Jackson Property Group Limited (in liquidation) v Surridge
[2024] NZHC 498
•8 March 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-479
[2024] NZHC 498
UNDER the Companies Act 1993 IN THE MATTER OF
the liquidation of Jackson Property Group Limited (in liquidation)
BETWEEN
JACKSON PROPERTY GROUP LIMITED (IN LIQUIDATION)
First Plaintiff
HENDRY DAVID LEVIN as Liquidator of Jackson Property Group Limited
(In Liquidation) Second Plaintiff
AND
ANN JOSEPHINE SURRIDGE
Defendant
continued over…
Hearing: 5 March 2024 Counsel:
N H Malarao / T Y Yao for the Plaintiffs E J Grove for the Defendant
M J W Lenihan for the Third Parties
Judgment:
8 March 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 8 March 2024 at 4 pm
Pursuant to Rule 11.5 of the High Court Rules.
Counsel/Solicitors:
…………………..
Registrar/Deputy Registrar
Meredith Connell, Solicitors, Auckland
C T Patterson and E J Grove, Barristers, Auckland Lateral Lawyers Limited, Solicitors, Auckland
M J W Lenihan, Barrister, Auckland Webster Law, Solicitors, Auckland
JACKSON PROPERTY GROUP LTD (IN LIQUIDATION) v SURRIDGE [2024] NZHC 498 [8 March 2024]
AND STUART WILLIAM JACKSON
First Third-Party
SCHUYLER WILLIAM JACKSON
Second Third-PartySWJ TRUSTEE COMPANY LIMITED
Third Third-Party
Introduction
[1] The first plaintiff, Jackson Property Group Ltd (in liquidation) (JPG) was established in 2012 by the first defendant, Anne Surridge (Ms Surridge), and Stuart Jackson (Mr Jackson Sr) as a vehicle for property development. A trust associated with Ms Surridge owned 50% of the shares and a trust associated with Mr Jackon’s family, the Jackson Family Trust, owned 50 % of the shares. Ms Surridge was the sole registered director of JPG from its incorporation until June 2016.
[2] Ms Surridge and Mr Jackson Sr fell out. On 29 January 2016, on the application of Ms Surridge, JPG was put into interim liquidation. In her affidavit in support of the application, Ms Surridge stated that she considered that JPG was “technically insolvent.”
[3] On 25 May 2016, Ms Surridge and Mr Jackson Sr entered into a settlement agreement (the settlement agreement), together with: Mr Jackson Sr’s son, Schuyler Jackson (Mr Jackson Jr); the trustee of the Jackson Family Trust, SWJ Trustee Company Ltd (SWJ); and JPG. The purpose of the agreement was to facilitate Ms Surridge and her trust exiting JPG.
[4] When the settlement agreement was implemented in June 2016, Ms Surridge transferred real estate that she held in her name, as bare trustee for JPG, to a new bare trustee for JPG, SWJ.
[5] On 17 May 2017, on the application of the Commissioner of Inland Revenue (IRD), JPG was put into liquidation and the second plaintiff was appointed as liquidator (the Liquidator). JPG had opposed the liquidation proceeding. In the judgment granting the liquidation order, Associate Judge Doogue found that Mr Jackson Sr was a de facto director of JPG.1 Associate Judge Doogue described Mr Jackson Sr’s role as follows:2
1 Commissioner of Inland Revenue v Jackson Property Group Ltd [2017] NZCCLR 39, [2017] NZHC 1014 at [87].
2 At [104].
Mr Jackson Sr remained in control. He not only had the ability to control the company, but he put his potential ability to control the company into effect throughout its trading history.
[6]In this proceeding, the Liquidator seeks remedies from Ms Surridge:
(a)under s 301 of the Companies Act 1993 (the Act), for breach of various director’s duties; and
(b)under s 300 of the Act, for failing to keep proper records for JPG.
