Harrison v Keogh
[2015] NZHC 2791
•11 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001571 [2015] NZHC 2791
BETWEEN AIDAN JOSEPH HARRISON
First Appellant
AND
WELLINGTON CITY HELICOPTERS LIMITED
Second Appellant
AND
JOHN PATRICK JOSEPH KEOGH Respondent
Hearing: 22 October 2015 Appearances:
M B Beech & D M Fraundorfer for the Appellants
Respondent in personJudgment:
11 November 2015
JUDGMENT OF NATION J
Introduction
[1] The respondent (Mr Keogh) issued proceedings in the District Court against the first appellant (Mr Harrison) and the second appellant, Wellington City Helicopters Limited (WCHL). The claim was for an amount of US$52,312.26, a sum which represented 7.52 per cent of funds available to shareholders on accounts prepared for WCHL and provided to Mr Keogh in August 2012.
[2] WCHL counterclaimed for $63,037. This was the amount shown as being due from Mr Keogh to WCHL in further accounts for the year to 31 March 2013,
prepared in October 2013.
HARRISON v KEOGH [2015] NZHC 2791 [11 November 2015]
[3] In a judgment of 19 June 2015, Judge Andrée Wiltens decided that Mr Keogh’s claim was established.1 WCHL was required to pay US$52,312.26 plus interest at the District Court rate from 13 November 2012 to the date of judgment. The counterclaim was impliedly dismissed. The Judge made no decision in relation to Mr Keogh’s claim against Mr Harrison. Mr Harrison and WCHL have appealed against that decision. On their appeal, they ask this Court to dismiss Mr Keogh’s
claim. They seek an order requiring Mr Keogh to pay the $63,037 as WCHL had counterclaimed for.
Approach on appeal
[4] Because this appeal proceeds by way of rehearing, I am required to make my own assessment of the evidence which the District Court Judge had to consider. If, having regard to the submissions of counsel and my assessment of the evidence, my conclusion as to Messrs Harrison and Keogh’s respective entitlements differs from that of the District Court Judge then I must find the judgment was in error and allow
the appeal.2
Background
[5] Counsel for the appellants did not take issue with the way Judge Andrée Wiltens had summarised the background to the dispute between the parties or his record of key communications between WCHL’s accountant and Mr Keogh during
2012. They did strongly challenge the opinion which the Judge expressed as to the accountant, Mr Stevens, being vulnerable to manipulation by Mr Harrison. They also argued strongly that the conclusion which the Judge came to, as to there being an implied term in a settlement agreement reached between Mr Harrison and Mr Keogh, was incorrect both in law and on the facts.
[6] Mr Keogh is a New Zealand resident and a former police officer. Mr Harrison is a successful property developer based in Ireland. Mr Keogh and Mr Harrison are first cousins. Mr Keogh had come to know Mr Harrison well through
visits to Ireland as an adult. Mr Harrison developed a friendship with Mr Keogh and
1 Keogh v Harrison [2015] NZDC 11226.
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
his wife through his visits to New Zealand. Both men shared an interest in helicopter flying.
[7] In the course of their dealings, Mr Keogh gave up his employment as a police officer and become a business associate of Mr Harrison, in connection with several business ventures Mr Harrison had in New Zealand. Around 2003-2004, they decided to purchase a helicopter and base it in New Zealand so that Mr Harrison could use it for his transport needs during his frequent visits to New Zealand. They also intended to use it for personal training for both of them and Mr Harrison’s son to eventually obtain their private helicopter pilot’s licences. They hoped to offset some of the helicopter running costs by leasing the helicopter and, in due course, on- selling the helicopter.
[8] Mr Harrison and Mr Keogh set up WCHL to purchase, own and operate the helicopter. Both men made financial contributions to the company, Mr Harrison as to 90 per cent and Mr Keogh as to 10 per cent. In the accounts and company’s office records, 90 per cent of the shares were recorded as being owned by Mr Harrison or his company Channor NZ Limited and 10 per cent by Mr Harrison and Mr Keogh jointly. Mr Keogh claimed the 10 per cent shareholding had been recorded incorrectly and that he personally held 10 per cent of the shares.
[9] WCHL purchased an EC120 helicopter in May 2004. The helicopter was leased over the years to Heliflight NZ Limited. It was flown from Wellington to other centres for various testing and/or maintenance work to be done. There was some private use of the helicopter by Mr Keogh and by Mr Harrison.
[10] Mr Harrison did not visit New Zealand as frequently as had originally been anticipated. As a result, his usage of the helicopter was significantly less than had been anticipated. His son’s use of the helicopter was almost non-existent. Mr Keogh went on to obtain his private helicopter pilot’s licence. He did this at his own expense and without recourse to the WCHL EC120 helicopter but he later obtained his commercial pilot’s licence using the WCHL EC120 helicopter.
[11] In 2010, there was a major breakdown in the relationship between Mr Harrison and Mr Keogh. This rift led to Mr Harrison removing Mr Keogh as a director of WCHL, appointing his son as co-director and then in March 2010 dismissing Mr Keogh from his employment with that company. Mr Keogh has not used the EC120 helicopter since then.
[12] Mr Keogh challenged that dismissal, firstly in the Employment Relations Authority (to no avail) and, secondly, through an appeal to the Employment Court. During the hearing of that appeal, the Judge suggested that they should discuss a possible settlement. This led to them signing a Record of Settlement (ROS). Relevant parts were as follows:
RECORD OF SETTLEMENT
AIDAN HARRISON and JOHN KEOGH (“The Parties”)
The parties acknowledge that they have the mandate to settle on behalf of themselves and their associated businesses and companies.
