Crawford v Pardington [2012] NZHC 1829 (26 July 2012)

Last Updated: 22 August 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1645 [2012] NZHC 1829

IN THE MATTER OF the Corporations (Investigation and

Management) Act 1989

BETWEEN GARRY ROLAND CRAWFORD AND WENDY ANN CRAWFORD

First Plaintiffs

AND GARRY ROLAND CRAWFORD, WENDY ANN CRAWFORD, RICHARD LEIGHTON CULMER AND BERYL JOYCE DEVERY

Second Plaintiffs

AND JOHN PHILIP PARKES AND CHRISTINE MAY PARKES Third Plaintiffs

AND RODNEY GANE PARDINGTON Defendant

Hearing: 6 July 2012

Counsel: P H Thorp for Plaintiffs

R G Simpson and J Q Wilson for Defendant

Judgment: 26 July 2012

_{JUDGMENT OF POTTER J}

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment with a delivery time of 2 p.m. on 26 July 2012.

Solicitors: Craig Griffin & Lord, Auckland – [e-mail]

Bell Gully, Auckland – [e-mail]

_{Copy to: P H Thorp, Auckland – [e-mail]}

CRAWFORD AND CRAWFORD V PARDINGTON HC AK CIV-2012-404-1645 [26 July 2012]

Table of Contents

Introduction [1] Issues [5] Background [6] Pleadings [15] Strike out principles [18]

Approach to the plaintiffs’ cause of action [22]

Analysis of the Corporations (Investigation and

Management) Act 1989 [26]

Wording [27] Purpose and scope [33] Indemnity [36] Available avenues of control [38]

Evaluation [40] Conclusion [49] Result [50] Costs [52]

Introduction

[1] The plaintiffs are directly or indirectly the members or trustees of six entities1 (the entities) placed under statutory management in 1994 under the Corporations (Investigation and Management) Act 1989 (the Act). The defendant is Mr Rodney Pardington, a Chartered Accountant who is the statutory manager of the entities.

[2] The statutory management regime has operated for just over 17 years. The first plaintiffs, Mr and Mrs Crawford, have made various attempts to terminate the statutory management, all of which have been unsuccessful. They remain critical of Mr Pardington’s statutory management and, in particular, their inability to have access to the entities and the cashflow generated through them.

[3] The plaintiffs now allege that Mr Pardington has breached his statutory duty to act to the standard reasonably expected of a skilled and informed statutory manager. They seek an order that Mr Pardington recommend the termination of the statutory management, transfer all funds and documents held regarding the statutory management, and provide a full accounting.

[4] Mr Pardington seeks an order that the statement of claim be struck out on the ground that the cause of action is unsustainable at law. In the alternative he seeks an order for security for costs.

Issues

[5] The issues relating to the strike out application are:

(a) Whether there is a statutory duty under the Act which is enforceable by private law action; and

1. Melita Properties Ltd, Gwin Corporation Ltd, Miskin Enterprises Ltd, Chismon Ltd, Northford Holdings Ltd, The Millennium Charitable Trust

(b) Whether such a statutory duty is owed by the defendant to the plaintiffs, personally or as a class.

Background

[6] On 20 October 1994, the Governor General, by Order in Council,2 appointed

Mr Pardington and Mr Russell Hay as statutory managers of the entities.

[7] At various times since the mid 1980s, five of these entities participated in the development and operation of the Peninsula Club Retirement Resort in Whangaparaoa (the village). Residents in the village would purchase units in the village, and four of the entities would receive the right and incur the obligation to repurchase the units when the residents died or chose to depart (the buy-back agreements).

[8] Mr Pardington in his affidavit dated 1 June 2012 says that prior to the appointment of statutory managers, the village was on the verge of financial collapse and the entities had no material tangible assets. Following the entities’ insolvency and a series of reconstruction and security transactions between the entities and the Crawfords, the village land and buildings had been subject to mortgagee sale, the entities could not honour commitments under the buy-back agreements, and the management of the village was substandard. The leasehold interests in residential units in the village owned by the residents had lost significant value and were virtually unsellable. Residents alleged that Mr and Mrs Crawford had mismanaged the village and some were threatening to issue proceedings against them.