[7] Two related propositions underpin the Liquidator’s claims against Ms Surridge, that:
(a)JPG consistently failed to correctly account to IRD for GST in relation to its property dealings from 2013 and 2014, giving rise to a tax liability known to Ms Surridge; and
(b)the settlement agreement resulted in JPG divesting itself of its assets in the face of IRD’s known claim, leaving JPG unable to pay its debts.
[8] Ms Surridge denies the claims made against her by JPG and the Liquidator. Her defence rests on two counter propositions, that:
(a)Ms Surridge was not responsible for JPG’s accounting for GST.
Responsibility rested with Mr Jackson Sr; and
(b)when the settlement agreement was implemented in June 2016, Ms Surridge had no knowledge of, and did not approve, any subsequent transactions by SWJ as bare trustee for JPG, which are the transactions which caused any loss that JPG may have suffered.
[9] Ms Surridge has brought third party claims against Mr Jackson Sr, Mr Jackson Jr and SWJ, claiming that she is entitled to an indemnity for any judgment entered against her in this proceeding, relying on an express term of the settlement agreement.
[10] The third parties deny liability. They argue that the indemnity does not apply if Ms Surridge is found liable for her own conduct in breach of a director’s duties.
[11] The proceedings are set down for a five-day trial commencing on 27 May 2024. Interlocutory applications were due to be filed by 28 July 2023. The close of pleadings date was 22 January 2024. In December 2023, Ms Surridge signalled that she wished to apply for summary judgment against the plaintiffs and the third parties. Leave to do so is required. The application for leave was filed on 26 January 2024.
[12] Leave is now required because the application for summary judgment against the plaintiffs was not filed when Ms Surridge’s statement of defence was served, and the date for filing interlocutory applications and the close of pleadings date have both passed. The application for leave was heard under urgency due to the pending trial.
[13] After the hearing of the application for leave but before the delivery of this judgment, Ms Surridge withdrew her application for leave to apply for summary judgment against the third parties, with the third parties’ consent.
Legal principles applicable to a grant of leave
[14] There are three factors to consider on an application for leave to file an application for summary judgment:3
(a)whether the delay is satisfactorily explained;
(b)the merits of the claim for summary judgment; and
(c)whether there is any risk of a miscarriage of justice in determining the summary judgment at the later time.
[15] To obtain leave to file an interlocutory application after the close of pleadings date, it is necessary to establish: 4
3 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564 (HC) at [38].
4 NZ Iron Sands Holdings Ltd v Toward Industries Ltd [2019] NZHC 2883 at [33].
(a)that it is in the interests of justice to grant leave;
(b)that granting leave will not significantly prejudice other parties; and
(c)granting leave will not cause significant delay.
[16] The closer the application is to trial, the more formidable those hurdles will become.5
JPG’s GST problem and the transactions in June 2016
[17] The parties have filed extensive affidavit evidence in support of, or in opposition to, Ms Surridge’s application for leave. The evidence from Ms Surridge and Mr Jackson Sr traverses the history of the operation of JPG.
[18] Documentary evidence produced by Mr Jackson Sr in his affidavit confirms that from 2014, both Mr Jackson Sr and Ms Surridge were aware of JPG’s potential GST liability to IRD arising from JPG’s property dealings in 2013 and 2014. Ms Surridge says that the blame for JPG incurring GST liability to IRD lies with Mr Jackson Sr. Conversely, Mr Jackson Sr asserts that Ms Surridge is to blame. In any event, the potential GST liability was well understood by all parties before they entered into the settlement agreement.
[19] It is common ground that prior to entering into the settlement agreement, Ms Surridge was the registered owner of several properties as bare trustee for JPG. These properties comprised JPG’s only significant assets. Ms Surridge had granted registered mortgages in respect of the properties to obtain finance for JPG, and the mortgages were treated by Ms Surridge, the third parties and JPG as JPG’s obligations.
