Kiwi Joint Limited v Buttar

[2024] NZHC 3637

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2023-470-58

[2024] NZHC 3637

BETWEEN

KIWI JOINT LIMITED

Plaintiff

AND

DALJEET SINGH BUTTAR

Defendant

Hearing:	15 July 2024 (Heard in Rotorua)
Appearances:	J Mahuta-Coyle and S Howell for Plaintiff No appearance for Defendant
Judgment:	2 December 2024

JUDGMENT OF MOORE J

This judgment was delivered by me on 2 December 2024 at 3.00 pm Pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………..

Solicitors:           Holland Beckett, Tauranga

KIWI JOINT LTD v BUTTAR [2024] NZHC 3637 [2 December 2024]

Introduction

[1]                 This is a case about a very successful Bay of Plenty horticultural service company and how, through the deceptive actions of one of its directors over a period of about two years, it ended up in financial strife. It is a case about how what seemed to be a sensible division of responsibilities between directors permitted one to pursue his own agenda of avarice and self-advancement to the detriment of his fellow director and ultimately the company.

[2]                 The company seeks just under a million dollars in damages (notwithstanding interest) based on alleged breaches of directors’ duties under the Companies Act 1993; breaches of fiduciary duties; and losses suffered from equitable fraud.

[3]                 This judgment deals with the fallout of that director’s conduct; why the Court has determined that the company is owed compensatory damages and what those damages are. I will first set out the relevant factual background, before turning to examine a forensic accountant’s analysis of the company’s accounts. I will then consider the causes of action that comprise the company’s claim.

Factual background

[4]                 The company at the  centre  of  these  proceedings  is  Kiwi  Joint  Ltd  (“Kiwi Joint”). Kiwi Joint was incorporated on 19 May 2015 and was set up by Jaswinder Singh1 At the time of incorporation, Jaswinder was the sole director, jointly holding shares in Kiwi Joint with his parents.

[5]                 Until December 2020, Kiwi Joint was highly successful. It contracted kiwifruit orchard pickers throughout the Bay of Plenty, employing and providing staff and plant to undertake pre- and post-harvest work for orchard owners and growers.

[6]                 Jaswinder capably managed the operational side of Kiwi Joint but readily accepted that he needed assistance with the financial and administrative aspects of the

1      Jaswinder Singh shares a common name with the defendant — Daljeet Singh Buttar. During the hearing each man was referred to by his first name. For clarity I adopt the same approach in this judgment. No disrespect is intended by this approach.

business. Jaswinder recruited the defendant, Daljeet Singh Buttar, to assist with these aspects shortly after the business started. Jaswinder knew that Daljeet had experience in business administration as he had recently assisted a family friend.

[7]                 Daljeet was trusted to manage the financial and administrative aspects of the business in the best interests of Kiwi Joint. He was given a free rein.

[8]                 Daljeet became a shareholder on 24 July 2018, receiving 30 shares from Jaswinder. A year later, on 15 July 2019, Daljeet became a director. On 25 July 2019, Daljeet received another 20 shares. Jaswinder says he does not remember agreeing to Daljeet receiving those shares and did not receive any payment for them.

[9]The shareholding was, and remains, as follows:

(a)Daljeet — 50 per cent;

(b)Jaswinder — 30 per cent; and

(c)Manvir Wahid2 — 20 per cent.

[10]              Although he was not a director or shareholder of Kiwi Joint until 2019, from effectively Kiwi Joint’s conception Daljeet had control and oversight over its financial affairs. This control recognised his experience managing company finances. In his role, Daljeet managed Kiwi Joint’s financial affairs, hired employees, paid wages, paid sub-contractors, dealt with customer invoices, liaised with Kiwi Joint’s accountants, and managed Kiwi Joint’s taxation responsibilities.

[11]              Superficially the division of labour between Jaswinder and Daljeet worked well. Kiwi Joint was profitable virtually from the moment it started. By 2019 its turnover was approximately $1.8 million and, as at December 2020, Kiwi Joint employed 30–40 staff and had contracts across the greater Bay of Plenty region.

2      Jaswinder’s wife.

[12]              By December 2020, Jaswinder had become suspicious of Daljeet. He made various enquiries about Kiwi Joint’s finances with Daljeet and was brushed off. Daljeet refused to provide Jaswinder with any information about Kiwi Joint’s finances or to let Jaswinder view Kiwi Joint’s books. Jaswinder then made enquires directly with Kiwi Joint’s bank and obtained copies of Kiwi Joint’s bank statements from January 2017 to December 2020.

[13]              Examining the bank statements did not allay Jaswinder’s suspicions. Rather, he identified unusual transactions which included large cash withdrawals attributed to Daljeet’s bankcard. The statements also record “loans” to companies and people associated with Daljeet. This included payments to real estate agents and to non‑employees (including Daljeet’s wife). The bank statements recorded transactions from Kiwi Joint to companies that Daljeet had set up. Properties purchased by Daljeet appear to have been bought, at least in part, with funds sourced from Kiwi Joint. Jaswinder deposed that none of these transactions had been disclosed to him.

[14]              In December 2020, Jaswinder asked the bank to freeze Kiwi Joint’s accounts to prevent further unauthorised payments. At the time Kiwi Joint’s accounts were overdrawn by nearly $40,000. The bank agreed and froze the accounts — which remain frozen.

[15]              Unsurprisingly, Daljeet reacted negatively to the freezing of Kiwi Joint’s accounts, instructing solicitors, and alleging that for his role in the freezing Jaswinder had breached his director’s duties. Jaswinder obtained his own legal advice and engaged a forensic accountant, Karl Ruby, to investigate Kiwi Joint’s accounts.

[16]              An analysis of Mr Ruby’s investigation follows later in this judgment but, essentially, and in summary, he concluded that Daljeet, as a director of Kiwi Joint, had:

(a)advanced funds from Kiwi Joint’s accounts to himself, persons associated with himself and the companies of which he was a director and/or shareholder (“the Associated Companies”) for his own benefit or the benefit of the Associated Companies; or

(b)permitted Kiwi Joint to provide unauthorised and/or undocumented loans to third parties, many of which remained unpaid; and

(c)incorporated Workaholic Contractors Ltd (“Workaholic”) to compete with Kiwi Joint.

