Walker v Gibbston Water Services Ltd
[2014] NZHC 330
•28 February 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-002834 [2014] NZHC 330
UNDER Section 284 of the Companies Act 1993 IN THE MATTER OF
Gibbston Water Holdings Limited (in liquidation)
BETWEEN
ROBERT BRUCE WALKER as liquidator of Gibbston Water Holdings Limited Applicant
AND
GIBBSTON WATER SERVICES LTD First Respondent
AND
CASTLEREAGH PROPERTIES LTD Second Respondent
AND
KRISTINA LOUISE BUXTON Third Respondent
AND
CANTERBURY LEGAL SERVICES LTD Fourth Respondent
Hearing: 12 February 2014 Appearances:
K P Sullivan for Applicant (Respondent on the discovery application)
J Moss for Respondents (Applicants on the discovery application)
Judgment:
28 February 2014
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on discovery application
[1] This judgment is in relation to a discovery application.
WALKER v GIBBSTON WATER SERVICES LTD [2014] NZHC 330 [28 February 2014]
Background
[2] Those making the application are the respondents to an originating application brought by a liquidator. In this judgment I will refer to them as the applicants.
[3] The liquidator, Mr Walker, who brought the originating application is the respondent to this discovery application – I will refer to him as the liquidator. He is the liquidator of Gibbston Water Holdings Ltd (in liquidation) (Water Holdings).
[4] Until 24 August 2011, Water Holdings held all shares in another company, Gibbston Water Services Ltd (Water Services). Water Services in turn owned water rights which had been granted by the Otago Regional Council. On 24 August 2011, Water Holdings by its director, Kristina Buxton, transferred its shares in Water Services to Castlereagh Properties Ltd (Castlereagh) for $1. Castlereagh executed the transfer agreement through its director, Ian Hyndman. All those companies were associated in some way with David Henderson as part of or connected to his Property Ventures group. Ms Buxton and Mr Hyndman were respectively the partner and a business associate of Mr Henderson.
[5] Mr Walker upon the liquidation of Water Holdings enquired into the share transaction. He then gave notice to Ms Buxton and Mr Hyndman that he was avoiding the share transaction pursuant to s 141(1) Companies Act 1993.
[6] The history of these matters is more fully traversed in my earlier judgment in
this proceeding.1
Subsequently, on 23 December 2011, the liquidator appointed
Denis Marshall sole director of Water Services.
[7] The liquidator sought records relating to the water rights and transactions
affecting the water rights from Ms Buxton and Castlereagh.
[8] In the meantime, the liquidator had filed his first report of the liquidation of
Water Holdings and had dispensed with a meeting of creditors. Grant Smith of the fourth respondent, Canterbury Legal Services Ltd, gave responses on behalf of Ms
1 Walker v Gibbston Water Services Ltd [2013] NZHC 2933, particularly at [5] – [23].
Buxton and Castlereagh. He challenged the validity of the liquidator’s appointment, the purported avoidance of the 24 August 2011 transaction, and the liquidator’s failure to recognise Canterbury Legal Services Ltd as a creditor of Water Holdings. (Canterbury Legal Services Ltd had acted for Water Holdings and Water Services on the 24 August 2011 transaction).
[9] The liquidator made his application for directions.
[10] Upon the agreement of the parties, the Court initially in late-2013 dealt with only some of the issues raised, answering a series of questions which (depending upon the answers) might have cut across the need for directions on other issues. The questions dealt with were:2
A: Was the liquidation of Water Holdings valid?
(i) Was RFD Investments Ltd the shareholder of Water Holdings at the time of a shareholders’ resolution to place Water Holdings in liquidation?
(ii) Did the receivers of RFD validly exercise a right over the
Water Holdings shares when making the resolution? B: If the liquidation of Water Holdings was valid:
(i) Was Canterbury Legal Services Ltd’s fee note to Water Holdings for legal services on the transfer of Water Services’ shares from Water Holdings to Castlereagh Properties Ltd valid?
(ii) If so, should the liquidator have called a creditors’ meeting on the appointment and/or is he compelled to call a meeting now at the request of CLS?
