Jones v Goertzen

[2020] NZHC 2136

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-203

[2020] NZHC 2136

IN THE MATTER

of the receivership of CORE INFRASTRUCTURE LIMITED (in

receivership)

BETWEEN

KIERAN MICHAEL JONES and THOMAS

LEE RODEWALD as receivers of Core Infrastructure Limited (in receivership) Plaintiffs

AND

UNKNOWN DEFENDANTS

First defendants

JASON GOERTZEN

Second defendant

Virtual hearing:	20 August 2020
Appearances:	R B Hucker and N A Muir for the plaintiff Mr Goertzen in person (by telephone)
Judgment:	21 August 2020

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 21 August 2020 at 4.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Solicitors:
Hucker & Associates, Auckland

JONES v GOERTZEN [2020] NZHC 2136 [21 August 2020]

[1]                 On the present applications, the plaintiffs (the “receivers”) seek summary judgment of their amended claim’s fifth cause of action against the second defendant “Mr Goertzen”), for recovery of his overdrawn current account with Core Infrastructure Limited (the “Company”), and continuation of freezing orders over the defendants’ bank accounts claimed to operate in part for the Company’s benefit.

Background

[2]                 The Company operated a quarry, to supply rock to a contractor for use in construction of Wellington’s Transmission Gully project. Mr Goertzen is its sole director and shareholder. It was placed into receivership on 20 January 2020, at the behest of one of its suppliers, shortly after which its supply contract was terminated.

[3]                 In the course of investigating the Company’s affairs, the receivers identified the Company’s invoiced income under the contract was paid into bank accounts held in the name of third parties, understood to be related to Mr Goertzen, from which sums also were disbursed on Company business. From the Company’s 2018 financial statement, which recorded Mr Goertzen’s $245,733 current account liability to the Company, the receivers used the Company’s external accountant’s ledger records to reconstruct Mr Goertzen’s current account liability as $1,566,364.31 at 1 April 2020, which their fifth cause of action sought to recover. Lawyers assisting Mr Goertzen queried if that calculation involved a double-counting, which the receivers accepted.

[4]                 Mr Goertzen explained the Company’s 2018 financial statement was rife with error attributable to its then in-house accountant, which the Company had set out to correct, initially using another internal accountant who contributed additional error but then external accountants. The process had not been completed at the time of the Company’s receivership. Mr Goertzen has a backup copy of the Company’s Moneyworks accounting system, which he says will establish “the current account to be in negative value ie the company owes the shareholder money”.

[5]                 On their further investigations in the short period of time since receipt of the Moneyworks data from Mr Goertzen, the receivers consider the Moneyworks records “substantively reconcile against” the data from which they reconstructed the current account. But they note the Company’s external accountants’ November 2019 advice

to Mr Goertzen the ledgers were only “55%” complete. The accountants agreed with the receivers the Moneyworks data was “an inaccurate reflection of [the Company’s] financial position” as omitting inter-company charges and having unreliable opening balances and assets listings. The receivers’ own assessment is the Moneyworks data is unreliable.

[6]                 The receivers thus recalculate Mr Goertzen’s current account from the Company’s 2018 financial statement and “bank statements”, also correcting the previous double-counting, to arrive a liability of $500,388.81. Mr Goertzen complains that still omits his personal credit card payments of Company expenses, the Moneyworks data may inaccurately code items to his current account, and the receivers’ performance of their role has been lacking.

The law

[7]                 A shareholder’s overdrawn current account is a due debt to the company, carrying with it a “consequent obligation to repay” on demand.1

[8]                 Summary judgment is available “if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim”.2 It is long- accepted “summary judgment will be inappropriate where there are factual disputes and, in particular, credibility issues that cannot be resolved on the basis of the affidavit evidence”.3 The question is:4

… whether the defendant has no defence to the claim and the court must be left without any real doubt or uncertainty.

… The onus is on the plaintiff, but where the plaintiff’s evidence sufficiently shows there is no defence, the defendant must respond if the application is to be defeated.

… Conflicts of evidence ought generally not to be resolved in a summary judgment application, but the court may take a robust approach and need not accept uncritically evidence that inherently lacks credibility.

1      Wilson v Blanchett [2012] NZSC 6 at [3]; Monnery v Convendium Ltd (in liquidation) [2020] NZCA 345 at [34].

2      High Court Rules 2016, r 12.2(1); Pemberton v Chappell [1987] 1 NZLR 1 (CA).

3      Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [97], citing A C Beck and others

McGechan on Procedure (looseleaf ed, Thomson Reuters) at [HR12.2.03].

