McCullagh v Grant [2012] NZHC 1351 (15 June 2012)

High Court of New Zealand

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McCullagh v Grant [2012] NZHC 1351 (15 June 2012)

Last Updated: 3 July 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-001620 [2012] NZHC 1351

UNDER Rule 7.40 and 15.13 of the High Court

Rules and s 266 of the Companies Act 1993

IN THE MATTER OF The liquidation of Ellis Construction

Limited (in Liquidation)

BETWEEN ANTHONY JOHN MCCULLAGH AND STEPHEN MARK LAWRENCE Applicants/Defendants

AND DAMIEN GRANT AND STEVEN KHOV Respondents

Hearing: 14 June 2012

Counsel: L M Van for applicants

B J Norling for respondents

Judgment: 15 June 2012

_{JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 14 June 2012 at 2:40pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

L Van, Kensington Swan, Private Bag 92101 Auckland 1142

_{B Norling, Waterstone Insolvency, PO Box 352, Shortland Street, Auckland 1140}

ANTHONY JOHN MCCULLAGH AND STEPHEN MARK LAWRENCE V DAMIEN GRANT AND STEVEN KHOV HC AK CIV 2009-404-001620 [15 June 2012]

[1] The applicants were, at all material times, the receivers of Ellis Construction Ltd (ECL) (formerly in receivership, now in liquidation). The respondents are now the liquidators of the company (having been appointed since the company was first put into liquidation).

[2] There has been a dispute between the parties over a considerable period about delivery up of documents created in the course of the receivership. The liquidators eventually applied on 21 May 2012 for an order that the receivers produce “any books, records or documents relating to the business, accounts or affairs of ECL in their possession or under their control”. By that time the receivership had come to an end, and the receivers contend that they had delivered up all documents in their possession that belonged to the company. The liquidators maintain that they received only records for the period prior to receivership.

[3] There appear to be two areas of potential dispute about the records:

(a) The trust account records created by the receivers in relation to the company, during the period of receivership; and

(b) Any other documents belonging to the company, created during the period of receivership.

[4] The liquidators’ application came before me in a miscellaneous companies list on 6 June 2012. It had been served on the receivers on 23 May 2012. No opposition had been filed. The receivers did not appear. I made orders on the application, and directed that the receivers comply within 10 working days of service of the sealed order.

[5] Counsel instructed for the receivers filed a memorandum to the Court the following day, advising that the failure of the receivers to appear was due to inadvertence (an error or oversight on the part of the solicitors for the receivers). The receivers were directed to, and have since, filed an application for the order that I made on 6 June 2012 to be recalled or set aside. That direction (to file a formal application) was given because the liquidators did not agree to recall or setting aside by consent.

[6] The receivers’ application to recall or set aside was filed on 11 June 2012, and given an urgent hearing today. The liquidators filed notice of opposition earlier today.

[7] Whether the application is considered as one for recall (under r 7.40(2)) or to set aside (r 15.13), the essential issue is whether the order is required in the interests of justice. I propose applying the guidelines established under the authorities relating to setting aside judgments[1] in addressing the discretion that I have in the matter.

[8] The liquidators say that there was no excuse for the failure to appear, and the failure to file notice of opposition ahead of the hearing on 6 June 2012. That submission is based on the approach that the failure of counsel is the failure of the party. The submission contemplates that any issue arising from it is a matter to be resolved between counsel and client. Although that may be appropriate in some circumstances, I regard the real issue as whether the party applying to set aside has an excuse and, where counsel has been instructed to appear and oppose an application and there has been an oversight on the part of counsel as to hearing date. I consider that is an appropriate excuse for a party.

[9] The second factor to take into account is whether the receivers have a substantial defence to the original application. In that respect I accept that there is an issue over whether trust account records created by the receivers during the course of the receivership are the property of the company. I accept that it is arguable whether those records (effectively part of their working documents) are the property of the company as distinct from the reports, correspondence or other documents which they generate specifically on the company’s behalf. I do not have to determine that question today. I am satisfied that there is sufficient issue over it to constitute an arguable defence. The same may not apply to other documents generated during the course of the receivership, but it is the receivers’ case that they have delivered up all other documents belonging to the company. To the extent that there are any other documents, in addition to the trust account records, there may be an argument also

_{about whether those documents belong to the company or to the receiver. I take into}

account that the receivers have provided statutory reports summarising the material that I would expect to be found in the trust account records.

[10] The last matter I need to consider is whether there is any substantial irreparable prejudice to the liquidators. In that respect they say that this dispute has been running for a considerable period, and there is irreparable harm to them in the fact that they have been unable to continue the liquidation. The issue here is not how long the dispute has been running, but what prejudice may be caused by recalling the decision given on 6 June 2012. That was only five days ago. That does not, in my view, constitute irreparable harm. The only element of harm is that the liquidators had been put to costs. That can be addressed separately.

[11] In all the circumstances, I consider that the appropriate course is to recall the order made on 6 June 2012 (the order has not yet been sealed) pursuant to r 7.40(2). I make an order accordingly. I direct that the parties file either a joint memorandum (or separate memoranda) by 5pm tomorrow, setting out proposed directions for bringing the original application before the Court for determination. I will give directions, including allocation of a defended fixture if that is still required, on filing of those memoranda.

[12] The liquidators seek costs in the event that I make the decision to recall. The receivers contend that the costs should be reserved and determined with the substantive application. I consider that costs should be fixed now. I also consider that the usual principle applicable to an application to set aside (that costs should be awarded against the party applying) should apply in this case. The award of costs is to be on a scale 2B basis. Those costs should be fixed on the basis of filing of opposition and today’s appearance.

[13] I award costs to the respondent liquidators in respect of their opposition and appearance today. If counsel cannot agree, memoranda are to be filed within five

_{working days.}

Associate Judge Abbott

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[1] Russell v Cox [1983] NZLR 654 (CA) at 659.