Singh v Patel
[2021] NZCA 242
•10 June 2021 at 10.30 am
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| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA548/2020 [2021] NZCA 242 |
| BETWEEN | JASVINDER SINGH |
| AND | ROOPA PATEL |
| AND | ELITE BUSINESS SERVICES NZ LIMITED |
| Hearing: | 20 May 2021 |
Court: | Cooper, Simon France and Edwards JJ |
Counsel: | A R Gilchrist for Appellant |
Judgment: | 10 June 2021 at 10.30 am |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellant must pay the respondents costs calculated for a standard appeal on a band A basis, and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Cooper J)
The appellant, Jasvinder Singh, commenced a proceeding in the High Court against Roopa Patel and Elite Business Services NZ Ltd (Elite) seeking damages for conversion of his shares in a company called Steve Taylor & Associates North Shore Ltd (STA) which operated an accounting business in Auckland.
Lang J rejected the claim and Mr Singh now appeals. The appeal gives rise to one issue and that is whether, on the facts that he found, the Judge should have held the respondents liable in conversion.[1] Other causes of action pursued in the High Court were also rejected,[2] but the appeal relates only to the cause of action in conversion.
The facts
[1]Singh v Patel [2020] NZHC 2242 [High Court judgment].
[2]These causes of action were the knowing assistance by Mrs Patel to Elite to acquire Mr Singh’s shares and an allegation that Mrs Patel had agreed to assume personal liability to pay to Mr Singh the funds required to pay loans obtained by Mr Singh and Ms Sandhu.
There is no dispute about the primary facts found by the Judge. We summarise these findings in the following paragraphs.
Mr Singh purchased the shares in STA for the benefit of his wife, Parminder (Pam) Sandhu, who was studying to be an accountant in 2015. Ms Sandhu met Mrs Patel (who was an accountant) in 2009. In early 2015, Mr Singh and Ms Sandhu became aware that Mrs Patel had entered into an agreement to buy the shares in STA from IP & Admin Ltd, a company owned by Stephen Taylor. It was common ground that by 11 March 2015 Mr Singh and Ms Sandhu had agreed to buy 49 per cent of the shares in STA. Because Ms Sandhu could not get a loan to buy the shares herself, she and Mr Singh decided to register the shares solely in the name Mr Singh.
The terms on which Mr Singh agreed to purchase the shares were not reduced to writing. Solicitors acting for him prepared a draft shareholders’ agreement, but it was never signed. Consequently, it was necessary to ascertain the contractual relationship between Mrs Patel and Mr Singh from contemporaneous oral and written communications between the parties and their respective solicitors.
To fund the purchase of the shares, Mr Singh and Ms Sandhu mortgaged their unencumbered property to secure a loan of $200,000 from ANZ Bank New Zealand (ANZ). They also took out a personal loan of $90,000. This put them in funds to pay the sum of $300,000 into Elite’s bank account on 16 March 2015. Elite then acquired all the shares in STA previously held by Mr Taylor under the sale and purchase agreement with IP & Admin Ltd on 17 March 2015. It subsequently transferred 49 per cent of those shares to Mr Singh on 5 June 2015.
STA then continued to operate the accountancy practice under Mrs Patel’s management. Neither Ms Sandhu nor Mr Singh had any role in the operation of the business. Ms Sandhu worked at another accounting practice based in Ellerslie and operated by another company owned by Mrs Patel until approximately November 2016 when that office was closed.
From April 2015 down to August 2018 STA paid the monthly instalments of principal and interest on the two loans that Mr Singh and Ms Sandhu had obtained from ANZ. In addition, STA and Mrs Patel gave guarantees of the loans to ANZ. The Judge found that the arrangement between Mr Singh and Mrs Patel was that Mr Singh’s shareholding in STA would drop to 35 per cent when the monthly payments from STA had resulted in repayment of the ANZ loans.[3] He noted that “[i]n this way it was hoped that Mr Singh would acquire 35 per cent of shares in STA without having to make any payment himself towards the ANZ loan”.[4] STA also paid the principal and interest on a loan that Mrs Patel had obtained from the Bank of New Zealand (BNZ) to enable her to acquire her shares in STA.
[3]High Court judgment, above n 1, at [10].
[4]At [10].
There was a dispute in the High Court as to the price that Mr Singh agreed to pay for the shares.[5] Mr Singh claimed he paid the sum of $325,000, but the respondents contended the purchase price was $300,000. The Judge found that the sum paid was $300,000.[6]
[5]At [12].
[6]At [15].
