Sargison v Green Grass Limited
[2012] NZHC 2304
•6 September 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-4830 [2012] NZHC 2304
UNDER the Companies Act 1993
IN THE MATTER OF the liquidation of CLUB CROW BAR LIMITED
BETWEEN PAUL GRAHAM SARGISON AND SIMON DALTON
Plaintiffs
ANDGREEN GRASS LIMITED Defendant
Hearing: 6 September 2012
Counsel: B Hojabri for Plaintiffs
R B Hucker and D Lang Siu for Defendant
Judgment: 6 September 2012
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Keegan Alexander, P O Box 999 Auckland 1140 for Plaintiffs
Email: [email protected] / [email protected]
Hucker Law, Auckland, for Defendant
Email: [email protected]
SARGISON AND DALTON V GREEN GRASS LIMITED HC AK CIV-2011-404-4830 [6 September 2012]
[1] Paul Sargison and Simon Dalton are the liquidators of Club Crow Bar Ltd which was ordered to be put into liquidation on 3 June 2011. The company was incorporated in April 2009. It operated a bar/night-club in Wyndham Street, Auckland. Megan McCabe was the sole director and shareholder of the company. She has since been adjudicated bankrupt. I am advised that, although not discharged, she is no longer in the country.
[2] Green Grass Ltd is an older company that was established in January 1988. Until September 2011, Megan McCabe was the sole director and sole shareholder of Green Grass Ltd.
[3] The liquidators of Club Crow Bar Ltd have investigated the bank accounts of the company. They found that Club Crow Bar Ltd made payments to Green Grass Ltd totalling $231,280 as set out in the statement of claim. They also say that Green Grass Ltd paid Club Crow Bar Ltd $11,550, so that net payments by Club Crow Bar Ltd to Green Grass Ltd amount to $219,730. The liquidators say that Green Grass Ltd did not provide any consideration for the net payments of $219,730. They claim under s 298(2) of the Companies Act 1993 for recovery of $219,730 on the grounds that the payments were dispositions of property in favour of another company that, at the times of the dispositions, was controlled by Megan McCabe, a director of Club
Crow Bar Ltd.1
[4] There is no dispute that if the transactions were not supported by consideration, they were made within the specified period under s 298 and by reason of Megan McCabe’s directorship of Green Grass Ltd, a claim can be made under s
298(2). The liquidators apply for summary judgment. [5] There are two questions:
1. Does the judgment of Woodhouse J given on 4 May 20122 stand in the way of the liquidators obtaining summary judgment? and
2. Have the liquidators established that Green Grass Ltd does not have an arguable defence to the claim under s 298?
Does the judgment of Woodhouse J of 4 May 2012 stand in the way of the liquidators obtaining summary judgment?
[6] The liquidators applied for summary judgment and obtained judgment by default, as Green Grass Ltd took no steps. Green Grass Ltd applied to set aside the default judgment. Woodhouse J heard the application under r 12.14 on 4 May 2012. He set aside the judgment. To reach that decision, he held that Green Grass Ltd had an arguable defence to the liquidators’ claim.
[7] Green Grass Ltd invokes issue estoppel. It says that Woodhouse J has already decided whether Green Grass Ltd can arguably maintain that it has a defence to the liquidators’ claim, because that was a matter in issue before him, and it is also an issue in this application. The argument is that the finding for a setting-aside application, that Green Grass Ltd has an arguable defence, also runs when the liquidators apply for summary judgment following the setting aside.
[8] Green Grass Ltd also points out that following the hearing before Woodhouse J the liquidators filed one further affidavit. That affidavit only consolidates existing evidence. There is no new evidence that was not before Woodhouse J.
[9] The question here is whether the decision of Woodhouse J is final in the sense that it now prevents the liquidators relitigating the issue that was before Woodhouse J. That issue is whether Green Grass Ltd has an arguable defence to the claim for summary judgment. It is also before the court today.
