Northern Civil Consulting Engineers Limited v Sovereign Station Trustee Limited [2014] NZHC 1620 (10 July 2014)

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IN THE MATTER OF	the Companies Act 1993
BETWEEN	NORTHERN CIVIL CONSULTING ENGINEERS LIMITED Plaintiff
AND	SOVEREIGN STATION TRUSTEE LIMITED _Defendant

Hearing:	10 July 2014
Appearances:	J A Browne for Plaintiff S Greer for B R Satherley Transport Limited, a creditor K Thomas on instructions from Thomson Wilson a creditor R C Mark for Defendant
_Judgment:	_{10 July 2014}

Solv Law, Penrose, Auckland, for supporting creditor, B R Satherley Transport Ltd

NORTHERN CIVIL CONSULTING ENGINEERS LIMITED v SOVEREIGN STATION TRUSTEE LIMITED [2014] NZHC 1620 [10 July 2014]

[1] This is a creditor’s application for a liquidation order. The proceeding was started in July 2013. The defendant filed a statement of defence in August 2013. The matter had its first call on 3 September 2013. Associate Judge Christiansen gave directions for the case to be heard. At the first call, the only parties who appeared were the plaintiff and the defendant.

[2] Later, B R Satherley Transport Ltd filed an appearance. It has been accepted as having standing without objection. Thomson Wilson, another creditor, filed a written appearance only on 3 July 2014. Its standing in this proceeding is now challenged.

[3] Initially, Sovereign Station Trustee Ltd contended that it was not indebted to the plaintiff. Directions were given for a defended hearing. Ultimately, the matter did not go to a defended hearing. The defendant accepted that it was indebted to the plaintiff for the sums claimed in the proceeding. I dealt with the matter on

24 February 2014. At that time I was told that Sovereign Station Trustee Ltd had only one significant asset, land in the Kaimaumau Swamp. The company was trying to negotiate a sale of that property. The plaintiff was content to await the outcome of those negotiations, to see whether the sale of the property would allow funds to become available to meet its claim. The plaintiff was prepared to wait rather than force the company into liquidation at that stage.

[4] Since then, the matter has been further adjourned to await a sale of the property. The matter was called on 12 May 2014. Counsel appearing for Northern Civil Consulting Engineers Ltd also had instructions from B R Satherley Transport Ltd. Thomson Wilson appeared. Mr Magee sought leave to appear for Thomson Wilson. I gave leave. I adjourned the matter to 10 June 2014. That was on the basis that a sale of the property was expected to settle on 6 June 2014.

[5] On 10 June 2014 I was told that the sale of the property had fallen through, but there was a new agreement in its place, and that was to settle on 9 July 2014.

[6] Over the objections of Thomson Wilson - but with the other creditors abiding the decision of the court – I adjourned the matter to July to await the settlement of

the sale of the property. There was a minor by-play when Thomson Wilson said that the sale was not going to happen and I had the matter called in the list on Monday,

7 July 2014. Mr Mark appeared in place of the solicitors who had formerly appeared for the company. Mr Mark pointed to the unfairness of my dealing with the matter when settlement was still to take place. Accordingly the matter was called today.

[8] The plaintiff and B R Satherley Transport Ltd advise that arrangements have been made to pay the amounts owing to them. I understand that a firm of solicitors in Auckland holds funds in its trust account to pay agreed sums to the plaintiff and B R Satherley Transport Ltd, but there are conditions attaching to these arrangements for payment. The solicitors have irrevocable instructions but tag is that the company not be placed in liquidation. I am advised from the bar that the arrangement is that these creditors will assign their debts and the payment to be made to them will come from the assignee.

[9] Those two creditors are satisfied with those proposed arrangements. On that basis the plaintiff no longer wishes to continue with its application and B R Satherley Transport Ltd will not seek leave to be substituted as creditor.

[10] If I granted leave to discontinue, that would mean that two of the creditors have been satisfied but there would still be the question of Thomson Wilson.