[9] The managers’ initial objectives were to protect the leasehold interests in the units held by the residents to preserve their ability to sell the units for fair market value; and to investigate the financial position of each entity to protect the interests of the creditors and, as far as possible, the interests of shareholders.

[10] In pursuit of the first objective, after considerable negotiation, the managers procured a reconstruction arrangement under which The Millennium Charitable

2 SR 1994/234.

Trust appointed a management company as its agent for managing the village. The arrangements were set out in a Deed of Reconstruction dated 14 July 1995.

[11] The costs in procuring the Deed of Reconstruction exhausted the available funds of the entities. The residual surpluses due to the entities under the Deed were to be received as residents died or left the village. However, as the demographic profile of the village was relatively young, significant income streams were not received until approximately 2003, with the bulk of the funds being received between 2007 and 2010 and the last material payment being made in January 2011. The quantum of residual surpluses received has increased over the years, as property values increased.

[12] The income flow provided funding to meet outstanding tax and legal and accounting costs. It was therefore not necessary to obtain funding from creditors or the Crown to cover the costs of statutory management. Mr Pardington’s firm now holds the balance of residual surpluses,3 pending the conclusion of the statutory management and final distribution of the monies.

[13] In relation to the second objective, Mr Pardington undertook investigations and sought advice to identify the correct recipients of the funds that he now holds. He considers that he has determined the appropriate recipients, but emphasises the complexity of the factors surrounding this issue, as the Act does not provide for a pooling of the affairs of entities under statutory management.

[14] Mr Pardington has identified two major creditors of Melita Properties Ltd, the Commissioner of Revenue for unpaid GST and penalties (a preferential liability under the Companies Act 1993) and The Millennium Charitable Trust in respect of a loan. He anticipates that his investigations will be concluded during the next three months. He then intends to file an application for directions seeking the Court’s

_{approval for his proposals for the distribution of the remaining funds.}

3 I understand this to be a sum of less than $1m after costs.

Pleadings

[15] The plaintiffs’ sole cause of action alleges breach by the statutory manager of the statutory duty to act to the standard reasonably expected of a skilled and informed Chartered Accountant acting as a statutory manager.4 In particular, the plaintiffs claim that the defendant has failed to:

(a) Preserve the business interests of the companies;

(b) Conduct the statutory management in an orderly and expeditious way; (c) Conclude the statutory management as soon as reasonably possible;

(d) Only carry out work that is reasonably necessary to achieve the statutory objectives; and

(e) Recommend that the Governor General terminate the statutory management as soon as it has become unnecessary to achieve the general objects of the Act and grounds for appointment.

[16] On this basis, the plaintiffs seek the following relief:

(a) An order that Mr Pardington forthwith recommend to the Minister of Economic Development and/or the Governor General the termination of the statutory management;

(b) An order that he forthwith transfer to the plaintiffs all funds and documents held regarding the statutory management;

(c) An order that he forthwith provide a full accounting to the plaintiffs of all funds received and expenses incurred throughout the statutory management;

_{(d) Damages in the sum to be proved at trial;}

4 This is pleaded in reliance on ss 39(a) and (c) and 41 of the Act.

(e) General damages in the sum to be proved at trial for stress, anxiety, and loss of enjoyment of life; and

(f) Costs.

[17] The defendant seeks an order that the statement of claim be struck out as unsustainable at law. In the alternative he seeks security for costs on the basis that:

(a) There is reason to believe that the plaintiffs will be unable to pay the defendant’s costs if their claim fails as they do not hold any realty and are retired; and

(b) The plaintiff’s claim is novel and the merits are weak.

