Meltzer v Steel Traders Limited [2012] NZHC 3073 (19 November 2012)

High Court of New Zealand

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Meltzer v Steel Traders Limited [2012] NZHC 3073 (19 November 2012)

Last Updated: 22 November 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-3169 [2012] NZHC 3073

UNDER the Companies Act 1993

IN THE MATTER OF The Liquidation of WINDOW HOLDINGS LIMITED (IN LIQUIDATION)

BETWEEN JEFFREY PHILIP MELTZER AND LLOYD JAMES HAYWARD AS LIQUIDATORS OF WINDOW HOLDINGS LIMITED (IN LIQUIDATION)

Applicants

AND STEEL TRADERS LIMITED Respondent

Hearing: 26 September 2012

Appearances: Mr R B Hucker for Applicants for non-party discovery application

Mr J Marcetic and Mr B J Burt for Respondent

Judgment: 19 November 2012

_{JUDGMENT OF ASSOCIATE JUDGE DOOGUE}

This judgment was delivered by me on

19 November 2012 at 4.30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

Solicitors:

Hucker & Associates, P O Box 3843, Shortland Street, Auckland – [e-mail]

_{Chapman Tripp, P O Box 2206, Auckland – [e-mail]}

MELTZER & ANOR AS LIQUIDATORS OF WINDOW HOLDINGS LIMITED (IN LIQUIDATION) V STEEL TRADERS LIMITED HC AK CIV-2012-404-3169 [19 November 2012]

[1] The background to this proceeding was that a company called Windows Holdings Limited (in liquidation) (“WHL”) was placed in liquidation by order of the High Court on 1 July 2011. The liquidators took possession of the company’s documents including a ledger showing payments made by the company of

$20,746.80 on 30 July 2001 and $12,590.92 cents on 21 September 2010. Those payments were made out of the company’s bank account. The company’s records included entries relating to the payments in a ledger which had been opened in the name of “Steel Traders a division of H J Asmuss & Co Limited”. The company’s bank records show that on the same dates as referred to in the company’s ledgers; a direct credit was made out of the company’s bank account with the narration being “Steeltraders”.

[2] The liquidators believing that the payments were made at a time when the company was insolvent, made demand on the respondent, Steel Traders Limited (“STL”) invoking s 292 of the Companies Act 1993. The payments that were specified in the notice given to STL referred to:

(a) Payments made of $20,746.80 on 30 July 2010 and $12,590.92 on

21 October 2010 totalling $33,337.72 to the extent of $33,337 (being the difference in the amount owed by the company as at 1 June 2010 of $33,337 less the amount due as at the date of liquidation being zero dollars.

[3] Exchanges of correspondence then ensued. Solicitors acting for STL wrote objecting to the notice on the grounds that STL never traded with WHL and never received payments from WHL. In due course STL produced its bank statements covering the relevant period which are consistent with what the solicitors said. As well an affidavit has been filed on behalf of STL. Mr Lynch-Blosse who is the group finance manager of H J Asmuss & Co Limited which is the sole shareholder in STL gave that affidavit. He confirmed that STL had never traded with WHL. He confirmed that the bank statements showed that no payment had been received in the period stated. He confirmed that STL had banked with Westpac (the bank which issued the statements previously referred to) and has held one bank account only with the number supplied.

[4] The liquidators responded with an affidavit from Mr Hayward in which he said that he had asked the BNZ, which was WHL’s bank, to trace where the payments made had gone to. The response that he received was that one of the payments, the $20,746.80, was paid into a Westpac Bank account with a different number from that for which the bank statements had earlier been provided by the owners of STL. The bank will not however identify who the owner of that other account is. STL denies that it is their bank account.