The parties hereby agree to resolve all issues arising out of the employment relationship and their previous business dealings on the following basis:
1. John Keogh will immediately discontinue Employment Court proceedings WRC No. 5/11;
2. Costs will lie where they fall in relation to the proceedings being discontinued;
3. ...
4. The parties agree that insofar as Wellington City Helicopters Limited is concerned the helicopter will immediately be put up for sale and after deduction of any debt and shareholder account adjustments the balance will be paid in accordance with the shareholding. For avoidance of doubt, it is acknowledged by Aidan Harrison that John Keogh has a
10% shareholding in Wellington City Helicopters Limited;
5. John Keogh will return all company records, information, hard drives, memory sticks and equipment including equipment associated with aircraft EC1 ZK”IJK” for Channor NZ Limited, Fort Nautilus Limited and Wellington City Helicopters Limited;
6. Channor NZ Limited agrees that John Keogh can retain the computer and iPhones currently in his possession;
7. ...
This Agreement is in full and final settlement of all issues including employment and business dealings between Aidan Harrison and his associated businesses and companies and John Keogh and his associated businesses and companies.
Dated this 30th day of August 2011
[13] In his brief of evidence for the District Court hearing, Mr Harrison said “The parties to the ROS are Mr Keogh and myself. WCHL is not a party.” If Mr Harrison was seeking to assert that WCHL was not bound by this agreement then such an assertion would have been wrong. The agreement committed WCHL to paying the shareholder accounts. It required Mr Keogh to return certain company records to WCHL. The agreement expressly stated that it settled issues between Mr Harrison and Mr Keogh and their associated businesses and companies. Mr Harrison warranted he had a mandate to settle relevant issues on behalf of his company. He was clearly in a position to do so as a director and in control of the majority shareholding.
[14] The ROS did not settle all issues in relation to the shareholder current accounts because it contemplated an adjustment to those accounts once it was known how much WCHL had obtained from the sale of the helicopter. At that stage, accounts for the company had been prepared only for the years to 30 June 2010 so there was a need to update the accounts.
[15] Judge Andrée Wiltens found, having regard to the record of evidence produced for the Employment Court hearing, that prior to the ROS being signed off, there had not been any issue over whether or not there needed to be an adjustment in the shareholder current accounts for any party’s private use of the helicopter. (Mr Harrison had made an issue of this in 2013.)
[16] At the hearing in the District Court, Mr Keogh claimed that he and Mr Harrison had agreed that they would not be charged for private use of the helicopter. Judge Andrée Wiltens was not persuaded that there was such an agreement and found there could be (and had been) adjustments to the shareholder accounts in
respect of private use.3 He thus found the ROS did not settle accounting issues between WCHL and Mr Keogh in respect of any private use of the helicopter.4
[17] A factor which weighed heavily with Judge Andrée Wiltens in deciding the ROS did not have the prohibitive effect that Mr Keogh asserted was that the shareholder current accounts were adjusted over the years to take private flying time into account. By way of example, he referred to the following evidence:5
- the 2006 accounts indicate an adjustment to Mr Harrison’s shareholding of some $4,000, and Mr Keogh’s shareholding by some $2,000 [NOE page 8];
- Mr Keogh accepted that the 2006 accounts adjusted his WCHL
shareholding by $2,475; and by $5,491 in 2009 [NOE 21];
- Mr Keogh responded, without demur, to a question from Mr Stevens when the 2007 accounts were being prepared in relation specifically to private flying time [NOE 13]; and most significantly,
- in 2010 the accounts for 2008, 2009 and 2010 were adjusted for private flying time and Mr Keogh’s shareholding was adjusted from $120,215 to $98,420 [NOE 10; Tab 6, page 83 of the CBD] – a position he apparently accepted.
[18] The accounts for WCHL had been prepared by a chartered accountant, Mr Stevens, of the firm CST Nexia Limited. The record shows that, in the WCHL accounts for the years to 30 June 2010, the then directors, Mr Keogh and Mr Harrison, had accepted that an appropriate adjustment had been made to the shareholder accounts for private use. Mr Stevens considered the treatment of private hours in the current accounts was appropriate for submission of the accounts to the IRD.
[19] In his evidence in chief, Mr Stevens confirmed they had been final accounts. He stated that WCHL had to account for private flying time and, throughout the history of WCHL, adjustments were made for private flying. The accounts for those
years had been filed with the IRD.
3 Keogh v Harrison, above n 1, at [34]-[36].
4 At [40].
5 At [34].
[20] On the basis of those accounts, Mr Keogh had a credit with WCHL on his shareholder current account of $120,401 at 31 March 2009 and $99,660 at 31 March
2010. Judge Andrée Wiltens found, and Mr Keogh accepts, that in terms of the settlement all parties had to accept there would be an adjustment to the shareholder current accounts to bring the accounting up to date once the helicopter had been sold and the company was to be liquidated. None of the parties, however, indicated at the time the ROS was signed off or indeed at any time until the end of 2012 or perhaps early 2013 that there would have to be an adjustment to the current account for credits due to WCHL for the years prior to 31 March 2010. Mr Keogh’s employment with the company had ended in March 2010.
Material correspondence
[21] That was the background to the crucial communication which occurred between the parties during 2012. I summarise that as follows, including the communications which Judge Andrée Wiltens noted as being of significance.
[22] On 5 June 2012, Mr Keogh emailed Mr Stevens repeating an earlier request for information relating to the current accounts of WCHL. Specifically, Mr Keogh sought updates as to the sale status of the EC120 helicopter and any monies received. On 11 June 2012, having received no response from Mr Stevens, Mr Keogh repeated his request for an urgent update on the matter raised.