[17]              In March 2021, Kiwi Joint applied for charging, freezing and ancillary orders in respect of assets (including real property) Jaswinder claimed Daljeet had purchased using funds wrongfully appropriated from Kiwi Joint’s bank accounts. That application was not proceeded with after Daljeet gave an undertaking that he would not sell, or transfer or dispose of, or enter into any agreements to sell, transfer or dispose of any property or shares in his personal name or property or shares in the name of Kiwi Joint and two other named companies until further order of the Court or written agreement of Jaswinder, Daljeet and Kiwi Joint.

[18]              Jaswinder also applied for leave to bring a derivative action in the name of Kiwi Joint against Daljeet,3 claiming various breaches of director’s duties, breach of fiduciary duty and equitable fraud by Daljeet. The defended application was determined by Duffy J.4

[19]              The essence of Daljeet’s opposition was that Jaswinder had more knowledge, access to and control over Kiwi Joint’s finances than he claimed.5 Daljeet said that Jaswinder had full access to the accounts and had one-person signing authority. He claimed that Jaswinder had full knowledge of and had approved many of the transactions in question, citing examples. Daljeet suggested that Jaswinder, himself, had committed breaches of various director’s duties, referring to the freezing of  Kiwi Joint’s bank accounts which meant that Kiwi Joint was unable to pay creditors and employees.

[20]              Daljeet resisted the application on the basis that if granted, it would not effectively address the central issue — being the need to finalise Kiwi Joint’s accounts, determine the amount owed by Daljeet to Kiwi Joint and determine Kiwi Joint’s share

3      Companies Act 1993, s 165.

4      Singh v Buttar [2023] NZHC 243.

5 At [24].

value allowing Daljeet and Jaswinder to address the breakdown of their working relationship.6 However, Daljeet claimed that Jaswinder was unreliable and had not been performing his duties to a sufficient standard expressing his unwillingness to continue working with Jaswinder.

[21]              Duffy J granted the application,7 noting that most of the alleged breaches were founded on Mr Ruby’s independent evidence.8 She found that both Jaswinder and  Mr Ruby had provided reliable and credible accounts of multiple unauthorised transactions and dealings by Daljeet who had not denied the existence of those transactions or that he was instrumental in them occurring. Rejecting Daljeet’s evidence that Jaswinder’s conduct disqualified him from bringing the application, Duffy J considered that the sums involved made litigation on the company’s behalf to recover the alleged unlawful withdrawals “worthwhile”.9

[22]              On 31 May 2023, Kiwi Joint filed a statement of claim containing five causes of action against Daljeet, being:

(a)breach of director’s duties (under s 131 of the Companies Act);

(b)breach of director’s duties (under s 133 of the Companies Act);

(c)breach of director’s duties (under s 137 of the Companies Act);

(d)breach of fiduciary duties; and

(e)equitable fraud.

[23]              On 7 June 2023, Duffy J delivered her costs decision.10 She determined that a 30 per cent uplift of scale costs was appropriate given there “was little if anything that [Daljeet] could properly raise against allowing the s 165 application”.11 Duffy J

6 At [29].

7 At [48].

8 At [37].

9      At [45] and [46].

10     Singh v Buttar [2023] NZHC 1401.

11 At [38].

awarded Jaswinder costs in the sum of $19,574.10 and directed that disbursements be paid in the sum of $6,173.75. Jaswinder sought to enforce this costs order and, as a consequence of Daljeet’s refusal to pay, commenced bankruptcy proceedings in August 2023.

[24]              Meanwhile, on 18 July 2023, Daljeet filed a statement of defence in this proceeding. His defence largely mirrored his claims in opposition to the application before Duffy J and raised no affirmative defences.

[25]              On 6 November 2023, this Court was scheduled to deal with the bankruptcy application. The bankruptcy proceedings were withdrawn, however, upon Daljeet paying the outstanding costs ordered by Duffy J. Jaswinder then sought costs in the bankruptcy application totalling nearly $4,000. Daljeet failed to pay the costs sought, leading Jaswinder to file an application for a warrant to seize property.

[26]              On 23 February 2024, Mr Murray, who had been representing Daljeet, applied to withdraw as counsel on the grounds of lack of instructions. Mr Murray noted that fee invoices issued to Daljeet in July and October 2023 were outstanding.

[27]              On 30 May 2024, Jaswinder filed a without notice application for a freezing order. This application appears to have been prompted by Jaswinder learning that Daljeet’s property at Allanah Place, Te Puke (“the Allanah Place Property”) was to be sold by auction. The application came before van Bohemen J who, on 4 June 2024, the day before the scheduled sale, directed the application be made on notice and convened a telephone conference with the parties, including Daljeet who represented himself.12 The Judge determined that orders should be made and granted the freezing order in respect of the Allanah Place Property.13

[28]              On 12 June 2024, Campbell J convened a conference following Daljeet’s non‑compliance with earlier timetabling directions relating to the hearing of this proceeding. The Judge, at a previous hearing convened to deal with Daljeet’s non‑compliance, had granted an extension to Daljeet to serve his witness statements,

12     Kiwi Joint Ltd v Buttar [2024] NZHC 1459.

13 At [13].

list of documents for inclusion in the common bundle, and responses to Jaswinder’s draft chronology.14 In that earlier hearing, after emphasising the importance of compliance with Court directions and granting a short indulgence of a few days, Campbell J invited Jaswinder to seek “appropriate orders” if Daljeet failed to comply with the extension.15 Campbell J noted that the formal proof procedure was not available given that Daljeet had filed a statement of defence and directed that Daljeet “may not give evidence or call any witnesses at the trial without first obtaining the leave of the court.”16

[29]              Since that direction, Daljeet has failed to engage in the proceeding. He failed to meet any of the Court-imposed deadlines and has not filed nor served any of the documents this Court ordered him to. Against this background, it was unsurprising that at the hearing before me Daljeet did not appear and the matter proceeded undefended — essentially as a formal proof.

[30]              Although Daljeet had filed evidence in respect of the various pre-trial and interlocutory skirmishes, he has not served any evidence in support of his defence of these proceedings. As pleaded, his statement of defence does not dispute the transactions Jaswinder points to as irregular, if not fraudulent. Instead, as he did before Duffy J, it appears he claims that the transactions should not be characterised in the fashion advanced by Jaswinder and that, in any event, Jaswinder was aware of the transactions and authorised them. There is also the related claim that Jaswinder, himself, breached his duties as a director by having Kiwi Joint’s account frozen.