On 11 January 2016, Mrs Patel arranged for a staff member employed by STA to register a notice of particulars of shareholding with the Registrar of Companies. This recorded that Mr Singh’s shares had been transferred back to Elite. Mrs Patel took that step without Mr Singh’s knowledge or authority. Then, on 22 January 2018, Mrs Patel arranged for another notice of particulars of shareholding to be registered. That notice was that Elite had transferred all the shares in STA, including those formerly held by Mr Singh, to herself. STA was placed in liquidation in September 2019, and the shares in that company were rendered worthless.
The Judge recorded that after January 2016 Mrs Patel continued to act in all respects as if Mr Singh remained a shareholder in STA.[7] Thus STA continued to make monthly payments into Mr Singh’s and Ms Sandhu’s joint bank account down to 27 August 2018.
The claim in the High Court
[7]At [25].
Mr Singh alleged that the respondents committed the tort of conversion when they transferred his shares to Elite and then to Mrs Patel. In analysing the claim, the Judge applied the law set out in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) asking first whether the respondents had acted in a manner inconsistent with Mr Singh’s rights as owner of the shares.[8]On this issue, the Judge accepted Ms Low’s submission for the respondents that there was insufficient evidence to establish the respondents had converted the shares.[9] Under s 87(1) of the Companies Act 1993 (the Act) a company must maintain a share register that records the shares issued by the company and, pursuant to s 84(1) of that Act (subject to the constitution of the company), the transfer of shares occurs by entry of the name of the transferee on the share register. The evidence did not establish that had occurred. The Judge wrote:[10]
The evidence is entirely silent as to whether STA maintained a share register as required by s 87 of the Act. There is similarly no evidence to confirm Mrs Patel entered an initial transfer of the shares from Elite to Mr Singh or that she subsequently entered transfers of the shares from Mr Singh back to Elite and then from Elite to herself. There is only the evidence that notice of both transfers was registered with the Registrar of Companies so that it became publicly available information on the Companies Office website.
[8]At [17], citing Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 AC 883 at [39].
[9]At [19].
[10]At [19].
The Judge was not prepared to infer that Mrs Patel had taken the steps necessary to record the share transfers in STA’s share register.[11] He thought it was distinctly possible that the company had not maintained a share register and if it did, that Mrs Patel had not entered any of the transactions in it. He noted that the issue had not been explored with her during cross-examination, and recorded he had no confidence that Mrs Patel would have been able to shed light on the issue in any event. Notwithstanding her qualifications as an accountant, the Judge was not confident that she would have known about the requirement to keep a share register and/or the need to enter changes of shareholding in it. He thought it more likely than not that Mrs Patel went no further than lodging the notice of particulars of shareholding with the Registrar of Companies so BNZ would see that Mr Singh no longer held shares in the company.[12] Even if STA maintained a register, the Judge considered it was unlikely that Mrs Patel would have recorded the transfer of Mr Singh’s shares to Elite in the register.
[11]At [21].
[12]At [23].
The Judge considered the most likely explanation of what occurred was that, as Mrs Patel informed Ms Sandhu when the latter became aware of what had happened, STA needed further accommodation from BNZ to meet its operating expenses, and the bank would grant a temporary overdraft facility only if provided with a general security agreement over STA’s assets, and personal guarantees of both shareholders.[13] However, Ms Sandhu had been overseas at the time and Mrs Patel knew that Mr Singh would not be happy about giving a guarantee to BNZ.[14] In these circumstances she decided to transfer the shares back to Elite. The Judge specifically found that Mrs Patel took that step only to ensure the bank would not require Mr Singh to provide a guarantee for the overdraft facility.[15] He observed:[16]
Mrs Patel compounded the problem so far as Mr Singh and Ms Sandhu were concerned by telling Ms Sandhu she could not take steps to rectify the situation because this would cause problems with the bank.
[13]At [28].
[14]At [29]–[30].
[15]At [30].
[16]At [30].
However, the Judge held that unless and until a transfer was effected through registration in the company’s share register, Mr Singh remained the legal and beneficial owner of the shares and free to deal with them as he saw fit. It followed that neither Mrs Patel nor Elite had committed an act that divested Mr Singh of the ownership of his shares in STA or that prevented him from exercising dominion or control over the shares. This was fatal to the claim in conversion.[17]
[17]At [24].
The Judge recognised that there also was an issue as to whether a claim in conversion could be made to recover economic losses caused by wrongful dealings with shares in a company.[18] He observed that the issue arose because the tort of conversion has traditionally protected the right to possession of goods or chattels, and has not been extended to interference with intangible assets. Shares are normally considered to be choses in action and as such intangible assets. The Judge noted the conflict of opinion on this issue in the House of Lords in OBG Ltd v Allan, where the majority held that an action in conversion was not available for losses suffered in relation to intangible assets.[19] Although the issue has not been decided in New Zealand, the Judge noted the conflicting obiter comments of the High Court in Black v Giltech Precision Castings (2004) Ltd and Pure Elite Holdings Ltd v Bodco Ltd.[20]
[18]At [31].
