Curtis Holdings Limited v Habode IP Limited [2013] NZHC 367 (1 March 2013)

Last Updated: 11 April 2013

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-409-2610 [2013] NZHC 367

UNDER the Companies Act 1993

BETWEEN CURTIS HOLDINGS LIMITED Plaintiff

AND HABODE IP LIMITED Defendant

Hearing: 27 February 2013 (Heard at Wellington)

Counsel: C. Matsis & R. Barbalich - Counsel for Plaintiff

A. Watt - Counsel for Defendant

Judgment: 1 March 2013

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

Under r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 3.30 pm on 1 March 2013.

Solicitors: Gault Mitchell Law, Solicitors, PO Box 645, Wellington 6011

_{Thomas Dewar Sziranyi Letts, Solicitors, PO Box 31-240, Lower Hutt}

CURTIS HOLDINGS LIMITED V HABODE IP LIMITED HC WN CIV-2012-409-2610 [1 March 2013]

Introduction

[1] This proceeding involves a defended liquidation application which was transferred at the request of the parties on 17 January 2013 to the Wellington High Court from the Christchurch High Court.

[2] The proceeding was initially commenced in the High Court at Christchurch with a statement of claim filed by the plaintiff on 23 November 2012.

[3] On 19 December 2012 the defendant filed its statement of defence and as noted above, on 17 January 2013 by consent orders were made transferring this proceeding to the High Court at Wellington.

[4] Before this Court at the hearing on 27 February 2013 were two applications:

(a) An application by the defendant seeking an adjournment of this liquidation application, opposed by the plaintiff.

(b) An opposed application by the plaintiff seeking the order for liquidation.

Preliminary Matter

[5] As a preliminary matter, the plaintiff’s liquidation application appears to have been advertised in the Press newspaper in Christchurch on 7 February 2013 and in the New Zealand Gazette also on 7 February 2013. A statement as to this advertising was filed on 15 February 2013.

[6] There does not appear however to be any confirmation of service of the proceeding on the defendant company on the Court file. Although an affidavit of service of the statutory demand itself was filed in the Christchurch High Court on 23

November 2012, there is no affidavit of service of the proceeding itself on file. This would of course be required before any order for liquidation is made. Given, however, my decision which will follow to the effect that the present proceeding is

simply to be adjourned, this would allow time in any event for the plaintiff to cure this problem and provide an appropriate affidavit for service.

Background Facts

[7] As I have noted above, the issue which faces the Court here is whether these proceedings should be adjourned as requested by the defendant or whether the plaintiff’s liquidation application should proceed.

[8] At the outset it is clear in this case that there has been an acrimonious dispute between these parties and their related entities and that dispute has been long- running.

[9] A Mr Gibson who is the owner of the defendant company is a designer. In the early 2000s, Mr Gibson designed a container house known as “Habode”. As I understand it, this is a house contained within a shipping container and can be transported to a location, unpacked and erected.

[10] The owner of the plaintiff company, a Mr Curtis, provided financial backing for the Habode concept. Steps were taken by the parties to deliver that concept for sales in New Zealand and overseas including Australia.

[11] From the outset, however, it seems Mr Gibson sought to protect the intellectual property of the Habode idea, and thus the defendant company was formed to hold the intellectual property for that concept.

[12] In 2006 it seems the New Zealand venture between the Gibson interests and

the Curtis interests collapsed and the parties’ business relationship ended.

[13] Mr Gibson then continued with the venture in Australia focusing both on the Habode concept and on a different product, a simpler container house known as the “IHouz”.

[14] In 2008, following the collapse of the venture, both parties brought Court proceedings against each other. Mr Curtis and the plaintiff issued proceedings

against Mr Gibson and the defendant claiming that the joint effort of the parties amounted to a “joint venture” in which they owed duties to each other. The Curtis interests claimed that Mr Gibson had breached his fiduciary duties in continuing the venture after the relationship ended.

[15] In February 2001, a trial of these issues was held at the High Court in Wellington. The Court found that there was no overarching joint venture either in Australia or in New Zealand. In finding effectively for the Gibson interests, a significant costs award I understand of $104,881.69 was made against Mr Curtis and the plaintiff as a result.

[16] The defendant and Mr Gibson then commenced enforcement proceedings against the Curtis interests to recover this costs award. It was agreed by the parties then that the costs amount would be paid and held in a solicitor’s trust account until the end of an appeal by the Curtis interests to the Court of Appeal against the High Court decision. The amount in question was paid into the solicitor’s trust account.

