Klavenes v Greer
[2019] NZCA 278
•4 July 2019 at 9.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA639/2018 [2019] NZCA 278 |
| BETWEEN | KNUT KLAVENES AND MELENAU KLAVENES |
| AND | SCOTT WILLIAM GREER |
| Court: | French and Clifford JJ |
Counsel: | J A van der Zanden for Applicants |
Judgment: | 4 July 2019 at 9.30 am |
JUDGMENT OF THE COURT
AThe application for an extension of time to appeal is granted.
BThe appeal must be brought within 10 working days of the date of delivery of this judgment.
CThere is no order as to costs.
____________________________________________________________________
REASONS OF THE COURT
(Given by Clifford J)
Introduction
This is an application pursuant to r 29A of the Court of Appeal (Civil) Rules 2005 (the Rules) for an extension of time in which to commence an appeal against a judgment given by Palmer J on 22 June 2018 in the High Court at Auckland.[1]
Background
[1]Greer v Klavenes [2018] NZHC 1504.
In his judgment, Palmer J granted the respondent, Scott William Greer, orders under s 298 of the Companies Act 1993 against the applicants, Knut Klavenes and Melenau Klavenes (Mr and Mrs Klavenes), and their son Knut John Klavenes (Mr Klavenes Jr). Mr Greer sought those orders, and appeared before Palmer J, as liquidator of the Klavenes’ family company, Klavenes Construction Ltd (KC NZ).
Mr Klavenes was a director and shareholder of KC NZ. Section 298 provides for the liquidator of a company to recover from directors and their relatives any amount by which the value such a person gave for property they acquired from the company in the three years before its liquidation was less than the value of the property.[2] Against Mr and Mrs Klavenes, Palmer J ordered payment of $128,124.99 of the claimed $803,517.28; against Mr Klavenes Jr, the claimed $16,030.26.[3] The Judge accepted those were the net amounts received by the Klavenes as a result of the intermingling of KC NZ company and their personal affairs. The Judge also made an order for costs in favour of Mr Greer against Mr and Mrs Klavenes and Mr Klavenes Jr on a 2B basis, plus disbursements.[4]
[2]The term “property” is defined extensively in s 2 of the Companies Act 1993 to mean “property of every kind whether tangible or intangible, real or personal, corporeal or incorporeal, and [including] rights, interests, and claims of every kind in relation to property however they arise”.
[3]Greer v Klavenes, above n 1, at [40].
[4]At [39].
The Klavenes were entitled to appeal that decision as of right. They had 20 working days within which to do so.[5] Given that Palmer J gave judgment on 22 June 2018, that period expired on 20 July 2018.
[5]Court of Appeal (Civil) Rules 2005, r 29.
On 13 July 2018, and hence within time, a notice of appeal was received by this Court under cover of an email from the Klavenes’ counsel, Mr van der Zanden, which asked the cost of lodging an appeal. Later that day the Registrar responded, advising Mr van der Zanden that the filing fee was $1,100 and also that, in terms of r 31(1) of the Rules, an appeal had to be filed in hard copy rather than electronically. No appeal had, therefore, been filed at that point and Mr Greer was not advised of the attempt to do so.
It would appear from the Registrar’s email records that Mr van der Zanden advised Mr Klavenes of those matters, indicated he would a file a hard copy notice of appeal and organised for Mr Klavenes to contact the Court about payment of the filing fee. Matters then became a little confused.
Mr Klavenes offered payment by direct credit, but the Court does not currently accept payment by direct credit. Mr Klavenes then advised he was able to pay by credit card “once … [the] Notice of Appeal has been received”. Mr Klavenes sent that email to the Registrar on 27 July 2018. No further steps were taken until 17 October 2018, when the Klavenes filed this application for extension of time to appeal.
Law
In Almond v Read the Supreme Court reviewed and clarified the correct approach to r 29A applications, particularly as regards the limited significance of any preliminary assessment of merits.[6] It summarised the general position as being that:
[38] The ultimate question when considering the exercise of the discretion to extend time under r 29A is what the interests of justice require. That necessitates an assessment of the particular circumstances of the case.
