Weaver v HML Nominees Limited
[2015] NZHC 514
•17 March 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3130 [2015] NZHC 514
BETWEEN ANN-LOUISE EVELYN CHANTAL WEAVER
and GRAHAM WILLIAM ANDERSON
Plaintiffs
AND
HML NOMINEES LIMITED First Defendant
HELEN MARTHA MOORE Second Defendant
Continued…..
Hearing: 17 March 2015 Counsel
D J Barr and S Meares for Third Defendant
V Toon (liquidator) for First and Tenth Third PartyJudgment:
17 March 2015
ORAL JUDGMENT OF KATZ J
[Application for leave to continue proceedings against party in liquidation]
Solicitors: Rainey Law, Auckland Simpson Grierson, Auckland Wilson Harle, Auckland
Rice & Co, Auckland
Counsel: D R Bigio, Shortland Chambers, Auckland
Copy to: V Toon, Corporate Restructuring Limited, Auckland
WEAVER & ANDERSON v HML NOMINEES LIMITED & ORS [2015] NZHC 514 [17 March 2015]
AUCKLAND COUNCIL Third Defendant STONESCAPES LIMITED First Third Party
FLEXCO (NZ) LIMITED
Second Third Party
ASHTON MITCHELL ARCHITECTS LIMITED (DISCONTINUED)
Third Third Party
BUILDING CODE CONSULTANTS LIMITED (DISCONTINUED)
Fourth Third Party
KELVIN LEONARD WALLS (DISCONTINUED)
Fifth Third Party
COOPER ROOFING COMPANY (DISCONTINUED)
Sixth Third Party
FLEXCO (NZ) LIMITED
Seventh Third Party
MOHAN ROOFING SERVICES LIMITED
Eighth Third Party
POINT CONSTRUCTION LIMITED
Ninth Third Party STONESCAPES LIMITED Tenth Third Party
JACKSON CLAPPERTON AND PARTNERS LIMITED (DISCONTINUED)
Eleventh Third Party
Introduction
[1] Ann-Louise Weaver and Graham Anderson own a property in St Mary’s Bay, Auckland. In this proceeding they seek to recover losses they have allegedly suffered as a result of the failure of remedial work that was undertaken by the previous owner of the property, HML Nominees Limited, in 2005 and 2006. That remedial work was undertaken pursuant to a building consent issued by Auckland Council, the third defendant.
[2] The Council has joined a number of third parties to the proceedings including Stonescapes Limited (“Stonescapes”). Stonescapes installed stone cladding at the dwelling as part of the remedial work that was undertaken during 2005 and 2006.
[3] On Friday 6 March 2015 Stonescapes went into liquidation. This trial was scheduled to commence (and did commence) the following Monday, 9 March 2015. At the outset of the hearing the Council sought the court’s leave to continue its claim against Stonescapes, pursuant to s 248 of the Companies Act 1993. I granted leave on an interim basis, pending further argument of the issue and the provision of further information to the court regarding Stonescapes’ insurance position. That information has now been provided.
Further background
[4] The Council’s third party claim against Stonescapes was commenced on
20 December 2013. Stonescapes did not file a statement of defence or take any steps in the proceedings until late 2014. On 28 January 2015 Stonescapes served a brief of evidence of Mark Jenkins, a director and shareholder of Stonescapes. Stonescapes also sought leave to file a statement of defence at the pre-trial conference. Leave was opposed by other parties. Hinton J recorded in her pre-trial teleconference minute that:
Stonescapes will need to serve the parties with the proposed statement of defence as soon as possible and, if leave is still opposed, make a formal application for leave properly substantiated by a memorandum and/or affidavit evidence. That application will need to be placed in the next available duty Judge List after it is filed, to be ruled upon. I leave it to counsel to arrange that if necessary.
[5] Stonescapes filed a statement of defence to the Council’s claim on
20 February 2015. It failed, however, to seek leave to file that document.
[6] On 4 March 2015 Stonescapes filed a notice of change of representation, stating that Stonescapes intended to act in person but was not in a position to attend the hearing other than to give evidence. It advised that it continues to deny liability.