[20]Pursuant to the settlement agreement, the following occurred on 16 June 2016:
(a)Ms Surridge’s trust transferred its shares in JPG to the Jackson Family Trust for consideration of $1;
5 At [33]; and Lyttleton Port Co Ltd v Aon New Zealand [2019] NZHC 726 at [22].
(b)SWJ paid $3,445,220 to Ms Surridge, which Ms Surridge then paid to the mortgagees of the properties held on bare trust for JPG to fully discharge the mortgages;
(c)Ms Surridge was to receive an additional $50,000;
(d)The properties that Ms Surridge held on bare trust for JPG were transferred to SWJ as bare trustee for JPG; and
(e)Ms Surridge resigned as a director of JPG.
[21] It is common ground that SWJ immediately divested itself of the properties that it received as bare trustee for JPG. The circumstances surrounding those transactions, and their efficacy for JPG, are in dispute. It is common ground between the Liquidator and Ms Surridge that this divestment occurred at an undervalue. It is common ground between Ms Surridge and the third parties that Ms Surridge had no knowledge of SWJ’s divestment of the properties at the time.
[22] Ms Surridge says that SWJ’s divestment of the properties held on bare trust for JPG was fraudulent. No particulars of fraud have been pleaded, because Ms Surridge’s sole claim against the third parties is for enforcement of the indemnity in the settlement agreement.
The causes of action by JPG and the Liquidator against Ms Surridge
[23] The claim against Ms Surridge under s 301 of the Act includes, inter alia, allegations that:
(a)Ms Surridge allowed JPG to be operated in a reckless or negligent manner in respect of the GST positions it took with IRD.
(b)Ms Surridge failed to actively manage JPG despite being its sole registered director.
(c)Ms Surridge transferred all property which she held as bare trustee for JPG to SWJ at a time when JPG had a significant contingent liability to IRD.
(d)Ms Surridge divested JPG of its interest in those properties without obtaining the best price possible.
(e)As a result of entering into the settlement agreement, Ms Surridge failed to ensure that JPG retained assets from which it would be able to meet tax obligations to IRD.
[24] The claim against Ms Surridge under s 300 of the Act is that she failed to comply with her duty as a director to keep proper accounting records for JPG.
[25] This is not a complete summary of the plaintiffs’ pleaded allegations, however consideration of the allegations that I have summarised is sufficient to dispose of the application for leave.
The merit of Ms Surridge’s potential application for defendant’s summary judgment against JPG and the Liquidator
Legal principles
[26] Rule 12.2(2) of the High Court Rules 2016 (HCR) provides that the Court may enter judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[27] The test for defendant summary judgment was summarised by the Court of Appeal in Stephens v Barron:6
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need
6 Stephens v Barron [2014] NZCA 82 at [9] citing Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
[28] In Bernard v Space 2000 Ltd,7 Thomas J, referring to the predecessor of r 12.2(2), described the onus on the defendant as requiring a “king hit”.
Analysis
[29] The core of the tax debt of $325,560 arose in tax periods when Ms Surridge was JPG’s sole registered director. She signed the relevant GST returns. Mr Jackson Sr says that Ms Surridge was solely responsible for JPG’s GST obligations. Mr Jackson Sr has produced documentary evidence which confirms Ms Surridge had some involvement in JPG’s accounting affairs, and knowledge of the GST issues.
[30] Ms Surridge denies responsibility for ensuring that JPG met its tax obligations. The conflict in the evidence regarding who did what for JPG in 2013 and 2014 cannot be resolved on affidavits. The extent of Ms Surridge’s involvement in JPG’s GST returns, and her subsequent dealings with the IRD when issues arose, can only be resolved at trial.
[31] Regardless of what the factual findings on those issues may be, Ms Surridge may still be exposed to liability, for example if there is a finding of a complete abdication of her responsibilities as a director.8 That is a matter that can only be resolved with the context provided by a trial.
7 Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).
