Warren Metals Ltd v Grant and Khov Hc Ak

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 20 February 2013
• Neutral Citation: [2013] NZHC 263
• Docket Number: CIV-2012-404-005190
• Court: High Court
• Date: 20 February 2013

BETWEEN

Under Section 72 of the District Courts Act 1947

In The Matter of an appeal of a decision of the Auckland District Court

Warren Metals Limited

Appellant

and

Damien Grant and Steven Khov

Respondents

[2013] NZHC 263

CIV-2012-404-005190

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Appeal against District Court (“DC”) finding that it had no jurisdiction to determine personal claims brought against liquidators — DC said the liquidators were acting in their capacity as liquidators and could not be sued in DC as High Court had exclusive jurisdiction — liquidators cut up a metal press belonging to appellant and sold it for scrap — appellant had also paid in advance for scrap which had been loaded into appellant's containers and liquidators refused to allow it to leave the premises until appellant paid again — appellant alleged it had claims in conversion in respect of metal press and in agency/sale of goods in respect of scrap metal in containers — whether claims in the DC were barred by s248 Companies Act 1993 (“CA”) (effect of commencement of liquidation) or s284 CA (court supervision of liquidation).

Counsel:

SS Khan and JE Riddle for Appellant

RM Dillon for Respondents

JUDGMENT OF Asher J

Introduction

1 On 6 August 2012, Judge DM Wilson QC struck out by oral judgment the claim of Warren Metals Ltd against Damien Grant and Steven Khov, on the basis that the District Court had no jurisdiction to hear the case. This occurred at the outset of the trial before the giving of evidence. Warren Metals Ltd appeals that decision.

2 The respondents, Messrs Grant and Khov, are liquidators. The Judge found that because they were acting as liquidators when they carried out the acts that were the subject of the claim they could not be sued in the District Court. The core issue is whether this conclusion was correct.

Lead up to the dispute

3 Briefs of evidence were exchanged prior to the trial and have been referred to extensively in the course of submissions. Accordingly, the facts that are the subject of the dispute (as yet unproven) have been set out, and I draw them largely from the brief of Warren Halloran.

4 The arrangements that led to the claim go back to 1993. The appellant Warren Metals Ltd (“Warren Metals”) was, at that point in time, trading with a William Conway and various of his companies. Mr Conway's companies still trading in 2008 are the companies that are now in liquidation.

5 The business conducted between Warren Metals and Mr Conway's companies was that of obtaining and dealing in scrap metal. William Conway and his companies would pay cash to obtain metal from the public. It would be held in their premises. They would then on-sell the metal to Warren Metals who would dispose of it largely by export. For some of the collected metal to be useable and transportable by Warren Metals, it needed to be compressed.

6 Warren Halloran is the principal of Warren Metals. In his brief, he outlines how he arranged manufacture of a light gauge metal press for Warren Metals in 1994. In April 2008, it was arranged that he would leave it with William Conway at his business premises and where it would be used to convert metal into a compressed state. At the time Warren Metals had staff processing the metal at Mr Conway's premises. It was arranged between them that the press remained the property of Warren Metals.

7 By 2008, Mr Conway was operating through a number of companies. These included 123 Metals Ltd, Cash 4 Scrap (2008) Ltd, North Island Metals Ltd, and Bairds Road Scrap Ltd. These companies operated out of premises leased by Bairds Road Scrap Ltd at 57 Tidal Road. The press was moved to that site.

8 On 23 May 2008, 123 Metals Ltd was placed into liquidation, followed by Bairds Road Scrap Ltd on 30 May 2008. It seems that Mr Conway's other companies continued to trade.

9 One company, North Island Metals Ltd, was trading in early June 2008 and was not in liquidation. However, on 5 June 2008 North Island Metals Ltd was placed into voluntary administration. On 11 June 2008, another company, Cash 4 Scrap (2008) Ltd, was placed into liquidation. The liquidators of 123 Metal Ltd, Bairds Road Scrap Ltd and Cash 4 Scrap (2008) Ltd, and the administrators of North Island Metals Ltd, were the respondents Messrs Grant and Khov.

