IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-000725

BETWEEN	DOUGALL LOVE, PATRICIA LOVE AND TRUSTS LIMITED AS TRUSTEES OF THE BARCLAY TRUST
Plaintiffs

AND	AUBURN APARTMENTS LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Defendant

Hearing:	8 September 2010

Appearances: E St John for Plaintiffs
S R G Judd for Defendant

Judgment:	8 September 2010

ORAL JUDGMENT OF VENNING J
ON APPLICATION TO SET ASIDE INJUNCTION/LEAVE/COSTS

Solicitors:	Palmer & Associates, Auckland
Carter Atmore Law, Auckland
Copy to:	E St John, Auckland
SRG Judd, Auckland

LOVE AND TRUSTS LIMITED AS TRUSTEES OF THE BARCLAY TRUST V AUBURN APARTMENTS LIMITED (IN RECEIVERSHIP AND LIQUIDATION) HC AK CIV-2009-404-000725  8 September 2010

[1]       The matter is before the Court this morning because an issue arises as to whether the plaintiffs must apply for leave to pursue their substantive claim against the defendant company, which is now in liquidation as well as receivership in order to maintain the interim injunction.

Background

[2]       The parties entered an agreement for sale and purchase pursuant to which the plaintiffs were to purchase an apartment from the defendants.  A deposit of $70,775 was arranged and secured through New Zealand Home Bonds.

[3]       Over two years after the agreement was made the defendant called upon the plaintiffs to settle.   The plaintiffs declined to settle asserting they were entitled to cancel.

[4]       The plaintiffs commenced these proceedings seeking a declaration they had validly cancelled the agreement.   They consider that will release them from their obligations under the bond.  The defendant filed a defence and counterclaim, having resold the property.  It claims loss on the resale and associated losses.  The defendant was put into receivership in January this year.  In March it was put into liquidation. As a consequence s 248(1)(c) of the Companies Act 1993 applied:

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

[5]       The matter came before me on an application for urgent injunction on 9

August 2010.  The defendant had given notice it intended to call up the bond from the  bond  company.    I  made  a  number  of  orders  on  the  plaintiffs’  application, including an interim order restraining the defendant from calling for payment of the bond.   I also granted leave to the plaintiffs to file a defence to the defendant’s counterclaim, and directed that the matter was to be reviewed in the Duty Judge list

on 19 August 2010.  I also noted that the plaintiffs would have to address the issue of leave to continue the proceedings.

[6]       The matter came back before the Court on 19 August 2010.   At that time counsel for the plaintiffs Mr St John submitted that it was unnecessary for leave to be given for the plaintiffs to continue their proceedings.  Mr Judd did not accept that. He argued that if leave was not granted the injunction should be set aside.

[7]       That issue was allocated a hearing today and co-incidentally has come back before me.

[8]       After discussion with counsel Mr St John accepted that it would be necessary to apply for leave.  He also indicated he did not require a formal judgment.

[9]       Mr Judd confirmed leave was not opposed.  On Mr St John’s oral application on behalf of the plaintiffs for leave I granted leave to the plaintiffs under s 248 to continue their proceeding against the defendant.

[10]     Because it is relevant to the issue of costs I set out very briefly the summary of reasons why I considered leave was necessary.

[11]     The start point is s 248 of the Act.   The effect of that section is that the plaintiffs’ claim was stayed.

[12]     Mr St John submitted that as the counterclaim was effectively the mirror of the plaintiffs’ claim, determination of the counterclaim would effectively lead to determination of the plaintiffs’ claim so there was no need for the plaintiffs to pursue their claim.  There were sound practical reasons for the plaintiffs wishing to take that stance.   They related to issues of security and the Court fees associated with the hearing.

[13]     But in my judgment there is a real distinction at law to be made between the reasons  for  judgment  and  the  judgment.    This  is  confirmed  by r  11.1  and  the commentary thereto.  If the Court had ultimately taken the view that the defendants could not succeed against the plaintiffs then, as part of the reasons for judgment, the

Court would have concluded the plaintiffs were entitled to cancel.  However, while the Court would enter judgment for the plaintiff on the defendant’s counterclaim, there would be no positive judgment or order in the plaintiffs’ favour in relation to the declaration as the plaintiffs’ claim would be effectively stayed.

