Duckie Investment Company Limited v Formosa Auckland Country Club Limited [2015] NZHC 1381 (18 June 2015)

High Court of New Zealand

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Duckie Investment Company Limited v Formosa Auckland Country Club Limited [2015] NZHC 1381 (18 June 2015)

Last Updated: 6 July 2015

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-676 [2015] NZHC 1381

IN THE MATTER	of the Companies Act 1993, s 248
BETWEEN	DUCKIE INVESTMENT COMPANY LIMITED Applicant
AND	FORMOSA AUCKLAND COUNTRY CLUB LIMITED (IN LIQUIDATION) Respondent

Hearing:	16 June 2015
Appearances:	D K Wilson for Applicant H M Lim for Respondent
Judgment:	18 June 2015

_{JUDGMENT OF WHATA J}

This judgment was delivered by Justice Whata on

18 June 2015 at 3.00 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Phillip Wong & Ben Bong Law Office, Auckland

Forest Harrison Lawyers, Auckland

DUCKIE INVESTMENT COMPANY LIMITED v FORMOSA AUCKLAND COUNTRY CLUB LIMITED (IN LIQUIDATION) [2015] NZHC 1381 [18 June 2015]

[1] Duckie Investment Company Ltd (Duckie) seeks leave to commence proceedings against Formosa Auckland Country Club Ltd (in liquidation) (Formosa) for the purpose of obtaining orders pursuant to the Property Law Act 2007 removing an easement over its property in favour of Formosa. The liquidator of Formosa opposes the application.

Background

[2] There is no dispute about the background. Formosa was placed into liquidation on 31 January 2012. It owned a property situated at 110 Jack Lachlan Drive, Beachlands, being the land owned as Lot 1 DP 420017 (Lot 1) with the identifier number 476188. Lot 1 is subject to a water supply easement over the part marked “A” on DP 420017 created by easement instrument 8283945.2 (easement). A copy of the deposited plan is shown below.

[3] This lot was sold to the applicant on 27 September 2013.

[4] Lot 2, which takes the benefit of the easement, remains in Formosa’s ownership and is currently used as a golf course. The easement allows Formosa to access water from Lot 1. Under the easement the applicant has the full, free, uninterrupted and unrestricted right, liberty and privilege at all times to:

(a) take water from the dam located within area “A” on Lot 1;

(b) enter Lot 1 for all or any of the following purposes, namely:

(i) Maintaining, laying, repairing and inspecting and from time to time renewing the drainage pipes; and

(ii) To maintain, repair and inspect from time to time the pump house and any plant and equipment necessary for the operation and maintenance of the pump in order that the water can be taken from the dam located within area “A” on Lot 1;

(c) the water taken from area “A” shall at all times be free of any charge

whatsoever to Lot 2;

(d) the costs of repairing and maintaining the pipes, pump, pumphouse, and any plant and equipment necessary for the taking of water by Lot

2 from area “A” on Lot 1 shall be borne by the registered proprietor of

Lot 2;

(e) the costs of repairing and maintaining the pipes, pump, pumphouse, and any plant and equipment necessary for the taking of water by Lot

1 from area “A” on Lot 1 shall be borne by the registered proprietor of

Lot 1; and

(f) any dispute as to the liability of the parties under these terms and conditions shall be determined by arbitration under the Arbitration Act

1996 or any Act passed in substitution thereof.

[5] Prior to the purchase of Lot 1, an issue emerged as to the legality of the dam. The issue was captured by cl 20 of the sale and purchase agreement to Duckie, namely that:

The Purchaser acknowledges that the Vendor has disclosed to the Purchaser regarding Auckland Council’s concern in respect of the structural stability/hazard posed by the existing dam/impounded water situated on the property (dam issue). The Purchaser acknowledges that on settlement the property may be subject to requisition or notice to fix issue by Auckland Council or other authority. The Purchaser shall have no remedy against the Vendor in respect of the dam issue.

[6] An abatement notice for the dam was later issued by the Auckland Council. Following purchase of the property the applicant became responsible for the dam and had it removed.

Jurisdiction

[7] There is also no dispute as to my jurisdiction to grant leave. Section 248 of the Companies Act 1993 states:

248 Effect of commencement of liquidation

(1) With effect from the commencement of the liquidation of a company,—

...

(c) Unless the liquidator agrees or the Court orders otherwise, a person must not—

(i) Commence or continue legal proceedings against the company or in relation to its property; or

(ii) Exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:

...

(2) Subsection (1) of this section does not affect the right of a secured creditor, subject to section 305 of this Act, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.

...

[8] The applicable principles were essayed in IH Wedding & Sons Ltd v Buy- Sell Realty NZ Ltd:¹

[12] The basis upon which the Court must approach its discretionary jurisdiction under s 248(1)(c) is well established. Relevant factors are discussed in Fisher v Isbey (1999) 13 PRNZ 182 and in Birchall v Project Works Construction Ltd (in liquidation) (2004) 9 NZCLC 263,547. In summary, the primary factors are:

a) The requirement for equality among creditors;

b) The consideration that the assets of the company should not be dissipated in wasteful litigation, particularly if there is a more convenient method of determining the claim;

c) The need for consideration of the alternative procedures prescribed by s 302 of the Act, coupled with the Court’s power of review in s

284(1)(b);

d) The proposed claim must be shown to be not unsustainable, but beyond that the court should not examine the merits of the case;

e) Where the relevant proceedings, even if successful, are likely to be fruitless, leave will often be declined;

f) Delay by an applicant may justify the refusal of leave;

g) Overall, the onus is on the party seeking leave to satisfy the Court that leave should be given.