10 In early 2008, the practice had developed that when Mr Conway was having cash flow problems, Mr Halloran would give large sums of cash to Mr Conway for the purchase of scrap. On 30 May 2008, the appellant and Mr Conway arranged for the appellant to pay $40,000 in advance for two containers of scrap metal that were to be loaded at Tidal Road over the long weekend (Queen's Birthday weekend).

$40,000 cash was paid on 1 June 2008.

11 On 6 June 2008, Warren Metals attempted to uplift two containers of preloaded metal, this being the metal that had been paid for on 1 June 2008. The respondents refused to allow the metal to leave. Mr Halloran required the scrap metal to fill a container bound for export. Mr Halloran in the end wrote a cheque for $32,337.90 to Messrs Grant and Khov, effectively purchasing it, he says, for the second time, so that it could be removed from the premises.

12 In mid-June, Warren Metals ceased trading with the liquidators. On 22 June 2008, an arrangement was made by Warren Metals to remove the metal press from the Tidal Road premises. However, before this could happen a Mr Low for the liquidators rang Mr Halloran and said that Warren Metals could not uplift the press unless he proved ownership of it. On 23 June 2008, Mr Halloran cancelled the crane that he had booked to move it. He was told by Mr Low and a Mr Cates for the liquidators that nothing would happen to the press until Warren Metals had an opportunity to prove its ownership.

13 For the next four weeks Mr Halloran endeavoured to obtain proof of ownership of the press. However, this was difficult. It had been made through an informal arrangement with a Mr Rod Johnstone in 1993. He obtained three statements (which are in the bundle of documents) confirming that he had the press built for Warren Metals and that he owned it.

14 On 9 July 2008, North Island Metals Ltd was placed into liquidation.

15 On 20 July 2008, the respondents cut the press up, taking the view that they were not satisfied that it was the property of Warren Metals. It was sold for scrap. Mr Halloran states that it was worth approximately $40,000 and would cost $200,000 to $300,000 to replace.

16 In his brief, Mr Conway confirmed Mr Halloran's evidence, including how the press was the property of Warren Metals and should have been returned to him immediately. Another of Mr Conway's employees, a Mr Rhys Cullen, has also filed a brief confirming Mr Halloran's evidence.

The position of the parties

17 Warren Metals' amended statement of claim sets out a number of causes of action. First, in relation to the metal press that was destroyed, it claims that the liquidators converted the press, or acted in breach of a duty of care not to destroy it, or were bailees and allowed it to be destroyed, or were guilty of misleading and deceptive conduct under the Fair Trading Act 1986. In relation to the $40,000 paid, it is claimed that Messrs Grant and Khov are personally liable for the $40,000 and further that they are in breach of the Fair Trading Act 1986. In relation to the $32,337.90, it is claimed that Messrs Grant and Khov were not entitled to that money and have an obligation to pay it back.

18 Mr Dillon for Messrs Grant and Khov argued, as he did before the District Court, that ss 248 and 284 of the Companies Act 1993 (“the Act”) applied. He argued that the High Court had exclusive jurisdiction to determine matters in relation to the decisions of liquidators. The proceedings therefore should have been brought in the High Court.

19 Judge Wilson essentially upheld this submission. In a short judgment he observed: 1

Section 284 Companies Act provides for the Court supervision of liquidation and, in particular, in subs (2) talks about how those powers of the Court can be exercised in relation to a matter occurring “either before or after the commencement of the liquidation”. (emphasis added)

“Court” is, of course, defined in the Companies Act as being the High Court of New Zealand. It has long been the case that the High Court has, with trivial exceptions, had jurisdiction over matters relating to the performance of companies and their directors and liquidators.

20 The Judge stated that he had been referred to a number of cases which essentially illustrated the point that whether the matter fell within the time of the commencement of liquidation under's 248 of the Act, or under the general court supervision of liquidations under's 284 of the Act, the position was still that only the High Court had jurisdiction.

Section 248 of the Companies Act

21 Section 248(1)(c) provides in part:

248 Effect of commencement of liquidation

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

  • (a) The liquidator has custody and control of the company's assets:

  • (b) The directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part of this Act:

  • (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:

  • …

22 This section sets out the main consequences of the liquidation of a company. While the assets of the company are not vested in the liquidator, s 248(1)(a) gives him...