Needham v Nayacakalou
[2021] NZHC 1424
•16 June 2021
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-000209
[2021] NZHC 1424
UNDER Companies Act 1993 IN THE MATTER OF
PAUANUI MOUNTAIN ESTATE LIMITED (IN LIQUIDATION)
BETWEEN
GREGORY ABE NEEDHAM
Plaintiff
AND
KELERE LUVU NAYACAKALOU
Defendant
Hearing: 1 June 2021 Appearances:
S O McAnally and L G Clarke for Plaintiff D Hayes for Defendant
Judgment:
16 June 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
NEEDHAM v NAYACAKALOU [2021] NZHC 1424 [16 June 2021]
Introduction
[1] Mr Needham was the former sole director of Pauanui Mountain Estate Ltd (in liquidation) (PMEL). In my judgment of 5 March 2021,1 I refused to grant leave to Mr Needham to apply for relief under s 284 of the Companies Act 1993, challenging various decisions of the liquidator.
[2] Mr Needham now applies for leave to appeal my decision to the Court of Appeal pursuant to s 56(3) of the Senior Courts Act 2016.
[3] In opposing the application, the liquidator, Ms Nayacakalou, contends that the Court has no jurisdiction to grant the leave sought. Ms Nayacakalou says that the s 284 application was not an interlocutory application but rather, a final disposition of the proceedings for which leave is not required. Alternatively, she contends the high threshold for granting leave to appeal has not been made out.
[4]There are two issues for determination:
(a)Are the proceedings, brought under s 284 of the Companies Act 1993, “interlocutory” as defined in the Senior Courts Act and, if so, is leave required under s 56 of that Act?
(b)If I do have jurisdiction to grant leave, has the high threshold for the grant of leave been met; namely, are the interests of justice served by granting leave?
Relevant factual background
[5] The full factual background is set out in my judgment of 5 March 2021, but I record the following aspects as relevant to this application.
[6] PMEL was incorporated on 18 July 1990. Mr Needham has been the sole director since 2006.2
1 Needham v Nayacakalou [2021] NZHC 398 [Substantive Judgment].
2 Substantive Judgment, above n 1, at [2].
[7] PMEL owned a large piece of land at Pauanui. In 2012, that land was transferred to a new company called Pauanui Dream Estate Ltd. That transfer was a consequence of an arrangement entered into by PMEL with a company called Samy Trustee Ltd.3
[8] In early 2014, Mr Needham contacted Mr Nicholas Hayes at “Liquidateit Liquidations & Accountancy Services” with a view to having PMEL put into liquidation.4 Ms Nayacakalou signed a consent to act as liquidator on 9 April 2014.
[9] At the time of the liquidation in 2014, the shares of PMEL were owned by Mr Needham’s wife (as to 50 per cent) and the trustees of the Pecunia In Posterium Institutum Trust (PIT Trust) (being, at that time, Mr and Mrs Needham and Mr Anthony Banbrook, who has since died).
[10]I made the following key findings:
(a)It was arguable Ms Nayacakalou did not intend, in fact, to assume the office of liquidator other than in name only.5
(b)It was arguable that Ms Nayacakalou was incapacitated for a considerable period of time from May 2018.6
(c)Mr Needham’s challenge to Ms Nayacakalou’s remuneration was not wholly without merit and it would have assisted the Court if she had explained the 16 hours spent on drafting legal proceedings on 7 March 2016.7
(d)There was insufficient evidence to make any assessment about the significant costs incurred in the liquidation and whether Ms
3 Needham v Nayacakalou, above n 1, at [3].
4 Needham v Nayacakalou, above n 1, at [6].
5 Needham v Nayacakalou, above n 1, at [23].
6 Needham v Nayacakalou, above n 1, at [27]–[30].
7 Needham v Nayacakalou, above n 1, at [35].
Nayacakalou was justified in spending significant sums of money for a recovery that did not advance the financial position of PMEL.8
(e)It was far from clear that Mr Needham has a legitimate grievance such that had the liquidation been conducted otherwise, the outcome might have been more advantageous for him.9
(f)There was no realistic prospect that PIT Trust, as creditor, would receive any financial benefit given the preferential debt to the IRD and the ability of Ms Nayacakalou to make a restitutionary claim as an unsecured creditor (or under Reg 36 of the Companies Act 1993 Liquidation Regulations 1994).