Strike out principles

[18] As the plaintiffs’ cause of action is for breach of statutory duty, the question involved in these proceedings is one of statutory construction, and the plaintiffs’ claims are therefore amenable to strike out application.5

[19] The principles applying to a strike out application are well-established:6

(a) The Court proceeds on the assumption that the facts pleaded in the statement of claim are true.

(b) The Court may only strike out proceedings if the causes of action are so clearly untenable that they cannot possibly succeed.

(c) The jurisdiction is to be exercised sparingly and only in a clear case where the Court is satisfied that it has the requisite material before it.

5. See Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 at [26]-[28], which dealt with a difficult question of statutory interpretation by way of summary judgment.

6 See Attorney-General v Prince & Gardner [1998] 1 NZLR 262 at 267; and Kerikeri Village

Trust v Nicholas HC Auckland CIV-2006-404-5110, 27 November 2008 at [7]-[11].

(d) The fact that the application raises difficult questions of law and requires extensive argument does not exclude jurisdiction.

[20] Though similar determinations have been made in the context of the exercise of statute-based public duties,7 this is the first case in which the tort of a breach of statutory duty has arisen in the context of statutory management.

[21] The fact that the plaintiffs’ claim is novel in the context of the Act does not exclude strike out jurisdiction. However, in these circumstances, the Court must be cautious in exercising the jurisdiction, and must weigh the plaintiffs’ opportunity to proceed to trial on novel issues against the defendant’s interest in not being subject to substantial costs in defending untenable claims.8

Approach to the plaintiffs’ cause of action

[22] The leading case on the imposition of a statutory duty is X v Bedfordshire

County Council, in which Lord Browne-Wilkinson stated as follows:9

The question is whether, if Parliament has imposed a statutory duty on an authority to carry out a particular function, a plaintiff who has suffered damage in consequence of the authority’s performance or non-performance of that function has a right of action in damages against the authority. It is important to distinguish such actions to recover damages, based on a private law cause of action, from actions in public law to enforce the due performance of statutory duties, now brought by way of judicial review. The breach of a public law right by itself gives rise to no claim for damages. A claim for damages must be based on a private law cause of action ...

Private law claims for damages can be classified into four different categories, viz: (A) actions for breach of statutory duty simpliciter (ie irrespective of carelessness); (B) actions based solely on the careless performance of a statutory duty in the absence of any other common law right of action; (C) actions based on a common law duty of care arising

7 See Ellis v Counties Manukau District Health Board [2007] 1 NZLR 196, Hobson v Attorney- General [2005] 2 NZLR 220 and Auckland Electric Power Board v Electricity Corporation of New Zealand Ltd [1994] 1 NZLR 551.

8 For example, courts have struck out claims pleading novel duties of care: see Kerikeri Village

Trust v Nicholas at [8]-[11], citing Fleming v Securities Commission [1995] 2 NZLR 514, Attorney-General v Carter [2003] 2 NZLR 160, Couch v Attorney-General [2008] NZSC 45 and Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95.

9 [1995] 2 AC 633 at 730-731, affirmed by the United Kingdom Supreme Court in Morrison Sports Ltd v Scottish Power UK plc [2010] 1 WLR 1934 at 1943 and applied in New Zealand in Minister of Fisheries v Pranfield Holdings Ltd [2008] 3 NZLR 649 at [66] and Attorney-General v Carter at [41]-[43].

either from the imposition of the statutory duty or from the performance of it; and (D) misfeasance in public office ...

[23] As the plaintiffs are not alleging carelessness, a common law duty of care, or misfeasance,10 the applicable category is category (A), breach of statutory duty simpliciter. In order to make out a cause of action in tort for a breach of statutory duty, the plaintiffs must establish that:11

(a) The defendant owes a statutory duty that is enforceable by a private law action;

(b) He owes this statutory duty to the plaintiffs, personally or as a class; (c) He has breached this duty; and

(d) As a result, the plaintiffs have suffered the kind of damage that the statute is designed to prevent.