[6]Almond v Read [2017] NZSC 80, [2017] 1 NZLR 801.
The Court went on to identify the factors which are likely to require consideration as being: the length of the delay; the reasons for the delay; the conduct of the parties, particularly of the applicants; any prejudice or hardship to the respondent or to others with a legitimate interest in the outcome; and the significance of the issues raised by the proposed appeal, both to the parties and more generally.[7]
[7]At [38].
As can be seen, the Court did not include the merits of the proposed appeal in that list of relevant factors. It went on to observe, however, that it accepted the merits of a proposed appeal may, in principle, be relevant to the exercise of the discretion, explaining there would be occasions on which a court would risk facilitating unjustifiable delaying tactics on the part of dilatory or recalcitrant litigants if it did not consider the merits.[8]
[8]At [39].
It explained further, however, that even where the merits of an appeal were relevant, any consideration of them in the context of an application to extend time would necessarily be relatively superficial. Thus, a decision to refuse an extension of time based substantially on the lack of merit of a proposed appeal should only be made where the appeal was clearly hopeless.[9]
[9]At [39].
We approach this application on that basis.
Submissions
Mr Greer opposes the application. He says there has been no good reason given for the delay, that he was not served with the r 29A application when he should have been, and that he has been prejudiced by the delay and the Klavenes’ ongoing non‑compliance with orders made against them in proceedings taken to enforce Palmer J’s orders. He also says the merits of their intended appeal are weak.
The submissions filed by Mr van der Zanden in support address none of the factors referred to by the Supreme Court in Almond v Read. Rather, Mr van der Zanden outlined two grounds of appeal:
(a)that, in terms of this Court’s decision in Joint Action Funding Ltd vEichelbaum,[10] the Judge had been wrong to award costs to Mr Greer; and
(b)that the Judge had been wrong to find the “good faith” defence found in s 296(3) of the Companies Act was not available, as payments made to the accounts of Mr and Mrs Klavenes and Mr Klavenes Jr were “payments from Knut Klavenes’ salary”.
[10]Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249, [2018] 2 NZLR 70.
In their 17 October 2018 application, the Klavenes referred to the fact they had not been able to obtain relevant accounts to provide a basis to challenge the judgment until after the period in which an appeal may be filed as of right had expired. It was because that accounting advice had not been received that the filing fee had not been lodged in the Court when the original notice of appeal was filed in July 2018. Furthermore, once received, that analysis suggested the funds claimed by the liquidator from Mr Klavenes Jr and awarded by the High Court were some $4,000 greater than they should have been.
In a subsequent affidavit, Mr Klavenes says any debts claimed by the liquidator were monies he owes to Inland Revenue, and that he had, in error, not provided his employment contract to his lawyer until after the hearing in the High Court.
Analysis
As the Supreme Court identified in Almond v Read, the ultimate question when considering the exercise of the discretion to extend time under r 29A is what the interests of justice require.[11] That necessitates an assessment of the particular circumstances of the case. It is to those circumstances we first turn.
Circumstances
[11]Almond v Read, above n 6, at [38].
The Klavenes operated a family business through KC NZ, and, for a limited time, a Tongan company, Klavenes Construction (Tonga) Ltd (KC Tonga). KC NZ’s business was a labour hire company. KC Tonga was established to undertake building work in Nuku’alofa. Monies payable to KC NZ and KC Tonga were frequently paid into Mr and Mrs Klavenes’ and Mr Klavenes Jr’s personal accounts. At the same time, Mr and Mrs Klavenes and their son used some, but not all, of those monies to meet the liabilities of KC NZ and KC Tonga.
The Judge summarised the circumstances in which KC NZ was placed in liquidation as follows:[12]
[7] On 14 October 2016, [KC Tonga] was placed in liquidation. On 16 December 2016 [KC NZ] was placed in liquidation on application by Dayle Timber Ltd. Creditors filed claims totally $272,378. This was reduced by the Klavenes Family Trust paying $120,000 to Dayle Timber Ltd and settling their claims. Estimated liability to Inland Revenue is $128,000.
