Jindal v Orange Capital Limited (in liquidation)
[2022] NZCA 540
•14 November 2022 at 2 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA743/2021 [2022] NZCA 540 |
| BETWEEN | GAUTAM JINDAL |
| AND | ORANGE CAPITAL LIMITED |
| Hearing: | 31 October 2022 |
Court: | Gilbert, Venning and Mander JJ |
Counsel: | Appellant in person |
Judgment: | 14 November 2022 at 2 pm |
JUDGMENT OF THE COURT
AThe application for leave to adduce further evidence is declined.
BThe appeal is dismissed.
CWe answer the question of law as follows:
Does the District Court have jurisdiction to hear a liquidator’s common law debt claim against a director in respect of an overdrawn shareholder’s account?
Yes.
DThe appellant must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
This is a second appeal, with leave, against the grant of summary judgment for amounts due on Mr Jindal’s shareholder current account with Orange Capital Ltd (in liquidation) (the company).
Summary judgment was entered by Judge Hinton in the District Court at Auckland in the sum of $68,680.03 plus costs and disbursements.[1] On appeal, Whata J granted Mr Jindal’s application for leave to adduce further evidence.[2] In reliance on this further evidence, the Judge allowed the appeal in part, reducing the amount for which summary judgment was entered to $50,696.49.[3]
[1]Orange Capital Ltd v Jindal DC Auckland CIV-2017-004-2856, 31 May 2021 [District Court judgment].
[2]Jindal v Orange Capital Ltd (in liq) [2021] NZHC 2917 [High Court judgment] at [4]–[6].
[3]At [74].
Whata J then granted leave to bring a second appeal to this Court.[4] The Judge was persuaded it was arguable he was wrong to find that the District Court had jurisdiction to determine the matter. He said that he could not discount the reasonable possibility that this Court may find that the District Court does not have jurisdiction to hear a common law debt claim by a liquidator against a director in respect of an overdrawn shareholder’s account.[5] The Judge considered the other grounds on which Mr Jindal sought leave to appeal were untenable.[6] He accordingly granted leave to appeal on only one question:[7]
Does the District Court have jurisdiction to hear a liquidator’s common law debt claim against a director in respect of an overdrawn shareholder’s account?
[4]Jindal v Orange Capital Ltd (in liq) [2021] NZHC 3449 [Leave judgment].
[5]At [45].
[6]At [47]–[52].
[7]At [57].
The Judge directed that costs should lie where they fall because of the mixed result.[8] Mr Jindal also appeals against the Judge’s refusal to award costs on the leave application.
[8]At [60].
Three preliminary issues arise. First, Mr Jindal applies for leave to adduce further evidence in support of the appeal,[9] being the liquidator’s reports dated 23 July 2021 and 30 June 2022. Secondly, Mr Jindal seeks to expand the scope of the appeal beyond the issue for which leave was given. Thirdly, Mr Jindal filed supplementary submissions on 25 October 2022 for which no provision was made in the timetabling directions for this appeal. As there is no opposition, we will receive these further submissions. We will address the other two preliminary issues after setting out the relevant background and summarising the judgments below.
Background
[9]Court of Appeal (Civil) Rules 2005, r 45.
The company was incorporated on 24 May 2013. Mr Jindal was at all times its sole director and shareholder. As Whata J observed, the evidence about the nature of its business is sparse.[10] It appears that it was incorporated to provide consultancy services. It is common ground that the company had no assets or capital to begin with and it seems to have been undercapitalised throughout. The company was placed into voluntary liquidation in June 2017. According to the liquidator, proper business records and financial statements were not kept.
Application for summary judgment
[10]High Court judgment, above n 2, at [7].
Based on a review of the company’s bank statements, the liquidator identified cash drawings by Mr Jindal of $99,698 over the period of the company’s operation and cash deposits by him over the same period of $17,421. The company’s claim for summary judgment was for the balance of $82,277 as a debt due on current account payable on demand.
Mr Jindal’s notice of opposition raised five grounds:
(a)The liquidator was acting ultra vires in seeking to avoid the transactions under s 292 of the Companies Act 1993 (the Act) without filing the requisite notices under s 294 of the Act.
(b)The insolvency manager, who had reviewed the bank statements and filed the affidavit in support of the application for summary judgment, had overlooked material facts, specifically amounts allegedly paid by Mr Jindal on behalf of the company to MTF Ltd (for the purchase of a company motor vehicle), ASB Bank Ltd (under his guarantee of facilities provided to the company) and for operational expenses.
