with respect understandable why the Judge considered that particular case warranted intervention by the Court.
[24] In the present case, however, the usual process was followed. A statutory demand was issued. It was not answered or responded to. The liquidation proceedings were then filed. The day before the scheduled hearing of that application a statement of defence supported by a very bare affidavit in opposition were filed.
[25] With respect to the submissions Mr Cornegé made for Mr Bishop in this case, while the Court may recall a judgment, the discretion to do so will only be exercised where it is appropriate. There are a number of factors which count against the Court exercising its discretion in that way in this case.
[26] The first is that the answer to the concern that exercised Associate Judge Bell is that a shareholder has an absolute right to file a defence in addition to the defence
filed by the company: High Court Rules 2016, r 31.16. Further, a person wishing to appear at the hearing may file a notice of intention to appear under r 31.18. If Mr Bishop had taken either of those steps he would have been entitled to be heard in person at the hearing and able to take an appeal against the liquidation order.
[27] Mr Bishop having failed to take either of those steps, the Court is not minded to recall the judgment. The Rules make it clear that the liquidation proceedings should be dealt with promptly. Special leave is required to be heard if a party fails to file the appropriate notice. Certainty is important in liquidation proceedings.
[28] Next, the liquidator has filed a brief affidavit setting out a report for the Court as to the state of the liquidation. That affidavit discloses that in addition to Tempest’s claim, there are five other claims in the liquidation totalling $45,540.99. The bulk of that sum follows two separate adjudications by the Employment Relations Authority.
[29] Also, the liquidator’s analysis of the bank statements and employee related information leads him to conclude the company was employing people and managing a payroll until September 2019. Inland Revenue have also confirmed the company was registered for PAYE on a monthly basis. Despite that, no returns were ever filed.
[30] Mr Bishop made no mention of either of those matters in his very bare affidavit in which he suggested the company was solvent to the tune of $6,000. That lack of candour on his part counts against the exercise of any discretion in his favour.
[31] Apart from that lack of candour, the further information confirms the insolvent position of the defendant company and possible mismanagement. That is a further strong reason against the exercise of the discretion.
[32] In the circumstances it is unnecessary to consider Tempest’s alternative argument that the correct procedure is to make an application to terminate the liquidation under s 250 of the Act in any detail. I can deal with it briefly.
[33] Some cases suggest that the Court will only exercise its discretion to order a termination of a liquidation if:10
(a)all creditors have been paid in full or satisfactory arrangements made; and
(b)the liquidator’s costs have been paid or secured; and
(c)the shareholders have consented or would be in no worse position than if the liquidation had concluded.
[34] However, the above are not absolute requirements. As Cooper J noted in Foundation Securities (NZ) Ltd v Direct Labour Services Ltd (in liquidation) the Court should be cautious before applying an exclusive set of criteria for what is a broadly expressed power conferred by the legislature.11
[35] Examples of where the Court might terminate the liquidation without the above criteria being met are in instances where the appointment has been obtained by fraud or trickery or there is otherwise a procedural unfairness in the making of the liquidation order.
[36]Nothing of that kind applies in the present case.
[37] In summary, for the reasons given above, I accept that in an appropriate case a liquidation order, like any other judgment of the Court, can be recalled. The circumstances will however be limited, and only where there is a very special reason to do so, such as existed before Associate Judge Bell in the case of Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd.12 That however is not the factual situation in the present case. There is no very special reason to justify a recall in this case.
10 Re Bell Block Lumber Ltd (in liquidation) (1992) 6 NZCLC 67,690.
11 Foundation Securities (NZ) Ltd v Direct Labour Services Ltd (in liquidation) [2008] NZCCLR 1 at [21].
12 Aotearoa Kiwifruit Export Ltd v ANZ National Bank Ltd, above n 1.
[38] That is not an end of the matter. In the course of his submissions, Mr van Roosmalen-Werie confirmed that while Tempest opposed the recall application, it does not oppose an application to join Mr Bishop to the proceedings to enable him to appeal.
[39] The applicable rule that applies to the joinder of parties is r 4.56. Under that rule the Court may:
… at any stage of a proceeding, order that—
…
(b) the name of a person be added as a .. defendant because—
…
(ii) the person's presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
[40]The Commentary to the rule in McGechan on Procedure states:13
An order striking out or adding a party may be made at any stage of a proceeding. This may include after judgment (see McDonald v Simmonds (1994) 8 PRNZ 12), although such an application was refused in Farmers’ Milking-Machine Co Ltd v Knapp [1928] NZLR 305, where the plaintiff obtained judgment against the wrong defendant and sought an order joining the correct defendants. …
[41] On my reading of McDonald v Simmonds the case does not directly support the proposition it is cited for. However, I accept that a purposive interpretation of “at any stage of a proceeding” could support a joinder even following judgment. The Court is functus officio in relation to the substantive matters dealt with in the judgment, but the proceeding remains and applications may be filed on it (such as for example, an application for recall). It will, however, be a rare case where it would be appropriate. In the present case given the creditor Tempest does not oppose the joinder of Mr Bishop the Court is prepared to grant the joinder without the benefit of full argument on this point.
[42] That leaves the remaining issue which is the application for stay of the liquidation order pending any appeal. In determining whether or not to grant a stay
13 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [4.56.16].
the Court must weigh the factors and balance the interests of the successful litigant, in this case Tempest, and the need to preserve original positions in case any subsequent appeal is successful.14
[43] In the present case, while Mr Bishop may well wish to appeal the judgment, I indicated to Mr Cornegé that I was not minded to exercise the discretion of the Court in favour of a stay. The liquidator has already taken a number of steps in order to progress the liquidation. Other creditors have been identified. Those other creditors are affected by the liquidation. Their position will not be improved by any stay. Indeed they may be disadvantaged. The liquidator is also taking appropriate steps to advance the administration of the liquidation.
[44] There is no particular novelty, importance, nor any public interest in whether the company remains in liquidation or not (other than the interest of the other creditors).
[45] During submissions Mr Cornegé clarified that he accepted in principle the liquidator should be able to carry on with the liquidation. It seems that Mr Bishop’s main concern is the possibility of a claim against him by the liquidator.
[46] Further, again it is also relevant, in the exercise of the general discretion, that Mr Bishop failed to provide full disclosure to the Court and has to date not assisted the liquidation.
[47] I would have been minded to dismiss the application for stay, but after discussion with counsel, Mr Cornegé withdrew the current application for stay.
Summary/orders
[48](a) The application to recall the judgment is dismissed.
(b)By consent Mr Bishop is joined as an additional defendant under r 4.56.
14 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at [87].
(c)The current application for stay of the liquidation order is withdrawn, without prejudice to Mr Bishop’s right to review it.
Costs
[49] After consideration of the competing arguments on costs, and given the outcome, which is Mr Bishop has effectively been granted an indulgence but has failed on the other applications, a modest award of costs in Tempest’s favour is appropriate.
[50] The applicant is to pay Tempest’s costs calculated on a 2B basis for all steps relating to the application and hearing reduced by 50 per cent together with full disbursements.
Venning J
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