[23] Mr Stevens responded on 13 June 2012, recommending that Mr Keogh direct future queries to Mr Harrison or his son, Darren, as directors of WCHL. Mr Stevens then advised that the helicopter had been sold and shipped to Australia, and that payment (minus sale commission) had been received. Before disbursing these funds, however, Mr Stevens noted that Mr Harrison had asked CST Nexia to calculate the costs required to cover WCHL’s obligations.
[24] Mr Keogh replied the same day, reminding Mr Stevens that Mr Harrison only communicated with Mr Keogh through the intermediary of Mr Stevens or his accountant. Mr Keogh then asked Mr Stevens to send the previously requested information to James Keogh, his son and financial advisor, along with details of the funds received from the sale of the helicopter, and any associated costs. Mr Keogh
also requested a copy of the report Mr Stevens was completing for the other shareholder.
[25] On 22 June 2012, Mr Stevens emailed Mr Keogh informing him that the directors (the Harrisons) had not yet made any decisions as to the distribution of funds. He explained that they were waiting to receive all invoices and to resolve issues relating to the helicopter itself.
[26] On 9 July 2012, Mr Keogh emailed Mr Stevens (copying in James Keogh and
Mr Harrison) as follows:
I am aware this deal has been finalised some weeks ago. Please provide me with a statement detailing the transaction and all transactions in the WCH account to date including the full bank account statements.
I would like this matter finalised and in the meantime my proceeds to be gaining interest until payment to my account.
[27] On 8 August 2012, Mr Stevens sent Mr Keogh the draft accounts for WCHL up to 31 March 2013.6 In his email, Mr Stevens briefly addressed the contents of the draft accounts and an attached spreadsheet which showed how CST Nexia expected the financial issues would be settled. Directing Mr Keogh’s attention to a calculation at the foot of the spreadsheet, Mr Stevens indicated that the final payout ratio would be based on what proportion of the remaining liabilities were owed to each
shareholder. Further, the funds would be paid out once all final invoices, GST and other tax returns had been processed. Mr Stevens concluded by reminding Mr Keogh of the directors’ earlier warning that, if excessive unnecessary queries were raised, they would consider deducting any associated costs against final payments.
[28] The business directory which preceded the accounts referred (incorrectly) to
Aidan Harrison as the only director and the shareholders as:
Aidan Harrison 90 Ordinary Shares Aidan Harrison & John Keogh 10 Ordinary Shares 100 6 Because WCHL was not trading and was in the process of being liquidated, the accounts showed the position as at 30 June 2012.
[29] In the statement of financial position, the entries under “Current liabilities”
(with comparative figures for 2012) included the following:
2013 2012 Channor NZ Limited 99,191 81,881 Shareholders advances 98,423 98,423
[30] Under the entry “Current Assets”:
2013 2012 Shareholders advances 16,138 -
[31] Under the heading “Shareholder current accounts for the year ended 31
March 2013”, the entries were:
2013 2012 Channor Limited (Ireland)
Balance at Beginning of Year
-
-
Less
Drawings
16,138
-
Balance as at 31 March 2013 $(16,138) - John Keogh
Balance at Beginning of Year
98,423
98,423
Total Current Accounts $82,285 $98,423
[32] Attached to the accounts was a page headed “Wellington City Helicopters Limited – Proposed final entries transactions based on 30 June 2012 draft position”. Below that was a spreadsheet showing various debits and credits for the company. Those figures showed an amount to be held back for contingencies of $11,574.
[33] In relation to shareholders’ advances, it referred to the balance due to John Keogh as at 30 June 2012 of ($98,423), a closing position still of ($98,423), a final payment of $67,367 and final closing position of $31,056.
[34] In relation to Channor Limited (Ireland), the spreadsheet showed the starting position of ($1,226,559), a credit to the company for private use of the helicopter by Mr Harrison of $16,138, a closing position before final cash distribution of
($1,210,421), a final payment of $828,494, with a final closing position of a debt to the shareholder of $381,927.
[35] At the bottom of the spreadsheet was this table:
Final Payment Ratio Calculation
Closing creditors
As % of total creditors
Remaining cash
Allocation based on %
John Keogh (98,423) 7.52% 895,861 67,367
Channor limited (Ireland) (1,210,421) 92.48% 828,494
(1,308,844) 100.00% 895,861
[36] On 12 August 2012, Mr Keogh emailed Mr Stevens, (copied to Mr Harrison), with various queries and requests for information. Mr Stevens complied with Mr Keogh’s requests and responded to each of his queries on 23 August 2012. Mr Stevens concluded his email thus:
The directors have again asked me to highlight that if excessive unnecessary queries are raised they will deduct any associated costs against final payments.
[37] The documents attached included the annual report and financial statements for WCHL for the year ended 31 March 2010 and for the year ended 31 March 2011.
[38] Mr Stevens’ 2012 accounts provided to Mr Keogh in August 2012 indicated that Mr Keogh was entitled to 7.52 per cent of the funds that were to remain in WCHL’s USD account after retention of certain contingency monies. The amount in the USD account was US$695,662.33, 7.52 per cent of that was $52,312.26.
[39] On 3 September 2012, Mr Keogh emailed Mr Stevens (copied to Mr Harrison) requesting the latter’s worksheets in relation to Mr Keogh’s shareholder current account movements between 2008 and 2013. He particularly wished to see the transactions relating to the “major movement” in his account from 2008-2010.
[40] Mr Stevens provided this information via email on 4 September 2012, listing various items debited to the relevant account in the year ending 31 March 2010. The total amount debited was $20,741.25. That amount included re Heli Pro $14,479 for personal usage and $3,780 for R44 training.
