Gary Traveller and John Anthony Waller v Klaus LÖWer HC

[2004] NZHC 1232

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 1998-409-000069

IN THE MATTER OF     SOUTH PACIFIC SHIPPING LIMITED

(In Liquidation)

BETWEENGARY TRAVELLER AND JOHN ANTHONY WALLER

Plaintiffs

AND  KLAUS LÖWER

Defendant

Hearing:         31 July, 1, 4, 5, 6, 7, 8, 11 and 13 August 2003, 4 February 2004 Appearances: MD O'Brien and CE Manson for Plaintiffs

RF Fardell QC and P Davey for Defendant Judgment: 12 February 2004

RESERVED JUDGMENT OF WILLIAM YOUNG J

GARY TRAVELLER AND JOHN ANTHONY WALLER V KLAUS LÖWER HC CHCH CIV 1998-409-

000069 [12 February 2004]

INDEX

Paragraph Number

Summary  [1]

The structure of SPS

The set-up of SPS  [6]

The directors of SPS  [12]
Shareholding and capital structure  [14]
Chartering and ownership arrangements  [16]
Governance structure  [24]

The markets in which SPS operated 1992-1998

Introduction  [29]

General comments  [31]

The trans-Tasman liner trade 1992-February 1998  [32]
The New Zealand coastal trade  [42]
Pacific Islands trade  [45]

The overall financial performance of SPS  [46]

The course of events which have given rise to this litigation

Introduction  [50]

The year ending 30 June 1992  [52]

The year ending 30 June 1993  [61]
The year ending 30 June 1994  [75]

The year ending 30 June 1995  [96]
Subsequent events  [110]

The legal issues thrown up by the case

The relevant statutory provisions  [113] Section 320, Companies Act 1955 as applied by the Courts  [117] Section 135, Companies Act 1993, as applied by the Courts  [127] The key issue  [131]

The arguments of the parties and the reasons for my conclusions as to liability

Argument as to liability for the plaintiff  [135]

Argument as to liability for the defendant  [143]
Discussion  [150]

The arguments of the parties and the reasons for my conclusions as to relief

Arguments as to quantum on behalf of the plaintiff  [154]

Arguments as to quantum on behalf of Mr Löwer  [157]
Discussion  [159]

Summary

[1]    South Pacific Shipping Co Ltd (“SPS”) was formed in January 1992 and was placed in liquidation just over 6 years later, in February 1998. By then it was hopelessly insolvent. In these proceedings, its liquidators (“the plaintiffs”), seek financial relief from the defendant, Mr Klaus Löwer.  For most of the life of SPS,  Mr Löwer was its dominant shareholder and a director. The plaintiffs complain that Mr Löwer, along with other directors, conducted the affairs of SPS in a reckless way and thereby caused considerable damage to both the company and its shareholders. Claims by the plaintiffs against the other directors were either settled or not pursued; this largely for economic reasons (associated with the impecuniosity of the other directors). So, by the time the proceedings were heard by me, Mr Löwer was the only defendant.

[2]I have concluded that the plaintiffs have made out their claim and that from

30 April 1994 (if not before) Mr Löwer was acting in breach of s320(1)(b), Companies Act 1955. I am satisfied as well that the plaintiffs have established an entitlement to substantial relief.

[3]Accordingly I make orders as follows:-

1.Pursuant to s320(1), Companies Act 1955, I declare that Mr Löwer is personally responsible for $7m of the debts and liabilities of SPS other than

$17.271m of the indebtedness to related party creditors (Deil Shipowners BV and Pantigua Navigation Ltd).

2.Pursuant to s320(2), I make directions to give effect to that declaration. I direct that there be judgment for the plaintiffs against Mr Löwer in the sum of

$7m together with interest thereon at the rate of 7.5% per annum as from 19 February 1998 and costs (on a 3C basis) and disbursements (to be fixed by the Registrar). The judgment is charged on any money owed to Mr Löwer by SPS. I direct further that such sums as may be recovered by the plaintiffs from Mr Löwer shall, after meeting all of the plaintiffs’ costs associated with

these proceedings, be applied pari passu for the benefit of the creditors, save as to $17.271m owed to the related party creditors whom I have mentioned and Mr Löwer.

3.I reserve leave to the parties to apply for further directions in relation to relief.

[4]    These conclusions render it unnecessary to consider other claims which were advanced in the alternative associated with alleged promises by Mr Löwer to provide such financial support as would be necessary to support the business of SPS. It is  fair to say, however, that the conclusions I have reached involve amongst other things, a criticism of Mr Löwer for not committing to SPS to provide appropriate financial support. So the basis upon which I have entered judgment for the plaintiffs is inconsistent with the plaintiffs’ case in relation to their alternative claims.

[5]    What follows is my description of the structure of SPS, the markets in which SPS operated between 1992 and 1998, the financial performance of SPS, the course of events which have given rise to this litigation, the legal issues thrown up by the case, the arguments of the parties and the reasons for my conclusions as to liability and the arguments of the parties and the reasons for my conclusions as to relief.

The structure of SPS

The set-up of SPS

[6]    In April 1991, New Zealand Coaster Service Ltd (NZCSL) was formed. The people  behind  the  company  were   Captain   Ross  Fast,  Mr  Brian  McSherry,   Dr Dietmar Brand and Mr Gunther Buck.

[7]    Captain Fast has had a lengthy history in the shipping industry both at sea and on land. Mr McSherry was a Christchurch ships provedore.  Dr Brand operated  a shipyard in Germany and Mr Buck was an associate of Dr Brand. Both Dr Brand and Mr Buck had interests as ship owners.

[8]    NZCSL was set up to operate on the coastal trade in New Zealand. It chartered, on a bareboat basis, from Germany two vessels, the Northern Transporter (later called the Rangikura) and the Hunte. Dr Brand and Mr Buck were involved in the ownership of these two vessels.

[9]    At this point Mr Klaus Löwer also became involved. He is a German businessman. His business activities have included organising financing arrangements relating to the ownership of vessels. Mr Löwer took an interest as a co-owner in the Rangikura (a vessel which was, in effect, managed by Dr Brand).  He sought and obtained a shareholding in NZCSL so that he could monitor, from the New Zealand end, the arrangements which were entered into in respect of this vessel. I note in passing that Mr Löwer’s interest was taken via intermediary companies but, for practical purposes, these can be ignored.

