Soma v Nath - [2019] NZHC 1088

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1647

[2019] NZHC 1088

BETWEEN
HERA SOMA

Plaintiff

AND

SUNIL RAMENDRA NATH

First Defendant

A1 CARS 2014 LTD

Second Defendant

Hearing: 25 and 26 March 2019

Counsel:

D Jaques for Plaintiff

D Rooke for First Defendant
No appearance on behalf of Second Defendant

Judgment:

17 May 2019

JUDGMENT OF BREWER J

This judgment was delivered by me on 17 May 2019 at 2:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Legal Associates (Auckland) for Plaintiff
David Rooke Law (Auckland) for First Defendant

SOMA v NATH [2019] NZHC 1088 [17 May 2019]

Introduction

[1] From 2013 to 2017 a car sales business operated from premises at 717 Great South Road, Papatoetoe. The business was owned, legally if not in practice, by the second defendant, A1 Cars 2014 Ltd.

[2] The second defendant was incorporated on 4 July 2013. The plaintiff, Mr Soma, was registered as shareholder of half its shares and the first defendant, Mr Nath, was registered as shareholder of the other half. Both men were directors. They were the only directors.

[3] The second defendant ceased trading in 2017. Thereafter Mr Nath used the premises to sell cars under the auspices of Sameera Cars Ltd, a company which he incorporated for that purpose.

[4] Mr Soma’s case is that he and Mr Nath each bought half the car sales business from Mr Nand. Together he and Mr Nath incorporated the second defendant and transferred ownership of the business to it. The business consisted of accepting vehicles for sale on behalf of their owners in return for a commission. Mr Nath ran the business on a day to day basis and Mr Soma “would support the business in other ways”.

[5] Mr Soma pleads that Mr Nath in his capacity as director did not cause the second defendant to keep proper records, operated the business for his own benefit in breach of his obligations to the second defendant and unilaterally transferred the business of the second defendant to his new company, Sameera Cars Ltd, without consideration and in breach of the major transaction requirements.1 Mr Soma puts the loss suffered because of this at $800,000.2 He seeks relief in his first cause of action partly against the second defendant and partly against Mr Nath.

[6] Mr Soma’s second cause of action against the second defendant is that he advanced to it three loans totalling $106,553.50 which have not been repaid despite demand being made. He seeks damages.

1 Companies Act 1993, s 129.
2 There are some complexities in the way this loss is pleaded, which I will come to.

[7] Mr Soma’s third cause of action against the second defendant is for recovery of a HiAce van he left at the car sales premises for sale on his behalf. He alleges the second defendant, through Mr Nath, has refused to return it. Alternatively, he seeks damages of…

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.

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Details

Case: [2019] NZHC 1088
Decision Date: 17 May 2019

CaseChat Overview and Summary

Hera Soma brought proceedings against Sunil Ramendra Nath and A1 Cars 2014 Ltd, alleging breaches of director duties, failure to keep proper accounting records, and conversion of the company’s business to a new company without proper authorisation. Soma also sought recovery of two cash loans made to Nath and a HiAce van left at the premises for sale. Nath denied the allegations and counterclaimed for loss of his shareholding. The second defendant did not participate in the proceeding. The court found that while Soma and Nath had gone into business together, the second defendant had no real life as a business entity, operating largely as a cash business with little regard for proper record keeping. The court held that Soma’s claims for breach of director duties and failure to keep proper accounting records failed as both directors had largely ignored their duties. Soma’s claim for conversion of the business also failed as there was no evidence the business had been transferred. However, the court found that two cash loans made by Soma to Nath for the purpose of purchasing vehicles were not repaid and ordered Nath to repay $85,000 plus interest. The court also found that Soma was owed $11,000 in relation to the sale of a second HiAce van. Nath’s counterclaim for loss of his shareholding failed as there was no evidence he had any beneficial interest in the second defendant.

Orders