[41] In response to Mr Keogh’s enquiry as to when the sale funds would be paid out, Mr Stevens sent an email on 24 October 2012 with various resolutions attached. Mr Stevens advised that, once Mr Keogh had signed and returned these resolutions, the directors would “be looking at releasing the cash on hand”.
[42] With the email were directors’ and shareholders’ resolutions approving and adopting WCHL’s annual reports for 2011 and 2012, and a special resolution appointing a liquidator.7
[43] Mr Keogh signed and returned the resolutions the following day, on the proviso that his shareholding was 10 per cent (as opposed to the Companies Office records, which showed his shareholding as shared with Mr Harrison). He added that Mr Harrison had agreed to this percentage in a separate confidential Court document. Mr Keogh further clarified that he had signed the resolutions “on the basis of the payout figures sent and attached under cash disbursements spreadsheet”.
[44] With that email was the resolution, signed by Mr Keogh as shareholder, approving the 2011 accounts and agreeing to the appointment of Mr Heath as liquidator of WCHL. Also attached was the spreadsheet referred to earlier, headed “Proposed final entries transactions based on 30 June 2012 draft position”. That spreadsheet showed $11,574 being retained by WCHL for contingencies. It was accepted that this fund was being held back to cover liabilities which the company might have to the liquidator for winding up the company.
[45] On 6 November 2012, Mr Keogh emailed Mr Stevens the details of his USD and NZD bank accounts with a request for transfer of funds owing into these accounts. Underlining the fact that he had sent the signed resolutions some weeks
ago, Mr Keogh sought information as to the timeframe for payment.
7 Companies Act 1993, ss 122 and 241(2)(a).
[46] On 7 November 2012, Mr Keogh sent Mr Stevens the 2012 annual shareholder resolution following a request for it from Mr Stevens.
[47] Some three weeks later, Mr Stevens emailed Mr Keogh requesting that he sign and return additional documents relating to the liquidator’s appointment, including an undertaking (as shareholder) to pay the liquidator’s fees if WCHL had insufficient assets to do so. Citing the “contingency amount … of approx $15k” WCHL had held back for such fees, Mr Stevens noted that it “would seem unlikely” that the undertaking would be enforced.
[48] In addition to the undertaking, the attached documents included an indemnity from both Mr Harrison and Mr Keogh for any costs and liabilities incurred by the liquidators in the liquidation of WCHL to the extent they could not be met from the assets of the company.
[49] On 13 November 2012, the balance held in the USD account for WCHL was
$695,641.73. On that day, Mr Harrison arranged for a payment from that account to his company Channor of $643,348.58. Mr Keogh did not learn of this until 18
December 2012.
[50] After Mr Harrison had arranged for monies to be withdrawn from the USD account for his shareholding company, Channor Ltd, the account balance was US$52,293.21. This was subsequently reduced to US$52,289.21 by ANZ’s account charges. Mr Harrison acknowledged US$52,289 was owed to Mr Keogh. The difference is not significant but, on the information provided by Mr Stevens which Mr Keogh relied on, the amount due was US$52,312.26.
[51] On 29 November 2012, Mr Keogh returned the signed resolution, undertaking and deed of indemnity. He said that he had spoken to Mr Heath, one of the appointed liquidators, about the liquidation process and summarised this interaction as follows:
Arron has advised that he expects that the distribution of funds to shareholders will be completed before the matter is handed to him, as long as contingency is in place and the shareholders have accepted liability for any shortfalls if they arise (unliukely [sic]).
Arron has advised there is no need for funds to be held pending the liquidation work.
Can you advise me this week when the funds owing to me are expected to be paid.
[52] On 3 December 2012, Mr Stevens replied to Mr Keogh that he was awaiting some advice from Mr Harrison regarding payment dates, which he hoped to received within a few days. Mr Keogh replied the same day, seeking an immediate update. He said he did not see why Mr Harrison needed to delay disbursements and that, if he wanted to defer his own payment, that was his choice. Regardless, Mr Keogh wanted to be paid out that week so as to take advantage of the exchange rate.
[53] Between 6 November 2012 and 13 December 2012, Mr Stevens told Mr Keogh that he had passed on the account details to Mr Harrison. Mr Keogh said in evidence that, at some stage during the week of 10 December 2012, Mr Stevens told him that he believed the money would be paid into Mr Keogh’s account by the end of that week.
[54] On 12 December 2012, Mr Harrison sent Mr and Mrs Keogh an email
acknowledging receipt of Mr Keogh’s bank account details. He added:
The US$ amount for distribution is US$52,289.
There will be a small amount of NZ dollars to be distributed once the company has been liquidated.
This money is only available for distribution because Channor waived the interest due on its loans into WCH over the years.
At this point, I would like to know how you intend to repay me the moneys loaned to you for your IG Market losses.
As of the 9th of March 2009 this amount was $591,850 without interest added.
[55] Significantly, in this email, Mr Harrison indicated the amount due to Mr Keogh from WCHL was US$52,289. Mr Keogh’s response to this email was that this issue was one that had been discussed in the employment context and had been settled with the ROS. He also said that, if Mr Harrison wished to make a claim in respect of this, he was free to issue proceedings. He demanded payment of the amount due to him as shown in the accounts. From this point on, it became apparent
that Mr Harrison was not going to agree to Mr Keogh receiving the distribution which was shown as being due to him in the accounts prepared by Mr Stevens.
[56] On 18 December 2012, Mr Stevens provided Mr Keogh with statements showing the withdrawals from the USD bank account. On the same day, in an email to Mr Harrison, copied to Mr Stevens, Mr Keogh required payment to him of US$52,312.26 and said there would be court proceedings if payment was not made.
