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Steel & Tube appeals ruling to avoid defunct subsidiary's unpaid rental debt

Wednesday 20th April 2016

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Steel & Tube Holdings wants to strike out a ruling that left it responsible for outstanding rent payments owed by a now-defunct subsidiary company that it had put into liquidation. 

The Lower Hutt-based steel products maker is appealing a September 2015 High Court decision that it was responsible for its Stube subsidiary's lease on an Auckland property owned by Lewis Holdings.

Steel & Tube had directly paid Stube's rents and rates since at least 2003 and renewed the Lewis property leases in 2009 at a rate of $195,000 per year for 21 years. However, it put Stube into liquidation in June 2013. In the ensuing dispute over breaking the lease, the High Court ruled that Steel & Tube owed Lewis $750,000, or 46 months rent, plus interest. 

In the Court of Appeal today, counsel for Steel & Tube David Chisholm said the issue of causation had been ignored by the High Court judge, and underpinned the appeal.

"One has to establish disentitling conduct which causes loss to the plaintiff," Chisholm said. "In the context of liquidation, there has to be conduct detrimental to creditors. We say there has been no damage caused by the conduct of the parent. There have been voluntary contributions made that actually benefited this creditor, there is no culpability."

In response to questioning that Lewis Holdings was always a creditor of Steel & Tube, rather than the subsidiary, Chisholm replied: "Everyone involved knew contractual liability was with Stube."

However, Justice Stephen Kos said "everyone knew Stube couldn't perform without Steel & Tube, and Steel & Tube was happy to prop it up until 2009." 

Kalev Crossland, counsel for Lewis Holdings, said causation had not been discussed in the High Court's judgment because Steel & Tube's legal team had not argued it. Instead, they had submitted four affirmative defences in their statement of defence, none of which were causation, and in their 196-page closing had talked about causation for one and a half pages.

"I appreciate my friend has to deal with the cards he was dealt," Crossland said.

The trial continues this afternoon with Crossland presenting his arguments.

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