Yang v Bushpark Property Development Limited
[2013] NZHC 2996
•13 November 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-4823 [2013] NZHC 2996
BETWEEN PEI CHI YANG, HSIU MEI SU and LK TRUSTEE (NO 19) LIMITED
Plaintiffs
ANDBUSHPARK PROPERTY DEVELOPMENT LIMITED Defendant
Hearing: 5 November 2013
Counsel: GM Illingworth QC and AC McVinnie for plaintiffs
NH Malarao and RM Thompson for defendant
Judgment: 13 November 2013
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for leave to continue proceedings]
This judgment was delivered by me on 13 November 2013 at 12:30pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Loo & Koo, Auckland 1140
Meredith Connell, Auckland 1140
YANG v BUSHPARK PROPERTY DEVELOPMENT LIMITED [2013] NZHC 2996 [13 November 2013]
[1] The plaintiffs apply for leave to continue this proceeding pursuant to s 248(1)(c) of the Companies Act 1993.
[2] The general background is set out in [2] to [14] of my interim judgment on this application dated 30 October 2012 and will therefore not be repeated.
[3] In my judgment of 30 October 2012 I recorded the liquidators for the
defendant’s position at that time in [14], namely:
The liquidators’ position is that leave should not be given to continue the plaintiffs’ proceeding at this stage. What the plaintiffs should do is to file a proof of debt in respect of their claim.
[4] I recorded in [16] and [17] how the matter might proceed, namely:
[16] In the course of counsel’s helpful submissions I canvassed the possibility of my adjourning this application to enable the plaintiffs to file a proof of debt with the liquidators. In his affidavit in opposition, Mr Levin, one of the liquidators, deposed:
The liquidators have maintained that the filing of a proof of debt by the plaintiffs is an adequate means of proving their loss in this case.
[17] The claim is one for damages. The approach which a liquidator is authorised to follow in such case is set out in s 307 of the Companies Act 1993 which provides as follows:
307 Claim not of an ascertained amount
(1) If a claim is subject to a contingency, or is for damages, or, if for some other reason, the amount of the claim is not certain, the liquidator may—
(a) Make an estimate of the amount of the claim; or
(b) Refer the matter to the Court for a decision on the amount of the claim.
(2) On the application of the liquidator, or of a claimant who is aggrieved by an estimate made by the liquidator, the Court shall determine the amount of the claim as it sees fit.
[5] An agreed timetable for the filing of the proof of debt and its consideration was provided by counsel. I anticipated, as I recorded in the judgment, that the liquidators would give their decision by 5 December 2012. I adjourned the
application for a telephone conference on 18 December 2012 to review the position and, in particular, to see whether an order was required.
[6] The telephone conference with counsel was duly held on 18 December 2012. For the purposes of this judgment, the important points discussed were recorded in my minute of 18 December 2012 as follows:
[2] The liquidators’ position is that no final decision on the plaintiffs’
proof of debt will be made at this time.
[3] It is necessary that I allocate a fixture to complete the hearing of the application for leave. Up to 3 hours hearing time maximum is required. It will need to be a fixture before me. The Registry is asked to notify counsel of a suitable date for same.
[4] In my judgment I invited the parties to consider whether further evidence is required. Mr Illingworth QC accepts the matters of fact that are referred to in Mr Malarao’s memorandum to the court for today’s conference which, on its backing sheet, bears the date
17 December 2012. On that basis no direction for the filing of further affidavits is required.
[7] A fixture date was allocated. The matter did not proceed at that time. The reasons why, and the positions reached by counsel, were recorded in the second interim judgment which I have delivered on this application, dated 9 May 2012. For the reasons set out in that judgment the application was adjourned to a date to be fixed following the release of a decision from the Court of Appeal in relation to an appeal from a judgment delivered by Collins J on 14 May 2012. That is the judgment to which I made reference in my interim judgment of 30 October 2012 in [9], [10] and [11].