[19]At [33], citing OBG v Allan [2007] UKHL 21, [2008] AC 1 at [94]–[107] per Lord Hoffmann, [271] per Lord Walker and [321]–[322] per Lord Brown.
[20]At [34]–[35], citing Black v Giltech Precision Castings (2004) Ltd [2012] NZHC 1148, [2012] NZCCLR 13 at [190]; and Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191 at [203].
Because he decided the case on the basis that there was no act of conversion, the Judge did not need to determine this issue, although he expressed a preference for the view that shares could be the subject of a claim in conversion, noting that if Mr Singh had been able to prove Mrs Patel deprived him of the ability to deal with the shares, he would have held that the tort of conversion extended to that act.[21] He also concluded that if he were wrong on the issue of whether Mrs Patel had converted the shares, the other elements of the cause of action were established on the evidence.
[21]High Court judgment, above n 1, at [43].
On the view we take it is unnecessary for us to express any view on whether the shares could have been the subject of a claim for conversion. We can proceed on a basis that assumes a claim in conversion could properly be made without deciding the point.
The appeal
Mr Gilchrist’s principal argument in support of the appeal was that the Judge was wrong to conclude there was no conversion unless the share transfer had been registered in STA’s share register, and had also erred in finding that Mr Singh had not been able to prove that Mrs Patel deprived him of his ability to deal with the shares. Mr Gilchrist submitted that the filing of a notice of particulars of shareholding with the Registrar of Companies recording that Mr Singh’s shares were transferred to Elite was inconsistent with Mr Singh’s rights as owner of the shares, and Mrs Patel’s refusal to transfer Mr Singh’s shares back to him demonstrated that Mr Singh could not deal with the shares as he saw fit. In Mr Gilchrist’s submission, the direct result of Mrs Patel acting inconsistently with Mr Singh’s rights as owner of the shares was that the necessary elements of conversion were clearly established.
Mr Gilchrist argued that the Judge had focussed on the need for the registration in STA’s share register when his focus should have been on Mrs Patel’s intentional conduct, inconsistent with the rights of Mr Singh as the owner of the shares. Her actions had effectively excluded Mr Singh from possession of and deprived him of his interest in the shares. The fact that the necessary formalities to alter STA’s share register (if there was one) under s 87 of the Act had not been carried out should not be seen as negating Mrs Patel’s deliberate and wrongful conduct.
Mr Gilchrist acknowledged that Mr Singh could have sought an order under s 91 of the Act rectifying STA’s share register (presuming such a register existed) but contended that there was no need for him to do so because Mrs Patel had acknowledged her acquisition of the shares and asserted an inability to transfer them back to him, instead discussing possible settlement arrangements. He contended that the primary issue in the case was whether Mrs Patel had acted inconsistently with Mr Singh’s rights as the owner of the shares, rather than whether or not there had been a registration of the shareholding on STA’s share register.
Analysis
The tort of conversion requires an unauthorised and wrongful act by the defendant which involves deliberately dealing with goods in a manner inconsistent with the plaintiff’s rights to possession.[22] Conversion may be committed in several different ways, such as unauthorised taking, misuse or disposal of property.[23] In Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd this Court quoted with approval passages from the judgment of Lord Nicholls for the majority in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) and from the judgment of Lord Steyn in the same case.[24] For ease of reference we set them out below:[25]
… Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.
…
[119] Despite elaborate citation of authority, I am satisfied that the essential feature of the tort of conversion, and of usurpation under Iraqi law, is the denial by the defendant of the possessory interest or title of the plaintiff in the goods … When a defendant manifests an assertion of rights or dominion over the goods which is inconsistent with the rights of the plaintiff he converts the goods to his own use. ...
(Emphasis added.)
[22]See Coleman v Harvey [1989] 1 NZLR 723 (CA) at 730; Cuff v Broadlands Finance Ltd [1987] 2 NZLR 343 (CA) ay 346; McKaskell v Benseman [1989] 3 NZLR 75 (HC) at 89; and Harris v Lombard New Zealand Ltd [1974] 2 NZLR 161 (HC) at 164–165.
[23]Cynthia Hawes “Interference with Goods” in Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) 619 at 633.
[24]Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 citing Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5), above n 8.
[25]At [26] and [27] quoting Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5), above n 8, at [39] per Lord Nicholls and [119] per Lord Steyn.
