Worksafe New Zealand v Riverland Adventures Limited (in liquidation)
[2014] NZHC 1350
•13 June 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1274 [2014] NZHC 1350
UNDER s248(1)(c)(i) of the Companies Act 1993 BETWEEN
WORKSAFE NEW ZEALAND Applicant
AND
RIVERLAND ADVENTURES LIMITED (In liquidation)
Respondent
Hearing: 13 June 2014 Appearances:
R E Savage for the applicant
P White for the respondentJudgment:
13 June 2014
ORAL JUDGMENT OF THOMAS J
Solicitors:
Meredith Connell, Auckland
Harrison Stone, Auckland
WORKSAFE NEW ZEALAND v RIVERLAND ADVENTURES LIMITED (In liquidation) [2014] NZHC 1350 [13 June 2014]
[1] The applicant, Worksafe New Zealand, has applied for leave pursuant to s
248(1)(c)(i) of the Companies Act 1993 to continue legal proceedings against the respondent, Riverland Adventures Limited (in liquidation) (Riverland). Riverland opposes the application.
Background
[2] Proceedings were commenced against Riverland on 11 February 2013 under the Health and Safety in Employment Act 1992 (the Act). Riverland was charged on
11 February 2013 under ss 16(2)(b)(i) and 50(1)(a) of the Act for failing to take all practicable steps to ensure that hazards that arose at a place of work did not harm Chelsey Lee Callaghan.
[3] Riverland entered a not guilty plea to the charge on 3 April 2013. A status hearing was held on 24 April 2013 and a case management conference on
23 May 2013. Riverland raised the issue as to whether it was a person who controlled the place of work as alleged in the charge. On that point some clarity is required as to the place of work alleged, whether it was Klondyke Road, Tuakau, where the accident occurred, or the quad bike ridden by Ms Callaghan on Klondyke Road. The issue, that is, whether Riverland controlled the place of work, was to be addressed as a preliminary point and a hearing date of the 16 – 19 December 2013 was fixed. As I understand it, Riverland applied under the Summary Proceedings Act 1957 for a case stated to the High Court but the District Court determined that, as there was no agreement regarding relevant facts, the defended hearing itself would complete that task.
[4] On 25 November 2013 the applicant advised the Court that the Crown had determined not to proceed with a charge of manslaughter against a director of Riverland and the current proceedings could continue.
[5] Counsel for Riverland sought an adjournment of the hearing scheduled for 16
– 19 December 2013. That was granted. At this stage it seems that the District Court determined that there was no jurisdiction to conduct a preliminary hearing and the issue as to control of a place of work would be addressed at the full hearing.
[6] A defended hearing for nine days commencing on 8 July 2014 in the
Manukau District Court has now been scheduled.
[7] On 1 May 2014, 16 months after the charge was laid, Riverland was placed into liquidation.
Summary of facts
[8] Riverland operated a small adventure tourism company that predominantly offered quad bike adventure tours. On 11 October 2012 Chelsey Callaghan paid to take part in a two and a half hour quad bike tour. Towards the end of the tour she lost control of the quad bike and collided with a dirt bank, resulting in her bike flipping. She suffered traumatic head injuries and never regained consciousness. Life support was turned off on 19 October 2012 and she died the following day.
[9] Riverland is charged with failure to take all practicable steps to ensure that the use of the quad bike did not harm Ms Callaghan, the failure to take those practicable steps being that insufficient training was provided; the proper helmet was not provided; the quad bike used by Ms Callaghan was mechanically defective and had not been properly maintained; Riverland did not have an emergency plan in place to deal with accidents; and supervision was inadequate. Those are the allegations.
[10] The maximum penalty in respect of such an offence is a fine not exceeding
$250,000.