Relevant legal principles
“Interlocutory application” is defined in s 4 of the Senior Courts Act:
Interpretation
…
interlocutory application –
(a)means any application to the High Court in any civil proceedings or criminal proceedings, or intended civil proceedings or intended criminal proceedings, for –
an order or a direction relating to a matter of procedure; or
(ii)in the case of civil proceedings, for some relief ancillary to that claimed in a pleading; and
(b)includes an application to review an order made, or a direction given, on any application to which paragraph (a) applies.
[12]Sections 56(3) and (4) of the Senior Courts Act then read:
56 Jurisdiction
…
8 Needham v Nayacakalou, above n 1, at [36].
9 Needham v Nayacakalou, above n 1, at [39].
(3)No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.
(4)Any party to any proceedings may appeal without leave to the Court of Appeal against any order or decision of the High Court –
(a)striking out or dismissing the whole or part of a proceeding, claim, or defence; or
(b)granting summary judgment.
[13] The following considerations are relevant to an application for leave to appeal:10
(a)A high threshold exists.
(b)The applicant must identify an arguable error of law or fact.
(c)The alleged error should be of general or public importance, warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value.
(d)The circumstances must warrant incurring further delay.
(e)The ultimate question is whether the interests of justice are served by granting leave.
Analysis and decision
Issue (a) – Jurisdiction
[14] I find that these proceedings are interlocutory proceedings for the purposes of s 4 of the Senior Courts Act and, accordingly, leave is required under s 56. My reasons follow.
10 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6] and [7]; Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
[15] In my view, the application brought under s 284 of the Companies Act was for some relief ancillary to that claimed in a pleading. As the Court of Appeal held in Trotter v Telfer Electrical Nelson Ltd,11 and recently endorsed in 100 Investments Ltd v PVG Securities Trustee Ltd,12 in the High Court Rules 2016 (Rules) context, the word “ancillary” means “collateral to but flowing out of the relief claimed in the pleadings”.13 In the circumstances here, the s 284 application was for leave. That leave was ancillary to relief claimed in proposed substantive proceedings and which Mr Needham intended would give him the substantive outcome he sought. As Mr McAnally submitted, s 284 leave applications are akin, for Rules purposes, to pre- commencement discovery applications (r 8.20) and an application for leave to appeal under r 20.3(7) (i.e. the application must be made by interlocutory application).
[16] I turn then to address the question of whether despite being an interlocutory proceeding, my decision to dismiss the application rendering it in substance a final disposition, means that leave is not required.
[17] That issue is answered, in my view, by s 56(4) of the Senior Courts Act. In 100 Investments Ltd v PVG Securities Trustee Ltd, the Court of Appeal held that s 56(4) of the Senior Courts Act amounts to a form of statutory recognition that an interlocutory application may have the effect of bringing the proceeding to an end,14 as is the case here. However, s 56(4) expressly limits the exception to the leave requirement to strike-out and summary judgment decisions. As the Court stated:15
The implication is that appeals from other kinds of interlocutory applications [i.e. other than strike-out and summary judgment] which require leave, might be the final procedural event in a proceeding.
[18] It follows, therefore, that leave is required and I have jurisdiction to determine the current application.
11 Trotter v Telfer Electrical Nelson Ltd [2018] NZCA 231, (2019) NZAR 476.
12 100 Investments Ltd v PVG Securities Trustee Ltd [2020] NZCA 458 at [15].
13 Trotter v Telfer Electrical Nelson Ltd, above n 14, at [21].
14 100 Investments Ltd v PVG Securities Trustee Ltd, above n 15, at [19].
15 100 Investments Ltd v PVG Securities Trustee Ltd, above n 15, at [19].
[19] The authorities Mr Hayes relied upon do not assist his contention that I have no jurisdiction. Tomai v Toka16 was a summary judgment application and expressly within the s 56(4) exception. Re Honey, ex parte Nottingham17 concerned an application to set aside a bankruptcy notice. Associate Judge Sargisson held it was strongly arguable that leave was not required because s 56(4) applied.18 However, her Honour accepted that it was appropriate (and the parties did not argue otherwise) to proceed as if leave were required under subsection (3).