[10]   In the latter part of 1991 Captain Fast explored the possibility of expanding into the trans-Tasman trade. The decision was taken to establish a new company (which became SPS) to enter that trade.   At this time the venture was joined by     Mr Stuart McAllum, an Australian who had had a lengthy involvement in the shipping industry and a long association with Captain Fast. A minor shareholding in the new company was taken by Mr Mike Hodgins who was to be an employee. Otherwise the initial shareholding arrangements in SPS were similar to those in NZCSL.

[11]SPS was formed in January 1992.

The directors of SPS

[12]   The initial directors of SPS were Captain Fast, Dr Brand and Messrs McAllum, McSherry and Buck. Mr Löwer became a director in May 1992 at which time Mr McSherry resigned. Dr Brand resigned as a director in February 1993 and Mr Buck resigned in January 1996. From that time on Captain Fast and Messrs McAllum and Löwer remained as directors with Mr Löwer resigning as a director in February 1998, on the eve of SPS going into liquidation.

[13]   Dr Brand’s resignation in February 1993 was associated with financial difficulties which he and his shipyard were then experiencing.   About that time,    Mr Buck who had previously been closely associated with Dr Brand became more closely associated with Mr Löwer and, over time, Mr Löwer acquired from Mr Buck his equity interest in SPS.

Shareholding and capital structure

[14]   The initial capital of the company was $500,000. This was increased to $1m shortly after the company was established. Capital was increased by a further

$5.25m in June 1993 and by $1.5m in June 1994.

[15]   Over the years SPS operated there were many changes in its shareholders. For the purposes of this litigation, however, these changes are largely irrelevant. What is primarily relevant is that by June 1993 Mr Löwer was the controlling shareholder of SPS (with 85.5% of the shares in the company). He retained the role of controlling shareholder throughout the life of the company and after Dr Brand ran into financial difficulties, Mr Löwer was the only shareholder in SPS of any financial substance.

Chartering and ownership arrangements

[16]   With the exception of two vessels which were time chartered by SPS towards the end of its history, all vessels which it operated were bareboat chartered. These vessels (11 in all) were owned in Germany and were the subject of sub-charter arrangements involving companies in Antigua. One of the Antiguan companies (which I will be mentioning later in this judgment) was Pantigua Navigation Ltd (“PNL”). All vessels were then  sub-chartered  to  a  Dutch  registered  company, Deil Shipowners BV (“Deil”), which chartered the vessels directly to SPS.

[17]   It will be recalled that Mr Löwer’s initial involvement with NZCSL was because of his ownership interest in the Rangikura. As the SPS venture got underway, Mr Löwer took interests in other vessels which were operated by SPS.  By the latter part of 1993 or early 1994 he had interests in four of the seven ships

which were then  on charter.     He told me that the cost of these vessels was in the order of $40m and that he had contributed approximately $16m by way of equity.

[18]   He was, in the end, to obtain an ownership interest in eight of the 11 German vessels which were bareboat chartered by SPS.

[19]   Each of the eight vessels in which he took an ownership interest was either initially acquired by partnerships established by Mr Löwer or alternatively was sold down by Mr Löwer into partnerships which he established. At times relevant to this litigation German tax law provided various incentives intended to encourage German ship ownership and ship building. The detail of these incentives is irrelevant for the purposes of this judgment. It is sufficient to note that they provided a context in which Mr Löwer was able to put in place financing arrangements associated with the eight vessels which I have just mentioned. The financing arrangements  also involved loans from a German bank, Bremer Landesbank. These loans were secured by ship mortgages.

[20]   Mr Löwer took fees for putting together the investment and financing arrangements in respect of the ships in question. A company which he controlled  was also paid a fee for managing each vessel. In respect of some of the vessels he retained a significant equity position (either directly or through one of his companies). He was also liable (although the extent of this liability may be debatable) to Bremer Landesbank on guarantees of the advances made to the ship owning partnerships.

[21]   The sub-chartering arrangements to which I have referred were not all identical. Their details, however, are not important. It is clear that these arrangements provided the opportunity for those who were associated with the intermediary companies (and this was principally Mr Löwer) to obtain a margin, that is the difference between what SPS paid Deil and what the German ship owners received in charter payments. For instance in mid-1994, the margins available to Deil and PNL on the chartering arrangements were, in total, DM4,745 and $3,075 per day. At the time there was parity between the dollar and the deutschemark. So if

SPS had met its obligations to Deil, this would have produced an annual margin for PNL and Deil of approximately $2.8m.

[22]   Mr Löwer told me that the charter arrangements (involving the Antiguan companies and Deil) had been established by Dr Brand and Mr Buck and that he, in effect, took over what was already an established set up. He has also maintained throughout that the partners in the German ship owning partnerships which he established were aware margins were derived via the Antiguan companies and Deil. The other SPS directors were aware of the existence (but not the extent) of the margins.

[23]   The existence of the margins might be thought to imply that SPS was not paying the best possible charter rates for its vessels (as the charter rates agreed between the German ship owners and the Antiguan companies arguably are the best evidence of what the German ship owners were prepared to charter the vessels for). Mr Löwer’s response to this suggestion (which was not really expressly put to him in quite these terms) would no doubt be along the lines that it was through his good offices that SPS was able to obtain vessels without providing any security for payment and that, for these good offices, he was fairly entitled to the margins.   There is no need for me in this judgment to express an opinion on the propriety of the margin arrangements.

Governance structure

[24]   It will be necessary for me later in this judgment to make some findings  about the governance of SPS. Some preliminary comments at this point, however, may be of assistance.

[25]   Captain Fast was the chief executive of the company. He was based in Christchurch which is where the head office of SPS was located. The company chairman, Mr McAllum, lived in Australia. Mr Löwer resided in Germany throughout as did Dr Brand and Mr Buck.

[26]   Directors’ meetings, in the formal sense, were few and far between. Records of those meetings (in the form of logically organised board papers and properly

recorded minutes), as produced to me in evidence, were very much more sparse than I would have expected. Accepting as I do that there may have been some loss of documents associated with the liquidation of the company and the sort of confusion which can arise in those circumstances, the sparsity of documentation is surprising.

[27]   As well, the records that do exist, particularly in relation to the early years of the company’s operations, do not reveal the sort of attention to comparisons of actual as against budgeted performance which I would expect of a reasonably substantial business.

[28]   As will become apparent, SPS was, throughout its existence, chronically short of capital and there were frequent working capital crises. It rather appears that the pressure of handling liquidity and other day to day problems distracted those primarily responsible for the governance of SPS from strategic thinking and analysis.

