RUAWAI PROPERTIES LIMITED AND ORS V DAVIES & CO SOLICITORS NOMINEE COMPANY LIMITED HC AK CIV 2009-404-000454 [2009] NZHC 543 (13 May 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                    CIV 2009-404-000454



              BETWEEN                       RUAWAI PROPERTIES LIMITED
                                            First Applicant

              AND                           CHURCH ROAD CORPORATION
                                            LIMITED
       
                                    Second Applicant

              AND                           SANDHILLS DEVELOPMENT
        
                                   Third Applicant

              AND                           DAVIES & CO SOLICITORS NOMINEE
 
                                          COMPANY LIMITED
                                            Respondent


Hearing:     
13 May 2009

Counsel:      PT Finnigan for applicants
              SRG Judd for respondent

Judgment:     13 May 2009 at 4:00pm


                JUDGMENT OF ASSOCIATE JUDGE FAIRE
                   [on applications for statutory demands]




Solicitors:  
Coast to Coast Law, PO Box 181, Wellsford for applicants
              Davies Law,PO Box 15 547, New Lynn for respondent



RUAWAI
PROPERTIES LIMITED AND ORS V DAVIES & CO SOLICITORS NOMINEE COMPANY
LIMITED HC AK CIV 2009-404-000454 13 May 2009
[1]     The three
applicant companies apply to set aside statutory demands which
were served on each of them on 21 January 2009.


[2]     The statutory
demand addressed to Ruawai Properties Limited requires
payment of $8,139,596.99, being the sum allegedly due to the respondent under
a
term loan agreement dated 6 December 2006.


[3]     The statutory demands addressed to Church Road Corporation Limited and to
Sandhills Development Limited are each in identical terms to the statutory demand
addressed to Ruawai Properties Limited.


[4] 
   Mr Finnigan confirmed that the application was made in reliance on
s 290(4)(b) of the Companies Act 1993. Section 290(4)(b) provides:

        290     Court may set aside statutory demand

        (4)     The Court may grant an application to set aside a statutory
demand if
                it is satisfied that--

                ...

                (b)     The company appears to have a counterclaim,
set-off, or
                        cross-demand and the amount specified in the demand less
                        the amount of
the counterclaim, set-off, or cross-demand is
                        less than the prescribed amount; or

[5]     When a matter
is to be determined pursuant to s 290(4)(b) of the Companies
Act 1993, the Court's approach is as set out by the Court of Appeal
in Covington
Railways Ltd v Uni-Accommodation Ltd  [2001] 1 NZLR 272 at 274 where the Court
said:

        Where a company which is the subject of a liquidation application is
        indisputably in
debt to the applicant creditor, it may nonetheless be able to
        show that it has a claim against the applicant creditor, it
may nonetheless be
        able to show that it has a claim against the applicant which reduces the net
        balance owing to
the creditor or even off-sets it altogether. Where there are
        liquidated sums due each way, that is simply an arithmetical
exercise. It is
        more difficult if, on the applicant's side, there is an indisputable liquidated
        sum, but the other
party's claim is for an unliquidated sum with liability
        and/or quantum in dispute. Then, in order to impeach the statutory
demand
        and overcome the presumption in s287(a) that the company is unable to pay
        its debts when it has failed to
comply with the demand, it must be able to do
        more than merely assert that there is an available set-off. It must be able
to
        point to evidence before the Court showing that it has a real basis for the
       claimed set-off and that accordingly,
the applicant's claim to be a creditor is,
       to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in
       Bryanston Finance Ltd v De Vries (No.2)  [1976] Ch 63, 78, it must show
       that there are "clear and persuasive grounds" for the set-off claim. Where
       this can be done, the
party who has issued the statutory demand against the
       company will be shown to be using the statutory demand and liquidation
       procedures improperly because there is a "genuine and substantial dispute"
       about the net amount of the company's indebtedness
(Taxi Trucks Ltd v
       Nicholson  [1989] 2 NZLR 297, 299). The dispute should then be resolved in
       the ordinary ­ way ­ except as to any undisputed balance ­ rather than upon
       the hearing of a liquidation application.