[11] Thomson Wilson carried out legal work for Sovereign Station Trustee Ltd at about the same time as Northern Civil Consulting Engineers Ltd provided their professional services to the company. Thomson Wilson says that its charges for its services come to $217,617.77 excluding GST. Thomson Wilson has security for its debt. It has a third mortgage over the property in the Kaimaumau Swamp. The first mortgage is to Westpac Bank and there is a second mortgage with G E Finance and Insurance. Thomson Wilson says that its mortgage is effectively worthless. The property was to be sold for $2,450,000. Thomson Wilson says that that price would not be enough to satisfy the first and second mortgagees, let alone itself.

[12] Towards the end of 2013 the lawyers then acting for Sovereign Station Trustee Ltd tried to negotiate an arrangement under which Thomson Wilson would accept a reduced payment in return for granting a discharge of the mortgage. Some of that correspondence has been put in evidence. Mr Mark says that there is also other correspondence. The agreement is recorded in a letter of Thomson Wilson to the defendant’s solicitors on 17 January 2014. The terms proposed by Thomson Wilson are these:

(a) We are compelled to disgorge any of this payment and/or any previous invoice payments received from your client e.g. to a liquidator or the Official Assignee; or

The payment and release is in full settlement of all or any disputes, claims, or complaints between ourselves, Ray Bird, his trust and other related entities.

This offer is conditional upon our approval of the terms of the sale and purchase agreement.

The lawyer for Sovereign Station Trustee Ltd advised that the terms were accepted.

[13] In May, the lawyers for Sovereign Station Trustee Ltd proposed a re- negotiation of the terms of settlement. Thomson Wilson rejected that and gave notice that it would appear. Thomson Wilson has since confirmed the terms of settlement and pressed for payment. Since the matter was called in June, Mr Mark has been instructed. Between the June call and the hearing today, Thomson Wilson filed a written appearance - on 3 July 2014.

[14] For Thomson Wilson, Mr Thomas seeks substitution under r 31.24. Mr Mark takes the point that Thomson Wilson is not entitled to seek substitution. He says that Thomson Wilson was required to file a notice of appearance two working days before the hearing. He relies on the Rada Corp decision¹to say that “date of

_{hearing” has been construed to mean the first date when
the matter is called.}

Mr Thomas notes that the court does have the power to grant extensions of time for appearances to be entered outside the time fixed under rr 31.18 and 31.19. There is the general power of the court to grant extensions of time under r 1.19. Similarly, r 31.20 allows the court to grant special leave.

[15] I come back to what happened when the case was called on 12 May 2014. At that time, Mr Magee for Thomson Wilson expressly sought leave to appear and I granted leave. There was no objection from Sovereign Station Trustee Ltd to Thomson Wilson appearing in the proceeding at that time. I regard the filing of the appearance on 3 July 2014 as simply formalising what had already occurred on

12 May 1214. Effectively, Thomson Wilson has been a party to this proceeding since 12 May 2014. If there were to be an objection to it appearing on 12 May 2014, I would have expected that to have been raised then, not now. It has since then pressed for a liquidation of the company. It has been impatient with the delays in arranging a sale of the property.

[16] Mr Mark objects that it is now too late for Thomson Wilson to make a move. It ought to have made its move in September 2013, at least two working days before the case was first called.

[17] If the matter had been raised in May 2014 there would have been good reason to allow Thomson Wilson to appear when it did. It was a secured creditor with a registered third mortgage but it became apparent to it in late 2013 that it had insufficient security. It then entered into an arrangement by way of compromise with Sovereign Station Trustee Ltd under which it agreed to accept a reduced sum in full and final settlement. It was reasonable for it to await payment.

[18] Mr Mark makes the point that payment could only have come out of the proceeds of sale of the Kaimaumau Swamp property. The agreement did not fix a time for payment. In the absence of any express provision fixing time, the law will allow a reasonable time for payment. Bearing in mind that a sale of the property was expected, I regard the period from January to May as a reasonable period in which to sell the property.

[19] In short, Thomson Wilson has a reasonable explanation for not having taken any steps before May 2014. The letter of Thomson Wilson of January 2014 makes it clear that it was to approve any agreement for sale and purchase. There is no evidence that any agreement was submitted to it for approval. Notwithstanding that, it does appear to have gone along with the agreement by waiting for payment.