[11] By judgment dated 7 November 2013,3 I held that the liquidation of Water Holdings was valid, that the liquidator had been justified in not accepting the proof of debts of Canterbury Legal Services Ltd and that the liquidator had validly
dispensed with the holding of a meeting of creditors of Water Holdings.
[12] The remaining directions sought by the liquidator in his originating
application had been adjourned to a hearing on 26 March 2014.
2 At [4].
3 Walker v Gibbston Water Services Ltd [2013] NZHC 2933.
[13] Through the remaining part of the originating application, the liquidator seeks directions:
1.1Confirming the decision of the liquidator to void the sale and purchase agreement between Gibbston Water Holdings Limited (in liquidation) (GWHL) and Castlereagh Properties Limited (CPL) dated 24 August 2011 (the sale of shares).
1.2Directing that GWHL is 100% shareholder of Gibbston Water Services Limited (GWSL) with the share register of GWSL to be updated to record this.
1.3That the respondents provide all records, documentation and information in their possession or control that relate to the affairs of GWHL and/or relate to any transactions pertaining to the granting of a security interest over the water rights of GWSL and any underlying obligation and debts of GWSL.
1.4Confirming that Denis William Anson Marshall was validly appointed as sole director of GWSL by the liquidator on 23
December 2011.
[14] In the meantime, but not relevantly to this application, Canterbury Legal Services Ltd has filed an appeal against that part of the judgment concerning its proof of debt and the creditors’ meeting for Water Holdings.
[15] In the meantime, the parties had completed their evidence (by affidavit) for the hearing of the remaining issues in the originating application. In December 2013 a hearing date was allocated namely 26 March 2014.
The applicants apply for discovery
[16] The applicants then applied for discovery of the three categories of documents as follows:
(a) All communications and documents (electronic or in writing) between Mr Robert Bruce Walker (and his staff or agents) and any persons having an interest or purported interest in the Gibbston Valley and/ or in relation to the potable water scheme or shareholding or directorship of Gibbston Water Holdings Ltd or Gibbston Water Services Ltd, including:
(i) Dennis Marshall;
(ii) Grahame Thorne, Richard Guthrey/Remarkable Wines Ltd, Tim Edney, Fraser Skinner;
(iii) Any receiver, mortgagee or representative of a mortgagee including Simon Thorn formerly of Grant Thornton, and Graeme Reid of Canterbury Mortgage Trust; and
(iv) Any local territorial or government authority.
(b) All communications and documents (electronic or in writing) between Mr Robert Bruce Walker (and his staff or agents) and any person or organisation regarding any issue in this litigation outside of communications between the parties and/or their legal advisers, including communications with the media or Press and Garry Holden.
(c) All communications and documents (electronic or in writing) between Mr Denis Marshall and any persons having an interest or purported interest in the Gibbston Valley and/ or in relation to the potable water scheme or shareholding or directorship of Gibbston Water Holdings Ltd or Gibbston Water Services Ltd, including:
(i) Grahame Thorne, Richard Guthrey/Remarkable Wines Ltd, Tim Edney, Fraser Skinner;
(i) Any receiver, mortgagee or representative of a mortgagee including Simon Thorn formerly of Grant Thornton, and Graeme Reid of Canterbury Mortgage Trust; and
(ii) Any local territorial or government authority.
[17] The applicants as the grounds of their application stated the documents sought are relevant to:
(a) The applicants’ case that the liquidator is not acting independently;
(b) The applicants’ case that the liquidator is acting ultra vires and/or in bad faith;
(c) The applicants’ case that Mr Marshall was invalidly appointed director of Water Services and was acting in concert with Mr Walker for his own personal gain and in bad faith;
(d) The liquidator’s case that Mr Marshall represents other land owners in the Gibbston Valley;
(e) The liquidator’s evidence that there are some creditors of Water
Holdings.
[18] The applicants’ application was supported by an affidavit from Mr Hyndman. [19] The liquidator filed a notice of opposition and evidence.
The applicants informally apply for an order removing Mr Walker as liquidator of Water Holdings
[20] Shortly after Mr Walker filed his opposition to the discovery application, the applicants filed a document which was expressed to be their notice of opposition to Mr Walker’s amended application for directions. As such, that document will fall for consideration at the hearing of the originating application scheduled for late-March.