[24] Lord Browne-Wilkinson considered that the principles applicable to establishing a cause of action for breach of statutory duty are well established, though their application is difficult. The starting point is the presumption that a breach of statutory duty does not ordinarily give rise to a private law cause of action. However, a private law cause of action will arise “if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty.” This determination is to be made by reference to “a number of indicators”, rather than a general rule. The indicators identified were the lack of an alternative means of enforcing the duty and

_{an intention to protect a limited class.}12

10. Counsel for the plaintiffs referred in oral submissions to a potential claim for misfeasance in public office, but it is not pleaded.

11 _{See Bedfordshire at 731.}

12 At 731.

[25] It has been accepted in New Zealand that whether an enactment gives rise to a cause of action for breach of statutory duty is a question of construction.13 In Hobson v Attorney-General, Heath J expressed this in light of the Interpretation Act

1999:14

In my view, the correct approach is to interpret the statute to ascertain whether Parliament intended to create a private law remedy as well as to confer public duties on particular public officials. Other factors can only assist (and ought only to be considered) if Parliament's will is not clear from the express words used in the Act read in light of the purpose of the statute. Such an approach is entirely consistent with s5 Interpretation Act 1999.

Analysis of the Corporations (Investigation and Management) Act 1989

[26] The primary issue is whether the statutory duties imposed upon Mr Pardington were intended to confer a private right of action for a class of persons that would include the plaintiffs. The parties have pointed to various “indicators” to aid this enquiry, which may be helpfully divided into the following overlapping categories: (1) the wording of the Act; (2) the purpose and scope of the Act; (3) the indemnity given to statutory managers; and (4) the available avenues of control over (or redress for) the statutory manager’s actions.

Wording

[27] The plaintiffs base their submissions on s 41 of the Act, supported by the general objects in ss 4 and 5 and the grounds for appointment in s 39. Section 41 provides as follows:

41. Considerations affecting exercise of powers by statutory manager
    

(1) In the exercise of the powers conferred by this Part of this Act, a statutory manager of a corporation shall have regard to—

(a) The need to preserve the interests of members and creditors of the corporation, or, where appropriate, the need to protect the beneficiaries under any trust administered by the corporation or the public interest:

13. See, for example, Select 2000 Ltd v ENZA Ltd at [40], and other recent cases discussed in this judgment.

14 Hobson v Attorney-General at [101].

(b) The need to resolve the difficulties of the corporation:

(c) As far as practicable, the need to preserve the business or undertaking of the corporation.

(2) Every statutory manager of a corporation shall provide the Registrar with such reports as the Registrar may require as to the state of the affairs and business of the corporation.

[28] Section 41 is to be interpreted in light of s 4, which relevantly provides that the Act applies to any corporation that is operating recklessly or to which it is desirable that the Act apply for the purpose of preserving the interests of the corporation’s members or creditors, or any reason in the public interest. Further guidance is provided by s 5(1):15

5 General objects of Act

(1) The general objects of this Act are—

...

(b) In the case of a corporation that is, or may be, operating fraudulently or recklessly, to limit or prevent—

(i) the risk of further deterioration of the financial affairs of that corporation; and

(ii) the carrying out, or the effects of, any fraudulent act or activity:

(c) In the case of a corporation referred to in section 4(b) of this Act, to preserve the interests of its members or creditors or beneficiaries or the public interest:

(d) To provide for the affairs of corporations to which this Act applies to be dealt with in a more orderly and expeditious way.