[20] In Re Commissioner of Inland Revenue, ex parte Muir,19 I held that an application to set aside a bankruptcy notice was not interlocutory, and therefore I had no jurisdiction to grant leave to appeal from my decision dismissing the application to set aside. In reaching that conclusion, I adopted the reasoning of Associate Judge Bell in Prescott v NZ Police that an application to set aside a bankruptcy notice is not an interlocutory application.20 A bankruptcy notice, albeit issued by the Court, is executive in nature. A decision that disposes of a bankruptcy notice goes to the substance or merits of the proceedings and not to procedure. Accordingly, there is an appeal as of right to the Court of Appeal from such a decision.
Issue (b) – Should leave be granted?
[21] In contending that my decision to refuse leave under s 284 was the exercise of a discretion by the erroneous application of principle and being an error of some general and public importance, Mr McAnally relied on the following passage of my judgment:21
… However, the fundamental problem for Mr Needham is that it is far from clear that he truly has a legitimate grievance as to the conduct of the liquidation such that if it had been conducted otherwise, the outcome might have been more advantageous for him.
[22] Mr McAnally contended that I erred by endorsing or introducing a principle that requires an applicant under s 284, who might not be a creditor at all, to
16 Tomai v Toka [2019] NZHC 1716.
17 Re Honey, ex parte Nottingham [2018] NZHC 575.
18 Re Honey, ex parte Nottingham, above n 17, at [5].
19 Re Commissioner of Inland Revenue, ex parte Muir [2018] NZHC 1834.
20 Prescott v NZ Police [2017] NZHC 2701 at [10].
21 Needham v Nayacakalou, above n 1, at [39].
demonstrate it would be better off, in any particular sense. He argued that often no one creditor will have a sufficient interest in incurring the costs of applying for review under this section and it is wrong and inconsistent that the Court’s supervisory jurisdiction to move the focus from the conduct of liquidators in liquidations to the financial interests of any given applicant. He contended the rights of applicants under s 284 to apply for leave, which includes directors (as Mr Needham is) or shareholders, confirms the supervisory and not strictly commercial nature of the jurisdiction.
[23] I accept Mr Needham has demonstrated an arguable error of law which is of some sufficiently wider importance beyond the particular facts of this case. It is arguable, as Mr McAnally submitted, that the perceived, likely outcome of a review under s 284 in terms of a tangible financial benefit to the applicant, may be merely a discretionary factor, and that it was wrong as a matter of principle to have described this as “a fundamental problem” for Mr Needham.
[24] In my judgment I concluded it was clearly arguable that Ms Nayacakalou’s appointment as liquidator was invalid and that there was an arguable vacancy arising from the fact that the defendant was incapacitated in May 2018. However, as Mr McAnally accepts, in granting leave under s 284, the Court must also be satisfied that there is a reasonable likelihood that the Court will ultimately disturb the act or decision of the liquidator in question.
[25] Mr McAnally submitted that as in this case, if a liquidator has been invalidly appointed, “there is an inevitability” that her acts as liquidator will be set aside.
[26] I reject that submission. Relief under s 284 of the Companies Act is discretionary and depends on an assessment of all the circumstances. On the facts of this case, it is far from clear whether at a substantive hearing the court would disturb the acts or decisions of Ms Nayacakalou. As the Court of Appeal made clear in Trinity Foundation (Services No 1) Ltd v Downey,22 and in endorsing the approach of Lang AJ (as he then was) in the first instance, the fact a claim is established does not make it inevitable a court will interfere with the act or decision in question. That second step is a separate test. While informed by the merits of the court’s assessment of the
22 Trinity Foundation (Services No 1) Ltd v Downey (2006) 3 NZCCLR 401 (CA).
whether there is a credible factual basis, the second step does not inevitably follow from the first. As Lang AJ noted, it is important that “the assets of a company in liquidation are not frittered away as a result of claims that are unlikely to succeed.”23
[27] As I noted in my judgment at [42], the effect of reg 36 of the Companies Act 1993 Liquidation Regulations 1994 is that an invalidly appointed liquidator will still be regarded as having acted lawfully in his or her capacity as liquidator (at least to the extent that he or she acted in good faith). I also concluded that there is little likelihood of a court disturbing the impugned decisions of Ms Nayacakalou; there are insufficient funds in the liquidation to justify such relief.