The markets in which SPS operated 1992-1998

Introduction

[29]   At this point it may be helpful to provide a brief discussion of the markets within which SPS operated.

[30]   My description of these markets may seem a little simplistic to those who are closely familiar with them. I have, however, chosen to confine my remarks to what  is primarily relevant to the case at hand.

General comments

[31]   By way of background I note that the anti-price fixing (and other anti-trust provisions) in the Commerce Act 1986 do not apply to international shipping (see s44(2)(a)). So those who provide shipping services to and from New Zealand have felt free to enter into anti-competitive arrangements designed to reduce capacity and keep up prices. Such arrangements are denoted by various terms which I will be using in this judgment, “Conference”, “Consortium” and “Alliance”.

The trans-Tasman liner trade 1992 – February 1998

[32]   The principal focus of the operation of SPS was on the trans-Tasman liner trade - that is on scheduled shipping services involving routes between fixed ports in Australia and New Zealand operated on a regular time basis. The capacity of such vessels employed on this trade is generally discussed by reference to the concept of TEU. This acronym stands for 20 foot equivalent unit – a reference to the 20 foot container which is an industry standard (albeit that there are many different types of container, some of which are 40 feet long). Non-containerised cargo can be, and often is, denominated in TEUs for comparison purposes.

[33]   At the end of 1991 there were seven shipping companies engaged in the trans-Tasman liner trade and they were operating 12 ships. Three of these  companies (Union Shipping Co Ltd, the New Zealand Line and Tasman Express Ltd) co-operated so as to provide a five ship service. Two of these were provided by Tasman Express and three by Union Shipping. The New Zealand Line had just been taken over by P & O Shipping and had no ships operating at the time. The participants in this venture referred to themselves as “the Consortium” and I will use this term in preference to the expression, “the Conference”, which was the term used by SPS. The Australia National Line joined the Consortium in January 1992.

[34]   In the late 1980s there had been a rapid growth in shipping volumes (at an annual rate of around 12.5% between 1986 and 1990) but this growth slowed and then stopped in 1990/91. In 1991 the total liner trade capacity was in the order of 162,000 TEU. This exceeded trade volumes but the evidence was unclear as to by how much.

[35]   The freight rates charged by Tasman Express on a wharf gate to wharf gate basis in 1991 were in the order of $2,860 per TEU. This was approximately 5% less than the rates which obtained the previous year. Freight rates had in fact been declining, at least in real terms, for some years. I should note that the figure $2,860 per TEU (and the corresponding figures for subsequent years which I will shortly be mentioning) represent the results of averaging, for instance between freight rates for

refrigerated and non-refrigerated containers and between freight rates for east-bound and west-bound traffic.

[36]   In the early 1990s all shipping companies on the trans-Tasman trade operated under the effective protection of what was known as “the Accord”. This was an arrangement between the maritime unions of Australia and New Zealand which sought to preserve the trans-Tasman trade for vessels manned by Australian and  New Zealand crews. Amongst the effects of the Accord was the absence of cross-trading. In other words, foreign-manned vessels on international voyages which included a leg between Australia and New Zealand were not able to fill empty space with trans-Tasman cargo. While the Accord was in full effect, only dedicated operators were able to ply the trans-Tasman trade. By the early 1990s, however, it was generally recognised in the industry that the Accord was unlikely to last indefinitely. Cross-trading started on a limited basis in 1993. By late 1996, the Accord had effectively broken down.

[37]   Between 1991 (the year before SPS began to operate) and the end of 1997 trade capacity increased significantly, to 205,000 TEU in 1992, 232,000 TEU in 1993, 245,000 TEU in 1994, 256,000 TEU in 1995, 284,000 TEU in 1996 and 297,000 TEU in 1997. Most of this additional capacity was introduced by SPS although some additional capacity was also introduced by its competitors, and towards the end of the period I am discussing, by the advent of cross-trading.

[38]   Trade volumes generally also increased during this period. The evidence is not particularly specific as to the detail of this and the only liner trade volume calculation which I have is for the 1994 year. For that year trade volumes were 192,000 TEU as compared to capacity of 245,000 TEU. There is also an indication in the evidence that the trade volume for 1996 did not exceed 200,000 TEU (as compared to a capacity of 284,000 TEU). Despite limited detailed evidence on this point I have little doubt but that the trade was significantly over-tonnaged throughout the period despite increases in trade volumes.

[39]   Predictably freight rates per TEU dropped. The rates charged by Tasman Express went from an average of $2,860 at the beginning of 1992 to $2350 in early

1994, $2,100 in the middle of 1995 and $1,600 at the end of 1997. Freight rates as charged by SPS were broadly similar and declined in a similar fashion. To some extent these freight rates reductions reflected efficiencies associated with port reforms in New Zealand and decreasing stevedoring costs. But, the fundamental driver for the freight rate reductions was undoubtedly increased competition on the trans-Tasman trade.

[40]   There was no stability amongst ship operators. Operators came and went.  The details of this are of no real moment for present purposes. It is sufficient to note that increases in capacity and falling freight rates brought pressure on the profitability of ship operating companies. This pressure increased once the Accord broke down and open cross-trading was possible. The Consortium broke up at about the same time as the Accord. Understandably ship operators sought to introduce other arrangements aimed at rationalising capacity.

[41]   I will be dealing later in this judgment with attempts made by SPS to align itself with other ship operators, including cross-traders, in the period after the Accord broke down. These efforts (and, as far as I am aware, the efforts of other dedicated trans-Tasman ship operators) were unsuccessful, at least in the medium to long term. With the benefit of hindsight it is now apparent that the advent of widespread cross-trading in 1997 and 1998 spelt the end for dedicated trans-Tasman ship operators.

The New Zealand coastal trade

[42]Two features of the New Zealand coastal trade should be mentioned.

[43]   The first is that New Zealand Rail at all times offered formidable competition to any coastal trading service.

[44]   The  second  relates  to  the  relaxation  of  cabotage  protection  for  the   New Zealand coastal trade which was effected via s 198, Maritime Transport Act 1994 when it became effective in February 1995. The bill which was the precursor  to this legislation was introduced in May 1993.

Pacific Islands trade

[45]   Competition on the Pacific Islands trade was always difficult. In part this  was because competing ship operators with Islands-based crews had lower crew costs. There were a number of other operators and comparatively limited co-operation between them. The Pacific Island trades were generally over-tonnaged. Further difficulties for the trade in the 1990s arose out of recession in Fiji and concerns over the political situation there.