[8] Since my first interim judgment the following additional events have occurred:
(a) A proof of debt has been filed by the plaintiffs with the defendant’s
liquidators;
(b) The proof of debt has not been formally accepted by the liquidators;
(c) The liquidators have indicated that subject to verification of the actual amount of the proof of debt, the liquidators would accept the proof of debt on the basis that it was not set off against the sum ordered to be paid by the plaintiffs to the defendant in the judgment of Collins J;
(d)That last matter perhaps needs further clarification in that the liquidators accept the existing valuation of the property provided by the plaintiffs of $3,200,000. The importance of that is that is the starting benchmark for any assessment of damages that might be ordered arising out of non-compliance with the agreement, which I referred to in [4] and following of my interim judgment of 30 October
2012;
(e) The plaintiffs’ appeal in respect of the judgment of Collins J has been abandoned.
[9] There are two issues that require determination in the dispute between the
plaintiffs and the defendant and, in particular, the defendant’s liquidators. They are:
(a) What are the damages that are due to the plaintiffs arising out of the defendant’s failure to settle the contract? This is the issue that was to be resolved in the quantum hearing I ordered on 14 November 2008 and which had a fixture set for 7 May 2009. That fixture could not proceed for the reasons set out in [8] of my interim judgment of
30 October 2012 because the defendant company was placed into liquidation by order of the court on 27 March 2009, thus bringing into play s 248(1)(c) of the Companies Act 1993. Accordingly, the issue remains, at this time, unresolved. It has not been resolved using the proof of debt mechanism that was initially thought to be the appropriate place for that to happen and which was specifically supported by one of the liquidators, Mr Levin, as recorded in [16] of my judgment of 30 October 2012;
(b)Are the plaintiffs entitled to set off the damages due to them arising out of the defendant’s failure to settle the contract from the sum ordered to be paid in the judgment of Collins J, dated 14 May 2012 having regard to the provisions of s 310 of the Companies Act 1993?
[10] In my interim judgment of 30 October 2012, I set out the provisions of s 248(1)(c) of the Companies Act 1993 and therefore do not repeat them now. I also referred, at [15] to my judgment in Fisher v Isbey where I set out the factors which the court routinely takes into account when determining whether leave should be given pursuant to s 248(1)(c) of the Companies Act 1993.1 I adopt that summary for the purposes of this final judgment.
[11] With respect to the first issue. Although an opportunity has been given for the liquidators to finalise a quantum sum that has not yet occurred. There has been a significant concession by the acceptance of the valuation put forward by the plaintiffs as the starting point for the assessment of those damages. Both counsel accepted that the finalisation of the quantum matter would be a relatively straightforward matter. It may not even require evidence as it may be possible to agree on the figure. Adjustments for GST flowing from the sale and questions of interest were raised as matters that needed to be settled before the final figure could be agreed. I have already observed that an opportunity has been given to the liquidators to do this, but that has not yet occurred. On balance, therefore, there would seem to be a need to allow the plaintiffs to establish that figure by continuing this proceeding and proceeding with the quantum hearing. As I have mentioned, the quantum hearing would be a short matter. It is not expected to be an expensive exercise. This analysis follows the application of (d) in the summary which I provided in [15] of my interim judgment of 30 October 2012.
[12] However, before a final decision on this issue can be made I must address the specific arguments raised by Mr Malarao which apply to both issues that are raised
in [9] above.
1 Fisher v Isbey (1999) 13 PRNZ 182 (HC).
[13] On the second issue, Mr Malarao submitted that the plaintiffs should have raised the question of set off in the hearing before Collins J but did not.
[14] I note that the following passages appear in his Honour’s judgment.
[69] At no point did the vendors purport to treat the $345,000 as:
(1) a “setoff”. The vendors always regarded that sum as part of the deposit it had received on 26 February 2007 to which it had absolute entitlement; or as
(2) a payment in lieu of damages.
[70] In my respectful view the liquidators have endeavoured to construct responses to arguments that have not in fact been raised by the vendors in order to try and bring the events of 14 November 2008 within the definition of a “transaction”. In my assessment the liquidators’ second cause of action must fail because the relevant transactions occurred on 26 February 2007, well before Bushpark was insolvent and well before the period for voidable transactions commenced.
[15] Those observations were made in respect of a cause of action pleaded by the liquidators that there was an insolvent transaction involved. The cause of action was rejected by Collins J. The short point, however, is that his Honour did not rule on the question of set off. That issue was not one that he considered required determination, no doubt based on the matters set out in the pleadings before him. His judgment, therefore, does not resolve the second issue.