[31]              None of these assertions can have a material bearing on how this Court is required to proceed. The primary, if not exclusive evidential sources are to be found in the affidavits of Jaswinder and Mr Ruby, and the various documents to which they refer.

14     Kiwi Joint Ltd v Buttar HC Tauranga CIV-2023-470-58, 24 May 2024 (Minute of Campbell J).

15 At [9].

16     Kiwi Joint Ltd v Buttar HC Tauranga CIV-2023-470-58, 12 June 2024 (Minute of Campbell J).

[32]              I will shortly turn to the analysis of that evidence. However, before I do, it is instructive to set out the five Associated Companies to which Daljeet made advances from Kiwi Joint and the interests (if any) Jaswinder has in each of these:

(a)Te Puke Housing Development Ltd (“Te Puke Housing”): Daljeet is a director and 40 per cent (majority) shareholder in Te Puke Housing. Jaswinder is neither a director nor shareholder.

(b)For Brothers Ltd (“For Brothers”): Daljeet was a 25 per cent shareholder of For Brothers. Jaswinder is neither a director nor shareholder.

(c)Gold Star 2019 Ltd (“Gold Star”): Daljeet is the director and one of six equal shareholders (16.67 per cent). Jaswinder is also shareholder (16.67 per cent) but is not a director.

(d)Gold Star Investments (2019) Ltd (“Gold Star Investments”): Daljeet was a shareholder until 3 December 2021. Jaswinder has no interest or involvement in Gold Star Investments.

(e)Workaholic: Daljeet is the sole director and a 20 per cent shareholder. Jaswinder is neither a director nor shareholder. Jaswinder’s parents (Baldev Singh and Surinder Kaur) are recorded as shareholders.

[33]              These were not, however, the only entities which it is alleged Daljeet improperly diverted Kiwi Joint funds to. I shall identify these later, when necessitated by the following analysis.

Mr Ruby’s analysis

[34]              Mr Ruby was instructed by Jaswinder on behalf of Kiwi Joint to provide independent forensic accounting analysis. In his  analysis,  Mr  Ruby  reviewed  Kiwi Joint’s bank statements, identified suspicious transactions and reviewed Kiwi Joint’s general ledgers to establish how much money had been removed from Kiwi

Joint, identify where it had gone and establish which director had potentially taken money from Kiwi Joint. I extract and set out relevant parts of that analysis below.

[35]              Mr Ruby identified 10 large or suspicious transactions as not having anything to do with Kiwi Joint or Jaswinder.17 These are the transactions which Jaswinder claims were engineered or undertaken by Daljeet either directly for his own personal benefit or the benefit of a company associated with him or the benefit of some third party unrelated to Jaswinder and in respect of which Jaswinder has no interest. I shall deal with each of the transactions identified by Mr Ruby in turn, although some are treated together where the entities share common features.

[36]              It is alleged that Daljeet directed or permitted Kiwi Joint’s accountants to prepare inaccurate, and misleading financial statements. It is not alleged that the accountants were, in any way, complicit in this. The statements were signed by Daljeet on behalf of Kiwi Joint. There are two financial years allegedly involved; the years ending 31 March 2019 and 2020 respectively. The accounts for both years were signed off by Daljeet.

Examination of the current accounts

[37]              As Mr Ruby explained, a shareholder current account is a record of the net balance of funds introduced and withdrawn by a shareholder. This moving balance is recorded on the company’s balance sheet and may fluctuate from being an asset of the company to a liability. In general terms, it is like a bank account for shareholders inside the company’s financial system.

[38]              For the year ending 31 March 2019, Kiwi Joint’s current account recorded Jaswinder (and his parents) as having taken $556,620 in drawings, leaving them owing

$46,513 to Kiwi Joint as at the end of the 2019 year. In contrast, the current account recorded Daljeet as having taken exactly $140,000 in drawings with the result that, on its face, he was in debt to Kiwi Joint to the tune of just $10,000. In other words, if Kiwi Joint went into liquidation, the liquidator could, on the basis of these accounts,

17     Affidavit of Karl Michael Ruby sworn 2 July 2024, at Sch 1.

demand repayment from Jaswinder and his parents of $46,513 and from Daljeet

$10,000.

[39]              For the 2020 year, the discrepancy in drawings between Jaswinder and Daljeet is even more marked. The current account recorded that Jaswinder (and his parents) drew $407,887 from the current account and Daljeet withdrew just $178,819. On its face, this records that Jaswinder (and his parents) owed Kiwi Joint $226,131 whilst Daljeet owed $75,000.

[40]              The table below reveals how those figures were arrived at in the annual accounts.

Current Account
Jaswinder (and parents)	2019	2020
Opening balance	$100,107	($46,513)
Cash Deposits	$0	$10,121
Shareholder’s Salary	$410,000	$275,000
Less
Cash Drawings	$556,620	$407,887
Terminal Tax Paid	$0	$56,850
Balance Carried Forward	($46,513)	($226,131)
Daljeet	2019	2020
Opening balance	$0	($10,000)
Shareholder Salary	$130,000	$140,000
Less
Cash Drawings	$140,000	$178,819
Terminal Tax	$0	$693
Balance Carried Forward	($10,000)	($75,000)

[41]              Mr Ruby then went behind these figures and undertook an analysis of the general ledgers supplied by Daljeet. These were the ledgers used by Kiwi Joint’s accountants to compile the annual accounts. Mr Ruby discovered, effectively, that Kiwi Joint had underreported what Daljeet’s actual current account balance was. This operated to Jaswinder’s significant detriment because, instead of declaring that Daljeet had received certain monies from Kiwi Joint, the way the accounts were framed suggested Jaswinder rather than Daljeet had taken those funds.

[42]              Mr Ruby analysed the cash drawings to identify whose benefit they were for; that is, were they for the benefit of Daljeet or Jaswinder? In his working papers he highlighted, in different colours, the transactions he could identify as being for the

benefit of the respective parties. For example, he had details of both Jaswinder and Daljeet’s EFTPOS cards attached to Kiwi Joint’s account.

[43]              Mr Ruby then reconstructed the  current  account  from  the  company ledgers — identifying actual drawings based on bank accounts, bank descriptions or EFTPOS card numbers.