[21] However, towards the end of the applicants “notice of opposition” there was a paragraph in which the applicants set out three sets of orders they were seeking in addition to the dismissal of the originating application. The three orders sought were:
(a) The removal of Mr Walker as liquidator of Water Holdings and replacement with a new independent liquidator;
(b) An order to the (new) liquidator of Water Holdings to call a meeting of creditors, with Canterbury Legal Services Ltd to be recognised as a creditor of Water Holdings including for voting purposes;
(c) A declaration that the Companies Office records in respect of the director and shareholder of Water Services are confirmed as correct.
[22] I am not required in this judgment to consider the applicants’ informal request for such orders.
[23] Mr Moss recognised at the beginning of the hearing before me that the orders sought were by way of supervision of a liquidation under s 284 Companies Act 1993. Mr Moss conceded that as such the applicants would be required by s 284(1) of the Act to obtain the leave of the Court and to satisfy the Court in that context that they came within one of the identified categories of person with standing.
[24] Mr Moss conceded that it would be inappropriate for him to expect the liquidator to meet an informal application for leave at the hearing of the discovery application and that it would be equally inappropriate to ask the Court to proceed on such an informal approach.
[25] Accordingly, I disregard the informal application for the orders summarised at [21] above.
[26] Accordingly the discovery application falls to be considered solely by reference to the liquidator’s application for directions and not with any regard to a possible application under s 284 Companies Act being contemplated by the applicants.
The scope of the discovery sought by the applicants
[27] Mr Sullivan, for the liquidator, submitted that the relevance of most of the documents sought in the discovery application would be to the applicants’ intended s
284 application (for replacement of the liquidator) as the documents are said to be relevant to matters such as improper purpose, ultra vires or bad faith conduct and
personal gain on the part of the liquidator. Once the applicants failed in their belated attempt to introduce into the March hearing the issue of the liquidator’s removal, the discovery sought by the applicants was in Mr Sullivan’s submission not justifiable.
[28] Mr Sullivan submitted that the proceeding as it remains and the orders which are sought relate to a very short time period in which the shares of Water Services were transferred out of Water Holdings to another entity associated with Mr Henderson’s interest.
[29] I accept the broad thrust of Mr Sullivan’s submissions.
[30] The directions sought by the liquidator in relation to the shareholding and directorship of Water Services, the validity of the liquidator’s decision to avoid the August 2011 share transaction and the liquidator’s requirement for the production of records relating to Water Holdings by their nature involve relatively specific considerations. Their determination does not call for anything approaching the broad ranging investigation into the liquidator’s motivations and good faith to which the applicants substantially relate their request for discovery. If and when the applicants bring an application for removal of the liquidator based on bad faith or otherwise, such issues will be in play and a more broad-ranging discovery may be appropriate. The parties and the Court are not at that point – the issues raised by the remaining directions sought by the liquidator are more narrowly focused and specific.
The Court’s approach to discovery
[31] The applicants invoke r 8.5(1) High Court Rules which provides for a Judge to make an order for discovery. They rely also on the concept of tailored discovery under rr 8.8 and 8.9.
[32] However, r 8.5(1) expressly empowers a Judge not to make an order for discovery where the Judge considers that the proceeding can be justly disposed of without any discovery.
[33] Specifically in the context of proceedings commenced by originating summons Duffy J observed in Katavich v Meltzer:4
… an examination of the relevant case law reveals that there is reluctance to order discovery, except in a narrow band of marginal cases where the Court has genuine difficulty in determining whether a party has made out its case, and where there is substantial reason to believe that discovery would or might well assist that determination…
[34] I view that approach as applicable in this case.
The subject matter of the liquidator’s applications for hearing
[35] I have set out (at [13]) the four substantive applications which remain for hearing in March.
[36] I will briefly re-state the subject matter of those four applications as it is to that subject matter that the applicants must tie their arguments for orders of discovery. The subject matter of each application is –
(a) The correctness of the liquidator’s decision to avoid the August 2011 share transaction;
(b) The identity of Water Holdings as the shareholder of Water Services;
(c) The liquidator’s requirement that the applicants produce their records in relation to –
• The affairs of Water Holdings
• The granting of a security interest over the Water Services water rights (including any underlying obligation and debts of Water Services in that regard)
(d) The validity of the appointment of Denis Marshall as director of
Water Services.