8 Mason v Lewis [2006] 3 NZLR 225 (CA) at [83].
[32] Counsel for Ms Surridge, Mr Grove, argued that it will be open to the Court on hearing Ms Surridge’s application for summary judgment to hold that her decision to enter into the settlement agreement was not negligent or reckless, or otherwise in breach of her duties as a director. Mr Grove referred to the value of the properties beneficially retained by JPG as being sufficient to discharge the IRD debt, Ms Surridge’s ignorance of SWJ’s planned divestment of the assets, and the existence of terms in the settlement agreement said to protect JPG.
[33] Mr Grove submitted that the liquidator does not intend to adduce any evidence as to JPG’s solvency, and Ms Surridge intends to rely on valuation reports that were in existence before she entered into the settlement agreement to prove that JPG’s beneficial interest in the real estate had a value that significantly exceeded the liability to IRD. However, the valuers have not given evidence and the evidence of Mr Jackson Sr puts value in issue. Valuation issues should be determined at trial.
[34] Ms Surridge asserts that she had no knowledge or involvement in SWJ’s divestment of the properties. I have not exhaustively analysed the evidence to form a view on the merit of this assertion, although I note that the assertion is corroborated by Mr Jackson Sr.
[35]The terms of the settlement agreement relied on by Mr Grove were:
a)Recital H, which provides:
The parties have resolved to settle their differences and cooperate together to terminate the interim liquidation and preserve the assts of the company in the manner provided for in this agreement. They also wish to provide for a full and final settlement of all claims that each party may have against the other in the terms set out below.
b)The indemnity in clause 4(d), which provides:
Schuyler, the SWJ Trustee Company, Stuart and the company jointly and severally undertake to indemnify and in respect of any liability she may have arising out of her role as a director of the company and/or as a bare trustee in relation to the company’s properties.
c)Clause 4(g), which provides:
SWJ Trustee Company and/or the Company shall ensure that all existing tax liabilities of the Company and/or otherwise relating to the Properties are resolved (i.e. discharged) with the Inland Revenue Department within a period
of six months of the date of this agreement. In the event that this does not occur, SWJ Trustee Company shall forthwith place the Company into voluntary liquidation with a liquidator of Anne’s choice appointed as liquidator.
[36] Mr Grove argued that the obligations placed on SWJ by clause 4(g), together with the risk passed on to the Jackson interests under the indemnity, were sufficient protection for JPG, so that on an objective analysis Ms Surridge’s decision to enter into the settlement agreement was not in breach of her duties as a director of JPG.
[37] It is not axiomatic that proof of Ms Surridge’s ignorance of SWJ’s planned divestment of the properties will provide a complete defence to the Liquidator’s claim of negligent or reckless trading.
[38] The Liquidator’s case is that Ms Surridge chose to transfer legal title to JPG’s only valuable assets to SWJ as a bare trustee at a time when:
(a)Ms Surridge knew of JPG’s GST liability to IRD; and
(b)Ms Surridge no longer trusted the Jackson interests, including SWJ.
[39] Counsel for JPG and the liquidator, Mr Malarao, submitted that Ms Surridge’s decision to enter into the settlement agreement cannot be considered in isolation and by reference solely to the terms of the settlement agreement. The Court will need to consider the trading history of JPG, how the GST obligations were incurred, and all circumstances that led up to Ms Surridge’s decision to enter into the settlement agreement.
[40] In my judgment determination of the issue of whether Ms Surridge’s decision to transfer legal ownership of JPG’s assets to SWJ as a bare trustee was reckless or negligent requires a full consideration of all surrounding circumstances, which can only occur at trial. There are numerous conflicts in the affidavit evidence. The documentary evidence before the Court of dealings between the parties leading up to the settlement agreement is incomplete.
[41] Mr Grove argued that it will not be necessary for the Court to resolve all of the factual disputes to grant summary judgment on the cause of action under s 301 of the Act, because Ms Surridge has a defence based on causation. It was argued that Ms Surridge will be able to establish on the affidavits that the sole cause of JPG’s loss was SWJ’s conduct as bare trustee, when SWJ divested itself of JPG’s assets.