[6]    No issue arises as to the timeliness of the application.


Background


[7]    The three applicant companies are property development companies
incorporated for the purpose of owning and subdividing land
at Mangawhai,
Matakohe and Ruawai. They borrowed $6,626,812.30 from the respondent. They
granted a first mortgage security over a
number of properties. Additional borrowing
was undertaken from another lender, which is referred to in the papers as the Odin
mortgagee.
The companies granted second mortgages over the properties to that
lender. In addition to the mortgages, personal guarantees were
given by Mr Craig
Crawford and Miss Lois Yelcich. They are the directors and shareholders of the
applicant companies.


[8]    The
property development has not been successful.                The applicants are
unable to pay the loans. The second mortgagee sold
the two titles at Ruawai. Those
transactions were examined in a summary judgment application in respect of which I
issued judgment
on 17 October 2008. The defendants in those proceedings have
lodged an appeal, which counsel advise has been argued. No decision
has been
released, however. Counsel confirmed that the outcome of that proceeding can have
no direct bearing on the issues raised
in this application.


[9]    The applicants have filed proceedings against the respondent.                 In those
proceedings
they allege a breach of a duty of care/breach of equitable duty of good
faith because the respondent has not, after the issue of
notices under s 92 of the
Property Law Act 1952, sold two of the properties over which it holds securities,
namely the properties
at Mangawhai and Matakohe.


[10]   The duty asserted runs contrary to existing authority.        In Countrywide
Banking Corporation
Ltd v Robinson  [1991] 1 NZLR 75 at 77 the Court of Appeal
confirmed that it was for a mortgagee contemplating selling a secured property in the
exercise of the power
sale to decide if and when the mortgagee would sell. Delay is
not a ground upon which the conduct of the mortgagee exercising the
power of sale
could be impugned.


[11]   Having regard to the above principle, I conclude that the foundation for the
alleged set-off
or counterclaim advanced by the applicants simply does not exist.
Accordingly, they have not satisfied the ground pursuant to s 290(4)(b)
of the
Companies Act 1993 which would justify the setting aside of the statutory demands.


[12]   Section 291 provides the Court
with an option where there is refusal to set
aside a statutory demand. The Court may either order the company to pay the debt
within
a specified period and that, in default of payment, the creditor may make an
application to put the company into liquidation or,
alternatively, on dismissing the
application to set aside the statutory demand, the Court could forthwith make an
order under s 241(4)
of the Companies Act 1993 putting the company into
liquidation.


[13]   In determining which of the two options to follow, I first
observe that
Mr Judd had with him no consent for the appointment of a liquidator other than the
Official Assignee. Such a consent
is required by virtue s 282 of the Companies Act
1993. In addition, if a person, other than the Official Assignee, is to be appointed
a
certificate in terms of s 280(4) of the Companies Act 1993 is required. In addition,
however, I do not have any specific evidence
before me which would justify
invoking s 291(1)(b) and the ordering forthwith of the placing of the company into
liquidation. In
my view, unless the reason for doing so is clear the safe course is to
follow the option provided by s 291(1)(a) and to order that,
unless the debt is paid
within fifteen working days of the date of this judgment, the respondent may make
an application to put the
company into liquidation. I intend to order accordingly.
Order


[14]    The applications to set the statutory demands are refused.
The applicant
companies shall pay the debts specified in the statutory demands within fifteen
working days of the date of this judgment.
If there is a default in payment, the
respondent may make an application to put each of the defendant companies into
liquidation.


Costs


[15]    The respondent has been successful. Counsel were agreed that this was a
Category 2 case and the Band B was appropriate.
Accordingly, the applicants shall
pay costs based on Category 2 Band B, together with disbursements as fixed by the
Registrar. For
the avoidance of doubt, although each of the applicants is responsible
for the order for costs, the order is for one amount based
on one application.



                                                            _____________________

                      
                                                      JA Faire
                                                                 
    Associate Judge