Carey v Smith - [2012] NZHC 455

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-5819 [2012] NZHC 455

BETWEEN GRAHAME AND JANICE CAREY Plaintiff

ANDBRUMAC ENTERPRISES LIMITED Second Plaintiff

ANDBRUCE JAMES COPELAND SMITH First Defendant

ANDINGA MARIANNA DOLK Second Defendant

ANDEKO GARDEN LIMITED Third Defendant

Hearing: 27 February 2012

Counsel: N Woods for plaintiffs
R A Edwards for defendants

Judgment: 19 March 2012

JUDGMENT OF WINKELMANN J

This judgment was delivered by me on 19 March 2012 at pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar

Rice Craig, Papakura for plaintiffs
Edmund Lawler & Associates, St Heliers, Auckland for defendants

Counsel:
R A Edwards, Auckland

CAREY & ANOR v SMITH & ORS HC AK CIV 2011-404-5819 [19 March 2012]

[1] Prior to its liquidation, New Zealand Peat (NZP) was a peat farming company. It farmed peat at several sites in New Zealand, and had its head office in Auckland. The plaintiffs were all shareholders of NZP.

[2] In February 2008 Mr and Mrs Carey, the first plaintiffs, and Brumac Enterprises Ltd, the second plaintiff, entered into an arrangement with NZP to provide finance for the extraction by NZP of 10,000 cubic metres of peat. The financing was achieved through a sale and buy back agreement (the buy back agreement) whereby the plaintiffs purchased 10,000 cubic metres of peat from NZP for $250,000, but gave NZP the right to purchase the peat back at stipulated times at a stipulated price. The purchase price was structured so as to ensure that the plaintiffs received a market rate of return on the $250,000. Because the security for the plaintiffs was the peat, the agreement required NZP to keep the peat in a separate pile in its premises in Ngatea and keep it in good order and condition.

[3] The first and second defendants, Mr Bruce Smith and Ms Ingrid Dolk were also shareholders of NZP. Prior to its liquidation Mr Smith was the managing director, and Ms Dolk the financial director of NZP.

[4] In October 2009 Mr Smith asked the plaintiffs if a sample of the buy back agreement peat (amounting to approximately one truck load) could be taken for testing. That was agreed to. However, as it transpired far more than one truckload was taken. There is a difference in the evidence as to what the precise amount was, Mr Smith claims that 2,195 cubic metres was uplifted while the plaintiffs saying it was more like 7,000 cubic metres. By agreement invoices were generated by the plaintiffs for the 2,195 cubic metres. Those invoices were not paid as liquidation intervened.

[5] On 21 December 2009 NZP was placed in voluntary liquidation. NZP was subject to a general security agreement in favour of the ANZ National Bank, which had been registered in 2002. ANZ has claimed it has a prior security interest over the buy back agreement peat by virtue of that agreement.

[6] Following liquidation the liquidators entered into an operating agreement with the third defendant Eko Garden Ltd (Eko) for…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2012] NZHC 455
Decision Date: 19 March 2012

CaseChat Overview and Summary

Carey and others v Smith and others involved claims by the Careys and Brumac Enterprises Ltd, as shareholders of New Zealand Peat (NZP), against several defendants, including NZP's former managing director, Bruce Smith, its former financial director, Ingrid Dolk, and Eko Garden Ltd. The plaintiffs sought summary judgment against the defendants on claims of conversion and trespass in relation to peat that had been the subject of a buy back agreement. The crux of the dispute was whether the defendants had any defence to the plaintiffs' claims. The plaintiffs argued that the defendants had no defence because their actions were inconsistent with the plaintiffs' rights under the buy back agreement and amounted to conversion and trespass. The defendants countered that they had arguable defences, including that they were not personally liable for the actions of NZP, that they were not involved in the removal of the peat, and that the plaintiffs' loss was due to the company's liquidation and the enforcement of ANZ's prior security interest.

The Court found that the defendants had arguable defences. For the pre-liquidation claims, the Court rejected the argument that the plaintiffs had sued the wrong defendants, holding that directors could be personally liable in tort if the elements of the tort are made out. However, the Court accepted that the defendants had a plausible account of events and that there was no evidence to contradict their claim that they were unaware of the removal of the peat. The Court also found that the defendants had a defence to the post-liquidation claims, as the plaintiffs' interest in the peat was a security interest that had not been perfected, and thus did not rank ahead of ANZ's perfected security interest. The Court held that the plaintiffs' conversion claim based on the company's liquidation was also unmeritorious, as the plaintiffs had consented to the liquidation and it did not amount to conduct inconsistent with their rights. The Court declined the plaintiffs' application for summary judgment and reserved costs.

Orders