Industrial Group Ltd v Bakker HC Auckland CIV 2009-404-6432 [2010] NZHC 910 (31 May 2010)

Last Updated: 20 June 2010

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2009-404-006432}

BETWEEN INDUSTRIAL GROUP LTD Applicant

AND JAN DIRK BAKKER First Respondent

AND PAMELA MARJORIE BAKKER Second Respondent

Hearing: 28 May 2010

Appearances: G Illingworth QC for Applicant

S Corlett for Respondents

Judgment: 31 May 2010 at 5:00 pm

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 31 May 2010 at 5:00 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar

Date: ......................

Solicitors/Counsel:

Lowndes Associates (M McCarthy), PO Box 7311, Wellesley Street, Auckland

Brookfields, PO Box 240, Auckland

_{G M Illingworth QC, PO Box 7205, Auckland}

INDUSTRIAL GROUP LTD V J D BAKKER AND ANOR HC AK CIV-2009-404-006432 31 May 2010

[1] Industrial Group Ltd has appealed against my judgment of 12 April 2010. On the application by Industrial Group Ltd to set aside the Bakkers’ statutory demands under s 290 of the Companies Act 1993, I ordered the applicant to pay Mr Bakker the sum of A$770,587.76 and Mrs Bakker the sum of A$539,412.24 by

7 May 2010, failing which Mr and Mrs Bakker may apply for an order putting

Industrial Group Ltd into liquidation. I also awarded the Bakkers costs.

[2] Industrial Group Ltd has applied under r 12(3) of the Court of Appeal (Civil) Rules 2005 for a stay of execution pending the hearing of the appeal.

[3] On 6 May 2010, by consent, I made an interim order extending to 14 May

2010 the time for the applicant to comply with the orders for payment in my judgment. On 14 May 2010, I made a further order by consent extending to 29 May

2010 the time for the applicant to comply with the orders for payment. These were interim arrangements made pending full argument on the stay application. That was heard on 28 May 2010.

[4] Mr Corlett helpfully summarised the factors taken into account by the Court when considering an application for stay pending appeal:

1. Whether, if no stay is granted, the applicant’s right to appeal will be rendered nugatory (although this is not determinative);
   

b) Whether the successful party will be affected by the stay;

c) The bona fides of the applicant as to the prosecution of the appeal;

d) The effect on the parties;

e) The novelty and importance of the questions involved;

f) The public interest in the proceedings; and

g) The overall balance of convenience and the status quo.

[5] He cited Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) and Area One Consortium Ltd v Treaty of Waitangi Fisheries Commission (1993) 7 PRNZ 200 (HC). Mr Illingworth accepted that these principles applied.

[6] The consequences of not granting a stay are that Industrial Group Ltd will have to meet the statutory demands of the Bakkers or face an application that it be put into liquidation. Those are the matters it wants to be protected against by taking its appeal. If it does not obtain interim relief, the Bakkers will be entitled to apply for a liquidation order before the appeal could be heard. Any relief granted on appeal would be too late to prevent liquidation. This is a case where a failure to grant interim relief would make the appeal nugatory. I note that that is not a determinative factor. It is supported by other considerations.

[7] I accept that this is a bona fide appeal. The notice of appeal shows arguable grounds. Mr Corlett submitted that the appeal was simply a delaying tactic to defer the time when Industrial Group Ltd would have to pay the Bakkers. There is no direct evidence before me to suggest that this appeal is being taken simply as a tactic to delay the inevitable.

[8] Mr Corlett submitted that the company could be allowed to go into liquidation and that a liquidator could then decide whether the company should pursue any remedies it has against the Bakkers. That submission is commonly made in these situations. However, liquidation of the company would change the relations between the parties in a very significant way. In my judgment of 12 April 2010, I found that Industrial Group Ltd may have a claim against the Bakkers for breach of warranty or misrepresentation, although not necessarily for the amounts of the debts due to the Bakkers. Any such claim will be heard in South Australia. I held that those claims could not stand in the way of the Bakkers’ rights to be paid now, and it is that finding that has triggered the appeal. If the company goes into liquidation, the mutual credit and set off provisions of s 310 of the Companies Act will come into effect. They are self-executing: Stein v Blake [1996] 1 AC 243 (HC). Under an insolvency set-off regime, a liquidator may adjust any proofs of debt filed by the Bakkers for the company’s damages claim against them under ss 304 and 307 of the

Companies Act. Any decision by the liquidator may be subject to review under ss 284 and 307. Any litigation over a liquidator’s rejection of the Bakkers’ proofs of debt will be heard in New Zealand, although the law of South Australia will be applied. That situation is not one that I understand either party seeks. It is not one that the Court should impose on the parties.

[9] I accept that there would be significant hardship if interim relief were not granted. A statement of financial position of the company as at 30 April 2010 was put in evidence. That shows that the major asset of Industrial Group Ltd is funds owing which it had advanced to Unibag Pty Ltd for the investment in Adbag. Adbag is reliant on that financing for its continued operations. The withdrawal of funds from Unibag would disable Adbag. There is a serious risk that 16 staff in Adbag would be out of work. There is no reason why Industrial Group Ltd and its subsidiaries should have to suffer this hardship if they should succeed on appeal in showing that my judgment of April 2010 was in error.

