Andrews v Lomax

[2023] NZHC 268

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2021-425-72

[2023] NZHC 268

BETWEEN

ROBERT ANTHONY ANDREWS

First Applicant

AND

KERRY ANDREWS

Second Applicant

AND

ROBERT ANTHONY ANDREWS, KERRY ANDREWS and BERYL ANDREWS as

Trustees of the Ruby Trust Third Applicant

AND

PAUL JOHN LOMAX

First Respondent

AND

CHESTER HOSPITALITY LIMITED

Second Respondent

AND

N H TRUSTEES NO. 9 LIMITED

Third Respondent

AND

ARROW HOSPITALITY LIMITED

Fourth Respondent

Hearing:	On the papers
Appearances:	S D Williams, M R Walker and B B Gresson for Applicants
Judgment:	22 February 2023

JUDGMENT OF DUNNINGHAM J

This judgment was delivered by me on 22 February 2023 at 12.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

ANDREWS v LOMAX [2023] NZHC 268 [22 February 2023]

Introduction

[1]                The Court is in receipt of an interlocutory application without notice for orders for repayment of what are described as stolen company funds and for ancillary orders.

[2]                The applicants say the first respondent, Mr Paul Lomax, has unlawfully taken the sum of $71,260.82 from the bank account of Arrow Hospitality Ltd (Arrow) and placed it in the bank account of the Lomax Family Trust. They seek orders requiring the repayment of this sum, and ancillary orders restraining the third respondent (being the trustee of the Lomax Family Trust) from dissipating the funds and the first and second respondents from making or authorising payments from the Arrow bank account. They also seek an order requiring the third respondent to disclose all payments made from the Lomax Family Trust’s bank account since Friday 17 February 2023, along with other specified details.

Relevant background

[3]                The grounds on which the orders sought are set out in full in the application and explained further in the affidavit of Robert Anthony Andrews filed in support of the application as well as in the accompanying memorandum of counsel.

[4]                Arrow trades as the New Orleans  Hotel in Arrowtown.  Mr Andrews  and  Mr Lomax are directors of Arrow. Mr Andrews says he and Kerry Andrews work in the hotel on a day to day basis. The applicants are also shareholders in Arrow, collectively holding 50% of the shares, some in their capacity as trustees of the Ruby Trust.

[5]                Mr Lomax is the director of the second defendant, Chester Hospitality Ltd, which is contracted to provide hospitality services to Arrow (although there is a dispute over whether it is doing so adequately). The third respondent, as trustee of the Lomax Family Trust, holds the other 50% of the shares.

[6]                The applicants and respondents are parties to existing proceedings (in which this application is an interlocutory application) relating to a shareholder dispute involving claims and cross-claims of unfair shareholder prejudice. Mr Andrews say

these arise out of the applicants’ refusal to authorise Mr Lomax’s request for a cash distribution in the amount of $60,000 to each director, from Arrow, in early 2021.  Mr Andrews would not agree to that, saying Arrow should prioritise repaying its debts. The pleadings then detail numerous other disputes which arose subsequently between the parties.

[7]                On or about Friday 17 February 2023, Mr Lomax, or Chester Hospitality Ltd, transferred $71,260.82 from Arrow’s bank account to the bank account of the Lomax Family Trust. The applicants say that at the time the transfer was made, Mr Lomax knew that this payment was unauthorised and knew or ought reasonably to have known that it would not have been approved by both directors of Arrow, had such approval been sought.

[8]                In an email dated Friday 17 February 2023, counsel for the first, second and third respondents were notified of the unauthorised payment and the requirement that the funds be returned to the Arrow bank account and not paid out of the Lomax Family Trust bank account. Notwithstanding that, the funds have not been repaid to the Arrow bank account and, prior to filing this application, there had been no response from counsel for the first, second and third respondents.

[9]                The applicants say the orders sought are necessary to preserve the status quo between the parties in the litigation and to ensure that the company can continue to operate pending final resolution of the proceeding.

[10]            The ancillary orders sought as to disclosure of payments from the Lomax Family Trust bank account are said to be the least invasive way of securing information to enable effective tracing of the allegedly stolen funds.