[14]     That analysis is also consistent with the authority of Langley Constructions (Brixham)  Ltd  v  Wells  where  the  English  Court  of  Appeal  confirmed  that  a defendant to a claim by a company in liquidation may, without leave, set up a cross- claim for liquidated or unliquidated damages but only as a set-off to reduce or extinguish the plaintiff’s claim and cannot, without leave of the Court, counterclaim for an account or declaration for anything in excess of the plaintiff’s claim or in
addition to or separate to the plaintiff’s claim.

[15]     Mr St John relied on certain passages from the recent edition of Spry The Principles of Equitable Remedies to the effect that cross-injunctions might be appropriate in certain cases.   But on my brief reference to the passages they still require some form of claim which is justiciable or which could lead to positive relief in favour of that party to be before the Court to support the grant of the injunction.

[16]     There is also the interim position to consider.   At present the injunction prevents the defendant from calling up the homebond.  The only basis for that is that ultimately there may be a declaration in the proceeding in favour of the plaintiffs which would have the effect of discharging the obligation the homebond company has to comply with its contractual obligations to the defendant.   If the plaintiffs’ claim remains stayed, such an order will not be made and there would be no basis for the injunction.

[17]     For those reasons I indicated to Mr St John that I was against him on his argument.   He then adopted the practical course of seeking leave which was, as I have said, granted.

Costs

[18]     That leaves the issue of costs on this hearing and also the issue of costs on the earlier matters before the Court.  There are really three matters, although the first two are related.

[19]     The plaintiffs did not file a defence to the counterclaim.  The defendant put them on notice regarding the failure to file a defence to the counterclaim.  When no defence was forthcoming the defendant applied for judgment by way of formal proof.  The defendant also gave notice to the plaintiffs that it intended to call up the bond.  The plaintiffs responded by advising that if the bond was to be called up they would have to apply for an injunction unless the defendant would agree not to call up the bond.  The defendant would not agree.  The plaintiffs then brought an application for the interim injunction and also for leave to file the statement of defence out of time.

[20]     Mr St John explained the reason the plaintiffs did not file the defence was primarily because they were awaiting discovery from the defendant.  He criticised the defendant for the delay in providing further and particular discovery that had been sought and raised at a hearing before Associate Judge Doogue.  He made the point that the discovery was provided late.

[21]     Notwithstanding the position in relation to discovery, (and I note no formal orders were made by Associate Judge Doogue in relation to that), the plaintiffs were on notice that they were in default of filing a statement of defence and that the defendant required a statement of defence to the counterclaim.

[22]     The plaintiffs did not respond to that request or to advise the defence could not be filed because of the discovery issue.  In the circumstances I accept that while a number of parties may not have made application for judgment by way of formal proof on the counterclaim the defendant was strictly entitled to make such an application.

[23]     On the other hand, balanced against that, given that a fixture for this case had been allocated in October, it was a rather peremptory step by the defendant to indicate it intended to  seek to call up the bond particularly when the plaintiffs responded by advising that if the defendant intended to pursue that they would have to apply for an injunction.

[24]     The plaintiffs were entitled to, and had to apply for the injunction, which was ultimately granted.

[25]     In my judgment, the costs in relation to the application for formal proof on the counterclaim for failure to file a statement of defence and on the application for interim injunction should simply lie where they fall as the parties’ actions frankly cancel each other out to a large degree.

[26]     I do not propose to make any order for costs in relation to those matters.

[27]     That leaves the costs of the present matter.  The plaintiffs took the stance that it was unnecessary for them to pursue an application for leave.   That has been determined against them.   They have now sought and obtained leave without any opposition from the defendant.

[28]     There have been additional attendances in relation to that issue, which the plaintiffs will have to bear the consequences of.  I accept, however, that the position taken by the plaintiffs was not a pedantic or unarguable position and was taken for practical reasons.  It has ultimately been determined against them but it is not a case which requires any uplift from the standard order for costs.

[29]     The result is there will be an order for costs in the defendant’s favour against the plaintiffs on a 2B basis for the appearance before the Duty Judge on 19 August
2010  and  for  this  morning’s  hearing including  the  costs  of  preparation  for  this morning’s hearing.

[30]     By agreement the following timetable is to apply to ready the case for trial:

a)	The plaintiffs briefs of evidence and index to bundle to be exchanged by 22 September 2010;

b)	The defendant’s briefs of evidence and addition to the index to be exchanged by 6 October 2010.

Pleadings

[31]     I grant leave to the plaintiffs to file an amended statement of defence to the counterclaim and/or to include an amended form of declaration in the claim itself. Such amendment to be filed and served by 15 September 2010.

[32]     I grant leave for the defendant to file any replies as necessary seven days thereafter.

Venning J