[28] Even if I were wrong in my findings about Mr Needham’s “fundamental problem”, he has failed to establish that the alleged error will ultimately be of any consequence. It is not a material error in the sense that it would, if corrected, affect the outcome of the s 284 leave application. My substantive judgment addressed a number of additional and important reasons why leave was ultimately refused. In applying, as a discretionary factor (rather than a fundamental factor), the likely outcome of a review under s 284 in terms of a tangible financial benefit to Mr Needham, the outcome would be the same: leave would be refused.
[29] The liquidation is virtually complete (a final report has been filed) and there is a preferential company debt in favour of the IRD.24 The relief Mr Needham seeks, namely the appointment of fresh, independent liquidators, would likely deplete the modest funds available (even if there were some reversal of the remuneration paid to the liquidator, Ms Nayacakalou). While it is important to acknowledge the principle of holding liquidators to account for their decisions,25 this case does not justify further litigation.
[30] In my judgment, I noted Mr McAnally’s acknowledgement that the proceedings are ultimately concerned with the land that was the subject of the litigation settlement.26 However, as I concluded, there was no proper evidential foundation
23 Trinity Foundation (Services No 1) Ltd v Downey (2005) 9 NZCLC 263,917 at [22].
24 Needham v Nayacakalou, above n 1, at [42].
25 Needham v Nayacakalou, above n 1, at [39].
26 Needham v Nayacakalou, above n 1, at [41].
before the Court to support Mr Needham’s claim that the settlement of the litigation was a “soft” one. In circumstances where Mr Needham is not prepared to fund a fresh investigation and audit of the liquidator’s conduct himself (as was the case in Re Ocean Shipping Ltd (in liq)),27 there simply seems to be little point in the s 284 proceedings going any further.
[31] Mr Hayes, for Ms Nayacakalou, challenged Mr Needham’s motives in bringing the proceedings, contending that he was motivated by animus towards both Ms Nayacakalou and himself, as counsel. I accept there is very little evidence of that before the Court. I do note, however, that Mr McAnally’s submission that Mr Needham has “a sufficient private interest”, gives no particulars as to the nature of that interest.
[32] I further note that Mr Needham has not sought to challenge my finding about his reason for bringing these proceedings28 – ultimately concerned with the land that is the subject of the settlement. Where there is no evidence to establish an arguable case that the settlement was wrong or unreasonable, there seems to be little utility in the proposed appeal.
[33] I acknowledge that Mr Needham is a director and has standing under s 284 of the Companies Act. However, this is not a case where his reputation as a director is at issue or where he seeks to challenge decisions of the liquidator investigating his actions as director.
[34] As to the alternative cause of action, namely review of the liquidator’s remuneration, the proposed challenge to my findings do not, in my view, give rise to any arguable error of any importance sufficient to establish a basis for leave to appeal. As I noted in my judgment, Ms Nayacakalou did not invoice for all of the total time costs incurred; there was a significant discount.29 I find that the facts of this case do not warrant further scrutiny by the Court of Appeal.
27 Re Ocean Shipping Ltd (in liq) HC Auckland M348196, 16 July 1996, per Fisher J, adopted by Associate Judge Gendall in Drilling Fluid Equipment NZ Ltd v Registrar of Companies HC Wellington CIV-2008-485-1985, 17 December 2008.
28 Needham v Nayacakalou, above n 1, at [41].
29 Needham v Nayacakalou, above n 1, at [35].
[35] For all of these reasons, I conclude that the overall interests of justice in this case will not be served by granting leave to appeal. The high threshold for granting leave under s 56(3) of the Senior Courts Act has not been made out. The application must accordingly be dismissed.
Result
[36] The application for leave to appeal to the Court of Appeal under s 56(3) of the Senior Courts Act 2016 is dismissed.
[37] As to costs, I am of the preliminary view that having succeeded, Ms Nayacakalou, the defendant, is entitled to costs and on a 2B basis plus disbursements. If costs cannot be agreed, then memoranda are to be filed within 14 days.
Associate Judge P J Andrew
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