Issues

[9] The respondent’s submissions helpfully set out the key issues namely:

(a) Would the assets of the company be dissipated in wasteful litigation or is there a more convenient way for determining the claim?

(b) Is the applicant’s claim sustainable?

(c) Are the relevant proceedings likely to be fruitless?

[10] The respondent submits that, if leave is granted, the assets of the company will be dissipated in wasteful litigation in that there is a more convenient method for

_{determining the claim, namely by a deferral of the proceedings until the sale of the}

¹ IH Wedding & Sons Ltd v Buy-Sell Realty NZ Ltd HC Auckland CIV-2008-404-5502, 27

November 2008

Formosa land to a third party is concluded on 30 September 2015. Ms Lim advises that that sale and purchase agreement is unconditional. She therefore submits that no useful purpose will be served by commencing proceedings now against the liquidator. In oral argument it also became clear that the liquidator did not claim to have any interest in the property, submitting that where a company’s property is subject to a charge, the company assets do not include that property. In the present case, the mortgagees have exercised their power to sell the property which as noted, is now subject to an unconditional sale and purchase agreement. Ms Lim, therefore submits that bringing a claim against the liquidator is pointless.

[11] I confess to having found the liquidator’s position to be somewhat confusing and contradictory. On the one hand the liquidator is actively opposing the grant of leave, but on the other hand is disclaiming any ongoing interest in the subject matter of the litigation. It seems to me that a preferable approach would have been for the liquidator to abide the decision of the Court, while informing the Court as to the potential implications of the grant of leave, should it consider it necessary to do so in order to protect the interests of the creditors.

[12] In any event, I do not consider that the deferral of the commencement of proceedings is the more convenient way of determining the claim. That would simply delay the inevitable, namely the commencement of proceedings in relation to the easement. The liquidator’s submission however has properly brought into focus the need to ensure that the proper respondents are named in the proceedings, should leave be granted. In this case that must include the purchaser under the sale and purchase agreement and the mortgagee. I have more to say about that below.

Is the applicant’s claim sustainable?

[13] It is abundantly clear to me that the applicant’s claim meets the sustainability

threshold. Section 317 of the Property Law Act 2007 states:

317 Court may modify or extinguish easement or covenant

(1) On an application (made and served in accordance with section 316) for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—

(a) the easement or covenant ought to be modified or extinguished (wholly or in part) because of a change since its creation in all or any of the following:

(i) the nature or extent of the use being made of the benefited land, the burdened land, or both:

(ii) the character of the neighbourhood:

(iii) any other circumstance the court considers relevant;

_or

...

[14] On the facts before me, there is at least an arguable case that the easement should be modified or extinguished because the nature and extent of the use being made of the burdened land has plainly changed. The easement was granted on the premise of the existence of a dam and the ability to take water from that dam. Both the dam and the ability to take water pursuant to a resource consent have gone. Prima facie, at least, the s 317 jurisdiction is triggered.

[15] The liquidator nevertheless submits that the easement contemplates the respondent’s full, free and uninterrupted and unrestricted right and privilege to take water from the dam, and for entering the land to maintain, lay, repair and inspect and from time to time renew the drainage pipes. I infer from this that the basic argument that the beneficiary of the easement has an ongoing interest in its maintenance.

[16] The respondent may well be right about all of this, but that plainly goes to the substantive merits of any proceedings commenced by the applicant. It does not in my view come anywhere near close to showing that the applicant does not have a sustainable case.

Are the relevant proceedings fruitless?

[17] The final issue raised by the respondent is that it is highly likely that it will no longer be a party to proceedings once the sale and purchase of the property has settled. Any proceedings against it therefore are likely to fruitless.

[18] With respect to the liquidator’s submissions, there is a large element of

speculation about this. While the sale and purchase agreement is unconditional,

there is no guarantee that settlement will take place. In any event, the anticipated departure of the liquidator does not in my view provide a proper basis on the facts in this case, from depriving the applicant of the opportunity to vindicate its claim in this Court. The easement is currently a burden on Lot 1 and based on evidence given by Mr Xu, is currently preventing the utilisation of that land, for among other purposes, subdivision. The applicant ought not to bear that holding cost for any longer than is necessary.

The purchaser and mortgagee

[19] I am advised that a copy of the proceedings were sent to the purchaser. I am also advised that a representative of the mortgagee was told about this application. Ms Lim could not be sure, however, that the mortgagees were formally advised. It would have been preferable in my view for the mortgagees to have been served formally with this application given their interests in the property. But I have come to the view that any prejudice to them can be remedied by their formal service in relation to the substantive proceedings. Indeed, I find it difficult to envisage that the mortgagees would have advanced anything more than the liquidator in terms of registering opposition to leave in this case.

Result

[20] Given that the dam has been removed and the right to take water from Lot 1 has lapsed, I am satisfied that leave should be granted pursuant to s 248(1)(c) of the Companies Act 2003 to the applicant to commence proceedings against Formosa. The claim does not concern distribution amongst creditors. The assets of the company will not be dissipated in wasteful litigation. The liquidator either has a proper interest in securing the maximum proceeds of sale of the property or, as Ms Lim suggests, no ongoing interest in the property given the mortgagee’s interests in the property. I do not consider that there is an alternative procedure which is preferable to the commencement of the claim. The proposed claim is demonstrably sustainable. Provided that the purchaser and the mortgagee are joined to the proceedings, I do not consider that they are likely to be fruitless. Overall, I am satisfied that the applicant has demonstrated that leave should be given.

Costs

[21] The parties may file submissions on costs within five working days. They must be no more than two pages in length. My current view is that the applicant is entitled to its costs on a 2B basis.