Tempest Litigation Funders Limited v Kamal
[2020] NZHC 827
•19 March 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-504
[2020] NZHC 827
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of Peter Richards Builders Limited (in liq)
BETWEEN
TEMPEST LITIGATION FUNDERS LIMITED
Applicant
AND
IMRAN MOHAMMED KAMAL
Respondent
Hearing: 19 March 2020 Appearances:
Mr Botterill for applicant Mr Haig for respondent
Judgment:
19 March 2020
Reasons:
28 April 2020
Reissued:
20 May 2020
REASONS FOR JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] This is an application made in the course of the liquidation of Peter Richards Builders Ltd. It is made by the applicant which is a creditor —albeit by assignment
— of Peter Richards Builders, Tempest Litigation Funders Ltd, against the liquidator, Mr Imran Mohammed Kamal. At the conclusion of the hearing I gave judgment and indicated that my reasons would follow.
TEMPEST LITIGATION FUNDERS LIMITED v KAMAL [2020] NZHC 827 [19 March 2020]
[2]There were three matters for determination:
(a)The admissibility of an email headed “Without Prejudice”;
(b)Tempest’s application to review Mr Kamal’s appointment; and
(c)Tempest’s application for the disclosure of certain documentation generated in the course of the liquidation.
[3] It was necessary to deal with the first issue concerning the admissibility of the email at the outset, because much of the argument which followed on the second and third issues turned on that email. I therefore heard counsel in relation to that, and, having done so, ruled that the email was admissible.
[4] The background can be summarised very briefly. Peter Richards Builders contracted to acquire three sections from a company by the name of Kahawai Point Developments Limited. It paid a deposit of $99,130.44, 10 per cent of the sale and purchase price. Peter Richards Builders was unable to settle the transaction. Kahawai subsequently obtained a judgment against Peter Richards Builders for $123,952.29 which I take to be the amount of the deposits together with interest and costs. I am told that it is this failed transaction which lead to the winding up of Peter Richards Builders.
[5] Kahawai commenced proceedings seeking Peter Richards Builders’ winding up. Within the 10-day period in which it was entitled to do so, Peter Richards Builders passed a resolution for its own winding up and appointed Mr Kamal as the liquidator. Shortly thereafter Tempest took an assignment of Kahawai’s entitlement pursuant to its judgment and has since stood in Kahawai’s shoes vis-à-vis Peter Richards Builders and of course the liquidator. Shortly after acquiring Kahawai’s entitlements under the judgment, Tempest exercised its right as a creditor pursuant to s 314 of the Companies Act 1993 to call for a creditors’ meeting. It cannot be accused of acting covertly in this. Tempest informed Mr Kamal that its purpose in doing so was to seek his removal as a liquidator and replacement by its own nominee.
[6] There followed some communication — by telephone and email — between Tempest’s Mr Damien Grant and Mr Kamal. In the course of the email correspondence Mr Kamal put a proposition to Tempest which has assumed some importance in the case. It is obvious enough from the correspondence that Mr Kamal was resistant to the idea of a creditors’ meeting. On 18 June 2019, Mr Kamal emailed Mr Grant. His email was headed “Without prejudice” and said: “Are you willing to withdraw creditors’ meeting if I don’t call on the deposit?”. It is common ground that Mr Kamal was referring to the deposits paid by Peter Richards Builders to Kahawai for the sections.
[7] On the natural and ordinary meaning of Mr Kamal’s email he was suggesting that if Tempest withdrew its notice requiring a meeting he would agree not to pursue recovery of those deposits. Mr Grant’s response to this was to thank Mr Kamal and say that he would talk to the assignor (Kahawai) and get back to him. Mr Kamal followed up with several emails trying to establish whether Tempest was intending to persist with its requirement that he call a meeting. In the end, it did so. As I understand the position, Tempest canvassed the other creditors seeking their support for Mr Kamal’s replacement by their nominee as liquidator. A creditors’ meeting took place on 2 July 2019. Apparently 44 creditors voted. Tempest and 17 others who had responded to its request for support by giving Tempest their proxy voted in favour of Mr Kamal’s replacement. The remaining creditors (24 in number) voted against it and three abstained. There was insufficient support in terms of numbers or value for Mr Kamal’s replacement and thus he survived.
[8] Tempest was not content to leave matters there, and commenced this proceeding.
The first issue
[9] Mr Haig submitted that Mr Kamal’s email was caught by s 57 of the Evidence Act 2006. He contended that as at the date of that email there was a dispute or difference between Tempest on the one hand and Mr Kamal on the other, and that Mr Kamal’s email included a concession or proposal for the settlement of that dispute.
In my view, no dispute or difference of the type contemplated in s 57 existed at the time.
[10] As at 18 June 2019, Tempest had given notice requiring Mr Kamal to convene a creditors’ meeting. As already said, it is clear enough from the correspondence that Mr Kamal did not wish to do so — for whatever reason — but there was simply no dispute between the parties, as both appeared to recognise that Tempest was entitled to insist on the calling of a creditor’s meeting.
[11] The most that can be said in relation to this is that the parties had different wishes.
[12] In that context, Mr Kamal enquired if Tempest would persist in forcing a creditors’ meeting if he agreed not to call for the repayment of the deposits.