[10] Mr Bakker swore an affidavit in opposition in which he set out his personal circumstances. Mr Corlett asked that the matters set out in Mr Bakkers’ affidavit be treated as confidential. Accordingly, I will not describe the Bakkers’ circumstances in detail but Mr Bakker’s affidavit satisfies me that he and his wife are not in needy circumstances. While the Bakkers are inconvenienced by not having the funds that were payable to them in September 2009, they will not be subject to significant hardship by the delay in the hearing of the appeal.

[11] The inconvenience to the Bakkers can be addressed by requiring Industrial Group Ltd to pay the Bakkers interest on the sums due under the statutory demands if the appeal is unsuccessful. Interest should run from the date of my judgment,

12 April 2010, to the date of payment at the rate of 5% p.a. simple interest.

[12] The appeal should be prepared and brought on for hearing as promptly as possible. Mr Illingworth accepted that it would be possible to prepare a case on appeal and pay the setting down fee by 11 June 2010. It will be for the Court of Appeal to determine the priority to be given to the appeal by Industrial Group Ltd, but I do record that the Bakkers were entitled to be paid the sum of A$1,310,000 in

September 2009 and that they have already gone through a significant proceeding in the High Court to obtain an order for payment. They will be understandably anxious about further delays in resolving this matter and it is desirable that the appeal be heard as early as possible.

[13] There is no public interest in the proceeding, but the questions in the appeal are important to the parties. The absence of a public interest element does not count against the grant of interim relief.

[14] Overall, my assessment is that greater hardship and risk of injustice to the company are likely to arise from a refusal of a stay than any hardship to the Bakkers from granting a stay. Conditions can be attached to an order to reduce the inconvenience to them.

[15] The form of relief needs consideration. Rule 12(3) of the Court of Appeal

(Civil) Rules 2005 provides:

12 Stay of proceedings and execution

...

(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—

(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b) grant any interim relief.

[16] So the rule allows three forms of order:

a) A stay of the proceeding;

b) A stay of execution of the decision; and c) Any interim relief.

[17] In this case, the decision appealed from under s 291(1)(a) of the Companies Act ordered the company to pay the sums within a specified period. In default of payment the Bakkers could apply to put the company into liquidation.

[18] Rule 12(3) does not allow any change to the substance of the judgment or order under appeal. Any such change is reserved for the Court of Appeal on hearing the appeal itself. In earlier decisions on 7 May and 14 May, I extended the time for payment by consent. Those orders did change the substance of the judgment of

12 April. Those decisions were, however, made by consent. The respondents do not consent now and there is no jurisdiction to alter the substance of the judgment under appeal without consent under r 12(3).

[19] As the application under s 290 has been finally determined, no stay of the proceeding is possible.

[20] The orders for payment could be the subject of enforcement under Part 17 of the High Court Rules and accordingly can be the subject of a stay of execution under r 12(3)(a).

[21] However, the normal step taken by the successful creditor if the company fails to comply with the order to pay within a specified time, is to present an application for the company to be put into liquidation. The right to apply for the company to be put into liquidation is a means of enforcing the order for payment and may also be the subject of an order for stay under r 12(3)(a), but in case there is any doubt on that point, I also find that an order that the creditor not file a liquidation application may also be the subject of an interim relief order under r 12(3)(b).

[22] Section 288(1) of the Companies Act provides that in a liquidation application, evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand.

[23] A creditor’s right to file a liquidation application under s 291(1)(a) of the Companies Act is not subject to this time limit under s 288(1). Section 291 contains its own presumption of inability to pay debts in s 291(2):

291 Additional powers of Court on application to set aside statutory demand

...

(2) For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a) of this section, the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.

[24] The fact that s 291 does not set a time limit within which a liquidation application must be presented means that, subject to whatever the Court of Appeal may decide, the Bakkers will be entitled to start a liquidation application after any judgment on appeal in their favour.

[25] I record that Mr Illingworth accepted that the Bakkers’ right to file a liquidation application under s 291(1)(a) was not subject to any time limit. If the right to file an application under s 291(1)(a) were subject to the time limits in s 288(1) or some similar provision, it would be necessary to refashion the interim relief to ensure that the Bakkers were not prejudiced by the filing of the appeal. Mr Illingworth submitted that that was not necessary.

[26] I make the following orders:

a) Pending further order of this Court or the Court of Appeal, the creditors will not file an application in this Court for an order that Industrial Group Ltd be put into liquidation and shall not take any steps to enforce the orders for payment in my judgment of 12 April

2010;

b) If Mr and Mrs Bakker succeed on the appeal, Industrial Group Ltd shall pay them interest on the sum of A$1,310,000 at 5% p.a. from

5 April 2010 until the date of payment;

c) Industrial Group Ltd shall prosecute its appeal with all due diligence and speed and in particular shall file its case on appeal in the Court of Appeal and pay the setting down fee for the appeal by 11 June 2010;

d) No person may disclose the contents of the affidavit of Jan Dirk

Bakker sworn on 10 May 2010 without leave of this Court; and

_{e) Leave is reserved to apply for further orders on three days’ notice.}

R M Bell

Associate Judge