McKay v Aisleworx Group Limited

[2024] NZHC 2360

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1015

[2024] NZHC 2360

BETWEEN

ANDREW JOHN MCKAY and

REES GRAHAM LOGAN as liquidators of Aisleworx Limited (in Liquidation)

First plaintiffs

AND

AISLEWORX LIMITED (in Liquidation) Second plaintiff

AND

PGL ADMIN LIMITED

Third plaintiff

AND

AISLEWORX GROUP LIMITED

First defendant

AND

DOUGLAS JAMES BARTLETT

Second defendant

Hearing:	19 August 2024
Appearances:	M J Tingey and T L Utama for plaintiffs Y Lee for defendants
Date of judgment:	22 August 2024

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 22 August 2024 at 3.30pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Counsel/Solicitors:

M J Tingey, Barrister, Auckland J Long, Barrister, Auckland

Y Lee, Barrister, Auckland D K Law, Auckland

Fee Langstone, Auckland

MCKAY v AISLEWORX GROUP LTD [2024] NZHC 2360 [22 August 2024]

[1]                 Further to my 22 December 2023 judgment’s invitation,1 the liquidators seek amendment of their claim (otherwise dismissed),2 to include new claims for relief from Mr Bartlett under s 301 of the Companies Act 1993 alleging breach of his director duties to Aisleworx Limited (Limited) in respect of the alienation of Limited’s assets.

Background

[2]                 My 22 December 2023 judgment dismissed a variety of causes of action, including under s 301, by which the liquidators and PGL Admin Ltd (PGL) sought Mr Bartlett and Aisleworx Group Limited (Group) contribute to Limited’s losses (and in damages to PGL).

[3]                 Fundamentally at issue was disposition of Limited’s assets — ultimately to non-party  companies   incorporated   in   the   United   States,   including   Aisleworx Corporation   (Corp),   Aisleworx   Holdings   (Holdings)   and   Aisleworx Media Corp (Media) — pleaded to have  been  obtained  in  breach  of  Mr Bartlett’s director duties in the context of a stipulated restructuring and its consequences:3

The liquidators’ and PGL’s particular allegations focus on Limited’s restructure, said to have involved a transfer of its assets to Group for inadequate consideration in disregard of creditors’ interests, and failing then to put Limited into liquidation. They say Mr Bartlett did so to strip Limited of assets otherwise available to meet creditors’ claims and did so “intentionally, recklessly or negligently”. Thus Limited and its creditors suffered loss, and Mr Bartlett benefited from the transfer of Limited’s assets to Group.

[4]                 I found Mr Bartlett’s duties “were not breached in those terms”,4 because “[n]othing in the restructure alienated any … assets from Limited”.5 Instead, those assets appeared effectively to have been alienated in terms of a 20 September 2015 agreement “(or actions taken purportedly in pursuance of it)”.6 I considered:7

1      McKay v Aisleworx Group Ltd [2023] NZHC 3877 at [132].

2      Judgment previously was entered by consent in favour of PGL Admin Limited on a standalone ninth cause of action for restoration of its shareholding in Aisleworx Group Limited’s register: at [1], n 1.

3 At [44].

4 At [105].

5 At [98].

6 At [103].

7      At [131]–[132], omitting citations.

Mr Bartlett’s conduct as represented by the 20 September 2015 agreement — alienating control of Limited’s assets to its subsidiary, Corp, without any form of compensation to Limited — appears an obvious breach of his ss 131 and

137 duties to Limited. For the purposes of s 301, it also may be his misapplication of Limited’s property. Mr Bartlett’s conduct purportedly under the 20 September 2015 agreement may be thought the source of the “real controversy” between the parties under this cause of action. But that is not what was pleaded.

I may make any amendment to the claim that is “necessary for determining the real controversy between the parties”. As the parties do not include Corp or Media, that cannot be an amended claim of their liability for knowing receipt of Limited’s assets. I would however entertain an application to amend the claim to include the liquidators’ claim for relief against Mr Bartlett under s 301 of the Companies Act in respect of the 20 September 2015 agreement and its consequences, to be brought on the basis of the evidence at trial.

