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Madsen-Ries v Greenhill

Madsen-Ries v Greenhill

Case [2016] NZHC 3188 21 December 2016

Breach of Contract

Breach of Fiduciary Duty

Reckless Trading

Unjust Enrichment

Compensatory Damages

Statutory Construction

Commercial Law

Corporate Law & Governance

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001830 [2016] NZHC 3188

UNDER
Part 18 of the High Court Rules and the

Companies Act 1993

IN THE MATTER

of the liquidation of Marathon Imaging
Limited

BETWEEN

VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN

Plaintiffs

AND

CHRISTOPHER JOHN GREENHILL First Defendant

CHRISTOPHER JOHN GREENHILL and HEATHER ANDREA GREENHILL as trustees of the Greenhill Family Trust Second Defendants

GREAND PROPERTIES LIMITED Third Defendant

Hearing: 21 - 23 November 2016

Counsel:

N H Malarao and S W C Shin for Plaintiffs
T J L Werry for Defendants

Judgment:

21 December 2016

JUDGMENT OF DOWNS J

This judgment was delivered by me on Wednesday, 21 December 2016 at 4 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:
Meredith Connell, Auckland. Kilian & Associates Ltd, Albany.
E J Werry, Auckland.

MADSEN-RIES v GREENHILL [2016] NZHC 3188 [21 December 2016]

Table of Contents

Para No

The issue [1] Key facts [3] The first cause of action: a prejudicial disposition of property to

Mr Greenhill or the Trust? [25]

Part fact [29] Part law [43] Without receiving reasonably equivalent value in exchange [50]
The second cause of action: a breach of Mr Greenhill’s duties as a

director of Marathon? [55]

The transaction in the context of a breach of director’s duties [60] Reckless trading [64] Personal payments in contravention of s 131(1) of the Act? [76] Related party lending [81] The third to seventh causes of action and two counterclaims [85] Who is eligible for compensation? [91] What compensation should be awarded? [122] Result [129] Addendum [130]

The issues

[1] Marathon Imaging Ltd, or Marathon, was placed in liquidation on

1 November 2012. The liquidators contend on the eve of the company’s liquidation, Mr Greenhill, Marathon’s owner and director, engineered a transaction by which he was no longer indebted to the company in relation to his current account—to the prejudice of its unsecured creditors. The liquidators also contend Mr Greenhill breached his duties to the company by trading recklessly, incurring obligations without reasonable grounds, using company funds as his own, and engaging in related party lending. They seek compensation under the Property Law Act 2007 and Companies Act 1993. Mr Greenhill disputes the allegations. He contends he managed Marathon well, particularly during difficult times. And, he argues the transaction was merely a belated tidying up of affairs in relation to his current account, and one approved long before any suggestion of liquidation.

[2] This modest set of facts gives rise to no fewer than seven causes of action, two counterclaims and a host of particulars. However, many of the prolix pleadings

overlap or are advanced as alternatives. The real issues are more confined, and largely, those above.

Key facts

[3] Marathon was founded on 7 October 2004 to purchase and operate a business which recycled printer cartridges and sold them, wholesale.1 The cartridges cost less than new ones, hence its market. Mr Greenhill has been Marathon’s director and shareholder since its…

Grounds of appeal

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

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

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

Consideration

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

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

Continue reading Madsen-Ries v Greenhill

Details

AGLC: Madsen-Ries v Greenhill [2016] NZHC 3188
Case: [2016] NZHC 3188
Decision Date: 21 December 2016

CaseChat Overview and Summary

Marathon Imaging Limited was placed in liquidation on 1 November 2012. The liquidators brought claims against Mr Christopher Greenhill, Marathon's sole director and shareholder, and other parties in the High Court. They alleged the transaction was a disposition of property by Marathon with intent to prejudice a creditor, or absent reasonably equivalent value in exchange, in contravention of subpart 6 of Part 6 of the Property Law Act 2007. The liquidators also contended Mr Greenhill breached his duties to Marathon by trading recklessly, incurring obligations without reasonable grounds, using company funds for personal expenditure, and engaging in related party lending. The court found the transaction constituted a disposition of property by Marathon with intent to prejudice a creditor. The court also found Mr Greenhill breached his duties to Marathon by trading recklessly, incurring obligations without reasonable grounds, using company funds for personal expenditure, and engaging in related party lending. The court ordered Mr Greenhill to pay the liquidators $568,889.58 compensation, interest at the prescribed rate under the Judicature Act 1908 on all three sums from the date of the proceedings' commencement until judgment, and costs on a 2B basis. The Trust and Greand have not sought to be admitted to the liquidation as unsecured creditors. Should that change, the liquidators have leave to apply for amended relief to ameliorate dilution of compensation.

Orders