Stephen King Hampson v Registrar of Companies Hc Nel

• Jurisdiction: New Zealand
• Judge: Matthews
• Judgment Date: 24 May 2013
• Neutral Citation: [2013] NZHC 1202
• Docket Number: CIV-2012-442-000291
• Court: High Court
• Date: 24 May 2013

BETWEEN

Stephen King Hampson

First Plaintiff

and

Dunes Cafe Bar Limited

Second Plaintiff

and

Registrar of Companies

First Defendant

and

Robert Archibald Hayward Donald

Second Defendant

[2013] NZHC 1202

CIV-2012-442-000291

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

Application to restore a company to the Register of Companies, reverse the liquidator's decision to issue a final report and appointment of the Official Assignee as liquidator — application by second defendant under r15.1 High Court Rules (dismissing or staying all or part of proceeding) to strikeout the plaintiff's claims of negligence on the grounds they were vexatious and time barred under the Limitation Act 1950 “LA” — second defendant was the director of the company the defendant wished to restore — parties had entered into a Heads of Agreement to lease premises in adevelopment by the second defendant who cancelled the agreement in August 2006 and re-let the premises to a third party in October 2006 — whether the claim was statute barred under the LA — whether the plaintiffs could claim against the second defendant on behalf of all creditors under s301 Companies Act 1993 (power of court to require persons to repay money or return property).

Appearances:

S J Zindel for Plaintiffs

A J B Holmes and R Hollyman for Defendants

A J B Holmes

Zindels, PO Box 1023, Nelson.

S J Zindel

JUDGMENT OF ASSOCIATE JUDGE Matthews

1 The first plaintiff, Mr Hampson, is a director of the second plaintiff, which I will call “Dunes”. At all relevant times the second defendant, Dr Donald, was a director of 623 Rocks Road Limited (“Rocks Road”). For a number of years prior to mid-2004 Dunes ran a cafe bar and casino in premises it leased at 643 Rocks Road, Tahunanui, Nelson. The lease potentially ran until 2010, but in May 2004 Dr Donald expressed an interest in buying 643 Rocks Road and 623 Rocks Road with a view to demolishing both and redeveloping the site by erecting a building comprising a number of shops on the ground floor, and apartments and car parking.

2 In June 2004 Dunes and Rocks Road entered a heads of agreement. The principal terms of the agreement were that Dunes would surrender its lease, allowing the development to take place, and would then lease a cafe and bar in the new premises being built by Rocks Road. It provided for compensatory payments to Dunes in the meantime.

3 The lease was duly surrendered, but during the course of construction of the new building Mr Hampson, and his wife Danielle, who, though not a director, worked in the business run by Dunes, had significant disagreements with Dr Donald. This culminated in Rocks Road cancelling the heads of agreement. It re-let the premises intended for Dunes to a third party. Dunes sought an injunction, but the Court declined the application. Dunes then cancelled the heads of agreement for wrongful repudiation. Dunes pursued its proceedings against Rocks Road, claiming damages for breach of contract. After a seven day trial Hugh Williams J entered judgment for Dunes on 25 February 2009, on liability. Four weeks later Rocks Road was placed into voluntary liquidation. Leave was granted to continue the claim. On 31 March 2010 judgment was entered for damages in the sum of $600,229.58 plus interest. However, no part of that sum has been recovered; the liquidators did not recover sufficient assets to pay secured creditors so nothing was received by unsecured creditors. The liquidators filed their final report on 15 October 2010. On 30 November 2010 the period for objections to the removal of the companyfrom the register expired, and removal ensued on 6 December 2010.

4 In this proceeding, filed on 25 July 2012 and amended on 14 November 2012, Dunes applies for restoration of Rocks Road to the Register of Companies, reversal of the liquidator's decision to issue a final report, and appointment of the Official Assignee as liquidator of the company. Mr Hampson and Dunes seek damages against Dr Donald for breach of various statutory and common law duties they allege he owed to them.

5 Dr Donald applies under r 15.1 to strike out the causes of action brought against him and seeks an order dismissing the proceeding against him entirely. He says the claims by the plaintiffs do not disclose any reasonable cause of action, they are frivolous, vexatious and anabuse of process, and none can succeed as a matter of law. Dr Donald also says that even if he did owe common law duties as alleged, claims in respect ofthem are statute barred by the Limitation Act 1950 which applies to this proceeding.