Where the plaintiff alleges conversion by way of unauthorised transfer, the issue is not whether the act of the defendant itself amounts to a conversion but the effect of the transaction on the interests of the plaintiff.[26] Accordingly, in Edelstein v Schuler & Co Bigham J stated, in the context of a broker’s unauthorised sale, that:[27]
A broker who merely negotiates the sale of chattels without the authority of the true owner commits no tort at all. The sale is a mere void act. It divests the true owner of no right and it does not physically interfere with his control or possession of the goods. But if in addition to negotiating a sale the broker meddles with the goods themselves and hands them to the buyer with the object and intention of transferring to the buyer the property and possession in pursuance of the unauthori[s]ed sale, then he makes himself liable in trover to the true owner, for he is guilty of an act in relation to the goods themselves which is inconsistent with the rights of the true owner.
[26]Hawes, above n 23, at 639.
[27]Edelstein v Schuler & Co [1902] 2 KB 144 (KB) at 156.
As these authorities show, the language used to describe the tort of conversion envisages the conversion of goods as opposed to intangible assets such as shares. Nevertheless, for the purposes of the present discussion the principles can be applied in the circumstances of this case.
We consider the Judge applied the relevant principles correctly. Mr Gilchrist accepted the formulation of the law set out by the High Court. In doing so, he maintained the actions of Mrs Patel had deprived Mr Singh of his interest in the shares. But that is not correct. The only way that could have happened would have been for the share register maintained by STA (if there was one) to have been altered so as to remove Mr Singh as a shareholder.
Section 87(1) of the Act provides that a company must maintain a share register that records the shares issued by the company. Section 87(2) then provides:
87 Company to maintain share register
…
(2) The share register must state, with respect to each class of shares,—
(a) the names, alphabetically arranged, and the latest known address of each person who is, or has within the last 10 years been, a shareholder; and
(b) the number of shares of that class held by each shareholder within the last 10 years; and
(c) the date of any—
(i) issue of shares to; or
(ii) repurchase or redemption of shares from; or
(iii) transfer of shares by or to—
each shareholder within the last 10 years, and in relation to the transfer, the name of the person to or from whom the shares were transferred.
…
The registered shareholders as set out in the register are the owners of the shares. In this respect s 89 provides as follows:
89 Share register as evidence of legal title
(1) Subject to section 91, the entry of the name of a person in the share register as holder of a share is prima facie evidence that legal title to the share vests in that person.
(2) A company may treat the registered holder of a share as the only person entitled to—
(a) exercise the right to vote attaching to the share; and
(b) receive notices; and
(c) receive a distribution in respect of the share; and
(d) exercise the other rights and powers attaching to the share.
In this case, there is no evidence that STA maintained a register. If it did not it was in breach of its duty under s 87(1). Also, under s 90(1), each director must take reasonable steps to ensure that the share register is properly kept and that share transfers are promptly entered on it in accordance with s 84. Transfers of shares such as those which Mrs Patel purported to carry out in this case by filing a notice of particulars of shareholding with the Registrar of Companies are ineffectual to secure any change of ownership. That can only occur under s 84(1) which provides that “[s]ubject to the constitution of the company, shares in a company may be transferred by entry of the name of the transferee on the share register”. “Share register” is defined in s 2(1) of the Act as meaning “the share register required to be kept under section 87”. It is also relevant to note that under s 90(2), a director who fails to comply with the duty set out in subs (1) commits an offence and is liable on conviction to the penalty set out in s 373(2), namely a fine not exceeding $10,000. If STA did not maintain a share register the company committed an offence under s 87(4), and so did its directors.
Whether or not STA maintained a share register nothing done by the respondents was sufficient to deprive Mr Singh either of ownership or possession of the shares. They were his and remained his once he had purchased them. The Companies Register was altered for Mrs Patel’s purposes to secure further funding. But that did not affect Mr Singh’s possession or ownership of the shares. That conclusion is also supported by the Judge’s finding that after the notice of particulars was filed with the Companies Office in January 2016, Mrs Patel continued to act as if Mr Singh had not ceased to be a shareholder of STA.[28]
[28]High Court judgment, above n 1, at [25].
We are satisfied that the Judge was right to conclude that neither Mrs Patel nor Elite committed an act that devested Mr Singh of the ownership or possession of his shares in STA or prevented him from exercising dominion or control over them. That conclusion means that the claim in conversion necessarily fails.
Result
The appeal is dismissed.
The appellant must pay the respondents costs calculated for a standard appeal on a band A basis, and usual disbursements.
Solicitors:
Pabla Law, Auckland for Appellant
Cook Morris Quinn, Auckland for Respondents
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