The overall financial performance of SPS

[46]   The liquidators produced a schedule recording the financial performance of SPS up until 31 December 1997. I have reworked the schedule slightly. In part this was for the pragmatic reason that otherwise it would not fit within the constraints of the judgment template. There are, however, some other changes. As reworked, it is as follows:-

30/6/92	30/6/93	30/6/94	30/6/95	30/6/96	30/6/97	6 mths to 31/12/97
Sales	2,842,842	42,296,619	66,815,600	84,017,294	90,906,005	82,481,497	34,483,306
Net losses	2,344,483	5,455,890	6,000,407	6,595,959	6,048,567	7,293,431	5,902,800
Cumulative losses	2,344,483	7,800,373	13,800,780	20,396,739	26,445,306	33,738,737	39,641,537

Issued capital	1,000,000	6,250,000	6,250,000	7,750,000	7,750,000	7,750,000	7,750,000
Unpaid capital	175,000	5,250,000	18,750	90,000
Negative shareholder funds	1,519,483	6,800,373	7,569,530	12,736,739	18,695,306	25,988,737	31,935,543
Current assets	1,792,151	4,108,360	5,197,740	8,260,202	6,516,909	5,779,688	3,703,602
Current liabilities	2,639,915	7,849,358	9,615,777	14,438,595	13,926,552	13,278,093	12,585,996
Working capital deficit	847,764	3,740,998	4,418,037	6,178,393	7,409,643	7,498,405	8,882,394
Related party debt	1,651,384	5,771,140	4,648,522	8,484,831	12,511,563	19,157,804	23,516,162
Fixed assets	979,665	2,711,765	1,523,188	1,941,018	1,225,900	667,472	463,013
Term liabilities	26,159	14,533

[47]A few comments are appropriate:-

1.These figures are taken from the accounts and assume that SPS was, at the relevant balance dates, a going concern. If that assumption was not appropriate, then the figures understate liabilities and overstate assets. For instance, if SPS was, at any particular balance date, not a going concern, then provision should have been made for future charter liabilities under existing chartering arrangements. As well, fixed assets (which largely related to unamortised positioning costs associated with chartered vessels) were overstated.

2.The revenue derived by SPS grew rapidly from $2,842,842 in the period to 30 June 1992 to over $90m in the year ending 30 June 1996. It then began to decline, to $82,481,497 for the 12 months ending June 1997 and $34,483,306 for the six months ending 31 December 1997.

3.At all times the company traded at a loss. For the period to 30 June 1992 the loss was $2,344,483. From that time on losses mounted to the point where, by 31 December 1997 they totalled, on a cumulative basis, $39,641,537.

4.Issued capital increased in the manner which I have already described from

$1m at the end of 30 June 1992 to $6.25m for the year ending 30 June 1993 and to $7.75m in the year ended 30 June 1995.

5.At each of the balance dates there was a deficit in shareholders funds going from $1,519,483 as at 30 June 1992 to $31,935,543 as at 31 December 1997.

6.Related party debt (associated with unpaid charter and loans in lieu of unpaid charter) grew substantially save for the period between 30 June 1993 and    30 June 1994 (when some of this debt was mopped up by the increase in capital). At 31 December 1997 related party debt was $23,516,162. I should note that the related party debt included some debt that was subordinated from January and February 1996. I see no basis, however, for regarding it as anything other than a liability.

7.At all times there was a considerable shortfall between current assets and current liabilities. In my reworked schedule I have not treated related party debt as involving current liabilities. This is a generous approach because, at all material times, there was a significant proportion of that debt which was regarded by both Mr Löwer (and his companies) and SPS as being current. What my reworked schedule shows is that even on this generous approach, there was always a significant working capital deficit.

8.As to fixed assets, I should note that positioning costs associated with the vessels which were chartered from Germany were treated as assets and expensed or amortised over three years.

[48]   These figures raise an immediate question as to how SPS managed to trade for so long. To this question, there are two answers:-

1.SPS was able to obtain payment from its debtors far more quickly than its creditors were able to obtain payment from SPS. SPS was able to collect its debts within 14 days (or thereabouts) whereas it was usually able to obtain credit of between 30 and 90 days from its own creditors. The practical effect was that SPS derived its working capital from the extended credit which it was able to obtain from its creditors. The liquidity position (when viewed in terms of cash on hand) was sometimes favourable and, at other times, very tight. This method of financing worked rather better while turnover was increasing than it did, after 30 June 1996, when turnover was decreasing.

2.There was considerable flexibility over charter payments. My impression of the evidence is that there were really three tiers of payments: those necessary to ensure that the obligations of the German ship owning partnerships to Bremer Landesbank were honoured; those necessary to ensure that the charter rates agreed to be paid to the German ship owning partnerships were honoured; and the contractual charter rates as agreed between Deil and SPS. Mr Löwer’s primary concern was to ensure that the obligations of the German ship owning partnerships to Bremer Landesbank were met. If these obligations could be met, there was scope for flexibility. With the turnover

of SPS peaking in the year to 30 June 1996, cashflow pressure on SPS limited its ability to pay related party charter debts. This was the context in which related party debt ballooned out to $23,516,162 by 31 December 1997.

[49]   I was not given a reconciliation indicating how the related party debt as it stood at 31 December 1997 related to the margins. The drift of the evidence as a whole suggests that much of the $23,516,162 owed as at 31 December 1997 was referable to the margins. However, that is a global view and there is no doubt that many payments made by SPS during its trading history could fairly be regarded as including the margins derived by the intermediary companies. As well, although there was obvious flexibility in relation to the related party debt, there was, nonetheless, often great pressure applied by Mr Buck (presumably on behalf of     Mr Löwer) on SPS to keep up charter payments.

The course of events which have given rise to this litigation

Introduction

[50]   The detail of the factual background to the case is most easily digestible if discussed chronologically.

[51]   As will be apparent from the summary I have concluded that Mr Löwer is liable under s320, Companies Act 1955 as from April 1994. The primary case for  the plaintiffs was that s320 was breached as from April 1994. The plaintiffs, however, also allege reckless trading as from the end of October 1994 (albeit that in relation to events after 1 July 1994 the relevant statutory provisions changed). October 1994, of course, fell in the June 1995 year.  Given the way the plaintiffs  case has been structured, it is appropriate for me to discuss in detail the course of events up to the end of the June 1995 year. My review of subsequent events can be more cursory.