[44]              Mr Ruby concluded that the correct current account  balances  based  on  Kiwi Joint’s ledgers, revealed a very different picture than that initially presented in the current accounts. The reconstructed account showed that for the 2019 financial year, Daljeet, had in fact, withdrawn $397,844.18, not $140,000; and that Jaswinder had withdrawn $266,053.11, not $556,620.

[45]              A similar picture emerged from Mr Ruby’s reconstruction of the drawings for the 2020 year.    Jaswinder’s  actual  drawings  were  $148,543.41  compared  to the

$407,887  recorded  in  the  2020 current account.    Daljeet’s  actual  drawings were

$396,208.92 compared with $178,819 as recorded in the 2020 current account.

[46]              The table set out below reflects Mr Ruby’s analysis (taking into account that the unallocated transactions, end of year journals, and correct overdrawn current account calculations have not been included) and contrasts it with what was recorded in the current account.

Reconstructed Accounts
Jaswinder (and parents)	2019	2020
Opening balance	$100,107	$244,053.89
Cash deposits made	$10,121
Shareholder salary (as declared in the accounts.	$410,000	$130,000
Less
Drawings (as analysed)	$266,053.11	$148,543.41
Tax paid	$0	$56,852
No overdrawn current account calculation was been completed for this matter by Mr Ruby	$0.00	$0.00
Balance carried forward	$244,053.89	$323,779.48
Daljeet	2019	2020
Opening balance	$0	$-267,844.18
Shareholder salary (as declared in the company accounts)	$130,000	$140,000

Less
Drawings (as analysed)	$397,844.18	$396,208.92
Tax paid	$0.00	$26,363
No overdrawn current account calculation was been completed for this matter by Mr Ruby	$0.00	$683
Balance carried forward	$-267,844.18	$-551,109.10

[47]              For some of the withdrawals Mr Ruby was unable to ascertain for whose benefit the transaction was and thus characterised these as “unallocated withdrawals”. I discuss these unallocated withdrawals later in this judgment.

[48]              Based  on  the  reconstructed  accounts,  Mr  Ruby  concluded  that  as   at   31 March 2020, Kiwi Joint owed Jaswinder a total of $323,779.48 and Daljeet owed Kiwi Joint $551,109.10 (the amount he withdrew from the current  account).  As   Mr Mahuta-Coyle, for Kiwi Joint submitted, Daljeet misrepresented to or through Kiwi Joint’s accountants what his own drawings from Kiwi Joint were. As a consequence, he caused the company to misreport those. Thus, it was submitted that this demonstrates that Daljeet was in breach of his duties as a director to report   Kiwi Joint’s accounts honestly and correctly.

Dilbar

[49]              Kiwi Joint’s bank statement reveals that on 30 November 2020, Kiwi Joint transferred $7,000 to “Dilbar”. It is recorded as a loan. Mr Ruby’s evidence is that it does not appear to have been repaid. Generally, Jaswinder’s evidence is that the directors were not in the business of making loans to third parties and that the directors did not authorise this loan.

Amanpreet Mattu

[50]Amanpreet Mattu is Daljeet’s brother-in-law. On 19 June 2018, a payment of

$3,500 was made to Mr Mattu coded “advance”. As with the “loan” to “Dilbar” this payment was not authorised and does not appear to have been paid back.

Gold Star and Gold Star Investments

[51]              Although Mr Ruby discussed these two companies separately, for the purposes of this judgment I set them out together.

[52]              According to Jaswinder, in November 2019 Gold Star Investments purchased a property in Kawerau. Jaswinder has no interest in Gold Star Investments. He did, however, have an interest in Gold Star with Daljeet, who was Gold Star’s director. Daljeet and Jaswinder (along with four others) were shareholders (both 16.67 per cent) in Gold Star.

[53]              Jaswinder deposes that in March 2019 Gold Star purchased an orchard in Pukehina. Jaswinder’s share of the purchase price was made up of a bank loan of

$100,000 secured over his home, $25,000 borrowed from his sisters, and $75,000 from Kiwi Joint. The funds from Kiwi Joint were agreed by Daljeet. There is no evidence on how Daljeet’s share of the purchase price was funded. However, Kiwi Joint’s bank accounts reveal that the day before  settlement,  $50,000  was  transferred  from  Kiwi Joint to Gold Star. Jaswinder does not recall Daljeet seeking Jaswinder’s consent to a withdrawal for the purpose of funding part of Daljeet’s portion of the purchase price.

[54]              Two further payments were made to Gold Star from Kiwi Joint in June and July 2020 being $24,000 and $20,000 respectively. Both payments were not authorised by Kiwi Joint’s other directors. This brings the total of unauthorised payments from Kiwi Joint’s account to Gold Star to $94,000. That amount is still outstanding and owed to Kiwi Joint. In August 2019, $30,000 was transferred from Kiwi Joint to Gold Star Investments.

[55]              Jaswinder says that he had no knowledge of these payments and did not agree to any payments being made to Daljeet’s companies.

Te Puke Housing and Advantage Realty Ltd

[56]              Advantage Realty Ltd (“Advantage Realty”) is a third-party company unconnected with Jaswinder or Kiwi Joint. As noted above, Daljeet is the director and

majority shareholder of Te Puke Housing; and Jaswinder has no interest or connection with the company.

[57]              In 2020, Te Puke Housing purchased  a  property  on  MacLoughlin  Drive, Te Puke. On 11 August 2020, a withdrawal of $14,000 was made from Kiwi Joint’s bank account to Advantage Realty with the particulars and reference “42 Macloughl” and “Daljeet S b”. Although the evidence does not appear to cover what the payment was for, the payment was not authorised by Jaswinder and has not been repaid.

[58]              On 19 August 2020, a further $86,000 was transferred from Kiwi Joint’s account to Te Puke Housing. It consisted of the following three withdrawals:

(a)$15,000 with the particulars and references “Te puke hsng” and “Loan”;

(b)$16,000 with the particulars and references “Te puke hsng” and “Loan”; and

(c)$55,000 with the particulars and references “TP HSG DEV”, “LTD- LOAN” and “FROM DALJEET”.

[59]              The  title  for   the   MacLoughlin   Drive   property   was   transferred   to   Te Puke Housing on 23 October 2020.

