Harrison v Keogh

[2015] NZHC 3323

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001571 [2015] NZHC 3323

BETWEEN

AIDAN JOSEPH HARRISON

First Appellant

AND

WELLINGTON CITY HELICOPTERS LIMITED

Second Appellant

AND

JOHN PATRICK JOSEPH KEOGH Respondent

Hearing:	On the papers
Counsel:	M B Beech & D M Fraundorfer for the Appellants Respondent in person
Judgment:	18 December 2015

JUDGMENT OF NATION J

[1]      The first appellant (Mr Harrison) and the second appellant (WCHL) both appealed a judgment in favour of the respondent (Mr Keogh) against WCHL for the sum of USD52,312.26.  Mr Keogh also obtained an order that WCHL pay costs on that judgment in the sum of $14,318.28.

[2]      The respondent had made a claim for USD52,312.26 in the District Court against both Mr Harrison and WCHL. WCHL had counterclaimed for $63,037.

[3]      The District Court gave judgment against WCHL on the respondent’s claim

and against WCHL on its counterclaim.  Both Mr Harrison and WCHL then lodged their appeal.  Both were represented at the hearing of the appeal by the same counsel.

HARRISON & WELLINGTON CITY HELICOPTERS v KEOGH [2015] NZHC 3323 [18 December 2015]

[4]      (Mr Keogh represented himself in both the District Court and on the hearing of the appeal.  He had not filed any cross-appeal in relation to the judgment of the District Court, but no decision had been made in that Court with regard to his claim against Mr Harrison personally.

[5]      The  evidential  basis  for  Mr  Keogh’s  claim  was  traversed  fully  in  the

judgment of the District Court of 19 June 2015 and my judgment of 11 November

2015.1

[6]      Mr Keogh’s claim arose out of a settlement reached between him and Mr Harrison and documented in a record of settlement dated 30 August 2011.   The agreement was entered into by Mr Harrison personally but was to be a full and final settlement of all issues, including employment and business dealings between Mr Harrison and his associated businesses and companies, and Mr Keogh and his associated businesses and companies.   In the record of settlement, the parties acknowledged they had “the mandate to settle on behalf of themselves and their associated businesses and companies”.

[7]      The record of settlement required a distribution to the shareholders of WCHL once a helicopter belonging to the company had been sold and accounts showing the funds available for the shareholders had been prepared.  As detailed in this Court’s judgment of 11 November 2015, the appropriate draft accounts were prepared.  On

13  November  2012,  Mr  Harrison  arranged  for  a  payment  to  his  shareholding company from a bank account of WCHL in accordance with the amount due as shown by those draft accounts.   In an email of 12 December 2012, Mr Harrison acknowledged in an email sent to Mr and Mrs Keogh that the amount due to him was as shown in the draft accounts but claimed he could set-off another alleged unrelated debt.  Mr Keogh immediately stated he could not do this.  Mr Harrison has never pursued any claim in respect of such alleged debt.

[8]      The draft accounts which Mr Harrison relied on in bringing his claim were

prepared by the company’s accountant on instructions from the directors, including

Mr Harrison.   On the evidence presented in the District Court, and referred to in

1      Harrison v Keogh [2015] NZHC 2791.

detail  in  my judgment  on  the  appeal,  I  am  satisfied  those  draft  accounts  were prepared with the knowledge, and at the direction, of Mr Harrison, not just as a director,  but  as  one  of  the  parties  to  the  settlement  recorded  in  the  record  of settlement and as an individual who was to benefit from the required distribution of company funds.

[9]      In light of the evidence referred to in my earlier judgment, I found that there had been representations made by or on behalf of WCHL that Mr Keogh would be paid from WCHL the sum of USD52.312.26, that he relied on those representations to his detriment and that it was unconscionable for the company to be refusing to make such payment.   On that basis, I upheld the judgment of the District Court against WCHL for that sum.

[10]     In  my judgment,  I noted  the  District  Court Judge  had  never  issued  any judgment as to the claim made by Mr Keogh against Mr Harrison personally.   I indicated that, on my assessment of all the evidence, it seemed that Mr Keogh could well be entitled to judgment against Mr Harrison personally.   With the appeal proceeding by way of a rehearing, the High Court had the power to make any order on the appeal that could have been made in the District Court.  I indicated that, rather than remit the matter back to the District Court for the Judge to give a decision in respect  of  the  claim  Mr  Keogh  had  made  against  Mr  Harrison,  it  would  be appropriate for me to deal with that issue on appeal.

[11]     This had not, however, been the subject of submissions during the hearing of the appeal.  I accordingly reserved any decision in relation to this to allow time for submissions to be made as to a potential judgment against Mr Harrison.

[12]     I set a time for the filing of submissions which would have avoided the need for me to deal with this issue if WCHL paid the amount due in terms of the District Court judgments.

[13]     In calling for submissions on this issue, I indicated that, in my judgment, if neither party sought a hearing on this aspect of the matter, I would give my decision in relation to this aspect of the appeal after considering written submissions.   Mr

Keogh stated he did not require a hearing.   Mr Beech, for the appellants, did not request any hearing.  I thus give my judgment on this aspect of the appeal, having taken into account the submissions for both parties.

