Sargison and Dalton v Green Grass Ltd

• Jurisdiction: New Zealand
• Judge: Judge Bell
• Judgment Date: 06 September 2012
• Neutral Citation: [2012] NZHC 2304
• Docket Number: CIV-2011-404-4830
• Court: High Court
• Date: 06 September 2012

Under the Companies Act 1993

In the Matter of the liquidation of CLUB CROW BAR LIMITED

Between

Paul Graham Sargison and Simon Dalton

Plaintiffs

and

Green Grass Limited

Defendant

[2012] NZHC 2304

CIV-2011-404-4830

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Summary judgment application by liquidators under s298 Companies Act 1993 (insolvent transaction voidable) for recovery of payments made by insolvent company to a related company — plaintiffs had obtained summary judgment which was set aside by Woodhouse J — whether setting aside decision prevented liquidators from re-litigating the issue — whether issue estoppel applied — whether defendant had arguable defence — whether normal rule should be departed from and costs should be awarded on this application against unsuccessful party.

Counsel:

B Hojabri for Plaintiffs

R B Hucker and D Lang Siu for Defendant

ORAL JUDGMENT OF ASSOCIATE Judge Bell

1 Paul Sargison and Simon Dalton are the liquidators of Club Crow Bar Ltd which was ordered to be put into liquidation on 3 June 2011. The company was incorporated in April 2009. It operated a bar/night-club in Wyndham Street, Auckland. Megan McCabe was the sole director and shareholder of the company. She has since been adjudicated bankrupt. I am advised that, although not discharged, she is no longer in the country.

2 Green Grass Ltd is an older company that was established in January 1988. Until September 2011, Megan McCabe was the sole director and sole shareholder of Green Grass Ltd.

3 The liquidators of Club Crow Bar Ltd have investigated the bank accounts of the company. They found that Club Crow Bar Ltd made payments to Green Grass Ltd totalling $231,280 as set out in the statement of claim. They also say that Green Grass Ltd paid Club Crow Bar Ltd $11,550, so that net payments by Club Crow Bar Ltd to Green Grass Ltd amount to $219,730. The liquidators say that Green Grass Ltd did not provide any consideration for the net payments of $219,730. They claim under s 298(2) of the Companies Act 1993 for recovery of $219,730 on the grounds that the payments were dispositions of property in favour of another company that, at the times of the dispositions, was controlled by Megan McCabe, a director of Club Crow Bar Ltd. 1

4 There is no dispute that if the transactions were not supported by consideration, they were made within the specified period under s 298 and by reason of Megan McCabe's directorship of Green Grass Ltd, a claim can be made under s 298(2). The liquidators apply for summary judgment.

5 There are two questions:

• 1. Does the judgment of Woodhouse J given on 4 May 2012 2 stand in the way of the liquidators obtaining summary judgment? and

• 2. Have the liquidators established that Green Grass Ltd does not have an arguable defence to the claim under s 298?

Does the judgment of Woodhouse J of 4 May 2012 stand in the way of the liquidators obtaining summary judgment?

6 The liquidators applied for summary judgment and obtained judgment by default, as Green Grass Ltd took no steps. Green Grass Ltd applied to set aside the default judgment. Woodhouse J heard the application under r 12.14 on 4 May 2012. He set aside the judgment. To reach that decision, he held that Green Grass Ltd had an arguable defence to the liquidators' claim.

7 Green Grass Ltd invokes issue estoppel. It says that Woodhouse J has already decided whether Green Grass Ltd can arguably maintain that it has a defence to the liquidators' claim, because that was a matter in issue before him, and it is also an issue in this application. The argument is that the finding for a setting-aside application, that Green Grass Ltd has an arguable defence, also runs when the liquidators apply for summary judgment following the setting aside.

8 Green Grass Ltd also points out that following the hearing before Woodhouse J the liquidators filed one further affidavit. That affidavit only consolidates existing evidence. There is no new evidence that was not before Woodhouse J.

9 The question here is whether the decision of Woodhouse J is final in the sense that it now prevents the liquidators relitigating the issue that was before Woodhouse J. That issue is whether Green Grass Ltd has an arguable defence to the claim for summary judgment. It is also before the court today.