[60]              None of these transactions was known to Jaswinder nor authorised by him. He was never shown any documentation or loan agreements in relation to these transactions and they were not recorded in Kiwi Joint’s financial statements. The transactions  have   not   been   repaid   and   remain   owing   by   Daljeet   and/or  Te Puke Housing. Mr  Ruby  considered  that  $12,654  remains  outstanding  from Te Puke Housing.

For Brothers

[61]              As stated above, this company is also associated with Daljeet. Daljeet was a shareholder of For Brothers between 29 August 2019 and 29 June 2022. He held a

25 per cent shareholding in the company. At no time has Jaswinder had any interest or connection to For Brothers.

[62]              On 5 December 2017, For Brothers purchased the leasehold interest in a property at Welcome Bay Road, Tauranga.

[63]              During that time, two significant payments totalling $80,000 were made from Kiwi Joint to For Brothers. On 21 March 2019, a payment of $30,000 was made from Kiwi Joint’s bank with the reference “Jaswinder”. Mr Ruby opined that this reference was used to have this payment coded to Jaswinder’s shareholder drawings account. On 27 October 2020, Kiwi Joint paid a further $50,000 to “For Brother” with the reference “Loan 5 days”. The loan has not been repaid.

[64]              Jaswinder says he did not approve either of these transactions or loans. He said that he had never seen documentation or loan agreements recording these loans and they are not in Kiwi Joints financial statements. Any loans or payments made by Kiwi Joint need to be repaid.

Workaholic

[65]              Workaholic was incorporated by Daljeet on 24 August 2020. Daljeet is the sole director and a 20 per cent shareholder of Workaholic. Jaswinder is neither a director nor shareholder. Jaswinder’s parents are recorded as shareholders. Despite this Jaswinder insists that neither he nor his parents knew Daljeet was setting Workaholic up. Jaswinder deposes that his parents were on holiday in India at the time Workaholic was incorporated; and that his parents do not speak English and have little to no commercial or corporate experience in New Zealand. The address attributed to Jaswinder parents’ on  the  Companies  Office  register  is  actually  Daljeet’s  address — not Jaswinder’s parents’. Neither Jaswinder nor his parents have been involved in any way in the operation of Workaholic.

[66]              In fact, Workaholic operates in direct competition with Kiwi Joint. Workaholic is recorded on the Company’s Office register as a labour supply company for horticultural workers. Jaswinder says that Daljeet is effectively running Kiwi Joint’s business through Workaholic. Since December 2020, Workaholic has been using

Kiwi Joint’s machinery, equipment, goodwill, employees, and essentially performing the same work as Kiwi Joint had been involved in.

[67]              If Workaholic is running Kiwi Joint’s business, it must account to Kiwi Joint and full records of Workaholic should be provided.

[68]              Kiwi Joint bank accounts show several large payments to Workaholic in late 2020. Including:

(a)On    10    December    2020,    Kiwi    Joint    transferred    $53,000    to “WORKAHOLIC CONT”; and

(b)On    27    November    2020,    Kiwi    Joint    transferred   $59,000    to “WORKAHOLIC CON” with the reference “Lon fo 2 wee”.

[69]              Jaswinder deposes that he knew nothing about these payments and that he first saw them when reviewing Kiwi Joint’s bank statements in December 2020. He says that at no point did he agree to any payments or loans being made to Workaholic from Kiwi Joint. Workaholic appears to have been set up by Daljeet while he was still a director of Kiwi Joint for the specific purpose of competing with Kiwi Joint.

[70]              A total of $164,526 was transferred out of Kiwi Joint’s bank account in favour of Workaholic.  These  payments put Kiwi  Joint’s  bank account into overdraft on  27 November 2020 which meant that Kiwi Joint also incurred penalty interest and overdraft charges.

[71]              Jaswinder says that at no point has he seen any documentation or loan agreements recording these advances from Kiwi Joint to Workaholic. Any such loan agreements are also not recorded in Kiwi Joint’s financial statements.

[72]              Mr Mahuta-Coyle submitted that in late 2020, when Daljeet realised that “the game” was up (when Jaswinder started to make enquiries which, inevitably, led to him discovering the various discrepancies detailed above) he set up Workaholic in order to carry on trading, albeit under the auspices of a different entity. The evidence establishes that significant cash transfers were made from Kiwi Joint’s account to

Workaholic’s, indicating that Daljeet, who managed both companies, put money into Workaholic when it suited him. It appears that whenever Daljeet wanted or needed cash for himself or another of his companies, he simply took it out of Kiwi Joint’s accounts without authority.

[73]              In support of this opinion, Mr Ruby points to Workaholic’s bank accounts which show wages being paid to staff as early as 27 November 2020, almost a month before Kiwi Joint’s accounts were frozen. Obviously, Kiwi Joint could not trade once its accounts were frozen. In his affidavits, Daljeet confirms that he is using Workaholic to continue Kiwi Joint’s business. Consequently, Workaholic is generating revenue by utilising Kiwi Joint’s assets and taking over its client base. As Mr Ruby observed, this “states to the industry that Kiwi Joint has ceased trading permanently.” He further states that Kiwi Joint’s reputation and goodwill has been significantly affected by Workaholic taking over its business. Mr Ruby also points out that Kiwi Joint’s plant and equipment will have lost value and condition due to its use by Workaholic.

[74]Mr Ruby has reviewed Workaholic’s bank accounts. He concluded that

$76,792.12 is owed to Kiwi Joint by Workaholic.