[29] Finally, s 39 states as follows:

39 Grounds on which corporation can be declared to be subject to statutory management

The FMA16 shall not make a recommendation under section 38 of this Act in respect of a corporation unless it is satisfied on reasonable grounds—

(a) That the corporation is, or may be, a corporation to which this Act applies; and

15 This section does not apply to statutory managers. It applies to the Governor-General and the

_{Minister, who oversee and have ultimate control over the actions of the statutory manager.}

16 Financial Markets Authority, as defined in s 2 of the Act.

(b) That, in the case of a corporation that is, or may be, operating fraudulently or recklessly, it is desirable that the corporation be declared to be subject to statutory management for the purpose of—

(i) Limiting or preventing the risk of further deterioration of the financial affairs of the corporation; or

(ii) Limiting or preventing the carrying out, or the effects of, any fraudulent act or activity; or

(iii) Enabling the affairs of the corporation to be dealt with in a more orderly or expeditious way:

(c) That, in the case of a corporation referred to in section 4(b) of this Act, it is desirable that the corporation be declared to be subject to statutory management for the purpose of—

(i) Preserving the interests of its members or creditors or beneficiaries or the public interest; or

(ii) Enabling the affairs of the corporation to be dealt with in a more orderly or expeditious way.

[30] The plaintiffs note that a private right of action is not expressly excluded. They point to particular provisions within the Act which, they say, provide examples of the kind of “indicators” referred to in Bedfordshire:

(a) Mandatory language: s 41(1)(a) requires that the statutory manager “shall have regard to” the “need” to preserve the interests of the limited class. This language is not qualified by words such as “as far as practicable”, as it is in relation to the need to preserve the business or undertaking of the corporation in s 41(1)(c).

(b) Protection of a limited class: the wording of the Act reveals an intention to protect the interests of the limited class of the corporation’s “members and creditors” and “beneficiaries under any trust”.

[31] The defendant submits that the scheme of the Act is irreconcilable with such private rights of action and the associated duties:

(a) Protection of a limited class: the defendant contends that this argument has previously been rejected, with the court defining

statutory managers as public officers charged with promoting the public interest.17 As such, the plain language of the Act does not suggest an intention to create a private right of action.

(b) Requirement to “have regard to” conflicting duties: the interests that a statutory manager must have regard to under s 41 will often conflict. It would be inconsistent with the nature of the provision to imply the existence of a private right of action by the interest groups to enforce an obligation to “have regard to” their interests.

(c) Part 3 of the Act: Part 3 confers expansive powers on statutory managers, which indicate Parliament’s intention that a statutory manager should have sufficient powers to manage and reconstruct the affairs of a corporation with limited interference.18 In contrast s 41, which is in Part 3 under “Powers of statutory manager”, merely requires that a statutory manager “have regard to” specified interests and needs.

(d) Express exceptions: the statutory manager’s powers are subject to certain express provisions that allow third parties whose contracts are terminated by the statutory manager the right to compensation or access to the court.19 This makes it unlikely that there are also implied private rights of action that cut across the statutory regime.

(e) No consultation required: s 64 provides that, except as otherwise provided in the Act, no corporation, director, or officer of any corporation is entitled to be consulted or informed as to the exercise or possible exercise of any of the powers conferred by the Act.

[32] The plaintiffs classify the third parties’ right of access to the courts and the

express exclusion of a need to inform or consult as neutral factors. The plaintiffs submit that the former is intended to ameliorate the consequences of the lawful

17 _{Ararimu Farms and Investments Ltd v Stotter [1993] MCLR 1 (CA) at 6 and 9.}

18 _{Citing in particular ss 42, 44, 45, 47, 46(3), 48-52, and 55.}

19 See ss 49(2) and 50(3).

exercise of the express powers granted to the statutory manager; and the latter merely supports the vesting of management control in the manager pursuant to s 45.

Purpose and scope

[33] The defendant contends that the manner in which the Act has been interpreted is inconsistent with private rights of action:20

[T]he Act is specifically designed to deal with those situations where a company has been operating fraudulently or recklessly (s 4(a)) or, alternatively, where the ordinary law is inadequate (s 4(b)(iii)). The Act is intended to take over where the ordinary law cannot cope and stronger measures are needed. Situations where those measures are needed will include a major collapse of a large and interlocking group of companies with complex rights amongst creditors, shareholders and beneficiaries. A major collapse may also involve the public interest in a variety of ways and it is noteworthy that the references to the public interest in ss 4 and 5 are carried through into s 41(1)(a).

