Timaru District Council v R [2016] NZHC 2170 (16 September 2016)

Last Updated: 14 October 2016

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2016-485-710 [2016] NZHC 2170

UNDER	Section 269 of the Companies Act 1993
IN THE MATTER OF	an application for vesting of property previously held by CHROME PLATERS LIMITED (struck off)
BETWEEN	TIMARU DISTRICT COUNCIL Applicant
AND	THE CROWN First Respondent
AND	CONCOURS ELECTROPLATING LIMITED Second Respondent
AND	BRIAN EVERSFIELD FEATHERSTONE Third Respondent
AND	CANTERBURY REGIONAL COUNCIL Fourth Respondent
AND	WORKSAFE NEW ZEALAND Fifth Respondent
AND	ENVIRONMENTAL PROTECTION AUTHORITY Sixth Respondent
AND	MINISTRY FOR THE ENVIRONMENT Seventh Respondent

On the papers
Counsel:	R S May for Applicant
Judgment:	16 September 2016

_{JUDGMENT OF CLARK J}

TIMARU DISTRICT COUNCIL v THE CROWN [2016] NZHC 2170 [16 September 2016]

Introduction

[1] The Timaru District Council (the Council) applies for an order under s 269 of the Companies Act 1993 vesting in the Council property comprising 2 North Street, Timaru,¹ and all physical property located there (together “the property”).

[2] All potentially interested parties are respondents in the application and consent to the orders the Council seeks.

[3] Simon Humphries, a manager at WorkSafe New Zealand, the fifth respondent, filed an affidavit in support of the application for a vesting order. The affidavit sets out the background to the application.

Background

[4] Since incorporation in 1961 Chrome Platers Ltd (CPL) operated a chrome plating business at 2 North Street, Timaru. Brian Featherstone, the third respondent, was sole director of CPL.

[5] CPL was placed into liquidation in September 2014. On 10 October 2014 the liquidators disclaimed the property pursuant to s 269 of the Companies Act 1993 (the Act). Title reverted to the Crown.

[6] The liquidators disclaimed the property because it has a negative net value. Some 122,000 litres of chemicals used in CPL’s operations are stored on the premises at 2 North Street. At the time of the disclaimer the liquidators understood that removal of the chemicals would cost $500,000 and the capital value of 2 North Street was only $320,000.

[7] Notice of the disclaimer was given to the Council and Crown Asset

Management Ltd, the two parties whose rights the liquidators considered to be affected by the disclaimer; the Council because it was owed rates and Crown Asset

¹ Computer freehold registers CB21B/321, CB21B/322 and CB494/152.

Management Ltd because it was the lone unpaid secured creditor with security over all present and after-acquired property of CPL.

[8] It seems Crown Asset Management Ltd’s security was assigned to Concours Electroplating Ltd, the second respondent. Concours was owned and operated by Mr Featherstone and continued essentially the same business as CPL on the premises which it occupied on the assertion of its rights as mortgagee.

[9] In February 2015 a chemical fire at the premises resulted in a visit from WorkSafe representatives. Various orders and notices relating to the state of the premises were issued. Three declarations of emergency were made under the Hazardous Substances and New Organisms Act 1994. WorkSafe addressed some of these hazards at its own cost. Appended to Mr Humphries’ affidavit is a report prepared by Waste Management Technical Services on the state of the storage of chemicals at the premises.

[10] The current estimate of disposing of the chemicals is $746,054.20 excluding GST. That cost does not cover decontamination of the land itself which will need to be investigated once the chemicals are removed.

[11] The Environmental Protection Agency (the sixth respondent) and WorkSafe have been investigating options for addressing the multiple hazards at the premises at minimum cost to the public purse. The Council, WorkSafe and the Environmental Protection Agency have taken the view that the various statutory mechanisms for compelling a person to remedy hazards will have little practical utility in the present case primarily because Mr Featherstone and Concours have no means or motivation to address the hazards. Their statements of financial position tend to confirm that view.

[12] The Ministry for the Environment, the seventh respondent, administers the Contaminated Sites Remediation Fund. Funding is likely to be available so long as no private person takes the benefit of any remediation. Mr Humphries says that the only identified means of addressing the hazards is therefore to have the premises vested in a public entity.

[13] Accordingly, WorkSafe, the Council, the Ministry for the Environment, and the Canterbury Regional Council (the fourth respondent) decided on a course of action that would involve:

(a) WorkSafe and the Council entering an agreement with Mr Featherstone and Concours for the latter to give up all rights in the property;

(b) the Council making the present vesting application because it is a public entity that has suffered loss as a result of the disclaimer; and

(c) the Canterbury Regional Council applying for remediation funding because it is entitled to make such an application.

[14] The agreement with Mr Featherstone and Concours has been signed and the Ministry for the Environment has agreed terms for remediation funding with the Canterbury Regional Council. Mr Humphries annexed to his affidavit documents evidencing these agreements.

[15] It remains now for me to determine the vesting application.