The discovery sought by the applicants
[37] I have set out at [16] the three categories of discovery sought by the applicants. Summarised they cover:
(a) The liquidator’s communications with people interested in Gibbston
Valley and the water scheme;
(b) The liquidator’s communications with people regarding any issue in this litigation;
(c) Mr Marshall’s communications with people having an interest in the
Gibbston Valley or the water scheme.
Mr Marshall’s communications
[38] For convenience, I dealt with this third category of the discovery request first.
[39] Mr Moss placed reliance on the decision of Duffy J in Katavich v Meltzer.5
Mr Moss noted that although her Honour had dismissed the application for discovery in relation to three categories of documents relating to investigations of the liquidators (on the basis that they would not have assisted Mrs Katavich’s case concerning breach of the liquidator’s duties), her Honour nevertheless granted an order for discovery in relation to one category of documents. Those were the invoices of the liquidators before and after liquidation and other documents showing how, when and by whom payments were made. Those documents were found to go to the issue of whether the liquidators had a conflict and were in receipt of the
preferential payment.
[40] Katavich v Meltzer involved a discovery application in a materially different situation. The Court was dealing with the application of Mrs Katavich (a creditor) to have the liquidators of Blackball Kitchens Ltd removed and replaced. When Duffy J, having restated the general reluctance of the Court to grant orders for discovery on originating applications, granted discovery in relation to the invoices, she did so on
the basis that those documents were relevant to whether the liquidator had been acting independently, a matter directly in question in Mrs Katavich’s application for the liquidator’s removal.6
[41] In this case there is, for the reasons I have discussed, no application before the Court for the removal of Mr Walker as liquidator of Water Holdings, despite the fact that the applicants’ notice of opposition in some way sought to introduce such an issue.
[42] The issue in relation to the appointment of Mr Marshall as director of Water Services was that raised by the liquidator in his originating application and is essentially one part of a two-part question – the first question being whether Water Holdings is the sole shareholder of Water Services and the second question being whether Mr Marshall (therefore) was validly appointed by Water Holdings to be the director of Water Services.
[43] The issue raised by the liquidator is an issue as to the technical requirements in relation to how shareholdings are constituted for the purposes of the Companies Act and as to whether Water Holdings on 23 December 2011 had the power of appointment of directors of Water Services.
[44] The correspondence of Mr Marshall with other people will not inform the
Court’s decision on those questions.
[45] It follows that it is appropriate to refuse the application for discovery of Mr
Marshall’s documents on this basis alone.
[46] There is, however, a further reason in my judgment why the application in relation to Mr Marshall’s documents should be dismissed. The present application is that of Mr Walker as liquidator of Gibbston Water Holdings Ltd. An order in relation to Mr Marshall’s documents should not be addressed to Mr Walker. But the application itself was addressed only to Mr Walker (and the Registrar). Any order against Mr Marshall would be an order against a non-party as covered by r 8.21 High
Court Rules. The applicants have not proceeded on notice to the non-party as required by r 8.21(3), which is a mandatory requirement.
[47] I would therefore deny the application on this basis also. To some extent, the fact that the requested order would have been made against a non-party who would have been entitled to have been heard on the interlocutory application reinforces the extent to which the documents sought are at some remove from the issues in fact raised by Mr Walker’s applications.
The remaining categories of discovery
[48] This leaves for consideration two categories of requested discovery, being:
• the liquidator’s communications with people with an interest in the
Gibbston Valley or the water scheme; and
• the liquidator’s communications concerning any issue in this litigation. The full extent of the requested orders is as set out in [10]A and B above. Mr Moss’s
written synopsis of submissions, prepared at a time when he was expecting to be able to be able to pursue in the context of the hearing of the liquidator’s applications a cross-application for removal of the liquidator, placed a heavy emphasis on the issue of Mr Walker’s independence.