[10] Ordinarily, if a plaintiff has obtained judgment by default on a summary judgment application regularly and a defendant later successfully applies to set aside under r 12.14, the finding that there is an arguable defence for the setting-aside
application will usually result in the court also there and then deciding to dismiss the summary judgment application. I gave such a decision in Walter Peak Developments Ltd v Millar.3
[11] Woodhouse J did not take that course here. While he set aside the judgment, he expressly held that the liquidators were still entitled to maintain their application for summary judgment. He was at some pains to make it clear that his decision on the setting-aside application was not to pre-determine the outcome of any further
hearing of a summary judgment application:4
The matters that have been raised, including the serious issues dvanced by Ms Hojabri in her submissions, are matters that should go to a full summary judgment hearing. It is not appropriate that that hearing be conducted on this present application. And it may very well be that, following this hearing, the plaintiffs will withdraw the application for summary judgment. Having made that observation I wish to make clear that I am not expressing any concluded view in that regard...
Later he said:5
For the avoidance of doubt, I make clear that the summary judgment has been set aside but the summary judgment application itself has not been set aside. The plaintiff is therefore free to proceed on the summary judgment application if it considers that such is appropriate and notwithstanding the tentative observations in this judgment.
[12] Part of Woodhouse J’s formal order was that the plaintiffs’ application for
summary judgment remains for hearing or other disposal.6
[13] When a court makes a decision on an interlocutory application, there is a vexed issue whether a finding in the course of an interlocutory application can be final for the issue estoppel rule. Usually a decision on an interlocutory application will not give rise to a cause of action estoppel. The issue turns more on the matter of
issue estoppel.
3 Walter Peak Developments Ltd (In Rec and Liq) v Millar HC Auckland CIV 2009-404-2786, 9
May 2011 at [53].
4 Sargison and Dalton v Green Grass Ltd, above n 2, at [16].
5 Ibid, at [26].
6 Ibid, at [28].
[14] There are helpful observations in the Court of Appeal’s decision in Joseph
Lynch Land Co Ltd v Lynch.7 Giving the decision, Tipping J said:
In our judgment the ultimate question is concerned not so much with character of the earlier decision, ie whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise. In Halsbury at para 977 it is said that the scope of the doctrine of issue estoppel depends on whether the Court takes a narrow or a wide view of the extent of the issue determined in the earlier case. A number of examples are given either way. If the earlier decision is in substance interlocutory it will usually be reasonable to adopt a narrow view. In the present case that would mean the only point on which there is any estoppel fairly arising from the Master’s judgment is his determination that the company had no interest in Mr Lynch’s land capable of supporting a caveat. It would not in the circumstances be reasonable to regard the estoppel as wider than that and encompassing the proposition that the company had no claim under a resulting or constructive trust in respect of the moneys originally paid or the proceeds of sale of the land.
[15] I tested the issue by asking whether it would be open to the liquidators to bring the summary judgment application on for re-hearing and to adduce new evidence which would attack the defence arguments that had been raised in the setting-aside application. Mr Hucker accepted that in the light of Woodhouse J’s decision, it would be open to the liquidators to apply for summary judgment, as directed by Woodhouse J, and to adduce new evidence in support of the application.
[16] That answer by Mr Hucker effectively conceded that the decision of Woodhouse J cannot have the kind of binding effect that would preclude the court from inquiring on another occasion whether Green Grass Ltd does have an arguable defence to the claim.
[17] I also find support for this approach in Spencer Bower and Handley’s Res
Judicata:8
5.32 The dismissal of an interlocutory application on procedural grounds or on the merits is not final and does not bar a further application, although that is not likely to succeed unless supported by additional evidence or a different argument. ...
(citations omitted)
7 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 43.
8 George Spencer Bower and others Spencer Bower and Handley: Res Judicata (4th ed
LexisNexis, London, 2009) at 5.32.
[18] While there has not been a dismissal of an interlocutory application on procedural grounds, there has been a procedural decision that has gone against the liquidators. That procedural decision does not prevent the same question being raised afresh in this application for summary judgment. I accordingly conclude that the decision of Woodhouse J as to arguable defence does not stand in the way of the liquidators now applying for summary judgment.
Have the liquidators established that Green Grass Ltd does not have an arguable defence to the claim under s 298?