The final position

[75]              Mr Ruby concludes his analysis by stating that the total amount owed to  Kiwi Joint by Daljeet is $990,817.74. A summary of how that amount is calculated is set out in the table below, drawn from Mr Ruby’s updated affidavit.18

Entity	Money Taken	Money Repaid	Outstanding
Amanpreet Mattu	$3,500	$0.00	$3,500
Gold Star Ltd	$124,000	$0.00	$124,000
Gold Star adjustment as explained in [7]	$94,000	$0.00	$94,000
Advantage Realty (42 Maclough)	$14,000	$0.00	$14,000
Advantage Realty adjusted as explained in [5]	$0.00	$0.00	$0.00

18 Paragraph references are to Mr Ruby’s affidavit.

Te Puke Housing Development	$84,000	$71,345.02	$12,654.98
For Brothers Ltd	$80,000	$0.00	$80,000
Workaholic Contractors Ltd	$76,792.12	$0.00	$76,792.12
Workaholic adjustment as explained in [8]	$339,302	$142,929.88	$196,372.12
Dilbar	$7,000	$0.00	$7,000
Daljeet Buttar current account	$551,109.10	$0.00	$551,109.10
Unallocated withdrawals	$54,119.20	$0.00	$54,119.20
Unallocated withdrawals adjustment as explained in [9]	$46,181.54	$0.00	$46,181.54
2020 Shareholder salaries allocated 3rd parties	$112,500	$0.00	$112,500
Shareholder salary adjustment as explained in [10]	$0.00	$0.00	$0.00
Total	$1,138,520.42	$71,345.02	$1,067,175.40
Adjusted Total	$1,205,092.60	$214,274.90	$990,817.74

Kiwi Joint’s claim

[76]              As introduced in the background, Kiwi Joint sues Daljeet in five causes of action. The claims are very much concurrent. Thus, to a considerable extent they overlap so that a finding in respect of one will almost inevitably lead to the same finding in respect of the others.

[77]              The first, second and third causes of action allege that Daljeet breached his duties as a director under ss 131, 133 and 137 of the Companies Act.

[78]              The fourth and fifth causes of action, pleaded in the alternative, are in equity. They allege a breach of the fiduciary obligations owned by Daljeet to Kiwi Joint (fourth cause of action) and that his conduct relative to Kiwi Joint amounts to an equitable fraud on the company (fifth cause of action).

[79]On the basis of its causes of action, Kiwi Joint seeks:

(a)damages in the sum of $990,817.74;

(b)interest pursuant to s 10 of the Interest on Money Claims Act 2016 for the period from 11 December 2020 until the judgment debt is paid in full; and

(c)costs of and incidental to these proceedings.

[80]I shall deal with each cause of action in the order pleaded.

First cause of action: breach of director’s duties under s 131

[81]              Kiwi Joint particularises the relevant breaches under this head as involving making the advances, as defined under the heading “unauthorised financial activity”. The unauthorised financial activity section alleges that from at least January 2018 until 11 December 2020, Daljeet made advances from Kiwi Joint to:

(a)Himself.

(b)Persons associated himself.

(c)Companies of which he was a director and/or shareholder including:

(i)Te Puke Housing;

(ii)For Brothers;

(iii)Five Rivers 2019 Ltd (“Five Rivers”);

(iv)Gold Star;

(v)Gold Star Investments; and

(vi)Workaholic.

[82]              Kiwi Joint alleges that Daljeet further breached his s 131 duties by taking or applying funds from Kiwi Joint’s bank accounts for his personal use or benefit; taking or applying funds from Kiwi Joint’s bank account for the use or benefit of the associated companies in which he has a financial interest; facilitating and entering into the unauthorised loans; entering into the unauthorised loans when it was a direct conflict of interest with his position as a director of Kiwi Joint; failing to formally document the unauthorised loans; allowing Kiwi Joint’s bank account to become overdrawn due to the advances and/or unauthorised loans; directing or permitting Bay Accounting & Financial Service Ltd to produce misleading and/or inaccurate financial statements; and signing misleading and/or inaccurate financial statements on behalf of Kiwi Joint.

[83]              This cause of action overlaps in a significant way with the fourth and fifth causes of action — which is unsurprising given s 131’s origins. This was commented upon by Woolford J in Torbay Holdings Ltd v Napier when he observed that the statutory duties reflect the fiduciary duties which were historically owed by directors to their companies.19 For that reason, my reasons and findings in relation to the first cause of action will naturally apply to the fourth and fifth causes of action.

[84]              Section 131 requires a director to act in good faith and in the company’s best interests. It is set out in full below:

131 Duty of directors to act in good faith and in best interests of company

(1)Subject to this section, a director of a company, when exercising powers or performing duties, must act in good faith and in what the director believes to be the best interests of the company.

(2)A director of a company that is a wholly-owned subsidiary may, when exercising powers or performing duties as a director, if expressly permitted to do so by the constitution of the company, act in a manner which he or she believes is in the best interests of that company’s  holding company even though it may not be in the best interests of the company.

(3)A director of a company that is a subsidiary (but not a wholly-owned subsidiary) may, when exercising powers or performing duties as a director, if expressly permitted to do so by the constitution of the company and with the prior agreement of the shareholders (other than

19     Torbay Holdings Ltd v Napier [2015] NZHC 2477, [2015] NZAR 1839 at [153].

its holding company), act in a manner which he or she believes is in the best interests of that company’s holding company even though it may not be in the best interests of the company.

(4)A director of a company that is carrying out a joint venture between the shareholders may, when exercising powers or performing duties as a director in connection with the carrying out of the joint venture, if expressly permitted to do so by the constitution of the company, act in a manner which he or she believes is in the best interests of a shareholder or shareholders, even though it may not be in the best interests of the company.

(5)To avoid doubt, in considering the best interests of a company or holding company for the purposes of this section, a director may consider matters other than the maximisation of profit (for example, environmental, social, and governance matters).

[85]              The test is subjective, and the question which I must ask myself is whether Daljeet honestly believed that he was acting in Kiwi Joint’s best interests.20

[86]              I am satisfied that Daljeet’s actions, as pleaded, reveal that he could not and did not honestly believe he was acting in Kiwi Joint’s best interests. Patently, Daljeet’s actions included conflicts of interest motivated by a desire to profit himself and others to Kiwi Joint’s detriment. I consider that the  following actions were disloyal to  Kiwi Joint and to his fellow directors.

[87]              First are the misallocations in the shareholder current account. The effect of these misallocations was to significantly understate Daljeet’s drawings and overstate Jaswinder’s. The misallocations also led Kiwi Joint to go into overdraft with negative consequences including the requirement to pay penalty interest and overdraft charges. These accounts were prepared by Kiwi Joint’s accountants on Daljeet’s instructions. In doing so, Daljeet could not possibly have honestly believed that he was acting in Kiwi Joint’s best interests. At best Daljeet’s actions amounted to a conversion of Kiwi Joint’s funds payable to Jaswinder. At worst they amounted to theft by a person in a special relationship. Either way, Daljeet’s actions were not undertaken in good faith and in Kiwi Joint’s best interests.

