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Court of Appeal of New Zealand |
Last Updated: 11 September 2013
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Applicant |
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AND
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Respondent |
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Hearing: |
12 August 2013 |
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Further
submissions:
Court: |
13 August 2013
White, French and Asher JJ |
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Counsel: |
A C Sorrell for Applicant
M R Sherwood King for Respondent |
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Judgment: |
JUDGMENT OF THE COURT
C Costs on this application are
reserved.
____________________________________________________________________
REASONS OF THE COURT
(Given by Asher J)
Introduction
[1] The applicant, Grant Bruce Reynolds, is the liquidator of James Developments Ltd (in liq) (the company). The respondent is Chris James who, at the material times, was the sole director of James Developments Ltd.
[2] Mr Reynolds as liquidator applied for orders setting aside payments totalling $60,904 that James Developments Ltd had made in 2009 to Mr James.
[3] On 22 August 2012, Associate Judge Bell determined that those payments to Mr James should be set aside as voidable under s 292 of the Companies Act 1993.[1] However, he also determined that the liquidator’s application for orders for payment of that amount, plus interest, should be dismissed. There were also other orders made that are not relevant to this application.
[4] A notice of appeal was filed within time on 19 September 2012. It was very full and set out the basis upon which it was submitted the judgment was incorrect.
[5] However, no steps were then taken to obtain a hearing date and file the case on appeal for in excess of six months. Pursuant to r 43 of the Court of Appeal (Civil) Rules 2005, which then applied in its pre-amendment form, an appeal is to be treated as having been abandoned if an appellant does not take those steps within that period.[2]
[6] The applicant now applies for an extension of time in which to take these steps.[3] Senior counsel for the applicant (who did not appear in support of the application) accepted that the delay was because of an error on her part. The parties were involved in other difficult litigation at the time that led to her overlooking the time limit. The application for an extension of time was filed approximately three weeks after the appeal was deemed abandoned.
Context
[7] James Developments Ltd was a property developer in Queenstown. In October 2007, the company entered into an agreement to buy a property from Mana Property Trustee Ltd (Mana). The company ultimately refused to settle the purchase and gave notice cancelling the agreement, claiming that the area available to be transferred was less than the represented size. Mana sued for specific performance and obtained summary judgment and costs against the company.[4]
[8] The company appealed, but before the appeal was heard it was placed in voluntary liquidation by shareholder special resolution. Two liquidators were appointed. There was no doubt that at the time of the voluntary liquidation, following the summary judgment decision, the company was unable to pay its debts.
[9] In June 2009, between the date of the summary judgment and the hearing of the appeal and before the voluntary liquidation, the company made three payments totaling $60,904 to Mr James. At the time Mr James was a creditor of the company and these payments reduced the company’s debt to him.
[10] The original liquidators continued with the appeal by the company, and on 19 October 2009 that appeal was allowed.[5] The company was discharged from liability for not completing the purchase, and entitled to a return of its deposit of $450,000.
[11] Mana appealed. The Supreme Court gave leave and ultimately Mana succeeded in the appeal.[6] The cancellation by the company was held to be of no effect and it lost its right to recover the $450,000.
[12] In November 2010, the original liquidators resigned and Mr Reynolds was appointed as liquidator. Amongst other things, Mr Reynolds issued a notice under s 294 of the Companies Act seeking to set aside the payments of $60,904. Mr James objected, asserting that the transaction was made with the express purpose of allowing him to meet the company’s ongoing legal expenses and the expenses of the liquidation.
[13] It transpired that most of the invoices from the original liquidators and the lawyers who pursued the litigation on behalf of the company against Mana were made out to Otago Real Estate Ltd, a company controlled by and, it seems, owned by Mr James. Otago Real Estate Ltd made payments for those debts, and Mr James claimed he had effectively funded the litigation for the benefit of the company.
[14] After a detailed analysis of the facts and law, Associate Judge Bell concluded that the payments of $60,904 received by Mr James reimbursed him for payments of liquidation expenses. He considered that if Mr James had not received those monies they would have been applied in payment of the remuneration of the original liquidators for the costs of the litigation. As Mr James had applied funds for the benefit of the company, he considered that:[7]
The preferential effect of the original payments to him has been eliminated. The enquiry does not have to go further.
[15] Thus, while the company payments to Mr James were voidable, the liquidator was not entitled to orders that Mr James pay them back to the company.
Evaluation
[16] As this Court said in Russell v Commissioner of Inland Revenue, noncompliance with r 43 and the resulting need for leave “requires the exercise by this Court of a positive discretion”.[8] Relevant factors in the exercise of that discretion include the length of the delay, the reasons for the delay, prejudice caused by the delay and the apparent merits of the proposed appeal.[9]
[17] The delay of three weeks was not great. Senior counsel has accepted responsibility for the error and explained how it occurred. It is not suggested that any specific prejudice has arisen as a consequence of the delay and we are satisfied that it has not.
[18] The proposed appeal is not in that category of cases that are obviously without merit, given the acknowledged payment of $60,904 to Mr James while the company was insolvent, and the treatment of those payments as reimbursement of Mr James eliminating the preference.
[19] The prospect of any further delay can be dealt with by requiring any other necessary matters to be dealt with promptly. In these circumstances, we consider it is appropriate to grant an extension of time to allow the appeal to proceed.
Disposition
[20] For these reasons the application for an extension of time to apply for the allocation of a hearing date and to file the case on appeal is granted.
[21] The time for applying for the allocation of a hearing date and filing the case on appeal is extended to Monday, 16 September 2013.
Costs
[22] In the circumstances, we consider costs should be reserved and determined when the appeal is resolved.
Solicitors:
Whitlock & Co, Auckland for Applicant
Mackay & Gilkison,
Wellington for Respondent
[1] Reynolds v James [2012] NZHC 2132.
[2] The time before an appeal will be deemed abandoned was reduced to three months as from 4 February 2013: Court of Appeal (Civil) Amendment Rules 2012, r 4(1).
[3] Pursuant to r 43(2). No extension of time is possible more than three months after an appeal is deemed abandoned: r 43(3).
[4] Mana Property Trustee Ltd v James Developments Ltd (2009) 10 NZCPR 295 (HC).
[5] James Developments Ltd v Mana Property Trustee Ltd [2009] NZCA 483.
[6] Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90, [2010] 3 NZLR 805.
[7] Reynolds v James, above n 1, at [56].
[8] Schmidt v Ebada Property Investments Ltd [2012] NZCA 452 at [6]; Russell v Commissioner of Inland Revenue (2006) 22 NZTC 19,807 (CA) at [10].
[9] Schmidt v Ebada Property Investments Ltd.
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