[17] The appeal by the Curtis interests to the Court of Appeal, I am told adopted a significantly narrower approach than the original claim made in the High Court. In the Court of Appeal, the Curtis interests focused solely on an alleged joint venture in Australia and disavowed any joint venture in relation to the New Zealand business. In addition, it was apparently accepted that the intellectual property concerned was owned by the defendant company and any suggestion made earlier that it might be owned by the joint venture was disavowed.

[18] On the much narrower point argued before it, the Court of Appeal reversed the decision of the High Court and accepted that there was a joint venture between the parties with fiduciary duties with respect to the Australian venture alone. In a decision released on 5 August 2011, the Court of Appeal remitted the substantive matter back to the High Court for an account of profits to determine how much Mr Gibson and his related entities including the defended company had profited from the Australian venture. This was to include a consideration of how much of that profit could be attributed to the joint venture, given that it did not cover the “IHouz” container house and nor did it own the intellectual property.

[19] In making its decision, the Court of Appeal made a costs award in favour of the plaintiff on the appeal and overturned the original High Court costs award of

$104,881.69. It did not, however, make a new costs award for the High Court matter, rather directing that the High Court reconsider the issue of costs in that Court in light of its judgment and “any further steps necessary in the High Court”.

[20] The Gibson interests then sought leave to appeal the Court of Appeal decision to the Supreme Court, but this was denied. The defendant also unsuccessfully applied to recall the Court of Appeal judgment to remove the defendant from liability on the basis that it was not part of the joint venture.

[21] The present liquidation proceeding relates to a sum of $30,193.11 which represents the costs awarded against the defendant company by both the Supreme Court and the Court of Appeal. The plaintiff ’s statutory demand for this amount against the defendant was served on 26 September 2012 but it met with no response.

[22] Following the 5 August 2011 decision of the Court of Appeal, the parties it seems have been preparing for the accounting of profits hearing in the High Court. In addition, the plaintiff has successfully applied for freezing orders against the defendant which were made by His Honour Justice Simon France on 19 December

2011. Those orders were to the effect that the Gibson interests including the defendant company were restrained from dealing with, disposing of, or diminishing the value of the intellectual property, any marketing or licensing rights attaching to the products in question and the proceeds of any sales of these. The freezing orders however indicated that the orders “can be varied of course to allow for any sale (of the intellectual property) to occur so long as suitable arrangements are made for the preservation of the proceeds.”

[23] The account of profits hearing I am told had been originally set down for a four day hearing in this Court in June 2013. Because of the unavailability of counsel for the plaintiff, however, this date could not be met and the four day hearing of this matter is now set to commence on 9 September 2013.

Adjournment Application

[24] I turn first to consider the defendant’s adjournment application before me.

[25] Rule 10.2 High Court Rules allows the Court to postpone or adjourn a trial “if it is in the interests of justice” to do so.

[26] On the question of adjournments generally, Tipping J in O’Malley v Southern Lakes Helicopter Limited HC, Christchurch, CP513/89, 4 December 1990 stated at [1]-[2]

The essential question which the Court always has to consider when asked for an adjournment is whether or not that is necessary in order to do justice between the parties. One must not overlook that not only is it necessary to do justice to the party who is seeking the adjournment but also justice to the party who wishes to retain the benefit of the fixture. It is essentially a balancing exercise.

This was cited with approval in Gray v Thom [1997] 10 PRNZ 373 and Meroiti v

Lindale Lodge Limited [2012] New Zealand EMPC175.

[27] The defendant’s primary submission in support of its adjournment application is that this liquidation proceeding should be adjourned until the substantive hearing in this Court on the account of profits matter is completed and a decision on that matter given. The defendant contends that if it were to be liquidated it would to all intents and purposes be unable to participate in the substantive hearing and if successful, to seek costs at that hearing. To this end, the defendant notes that a specific decision has been made to hold off resolving the final costs position in this Court until after that account of profits trial is completed.

[28] As a result the defendant contends that making an order for liquidation against it based upon the costs awards of the Court of Appeal and the Supreme Court would be contrary to the interests of justice and subvert what it maintains is the very real possibility that the defendant here might find itself ultimately to be in a “net win” position at the end of the proceedings.

[29] In response, counsel for the plaintiff takes issue with these contentions, and argues that there is little likelihood on ultimate disposal of this proceeding that the

defendant could find itself in a positive position. Also, the plaintiff says the defendant here did not apply to set-aside the statutory demand served on it on 3

October 2013 and the plaintiff should be entitled now to simply seek payment of the costs orders made in its favour.