Jurisdiction

[16] The application is made in reliance on s 269 of the Companies Act 1993:

269 Power to disclaim onerous property

(1) Subject to section 270, a liquidator may disclaim onerous property even though the liquidator has taken possession of it, tried to sell it, or otherwise exercised rights of ownership in relation to it.

(2) For the purposes of this section, onerous property—

(a) means—

(i) an unprofitable contract; or

(ii) property of the company that is unsaleable, or not readily saleable, or that may give rise to a liability to pay money or perform an onerous act; or

(iii) a litigation right that, in the opinion of the liquidator, has no reasonable prospect of success or cannot reasonably be funded from the assets of the company; but

(b) does not include—

(i) a netting agreement to which sections 310A to 310O

apply; or

(ii) any contract of the company that constitutes a transaction under a netting agreement; or

(iii) a settlement instruction or a settlement under the rules of a settlement system that is declared to be a designated settlement system under Part 5C of the Reserve Bank of New Zealand Act 1989.

(3) A disclaimer under this section—

(a) brings to an end on and from the date of the disclaimer the rights, interests, and liabilities of the company in relation to the property disclaimed:

(b) does not, except so far as necessary to release the company from a liability, affect the rights or liabilities of any other person.

(4) A liquidator who disclaims onerous property must, within

10 working days of the disclaimer, give notice in writing of the disclaimer to every person whose rights are, to the knowledge of the liquidator, affected by the disclaimer.

(5) A person suffering loss or damage as a result of a disclaimer under this section may—

(a) claim as a creditor of the company for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):

(b) apply to the court for an order that the disclaimed property be delivered to or vested in that person.

(6) The court may make an order under subsection (5)(b) if it is satisfied that it is just that the property should be vested in the applicant.

Discussion

[17] Mr May, solicitor for the Council, filed a comprehensive and helpful memorandum in support of the application. My decision necessarily proceeds without opposing argument.

[18] In his memorandum Mr May advises that no other party claims any interest in the property. All potentially interested parties have been named as respondents and have given consent to the orders sought. The Court should grant the orders because jurisdiction exists and it is just to do so.

[19] The Court must be satisfied of both of those matters. I am in no doubt that the orders would be just.² It is plainly in the public interest to facilitate the remediation of the site and no potentially interested party objects to the orders.

[20] The jurisdictional requirement is less clear. To obtain an order vesting property, a person must have suffered loss or damage as a result of a disclaimer.³

[21] I accept counsel’s submission that the Council has suffered loss because of the disclaimer. First, upon disclaimer the property reverted to the Crown and therefore the Council cannot levy rates against it. Mr Humphries deposed that the Council had, as at the end of July, lost rates of $10,290.93, $1,090.24 of which was owing at the time of the disclaimer. Second, the alternate procedures for recovering the rates are arguably unavailable or time-consuming. Finally, the disclaimer prevents the Council from issuing enforcement notices against CPL or the liquidators under the Resource Management Act 1991, a course which might otherwise have been available to the Council. The Council is therefore in a similar position to a mortgagee that has not realised its security at the time property is disclaimed.

Disclaimer has been held to have caused loss and damage in that situation.⁴

[22] A remaining difficulty is whether there is jurisdiction to vest all the physical property located on the land along with the land. The Council’s loss as set out above in [21] arose from disclaimer of 2 North Street and not the physical property located there.

[23] Mr May submitted that the Court has power to vest in the Council the physical property on the premises, and 2 North Street, because both were disclaimed

_{in the same disclaimer. The terms of s 269(5) are properly applicable because the}

² _{Companies Act 1993 s 269(6).}

³ _{Section 269(5).}

⁴ Smith v Southern Builders Ltd [2015] NZHC 160.

Council is a person suffering loss or damage as a result of “a disclaimer” and so it can apply for an order that “the disclaimed property” be vested in it. Parliament should not be taken, counsel submitted, to have intended to prevent the Court vesting miscellaneous property present on disclaimed land. If that were so, applicants for vesting orders would face significant uncertainty. Over-recovery could be avoided by use of the Court’s discretion under s 269(6).

[24] The terms of s 269 are, counsel pointed out, broader than its predecessor section in the Companies Act 1955 and the comparable provisions in the United Kingdom and Australia. Counsel had not been able to locate case law on the point.

[25] I intend to proceed on the basis that the Court has jurisdiction to vest 2 North Street and all physical property located there. The physical property was disclaimed simultaneously with the 2 North Street. The Court has, in my view, jurisdiction to vest any of the property disclaimed simultaneously with a disclaimer of property which caused an applicant loss or damage.

Result

[26] The Court has jurisdiction to make the vesting order and I am satisfied that it is just to do so.

[27] The applicant also seeks permission to commence the proceeding by originating application under pt 19 of the High Court Rules. It is in the interests of justice that the proceeding be commenced in this way and permission is accordingly granted.

Orders

[28] I order that the ownership of:

(i) 2 North Street, Timaru, being the land comprised in computer freehold registers CB21B/321, CB21B/322 and CB494/152; and

(ii) all physical property located thereon;

_{be vested in the Timaru District Council.}

_{Karen Clark J}

Solicitors:

Luke Cunningham Clere, Wellington for Applicant