The opposition
[11] The liquidators have declined to consent to the continuation of the legal proceedings. Riverland opposes the application on grounds that the company is insolvent with minimal assets worth an estimated $15 - $20,000. Creditors are likely to receive a dividend less than 12 cents in the dollar on known claims. The liquidators have refused to consent on the basis they are obliged to act conservatively and in the best interests of creditors. Creditors’ claims are due today. It seems there is an offer to buy the assets of the company. The position of the liquidators is that
the company could be efficiently wound up within a very short space of time. There is a concern that the prosecution will delay the winding up of the company and reduce the pool of assets available. As a consequence the creditors’ return will be adversely affected. Mr White emphasises the public interest in the prompt and efficient winding up of companies and finality to creditors’ claims.
[12] The liquidators are concerned that, pursuant to ss 303 and 308 of the Companies Act, any fine or penalty imposed on the company may have priority status over the company’s creditors. Mr White suggests there could be a further delay if the liquidators have to consider applying to the Court for remission of any fine that might be imposed.
[13] Riverland’s liquidators are also concerned about the ability of Riverland adequately to defend itself. Mr Kukatai, director of the company, was the company representative involved in the events at issue and has the knowledge of the facts. He, it seems, is in some financial difficulty and cannot afford to take time out of his employment to assist with the company’s defence. In the liquidators’ opinion, without his assistance, there would be an increased chance of a guilty verdict.
[14] Counsel for Riverland says that, if the matter goes to trial, the fundamental issue will be whether Riverland was in control of the place of work. He notes, however, there are a number of factual issues in dispute and expert evidence will be called. Riverland intends to call its own quad bike expert and its own mechanical expert who has examined the bike at issue. There will be, it seems, approximately
14 witnesses, 10 for the prosecution and 10 for the defence, including five experts.
[15] Mr White emphasises that the company will be wound up in any event. In his submission the costs and the resources associated with a nine day fixture in a busy District Court are not warranted.
Analysis
[16] Section 248 of the Companies Act gives the Court discretion as to whether a legal proceeding against a company in liquidation continues or not.
[17] I have been referred to other decisions under this section and the factors taken into account by the Court. In civil proceedings those factors primarily focus on the need to preserve the assets of the company and the principle of equity between creditors. The considerations are somewhat different when it comes to criminal proceedings. Counsel have been able to locate one case only, McPhail v Durbridge
Developments Ltd (in liq).1 That case concerned an application to commence
criminal proceedings for various alleged breaches of the Resource Management Act 1991 and in particular alleged discharge of contaminants into a creek. Leave was refused in the circumstances of that case where there had been a significant delay in applying for leave, there was no good reason to proceed as the company had no remaining assets and a director of the company was also facing prosecution. There is no particular guidance in that case as to the weight to be afforded to the various factors. Each case needs to be considered in the particular circumstances pertaining to that case.
[18] Mr White in his written submissions accepts that a criminal prosecution by a regulatory agency has a different dimension involving the enforcement of public rights and duties rather than a civil right.
[19] In this case the charge was laid over 16 months ago in February 2013. There is nothing before me to suggest that the applicant has been responsible for delaying proceedings to the prejudice of Riverland.
[20] The allegations are serious, in the circumstances of the case. The incident at issue resulted in a death and that is relevant to determine culpability in the Crown’s submission. The issue of safety in the New Zealand adventure tourism industry is of considerable public interest. Likewise is the issue of quad bike safety.
[21] The applicant points to the Solicitor General’s Prosecution Guidelines as
confirmation that it is not simply at the time of laying of the charges that the case is assessed. That is an ongoing obligation.
1 McPhail v Durbridge Developments Ltd (in liq) (1998) 8 NZCLC 261,610 (HC).
[22] In this case the applicant is unable to prosecute the director as such a prosecution is outside the time limitations of the Act. That time limit expired in April 2013, well before Riverland was placed into liquidation.
[23] In Mr White’s submission the applicant should have charged the director under the Act. He said, in that case, there would have been no defence, for example, to any charge concerning the adequacy of the helmet worn by Ms Callaghan.