[30] Next, the defendant contends that with the existence of the freezing orders noted at para [22] above, the plaintiff in any event has effectively some form of security for the costs awards. And, those orders it says prevent the defendant from utilising or selling its intellectual property rights to provide funds to clear the costs debt.

[31] In response, counsel for the plaintiff noted that the decision of His Honour Justice Simon France in making the freezing orders clearly provided that those orders could be varied to allow for a sale, for example of the intellectual property rights, subject to appropriate protections being put in place by the Court.

[32] Counsel for the plaintiff then went on to note quite properly that there was a complete absence of any evidence from the defendant as to its solvency or financial position here. The only document which is in fact before the Court filed on behalf of the defendant is its statement of defence. There is no affidavit in support nor any other material upon which the Court can determine the true financial position of the defendant.

[33] On this aspect, counsel for the defendant did acknowledge that there is no affidavit evidence from Mr Gibson or anyone else in support of the statement of defence. Counsel sought some time however, for an appropriate affidavit to be filed and he noted that the reason for the delay here rested very much with the fact that for some time Mr Gibson has been residing and working in China and communication difficulties have arisen throughout.

[34] Notwithstanding this, what I see is an important matter here has just arisen today 1 March 2013. This of course is subsequent to the hearing of this matter before me which occurred on 27 February 2013. Today, Mr Watt counsel for the

defendant has filed in this Court a Memorandum dated 1 March 2013 relating directly to critical matters at issue in this proceeding.

[35] This Memorandum states in part:

1. ... The Court (on the defended liquidation hearing) reserved its decision and in the meantime the parties have been in settlement discussions.

2. While settlement discussions are ongoing, the Defendant wishes to preserve its position by depositing the debt amount claimed by the plaintiff ($30,193.11) with the Court.

3. The Defendant will deposit the said funds into the Court as soon as it can be arranged with the Court following filing of this memorandum, and in any case within seven days.

[36] In my view, under all the circumstances prevailing in the present case, including obvious questions which remained as to the absence of evidence as to the solvency of the defendant, the matters contained in this Memorandum made some difference to issues before me.

[37] Although I must note here that I have not had an opportunity to refer this Memorandum to counsel for the plaintiff or to hear from him in response, it will in any event be clear that, if this $30,193.11 payment, which is the amount claimed in the plaintiff’s statement of claim, is paid into Court within 7 days as indicated in Mr Watt’s Memorandum, then it is difficult to contend in the absence of any evidence to the contrary that the defendant company is insolvent or that the Court should exercise its discretion to make a liquidation order.

[38] As McGechan on Procedure notes at HR 31.11.04, in addressing issues as to proof of solvency of a defendant company:

In a case where the full amount has been paid over as security, it is difficult to imagine a situation where a liquidation order would be justified ......

This approach was approved by Master Thomson in Airborne Freight Ltd v Fastway

Express Parcels (New Zealand) Ltd (1994) 7 PRNZ 372.

[39] And, although it related to the somewhat similar situation of the granting of a stay of liquidation proceedings under (now) r 31.11 High Court Rules, the Court of

Appeal in Taxi Trucks Ltd v Nicholson (1989) 2 NZLR 297 and Morrison v Speedy

Parcels Ltd (1990) 5 NZCLC 66,203 appeared to accept this payment - in procedure.

[40] With this recent development noted at [34] and [35] above, I am satisfied that the interests of justice to both parties here require that the adjournment sought by the defendant should be granted but that the order doing so needs to be conditional on payment of this $30,193.11 into Court. And, the adjournment would be until after conclusion of the account of profits hearing in this Court and delivery of the Court’s decision.

Conclusion

[41] An order is now made therefore adjourning the plaintiff ’s liquidation application to a call in this Court after the delivery of the Court’s decision on the account for profits hearing to take place on 9 September 2011. This order is however strictly conditional upon the $30,193.11 payment from the defendant being made into this Court within five working days of the date of this judgment.

[42] Leave is reserved for any party, on 48 hours notice, to approach the Court further if this may not have occurred, or if circumstances have changed in such a way as to require this proceeding to be brought on for an earlier hearing.

[43] In the meantime, it is suggested that in the interests of all parties, an appropriate affidavit verifying the financial position of the defendant company should be provided both to the Court and to the plaintiff.

[44] Given my decision above granting the defendant’s adjournment application, obviously there is no need at this point to address the plaintiff’s liquidation application noted at [4] above.

[45] Costs on the present applications are reserved. If they are in issue between the parties, then counsel may file Memoranda sequentially which are to be referred to me and a decision will be made on the papers.

‘Associate Judge D.I. Gendall’