Shaw v Owens - [2017] NZCA 315

IN THE COURT OF APPEAL OF NEW ZEALAND

CA354/2016
[2017] NZCA 315

BETWEEN	ANGELA CLAIRE SHAW AND IAN ALEXANDER SHAW Appellants
AND	COLIN DAVID OWENS AND DAVID STUART VANCE AS THE LIQUIDATORS OF ALUMINIUM PLUS WELLINGTON LIMITED Respondents

Hearing:	6 June 2017
Court:	Harrison, Miller and Clifford JJ
Counsel:	C J Tennet and C G Beaumont for Appellants J R Sumner and J G Cole for Respondents
Judgment:	25 July 2017 at 2 pm

JUDGMENT OF THE COURT

AThe appeal is allowed to the extent of quashing the amount of the High Court judgment of $125,884.59 and substituting the amount of $106,505.03.
BIn all other respects the High Court judgment remains in force.
CThere is no order for costs in this Court.

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REASONS OF THE COURT

(Given by Harrison J)

Introduction

Angela and Ian Shaw appeal against a judgment of Brown J in the High Court at Wellington ordering them to pay compensation of $125,884.59 to Colin Owens and David Vance as liquidators of Aluminium Plus Wellington Ltd (Aluminium Plus).[1]

Background

[1]Owens v Shaw [2016] NZHC 1400.

The relevant facts fall within a brief and undisputed compass. The Shaws are trustees of what is known as the I & A Shaw Family Trust (the Trust). In 1995 the Trust commenced trading as a farming enterprise and later started operating as a glazier and manufacturer of aluminium joinery. One of its suppliers, CSR Viridian (NZ) Ltd, was only prepared to supply materials to a corporate entity, not to a trading trust. So in 2007 the Shaws incorporated Aluminium Plus for the purpose of contracting with Viridian. The Shaws were its sole directors.
Aluminium Plus effectively served as a conduit for the Trust — it operated without a bank account and simply passed supplies from Viridian on to the Trust for distribution to its clients. In consideration the Trust paid Viridian’s invoices directly, thereby extinguishing the company’s debt.[2]
[2]At [4]–[10].
This method of operation worked without apparent incident for some years. However, between 7 October 2013 and 20 December 2013 Aluminium Plus did not pay for materials ordered from and provided by Viridian to a value of $61,043.05 because it considered them defective. As Mr Shaw explained at trial, sometime in December 2013 the Shaws, acting in their dual capacities as directors and trustees, then decided that:
55.… a fair arrangement between the two entities would be that [Aluminium Plus] would not require the Trust to pay for the invoices issued by Viridian that were outstanding at that time [for $61,043.05]. It was understood that if Viridian brought court proceedings against the Company, then the Company would counterclaim for the credits owed and receive whatever amount was awarded under the counterclaim, whether that amount was greater or less than $61,043.05.
56.The agreement that the Trust would not have to pay $61,043.05 was intended to be a settlement of all claims the Trust may have against the Company in respect of the faulty glass. The figure seemed fair. …
57.This…

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 Shaw v Owens

Details

AGLC: Shaw v Owens [2017] NZCA 315
Case: [2017] NZCA 315
Decision Date: 25 July 2017 at 2 pm

CaseChat Overview and Summary

Angela and Ian Shaw appeal against a judgment of Brown J in the High Court at Wellington ordering them to pay compensation of $125,884.59 to Colin Owens and David Vance as liquidators of Aluminium Plus Wellington Ltd. The Shaws were trustees of the I & A Shaw Family Trust, which conducted business as a farming enterprise and later as a glazier and manufacturer of aluminium joinery. In 2007, the Shaws incorporated Aluminium Plus for the purpose of contracting with Viridian, a supplier of materials, which was only prepared to supply materials to a corporate entity, not to a trading trust. The Shaws were its sole directors, and Aluminium Plus effectively served as a conduit for the Trust. The Shaws decided that Aluminium Plus would not require the Trust to pay for the invoices issued by Viridian that were outstanding at that time, as they considered the materials to be defective. Viridian subsequently obtained a default judgment against Aluminium Plus in the District Court for $87,648.00 including interest and credit consultant’s costs of $14,108.00, together with other costs and disbursements. Aluminium Plus was wound up by an order of the High Court for its failure to comply with Viridian’s statutory demand for $88,814.54. The liquidators issued a proceeding in the High Court, and Brown J dismissed the liquidators’ first claim against the Shaws for breach of contract and their separate claim against the Shaws in their capacities as directors of Aluminium Plus for breaching the duty imposed by s 136 of the Companies Act 1993 not to agree to incur further obligations. However, Brown J upheld the liquidators’ claims that the Shaws were guilty of reckless trading and negligence in breach of the duties imposed by ss 135 and 137 respectively. Brown J ordered the Shaws to pay compensation under s 301 of $125,884.59, comprising Aluminium Plus’ debts of $99,005.03 plus the costs and disbursements of the liquidation of $26,879.56. The Shaws appeal against the liability finding, and Mr Tennet submitted that Brown J erred in finding that the Shaws were guilty of reckless trading or negligence and was unduly influenced by the large loss to a single creditor without considering the counterclaim. Mr Tennet also submitted that Brown J erred in ordering the Shaws to pay compensation in an amount including the liquidators’ costs of $26,879.56; and that liability should have been limited to the company’s loss of $99,005.03. The Court agrees with Brown J that the Shaws’ decision to release the Trust in December 2013, at a time when it was otherwise indebted to Viridian and other creditors, was in breach of their duty to exercise the care, diligence and skill expected of a reasonable director in those circumstances given that its inevitable and immediate consequence was to render Aluminium Plus insolvent. The Court also agrees with Mr Tennet that Brown J erred in allowing all the liquidators’ costs of $26,879.56 within the compensation award. The Court is satisfied that the Shaws should be required to contribute only a proportion of the liquidators’ costs. The appeal is allowed to the extent of quashing the amount of the High Court judgment of $125,884.59 and substituting the amount of $106,505.03. In all other respects the High Court judgment remains in force. Each party has enjoyed a measure of success. There is no order for costs in this Court.

Orders