[14]     Mr Keogh filed submissions dated 25 November 2015 seeking judgment against Mr Harrison personally.  In that submission, he referred in detail to ways he claimed Mr Harrison was personally obstructing WCHL paying to him the amounts due in terms of the District Court judgments (there are two, one for USD52,312.26 and one for $14,318.26 in costs).

[15]     Any judgment I give in respect of the claim against Mr Harrison personally must be on the basis of evidence that was before the District Court in the hearing that took  place  there  and  thus  before  me  on  the  hearing  of  the  appeal.    What  has happened since then can provide no basis for a judgment against Mr Harrison personally.

[16]     On 9 December 2015, Mr Beech filed detailed submissions on behalf of both Mr Harrison personally and WCHL opposing the entry of any judgment against Mr Harrison personally and seeking costs.

[17]     In his submissions, Mr Beech accepted that this Court has very wide powers on an appeal by way of rehearing, pursuant to r 20.19 of the High Court Rules, which I can exercise in favour of a respondent.  It is implicit in his submissions that he accepts that I can give judgment against Mr Harrison personally but he submits this would involve a departure from the way the District Court Judge dealt with the matter in not making any decision on the claim against Mr Harrison personally and that there is an onus on Mr Keogh to satisfy the appeal Court that it should differ

from the way the claim against Mr Harrison was dealt with in the District Court.2

[18]     Mr Beech submitted that Mr Keogh’s claim is in relation to an amount due to

him from WCHL and to give judgment against Mr Harrison personally would be to make him personally liable for a debt of the company.  He said there is no authority

2      Referring to Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR

141 at [4].

that a director can be liable for causing a company to breach a contract on the basis the director controls the activities of the company.   He referred to authorities that have held that directors are not liable for inducing their own company to breach a contract.3

[19]     Mr Beech said that he had construed Mr Keogh’s submission as being that Mr Harrison, motivated by personal feelings of ill-will towards Mr Keogh, used his capacity as director of WCHL to cause WCHL to withhold from Mr Keogh payments that the company was legally liable to make.  He suggested that this amounted to an allegation that Mr Harrison had not exercised  his powers as  a director for that purpose, pursuant to s 133 of the Companies Act 1993.  He submitted that any claim which Mr Keogh might wish to make in this regard should be made pursuant to the provisions of the Companies Act, requiring him to obtain leave in the first instance to undertake a derivative action pursuant to s 165 of the Act.

[20]     With regard to any possibility of personal liability, Mr Beech said “Beyond allegations of breaches of director’s duties, it is difficult to see the basis of any personal liability”.  In that regard, he referred to a passage from the judgment of the Court of Appeal in Trevor Ivory Limited v Anderson:4

What does run counter to the purposes and effect of incorporation is a failure to  recognise  the  two  capacities  in  which  directors  may  act;  that  in appropriate circumstances they are to be identified with the company itself, so that their acts are in truth the company’s acts.  Indeed I consider that the nature of corporate personality requires that this identification normally be the basic premise and that clear evidence be needed to displace it with a finding that a director is not acting as the company but as the company’s agent or servant in a way that renders him personally liable.

[21]     Mr Beech submitted that Mr Harrison was in a difficult position because in neither the pleadings nor the submissions subsequent to the hearing had Mr Keogh personally articulated the legal basis on which he claimed Mr Harrison could have a liability to him personally.  He submitted that Mr Harrison was prejudiced as a result

of this and for that reason Mr Keogh’s failure to file a notice of cross-appeal should

3      Said v Butt [1920] 3 KB 497 (KB); Henderson v Kane and the Pioneer Club [1924] NZLR 1073 (SC); Official Assignee and Others v Dowling and Others [1964] NZLR 578.

4      Trevor Ivory Limited v Anderson [1992] 2 NZLR 517 (CA), at 527.

be  a  significant  impediment  to  his  obtaining  judgment  against  Mr  Harrison personally.

[22]     With regard to statements made by Mr Keogh in his submissions as to Mr Harrison’s post-judgment conduct, Mr Beech said the allegations were denied and that, in any event, they were not evidence.

[23]     In their submissions, neither Mr Keogh nor Mr Beech, for Mr Harrison, make submissions as to whether Mr Harrison could be personally liable to Mr Keogh based on equitable principles and, in particular, a reliance on promissory estoppel. A claim on that basis was not formulated in the pleadings before the District Court but it was the basis on which I found WCHL was liable to Mr Keogh for the amount he claimed.

[24]     I consider it is appropriate for me to consider whether Mr Harrison could be personally liable on such a basis.  In my judgment, I gave my reasons as to why, on an appeal brought by both Mr Harrison and WCHL, I could consider the principle of estoppel and its application in the particular facts of this case.  I referred to s 41 of the District Courts Act 1947.  I referred to the acknowledgements which had been made by counsel as to why application of the principles of estoppel would have made no difference to the evidence that was before the District Court.