[16] The position, in summary, is that:
(a) There has been no determination of the damages that are due to the
plaintiffs arising out of the defendant’s failure to settle the contract;
(b)There has been no determination of the issue of whether or not the damages, when ascertained, are able to be set off in respect of the judgment sum ordered by Collins J in the judgment of 14 May 2012 and having regard to the provisions of s 310 of the Companies Act
1993.
[17] In the course of counsel’s submissions, I put to both counsel that the way forward, having regard to the outstanding issues, might be as follows:
(a) That the plaintiffs be granted leave to:
(i)Proceed with the quantum trial as contemplated by my judgment of 14 November 2008, conditional on the plaintiffs making application under s 284 of the Companies Act 1993 to reverse the decision of the liquidators in relation to set off; and
(ii)Make application to the court for an order reversing the liquidators’ decision that any damages which the court determines should be paid to the plaintiffs arising out of the defendant’s failure to settle the contract may not be set off from the judgment of Collins J of 14 May 2012;
(b) That the quantum trial and the application under s 284 of the
Companies Act 1993 be heard together.
[18] Mr Illingworth took instructions and advised that his clients would not oppose a conditional order on the terms that I have outlined in [17].
[19] Mr Malarao took instructions and advised that his client did not accept that a conditional order on the above terms was appropriate.
[20] Accordingly, it is necessary that I consider the submissions advanced by
Mr Malarao in opposition to the application for leave to continue the proceedings.
[21] Mr Malarao submitted that the plaintiffs’ application for leave to continue the proceeding was a collateral attack on a final judgment of the High Court. He submitted that the plaintiffs were seeking to achieve an outcome that they were not able to achieve in their defence of the proceedings which came before Collins J. That, he submitted, was to resist payment of the $345,000 which they were ordered to pay. He submitted that set off was very much in issue in the 2011 proceedings. He submitted that the doctrine of stare decisis and res judicata, and the related
principle of issue estoppel and the rule in Henderson v Henderson applied.2 He submitted that they should not be permitted to carry on the litigation when they should have raised the set off issue directly in the 2011 proceedings. Finally, he submitted that the traditional grounds for refusing leave applied in this case.
[22] I shall analyse each part of the opposition submissions that I have outlined in
[21].
[23] I deal with the question of whether there is a collateral attack on the judgment of Collins J. As I have already recorded, the judgment ordered a sum of money to be paid which was the balance of the deposit that had been retained by the plaintiffs following the defendant company’s default. Mr Illingworth submitted that the judgment was not challenged in any way by the plaintiffs. Even without that submission from him, I do not see how an application by the plaintiffs to continue a proceeding which was commenced prior to the proceeding determined by Collins J and which was the subject of a liability judgment before the proceedings before Collins J were filed could be regarded as a collateral attack on that judgment. For that reason, I reject that submission by Mr Malarao.
[24] The next submission that Mr Malarao raised was that set off was a matter which was before Collins J for consideration in the 2011 proceedings. Once again, the passages that I have referred to in [14] from his Honour’s judgment make it clear that the issue of set off was not a matter considered by his Honour. Mr Malarao referred extensively to the submissions and pleadings that had been filed in that proceeding. Be that as it may, what is clear is what the judge in his judgment determined was the position in relation to any potential set off claim. His determination was that the plaintiffs did not treat the $345,000 as a set off or as a payment in lieu of damages. The judgment is clear evidence that the issue of set off was not determined by the court.
[25] One of the essential elements before an estoppel plea can succeed is that the first decision is a determination of the same question that is sought to be raised in the
litigation in which the estoppel is raised.3 That element is not present in this case. I
reject this submission.
[26] The next issue that was raised by Mr Malarao was whether the estoppel principle otherwise referred to as the rule in Henderson v Henderson could be applied to the facts of this case.
[27] Neither counsel could find any case which comes close to the position that I am required to determine. It is significant, in my view, that the proceeding which is the subject of this application:
(a) Was commenced before the proceeding that was the subject of
Collins J’s judgment; and
(b)Was, itself, the subject of a liability judgment, again entered before the proceeding that was determined by Collins J was filed, let alone heard.