[57] On 20 December 2012, Holland Beckett, lawyers for Mr Harrison, emailed Mr Keogh, copying their letter to Mr Harrison. In their letter they said the ROS did not cover personal loans made by Mr Harrison. They claimed Mr Keogh owed Mr Harrison $590,000. This letter indicated that Mr Harrison’s response to Mr Keogh’s demand was to try and set off a claim for this debt against the liability which WCHL had to Mr Keogh for US$52,312.26.
[58] Mr Keogh denied that any issue as to this had been resolved through the ROS
and required payment of the amount due to him in terms of the accounts. On 24
December 2012, Mr Keogh sent the solicitors the notice of claim he had filed in the
District Court in respect of the amount he said was due to him.
[59] On 31 January 2013, the solicitors for Mr Harrison wrote to Mr Keogh indicating they would not accept service of the court documents. In relation to the distribution of funds from WCHL, they said:
We refer to the anticipated distribution of surplus funds from the sale of WCH assets. WCH’s accountants have been instructed to consider the appropriateness of making deductions from your shareholder’s account in respect of the times you personally used the helicopter. The appropriate distribution is therefore yet to be quantified. Accordingly, you have no basis for demand and your claim is, at best, premature.
[60] On 31 January 2013, Mr Harrison emailed Mr Stevens (copied to his solicitor) requiring Mr Stevens to “work out the adjustments in WCH accounts for John Keogh’s private use of the helicopter and expenses drawn by him from WCH”. Mr Stevens sought clarification that Mr Harrison was referring to the flying time Mr Keogh incurred while getting his commercial pilot licence and other private flying
time incurred subsequent to getting his licence but before the adjustments “we made in the last two years or so”.
[61] The evidence thus established that, by the end of 2012, Mr Keogh had required payment of the amount due in terms of the accounts which had earlier been sent to him. He had put Mr Harrison and WCHL on notice of the claim he had made against them in the District Court. Mr Harrison’s response was to require Mr Stevens to revisit the account that had been completed for WCHL for the years to 31
March 2010 so as to recalculate both the hours and the cost of those hours which would then be debited against Mr Keogh’s current account for his use of the helicopter.
[62] The record shows that Mr Stevens and Mr Harrison faced difficulties in obtaining information as to the precise hours and circumstances in which Mr Keogh had used the helicopter. There was discussion between Mr Stevens and Mr Harrison as to how those hours should be brought into account and what costs should be debited to Mr Keogh.
[63] On 1 March 2013, Mr Harrison emailed Mr Stevens asking him to provide the information he had on spreadsheets adding “I may be able to put something together”.
[64] On 3 April 2013, Mr Stevens emailed Mr Harrison and enquired as to whether Mr Harrison had been able to get anything from Eurocopter on the value of the hours during which Mr Keogh might have been using the helicopter in those earlier periods.
[65] On 30 April 2013, Mr Stevens emailed Mr Harrison with two spreadsheets he had put together using what he described “as limited information we had for allocating Mr Keogh’s personal use for the helicopter”. He asked Mr Harrison to recommend the best approach for them to take. The end result was that during 2014
Mr Stevens prepared replacement financial statements for WCHL for the year ended
31 March 2013. These showed a debit against Mr Keogh’s shareholder’s current account for expenses, private share of $161,459, resulting in a change to his current
account position from $98,423 as at 31 March 2012 to a debit of $63,036 as at
31 March 2013. This amount was reflected in the counterclaim brought by WCHL.
[66] In the District Court hearing, Mr Stevens gave evidence as to the approach he had taken in calculating private flying hours. There was considerable cross-examination from Mr Keogh as to whether his methodology was appropriate. Mr Keogh claimed the information as to hours for which he was being charged was inaccurate. He said the rate at which those hours were being brought into account was grossly in excess of the agreed rate that had been used previously in preparing company accounts.
[67] For the purpose of this judgment I do not need to analyse whether Mr Stevens’ approach was correct or whether the Judge’s assessment of all the evidence was reasonable given the evidence.
[68] Counsel for the appellants submitted that the 2013 accounts prepared by Mr Stevens in 2013 for WCHL are the reality of the position which WCHL now faces. They submit that the company’s expenses have been responsibly and properly investigated by a chartered accountant who has professional obligations, not only to WCHL, but also to the IRD. They submit that if this sum is not paid by Mr Keogh then the cost of that liability will effectively have to be met by Mr Harrison through the shareholding of his company Channor Limited. They submit that, if Mr Keogh’s current account is not debited with these costs for private use, WCHL will become liable for payment of fringe benefit tax, a cost which will effectively be borne at least as to 90 per cent by Mr Harrison and his shareholder company. They submit that, through the ROS, the parties agreed there would be a final accounting between the shareholders when the company’s helicopter was sold and the company was liquidated, and that this distribution would be in accordance with the final accounts prepared for the company. They submitted that with these further accounts prepared by the company’s chartered accountant, Mr Keogh was required to pay to the company the debit on his shareholder’s account. They said the accounting had also shown Mr Harrison had to account to WCHL for $16,138. They said that Mr Harrison had repaid that to WCHL during 2014.
[69] Counsel submitted to the extent this case is concerned with equity, it would not be fair to either WCHL or Mr Harrison or his company if, with accounts finalised as they have been, Mr Keogh is not required to meet the liability which the accounts show him to have.