The year ending 30 June 1992

[52]   For the year ending 30 June 1992 (consisting of the five months between January and June 1992) SPS recorded a loss of $2,344,483.

[53]   There were two meetings of directors, on 5 May and 25 June 1992. No minutes for the first of these meetings has been located.

[54]   There must have been budgets for the period ending 30 June 1992. But no orthodox budgets for this period were produced in evidence. As well there is no record in either the agenda for the 5 May meeting or in the minutes of the 25 June meeting indicating detailed collective analysis by directors of the actual as against budgeted trading figures.

[55]   The annual report for SPS for the year ended 30 June 1992 was signed off on 2 February 1994. The auditor’s report was qualified in a number of respects but most significantly (to my way of thinking) as to the going concern assumption:

As disclosed in note 1A, the financial statements have been prepared on a going concern basis, the validity of which is dependent on the continued financial support of the major shareholders.  Should continued support not  be provided, the going concern basis may be invalid and additional provisions may be required for possible loss on realisation of the company's assets.

For reasons already indicated, see para [47] above, if the going concern was not appropriate, the financial position of SPS was worse than the accounts indicated. These accounts were not lodged with the Companies Office until May 1994.

[56]   The operation was initially based on two vessels, the Hunte and the Rangikura. In saying this I note that the evidence as to the relationship between the services provided by SPS and NZCSL was not entirely clear and it may be that NZCSL was operating the Rangikura up until June 1993. Given that SPS was later  to take over NZCSL and assume responsibility for its losses, I will treat the Rangikura as part of the fleet.

[57]   The Hunte was too slow to maintain regular 14 day services (as planned) between Sydney and Auckland and the Rangikura continued  to  operate  on  the New Zealand coastal trade but without success.

[58]   A third vessel, the Rangitikei, (which was also chartered from Germany) hit a log off the coast of Africa on the way out to New Zealand and had to return to Germany. It did not arrive in New Zealand until April 1992.

[59]   In or about May 1992 the decision was taken to add two additional vessels to the fleet, the Rangitoto and the Rangitata. This took the fleet to five vessels, of which four were deployed on the trans-Tasman trade. By the middle of 1992 SPS had a capacity on that trade of 26,000 TEU, representing approximately 13% of total trade capacity.

[60]As I have indicated Mr Löwer became a director of SPS in May 1992.

The year ending 30 June 1993

[61]For this year the company made a net loss of $5,455,890.

[62]   During  this  financial  year  there  was  no  board  meeting  other  than  on  10 November 1992. No minutes of this meeting were able to be produced.

[63]   I have not been able to find a budget which can be directly compared with the financial statements recording actual performance. But there are two sets of figures to which I should refer:-

1.A break - even analysis was prepared in May 1992. It is legitimate for me to infer that the assumptions upon which this break - even analysis were prepared were not, in the end, realised.

2.More importantly, in November 1992 SPS provided financial information, including projections to Bremer Landesbank.  The actual performance of  SPS was well adrift of what was forecast in these projections.

[64]   There is no record in exhibits which were produced of any detailed collective analysis by the directors of the actual as against budgeted trading figures.

[65]   The share capital of the company was increased on 30 June 1993 from $1m  to $6.25m. Mr Löwer directly, or indirectly, was to take up most of the new shares with the capital which he contributed being used to pay charter-related debt.

[66]   The annual report for the June 1993 year was signed off on 5 October 1994 and filed in the Companies Office on 21 August 1995. The auditor’s report was tagged in a way similar to the report for the 1992 year.  The accounts for this year  are in slightly unusual form. In the balance sheet the usual heading “shareholders’ funds” has been replaced with a composite heading, “shareholders’ funds, shareholders and related party advances”. This involved treating the related party advances as a form of equity (or quasi-equity). A casual reader of the accounts  might perhaps therefore have placed more emphasis on the deficit so calculated ($1,029,223) than on the more impressive deficit in shareholders’ funds ($6,800,373).

[67]   In April 1993 the Rangikura was taken off the New Zealand coastal service and transferred to the Auckland/Brisbane run and the Hunte was, in June 1993, transferred to the Pacific Islands service. Two other vessels joined the fleet, the Rangitane and the Tainui. The Tainui came into service either at the end of the June year or just after it. This was somewhat later than had been intended due to delays in the Brand shipyard. Associated with the charter arrangements in respect of the  Tainui was an undertaking by the Brand shipyard to contribute to charter payments in the event that the Tainui did not break even on its operations. The Brand shipyard’s financial difficulties meant that this undertaking was not honoured.

[68]   It will be recalled that in May 1993, legislation was introduced into Parliament aimed at limiting cabotage protection for the New Zealand coastal trade. This was an ominous development for SPS particularly as cross-trading was starting, in a limited way, on the trans-Tasman trade.

[69]   I am not sure whether the Tainui arrived in New Zealand and was able to be deployed just before or just after the SPS balance date of 30 June 1993. But, in any event, by mid to late winter in 1993, SPS had a total of six ships on the trans-Tasman

trade with a capacity of 45,000 TEU. This represented approximately 19% of total trade capacity.

[70]   Understandably, Tasman Express (and indeed the Consortium generally) began to keep a close eye on the activities of SPS from June 1992. The consortium commissioned the preparation of a model to predict (or estimate) the financial performance of SPS. This model was reasonably accurate – rather more accurate, as it turned out, than SPS’s own figures.  The model’s assessment of the SPS loss to   30 June 1992 was $2,531,436 as against an actual loss of $2,344,00. For the year to 30 June 1993 the model produced a loss for SPS of $6,404,888 as against a reported loss of $5,456,000.

[71]   Members of the Consortium were concerned that the activities of SPS would put trans-Tasman freight rates under increased pressure. The Tasman Express chairman, Mr Graham Malaghan and its chief executive, Mr Ronald Longley, visited Mr Löwer in Germany in November 1992. They were accompanied by a German lawyer. The purpose of the visit was to warn Mr Löwer off the course. To this end they shared with Mr Löwer their financial evaluations of the performance of SPS and why they thought that, in the long term, SPS would continue to be unprofitable.  They also warned him of the likely entry of cross-traders into the trans-Tasman market.

[72]   Mr Löwer responded firmly. He indicated that if the financial evaluations were shown to any other party, he would sue the Consortium. He asserted that the German ship owners were interested only in their tax situation and thus were not looking to recover any other benefits from the ships being deployed in New Zealand. He did raise the question whether SPS could join the Consortium but was told that this would not be possible.