[28] It is perhaps unfortunate that the reason why the quantum trial did not proceed as ordered by me was not specifically advised to Collins J in the course of the hearing before him. There was one reason only why it did not proceed and that was the intervention of the liquidation of the defendant which in turn made applicable the provisions of s 248(1)(c) of the Companies Act 1993.
[29] Both counsel referred to the statement of principle described by Sir James
Wigram VC in Henderson v Henderson.4
[30] The form of abuse of process to which this principle applies was exhaustively examined in the leading judgment in the House of Lords in Johnson v Gore Wood & Co (a firm).5 Lord Bingham emphasised that the rule of law depends upon the
availability of courts to determine differences between litigants that they cannot
3 Laws of New Zealand Estoppel (online ed) at [17].
4 Above, n 2 at 114 to 115.
5 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL).
resolve. They are not to be denied the right to bring a genuine subject to litigation before the court without scrupulous examination.6
[31] Relevant to the exercise is always the question of whether the subject matter of the first litigation is so clearly covered by the matters sought to be raised in the second litigation that it would be an abuse to allow the matter to continue. One must always be alert to the possibility of the danger of shutting out a party from bringing forward a genuine subject of litigation. A reason for the principle includes the fact that if the matter is allowed to run, there is a risk of an inconsistent result arising out of the second proceeding.
[32] That does not arise in this case because the liquidators’ position, as I understand it, is not to deny the plaintiffs’ entitlement to damages for the breach of contract. The issue is whether the set off rule set out in s 310 of the Companies Act
1993 applies. Mr Illingworth, in my view, correctly submitted that the current proceedings with which I am dealing is not an ex post facto attempt to relitigate the issue of priority that was determined in the proceedings before Collins J. He further correctly submitted that the plaintiffs have already brought the issue of their entitlement to damages before the court in this proceeding and have obtained a liability judgment prior to the proceedings which were determined by Collins J even being filed.
[33] I am not satisfied that this case amounts to an abuse of process such that the plaintiffs should be denied the opportunity of pursuing the claim to obtain a quantum judgment and, further, that the question of whether there is entitlement to set off such a judgment against the order made by Collins J. For that reason, I do not regard the current application for leave to be an abuse of process justifying the refusal of the application.
[34] Further, when I review the facts of this case I cannot find any proper basis for the proposition that there has been a final determination of the issues which are outstanding between these parties such that it would be an abuse of process to allow the current application to be continued. I therefore conclude that there is no
justification for declining the application on the basis that to allow an order would be
to permit an abuse of the court’s process.
[35] The next issue raised concerns the question of whether the plaintiffs’ case for seeking a set off is clearly unsustainable. This requires an examination of s 310 of the Companies Act 1993. Mr Illingworth referred to the Supreme Court decision in Trans Otway Ltd v Shephard where Blanchard J set out helpful comments on the general policy as follows:7
[15] It has long been a general policy of insolvency law that obligations between a creditor and an insolvent are to be assessed on a net basis.
… It is regarded as unfair that someone who owes an amount to an
insolvent person should have to pay it in full while exposed to the peril of receiving only a dividend, or nothing at all, from the estate in respect of an amount owed by the insolvent. It is this policy which is recognised in s 310(1), in the requirement that in a company liquidation the balance between the company and its creditor must be taken on a net basis after set-off has occurred.
[36] If one applies s 310(1) only to the current facts, there is an arguable case for the proposition that the plaintiffs are entitled to a set off. Mr Malarao submitted, however, that because the defendant company was put into liquidation on 27 March
2009 and because there is a finding recorded in the judgment of Collins J that cancellation of the agreement was not notified to the defendant until after liquidation and, in particular, on or about 20 April 2009, there was, in fact, no mutuality because the claim for damages only arose on cancellation. I do not consider it appropriate to attempt a final determination of this issue on this application. Indeed, I do not consider it proper for me to do so. What I am satisfied is that the plaintiffs’ position is not untenable and that the issue of whether the plaintiffs are entitled a set off applying s 310 of the Companies Act 1993 should be fully and thoroughly explored. That also will include a consideration of whether s 310(2) applies. For that reason, I do not consider this matter as founding a proper justification for refusing the leave that is sought.
