Grant v Johnston - [2016] NZCA 157

IN THE COURT OF APPEAL OF NEW ZEALAND

CA229/2015
[2016] NZCA 157

BETWEEN	DAMIEN GRANT AND STEVEN KHOV AS LIQUIDATORS OF NZNET INTERNET SERVICES LIMITED (IN LIQUIDATION) Appellant
AND	ROWAN KENLEY JOHNSTON Respondent

Hearing:	16 February 2016
Court:	Harrison, Fogarty and Toogood JJ
Counsel:	B J Norling and A Cherkashina for Appellant S J Ropati for Respondent
Judgment:	29 April 2016 at 2.15 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellants are ordered to pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Harrison J)

Table of Contents

Para No.

Introduction [1]
Background [4]

(1)       NZNet’s relevant history  [4]
(2)       Mr Johnston’s shareholding  [9]
(3)       Mr Johnston’s directorship: 2010  [14]
(4)       Mr Johnston’s directorship: 2011  [26]

Liquidators’ case [34]

(1)       Reckless trading  [35]
(2)       Incurring obligations  [42]
(3)       Negligence  [45]
(4)       Keeping proper accounting records  [48]

Appeal [52]
Decision [55]

(1)       30 December 2009  [58]
(2)       30 June 2010  [69]
(3)       31 December 2010  [76]

Compensation [82]
Result [98]

Introduction

The liquidators of NZNet Internet Services Ltd (NZNet), Damien Grant and Steven Khov, have sought orders that three former directors pay compensation to satisfy debts due to the company’s creditors. The liquidators claim that the directors breached various statutory duties when performing their offices.
Following trial in the High Court at Auckland, Brown J found that all three directors had breached their duties but at different times and in different ways,[1] with the consequences as follows:
(1)Stephen Andrews, NZNet’s managing director and majority shareholder, was found to have acted recklessly and in breach of his duty of care from an unspecified date but for a period covering some years.[2] He was ordered to contribute $1,089,591 towards NZNet’s assets by way of compensation and declared to be personally responsible for outstanding debts of the same amount due at the date of liquidation.[3] Mr Andrews took no steps to defend the proceeding and does not appeal.
(2)A second director, George Thomas, was found to have acted in breach of his duty of care for a three-month period. He was ordered to contribute $83,812 towards the company’s debts by way of compensation.[4] Mr Thomas defended the proceeding but does not appeal.
(3)A third director, Rowan Johnston, was found to have acted recklessly for two months within a five-month period when he was also in breach of his duty of care. However, he was not ordered to contribute towards NZNet’s debts because the company’s liability to him — totalling $460,000 — exceeded any loss attributable to his breaches.[5]
The liquidators appeal only against the judgment in Mr Johnston’s favour. Their wide-ranging grounds are based on the premise that Brown J erred in finding Mr Johnston was not liable in breach of his duties owed to the company, either during the entire term of his directorship of about 20 months or for some shorter period but longer than five months. Alternatively, they say that even if…

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.

Continue reading Grant v Johnston

Details

AGLC: Grant v Johnston [2016] NZCA 157
Case: [2016] NZCA 157
Decision Date: 29 April 2016 at 2.15 pm

CaseChat Overview and Summary

The liquidators of NZNet Internet Services Ltd, Damien Grant and Steven Khov, appealed against the High Court’s judgment that Rowan Johnston, one of the company’s directors, was not liable to pay compensation to creditors of the company, which had gone into liquidation. The liquidators claimed that Mr Johnston had breached his duties under the Companies Act 1993 from his appointment as director on 30 December 2009. The Court of Appeal found that while Mr Johnston had breached his duties from 30 December 2010, he was not liable to pay compensation because he had advanced $460,000 to the company and because other factors pointed to the conclusion that it was fair for him to be absolved of any liability. The appeal was dismissed and the liquidators were ordered to pay the costs of the appeal.

Orders