[34] The defendant also cites decisions made in the context of identification of the grounds for the imposition of statutory duties.21 For example, in Ellis v Counties Manukau District Health Board, in the context of identifying the nature of the obligations imposed on the Health Board under the Mental Health (Compulsory Assessment and Treatment) Act 1992, the Court stated:

[207] These are essentially public duties to be performed with due regard for the rights of the person subject to the exercise of the duties imposed on the duly authorised officer. The duties are to investigate and then to exercise a discretion as to steps to be taken. Two sets of responsibilities, to the public and to the patient, go hand in hand. But ss 37 and 38, while imposing statutory duties upon the duly authorised officer, do not create duties that are enforceable by private action in damages by a mentally disordered person.

[35] The plaintiffs seek to distinguish the authorities cited by the defendant on the basis that they concern regulatory or welfare legislation affecting a particular activity

20 _{Ararimu Farms and Investments Ltd v Stotter at 6.}

21 Ellis v Counties Manukau District Health Board, Hobson v Attorney-General and Auckland

Electric Power Board v Electricity Corporation of New Zealand Ltd.

that, although providing protection to individuals, was passed for the benefit of society in general. The plaintiffs further note that the relevant statutes in those cases provided an alternative remedy,22 which is not the case here.

Indemnity

[36] The plaintiffs submit that the indemnity granted by the Crown to the statutory manager under s 63 presupposes a private law right, as that indemnity would not be necessary if private rights of action were not available. Further, as managers are not indemnified for actions committed in bad faith, the plaintiffs submit it cannot have been intended that the statutory manager could be personally liable in cases of good faith but not bad faith.

[37] The defendants submit that there is no basis to suggest that this indemnity can be used to “construct a boot-strap argument” for a private right of action, and notes that a similar argument was rejected in Ararimu Farms:23

Mr Stewart relied upon the indemnity available to statutory managers under s 63 of the 1989 Act as indicating that they should not be protected from liability by the de facto officer principle. We do not agree. The indemnity is available in respect of acts for which the statutory managers have been found liable. The scope of that liability should not be determined by reference to the available indemnity. That is to approach the matter from the wrong side.

Available avenues of control

[38] The plaintiffs submit that in the absence of a private law right for breach of statutory duty, they have no remedy against the manager.

[39] In reply, the defendant submits that though the plaintiffs do not have specific private law avenues of redress, there is a high level of supervision and control over

_{the actions of the statutory manager. Aside from the specific powers of affected third}

22 Citing Minister of Fisheries v Pranfield Holdings at [74], Ford v Ryan HC Wellington CIV-

2005-485-845, 19 May 2006 at [20]-[26], Morrison Sports Ltd v Scottish Power UK plc at [37]- [38] and Select 2000 Ltd v ENZA Ltd at [46]-[51].

23 Ararimu Farms and Investments Ltd v Stotter at 6-7.

parties to bring applications for relief before the Court,24 the Act reposes ultimate control over the conduct of statutory managers with the Crown; and the Governor General has the power to order that the corporation shall cease to be subject to statutory management.25 The defendant submits that the existence of these avenues tends to support the interpretation that no standalone private damages action was intended by parliament.26

Evaluation

[40] The plaintiffs’ submission regarding the wording of the relevant provisions is not convincing. Though s 41(1)(a) requires that the statutory manager “shall” have regard to the “need” to preserve the members’ interests, the use of the words “shall” and “need” cannot overcome the inherent qualification in the phrase “have regard to”. Such a phrase is naturally read as indicating that the manager must merely take the members’ interests into account. It has previously been held not to impose a mandatory obligation.27 Further, the fact that only s 41(1)(c) (the need to preserve the business or undertaking of the corporation) includes additional words of qualification is of little interpretative weight in light of the manager’s broad ability to terminate a contract or sell a business undertaking. Without such qualifying words, s 41(1)(c) would be inconsistent with ss 49 and 50.28