[37] Finally, there needs to be comment made on the question of delay. When one looks at the position in this case it is understandable why the plaintiffs determined not to proceed with an earlier application for leave having regard to the defendant
company’s placement into liquidation. It was only with the challenge in respect of the forfeiture of deposit that the plaintiffs’ position was really put at risk. I do not consider the time lapse between the delivery of judgment by Collins J and the filing of the application for leave in this proceeding to be significant. Further, no specific prejudice has been identified. I therefore conclude that any question of delay does not justify the refusal of leave on this application.
[38] The next question which requires short comment is whether, in the exercise of the court’s discretion to grant leave, the court may impose conditions. In my view the position is analogous to the position that applies under ss 145 and 145A of the Land Transfer Act 1952 in dealing with applications to sustain caveats. The Court of Appeal in Raiser Developments Ltd v Trefoil Properties Ltd examined this question
and concluded that such jurisdiction exists.8 I do not repeat in this judgment the
arguments and submissions that were analysed in that judgment. Suffice to say, in my view they apply equally to s 248(1)(c) of the Companies Act 1993.
[39] It is now appropriate to consider how best the two outstanding issues, which I have recorded in [9], can be disposed of having regard to all of the factors that the court routinely takes into account when considering these applications. Both counsel advised that the quantum hearing, if it were ordered, would be a matter of short duration and might even proceed without the need for further evidence. That arises because the primary basis for the analysis that has to be carried out, namely the current value of the property, has been agreed. Accordingly, I conclude that that exercise is unlikely to put the parties to great expense.
[40] The quantum trial only serves any purpose, however, if the question of set off is also resolved. I canvassed with counsel whether there was any procedural route other than an application under s 284 of the Companies Act 1993 to determine the question and, in particular, to obtain a ruling on whether the stance adopted by the liquidators was a correct one or not. Counsel could provide me with no other alternative other than an application under s 284 of the Companies Act 1993. That leads me to the conclusion that it is appropriate to grant the application for leave to proceed with a quantum trial, but that it should be subject to a condition that the
plaintiffs file an application for an order reversing the liquidators’ decision that any damages which the court determines should not be paid to the plaintiffs arising out of the defendant’s failure to settle the contract. Mr Illingworth advised that should I impose such a condition, it could be complied with, in 10 working days of the issue of my judgment on the leave application. I am satisfied, in the circumstances, that that is appropriate.
[41] I took the opportunity of discussing the cost possibilities with counsel at the conclusion of their submissions. Both were in agreement that I should reserve costs at this stage to allow discussion. That, I consider appropriate in the circumstances. Whilst the plaintiffs have been the successful party there are other considerations that will be need to be brought to bear before the question of costs are finally determined, particularly having regard to the fact that three hearings have been allocated for this application. These, then, are the reasons why I give the directions in relation to costs that appear at the end of this judgment.
Orders
[42] Accordingly, I order that:
(a) The plaintiffs be granted leave to:
(i)Proceed with the quantum trial as contemplated by my judgment of 14 November 2008, conditional on the plaintiffs making application under s 284 of the Companies Act 1993 to reverse the decision of the liquidators in relation to set off; and
(ii)Make application to the court for an order reversing the liquidators’ decision that any damages which the court determines should be paid to the plaintiffs arising out of the defendant’s failure to settle the contract may not be set off from the judgment of Collins J of 14 May 2012. Such application shall be filed and served within 10 working days of the date of this judgment;
(b) The quantum trial and the application under s 284 of the Companies
Act 1993 be heard together.
(c) The Registrar shall allocate a case management conference for the purpose of giving directions in relation to the quantum trial and the application under s 284 of the Companies Act 1993 before a Judge or Associate Judge on the first available date four working weeks after the filing of the application by the plaintiffs under s 284 of the Companies Act 1993;
(d)Costs are reserved. In the event that counsel agree that costs should remain reserved pending the determination of the quantum trial and the application under s 284 of the Companies Act 1993, a joint memorandum to that effect should be filed by 6 December 2013. In the event counsel do not agree on the question of costs, memoranda in support of any application for costs shall be filed and served by
13 December 2013. Thereafter, memoranda in opposition and reply
shall be filed and served at seven-day intervals.
JA Faire
Associate Judge
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