[70] I do not accept the final accounts have this significance. In an e-mail to
Mr Harrison of 6 June 2013, Mr Stevens stated:
We haven’t prepared final accounts for the year ending 31 March 2013. In those accounts if we do prepare them we make any adjustments that the directors deem appropriate, it may be that if the adjustment is significant we might make it as prior period adjustment in which case we restate the opening balance sheet position. The adjustment detail and rationale is disclosed in the accounts.
The proposed adjustment may have some tax implications or requirements for the tax position to be restated. I wouldn’t envisage however it would create a tax to pay situation, more likely a reduction in the loss carried forward.
[71] In his evidence in the District Court, Mr Stevens said:
… the 2013 accounts have not been filed with IRD because the directors would rather file the 2013 tax return when there is no question of further amendments being required and pay the associated $50 late filing fee to IRD, rather than submit the 2013 tax return and then have to seek the IRD to approve any amendment to the tax returns, which would cost more. This is far from ideal but is a pragmatic approach in the circumstances.
[72] Mr Stevens also referred to the fact that it was not unusual for the financial accounts to be filed late and said it is not a significant issue from a tax perspective when the company was running at a loss. This was the case with WCHL.
[73] I infer from these statements that it is not inevitable that the 2013 accounts, as currently drafted and as relied upon by WCHL in making its claim against Mr Keogh, will necessarily be the accounts that are provided to the IRD if Mr Keogh is not liable on a shareholder’s current account for the amount currently shown in those draft accounts.
[74] While it might be suggested that it will be difficult for Mr Stevens as a chartered accountant to submit the accounts in anything other than their present form, the reality is that he prepared those accounts to assist WCHL and Mr Harrison
to avoid WCHL having to make a payment to Mr Keogh. But for that request, the accounts would have been presented on the basis as drafted initially by Mr Stevens in 2012. Those accounts had been prepared taking into account adjustments that had already been made to Mr Keogh’s current account for his private use of the helicopter in earlier years. At the time those earlier accounts were prepared, both directors and Mr Stevens considered Mr Keogh’s use of the helicopter had been treated appropriately in the accounts. It is difficult to see why that treatment of the accounts would not have remained appropriate, but for Mr Harrison’s wish to avoid having to make any payment to Mr Keogh.
[75] I am therefore not satisfied there will necessarily be a cost to either WCHL or to Mr Harrison if distribution is required in the manner set out in the accounts prepared for WCHL in 2012. If it turns out that is not correct and there is a cost to either WCHL or Mr Harrison, I do not consider that result would be unfair given the way Mr Harrison and the company dealt with Mr Keogh in 2012.
[76] Neither Mr Stevens nor Mr Harrison anticipated that there would be significant further work required to finalise the accounts when they were sent to Mr Keogh in 2012. On 8 August 2012, Mr Stevens provided a copy of the WCHL accounts to Mr Keogh. It is clear from his emails that he did not contemplate that there would be any further adjustments for Mr Keogh’s private use of the helicopter. Nor did Mr Harrison. In his e-mails, Mr Stevens repeatedly noted that the directors (Mr Harrison and his son) had indicated that if excessive, unnecessary queries were raised, they would consider deducting any associated costs against final payments.
[77] It was Mr Harrison’s evidence that it was only once the accounts “had been completed” he realised there might be an issue that private flying time had not been accounted for in the records. He said “the accountant and I always knew there had been private flying time, but after reflection I realised that the hours of private flying time were significant”. It is clear he decided to make an issue of this only after Mr Keogh had insisted he be paid out for monies due to him as shown in the initial
2012/2013 accounts, and after Mr Harrison’s threat of claiming from him an unrelated debt of $590,000 had not deterred Mr Keogh from insisting on payment. During 2013, it was Mr Harrison who required significant further queries to be made
to provide a basis for increasing the company’s charges to Mr Keogh for private use
of the helicopter.
District Court decision
[78] Judge Andrée Wiltens summarised his relevant factual findings as follows:8
In summary, I conclude as follows: Mr Stevens had completed his accounting work for WCHL for the year ending 31 March 2013, and based on those figures, but retaining a contingency amount of $11,500, Mr Harrison was paid out his share in mid-November. Mr Stevens twice sent the US$ bank account details, for Mr Keogh’s share to be paid into, to Mr Harrison. The clear inference from that is that he did so to enable payment to Mr Keogh to occur. Mr Harrison confirmed in his e-mail to Mr Keogh the amount due. There is no mention in this correspondence that the figures are tentative, incomplete or draft in any way. The only thing preventing payment on 12 December 2012 was Mr Harrison’s new allegation relating to the IG Market losses loan – something which was raised then for the very first time, and repeated in correspondence a few times subsequently, but which is still not the subject of Court action! If there was anything in this contention I would have expected Mr Harrison to have pursued the matter vigorously. Instead, he changed tack – he turned to re-considering personal flying time; and subsequently justified that by bringing in the spectre of Fringe Benefit Tax, which again is something recently raised for the first time.
[79] The Judge then summarised Mr Keogh’s claim as really amounting to a contention that he should have been paid his remaining share of WCHL capital at the same time as Mr Harrison. The contention was this was what was intended with the ROS, although it was not expressly stated. The Judge referred to relevant authorities as setting out the criteria to be met before a further term could be implied into a
written contract.9 He decided it was appropriate to imply such a term into the
contract recorded in the ROS. Because Mr Keogh had not been paid the amount which had been shown was due to him, he gave his decision requiring WCHL to pay the amount due together with interest.
[80] With regard to the counterclaim the Judge was not satisfied that the information that Mr Stevens relied upon or the evidence justified the later debits to
8 Keogh v Harrison, above n 1, at [44].
9 Referring to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC); Devonport Borough Council v Robins (1979) 1 NZLR 1 (CA); McNeill v Gould [2002] 4 NZ ConvC 193, 557 (CA).