[5] The liquidators then filed an application for non-party discovery directed to Westpac Bank Limited to discover who the proprietor was of the account to which the payment was made. It is that application which this judgment is concerned with. The respondent opposes the making of such an order. The grounds of opposition are that an order for non-party discovery would be exceptional in the case of an originating application (which is the nature of the proceedings here). It is said that the information and documents sought are not required for the proper determination of the issues in the proceeding. Thirdly it is clear that the respondent did not receive the payments and the identity of the actual recipient of the payments is irrelevant and the applicants are improperly seeking to conduct a fishing expedition to identify which other person or entity received the funds in question for the purposes of future proceedings. There are other grounds set out including that the liquidators ought not to have proceeded by way of a discovery application when they had an entitlement under s 261(2) of the Companies Act 1993 to require Westpac to provide the information about the identity of the account holder.

[6] It was the applicants’ case, as explained to me by Mr Hucker, that proof that there had been an insolvent transaction in terms of s 292 of the Companies Act 1993 did not require that any transfer of funds or payment needed to be directed into the account of the respondent party from whom recovery was sought. If, for example, Mr Hucker said payment was actually made to another party at the direction of the creditor the section could still be engaged. That would come about he submitted, for example, in a case where the other party had agreed to accept such payment as an offset against a debt which it owed to the respondent. I will accept for the purposes of argument that that submission is correct. However, that such an arrangement may have existed involves speculation.

[7] It is plain that the evidence in this case does not show that the creditor gave any such directions for payment to be made to a third party.

[8] The records of WHL identify the recipient of the payments as being Steeltraders. The ledger refers to a company of that name. Significantly the ledger also identifies the particular “Steeltraders” that is being referred to as being “a division of H J Asmuss & Co Limited.” The respondent company, Steel Traders Limited is a company which broadly answers to the same description. It has the same name and it has the same proprietor company. The fact that WHL’s bank account shows the payment going to “Steeltraders” is not independent corroboration of the fact (if it be that) that the payment was made to Steel Traders. It is possible if not likely that that entry reflects the name in which the ledger was maintained at WHL.

[9] If Mr Lynch-Blosse is correct in his affidavit in stating that STL never dealt with WHL and that the account into which the money was paid was not STL’s, then it would appear that two errors were made at WHL. The first is that they intended to make a payment to a party to whom they did not owe money and second in carrying through that mistaken intention, they paid the money into the wrong bank account. The question comes down to whether any assumption can be made that there is a level of probability that, notwithstanding Mr Lynch-Blosse’s denials, an attempt was made to pay money to STL. Another possibility is that WHL indeed had the right bank account, but that bank account was not that of STL and that WHL’s records are incorrect in that they identify the wrong party as being entitled to payment.

[10] The documents that a non-party may be ordered to discover under r 8.21 must be documents that adversely affect STL’s position or that support the liquidators’ claim. An order may be made for the production of documents that may be discoverable. There must be some ground for believing that that describes the position of Westpac in this case, that it is in control of a document that may be discoverable. It is not necessary for the applicant to show, for example, on the balance of probabilities that that is the case. Something more than a bare possibility though would seem to be required. As part of weighing the available evidence, Mr Lynch-Blosse’s affidavit is not to be taken as being necessarily correct.

Obviously though it is entitled to considerable weight. It is a matter of weighing up the inferences to be drawn from the state of the records that were maintained by WHL before its liquidation, on the one hand, and on the other express affirmation which Mr Lynch-Blosse has made which may be taken to be a conscientious statement based on actual knowledge. Against that, his deposition is apparently inconsistent with contemporary records of the company. If there is a possibility that Mr Lynch-Blosse is in the error then in my view the inference that can be drawn from the state of WHL’s accounts is enough to show that there are some grounds for supposing that the payment which went into the Westpac bank account either reached an account that STL was the proprietor of or alternatively is the account of a party to which WHL was directed to pay the money by STL.

[11] Even if the affidavit that Mr Lynch-Blosse filed is accepted as establishing that no payment was made directly to STL by placing money in its bank account, there is enough evidence to require an investigation of whether Westpac's records could assist the liquidators to establish that an insolvent transaction took place in some other form.

[12] For those reasons I conclude that there is sufficient evidence here justifying the making of an order, subject to consideration of the other factors that have been put forward in opposition by the bank.