[41] When viewed in the context of the purpose of the Act and the manager’s obligations, the wording of s 41(1) merely reproduces the broad purposes of the statute. The purpose of the Act is to “deal with corporate collapses of such magnitude that the normal legal procedures available to a corporation, its members or creditors are totally inadequate”.29 It establishes a regime that operates in extreme

_{situations to place failing companies within the control of the Crown so that they}

24 _{See ss 49(2) and 50(3).}

25 _{Sections 57 and 62.}

26. Auckland Electric Power Board v Electricity of New Zealand Ltd. The Privy Council dismissed the appeal against this decision in Mercury Energy Ltd v Electricity Corporation of New Zealand

Ltd [1994] 2 NZLR 385. See also Ford v Ryan at [27] and Minister of Fisheries v Pranfield

_{Holdings at [70].}

27 Select 2000 Ltd v ENZA Ltd, though I note that the interpretation of the relevant phrase in that

_{case was supported by words such as “by endeavouring to” and “when able to do so”.}

28 _{But see Wilson v Aurora Group Ltd [1990] 1 NZLR 61.}

29 Ararimu Farms and Investments Ltd v Stotter at 6.

may be managed in a way that reduces the financial loss to the company, its creditors and its investors. With that in mind, the wording of s 41(1) merely reflects and, to an extent, restates the purposes in s 4 for placing a corporation into statutory management and the general objects in s 5 of the Act. As such, it is not particularly persuasive as an interpretative tool.30

[42] The plain language of the provisions establishing the statutory manager’s mandate, informed by the purpose of the Act, are too broad to suggest a private law remedy in themselves. Likewise, the argument that the Act is intended to protect a limited class and thereby imparts private remedies for members of that class may be rejected on a critical construction. The fact that the Act applies to a limited class of persons is a relevant factor, but is not a particularly strong indicator and cannot prevent a statute being classified as a public interest statute. The nature of a public statute is that it applies, in the abstract, to members of the public; but in operation, it will only ever apply to an individual or a relatively limited group or class of persons. For example, such statutes often apply to persons living in a particular area (e.g. public welfare statutes), or persons over whom the Crown assumes control (e.g. mental or other public health statutes). The Act can be regarded as an example of a statute within the latter category.

[43] Further, the notion that the Act provides remedies for only a limited class has been impliedly rejected in Ararimu Farms, where the Court of Appeal held that the public law doctrine of de facto officers applied to statutory managers, who were public officers owing broad public responsibilities:31

We agree with the tentative view expressed by Master Hansen that statutory managers ... are public officers ... the purpose of appointing statutory managers at least in part is to promote the public interest. They are appointed by Order in Council and enjoy a wide indemnity conferred by s 63 of the Act supported by the Public Account ... We do not consider the fact that the responsibilities of statutory managers may relate to the business and assets of corporations the shares of which are privately owned detracts from their public status and responsibilities. They have responsibilities to the Registrar, the Minister and the Court.

30. A similar observation was made in Ellis v Counties Manukau District Health Board at [204]- [205].

31 Ararimu Farms and Investments Ltd v Stotter at 6.

[44] The Court’s interpretation is supported by the indication in s 5 of the Act that the preservation of the “public interest” is a separate factor from the interests of “members or creditors or beneficiaries”.32 This is entirely in keeping with the purposes of statutory management referred to above. As such, like the public welfare cases cited by the defendant, though the Act appears to apply to a particular category, its overarching purpose and intent is to preserve the viability of poorly managed companies and thereby the interests of the wider commercial network. In doing so, the manager must weigh various competing factors and identify the best way forward. Again, the phrase “have regard to” must be interpreted in this light. Imposition of mandatory considerations relating to the various competing groups would be unwieldy and impose unrealistic and unfair burdens on the manager in the exercise of his or her functions.