6 A detailed account of the facts surrounding the events which give rise to this proceeding is contained in the judgment of Hugh Williams J issued on 25 February 2009 on the claim by Dunes against Rocks Road. It is unnecessary for me to repeat, in this judgment, the detailed account and analysis of the facts, or his Honour's conclusions in relation to them. An application to strike out falls to be consideredon the basis that the plaintiff can prove the allegations of fact which are pleaded.

Principles to be applied on an application for strike out

7 In North Shore City Council v Attorney-General, 1 the SupremeCourt reiterated the principles established in Attorney-General v Prince and Gardner 2 and Couch v Attorney-General. 3 At [25] Elias CJ said:

It is not necessary to traverse again the approach to exercise of the strike out jurisdiction. (I have had occasion to review it in Couch v Attorney-General (No 2) [2010] NZSC 27, [2010] 3 NZLR 149 at [35]-[38] and McNamara v Auckland City Council [2012] NZSC 34 at [80]-[82]). It is enough for me to say of the peremptory procedure here adopted that a claim is not suitablefor summary dismissal ahead oftrial and before discovery unless, even on repleading, ( Couch v Attorney-General [2008] 3 NZLR 725 at [31]-[32] and [114]) it is clearly untenable as a matter of law (in which case the pleadings should be struck out) or unless there is a complete and incontrovertible answer on the facts (in which case summary judgment may also be entered for the defendant).

8 Blanchard J delivered his reasons and those of McGrath and William Young JJ on this point. At [146] he said:

The principles are well settled. The statement of them by Richardson P in Prince and Gardner is authoritative ( Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267):

A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed … ; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material … ; but

the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction…

To this can be added the cautionary remark of the Chief Justice and Anderson J in this Court in Couch (at [33]) that particular care is required in areas where the law is confusing or developing. (“The law is not static and unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed”: R v Imperial Tobacco Canada Ltd [2011] 3 SCR 45 at [21] per McLachlin CJ for the Court). They identified liability in negligence for the exercise or non-exercise of a statutory duty or power as just such an area, and stressed the desirability of determining whether a duty of care exists in cases of this kind on the basis of actual facts found at trial, rather than on hypothetical facts assumed (possibly wrongly) to be true for the purpose of the strike out. Even in such cases, however, the range of the factual possibilities which could be established at trial may be sufficiently limited as to remove the danger of relying upon assumptions about what may be able to be proved. McLachlin CJ observed for the Court in the very recent Supreme Court of Canada case, Imperial Tobacco: “A motion to strike for failure todisclose a reasonable cause of action proceeds on the basis that the facts pleaded are true, unless they are manifestly incapable of being proven”.

The claims in detail

9 The claims against the first and second defendants are now pleaded in an amended statement of claim which was filed on 14 November 2012, and further particulars filed on 28 January 2013. The first cause of action is against the first defendant only. Mr Hampson and Dunes seek orders restoring Rocks Road to the Companies Register, reversing the liquidator's decision to issue a final report and appointing the Official Assignee as liquidator of the company. The proceeding has not yet been served on the Registrar. It appears that the sole purpose of seeking these orders is to invoke the powers of the Court given by s 301 of the Companies Act, discussed later in this judgment.

10 The claims by Mr Hampson and Dunes are all set out in a portion of the document under the heading “Second Cause of Action”, but in reality these claims raise two separate and quite distinct causes of action. After pleading that Dr Donald behaved recklessly and allowed Rocks Road to engage in illegitimate business risk, Mr Hampson and Dunes give 16 particulars on which they rely. They also say that his decisionthat Rocks Road continue to trade in the circumstances they plead was influenced by collateral advantages for another company owned by Dr Donald which was involved in the design process for the development. 4

11 Mr Hampson and Dunes lay their two separate claims on that foundation. First they say that Dr Donald breached the statutory duties imposed on him as a director of Rocks Road by ss 131, 133, 135, 136 and 137 Companies Act 1993. They say that these duties are owed to Rocks Road under s 169(3), but...