[73]   As at November 1992 it was not correct to say that the German ship owners were interested only in their tax  situations.  Indeed,  in  his  evidence  before  me  Mr Löwer acknowledged that his assertions as to the motives of the German ship owners were not true. He also told me, however, that he had seen no reason why he should be truthful in dealing with the Tasman Express delegation.

[74]   In March 1993 SPS executed an assignment in favour of Bremer Landesbank of all revenues associated with the Tainui. Over the next four years SPS was to enter similar assignments in relation to all the German vessels it operated. If these assignments were effective (about which there is much doubt as they were never registered), the practical effect would have been to make SPS liable for the debts of the German ship owning partnerships to Bremer Landesbank. Whether this effect was fully understood by the directors of SPS is open to question. When Captain Fast gave evidence he seemed to think that the effect of the assignments had simply been to provide security in relation to the charter payments which SPS was contractually required to make.

The year ending 30 June 1994

[75]The loss for the year ending 30 June 1994 was $6,000,407.

[76]   During this year there were three board meetings, on 16 July 1993, 18 April 1994 and 15 June 1994.

[77]   The annual report for the 30 June 1994 year was signed off on 31 October 1994 and lodged with the Companies Office on 22 August 1995. The auditor’s  report was tagged in a similar way to the corresponding reports for the 1992 and 1993 years.

[78]   At the 16 July 1993 meeting, three projections were reviewed forecasting estimated net profits for the year of $2m, $3.8m and $6m.

[79]   In the same month (July 1993) Captain Fast was recorded in media noting that if he had been aware of the  proposal  of  the  Government  to  open  up  the  New Zealand coastal trade to foreign vessels, the Tainui (which had just arrived in New Zealand) would not have been built.

[80]   Projections dated 23 September 1993 were also produced in evidence. These forecast, for the June 1994 year, a profit on the trans-Tasman trade of $3,280,658, loss on the Pacific Islands trade of $259,524 and thus a total net profit for the company of $3,021,134.

[81]   On 17 December 1993, Captain Fast advised directors that there had been an operating loss of $397,000 for the period July to November 1993. The September 1993 projections had forecast a profit of $462,211 for this period. So the variance was nearly $860,000.

[82]   In the same month (December 1993), a Dutch company, Dynamar BV prepared a credit report on SPS. This report was used by SPS in dealing with leasing companies. It referred to the likely “opening up of the Tasman for foreign companies”.

[83]   The provisional year to date figures (up to February 1994) were considered at the 18 April 1994 board meeting. By this time there were losses on the  trans-Tasman trade of $1,767,000. These losses were, to some extent, attributable  (at least in the minds of the directors) to strikes on the Australian waterfront at the end of 1993 and the beginning of 1994. Preliminary March figures suggested a trans-Tasman profit slightly in excess of $500,000. The Pacific Islands service was not trading successfully and provisional losses to the end of February 1994 on that service amounted to $1,192,000.

[84]   The case for the liquidators focuses very much on the decisions made by the directors at the 18 April and 15 June board meetings.

[85]   At the April meeting the decision was taken to charter three additional vessels, the Ranginui (sometimes incorrectly referred to as the Ranganui), the Takitimu and the Turakina. Captain Fast told the board that there was a need for a seventh ship for the trans-Tasman trade and this was the reason for the chartering of the Ranginui. The rationale for the chartering of the Takitimu and the Turakina was expressed in the minutes (rather cryptically) in these terms:-

The charter of the Takitimu and Turakina was agreed in view of the rising market for these type of vessels and the comfort that they could be traded in the Caribbean or along the European coast as feeder vessels in the event of a change in market conditions in the South Pacific.

[86]   I note that Mr Löwer was not at this meeting. There can be no doubt, however, that he was a party to the decisions made. To put it another way, such significant decisions would not have been made without his approval.

[87]   In the first half of 1994, Mr Ron Longley of Tasman Express presented two papers at industry forums, a conference in Auckland on 28 February and 1 March 1994 and a similar conference in Christchurch on 4 and 5 May 1994.

[88]In the first of the papers Mr Longley noted:-

The ships servicing New Zealand’s trade will continue to age and shipowners will continue to look at further ways to both extend the life of their ships and to reduce their operating costs. The current freight rates will not support the building of new replacement ships designed for our specific requirements.

It is also relevant that, in general terms, barriers to trade throughout the world have been removed. This is evidenced by many countries having floated of [sic] their exchange rates several years ago which removed exchange control barriers and the removal of international trade barriers that will now result from conclusion of the GATT Round. Can the Maritime Accord then expect to continue as a barrier indefinitely.

…

At some time in the future, in my view, the improbability of the government changing the tax, financial and fiscal regimes to put New Zealand shipping on an equal footing with international shipping, together with the economic pressures from both the cargo interests and shipowners, plus the worldwide trend for the removal of trading barriers, will result in the trans-Tasman trade being opened up to all international shipping at some time in the future.

However, having said this, I am of the firm view that the requirement of importers and exporters in both Australia and New Zealand will still require a ferry type liner service operated by dedicated ships, albeit on a reduced scale. In other words, I believe that the future trans-Tasman shipping requirements will be met by a combination of dedicated and international trading ships.

…

The future is not rosy. The average age of the world’s fleet will continue to get older as a consequence of depressed freight rates. This will result in a growing unreliability of, and changes to, New Zealand’s shipping services.

Shipowners have little choice but to continue to reduce costs and maximise utilisation of their ship’s capacities.

These trends will also flow on into New Zealand’s Maritime Industry, particularly in the trans-Tasman trade.

[89]At the second of the two conferences Mr Longley said:-

What does the future hold for trans-Tasman shipping?

It is  highly  unlikely  that  our  government  will  agree  to  provide  the  New Zealand shipping industry with the same tax, financial and fiscal benefits that are received by shipowners in all other shipping nations.

It is also highly unlikely that the international trends which require better ship utilisation will not also flow into the trans-Tasman trade. In this regard, there is currently, and has been for many years, a massive amount of unused space transiting the Tasman on a regular basis on the cross-over ships. It is only the Maritime Accord that is preventing this space from being used.

[90]   Judges are often criticised for being too ready to conclude that the actual course of the key events giving rise to litigation was inevitable and thus predictable and, for this reason, being unfair to defendants. In this case, the contemporaneous documents (being the papers which Mr Longley gave at industry conferences in the Dynamar report to which I have referred) show that the demise of the Accord and the opening up of the Tasman to international shipping was foreseeable as at April 1994. Indeed, as earlier indicated, some limited cross-trading had already started. Equally foreseeable was the relaxation of cabotage rules in New Zealand. Pressure on freight rates associated with these factors along with SPS generated increases in capacity were plainly predictable.

