Owens v Coleman
[2017] NZHC 2575
•24 October 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2016-404-000138 [2017] NZHC 2575
BETWEEN COLIN DAVID OWENS AND DAVID
STUART VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION)
Plaintiffs
AND
PETER COLEMAN First Defendant
AND
PETER COLEMAN AND TRUST MANAGEMENT SERVICES LIMITED Second Defendants
Hearing: 20 October 2017 Appearances:
J Sumner for the Plaintiffs
G Collecutt for the DefendantsJudgment:
24 October 2017
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
24.10.17 at 3:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
C D OWENS AND D S VANCE AS LIQUIDATORS OF HAGFISH NZ LIMITED (IN LIQUIDATION) v
P COLEMAN [2017] NZHC 2575 [24 October 2017]
[1] The first defendant (Mr Coleman) applies to set aside the judgment of Brewer J following a formal proof hearing on 8 September 2016. Rule 15.10 of the High Court Rules permits the Court to set aside or vary any judgment obtained by default if it appears to the Court there has been or may have been a miscarriage of justice. The three considerations relevant to the Court making a decision whether to grant leave to defend out of time are:
(a) Whether the defendant has a substantial ground of defence.
(b) Whether the delay is reasonably explained.
(c)Whether the plaintiff will suffer irreparable injury if judgment is set aside.1
Background
[2] The plaintiffs were appointed liquidators when Hagfish NZ Limited (Hagfish) was on 20 February 2015 placed into liquidation by the High Court. About one year later in February 2016 the plaintiffs filed liquidation proceedings against three companies associated with Mr Coleman. Each of those claimed, inter alia, that there was a debt due by the companies to Hagfish.
[3] At about the same time the plaintiffs served notice of a claim on behalf of
Hagfish against Mr Coleman.
[4] Initially Mr Coleman filed statements of defence in response to the claims against his three companies. By his affidavit filed on behalf of those companies he rejected claims of any debt due. He explained his reasons for belatedly engaging the services of counsel.
[5] Although attending to matters on behalf of the companies Mr Coleman failed to file any defence in relation to the civil proceeding served on him. Because Mr Coleman took no steps to oppose that separate claim against him personally, the
1 Neumayer v Kapati Coast District Council [2014] NZHC 417 [8].
plaintiffs sought judgment by default and a hearing on 8 September 2016 was scheduled for formal proof upon the plaintiffs’ claim against Mr Coleman. Meanwhile applications to liquidate the companies were scheduled for a defended hearing on 29
November 2016.
[6] On 8 December 2016 the formal proof applications were part heard by Brewer J, His Honour noting that the hearing time allocated was insufficient and because His Honour was unsure of the basis on which the plaintiffs were advancing the causes of action alleging breaches of duty owed by Mr Coleman under the Companies Act 1993. His Honour did award judgment on three of the six causes of action pleaded against Mr Coleman. Those included repayment amounts of:
(a) Mr Coleman’s overdrawn current account.
$
51,886.59
(b) Paid by Hagfish to Guyon Holdings Limited
– a company struck off seven years before Hagfish was incorporated, and of which Mr Coleman was a director and shareholder.
86,575.00
(c) Judgment for losses Hagfish suffered, it was claimed, due to Mr Coleman’s failure as a director to file proper tax returns.
243,555.75
[7] His Honour noted that in his view at that time the other claims filed on behalf of the plaintiffs were insufficiently supported by the formal proof evidence and therefore those further claims were adjourned to enable further evidence to be filed.
[8] The judgment of Brewer J issued on 4 November 2016. On 29 November 2016
I heard the plaintiffs’ applications for the liquidation of Mr Coleman’s three companies. At that time, and upon the plaintiffs’ application, the Court directed
Mr Coleman to present for the purpose of cross-examination by counsel for the plaintiffs.
[9] Regarding Mr Coleman’s account in answer to claims of failure to properly record or to provide sufficient evidence of his actions as a chartered accountant and as a director of the companies in question, the Court’s judgment noted:
[70] Mr Coleman was forthright and resolute by the position he maintains by the records he has kept even though questions arise concerning their accuracy. It is not the Court’s impression having heard Mr Coleman that these records have been manufactured for some improper or unlawful purpose.
[71] Mr Coleman has accepted responsibility for his failure to respond appropriately to the notices and demands served, and he details a number of personal background reasons for these lapses.
[10] The judgment noted that the proceeding against the companies was embarked upon because of Mr Coleman’s apparent failure to respond to statutory demands; and that there were elements of assumption in the conclusions reached by the plaintiffs which gave the Court cause for concern. The Court questioned the plaintiffs’ reliance upon the Inland Revenue Department’s (IRD) NOPA process in support of its claims. The Court then noted:
[81] For a number of reasons it is this Court’s view that it is difficult to adopt the position of a debt being due to Hagfish. Rather it is the Court’s impression from Mr Coleman’s evidence of reasons why the alleged debts may not be owing at all.
[11] Further and regarding the plaintiffs evidence the Court noted:
[86] The Court has been invited to draw a number of conclusions concerning the quality of assessments made in support of the liquidators’ claims. What is clear is that without the advantage of hearing expert evidence the Court nevertheless is invited to reject the evidence offered to provide doubt of those conclusions. The liquidators blame the lack of cooperation and the provision of adequate documentation by Mr Coleman. But the fact remains that those conclusions were drawn without sufficient material being available.