[11]            Shortly after receiving the without notice application (which had been served on the respondents on a Pickwick basis), counsel for Mr Lomax and the other respondents (the Lomax parties) also filed a memorandum. In it, Mr Lomax submits the orders sought are not appropriately dealt with on a without notice basis, saying the orders sought are not interim in nature, to preserve the status quo, but instead seek to finally determine matters. Mr Lomax rejects the allegation that the funds have been

“stolen”, saying, as a director, he has full authority to make payment from Arrow’s bank account, and Arrow remains solvent following the payment. He says any issues with the distribution should be raised at the proposed meeting of Arrow’s board on 27 February 2023.

[12]            Through counsel, Mr Lomax also makes allegations that Mr Andrews himself has made payments from Arrow’s bank account without Mr Lomax’s knowledge or approval and considers, by his conduct, Mr Andrews has waived any requirement for payments from Arrow’s bank account to be jointly authorised.

[13]            Finally, counsel for Mr Lomax says the funds have been transferred to the trust account of Fortune Manning Lawyers, where they will be held pending determination of the application. They say the Lomax parties consent to an interim order being made that the funds be held in Fortune Manning’s trust account pending determination of the application or further order of the Court. Given the funds are protected, counsel argue the disclosure order is unnecessary.

[14]            Finally, counsel say the Lomax parties intend to file their own on notice application, and it would be appropriate for the two applications to be heard together. They propose the following timetable:

(a)notice and affidavit in opposition, together with the Lomax parties’ application, to be filed and served by 3 March 2023;

(b)any affidavit in reply and any opposition to the Lomax parties’ opposition to be filed and served by 17 March 2023;

(c)any affidavit in reply to be filed and served by 24 March 2023; and

(d)the application is to be listed for a first call on the first available date after 24 March 2023 for further directions.

Discussion

[15]            I accept that there is a clearly arguable case that the transfer of funds was unauthorised. As counsel point out, this is acknowledged in Mr Lomax’s own proposal in his Notice of Directors’ Meeting that the transfer be retrospectively ratified. It is important that the funds are protected and not dissipated while this issue is resolved, and the balance of convenience supports such protection.

[16]            Whether that needs to be done by ordering the return of the money to Arrow before this Court hears from the parties, or whether the money simply needs to be protected in the interim, is the real issue. As I am satisfied the funds have not been dissipated, I consider it is sufficient that the funds are held on trust until this application can be fully argued. Should Arrow require access to the funds in the interim to meet an expense incurred in the ordinary course of business, that can be dealt with by an application to amend the orders for that purpose.

[17]            Given the history of acrimony between the parties, I also consider the balance of convenience favours making orders on a without notice basis (although taking account of the matters raised in the memorandum of counsel for the Lomax parties) to preserve the funds from being dispersed to Mr Lomax or any associated party. As the Lomax parties advise that the sum of $71,260.82 has been transferred to the trust account of Fortune Manning Lawyers, where they will be held pending determination of this application, I am satisfied that this will provide adequate protection of the funds and ensure they are preserved while the dispute over whether the funds should have been withdrawn is resolved. That step also precludes the need for ancillary and disclosure orders as sought.

[18]Accordingly, I make the following order:

(a)the sum of $71,260.82 which was withdrawn from the bank account of Arrow Hospitality Ltd on or about 17 February 2023 is to be held in the trust account of Fortune Manning Lawyers pending further order of the Court or the written agreement of all parties to these proceedings to its release.

[19]I also make the following directions:

(a)any notice of opposition and supporting evidence, together with any related application by the respondents, is to be filed and served by 3 March 2023;

(b)any affidavit in reply and any notice of opposition to the respondents’ further application is to be filed and served by 17 March 2023;

(c)any affidavit in reply is to be filed and served by 24 March 2023;

(d)the application is to be listed for call on the first available date after 24 March 2023 for further directions to progress the matter to hearing without delay; and

(e)costs on this application are reserved.

Solicitors:

Todd and Walker, Queenstown Fortune Manning, Auckland

Copy To:

S D Williams, Barrister, Auckland P C Murray, Barrister, Auckland K M Paterson, Barrister, Auckland