[49] Mr Moss likened the applicants’ situation to that of Mrs Katavich in Katavich v Meltzer. Mr Moss stated that the documents sought were plainly material to the issue of whether or not Mr Walker is acting properly and should be replaced. He rejected the suggestion of counsel for the liquidator that the discovery was essentially being sought as part of a collateral attack on the liquidator. Mr Moss emphasised that Mr Walker is a liquidator, must act and must be seen to act independently.
[50] Mr Moss related the categories of documents sought from the liquidator to the first of the two categories he had earlier identified, namely information relating to Mr Walker’s intentions and the purpose of liquidating Water Holdings.
[51] Similarly, Mr Moss referred to the people identified as the other parties to communications in the discovery application suggesting that it would be a relevant and fruitful exercise for the Court to enquire into the liquidator’s communications with those people who had various interests in the Gibbston region. In his synopsis, Mr Moss submitted that the correspondence leading up to the appointment of Mr Walker as liquidator and subsequent to his appointment will go to the issue of Mr Walker’s intentions and independence.
[52] Mr Moss’s repeated reference to independence underscores the extent to which the removal of the liquidator appears to be at the heart of the respondent’s concerns. It may be, as in Katavich v Meltzer, that if and when the applicants make an application for removal of a liquidator the Court will favourably consider an application for discovery of some documents in the categories sought by the applicants.
[53] Once the concept of removal of the liquidator is removed from consideration in this proceeding, I am not satisfied that there is any demonstrated need for discovery of any of the categories of the liquidator’s documents which are sought by the applicants.
[54] The constitutional issues involved in the two issues as to the shareholding of Water Services and as to the process of appointing a director of Water Services will not turn on whether Mr Walker was otherwise acting independently or not. If the Court finds that the appropriate constitutional position had been reached then validity will be established. In short, these are technical issues not turning on the applicants’ or indeed the Courts’ assessment of Mr Walker’s independence.
[55] Similarly, the Court’s decision on whether the August 2011 share transaction has been correctly avoided will turn on an objective assessment of the circumstances of that transaction from the perspective of the interests of the creditors of Water Holdings. The decision on whether to seek to avoid the transaction occurred within a short period as it appropriately should have. Discovery of correspondence with a substantial number of people over a substantial period both before and after the
decision to avoid is not going to usefully inform the Court as to the appropriateness of the decision to avoid.
[56] The final request to which discovery might be related is the liquidator’s decision to require the applicants to provide their records in relation to Water Holdings and the Water Services’ security interests (item 1.3 of the originating application).7
[57] Again, the Court’s focus must be on whether it is appropriate for a liquidator to request such records given the interests of the creditors of Water Holdings and the subject matter of the records sought. The correspondence which the liquidator may have had with other people will not usefully inform a decision on that matter.
[58] I therefore conclude that the applicants have not demonstrated the relevance of the documents requested to the issues actually before the Court. Put another way, I am not satisfied that the discovery will assist the determination of the remaining aspects of the originating application.
[59] Even had the applicants established a marginal relevance to some of the documents requested, the requirement of proportionality of discovery under r 8.2
High Court Rules would not be met by an order for the wide-ranging discovery sought by the applicants. The reality is that they wish to track through the liquidator’s dealings with a great many people in order, as their counsel puts it, to establish that the liquidator has not been acting independently. Given that the removal of the liquidator is not before the Court on any application, I infer that the applicants upon finding some document or documents that suggest a lack of independence would then contend that that lack of independence should cut across the Court’s otherwise favourable adjudication on the liquidator’s four applications. The applicants have not satisfied me that any such argument based on a lack of independence could probatively affect an otherwise clear conclusion of the Court on the validity of the liquidator’s actions or decisions in the four matters before the
Court.
7 Above at [13].
[60] The applicants’ interlocutory application should be dismissed in its entirety.
Costs
[61] Counsel accepted that costs should follow the event on a 2B basis.
Orders
[62] I order:
(a) The interlocutory application of the applicants dated 20 December
2013 is dismissed;
(b) The applicants jointly and severally are to pay the respondents’ costs of the application on a 2B basis together with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Solicitors:
DLA Phillips Fox, Wellington
J Moss, Barrister, Christchurch
3