4      Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Ltd [2020] NZCA 102 at [29], citing Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

Discussion

—current account liability

[9]                 Counsel for the receivers, Robert Hucker,  argues  their  reconstruction  of  Mr Goertzen’s current account is reliable, and the “evidentiary onus” shifts to a debtor claiming additional credits or disputing particular debits.

[10] That is not quite the position. Instead, the receivers have the onus throughout to satisfy me Mr Goertzen has no defence.5 Given what I have said at [7] above, the only defence available here can be as to quantum. I have considered if to give judgment on the issue of liability, and direct a trial of quantum.6

[11]              There is no dispute the Company’s own financial records were in disarray.     I take it, from Mr Goertzen’s lawyers’ limited (and resolved) dispute of the reconstructed accounts’ structure, the reconstruction can now be taken as orthodox and reliable at least to that extent.

[12]              The unorthodox nature of the Company’s financial arrangements, in which there is clear intermingling of personal and Company funds, means there is uncertainty as to the universality of data from which the reconstruction has been conducted. An example of that uncertainty is the receivers’ treatment of payment to Mr Goertzen’s credit card account as drawings, which account Mr Goertzen says was “used as expenses for the company”.

[13]              On the other hand, Mr Goertzen, as the Company’s director, is the person fixed by s 194 of the Companies Act 1993 with ensuring its accounting records were kept – “accounting records that … correctly record the transactions of the company”, a comprehensive record such as permits “a proper understanding of [the company’s] financial position”7 – to which end he “must establish and maintain a satisfactory system of control of its accounting records”. The exact object of those obligations is to permit reliable reconstruction of the company’s financial position.

5      MacLean v Stewart (1997) 11 PRNZ 66 (CA) at 69.

6      High Court Rules 2016, r 12.3.

7      Vey Group Ltd v Vance [2020] NZCA 232 at [48].

[14]              It is not an obligation met by Mr Goertzen’s late dump on the receivers of the Moneyworks data. If Mr Goertzen has items of personal expenditure he contended belatedly should be attributed to the Company – such as may be recorded in his personal credit card account statements or elsewhere, either to offset or in explanation of amounts attributed by the receivers to his current account – he needed to bring those items to the receivers’ attention. Otherwise the Moneyworks data ‘substantially reconciles’ to the records relied on by the receivers, and therefore is not effective to offer a defence to their calculation of the quantum of Mr Goertzen’s liability.

[15] The external accountants’ identification there were “difficulties with opening balances” may undermine the receivers’ reliance on the Company’s 2018 financial statement as a starting point. But that is the Company’s record, and the receivers understood “it reflects what the company filed as their 2018 IR4 annual income tax return”. There is no evidence any correction to the Company’s accounts may be with material impact on Mr Goertzen’s current account balance liability.

[16]              I am satisfied there is no conflict of evidence such as may make summary judgment inappropriate here. Instead, Mr Goertzen indicates there may be a basis for a different calculation of his current account liability, which is not enough to afford a defence to the quantum I find sufficiently established by the receivers. I am not satisfied that issue remains for trial.

[17]              Last, any dispute Mr Goertzen may have with the receivers’ conduct does not afford a defence to repay his current account liability.

—freezing orders

[18]              Freezing orders were made without notice over the non-Company bank accounts, on grounds the Company presumptively was entitled to payment on its invoices, which risked dissipation from the accounts.8 Being made without notice, the orders were to expire on 27 February 2020 unless then continued or renewed, the defendants being entitled to be heard in opposition.9 In the event, given various

8      Jones v Goertzen [2020] NZHC 176 at [10]–[12].

9      At [17]; High Court Rules 2016, r 32.7.

disruptions and ultimately by consent, that expiry date was extended to hearing before me.

[19]              No opposition is raised by any party. The receivers advise me some $885,000 remain as outstanding debts, and risk being paid into the accounts and from there dissipated. On that basis I will continue the freezing orders.

Result

[20]              I give judgment against second defendant on the amended claim’s fifth cause of action in the amount of $500,388.81.

[21]              I continue the freezing orders, with leave to the account-holders to apply for their discharge or variation on five working days’ notice, any such application to be treated as urgent.10

Costs

[22]              In my preliminary view, as the successful party, the receivers are entitled to 2B costs and disbursements on their steps taken in both applications. That is because, so far as I can tell, no step on these averagely complex applications required other than a normal amount of time.

[23]              If that is not accepted by the parties, or they cannot otherwise agree, I reserve costs for determination on short memoranda of no more than five pages – annexing a single-page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed and served by the receivers within ten working days of the date of this judgment, with any response and reply to be filed within five working day intervals after service.

—Jagose J

10     High Court Rules 2016, r 32.8.