(c)The liquidator did not come to the Court with “clean hands” (allegedly failing to provide correct affidavits, not following relevant laws when exercising his powers, exercising his powers fraudulently and for personal gain, and making false and misleading statements to the District Court).
(d)The liquidator adopted incorrect accounting practices in arriving at a factually incorrect analysis of the amount due on the current account.
(e)Mr Jindal claimed to have a statutory defence under s 296(3) of the Act.
Mr Jindal supported his notice of opposition with an unsigned affidavit dated 12 October 2020 in which he summarised the benefits he claimed to have provided to the company over the period of its operation from 1 April 2014 to 26 June 2017 in the total sum of $109,370.08. This more than offset the drawings he received from the company. These benefits comprised rental for a home office, electricity, internet and phone charges, car payments to MTF, other sundry operational expenses, and payments to ASB Bank under his guarantee.
The liquidator responded by deducting from the claim a car payment allowance of $3,596.97. This was calculated for the period from 22 October 2015 to 27 July 2017 and was split 50:50 between personal and business use. This reduced the amount for which summary judgment was claimed to $78,680.03.
District Court judgment
Judge Hinton considered that s 292 of the Act had no application to the claim. In short, this was not an insolvent transaction the liquidator was seeking to avoid.[11]
[11]District Court judgment, above n 1, at [27].
The Judge observed there was no evidence that the company owned the vehicle.[12] There was no evidence of the nature and extent of the company’s business operations let alone that it needed an expensive car to carry out those operations.[13] The Judge considered the allowance given by the liquidator of $3,596.97 for the car was “generous”.[14]
[12]At [30].
[13]At [31].
[14]At [36].
The Judge referred to Mr Jindal’s evidence that he received a consolidated demand notice dated 15 August 2017 (post liquidation) from ASB Bank in the sum of $21,925.67.[15] Mr Jindal estimated that approximately $10,147 of this was on account of his personal guarantee of the debt due by the company to ASB Bank. The Judge noted there was no other detail or evidence provided.[16] In particular, there was no evidence of the current indebtedness to ASB Bank, or of any payment made by Mr Jindal in satisfaction of the company’s indebtedness. The Judge concluded there was no basis on the evidence for Mr Jindal’s claim.[17] Even if Mr Jindal had satisfied any of the company’s indebtedness to ASB Bank, he would have no right to priority recourse against the company.
[15]At [21].
[16]At [38].
[17]At [39].
The Judge considered no adequate detail had been provided to support the other expense claims.[18] Nevertheless, he allowed a further credit of $10,000 “for some legitimate expenditure or benefit Mr Jindal may have provided to the company”, but for which he had “been unable to provide evidence”.[19] The Judge considered this allowance was generous to Mr Jindal. Summary judgment was accordingly entered for $68,680.03.[20]
Further evidence admitted on appeal in the High Court
[18]At [50] and [52]–[59].
[19]At [63].
[20]At [64].
Mr Jindal applied for leave to adduce five further affidavits in support of his appeal to the High Court.[21] The Judge admitted three of these affidavits, which all concerned expenditure allegedly incurred by Mr Jindal on behalf of the company, in particular as to ownership of the car, home office expenses and a new claim for “salary forgone”.[22] The Judge was not prepared to receive two other affidavits concerning the liquidator as this evidence was not relevant to the issues he needed to determine.[23]
High Court judgment
[21]High Court Rules 2016, r 20.16.
[22]High Court judgment, above n 2, at [4]–[5].
[23]At [6].
The key issues on the appeal were, first, whether the claim engaged aspects of the Act such that only the High Court had jurisdiction to determine it and, secondly, whether Mr Jindal had an arguable defence based on liability assumed, expenses incurred, and salary foregone.[24]
[24]At [30].
The Judge found that there was nothing in the claim that sought to rely on the voidable transaction regime or other powers of the High Court; it was simply a claim in debt.[25] There was therefore no jurisdictional objection to that claim being heard in the District Court. The Judge observed that Mr Jindal’s defence engaged various provisions of the Act, including whether the payments to him were authorised under s 161 and whether he was entitled to claim the benefit of a set off in accordance with s 310.[26] The Judge was satisfied the District Court could make the required assessments and this would not involve invoking powers conferred exclusively on the High Court.[27]
Scope of the appeal in this Court
[25]At [46].
[26]At [47].
[27]At [47].