[88]              Second, in relation to the payments made to Dilbar and Mr Mattu, whatever the nature and purpose Daljeet had in making the advances, they were not authorised

20     Madsen-Ries v Cooper [2020] NZSC 100, [2012] 1 NZLR 43 at [112].

by Kiwi Joint’s directors. Kiwi Joint was not in the business of making loans to third parties. Daljeet’s familial relationship with Mr Mattu, his brother-in-law, is of concern as it strongly suggests familial preferment over the best interests of Kiwi Joint. Importantly, there is no evidence that the loans to Dilbur or Mr Mattu were repaid.

[89]              Third, similar observations may be made  in  respect  of  Gold  Star  and  Gold Star Investments, with advances/payments or loans totalling $94,000 and

$30,000 respectively remaining unpaid. The evidence indicates that Daljeet used Kiwi Joint to fund Gold Star’s purchase of the orchard in Pukehina. The funds were advanced without the authority of Kiwi Joint’s directors. Such a transfer amounts to  a blatant breach of Daljeet’s duty to act in good faith and in what Daljeet believed to be in Kiwi Joint’s best interests. Daljeet, Gold Star and Gold Star Investments were the beneficiaries of these payments, not Kiwi Joint.

[90]              Fourth,  there  are  the  advances   made   to   Advantage   Realty   and   to   Te Puke Housing. Kiwi Joint’s funds were used to assist Te Puke Housing in the purchase of the property at MacLoughlin Drive, Te Puke. This was to Daljeet’s pecuniary, personal, and corporate advantage and to Kiwi Joint’s detriment. It is another example of disloyalty. The other advances totalling $86,000, are similarly concerning. None of the advances were known to Jaswinder (or the other directors) nor authorised by him/them. The $86,000 advances remain outstanding — owed to Kiwi Joint by Daljeet and Te Puke Housing. There is no evidence of any basis upon which Daljeet could have honestly believed that these transactions were in Kiwi Joint’s best interests. Indeed, the very opposite is the case. It is hard to imagine a more flagrant or more obvious breach of s 131 than a director of one company using that company’s financial resources for the benefit of another unrelated company in which that director has a direct interest.  The conflict of interest is as obvious as it is blatant.

[91]              Fifth, is Daljeet’s involvement with For Brothers. Between 29 August 2019 and 29 June 2022, while Daljeet was a shareholder of For Brothers, $80,000 was transferred from Kiwi Joint to For Brothers. The first payment was coded to Jaswinder’s shareholder drawings account and the second referenced as a loan. On the evidence, these were unilateral withdrawals made without reference to Jaswinder or the other directors and in favour of an enterprise in which Daljeet had a direct

interest. It is inconceivable that Daljeet might honestly have believed that these payments were made in Kiwi Joint’s best interests. It is noteworthy that the funds have not been repaid. Again, the conflict of interest is palpable.

[92]              Sixth, is Daljeet’s incorporation of Workaholic — the starkest breach of s 131. On the evidence, I am satisfied the incorporation of Workaholic amounted to a cynically orchestrated strategy designed to compete directly with Kiwi Joint. Mr Ruby opined that Workaholic was incorporated to take over Kiwi Joint’s business when Daljeet became aware that Jaswinder suspicions had been aroused and that he was initiating enquiries with the bank into Kiwi Joint’s accounts. I agree with that conclusion for the reasons given and those which follow.

[93]              I am satisfied that it is no coincidence that Workaholic was incorporated by Daljeet at the end of 2020. At the end of 2020, Jaswinder’s concerns about Daljeet’s conduct began to materialise. With the spectre of his dishonesty about to be revealed, Daljeet simply established a new company to carry on Kiwi Joint’s business, appointing himself the sole director. Daljeet then made payments from Kiwi Joint directly to Workaholic and converted Kiwi Joint’s staff, plant, and goodwill to Workaholic’s advantage and to Kiwi Joint’s corresponding disadvantage. None of the payments made were authorised by the other directors. All of this occurred while Daljeet was still a director of Kiwi Joint.

[94]              I am easily satisfied on the evidence that Workaholic was established for the specific purpose of continuing Kiwi Joint’s business albeit through a different corporate entity and necessarily competing head-on with Kiwi Joint. Furthermore, the transfer of $164,526 in favour of Workaholic placed Kiwi Joint in overdraft with the consequential adverse effects of penalty interest and overdraft charges.

[95]              This combination of overt acts by Daljeet and the course of conduct he adopted, is in direct breach of the duties contained in s 131 of the Companies Act and the fiduciary duties owed to Kiwi Joint reflected in the fourth and fifth causes of action. It is simply inconceivable when assessed at a subjective level, that Daljeet honestly believed these actions were or could be in the best interests of Kiwi Joint.

[96]              Accordingly, I am satisfied that the first cause of action is made out. I order damages as proved in the sum of $990,817.74. The question of interest on that sum is dealt with separately later in this judgment, as are costs.

[97]              Having so found, it is technically unnecessary for me to consider the remaining causes of action. However, for completeness, I shall briefly turn to discuss them. Each will be dealt with in relatively short order because the factual findings I have made in relation to the first cause of action are broadly applicable to the remaining causes of action.

Second cause of action: breach of director’s duties under s 133

[98]              Again, I start with the applicable legal principles. Section 133 of the Companies Act provides that directors must exercise their powers for proper purposes.

[99]              When assessing whether a director has exercised their powers for a proper purpose, it is necessary to consider the nature of the power before defining the limits of its exercise.21 The Court will then examine the substantive purpose for which the power is exercised to conclude whether the purpose was proper.22

[100]Kiwi Joint pleads and repeats the same breaches as in the first cause of action.

[101]          In examining whether the power was exercised properly it is necessary to examine the nature of the power in question. In every breach cited, Daljeet has unilaterally exercised his powers to either make advances or to manage Kiwi Joint’s accounts because of his perceived expertise in such matters; and by virtue of the position of trust he enjoyed from the other directors.

[102]          The next question is whether he exercised those powers properly. I am easily satisfied that he did not. In every instance relied on by Kiwi Joint, Daljeet either made advances for his own benefit (directly or indirectly) or to unconnected third parties; and has caused the accounts to be mis-stated to the detriment of his fellow directors and to the benefit of himself. It is all but impossible to see how any of the conduct

21     Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 (PC) at 835.

