DREW BOADEN AND TIMOTHY MAHONEY - [2024] NZHC 2783

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2022-404 000413

[2024] NZHC 2783

BETWEEN
DREW BOADEN

Plaintiff

AND

TIMOTHY MAHONEY

Defendant

Hearing: 1 August 2024

Appearances:

N Lawrence for the Plaintiff

No appearance for the Defendant

Judgment:

26 September 2024

Reissued:

7 October 2024

JUDGMENT OF TAHANA J

This judgment was delivered by me on 26 September 2024 at 3.00pm pursuant to Rule 11.5 of the High Court Rules and re-delivered by me on 7 October 2024 in accordance with
High Court Rules 2016, r 11.10

…………………………

Registrar/Deputy Registrar

Solicitors:
Holland Beckett, Tauranga Neilsons Lawyers, Auckland Bankside Chambers, Auckland

BOADEN v MAHONEY [2024] NZHC 2783 [26 September 2024]

Introduction

[1] Mr Boaden claims $89,400 from Mr Mahoney for breach of director duties under the Companies Act 1993 (the Act) and for breach of s 9 of the Fair Trading Act 1986 (the FTA). Mr Mahoney’s defence was struck out1 and the claims proceed by way of formal proof.

[2] Mr Mahoney was a director and shareholder of Civil Underground Ltd (in liquidation) (Civil Underground). Civil Underground leased a property from Mr Boaden. Civil Underground failed to pay rent and did not remove soil and other materials from the property when the lease came to an end. Mr Boaden has incurred costs in clearing the property.

[3] Civil Underground was put into liquidation in 2020. Mr Boaden has been unable to recover any monies in the liquidation. Mr Boaden claims that Mr Mahoney breached his duties as a director of Civil Underground and that those breaches have caused his losses. Mr Boaden also claims that Mr Mahoney misled him as to the financial position of Civil Underground in breach of s 9 of the FTA.

[4]The issues I need to determine are:

(a)Has Mr Mahoney breached his duties as a director of Civil Underground by allowing it to trade while insolvent?

(b)If yes, is Mr Boaden entitled to recover from Mr Mahoney and if so, what quantum of damages should be awarded to Mr Boaden?

(c)Did Mr Mahoney engage in misleading or deceptive conduct under s 9 of the FTA by failing to inform Mr Boaden of Civil Underground’s financial difficulties?

(d)If yes, what quantum of damages should be awarded to Mr Boaden?

1 Boaden v Mahoney [2023] NZHC 2878.

[5]Before considering the above issues, I set out the relevant background.

Background

Original lease

[6] On 24 June 2004, Civil Underground (then called M Keoghan Contractors Ltd) entered into an agreement to lease with UKANZ Properties Partnership (the Lease) for the lease of part of a property (approximately 5,500m2) at Glen Eden (the Property). The total area of the Property was 13,700m.2

[7] UKANZ Properties Partnership was the name of the partnership between Mr Boaden and his brothers. The Lease included a one-year term with one right of renewal (total two-year term) and rental of $12,000 per annum (plus GST). The Property was authorised to be used for the…

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: [2024] NZHC 2783
Decision Date: 26 September 2024

CaseChat Overview and Summary

In the case of Boaden v Mahoney, Drew Boaden is pursuing Timothy Mahoney for $89,400, claiming that Mahoney breached his duties as a director of Civil Underground Ltd, now in liquidation, under the Companies Act 1993 and for misleading conduct under the Fair Trading Act 1986. Mahoney's defence was struck out, and the claims proceed by way of formal proof. The court must determine whether Mahoney breached his duties as a director by allowing Civil Underground to trade while insolvent and if so, what damages should be awarded to Boaden. Additionally, the court must decide if Mahoney engaged in misleading conduct under the Fair Trading Act and, if so, what damages should be awarded.

The court found that Mahoney breached his duties under sections 135 and 136 of the Companies Act 1993. Section 135 requires directors to avoid trading while insolvent, and the evidence showed that Civil Underground was insolvent from at least September 2018. Despite this, Mahoney allowed the company to continue trading, creating a substantial risk of serious loss to creditors. The court also found that Mahoney breached section 136 by agreeing to obligations that Civil Underground could not meet, such as the lease variation requiring rent payments and property clearance, which the company could not afford.

Regarding damages, the court determined that Boaden was entitled to recover the unpaid rent and costs incurred in clearing the property. Mahoney is liable for these losses because he allowed Civil Underground to trade while insolvent and did not provide reasonable grounds to believe the company could meet its obligations. The court ordered Mahoney to pay Boaden $89,400, plus interest on the unpaid rent and costs of clearing the property. The court also awarded Boaden his costs of the proceeding.

Orders