Clark v Libra Developments Ltd

[2007] NZSC 16

For a Court ready (fee required) version please follow this link

IN THE SUPREME COURT OF NEW ZEALAND

SC 87/2006
[2007] NZSC 16

BETWEENLINDSAY ALLAN CLARK

Applicant

ANDLIBRA DEVELOPMENTS LIMITED

First Respondent

ANDRUSSELL EARNEST HYSLOP AS TRUSTEE OF HYSLOP FAMILY TRUST

Second Respondent

Court:Blanchard, McGrath and Anderson JJ

Counsel:L A Andersen and H T Alloo for Applicant

P B Churchman and A C Skelton for Respondents

Judgment:15 March 2007 

JUDGMENT OF THE COURT

A        The application for leave to appeal is dismissed.

BThe applicant is to pay the respondents jointly costs in the sum of $2,500 plus disbursements to be fixed if necessary by the Registrar.

REASONS

[1]       This application for leave to appeal against a judgment of the Court of Appeal concerns an arrangement for sharing the profits of real estate developments.

[2]       Essential issues in both the High Court and the Court of Appeal were whether there was such an arrangement and if so whether the parties to it were Mr Clark and Mr Hyslop, or Mr Clark and Mr Hyslop’s company, Libra Developments Limited.

[3]       The lower Courts each held that a partnership existed between Mr Clark and the company.  Mr Clark accepts that finding but submits that certain assets held to be partnership property are Mr Clark’s personal property.  His argument is founded on the status of Mr Hyslop and Libra at the time those assets were acquired.

[4]       Mr Hyslop was the sole director of Libra.  He was adjudicated bankrupt on 13 July 1997 and no replacement director was appointed.  He was discharged from bankruptcy on 30 July 2000.  Pursuant to s 151(2)(b) s 157(1)(c) of the Companies Act 1993 he was disqualified from holding office as a director during the period of his bankruptcy.  In terms of s 157(1)(c) he vacated that office upon becoming bankrupt.

[5]       On 16 March 1999 Libra was struck off the Register of Companies pursuant to Part 17 of the Act and was not restored to the Register until 13 November 2000.  The property in issue was acquired during that period.

[6]       Mr Clark argues that in light of the bankruptcy and the absence from the Register the company could not have been his partner when the disputed property was acquired.

[7]       The lower Courts held that notwithstanding Mr Hyslop’s disqualification as a director, his acts as a director were valid in terms of s 158 of the Act which provides:

158     Validity of director’s acts

The acts of a person as a director are valid even though—
(a)     The person’s appointment was defective; or
(b)     The person is not qualified for appointment.

[8]       In addition, the Court of Appeal held Mr Hyslop remained a de facto director because, in terms of the definition of the expression in s 126(1) he was a person “occupying the position of director of the company by whatever name called”.  It cited Harlow Finance & Leasing Ltd v Sterling Nominees Ltd[1] which dealt with the implications for a company of the disqualification through bankruptcy of its director.  In that case Rodney Hansen J held[2] that the bankruptcy did not invalidate actions taken on behalf of the company.

[1]           (2001) 15 PRNZ 633.

[2] At [19].

[9]       The views taken in the lower courts are plainly correct.  The acts of a person as a director who was disqualified at the time of appointment could only ever occur after appointment.  Section 158(b) must therefore contemplate acts done when a person is disqualified after appointment.  The section is concerned with the status of the person at the time of the acts in issue, not just with the status at the time of appointment.  Section 126(1) is consistent with that.  In any event the company could not lose its status as a partner merely by becoming directorless.

[10]     On the issue of the removal of the company from the Register, the lower Courts held that the situation was redeemed by s 330(2) of the Act which provides:

(2)     A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.

[11]     Again those Courts were plainly correct.  The section means what it says, and Mr Clark’s argument fails to give effect to it.

[12]     Mr Clark’s submissions raise the question of the implications of s 324(1) which vests in the Crown the property of a company removed from the Register.  But by virtue of s 331(1), which complements s 330(2), any such property became revested in the company upon restoration.

[13]     The proposed appeal is unarguable and the application is accordingly dismissed.  The applicant is to pay the respondents jointly costs in the sum of $2,500 plus disbursements to be fixed if necessary by the Registrar.

Solicitors
Albert Alloo & Sons, Dunedin for Applicant
Kensington Swan, Wellington for Respondents