[19] The substantive defence run by Green Grass Ltd is that it did provide consideration for the payments Club Crow Bar Ltd made to it. Green Grass Ltd says that between May 2009 and March 2011 it made payments for the benefit of Club Crow Bar Ltd, and supplied it with goods and services. It says that it paid staff wages, as well as cleaning and administration expenses. It says that it paid for liquor for Club Crow Bar Ltd and there were also counter entries in respect of Head Office charges and “change”.
[20] David McCabe, the father of Megan McCabe, has sworn an affidavit. I place little weight on it. He is presently the sole director and shareholder of Green Grass Ltd, but he was not a director or shareholder of the company and was out of the country while Club Crow Bar Ltd was operating. His evidence relies on information given to him by others and accordingly carries less weight.
[21] On the other hand, Michaela Besler was office manager for both Club Crow Bar Ltd while it was operating, and has been and is office manager for Green Grass Ltd. She is the person with first-hand knowledge of the accounts of Green Grass Ltd. She has attached to one of her affidavits copies of accounting materials of Green Grass Ltd. That includes a document called a “purchase register” for the year ending 31 March 2010. That document shows payments of wages and head office expenses totalling $95,338.46. Another purchase register running until 3 March
2011 shows further transactions totalling $367,769.44. These charges are variously for wages, change, head office, glasses, cleaning and drinks.
[22] Ms Besler has also put in evidence documents as to a supply payment history. She has also produced numerous invoices from Green Grass Ltd to Club Crow Bar Ltd. She says that staff were contracted by Green Grass Ltd, not by Club Crow Bar Ltd. It is clear that if this defence were accepted, the consideration given by Green Grass Ltd to Club Crow Bar Ltd exceeds the payments it has received, and is an effective defence to the liquidators’ claim.
[23] The liquidators challenge that defence. I record that the liquidators have experienced difficulties in the conduct of their liquidation because of what seems to be a determined lack of co-operation by Megan McCabe and also less than full co- operation from Ms Besler. The liquidators have used their powers under the Companies Act, in particular ss 261 and 266, to try and recover records of Club Crow Bar Ltd from Ms McCabe and Ms Besler, but without success.
[24] Given that studied lack of co-operation, it is understandable that the liquidators are suspicious of the defence run by an entity associated with Ms McCabe and for which Ms Besler keeps the accounts. Certainly Green Grass Ltd has not done itself any favours because of the lack of co-operation by Ms McCabe and by Ms Besler.
[25] Mr Hucker has pointed out that the liquidators are able to obtain documents relating to the affairs of Club Crow Bar Ltd from other sources. The liquidators have obtained bank statements from a bank. It may be that the Commissioner of Inland Revenue has materials that could help, such as PAYE records and GST records. Nevertheless, the fact that there may be other sources of information available to the liquidators is beside the point, given the requirements for Ms McCabe and Ms Besler to co-operate with the liquidators.
[26] The liquidators have challenged the transactions described by Ms Besler. The attack is on matters of detail rather than trying to show that the accounting records as a whole can be dismissed. Mr Dalton queries the claims for payments of wages because he says that the sums paid for wages are excessive in relation to the operation - although he has not given any expert evidence qualifying himself on that point. He points out that not only did Green Grass Ltd pay wages, but the bank
entries indicate that Club Crow Bar Ltd also paid wages directly. Similarly, he points out that although Green Grass Ltd claims to have paid for liquor supplied to Green Grass Ltd, the bank accounts also show payments to beverage suppliers, such as Lion Nathan, Coca-Cola and Top Shelf Liquor. He also points to payments to other entities associated with the McCabe family. He queries the payments of “change”, because he says that these are not rounded figures which would be expected if they were payments for a float. He shows that in one case there was a payment of $9,000 and that payment was made ahead of Green Grass invoices which added up to that amount of $9,000.
[27] Mr Hucker responded and addressed these complaints. It is not necessary to go through his answers.
[28] However, the fact that Mr Dalton was only able to attack particular parts of the defence evidence shows that there are difficulties for the liquidators in being able to conclude, for summary judgment purposes, that Green Grass Ltd does not have any arguable defence to the claim as a whole. Just because some aspects of the defence case may be open to criticism does not mean that no part of the defence is sound.