[20] I treat the agreement as still in effect. Thomson Wilson is a creditor of Sovereign Station Trustee Ltd in the sum of $60,000 rather than the full amount of their fees. That was the agreement made, in full and final settlement of any issues. Thomson Wilson has had standing as a party to this proceeding from their first appearance on 12 May 2014. Although done informally, they were granted leave to appear from that time onwards.

[21] The present position is that two of the creditors have been paid and another one is being left out in the cold. Thomson Wilson asks for leave to be substituted under r 31.24. Rule 31.24(4) says:

(4) If a person has filed an appearance under rule 31.18 in a proceeding to put a company into liquidation and, on the day appointed for the hearing, or on any day to which the hearing has been adjourned, no plaintiff wishes then to proceed with the hearing of the application to put the company into liquidation, the court may, on the oral application of that person,—

(b) substitute that person for the plaintiff or plaintiffs or any of the plaintiffs in the proceeding.

[22] The significance of that provision is that it allows a creditor who has filed an appearance to apply for substitution not only on the day appointed for the hearing, being the first date of call, but also on any day to which the hearing has been adjourned. I have referred to that because the provision to apply on an adjourned date was not in force at the time of the Court of Appeal’s decision in BNZ v Rada Corp Ltd.

[23] Thomson Wilson does have standing to apply for substitution. Notwithstanding the opposition by Mr Mark, I grant leave to Thomson Wilson to be substituted. I have indicated when this case has been called before that this hearing was to be the company’s “last chance” to avoid a liquidation order. When the matter was called on Monday, 7 July 2014, I indicated to Mr Mark then that it would not be satisfactory for the company to pay off some creditors and leave others unpaid. A liquidation application is brought for the benefit of all creditors. It would be an error of judgment in my view for the court to allow this proceeding to be discontinued when there are still other creditors who are awaiting payment and who are to be left out in the cold or to pursue other remedies.

[24] Mr Mark contends that if I were to substitute, I should give directions for Thomson Wilson to file a fresh statement of claim, a fresh notice of proceeding, and a fresh verifying affidavit under r 31.24(5). I explored with Mr Mark whether there was any good reason for Sovereign Station Trustee Ltd to resist a liquidation application by Thomson Wilson. These matters are clearly established:

(a) Thomson Wilson is a creditor of Sovereign Station Trustee Ltd in the sum of $60,000;

(b) Sovereign Station Trustee Ltd is insolvent. It was not able to pay immediately the statutory demand served by Northern Civil Consulting Engineers Ltd. It was not able to pay its debt to B R Satherley Transport Ltd. It has sought extensions of time in order to realise assets so as to pay creditors, and the extensions of time have not been enough to allow it to clear its liabilities. There is abundantly clear evidence that it is unable to pay debts that have fallen due and are now long overdue.

[25] That leaves the question whether there is any reason why the court should exercise its discretion not to make a liquidation order.

[26] Mr Mark explored the idea that if Thomson Wilson were to press for payment of the original amount of the debt, that is $217,000 excluding GST, he would want to

take up their fees with the Law Society and contend that they are excessive. However, he accepted that the $60,000 debt, the amount of the compromise, could not be the subject of any dispute. Indeed the letter of Thomson Wilson of January

[27] Given that there cannot be any ground for disputing the debt, and given that this company has clearly been insolvent for a significant period of time and has been unable, by its own efforts, to realise its assets to pay creditors, this is a case that clearly calls out for a liquidation order to be made. I can think of no reason why the court should exercise its discretion not to make a liquidation order.

[28] Accordingly, I am going to make a liquidation order now. It will be conditional on Thomson Wilson filing for a statement of claim in form C1, a notice of proceeding in form C3, and an affidavit in form C4. The order is to lie in court until those documents have been filed. Upon those being filed, the order will take effect. I am making the liquidation order at 1:20pm.

[29] There will also be orders for costs in favour of Thomson Wilson on its appearances. Thomson Wilson should discuss costs with Mr Mark in the first instance. If they cannot agree I will receive submissions.

[31] I also make orders for costs in favour of Northern Civil Consulting Engineers

[32] That is intended to cover all matters but in case there are any difficulties, I reserve leave to come back for any clarification.

High Court of New Zealand Decisions

Northern Civil Consulting Engineers Limited v Sovereign Station Trustee Limited [2014] NZHC 1620 (10 July 2014)