Tietjens and Anor v Quigley and Anor
| Jurisdiction | New Zealand |
| Judge | Hinton J |
| Judgment Date | 18 December 2015 |
| Neutral Citation | [2015] NZHC 3276 |
| Docket Number | CIV-2014-404-003339 |
| Court | High Court |
| Date | 18 December 2015 |
Under Part 19 of the High Court Rules and the Companies Act 1993
In the Matter of the liquidation of Quigley's Technical Services Ltd
CIV-2014-404-003339
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Application by the respondents to debar the solicitors for the liquidators from acting on an application for various orders — the solicitors had acted for the creditor which had sought the liquidation of a company of which the appellants were guarantors — solicitors took an assignment of a debt from the clients (a costs judgment against the company) — liquidators appointed the solicitors to act in the liquidation — whether there was a conflict of interest under 5.4 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 because the solicitors were interested in the proceeding — whether the solicitors’ interests were aligned with those of the liquidator — whether there was a perception of a lack of independence and objectivity — whether the respondents had to show a threshold of “something extraordinary” to meet the threshold for debarring the solicitors — whether the requirement to conduct the liquidation in an efficient manner overrode the conflict in this case.
D R Bigio for Applicants
W C Pyke for Respondents
JUDGMENT OF Hinton J
Stephen Tietjens and Peter Chatfield are the liquidators of Quigley's Technical Services Limited (“QT”). They have applied, by way of originating application, for various orders against Mr and Mrs Quigley, the shareholders and directors of QT.
Mr and Mrs Quigley filed an interlocutory application to debar Grove Darlow (solicitors for the liquidators) from acting on the originating application and for an order requiring the liquidators to produce an affidavit of documents as to the funding arrangements between Grove Darlow and the liquidators.
This judgment relates only to the application to debar Grove Darlow.
Most of the background is only indirectly relevant, but for its indirect relevance, I set it out. It is an unusual story.
QT was incorporated on 5 October 1992. It was a small family building business.
In 2005, QT provided building services to a company called Mariteq Fabricators Limited (“Mariteq”).
On 18 December 2006, QT issued proceedings in the District Court against Mariteq, claiming a balance due in respect of the building services. On 16 March 2010, judgment was entered in favour of QT in the sum of $32,973.75. Mariteq did not pay the judgment debt and later failed to comply with a statutory demand made against it. In May 2010, QT commenced liquidation proceedings against Mariteq.
When the liquidation proceeding brought by QT was pending, Mariteq, represented by Grove Darlow, proposed a compromise to its creditors. Despite QT's objection, the requisite majority of creditors approved the compromise at a meeting of creditors on 11 November 2010. QT challenged the compromise, alleging it was unfairly prejudicial and that it contained material irregularities. QT issued proceedings in which it sought a declaration under s 232(3) of the Companies Act 1993 that it was not bound by the compromise. Mariteq and QT agreed that an independent accountant would be appointed to report on whether QT would receive a greater dividend through liquidation or under the compromise. The parties agreed to be bound by the outcome of the accountant's report and the firm of McDonald Vague was selected. A deed was entered into to this effect on 5 December 2011.
Subsequently, Mariteq alleged that Mr Booth from McDonald Vague, who prepared the report required by the deed, had been partial. McDonald Vague then decided to withdraw as the investigative accountant. Mariteq sought the appointment of another accountant but QT refused to participate. It took the view that Mariteq's actions that led to McDonald Vague's decision to withdraw had the effect of frustrating the deed, with the consequence that the deed was no longer able to be performed.
Mariteq, through Grove Darlow, then brought proceedings seeking specific performance, requiring QT to join in the appointment of a replacement investigative accountant pursuant to the deed. Mariteq was successful in this proceeding and QT was ordered to perform its obligations under the deed. 1 2B scale costs which amounted to $24,682 were ordered in favour of Mariteq against QT. The costs order was not paid by QT.
The Mariteq compromise went ahead. QT ultimately received a very modest part payment.
The position by this stage was that QT as the original creditor, had a debt of $32,973 2 but owed Mariteq $24,682 for the costs order. Set-off was not available to QT because of the creditors' compromise. Hence, instead of being the hunter, QT became the hunted.