[29] Ms Hojabri referred to the summary of principles for summary judgment applications in Krukziener v Hanover Finance:9
Summary judgment principles
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3
WLR 373 (PC) , at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[30] Ms Hojabri reminded me that the court can take a robust and realistic approach wherever the facts warrant it. The passage from the Court of Appeal’s judgement also makes it clear that the onus is on the plaintiff. Where there is evidence sufficient to show that there is no defence, a defendant may have to respond if the application is to be defeated. But, once the defendant responds with relevant evidence showing an arguable defence that is capable of being plausible, the court will not find for the plaintiff.
[31] The Court of Appeal referred to Eng Mee Yong v Letchumanan10 and the familiar passage that the court will not accept uncritically evidence that is inherently lacking in credibility, or is inconsistent with undisputed contemporary documents, or other statements made by the same deponent, or is inherently improbable. At this stage, I cannot categorise the evidence for Green Grass Ltd as being of the Eng Mee Young v Letchumanan sort. The evidence is capable of being taken seriously, even though there may be weaknesses. It is adequate for this preliminary stage. It cannot be dismissed as carrying no weight at all. If this case were to go to a hearing, I would expect it to be supplemented by other evidence, particularly primary accounting materials, invoices from suppliers, evidence of payments to suppliers, which would support the internal accounting records of Green Grass Ltd.
[32] All the relevant information does not have to be before the court to decide a summary judgment application. The materials put before me by Ms Besler are for summary judgment purposes sufficient to hold that there is an arguable defence. Not very surprisingly, using the same material as Woodhouse J, I have come to the same conclusion. I dismiss the application for summary judgment.
Further directions
[33] I give these further directions:
(a) The liquidators say that they are likely to amend their pleadings. The liquidators may file and serve an amended statement of claim within a further 2 weeks – 20 September 2012.
(b) Any statement of defence should come in within a further 2 weeks –
4 October 2012.
(c) Any reply to the statement of defence should be filed within 2 weeks
after the statement of defence comes in – 18 October 2012.
(d)While the pleadings are being exchanged I would like the parties to confer as to discovery.
(e) I allow a further 3 weeks for affidavits of documents to be filed and served, following the reply to the statement of defence – 8 November
2012.
(f) I direct the Registrar to put this case in the companies list on Friday
30 November 2012 at 11:45am. That call will be used for case management. Discovery and the ongoing case management of the case will be reviewed and hopefully directions will be given for the hearing. The parties will be expected to advise the court of the numbers of witnesses to be called, including expert witnesses, and the estimated hearing time for the case.
[34] I also record that the liquidators are alive to the possibility of a claim under s 292 of the Companies Act. If Green Grass Ltd has given consideration for the payments it received, it would be convenient to deal with any claim under s 292 at the same time as this proceeding. Before the liquidators can begin a proceeding
under s 294, they first have to give notice to set aside the transactions.11 The notice
would need to reserve the point that there may be no consideration for the payments, but that need not be a problem. There would have to be time allowed for Green Grass Ltd to give any notice of objection. It is only after that, that it would be
possible to amend the pleadings in this proceeding to add a cause of action for a claim under s 292. But that is for review at the next conference. I indicate that the liquidators may consider giving notice under s 294 at this stage without that prejudicing any claim under s 298.
Costs
[35] Mr Hucker seeks costs because his client has been successful in the summary judgment application. He acknowledges that the Philpott principle normally applies.12 That is the course which Ms Hojabri invites me to take. I accept Mr Hucker’s submission that this is an appropriate case for a departure from the Philpott principle. I say that because that while the issue estoppel point does not bind directly, this case has involved a re-argument of the question whether Green Grass Ltd has an arguable defence in circumstances where the liquidators did not present
any new evidence but relied solely on their existing evidence.
[36] The liquidators ought to have appreciated that if they did not adduce any new evidence then a Judge would decide the summary judgment application in much the same way as Woodhouse J decided the setting-aside application. Judicial minds do tend to work alike and, when given the same evidence and applying the same test, most times will reach the same answer. The liquidators should have foreseen that. It was predictable that they would fail.13
[37] Accordingly, I award Green Grass Ltd costs on the summary judgment application on the 2B basis.
......................................
R M Bell
Associate Judge
12 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
13 Ibid, at 405.
0
0
0