[91]   The minutes for the 18 April 1994 meeting do not record anything in the nature of detailed long term projections. The only references I have identified are:-

1.The following comment:-

Tasman trade is rife with rumours as to:

(a)the future of the Conference;

(b)entry of cross-traders.

2.What were described as:-

… anticipated positive results for April-June (April 100k, May 300k, June 300k) … .

[92]   The minutes for the June meeting record provisional loss figures for the year to April 1994 of $2,775,000 but these figures themselves are questionable as they do

not correlate with other accounts. At this meeting the decisions were taken to withdraw the Hunte from the Pacific Islands trade, to purchase NZCSL and to lend  it $1m (presumably to pay off external creditors). The board papers for this meeting referred to the pending deregulation of New Zealand coastal shipping under what became the Maritime Transport Act and the belief on the part of SPS that such a change “would have a major competitive impact upon the company’s trans-Tasman shipping trade”.

[93]   The minutes of the June meeting, record under the heading “Purchase of NZCS”:-

Subject to ratification by the full shareholders meeting scheduled for 16 June 1994, the following was proposed and unanimously agreed.

That SPS purchases from the relevant shareholders of New Zealand Coaster Service Limited (NZCS), 100% of the ordinary shares for a consideration of

$4.00.

That SPS loans NZCS $1,000,000NZ, repayable on demand at nil interest.

This description of the transaction is perhaps a little elliptical. As I understand it, SPS took over from NZCSL its liabilities for unpaid charter and advanced it

$1,000,000 to enable local (ie New Zealand) creditors to be paid. The funding for this loan came from Mr Löwer.

[94]   Throughout this year working capital was tight, to say the least. Mr Buck  was applying considerable pressure on SPS to make charter payments. This pressure continued throughout the 30 June year.

[95]   In January and February 1994, further assignments were signed in favour of Bremer Landesbank in relation to the revenues derived from the chartered vessels. Again the securities related not to the underlying charter liabilities of SPS but rather to the liabilities of the German ship owning partnerships to Bremer Landesbank.

The year ending 30 June 1995

[96]For the year ending 30 June 1995 a total loss of $6,595,959 was made.

[97]   There were three board, meetings, on 5 April 1995, 16 May 1995 and 30 June 1995.

[98]   For this year there were obviously a number of profit projections prepared within SPS albeit that, with one exception, I have not been able to locate the detail of these projections:-

1.On a word processing document prepared on 6 October 1994 there is an estimate of profit for the year to 30 June 1995 of just over $3m.

2.In a letter of 20 October 1994 from Buddle Findlay to the directors of SPS to which I will be referring in detail shortly, there is a reference to a then current projected net profit of $2.5m for the year.

3.Plainly further projections were in place as at April 1995. I note from the draft minutes of the April 1995 board meeting the projected cumulative loss for the company as at 30 June 1995 was estimated to be $15.5m. Given that the cumulative losses to 30 June 1994 was $13.8m this implies projected losses for the June 1995 year, as late as April 1995 of only $1.7m.

[99]   The annual report for the year was signed off on 21 March 1996 and lodged with the Companies Office on 28 March 1996. The auditor’s report was tagged in this way:-

In arriving at their considered opinion that the company is a going concern, the Directors have relied upon the ongoing support of the major shareholder together with forecast financial information. As set out in Note 15 since balance date the major shareholder has provided support to the company by replacing outstanding shareholder and related party liabilities by a

$5,139,000 subordinated loan. However no formal confirmation of ongoing support has been provided to the company.

Without the ongoing support of the major shareholder the company would be dependent upon its ability to generate sufficient funds to be able to pay its debts as they fall due. We have been provided with the forecast information. Since anticipated events frequently do not occur as expected, actual results are likely to be different from forecasts and the variation may be significant.

Because the company has not obtained confirmation of the ongoing shareholder support and because of the inherent limitations of forecasts, we

are unable to obtain sufficient, appropriate evidence to conclude that the going concern basis is appropriate.

In this respect alone we have not obtained all the information and explanations that we have required.

[100]   SPS directors sought the first of what were to be a number of opinions from Mr Mark Russell, a commercial partner in Buddle Findlay, as to their possible liability for reckless trading in the event that SPS went into liquidation. This was on the recommendation of the auditors.

[101]   In his first opinion of 20 October 1994, Mr Russell referred to the net operating losses in 1992 and 1993 and to a “draft net loss after tax of $3,575,447” for the June 1994 year. Pausing at this point, I note that the variance between this figure and the actual loss for the June 1994 year of $6m (approximately) was associated with a write down of $1.9m in relation to the purchase of NZCSL and a $500,000 maintenance expense which was brought into the 1994 accounts just after the date of Mr Russell’s advice. As previously indicated, Mr Russell also referred to a proposed net profit after tax of $2.5m for the year ending 30 June 1995.

[102]   Mr Russell’s opinion no doubt provided some reassurance to the SPS directors. But it was, at best, decidedly equivocal. Mr Russell regarded the  frequency of directors’ meetings as inadequate. He recommended monthly meetings at which the directors would, amongst other things, discuss comparison of the company’s trading performance against company budgets. He also recommended examination by an independent third party of the reasonableness of the assumptions upon which budgets and cashflow forecasts were prepared. Directors were invited to give serious consideration to obtaining from Mr Löwer “some more substantial commitment to backing up the company in the event that it becomes unable to meet its obligations to its creditors”. Mr Russell also noted that the “best solution” from both the company’s and the directors’ point of view would be for Mr Löwer to inject sufficient additional capital to at least cover the existing deficit in shareholders funds.

[103]   Acting, I assume, pursuant to the advice of Mr Russell, SPS obtained a report of 5 April 1995 from Coopers and Lybrand on the projections for the June 1995 year

and for the projections to December 1995. The projections did not deal with the Islands trade (which was about to be discontinued). The Coopers and Lybrand report indicates that the projections had been logically prepared. It went on to say:-

The projections prepared by the company for the trans tasman trade represent a substantial improvement in the level of detail and quality of assumptions compared with previous budgeting undertaken by the company. This is not a criticism of previous budgeting techniques but reflects the fact that the company is now undertaking a more regular pattern of  activity which enables sound budgeting techniques to be adopted.