[7] At 1:00 pm on Friday 6 March 2015, Stonescapes was placed in liquidation. Ms Victoria Toon of Corporate Restructuring Limited was appointed as liquidator. The Council’s solicitor wrote to the liquidator that afternoon, requesting her consent to the Council continuing its claim against Stonescapes pursuant to s 248 of the Companies Act 1993. The liquidator responded the same day, advising that she did not consent to the legal proceeding continuing against the company.
The Council’s application
[8] The Council accordingly filed an application in these proceedings for leave to continue its claim against Stonescapes. The grounds for the Council’s application are that:
(a) the claim against Stonescapes is sustainable;
(b)Stonescapes installed the stone cladding which is at issue in this proceeding;
(c) Stonescapes has not filed a statement of defence;
(d)the assets of the company will not be dissipated in wasteful litigation as Stonescapes was not intending to be represented in the proceedings in any event;
(e) it is more convenient and efficient to determine the claim in the proceedings and the claim against Stonescapes is not one that can be easily dealt with in the liquidation given that:
(i)the Council’s claim against Stonescapes is dependent on the success of the plaintiffs’ claim against the Council;
(ii)the first and second defendants in the proceeding also have a third party claim against Stonescapes; and
(iii)any liabilities Stonescapes has in the proceedings may be subject to rights of contribution between themselves, the second/seventh third party (Flexco (NZ) Limited) and the ninth third party (Point Construction Limited);
(f) the proceedings will not produce a comparative advantage to the
Council in the liquidation;
(g) Stonescapes may have insurance cover for this matter;
(h)absent evidence to the contrary, it could be inferred that this liquidation was commenced in order to defeat these proceedings;
(i) it is in the interests of justice to allow the claim to continue.
The liquidator’s position
[9] The liquidator has not given her consent to the proceedings continuing against Stonescapes. Her original understanding was that Stonescapes did not have any insurance cover. She has since been informed by Stonescapes’ former solicitors that there is a potentially relevant insurance policy, but that cover has been declined. Copies of the relevant documents have now been provided to the court.
[10] The liquidator advised that Mr Jenkins and his wife have sold their home to pay Inland Revenue debt. One of the company’s two employees has threatened legal action for his back pay and has refused to return the company’s vehicle until paid. The vehicle has been reported as stolen to the police.
[11] In such circumstances, Mr Jenkins found it untenable to continue the business and accordingly sought advice from Ms Toon. She advised that putting the company into liquidation was the correct course of action for a director in his situation, despite the fact that he felt strongly about defending the claim made against Stonescapes in these proceedings. The company cannot afford the legal costs of representation. Ms Toon also advised that if any action against Stonescapes were successful, then neither the company nor Mr Jenkins personally would be able to make payment of any damages awarded.
Legal principles
[12] Pursuant to s 248 of the Companies Act a person must not commence or continue legal proceedings against a company unless the liquidator agrees or the court orders otherwise. The liquidator has not agreed and accordingly the proceedings can only be continued with the court’s leave.
[13] The leading modern authority on applications for a grant of leave under s 248 is Fisher v Isbey, where Master Faire summarised the factors that the courts have taken into account in relation to the exercise of the discretion to allow proceedings to continue.1 His Honour summarised the relevant principles as follows:2
(a) The court has a discretion whether to grant leave. It is a cardinal principle that there must be equality amongst the various creditors, and the bringing of proceedings should not produce a comparative advantage to any particular creditor.
(b)The assets of a company should not be dissipated in wasteful litigation, particularly if there is a more convenient method for determining the claim. The onus is on the party seeking leave to satisfy the court that leave should be given.
(c) The court must determine whether it is appropriate for the creditors’
claims to be proved in the liquidation, or whether leave should be
1 Fisher v Isbey (1999) 13 PRNZ 182.
2 At [19] (citations omitted).
given to allow the claims to be established by way of civil proceedings.
[14] Further matters that have been identified as being potentially relevant to the exercise of the court’s discretion include:
(a) whether there has been delay by the applicant;3
(b) whether any proceedings, even if successful, are likely to be fruitless;4
(c) the amount and seriousness of the claim, the degree and complexity of legal and factual issues and, if the proceedings have already been commenced, the stage they have reached;5
(d)whether the company is a necessary party to proceedings against third parties.6
[15] The court must be satisfied that the proposed claim is not clearly unsustainable. The court should otherwise not examine the merits of the case.