Mr Keogh’s current account. He could not accept that Mr Stevens’ calculations bore
“any relation to what actually occurred”.10
[81] The Judge also added that if that position was different, the calculation should have been completed prior to Mr Harrison being paid his funds. He held that the payment prevented Mr Harrison attempting to subsequently reinvent the respective positions of the two shareholders and defeated any counterclaim. Although he did not express it in these terms he effectively found that, with what occurred in 2012, WCHL and Mr Harrison were estopped from changing the way private hours had been accounted for in the accounts for WCHL in the years to 31
March 2013. Judgment was given for Mr Keogh on the counterclaim.
Discussion
[82] Counsel for the appellants accepted that the Judge was correct in setting out the criteria which had to be met before implying a term into the contract. However, they submitted that, on the evidence, he could not conclude those criteria had been met. They also submitted, in the pleadings that were before the District Court, that Mr Keogh had not claimed there was such an implied term in the ROS.
[83] As with the principle of estoppel, I do not accept that any suggested deficiency in Mr Keogh’s pleadings prevented the Judge from dealing with the issues in the manner he did. Nor do the pleadings prevent me from dealing with the issues in the manner I do, given this appeal proceeds by way of rehearing.
[84] Mr Keogh was representing himself. He filled in the forms which were then being used for civil claims in the District Court in the manner required by those rules. He set out the factual allegations which could provide a basis for the Judge to conclude that there was an implied contractual term or that there was an estoppel.
[85] In a brief of evidence in reply, Mr Keogh said that when Mr Harrison had control of the WCHL USD bank account and paid out to his shareholder company
the amount shown as being due on the initial 2013 accounts, Mr Harrison “was
10 Keogh v Harrison, above n 1, at [52].
legally obliged to make the payment [to Mr Keogh] as agreed to in the Record of
Settlement”.
[86] It would have been apparent to the appellants’ counsel that, with the facts as alleged by Mr Keogh, issues of estoppel could well arise. Estoppel considerations had been raised numerous times in pre-trial conferences. In opening submissions, Mr Keogh also submitted that the actions of Mr Harrison to the date of his email of
13 December 2012 prevented him:
… from attempting to resile from the agreed account positions and have estopped him. Accordingly, the plaintiff should be entitled to rely on the fact that WCHL’s disbursement accounts, as presented to him prior to and on 13
December 2012, were final.
[87] The appellants’ counsel acknowledged that the evidence they adduced at the hearing dealt with potential estoppel issues. On the hearing of the appeal, I told counsel that I was considering dealing with issues on an estoppel basis. I asked counsel if, having regard to the way in which evidence had been presented and issues addressed in the District Court, they could point to any prejudice that would result from me dealing with issues in this way or if there would have been any prejudice to them in the District Court if the Judge there had decided matters in terms of estoppel. They acknowledged that evidence had been dealt with on the basis that estoppel was a potential issue for the Court.
[88] I find the evidence was sufficient to meet the relevant criteria for implying the particular term as to when payment was to be made. I find the evidence did justify the Judge concluding that, at the time the parties signed the ROS, they would have contemplated that WCHL would pay the amounts due to them on final distributions from WCHL at the same time. On that basis, WCHL and Mr Harrison were in breach of an implied term when Mr Harrison arranged for monies to be paid out from WCHL’s bank account to Channor Limited, but not to Mr Keogh. The issue in this case, however, was not simply whether WCHL and Mr Harrison were in breach of an agreement to pay out the monies due to them at the same time. The main issue was whether US$52,312.56 was due to Mr Keogh as shown by the accounts prepared during 2012 or whether he owed WCHL $63,037 as shown as being due to WCHL in the accounts prepared in 2013. That issue could not be
determined simply by considering whether or not the ROS required payments to be made to Mr Harrison and Mr Keogh at the same time.
[89] I am, however, satisfied that WCHL did have to pay Mr Keogh the amount shown as being due to Mr Keogh in the accounts prepared by Mr Stevens during
2012.
[90] I find, firstly, that, by virtue of the ROS signed by the parties and by Mr Harrison on behalf of WCHL, the parties agreed there would be distributions to the shareholders from the amounts shown to be due to them once the helicopter had been sold and WCHL could be liquidated. It was acknowledged that, in calculating the amounts due, there would have to be final adjustments to the shareholders’ current accounts. On the evidence, this was to deal with future debits and credits that might be taken into account, not to allow for adjustments to accounts which had already been signed off by the directors. The record of settlement was “to resolve all issues arising out of the employment relationship and their previous dealings”. It was inconsistent with that agreement for Mr Harrison to instruct Mr Stevens to essentially revisit the way in which Mr Keogh’s use of the WCHL helicopter had been treated in the company accounts for the period prior to 31 March 2010. Had this been an issue at the time of the ROS, it would have been settled by the ROS.
[91] The appellants’ counsel acknowledged that this agreement was entered into to enable the parties to end their relationship and extract themselves from the conflict they were dealing with. The subsequent raising of an issue as to the way private use of the helicopter had been dealt with in WCHL’s pre-2010 accounts was fundamentally inconsistent with the purpose of the agreement. Mr Keogh relied on the terms of that agreement in abandoning his appeal to the Employment Court. Given the agreement which was reached, I consider it was unconscionable on the part of Mr Harrison, and through him on the part of WCHL, to seek some three years later to try and claw back from Mr Keogh some $161,459 for his alleged use of a helicopter more than three years previous and prior to the ROS being signed off.