[12]Greer v Klavenes, above n 1.
Given that the petitioning creditor Dayle Timber was owed $254,906.59, other creditors — excluding Inland Revenue — would therefore appear to have been owed approximately $17,000. Dayle Timbers’ claim was subsequently settled for $120,000. At that point, total debt to creditors, including Inland Revenue, would therefore have been some $145,000.
The Judge described the intermingling of funds as follows:
[3] In the 2015 and 2016 financial years [KC NZ] turned over more than $2,000,000. A significant portion of that was paid into the Klaveneses’ personal bank accounts without formal records or accounting. From January 2014 to December 2016, funds from [KC NZ] were paid into the bank accounts of the Klaveneses and of Mr Klavenes Jnr. Payments were made back the other way as well. [KC NZ] funds were used for [KC Tonga] expenditure.
The Judge recorded the resulting position, as calculated by Mr Greer, as:[13]
(a)[KC NZ] paid Mr and Mrs Klavenes $256,686.70.
(b)[KC NZ] customers paid Mr and Mrs Klavenes $1,282,966.54.
(c)Mr and Mrs Klavenes paid [KC NZ] $1,337,962.00.
On those figures, the Klaveneses withdrew $201,691.24 more from [KC NZ] than they paid to [KC NZ].
[13]At [9]–[10].
As the Judge noted, Mr Greer then acknowledged that the Klavanes had paid some $73,000 of KC NZ invoices, meaning they had withdrawn (presumably again based on Mr Greer’s calculations) some $128,000 more from KC NZ than they had paid to it or on its behalf.[14]
[14]At [11].
It was by taking account of Mr Greer’s further calculation of payments to and from KC Tonga that the total amount claimed by Mr Greer as inadequate became $803,517.28.[15]
[15]At [12]–[13].
The Judge disallowed Mr Greer’s claims on account of payments to and from KC Tonga, on the basis they were not dispositions to the Klavenes.[16] That aspect of Mr Greer’s claim is, we agree, very difficult to place within a s 298 framework. Moreover, and given what would appear to have been the amount owed to KC NZ’s creditors after the settlement with Dayle Timber, it is also difficult to see how Mr Greer could be claiming $800,000 from the Klavenes. We note Mr Greer contends in opposing this application that the Judge misunderstood the position involving KC Tonga, although he has chosen not to appeal on that point because of the Klavenes’ financial position.
[16]At [27]–[30].
It is also part of the circumstances of this application that it was in Mr Greer’s capacity as liquidator or (to use the Judge’s term) as representative of KC NZ that he was awarded costs. In doing so, the Judge noted first that the fees and expenses properly incurred by the liquidator, and the remuneration of the liquidator, ranked first as a preferential claim against the company in liquidation.[17] Mr Greer would, he said, “invoice [KC NZ] for his time”.[18] On that basis, any costs that were ordered would be paid to the creditors of KC NZ. In other words, and as Mr Greer had submitted, if costs were awarded to him, that would effectively benefit those creditors by satisfying the claim he would otherwise have made on the company in liquidation.
[17]At [36].
[18]At [36].
Palmer J was concerned as to whether the then recent decision in Commissioner of Inland Revenue v New Orleans Hotel (2011) Ltd,[19] which followed the decisions of this Court in Joint Action Funding Ltd v Eichelbaum[20] and McGuire v Secretary for Justice,[21] affected Mr Greer’s claim.[22] The Judge satisfied himself that that was not the case because, as Mr Greer had submitted, the liquidator was acting in a representative capacity and there was no sense in which the costs of his appearance would not be incurred (as Associate Judge Matthews had reasoned in the case of employed solicitors in New Orleans Hotel). Accordingly, the Judge reasoned:[23]
If the liquidated company’s success is not reflected in an award of costs, the company, and its creditors in whose interests the liquidator acts, will be out of pocket. Fulfilling the purposes of the costs regime in relation to liquidators requires that their successful litigation on behalf of the company should be the subject of a costs award, even where they act personally. Such a result recognises the reality of this situation.
