Jeffreys v Morgenstern - [2014] NZHC 671

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-008432 [2014] NZHC 671

BETWEEN
STEPHANIE BETH J EFFREYS AND

TIMOTHY WILSON DOWNES Plaintiffs/Respondents

AND

ARTHUR SYLVAN MORGENSTERN First Defendant/Applicant

TANYA MAY LAVAS Second Defendant

Hearing: 2 April 2014

Appearances:

C Walker for First Defendant/Applicant
N Malarao and K M Wakelin for Plaintiffs/Respondents

Judgment:

4 April 2014

JUDGMENT OF VENNING J

This judgment was delivered by me on 4 April 2014 at 4.00 pm, pursuant to Rule 11.5 of the High
Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Meredith Connell, Auckland
Gilbert Walker, Auckland

JEFFREYS & ANOR v MORGENSTERN [2014] NZHC 671 [4 April 2014]

Introduction

[1] Arthur Morgenstern was a director of Kingdon Undertaking Ltd (previously Morning Star Enterprises Ltd) (MSE). Ms Jeffreys and Mr Downes (the liquidators) are the liquidators of MSE and also of a number of other companies Mr Morgenstern was formerly a director of.

[2] On 27 February 2014 Rodney Hansen J entered judgment in favour of the liquidators against Mr Morgenstern in the sum of $3,499,999.1

[3] Mr Morgenstern has lodged an appeal with the Court of Appeal from that judgment. By this application he seeks an order staying execution of the judgment pending determination of the appeal.

Background

[4] In the proceedings the liquidators sued Mr Morgenstern (and Ms Lavas):

(a) as liquidators of Kingdon Development Ltd (in liquidation) (KDL) in relation to KDL’s entry into a rental underwrite deed (first and second causes of action); and

(b) as liquidators of Axon House Car Parking Ltd (in liquidation) (formerly GS and LD Lease Ltd (GLL) in relation to GLL’s entry into a car parking deed providing an incentive payment (third and fourth causes of action); and

(c) as liquidators of MSE in relation to:

(i) MSE’s guarantee of KDL’s obligations under the rental underwrite deed (fifth and sixth causes of action); and

1 Jeffreys v Morgenstern [2014] NZHC 308.

(ii) Mr Morgenstern and his partner Ms Lavas’ sale to MSE of their shares in Morning Star (St Lukes Garden Apartments) Ltd (since struck off) (MS St Lukes) alleging:

1. a transaction at an undervalue under s 298 of the Companies Act 1993 (the Act) (seventh cause of action); and

2. breaches of directors’ duties under ss 131, 135 and 137 of the Act ( eighth, ninth and tenth causes of action).

The judgment

[5] Rodney Hansen J dismissed the claims in relation to the rental underwrite deed, including MSE’s guarantee of that deed and the car parking deed (first through sixth causes of action). He also dismissed the seventh cause of action alleging a transaction at an undervalue (s 298 of the Act).

[6] However Rodney Hansen J found that Mr Morgenstern had breached his duties under ss 131, 135 and 137 of the Act and that this had caused a loss of
$3,499,999 to MSE. He required Mr Morgenstern to contribute that amount to MSE

under s 301 of the Act.

[7] In summary the Judge found:

[121] The rental underwrite and…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Jeffreys v Morgenstern

Details

AGLC: Jeffreys v Morgenstern [2014] NZHC 671
Case: [2014] NZHC 671
Decision Date: 4 April 2014

CaseChat Overview and Summary

The case of Jeffreys v Morgenstern involves a dispute between the liquidators of several companies, Stephanie Beth Jeffreys and Timothy Wilson Downes, and Arthur Sylvan Morgenstern, a former director of those companies. The liquidators sought a judgment against Morgenstern for breaches of his duties as a director, resulting in a loss to the companies. Morgenstern sought to stay the execution of the judgment pending an appeal. The appeal was heard before Venning J, who delivered the judgment on April 4, 2014.

The primary legal issue before the court was whether a stay should be granted to Morgenstern to prevent the execution of the judgment pending the determination of his appeal. The court considered various factors in determining whether to grant the stay, including the potential for the appeal to be rendered nugatory, the bona fides of the applicant, the potential injury to the successful party if the stay was not granted, and the overall balance of convenience.

Venning J found that while Morgenstern had a genuine desire to pursue the appeal, his financial situation was extremely poor, and he had not provided full information to the court. The court was not satisfied that the grounds for a stay were made out, and therefore, the application for a stay was declined. The liquidators were awarded costs against Morgenstern on a 2B basis, but no costs were awarded against Reesby, who had funded the application, as he was not considered a real party to the litigation.

In summary, the court declined to grant a stay of execution of the judgment against Morgenstern, finding that his appeal did not have a sufficient chance of success and that the liquidators would be prejudiced if the stay was granted. The liquidators were awarded costs against Morgenstern, but not against Reesby, who had funded the application.

Orders