[92] Separately and alternatively, on the basis of promissory estoppel, WCHL
became legally obligated to pay Mr Keogh $52,312.26 as a result of the
communications with him in 2012. I find that, through Mr Stevens and with the authority and knowledge of Mr Harrison as a director of the company, WCHL represented to Mr Keogh that, following the sale of the helicopter, in accordance with the ROS, the amount that would be paid to him would be US$52,312.26.
[93] Mr Keogh relied on those representations in:
(a) as a shareholder signing 2011 and 2012 accounts;
(b) as a shareholder agreeing to the appointment of Mr (Arron) Heath as liquidator of WCHL;
(c) signing an agreement and undertaking to indemnify Mr Heath against any costs or liabilities incurred as a liquidator; and;
(d) refraining from taking action that he might have taken to ensure funds belonging to WCHL were not distributed to one shareholder in advance of the other.
[94] I also find that Mr Keogh made it clear to WCHL and Mr Harrison that he was relying on the representations made to him in this way, not least through his email to Mr Stevens of 25 October 2012.
[95] I find that it was unconscionable of WCHL not to pay Mr Keogh the amount due to him in accordance with the accounts prepared in 2012. On that basis, Mr Keogh was entitled to judgment on his claim against WCHL and also in respect of WCHL’s counterclaim. This is necessary in all the circumstances to satisfy the equity arising from the departure from the expectation engendered by the relevant
assurances, promises and conduct of the respondents.11
[96] WCHL’s appeal against the judgment obtained by Mr Keogh in the District
Court is formally dismissed.
11 Wilson Parking New Zealand Limited v Fanshaw 136 Ltd [2014] NZCA 407, [2014] 3 NZLR
367 at [73].
[97] Mr Keogh, being self-represented, is entitled to costs against WCHL in respect of disbursements he has incurred in relation to this appeal. He is to file a memorandum as to those disbursements with the Registrar within ten days for approval by the Registrar. I reserve leave to either party to file a memorandum of no more than three pages as to those disbursements if there is any issue which the Registrar is unable to resolve.
Mr Harrison’s position
[98] I need to deal with the position of Mr Harrison. The District Court Judge did not expressly make any decision with regard to the claim which Mr Keogh had made against Mr Harrison personally. Consequently, there was no decision in relation to Mr Harrison against which Mr Keogh could cross-appeal. Mr Harrison has nevertheless appealed the decision. In that way, the issue of Mr Harrison’s liability to Mr Keogh is before this Court.
[99] On an appeal, this Court has all the powers the District Court would have had when it dealt with the matter.12
[100] Section 41 District Courts Act 1947 states:
41 General ancillary jurisdiction
Every Court, as regards any cause of action for the time being within its jurisdiction, shall (subject to the provisions of section 59 of this Act) in any proceedings before it—
(a) grant such relief, redress, or remedy, or combination of remedies, either absolute or conditional; and
(b) give such and the like effect to every ground of defence or counterclaim equitable or legal,—
as ought to be granted or given in the like case by the [High Court]
and in as full and as ample a manner.
[101] Mr Harrison was a party to the representations which were made by WCHL
to Mr Keogh in 2012. He was responsible for paying to himself/Channor Ltd the amount shown as being due to him in the accounts prepared in 2012. At the same
12 District Courts Act 1947, s 76(1)(a).
time, he has been responsible for WCHL refusing to pay out the amount due to Mr
Keogh in terms of the ROS and the representations which were made to Mr Keogh in
2012.
[102] Mr Harrison swore an affidavit dated 14 July 2014, filed in the High Court in support of an application for a stay of execution of the judgment obtained by Mr Keogh (the application should have been filed in the District Court and is currently before that Court). In that affidavit, Mr Harrison said that the judgment sum is currently held by WCHL in an American bank account as per the respondent’s request and was ring-fenced. He said there was no risk that the judgment sum may not be available to the respondent in the event the appeal is unsuccessful. Attached to the affidavit was a statement showing a balance in an account for WCHL as at 30
November 2012 of $52,289.21.
[103] In accordance with that assurance, there should be no delay in WCHL paying to Mr Keogh the total sum due to him in terms of the District Court judgment and with regard to costs in respect of this appeal. Nevertheless, on the evidence that was before the District Court and on the evidence which I have had to reconsider on this appeal, I consider Mr Keogh was entitled to judgment against Mr Harrison personally.
[104] Mr Harrison’s personal liability to Mr Keogh may, however, not be an issue if WCHL pays to Mr Keogh the amounts due on the District Court judgement and for costs in this Court. It will be an issue if Mr Keogh has to take further steps to obtain payment from WCHL. At this point, I consider the claim against Mr Harrison could be remitted back to the District Court for the Judge there to deal with the claim against him. Alternatively, I could deal with that claim in a further judgment on this appeal. This is what I am contemplating doing to avoid the parties having to be involved in proceedings back in the District Court. I am conscious, however, that on the hearing of the appeal, Mr Keogh did not ask for judgement to be entered against Mr Harrison and I did not signal to Mr Harrison’s counsel that this was a possibility.
[105] In these circumstances, I reserve judgment in respect of Mr Harrison’s appeal
against the District Court decision. Mr Keogh may file submissions with regard to
the potential entry of judgment against Mr Harrison by 11 December 2015. Mr Harrison’s counsel is to file any submissions in response by 29 January 2016. If in their submissions neither party seeks a hearing on this aspect of the matter, I will give my decision in relation to this aspect of the appeal after considering those written submissions. If before 11 December 2015 WCHL has paid the judgment debt and costs due to Mr Keogh, there would be no need to take this matter further. The parties are to advise the Court if that turns out to be the case.
Solicitors:
Holland Beckett, Tauranga
Copy to:
J P J Keogh, Wellington.
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