10 Ordinarily, if a plaintiff has obtained judgment by default on a summary judgment application regularly and a defendant later successfully applies to set aside under r 12.14, the finding that there is an arguable defence for the setting-aside

application will usually result in the court also there and then deciding to dismiss the summary judgment application. I gave such a decision in Walter Peak Developments Ltd v Millar. 3

11 Woodhouse J did not take that course here. While he set aside the judgment, he expressly held that the liquidators were still entitled to maintain their application for summary judgment. He was at some pains to make it clear that his decision on the setting-aside application was not to pre-determine the outcome of any further hearing of a summary judgment application: 4

The matters that have been raised, including the serious issues dvanced by Ms Hojabri in her submissions, are matters that should go to a full summary judgment hearing. It is not appropriate that that hearing be conducted on this present application. And it may very well be that, following this hearing, the plaintiffs will withdraw the application for summary judgment. Having made that observation I wish to make clear that I am not expressing any concluded view in that regard…

Later he said: 5

For the avoidance of doubt, I make clear that the summary judgment has been set aside but the summary judgment application itself has not been set aside. The plaintiff is therefore free to proceed on the summary judgment application if it considers that such is appropriate and notwithstanding the tentative observations in this judgment.

12 Part of Woodhouse J's formal order was that the plaintiffs' application for summary judgment remains for hearing or other disposal. 6

13 When a court makes a decision on an interlocutory application, there is a vexed issue whether a finding in the course of an interlocutory application can be final for the issue estoppel rule. Usually a decision on an interlocutory application will not give rise to a cause of action estoppel. The issue turns more on the matter of issue estoppel.

14 There are helpful observations in the Court of Appeal's decision in Joseph Lynch Land Co Ltd v Lynch. 7 Giving the decision, Tipping J said:

In our judgment the ultimate question is concerned not so much with character of the earlier decision, ie whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise. In Halsbury at para 977 it is said that the scope of the doctrine of issue estoppel depends on whether the Court takes a narrow or a wide view of the extent of the issue determined in the earlier case. A number of examples are given either way. If the earlier decision is in substance interlocutory it will usually be reasonable to adopt a narrow view. In the present case that would mean the only point on which there is any estoppel fairly arising from the Master's judgment is his determination that the company had no interest in Mr Lynch's land capable of supporting a caveat. It would not in the circumstances be reasonable to regard the estoppel as wider than that and encompassing the proposition that the company had no claim under a resulting or constructive trust in respect of the moneys originally paid or the proceeds of sale of the land.

15 I tested the issue by asking whether it would be open to the liquidators to bring the summary judgment application on for re-hearing and to adduce new evidence which would attack the defence arguments that had been raised in the setting-aside application. Mr Hucker accepted that in the light of Woodhouse J's decision, it would be open to the liquidators to apply for summary judgment, as directed by Woodhouse J, and to adduce new evidence in support of the application.

16 That answer by Mr Hucker effectively conceded that the decision of Woodhouse J cannot have the kind of binding effect that would preclude the court from inquiring on another occasion whether Green Grass Ltd does have an arguable defence to the claim.

17 I also find support for this approach in Spencer Bower and Handley's Res Judicata: 8

5.32 The dismissal of an interlocutory application on procedural grounds or on the merits is not final and does not bar a further application, although that is not likely to succeed unless supported by additional evidence or a different argument. …

(citations omitted)

18 While there has not been a dismissal of an interlocutory application on procedural grounds, there has been a procedural decision that has gone against the liquidators. That procedural decision does not prevent the same question being raised afresh in this application for summary judgment. I accordingly conclude that the decision of Woodhouse J as to arguable defence does not stand in the way of the liquidators now applying for summary judgment.

Have the liquidators established that Green Grass Ltd does not have an arguable defence to the claim under s 298?

19 The substantive defence run by Green Grass Ltd is that it did provide consideration for the payments Club Crow Bar Ltd made to it. Green Grass Ltd says that between May 2009 and March 2011 it made payments for the benefit of Club Crow Bar Ltd, and supplied it with goods and services. It says that it paid staff wages, as well as cleaning and administration expenses. It says that it paid for liquor for Club Crow Bar Ltd and there were also counter...