On 18 April 2013, Mariteq assigned the right to enforcement and collection of its costs order against QT to Grove Darlow, the solicitors who acted for it in the proceeding in which that costs order was made. Grove Darlow, acting in their own right, issued a statutory demand to QT on 30 April 2013 for the amount of $24,682.50, which was not met. On 21 June 2013, Grove Darlow, acting in their own right, applied for QT to be put into liquidation under s 241(4)(a) of the Companies Act on the ground that QT was unable to pay its debts. By court order on 14 October 2013, QT was placed into liquidation and Messrs Chatfield and Tietjens were appointed as liquidators at Grove Darlow's nomination. QT did not oppose the liquidation application. The sealed order records that there was no appearance by or on behalf of QT.
Grove Darlow were then instructed by the liquidators to act in the liquidation.
The Quigleys lodged a claim in the QT liquidation for $85,378. Grove Darlow either have or intend to lodge a claim and are a creditor for $24,682. One other creditor, SBS, has lodged a claim for $32,108. This debt is guaranteed by the Quigleys and also secured by mortgage over the Quigleys' personal real estate. Mr Quigley has sworn on oath that the SBS debt has been largely paid off and will be fully repaid by him personally. The payments to SBS have been included in the Quigley claim. The liquidators say that because SBS filed a claim, they are treating the debt as still outstanding. They also say that there may be other proofs of debt to be filed. Mr Quigley says he believes there will be no further proofs of debt as he has paid trade and other creditors. The liquidators have not accepted or declined any proof of debt at this stage.
On 20 November 2013, the liquidators of QT received a cheque for $48,173.50 from a third party, the Bowe Farm Trust, which considered itself a creditor of QT. On 5 June 2014, Mr Quigley initiated proceedings in the District Court against the Bowe Farm Trust claiming that the $48,173.50 should have been paid to him personally, for engineering and construction services provided by him. The Bowe Farm Trust argues that QT carried out the work and that the money has been paid correctly to QT. The Bowe Farm Trust has joined QT as a third party to that proceeding.
On 18 December 2014, the liquidators brought the originating application against Mr and Mrs Quigley. The originating application seeks:
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(a) A charging order over any judgment sum that Mr Quigley may be entitled to in the Bowe Farm Trust District Court proceedings;
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(b) In the alternative, an order for that judgment sum to be paid into court or placed on interest bearing deposit by the Registrar or held in a solicitor's trust account pending further order of the Court;
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(c) An order for examination of Mr and Mrs Quigley;
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(d) An order setting aside payments made by QT to the Quigley Family Trust (‘voidable transactions”);
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(e) An order setting aside two journal entries in QT's accounts; and
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(f) An order that Mr and Mrs Quigley are to pay sums of money that are owed to QT.
Mr Pyke, for Mr and Mrs Quigley, submits that Grove Darlow cannot act for the liquidators on the originating application because that firm is self-interested and therefore cannot bring independence and objectivity to the proceeding. Mr Pyke says that Grove Darlow is effectively in control of the proceeding as a party.
He submits that the only creditor interested in pursuing Mr and Mrs Quigley is Grove Darlow.
Mr Pyke submits that there is no precedent for a solicitor or firm, who is also a creditor, to act and appear for a liquidator in proceedings. He says that this is a case of a creditor directly using the liquidators' powers as a mechanism of execution and enforcement. He submits that liquidators are officers of the court who must act impartially and in the interests of the whole body of shareholders and creditors, and not be dictated to by a single creditor. Mr Pyke submits that Grove Darlow cannot give objective advice to the liquidators about the interests of other creditors. He refers to r 5.4 of the Rules of Conduct and Client Care for lawyers and says that the independence of the liquidators is compromised by the lack of independence of the solicitors.
Mr Pyke submits that this Court and Mr and Mrs Quigley are entitled to know more about the fee “understanding” between the liquidators and Grove Darlow and the assignment of the $24,682 debt from Mariteq to that firm. As I have said, these discovery issues are to be determined separately.
He raises the possibility of maintenance and champerty arising from the assignment of Mariteq's debt and the alleged sharing of proceeds of the liquidation with Grove Darlow.
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