[13] I do not consider that the ground of opposition that this is an originating application is particularly weighty in the circumstances of this case. The reason why the Courts do not generally favour discovery on originating applications is that there is no need for them because the parties are required to set out all of their evidence in affidavit form prior to the hearing. The position is rather different here because Westpac as a non-party has not been required to provide any sort of affidavit.

[14] In case I am wrong in my preceding conclusions, I will consider whether there are discretionary reasons why an order ought not to be made.

[15] As Mr Marcetic pointed out there is no longer any requirement that an order only be made where it is necessary.

[16] It was the further submission of Mr Marcetic that the liquidators could have used their powers under s 261(2) of the Companies Act 1993 to require Westpac to provide information about the identity of the account at Westpac into which the payment was made. Section 261 provides, so far as relevant

(1) A liquidator may, from time to time, by notice in writing, require a director or shareholder of the company or any other person to deliver to the liquidator such books, records, or documents of the company in that person’s possession or under that person’s control as the liquidator requires.

(2) A liquidator may[,from time to time,] by notice in writing require —

(a) A director or former director of the company; or

(b) A shareholder of the company; or

(c) A person who was involved in the promotion or formation of the company; or

(d) A person who is, or has been, an employee of the company;

or

(e) A receiver, accountant, auditor, bank officer, or other person having knowledge of the affairs of the company; or

(f) A person who is acting or who has at any time acted as a solicitor for the company —to do any of the things specified in subsection (3) of this section.

(3) A person referred to in subsection (2) of this section may be required

—

(a) To attend on the liquidator at such reasonable time or times and at such place as may be specified in the notice:

(b) To provide the liquidator with such information about the business, accounts, or affairs of the company as the liquidator requests:

(c) To be examined on oath or affirmation by the liquidator or by a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:

(d) Assist in the liquidation to the best of the person’s ability.

...........

[17] I do not agree that the Court should expect liquidators to have resort to s 261 before seeking non party discovery or that the latter should not be granted where the opportunity exists to use the powers contained in the former. I accept that if the argument assumes that such a course is preferable because it has less impact upon the party from whom information is sought, then it is not without merit. Such an approach assumes that if a notice was given the bank would hand over the relevant copies of its records as required. The approach assumes that the bank would comply with a requirement from the liquidator without the need for seeking an order under s

266 from the Court. While recognising that the issuing of a requirement under s 261 may be less interventionist and may be simpler, there may still be good reasons why the liquidators would prefer to have a disposition on oath concerning the state of the banks records. If that were so, it would be understandable why they would prefer to have an order for discovery.

[18] But more important is the consideration that the discretion to order non-party discovery is a broad one. I do not consider it is desirable that it should be limited by imposing restrictions on its exercise. I consider that the approach that the bank contends for would have that effect.

[19] The next issue concerns the submission for the defendants that the liquidators are on a “fishing” expedition. If it was clear from all the circumstances that the liquidators were not genuinely seeking to advance their claim against STL but were casting about for an alternative party from whom to recover the money then I would agree. However the making of this application in the context of the evidence that has been supplied is consistent with the liquidators in fact prosecuting their claim against the respondent. It may turn out that if the holder of the Westpac Bank account is not STL but another legal entity altogether that other legal entity may then find itself exposed to a claim under s 294 or 295 of the Companies Act in place of the current respondent, STL. But the fact that it is a possibility that the non-party discovery order does not prove what the liquidators hope to establish but in fact turns up the identity of another person does not necessarily mean that the liquidators are on a “fishing expedition”.

[20] In my view this is an appropriate case in which to make an order and I make the orders sought in the notice of application dated 5 September 2012 at paragraph

2(a).

[21] The order is made subject to the condition that the applicants are to meet the reasonable costs of Westpac Bank in complying with the terms of the order.

[22] So far as the costs of this application are concerned, the parties should confer on what, if any costs order ought to be made and if they are unable to agree should file memoranda not exceeding five pages on each side within 10 days of the date of

_{this judgment.}

J.P. Doogue

Associate Judge