Assessment of relevant factors
[19]Commissioner of Inland Revenue v New Orleans Hotel(2011) Ltd [2018] NZHC 971, (2018) 28 NZTC 23-058.
[20]Joint Action Funding Ltd v Eichelbaum, above n 10.
[21]McGuire v Secretary for Justice [2018] NZCA 37, [2018] 3 NZLR 71.
[22]Greer v Klavenes, above n 1, at [37].
[23]At [39].
In the context of those circumstances, we turn to the various factors identified in Almond v Read.[24]
[24]Almond v Read, above n 6.
Ignoring, at this point, Mr van der Zanden’s unsuccessful first attempt to file a notice of appeal within time on 13 July 2018 (because Mr Greer was not notified that step had been taken), the 17 October 2018 application was some three months out of time. That certainly is not the very short period considered by the Supreme Court in Almond v Read, but neither is it excessively long. While inordinate delays of nearly a year or more will be very difficult to adequately explain,[25] this Court has, on occasion, been willing to grant extensions of several months where the delay is satisfactorily explained and it is otherwise in the interests of justice to do so.[26]
[25]See for example Tao v Strata Title Administration Ltd [2018] NZCA 317; and Rafiq v Attorney‑General [2018] NZCA 292.
[26]See McCorkindale v Chief Executive of the Department of Corrections [2018] NZCA 512; and Curtis v District Court at Manukau [2018] NZCA 23.
That three-month delay is not, we recognise, particularly well-explained: the reference to the receipt of accounting advice subsequent to the June High Court judgment does not explain why that accounting advice could not have been obtained earlier. Likewise, the fact that Mr Klavenes discovered his employment contract after that judgment requires further explanation.
On the other hand, it seems likely that the Klavenes’ involvement in the enforcement proceedings initiated by Mr Greer may have contributed to the delay.
Other than the prejudice of delay itself, Mr Greer does not refer to any substantive way in which his position as liquidator has been prejudiced. It is the inconvenience of the fact of delay that is at issue here, rather than any particular consequence.
Mr Greer also notes that if the Klavenes are granted leave to appeal, they will need to apply for additional evidence to be admitted on appeal. Given that they would need to have done that in any event (that is, even if their appeal had been within time), we do not consider that to be an especially material consideration.
From the Klavenes’ point of view, we think there is some relevance in the fact that, on their instructions, Mr van der Zanden did attempt to commence their appeal before the due date for doing so.[27] While Mr van der Zanden’s efforts were unsuccessful, and he seems to have overlooked the obligation on an appellant to serve a notice of appeal on the respondent, the Klavenes would appear to have intended to appeal from the outset.
[27]See McCorkindale v Chief Executive of the Department of Corrections, above 26, at [6].
On balance, therefore, and having no regard to the merits of the appeal, we would be inclined by a reasonably narrow margin to grant the Klavenes an extension of time to appeal.
A brief consideration of the merits, particularly on the costs appeal, confirms that conclusion. It is not apparent, especially in light of the Supreme Court’s decision in McGuire, that Mr Greer as a liquidator can claim the payment of legal costs.[28] To the extent that the earlier judgments which led to the Supreme Court’s decision may have influenced the conclusion Palmer J reached on that matter, further consideration could also have significance for an audience broader than just the Klavenes. Moreover, and whilst the late discovery of Mr Klavenes’ employment contract seems unusual, it would not be unusual in a family company situation that a “working director” would be entitled to reasonable remuneration. There would appear to have been no recognition of that fact in the High Court.
Result
[28]McGuire v Secretary for Justice [2018] NZSC 116, (2018) 24 PRNZ 350.
The application for an extension of time to appeal is granted.
The appeal must be brought within 10 working days of the date of delivery of this judgment.
There is no order as to costs.
Solicitors:
Castlefinn Law Ltd, Auckland for Applicants
Solv Law Ltd, Auckland for Respondent
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