[24] Mr White refers to the fact that the Crown Solicitor reviewed the manslaughter charge laid against Mr Kukatai and concluded there was insufficient evidence of negligence on his part which would establish a causal connection with the death of Ms Callaghan. As Brewer J noted when he discharged Mr Kukatai:
The degree of negligence necessary to found a criminal charge is very high – goes well beyond mere carelessness – and, even if there is such negligence, it needs to be directly causative of the death.
[25] The charge against Mr Kukatai was an omission based charge where the “but for” test is applicable, requiring a major departure from the standard of care required.
[26] Simply because the Crown has elected not to proceed with the manslaughter charge, that does not mean there is not a prima facie case against Riverland under the Act.
[27] The inability for a meaningful financial penalty to be imposed if there is a conviction is, in the circumstances of this case, not relevant. The point of the prosecution is not to obtain a monetary outcome. The ability of Riverland to pay any penalty or fine, were there to be a guilty verdict, is a matter to be taken into account on sentencing if the matter gets to that stage. It is not relevant to the decision to approve the application or not.
[28] I understand there is unlikely to be any issue as to reparation given the personal circumstances of Ms Callaghan. The Crown does not, however, wish to rule that out.
[29] Similar considerations apply to the allegation that a fine would advantage the Crown over other creditors. Whether or not a fine is imposed and the amount of the fine is not relevant to a decision as to whether a criminal prosecution should continue. I do not accept that there will be a substantial delay, if there is a guilty verdict, because sentencing can take place within a matter of weeks.
[30] Mr White submits that there are three possible outcomes: (1) a verdict of not guilty;
(2) a verdict of guilty leading to a fine; and
(3)a verdict of guilty where, in his submission, there will be a discharge and no fine imposed, but I consider the likelihood is that there would be a conviction but no fine imposed.
[31] Mr White says the reality is the company will be wound up in any event. There is no prospect of a return to trade. In his submission, there will be no deterrence other than general deterrence because there could be no greater deterrence than the fact that the company is to be wound up.
[32] In my analysis however a conviction achieves the principles of deterrence and denunciation if the matter gets to that stage. That is relevant particularly when considering the real issue in this case which is whether there is a public interest in the charge continuing.
[33] As I have noted above, the allegations are serious. They involve the safety of equipment hired for use. A fatality ensued. The fact that the offence is fineable only does not mean the charge is not serious. The issue of whether practicable steps were taken is of significant public interest. I accept there might well be expert evidence required and that is as it should be. It is in the interest of the public for the question of whether there is any failure in the standard to be answered and the extent of those failures, if any, to be made clear.
[34] I acknowledge the real issue as to whether Riverland was in control of the place of work. Mr White has referred to the Court of Appeal decision in Department of Labour v Diveco Ltd.2 The legislation has been amended since that date and I refer in particular to s 2(3) of the Act and the 2002 amendment.3 It must, of course, be absolutely clarified prior to any hearing exactly what is the place of work alleged. It
is, however, a matter of some public significance as to whether an operator of this type of business can be prosecuted under the Act in these circumstances.
[35] In any event, in light of the seriousness of the allegations, the fact that a fatality occurred and the public interest, any complexity in legal proceedings does not outweigh the importance of continuing with the charge. In that regard, I note that the defence costs of Riverland are being met by insurance.
[36] The ability of Mr Kukatai to assist in preparing the defence is likewise an irrelevant consideration. I am not aware of any principle to the effect that criminal proceedings are not laid or pursued because a defendant is in financial difficulty and cannot afford to take time off work.
[37] Finally, and without wanting to minimise their concerns, the prejudice, if any, to creditors does not outweigh the public interest in continuing with the charge. The hearing is due to commence shortly and there will be a relatively small delay involved in the winding up of the company.
[38] The applicant has satisfied the onus on it to show that the granting of leave is justified in the circumstances. There is good reason to proceed with the charge. For
those reasons the application is granted. In the circumstances, costs are to lie.
Thomas J
2 Department of Labour v Diveco Ltd (2004) 2 NZELR 72 (CA).
3 Health and Safety in Employment Amendment Act 2002.
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