As noted, the Judge gave leave for a second appeal to this Court on a single question of law, namely whether the District Court has jurisdiction to hear a liquidator’s common law debt claim against a director in respect of an overdrawn shareholder’s account. The Judge considered the other grounds Mr Jindal wished to raise were not tenable.
Undeterred, Mr Jindal advanced five grounds in his notice of appeal:
(a)The District Court judgment was a nullity because it involved the exercise of powers contained in s 301 of the Act, the exclusive preserve of the High Court (this ground is within the scope of the leave judgment).
(b)The High Court erred in finding that the salary claimed by Mr Jindal of $200,000 could not meet the fairness threshold under s 161(5) of the Act (because the company earned only $72,000 in the four‑year period it was active).
(c)The High Court erred in failing to “apply its mind to the equitable considerations” in s 296(3) of the Act and wrongly denied equitable relief.
(d)The High Court failed to “fairly consider the facts in evidence while also considering commercial and factual realities”.
(e)The High Court erred in failing to “realise that there was always a serious question to be tried”.
Having reviewed the evidence placed before the High Court, we are satisfied there is nothing in the additional grounds of appeal Mr Jindal seeks to advance.
“Serious question to be tried”
This ground is a catch-all conclusory submission that adds nothing to the earlier grounds. It need not be addressed separately.
“Salary foregone”
Mr Jindal did not oppose the application for summary judgment on the basis he had an arguable claim for salary. Nor could he have properly done so. A director has no entitlement to be remunerated for his or her services in the absence of authorisation under s 161(1) of the Act. No salary was ever authorised. For this reason, Mr Jindal’s suggestion, post-liquidation, that a salary of $200,000 over the four-year period of the company’s operation might have been reasonable takes him nowhere. Mr Jindal has no arguable defence by way of set-off for “salary foregone”. The reasonableness or otherwise of the salary Mr Jindal suggested might have been appropriate simply does not arise and the High Court need not have considered it.
Failure to “fairly consider the facts in evidence”
Both courts below carefully examined whether the other claimed benefits provided by Mr Jindal to the company afforded him an arguable defence. There was no failure to “fairly consider the facts in evidence”. Moreover, Mr Jindal was granted a considerable indulgence in being permitted to adduce further evidence in support of his appeal to the High Court. We consider the Judge was generous to Mr Jindal in assessing the extent of any arguable defence to the claim. We detect no arguable error in the Judge’s detailed analysis, certainly none that would assist Mr Jindal.
Applicability of s 296(3) of the Act
Finally, s 296(3) of the Act, which is located in the section of the Act dealing with voidable transactions, has no application to the present claim for reasons we will explain more fully when we address the jurisdictional issue below.
Further proposed ground — admissibility of affidavit filed in support of application for summary judgment
Mr Jindal sought to raise yet another issue in his supplementary submissions. He contended that an affidavit filed in the District Court in support of the application for summary judgment was inadmissible because it was opinion evidence the deponent was not qualified to give and the code of conduct for expert witnesses was not complied with. We are not prepared to entertain this argument for two reasons. First, an appellant cannot normally raise on a second appeal a point that was not raised or considered in the District Court or on appeal to the High Court.[28] Secondly, there is nothing in the point anyway. The insolvency manager who completed the affidavit was not purporting to give expert evidence; he was merely identifying receipts and payments made to or by Mr Jindal as shown in the primary records of the company, being the bank statements, which were annexed to his affidavit. Mr Jindal’s submission that the affidavit was inadmissible is plainly wrong.
[28]Needham v Samy Trustee Ltd [2017] NZCA 117, (2017) 24 PRNZ 184 at [13]–[16]; and Perkowski v Wellington City Corp [1959] NZLR 1 (PC) at 5.
For these reasons, we are not willing to engage further with the additional grounds now sought to be advanced by Mr Jindal on this second appeal. Before we address the question of law for which leave was granted, we consider Mr Jindal’s application for leave to adduce further evidence in this Court.
Application for leave to adduce further evidence
Mr Jindal applies for leave to adduce further evidence in support of the appeal, being two six-monthly reports prepared by the liquidator in accordance with s 255 of the Act. We decline to admit these reports because they contain nothing of relevance to the legal issue we are required to decide.
Appeal
The question of law for which leave was granted is whether the District Court has jurisdiction to hear a liquidator’s common law debt claim against a director in respect of an overdrawn shareholder’s account. The answer to this question is “yes”.