[25]     With the way I traversed the relevant facts of this case in my judgment and the  comments  I  made  with  my  reference  to  the  steps  taken  by  Mr  Harrison personally, and not just as a director of WCHL, my judgment gave clear notice to Mr Harrison and his counsel that I would consider applying the principles of estoppel in deciding whether or not Mr Harrison had personal liability to Mr Keogh.  There was nothing in Mr Keogh’s submission to suggest that he was abandoning this as a potential basis for liability in seeking judgment against Mr Harrison personally.

[26]     I proceed on the basis that, if Mr Harrison has any personal liability to Mr Keogh, it cannot be based on steps he took solely as a director of the company or as a result of any fiduciary duty, if there was any, that as a director he may have owed

to Mr Keogh as a shareholder.  My judgment does not therefore require me to depart from the law as stated in the various authorities which Mr Beech referred me to.

[27]     As the authors of Equity and Trusts of New Zealand state: 5

The basis principle behind the modern doctrine of equitable estoppel can be simply stated: A party will not be permitted to deny an assumption, belief or expectation that it has allowed another to rely on where such a denial would be unconscionable.

[28]     In  National  Westminster  Financial  NZ  Limited  v  National  Bank  of  NZ Limited, for the Court of Appeal, Tipping J stated that for an estoppel to arise:6

… the following points must be established by the party claiming the benefit of the estoppel (the proponent):

(1)    The parties have proceeded on the basis of an underlying assumption of fact, law or both, of sufficient certainty to be enforceable (the assumption).

(2)     Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.

(3)     Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.

(4)     The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.

(5)     The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.

(6)     In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.

[29]     With the record of settlement, Mr Harrison personally represented to Mr Keogh that all issues between himself personally and Mr Keogh would be settled through implementation of that settlement.  He represented that Mr Keogh would be

paid the amount due to him as shown by draft accounts prepared for WCHL after the

5      Andrew  Butler  (gen  ed)  Equity  and  Trusts  in  New  Zealand  (2nd   ed,  Thomson  Reuters, Wellington, 2009) at [19.1.1], referring to National Westminster Finance NZ Limited v National Bank of NZ Limited [1996] 1 NZLR 548 (CA) at 549; Waltons Stones (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404.

6      National Westminster Finance NZ Limited v National Bank of NZ Limited, above n 5, at 550.

sale of the helicopter.  In implementing the settlement, Mr Harrison arranged for the preparation of the draft accounts and, through those accounts, represented personally, and not just as a director of the company, that Mr Keogh would be receiving a payment of USD52,312.26.   Mr Harrison then instructed the accountant to redraw the accounts for WCHL for previous years in a way which I have found was in breach of the settlement which he had entered into personally with Mr Keogh.  Mr Harrison withdrew from WCHL’s bank account, for the benefit of his shareholding company, the amount due as shown by those draft accounts.

[30]     My judgment of 11 November 2015 sets out the ways in which Mr Harrison relied on the representations made by Mr Keogh  and the ways this was to his detriment.

[31]     In all the circumstances of this case, I consider it would be unconscionable to allow Mr Harrison to resile from the obligations which he assumed personally to Mr Keogh   through   the   original   settlement   and   his   subsequent   conduct   and representations with regard to the implementation of that settlement.

[32]     Each  of the questions  articulated by Tipping J  can,  on  the  evidence,  be answered so as to require this Court to recognise for Mr Keogh the benefit of the estoppel which has been made out.

[33]     The Court of Appeal recognised in Trevor Ivory Limited v Anderson that, in the particular circumstances of a case, a director of a company might come to be under a personal liability to a third party, breach of which might entail personal liability.7   By way of example, Hardie Boys J stated that “[i]n the policy area, I find no  difficulty in  the imposition  of personal  liability on  a director  in  appropriate circumstances”.8    The Court of Appeal’s statements in that regard were made with reference to the personal liability which might arise in tort if there was a duty of care and negligence.   In the particular circumstances of this case, on an application of

recognised equitable principles, in particular the principles of promissory estoppel, I

7      Trevor Ivory Limited v Anderson, above n 4, at 527.

8      At 527.

hold that Mr Harrison did have personal obligations to Mr Keogh.  He is liable for his breach of those obligations.

Conclusion

[34]     In all these circumstances, it is appropriate for me to give judgment on the claim which Mr Keogh made against Mr Harrison personally in the District Court, a claim which was before me through Mr Harrison being a party to the appeal to the High Court.  On that claim, Mr Keogh is entitled to judgment against Mr Harrison in the sum of USD52,312.26, together with costs for proceedings in the District Court as the District Court fixed as being appropriate for those proceedings, namely the sum of $14,318.28 and disbursements on the appeal which I have fixed in a separate judgment in the sum of $6,001.77.

[35]     For clarity, Mr Harrison’s liability as a result of this judgment is joint and several with the liability of WCHL.

Solicitors:

Holland Beckett, Tauranga

Copy to:

J P J Keogh, Wellington.