22     At 835.

discussed above might be viewed as the exercise of director’s powers for a proper purpose.

[103]          Taking the current account mistreatment as an example, Daljeet embarked on a sustained exercise in subterfuge over two financial years by understating his own drawings and overstating those of the other directors, Jaswinder and his parents. By his actions Daljeet caused Kiwi Joint to misreport the directors’ respective current account drawings, thereby benefitting himself personally by drawing significantly more than his fellow directors by understating his drawings and overstating those of the other directors. Through his actions he overdrew the current accounts with the effect that if Kiwi Joint was liquidated these amounts would be owed by the other directors to Kiwi Joint.

[104]          On the evidence, I find this was a deliberate act of dishonesty and easily amounts to a breach of Daljeet’s duties as a director of Kiwi Joint pursuant to s 133 of the Companies Act.

Third cause of action: breach of directors’ duties under s 137

[105]Section 137 provides:

A director of a company, when exercising powers or performing duties as a director, must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation,—

(a)the nature of the company; and

(b)the nature of the decision; and

(c)the position of the director and the nature of the responsibilities undertaken by him or her.

[106]          Section 137 introduces an objective standard, meaning that performance is assessed using a reasonably competent director as a reference.23 In assessing whether that standard is met, the nature of the company, the relevant decision or decisions and the director’s position and responsibilities are relevant.24

23     Grant v Johnston [2016] NZCA 157 at [46].

24 At [46].

[107]          The particulars of breach pleaded, leading to the losses claimed under this cause of action are that Daljeet:

(a)made or facilitated the advances and/or unauthorised loans;

(b)gave priority to his own interests, or the interests of the associated companies above the interests of Kiwi Joint or its creditors;

(c)misappropriated Kiwi Joint’s funds for his own benefit or the benefit of Associated Companies;

(d)permitted Kiwi Joint to provide the unauthorised loans without security or formal documentation;

(e)authorised or allowed the advances and/or unauthorised loans for the benefit of third parties without any benefits to Kiwi Joint; and

(f)directed or permitted Kiwi Joint’s accountants to prepare misleading and or inaccurate financial statements.

[108]          It is unnecessary to repeat my earlier findings. They apply with equal force to this cause of action as well. Suffice it to say that none of the misconduct I have found proven under the earlier action is consistent with the conduct of a reasonably competent director.

[109]          This was a simple company structure with well-understood lines of demarcation in terms of directors’ responsibilities. Daljeet was trusted by his fellow directors to undertake the financial and administrative tasks involved in running Kiwi Joint. The decisions he made to advance his own interests (and those of related others) were in stark contrast to what a reasonably competent director would do in the same circumstances.

[110]          It follows that I am satisfied that Daljeet was in breach of his duties as a director of Kiwi Joint pursuant to s 137. In short, he left the company in the financial strife that it is now in.

Fourth cause of action: breach of fiduciary duties

[111]          The fourth cause of action is in breach of fiduciary duty. As the fiduciary duties reflected in this cause of action are also reflected in s 131, which I discussed above, the discussion regarding this cause of action can be abbreviated.

[112]          It is well-established that directors are in a fiduciary relationship with the companies they control. Fiduciary duties that a director owes a company include the no-conflict rule, the no-profit rule, and the misappropriation rule.25 Directors are also subject to fiduciary obligations imposed under the doctrine of corporate opportunity. As Lord Buckmaster LC observed:26

… men who assume the complete control of a company’s business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent.

[113]          It is fundamental that a director may not take for himself a business opportunity that the company is pursuing or may pursue. Similarly, a director cannot usurp a company’s existing business.27

[114]          Kiwi Joint pleads that as a consequence of the fiduciary relationship Daljeet owed to Kiwi Joint he breached the following fiduciary obligations:

(a)to act in the best interests of Kiwi Joint;

(b)not to place himself in a position where there was a conflict of interest between Kiwi Joint’s interests and his own;

(c)not to make an unauthorised profit;

(d)not to use his position as director of Kiwi Joint for his own or a third party’s advantage;

25     Ng v Harkness Law Ltd (No 2) [2014] NZHC 1667 at [8].

26     Cook v Deeks [1916] AC 554 (PC) at 563.

27     Holden v Architectural Finishes Ltd (1996) 7 NZCLC 260,976 (HC).

(e)not to appropriate company property for his own or third party’s benefit; and

(f)to act with loyalty to Kiwi Joint.

[115]          Every particular of misconduct alleged, whether the misstatement and misallocations of the current account entitlements, the loans/advances to unrelated third parties, or the incorporation and trading of Workaholics, runs contrary to the specified fiduciary duties. Particularly the no-conflict rule, the no-profit rule, and the rule against misappropriation.

[116]          For the reasons already given, I am easily satisfied Kiwi Joint is entitled to equitable compensation in the sum of $990,817.74 as ordered above.

Fifth cause of action: equitable fraud

[117]          This is an alternative cause of action to the fourth. As discussed, it differs little in terms of outcome from breach of fiduciary duty. It is therefore unnecessary, in my view, to separately consider it other than to observe that I am satisfied the cause of action is made out.

Relief

[118]          Kiwi Joint seeks, as mentioned, damages in the sum of $990,817.74; interest pursuant to s 10 of the Interest on Money Claims Act 2016 for the period from 11 December 2020 until the judgment debt is paid in full; and costs of and incidental to these proceedings.

[119]          I am satisfied that the relief that Kiwi Joint seeks should be given on the first cause of action, and that judgment should be entered in its favour. Judgment is thus not entered in respect of the second, third, fourth and fifth causes of action although I find that these are proven on the evidence for the reasons given.

[120]          I grant leave to Kiwi Joint to calculate interest on the judgment sum and file a memorandum within ten working days of the date of this judgment as to that aspect of

the claim. The award of interest shall then be dealt with on the papers, either by myself or another Judge.

Costs

[121]          Kiwi Joint, the successful party, is entitled to costs. I direct Kiwi Joint to file its memorandum as to costs within ten clear working days of the date of this judgment. Leave is reserved for Daljeet to file any memorandum as to costs. No memorandum as to costs is to exceed three pages in length.

[122]Costs shall then be dealt with either by myself or another Judge on the papers.

Moore J