The general jurisdiction of the District Court is set out in s 74 of the District Courts Act 2016 and includes jurisdiction to determine a proceeding in which the amount claimed does not exceed $350,000. The equitable jurisdiction of the Act is set out in s 76. The District Court has power to grant the remedies described in s 84, including to give effect to every ground of defence or counterclaim, whether legal or equitable. On the face of it, the District Court had jurisdiction to determine the liquidator’s claim for the balance due on Mr Jindal’s current account with the company.
However, Mr Jindal submits that the claim was brought by the liquidator pursuant to s 301(1) of the Act and only the High Court has jurisdiction to determine such claims. Section 301(1) reads:
301Power of court to require persons to repay money or return property
(1)If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder,—
(a)inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b)order that person—
(i)to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii)to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c)where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
The section does not impose duties on directors or others and does not create a separate or distinct cause of action. It is merely a procedural mechanism enabling a liquidator, creditor or shareholder to pursue claims which a company in liquidation may have against its directors, typically for breach of duty owed to the company.[29] Where the claim is brought by the company to enforce repayment of a common law debt owed to it by a shareholder, the appropriate course is for the liquidator to initiate the proceedings in the name of the company.[30] That is what occurred here. Section 301 of the Act has no relevance to the present claim.
[29]Arataki Properties Ltd v Craig [1986] 2 NZLR 294 (CA) at 298; and Sojourner v Robb [2007] NZCA 493, [2008] 1 NZLR 751 at [53].
[30]Gilbert v About Body Corporates Ltd HC Auckland CIV-2009-404-2048, 23 June 2009 at [27]–[30]; and Waller v Paul (1997) 10 PRNZ 607 (HC) at 613.
Next, Mr Jindal submits that the common law debt claim should be characterised as a claim by the liquidator to avoid an insolvent transaction entered into within the restricted period in terms of s 292 of the Act, which only the High Court can determine. He observes that the power to avoid a transaction in reliance on this section vests in the liquidator and must be exercised in the liquidator’s own name.[31] He says the liquidator has failed to follow the correct procedure set out in s 294 of the Act. The flaw in this submission is obvious. The liquidator has not sought to set aside the debt as a voidable disposition. On the contrary, and as already noted, the company is simply suing to recover the debt. The voidable transactions provisions in pt 16 of the Act have not been invoked by the liquidator and these provisions, including s 296(3), are simply not relevant.
[31]Citing Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011] 2 NZLR 25 at [10], n 6.
For these reasons, we are satisfied there is nothing in the jurisdictional points raised by Mr Jindal. The District Court undoubtedly had jurisdiction to determine this claim.
Costs
Mr Jindal appeals against the refusal by the High Court to award him costs on his partly successful application for leave. He argues the Judge was wrong to find there were “mixed results”. This is because he contends that he was the only successful party.
Costs are ultimately a matter of discretion. In the present case, a significant part of the argument in the leave judgment concerned grounds in respect of which the Judge declined leave for a second appeal. The Judge also dealt with an application by Mr Jindal for a stay of execution pending appeal which was only partly successful. The Judge granted a temporary stay on the condition that Mr Jindal paid the full amount of the judgment into court by 1 March 2022.[32] The stay automatically lapsed when this was not paid by that date. In these circumstances, we see no error in the Judge’s assessment that both parties achieved a measure of success such that there were “mixed results”.
[32]Leave judgment, above n 4, at [59].
In any event, there is no invariable rule that a party who succeeds on an application for leave to appeal is entitled to costs on the leave application. There is no express provision in the High Court Rules 2016 for costs on such applications. The relevant event for costs purposes can properly be viewed as the outcome of the substantive appeal rather than the leave application. This is illustrated by r 53G(4) of the Court of Appeal (Civil) Rules 2005, which provides that where this Court gives leave to appeal but the appeal is subsequently dismissed, the respondent will normally be entitled to costs on the application for leave to appeal (if reserved).
Mr Jindal is fortunate that the High Court fixed costs. Had costs been reserved, he may well have been exposed to an award of costs being made against him for the appeal and on the leave application.
Costs on the present appeal should follow the event in the usual way.
Result
The application for leave to adduce further evidence is declined.
The appeal is dismissed.
We answer the question of law as follows:
Does the District Court have jurisdiction to hear a liquidator’s common law debt claim against a director in respect of an overdrawn shareholder’s account?
Yes.
The appellant must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Langford Law, Wellington for Respondent
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