[5]My judgment is subject to the plaintiffs’ comprehensive appeal.

Application to amend

[6]                 The plaintiffs’ application now — supported by proposed amendments to include 10th and 11th causes of action seeking relief under s 301, in reliance respectively on Mr Bartlett’s alleged breaches of ss 131 and 137 — is brought under r 1.9(2) of the High Court Rules 2016, which provides:

The court may, at any stage of a proceeding, make, either on its own initiative or on the application of a party to the proceedings, any amendments to any pleading or the procedure in the proceeding that are necessary for determining the real controversy between the parties.

[7]                 If such is engaged, it is common ground the plaintiffs must “surmount the three formidable hurdles of showing that the amendment is in the interests of justice and will not significantly prejudice defendants or cause significant delay”.8 Those are weighed against the principle “parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceeding”.9

Discussion

[8]                 For Mr Bartlett, Yoonjung Lee submits first there is no undetermined ‘real controversy’, because the claim as pleaded for trial was “broadly cast” to capture all

8      Elders Pastoral v Marr (1987) 2 PRNZ 383 (CA) at 385, affirmed in Chen v Huang [2024] NZCA 38 at [242].

9      Shanton Apparel Ltd v Thornton Hall Manufacturing Ltd [1989] 3 NZLR 304 (CA) at 309.

aspects of Limited’s restructure, including alienation of its assets, as in breach of   Mr Bartlett’s director duties. But counsel’s diligent attempt to recharacterise my judgment in those terms cannot stand with my actual determination “Mr Bartlett’s conduct purportedly under the 20 September 2015 agreement” was not pleaded as such a breach.10 Cause of action estoppel does not arise.

[9]                 Ms Lee then argues the application should be dismissed in the interests of justice, as the plaintiffs should not be permitted to argue for amendment inconsistently with their appeal, prejudicing the defendants and delaying the proceeding’s resolution. But the proposed amendment does not suggest the plaintiffs would advance a materially different case from that at trial (and on appeal). The amended claim would still be of alleged breach of director duties in alienation of Limited’s assets, but on a distinct factual basis (as founded on evidence at trial). As I have explained,11 the allegation has merit and can efficiently be determined. I do not accept exercise of appeal rights ‘technically’ extinguishes rights to amendment by reason of appeal’s requirement for a sealed judgment and amendment’s unavailability after sealing.12 In any event, under r 1.9(2), amendment is made by the Court, not the party.

[10]             Ms Lee also objects to aspects of the proposed amendment relating to Holdings and Media’s positions as immaterial to the value of the transferred assets. That is a matter for substantive determination if the amendment is permitted and denied in these respects.

[11]             Ultimately, I conclude the sought amendments are necessary justly to determine the real controversy between the parties, being Mr Bartlett’s contended liability under s 301 on the evidence adduced at trial. No other prejudice or undue delay is apparent.

10     McKay v Aisleworx Group Ltd, above n 1, at [131].

11     At [131]–[132].

12     High Court Rules 2016, r 11.13(2); and Allan Scott Wines & Estates Holdings Ltd v Lloyd (2006) 18 PRNZ 199 (HC) at [37].

Result

[12]             The plaintiffs’ application further to amend the statement of claim in the form of the draft third amended statement of claim is granted.

Next steps

[13]             The plaintiffs are promptly to file and serve the third amended statement of claim, for the defendants to file and serve any defence to its new paras 104–160 within 10 working days after service.13 The proceeding then is to be allocated a half-day hearing before me on a date convenient to counsel, with synopses and bundles filed and served respectively 10 and five days in advance of hearing.

[14]             Costs remain reserved for determination on memoranda to be filed and served in accordance with a timetable yet to be directed.

—Jagose J

13  I understood Mr Tingey to explain, for narrative simplicity, paras 104–122, 127–132 and 136 of  the draft third amended statement of claim repeat earlier pleaded paragraphs. Unless there is some justifiable basis for diversion now, given the earlier pleadings have merged in my 22 December 2023 judgment, I expect the defendants are held to their earlier responses to those allegations.