[42] I do not accept that the causation argument is amenable to summary judgment. There may be more than one contributing cause to JPG’s insolvency, and causation arguments under s 301 are best dealt with at trial, particularly in a case such as this one where significant facts are in dispute.
[43] Ms Surridge takes a similar position in respect of the cause of action under s 300 of the Act regarding the keeping of proper records. It is not argued that proper records were kept. Mr Grove criticised the plaintiffs’ lack of pleading of a causal connection between any failure to keep proper accounting records and a loss suffered by JPG. However, the issue is whether Ms Surridge can establish that the claim cannot succeed. It is arguable that a failure to keep proper records contributed to JPG’s GST liability. Causation is a matter for trial.
[44] To succeed with an application for summary judgment, Ms Surridge would need to be able to establish that none of the Liquidator’s claims against her can succeed. Based on my review of the affidavit evidence, Ms Surridge would fall well short if her application for summary judgment is allowed to proceed.
Has Ms Surridge satisfactorily explained her delay in seeking leave to bring her application for summary judgment?
[45] It is not necessary to traverse the entire history of the proceeding. Some key steps in the proceeding are relevant. The Liquidator’s claim was filed in March 2021. The plaintiffs provided discovery in late 2021, and supplementary discovery in July 2022.
[46] The third parties were joined in June 2022, after a grant of leave. The third parties initially defaulted in their discovery obligations, and eventually provided discovery on 9 June 2023.
[47] Ms Surridge has had the bulk of the discovered documents of JPG and the Liquidator since late 2021. Ms Surridge was able to file a substantial statement of defence, running to 42 pages, in May 2022. Ms Surridge has had the plaintiffs’ supplementary discovery since July 2022. The proceedings were set down for trial in December 2022.
[48] Prior to receiving the third parties’ discovery on about 9 June 2023, Ms Surridge and her counsel should have had a thorough understanding of the background to the Liquidator’s claims and the subject transactions, from reviewing Ms Surridge’s documents and the discovery of JPG and the Liquidator.
[49] Counsel for Ms Surridge says that it has been necessary to review over 5,000 discovered documents. However, only 437 of those documents have come from the third parties, comprising approximately 1,400 pages. Counsel accepted that two weeks was a reasonable period for inspection of the third parties’ documents.
[50] If Ms Surridge’s counsel were concerned that they were unable to prepare any interlocutory applications by the directed date of 28 July 2023, then steps could have been taken in August last year to seek an extension of time for filing interlocutory applications. That did not occur.
[51] In my view, Ms Surridge has not adequately explained the reasons for her delay in seeking leave to bring her application for summary judgment.
[52] In the interim, the plaintiffs and the third parties have proceeded on the basis that this matter is going to trial on 27 May 2024. JPG and the Liquidator have served their evidence.
Where do the overall interests of justice lie?
[53] The interests of justice are best served by a trial of these proceedings commencing on 27 May 2024, as scheduled.
[54] Given the Court’s scheduling constraints, it is likely that a two-day fixture for the proposed application for summary judgment would likely be in June. Even if the
application for summary judgment was heard urgently, the parties agree that it would be inevitable that the May 2024 trial would be vacated. That will cause significant prejudice to the plaintiffs and the third parties.
[55] Ms Surridge’s proposed applications for summary judgment will serve to be no more than a distraction, because in my view they have little or no chance of succeeding. The parties are better to focus on preparing their evidence and preparation for trial.
[56]There is no risk of a miscarriage of justice if this matter proceeds to trial.
[57] Result and Costs
[58] Ms Surridge’s application for leave to file an application for summary judgment against the plaintiffs is declined.
[59] My preliminary view is that costs should follow the event, with an award of costs to the plaintiffs on a 2B basis, together with disbursements as fixed by the Registrar.
[60]If counsel cannot agree on costs, then:
(a)the plaintiff may file and serve submissions on costs, of no more than four pages, by 15 March 2024;
(b)the defendant may file and serve submissions on costs, of no more than four pages, by 22 March 2024;
(c)I will determine costs on the papers.
Associate Judge Brittain
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