[16] The key factor in favour of granting leave to the Council to continue the current proceedings is that the claim against Stonescapes is not one that can readily be dealt with in context of the liquidation. Indeed the liquidator quite properly acknowledged that in court today. This court is clearly the more appropriate forum for determination of the underlying legal rights and liabilities than the liquidation process.
[17] The current proceedings are set down for hearing for 12 days. The documentary evidence before the court is voluminous. There has also been
extensive oral evidence to date, including expert evidence. A number of further
3 Birchall v Project Works Construction Ltd (in liq) (2004) 9 NZCLC 263, 547 at [24].
4 Above at [24].
5 McPhail (t/a Leader Brand Produce) v Durbridge Development Ltd (in liq) (t/a Country Manor
Foods) (1998) 8 NZCLC 261,610 at 261,612; Johnson v CBD Real Estate Ltd (in liq) (1999)
14 PRNZ 320 at [13]; Body Corporate 81381 v Trebe NZ Ltd (in liq) HC Wellington CIV-2003-485-332, 13 May 2003 at [22].
6 McPhail v Durbridge Development Ltd above n 5 at 261,612.
witnesses are scheduled to give evidence over the next few days. The proceedings involve the plaintiffs, three defendants and four third parties. Claims against various other third parties have been discontinued.
[18] Determining the respective liability (if any) of the various defendants and third parties for the defects in the remediation work will be no easy task. The court, however, will be in a significantly better position to make that assessment than the liquidator of Stonescapes, who appears to have little or no funding and minimal information available to her regarding the allegedly defective building work that is the subject of the various claims and cross-claims.
[19] In such circumstances I accept the Council’s submission that the most appropriate forum for assessing the quantum of Stonescapes’ liability, if any, are the current proceedings. It is also relevant that the proceedings were at a very advanced stage when Stonescapes went into liquidation, on the eve of trial. Further, the Council’s claim against Stonescapes is inextricably linked to the plaintiffs’ claim against the Council, and is dependent on the success of that claim. Any liability Stonescapes has in the proceedings may also be subject to rights of contribution between various parties.
[20] The principle of equality amongst creditors will not be undermined by allowing the proceedings to continue against Stonescapes. The Council will need to claim alongside any other unsecured creditors in Stonescapes’ liquidation for the amount of any judgment. Stonescapes’ continued involvement in these proceedings will not result in the Council receiving any priority in the liquidation.
[21] Further, there is no risk that the assets of the company (which appear to be negligible) will be dissipated in wasteful litigation. Even prior to liquidation, Stonescapes advised the court that it was not intending to play an active part in the proceedings, other than Mr Jenkins giving evidence. He has now done that, having been called as a witness by the first and second defendants. Stonescapes has played no other role in the proceedings, which are now in their seventh day.
[22] Against these factors, the prospect that the proceedings against Stonescapes may well be fruitless is a matter that weighs against a grant of leave. Certainly, on the basis of the liquidator’s advice, the prospects of any recovery from the company appear to be remote. There is no affidavit evidence before me, however, as to the company’s financial position. It has only been in liquidation for a week or so. Although the prospects of recovery against the company appear to be weak, it would be premature at this stage to find that there are none.
[23] I also note that Stonescapes has an insurance policy which the Council believes may be available to meet all or part of its claim against Stonescapes. Mr Barr noted that insurance cover has been declined on the basis of a product exclusion clause. He referred me to several authorities which, the Council says, support a submission that cover was wrongfully declined. In my view, this is an issue that the Council should be entitled to explore further if it wishes. I would not be willing at this preliminary stage to conclude that there are no prospects of the Council ultimately succeeding in a claim against the insurer.
[24] For all of the reasons I have outlined, I have concluded that it is appropriate to grant leave to the Council to continue its proceeding against Stonescapes. I note for completeness that the second defendant did not seek leave to continue her separate third party claim against Stonescapes. That claim is accordingly stayed.
Result
[25] Leave is granted to the Council to continue its proceedings against
Stonescapes.
[26] The costs of the Council’s application are reserved.
Katz J
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