[12] The Court dismissed the liquidation applications. There has been no appeal of that decision.
The application to set aside and considerations
[13] Upon the present application to set aside judgment, issues arise regarding the sufficiency of evidence available for consideration at the time formal proof was heard.
It appears that Brewer J would have been aware of, for he only awarded judgment in relation to three of the six causes of action claimed, and he reserved to the plaintiffs the right to call additional evidence in support of its claims of breach of director duties.
[14] In this proceeding it is the case for Mr Coleman that the plaintiffs’ claim against him was not based on primary sources (the companies’ accounts, or evidence from persons with firsthand knowledge of the companies’ affairs) but was based upon various incorrect assumptions drawn from secondary sources including the NOPA prepared by the IRD. Mr Collecutt submits that it was those same incorrect assumptions and issues noted by the Court in the plaintiffs’ case against the companies that feature in their present claim against Mr Coleman.
[15] It appears that neither in the proceeding before Brewer J nor before me, was the Court made aware of the other proceeding. Mr Coleman did file a memorandum
in this proceeding on 8 September 2016 seeking to draw the Court’s attention to the related proceeding when he submitted that the proceedings should be “linked” and “heard contemporaneously”. It appears that memorandum may not have been drawn to Brewer J’s attention at the time of the formal proof hearing.
[16] It is not argued upon this application that the judgment against him was irregularly obtained. Rather the Court’s focus is upon whether there exists a substantial ground of defence. In that regard it is the plaintiffs’ case that there are no grounds upon which the application could succeed. Submissions for the plaintiffs also assert that no substantial ground of defence is disclosed. Reference is made to Brewer J’s acceptance of the plaintiffs’ evidence in relation to those issues for which judgment was entered.
[17] Counsel submits my decision of this Court in the other proceeding is irrelevant because the issues before Brewer J were completely different and did not involve the same parties. Counsel submits it was appropriate for Brewer J to have relied upon the plaintiffs’ reconstruction of relevant company financial records because of Mr Coleman’s failure to provide primary accounting records to them. Counsel also submits that it was appropriate for the Court to have relied upon the NOPA.
Conclusions
[18] It is my judgment presently that available evidence supports a claim of there being a substantial ground of defence in respect of those issues for which judgment
was on 4 November 2016 entered by Brewer J because there is good reason to challenge the sufficiency of the evidence provided on behalf of the plaintiffs. It is arguable that:
(a) There was no debt originally owed to Hagfish by Mr Coleman;
(b) The payments made by Hagfish to Mr Coleman were not advances; and
(c)There is clearly challengeable evidence about whether any material amount was owed by Hagfish to the Inland Revenue Department.
[19] If those factors are arguable then it follows it may be arguable that claims of losses may not be due to breaches of director duties or otherwise by Mr Coleman.
[20] The Court has already referred to the earlier comment about the initial position taken by the IRD in its NOPA and whether that was in the particular circumstances of this case, reliable.
[21] The IRD’s assessment relied upon information it obtained by executing a search warrant upon Mr Coleman. It is Mr Collecutt’s submission that there may be good reason for believing at that time that the IRD did not recover all those records it was after because during the course of the execution of the search warrant, a member of the search team suffered a significant accident which, it is submitted, brought the search process to a premature end.
[22] The liquidators’ assessment is not, Mr Collecutt submits, comprehensive because it relied upon an incomplete record of general ledger accounts.
[23] By contrast it is submitted Mr Coleman’s affidavit evidence contains a more comprehensive and accurate account to show how the company general ledger records ought to have been assessed.
[24] Of course the IRD’s own assessment supporting, as it did, its issue of a NOPA, confirms as a matter of law the accuracy of the IRD assessment if it is not challenged within two months. In the present case there was no challenge by the liquidators who
were then in the control of the company affairs. A question arises however whether that position as it affected the company, compels the Court to accept without more the accuracy of the liquidators’ assessment of Mr Coleman’s personal liability.
[25] It is this Court’s current position that it is inappropriate to accept without more the initial position adopted by the plaintiffs by their reconstruction and in reliance upon the provisional position taken by the IRD in the NOPA.
[26] This judgment has focussed upon considerations of the availability of a substantial ground of defence. These considerations outweigh others usually considered in cases like this. The Court accepts that Mr Coleman initially failed to sufficiently address the liquidators’ claims against him and that he was lax in his response to the demands of the liquidators and the IRD for the relevant company records requested.
[27] Regarding considerations about whether the plaintiffs would suffer irreparable injury if judgment is set aside, it is the Court’s impression that there is a lack of evidence from which to conclude the liquidators would be in any better or any worse situation if judgment against Mr Coleman was set aside at this time. It appears he does have the means to satisfy the judgments obtained against him.
[28] Although by this judgment, Mr Coleman’s application is successful, it is inappropriate to fix any order of costs in the outcome.
Judgment
[29] The application to set aside the judgments of Brewer J is granted.
[30] The costs of and incidental to this application are to lie where they fall.
Associate Judge Christiansen