[45] Despite the Act’s commercial nature, its public welfare overlay makes it comparable to the cases cited by the defendant in which the Courts have declined to impose a statutory duty. For example, in Ellis v Counties Manukau District Health Board, the fact that the Mental Health (Compulsory Care and Treatment) Act had application to Mr Ellis as a patient did not undermine its status as a public Act with broader application.33

[46] Finally, the absence of a private law remedy does not mean that there is no control over the actions of a statutory manager. Such a situation was recognised in Bedfordshire, where Lord Browne-Wilkinson stated that the provision of “some other means of enforcing the duty ... will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action”, though he did not consider this indicator to be decisive.34 The phrase “means of enforcing the duty” is a very wide term. Here, a manager’s powers are ultimately controlled by the Crown, as statutory management may be terminated by the Governor General35 and a manager’s appointment may be terminated by a Minister

_{of the Crown.}36 _{The nature of these controls provides further evidence of the public}

32 _{Sections 4 and 5.}

33 _{See at [34] above.}

34 _{At 730.}

35 _{Section 62.}

36 Section 57.

nature of the Act. It is logically consistent to limit the plaintiffs’ available remedies to judicial review. The observations made in Select 2000 Ltd v ENZA Ltd, albeit in respect of a State Owned Enterprise, are pertinent:37

Significantly too there is no role for the court in the accountability provisions of the legislation. The immediate responsibility rests on the directors. They are persons “who, in the opinion of those appointing them, will assist the State enterprise to achieve its principal objective” (s 5(1)). In terms of s 5(3) the board of the SOE “is accountable to the shareholding Ministers in the manner set out in Part III of this Act or the rules of the State enterprise”. Importantly all decisions relating to the operation of an SOE are required to be made by or pursuant to the authority of the board in accordance with its statement of corporate intent (s 5(2)). ... The additional accountability of the SOE under Part II is in the delivery of annual reports and accounts to the shareholding Ministers (s 15), half-yearly reports to the Ministers (s 16) and such other information relating to its affairs as the Minister of Finance or responsible Minister requests (s 18), buttressed by the audit provisions of s 19. In turn, the shareholding Ministers of an SOE are responsible to the House of Representatives for the performance of the functions given to them by the SOE Act or the rules of the SOE (s 6).

[47] For completeness, I note that I consider the indemnity provisions in s 63 to be a neutral factor. Though the provisions could cover private liability, they may conceivably cover liability for an act or omission that falls short of fraud or misfeasance.

[48] The defendant also notes that as the only way in which a statutory manager may be removed from office is by the Minister of the Crown under s 57, it is not tenable for the plaintiffs to seek orders that the statutory manager should recommend the termination of statutory management to the Minister or that the statutory manager should transfer to the plaintiffs all relevant funds and documents. I tend to agree, but given my findings above, it is unnecessary to further address this point.

Conclusion

[49] Any duty owed under the Act is a public duty. The requirement to “have regard” to particular classes of persons is a statement of the broad obligations of the manager to carry out the statutory objectives of statutory management, and does not

_{indicate an elevated duty to which a private law right can be attached. This situation}

37 Select 2000 Ltd v ENZA Ltd.

is not distinguishable, in principle, from the recent line of authority referred to in this judgment that has declined to interpret public law duties as having a private law overlay. The plaintiffs have been unable to make out their case and their cause of action must fail.

Result

[50] The defendant’s application that the plaintiffs’ statement of claim dated 27

March 2012, be struck out, is granted.

[51] It is therefore unnecessary that I consider the alternative application for security for costs.

Costs

[52] The defendant has been successful and is entitled to costs on the application which I award on a 2B basis, together with proper disbursements.