Whilst actual results will undoubtedly vary from the projections and the company may make substantial changes to the nature of the operations, the exercise currently undertaken has enabled management to develop a number of key business performance indicators against which actual performance can now be measured. This will provide in our view, very useful  information to management when comparing periodic financial performance against budget and identifying areas for performance improvement and justifying fluctuations from projected activity levels.

[104]   Despite Mr Russell’s recommendations in October 1994 as to increased frequency of board meetings, the next meeting of the board of SPS was not until      5 April 1995. At this meeting, the board resolved to end the Pacific Islands service from 28 April 1995. The minutes of this meeting (which are only in draft) do not address current budgeting information other than to note that the projected cumulated loss for the company as at the end of June 1995 was $15.5m. As earlier indicated, the actual cumulative loss as at 30 June 1995 was $20.4m (nearly $5m worse than predicted); this implying that the budget for the 30 June 1995 year, as late as April 1995, was nearly $5m too optimistic.

[105]   A further opinion from Mr Russell was obtained in the form of a letter of     21 April  1995.   The  tone  of  this  opinion  was  much  more  pessimistic  than    Mr Russell’s October 1994 opinion. For instance, he noted that:-

… if the Company was put into liquidation now the directors would almost certainly be personally sued by the liquidator for a breach of that statutory duty [a reference to s189, Companies Act 1955], and could have substantial damages awards made against them”.

Mr Russell also noted:-

“Your directors might feel that the Company’s favourable liquidity position removes any real risk of failure by (and consequent liquidation of) the

Company and that accordingly the risk to the directors of personal liability is only slight. However, that in no way removes the obligation of the directors to ensure that the Company has available to it sufficient assurances of financial support to ensure that the outside creditors can be met. If the directors fail to obtain such assurances, and the Company does fail, then I believe that personal liability of the directors will almost certainly follow.”

The letter also dealt with the necessity for regular directors’ meetings:-

You specifically asked me to comment on the need for regular directors’ meetings. This can be put simply: given the present precarious position of the Company, the directors need to be in contact with each other at all times. Whilst in the case of a profitable company it would be sufficient to hold monthly directors’ meetings, in my view at the present time weekly directors’ meetings of this Company should be held. I commented at our meeting that the meetings could be held by telephone conference call. I have not checked the Articles of Association of the Company to ascertain whether telephone conference calls are permitted for directors’ meetings and that is something that needs to be checked either by me or the Company’s auditors. In my view, if the directors do not meet on a weekly basis to discuss the weekly reports which they receive, they could be open to considerable criticism and possible legal liability. I also think that for their own  protection the directors should seriously consider having the Company’s auditors and solicitors attend these weekly directors’ meetings in order to provide the directors with any advice which may be required. …

For the future, Mr Russell referred to the desirability of Mr Löwer confirming the availability of financial support if required. He dealt with this issue in this way:-

In my  earlier report I recommended that the directors should obtain from  Mr Löwer a more substantial commitment to backing up the Company in the event that it becomes unable to meet its obligations to its creditors. I indicated that this commitment need not take the form of a binding guarantee issued by Mr Löwer to the Company’s creditors; it could instead take the form of a letter of comfort provided by Mr Löwer to the Company and its directors. In my earlier report I stated that the directors were entitled to rely on expressions of financial support received from a major shareholder. However, I also pointed out that the directors had to have reasonable grounds for believing that the support would in fact be provided when it was most needed.

You indicated that the Company would need at least an additional

$2,000,000 of working capital to meet its cashflow requirements during the period December 1995. I believe that in addition to the $2,000,000, the directors should also be seeking from Mr Löwer a promise of financial support for an additional “comfort zone” of at least another $3,000,000. However, the directors will obviously need to reach their own conclusions as to the Company’s working capital requirements, and what sort of working capital buffer they will need, in order to feel comfortable about allowing the Company to continue to trade.

I agree that the directors need to have a reasonable basis for concluding that Mr Löwer has the financial means to honour any letter of comfort which he might give. I had indicated that the best means of verifying this was to have Mr Löwer provide a sworn statement of assets and liabilities. Apparently, he is unwilling to provide such a statement. I must say straight away that if the directors are prepared to accept Mr Löwer’s refusal to provide a sworn statement of assets and liabilities, they do so at their own risk. They must be seen to have made all reasonable enquiries as to Mr Löwer’s financial resources.   I  am  not  particularly  comfortable  at  the  suggestion  that    Mr Löwer’s accountant should provide a statement as to his total net worth. Frankly, Mr Löwer has a substantial stake in this Company and if he is going to expect that the other directors continue to work to assist the Company to improve its financial position he has to expect that his directors need to verify his ability to meet his obligations under any letter of comfort. Any letter provided by Mr Löwer’s accountant is likely to be heavily qualified and subject to various disclaimers by the accountant. It is therefore likely to be of little use to the directors. I think that Mr Löwer must be prevailed  upon to provide more detailed information. As a compromise, he could provide  a  confidential  statement  of  his  assets   and   liabilities   to   a New Zealand-located party in whom the directors have some confidence, for example, the Company’s auditors. The auditors could then, without disclosing any detail of Mr Löwer’s assets and liabilities, provide an opinion as to ability to meet his obligations under the letter of comfort.

[172]   This is the exercise which produced the $7m figure which appears in para [3] of this judgment.

[173]   I emphasise that there are a number of different ways in which the assessment of loss could be approached. Having regard to the drift of the evidence as a whole, I see $7m as being a reasonable, albeit perhaps slightly conservative (cf Re Petherick at 99,961) assessment of the appropriate loss figure.

[174]There are two other points I should make:-

1.There have been conflicting views expressed as to whether the liability of directors in this situation ought to be joint and several or several with each director liable only for a proportionate share of the loss which is assessed. These views have been usually expressed without elaboration and there is little point in reviewing them. I would, myself, adopt the approach that liability ought normally to be on a joint basis. But, in any event, Mr Löwer was primarily responsible for what happened; this given his dominant position in the company.

2.While Mr Löwer has suffered serious financial losses associated with his involvement with SPS, I see no need to make any allowance for this. There was no detailed evidence from him in which he brought to account all losses and gains made. The potential for him to derive substantial collateral advantages from his involvement with SPS encouraged him to gamble with the funds of his creditors and I see nothing unjust in requiring him to make a significant albeit only partial contribution to their losses.

William Young J

Signed on 12 February 2004 at 2.15pm.

Solicitors:

Bell Gully, Wellington, for Plaintiffs Lowndes Jordan, Auckland, for Defendant