[13]In my view, that is not an exchange capable of being covered by s 57.
[14] Accordingly, despite the without prejudice heading to the email, it is not a communication capable of attracting privilege. For that reason, I allowed the email in.
The second issue
[15] The principal issue in the case is Tempest’s wish to have the Court remove Mr Kamal as liquidator and replace him with its own nominee.
[16] Section 283 of the Companies Act concerns situations in which there is a vacancy in the office of liquidator, and sub-s 4 of that section provides:
(4) The court may, on the application of the company, or a shareholder or other entitled person, or a director or creditor of the company, review the appointment of a successor to a liquidator and may appoint any person who could be appointed as liquidator under paragraph (a) or paragraph (b) or paragraph (c), as the case may be, of subsection (2) of section 241 to be the liquidator of the company.
[17]Section 246 provides:
246 Interim liquidator
(1)If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.
(2)Subject to subsection (3), an interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of assets owned or managed by the company.
(3)The court may limit the rights and powers of an interim liquidator in such manner as it thinks fit.
(4)The appointment of an interim liquidator takes effect on the date on which, and at the time at which, the order appointing that interim liquidator is made.
(5)The court must record in the order appointing the interim liquidator the date on which, and the time at which, the order was made.
(6)If any question arises as to whether on the date on which an interim liquidator was appointed an act was done or a transaction was entered into or effected before or after the time at which the interim liquidator was appointed, that act or transaction is, in the absence of proof to the contrary, deemed to have been done or entered into or effected, as the case may be, after that time.
[18] Thus, Tempest is entitled, as of right, to apply to the Court for an order removing and replacing Mr Kamal.
[19] Mr Botterill referred me to Re Trafalgar Supply Company Ltd (in liq) where Wiley J said:1
Where there is a body of suspicion whether at the end justified or not, but with some factual foundation on which suspicion may be built, then it is undesirable that a liquidator should be appointed. There will be left in the minds of creditors a sense of dissatisfaction that an appointee of the Court may not have been totally impartial in the performance of his duties.
[20] In that passage, Wiley J was referring to an initial appointment by the Court but as Mr Botterill submits the principle must apply equally to a situation in which the Court is considering whether or not to remove and replace a liquidator, even though that liquidator may originally have been appointed by the shareholders of the company.
1 Re Trafalgar Supply Company Ltd (in liq) [1991] MCLR23 (HC) at 7.
[21] What is required, then, is an objectively assessed, reasonably founded suspicion that the proposed liquidator or (in this case, the current liquidator) may not act, or may not be acting, impartially in the performance of his or her duties as such.
[22] What then is the evidence on which Tempest relies to make the serious assertion against Mr Kamal that the Court should conclude that there are such grounds for a suspicion?
[23]Mr Botterill relied on three points:
(a)First, he referred me to Mr Kamal’s website on which he advertises his services as an accountant and liquidator. That website includes a page in which Mr Kamal says that not all liquidators are equal and goes on:
A liquidator appointed by the court is more likely to have an aggressive approach to the Director’s obligations rather than one appointed by the Shareholders/Directors.
Mr Botterill sought to characterise this advertising as evidence of bias. My exchange with Mr Botterill as to exactly what could be inferred from that passage resulted in him accepting that the best point he could make in relation to it was that Mr Kamal was a liquidator who was prepared to contemplate gradations of aggression depending on whether he or she was appointed by the Court or otherwise. In my view, even that is taking too much from what in the end is no more than a piece of advertising puffery by an accountant looking to enhance his reputation and win appointments.
(b)Mr Botterill then turned to the 18 June 2019 email to which I have already made reference. He submitted that I could infer from that email that Mr Kamal was a liquidator who was prepared to expend creditors’ funds to prevent a meeting at which he knew his position would be threatened, for his own purposes. I accept that it is possible to read the email as Mr Botterill suggests. But of course that is to place the most sinister interpretation on it. A more benign view might be that Mr Kamal took the view that a creditors’ meeting at that stage at least
would involve some cost and he was trying to save the creditors from that cost by saying that he was prepared not to call on the deposits. In indicating that, he may in fact have been giving away nothing. The contracts for the sale and purchase of the three properties were not before the Court and for all the Court knows there may have been no legal foundation whatsoever upon which Mr Kamal could have called for the repayment of those deposits. The Court is simply not in a position to determine the proper interpretation to be placed on that email and in those circumstances I am not prepared to reach an adverse conclusion against Mr Kamal.
(c)Finally, Mr Botterill informed me that, of the 44 votes that were cast at the creditors’ meeting, 18 were effectively cast by Tempest (its own vote and the proxies that it held for the other creditors who had responded positively to being canvassed by it) and that none of the other creditors voted for the resolution to remove Mr Kamal. Mr Botterill suggested that this was evidence of Mr Kamal having acted improperly. I have some difficulty following this contention. If there is any force at all in it, I regard that as vanishingly small.
[24] I am far from satisfied that Tempest can make out proper grounds for a suspicion that Mr Kamal has acted impartially in the performance of his duties, and, for those reasons, I dismissed this component of its application.
The third issue
[25] Although the Court may not regard there as being proper grounds for any suspicion that Mr Kamal is not performing his duties as liquidator impartially, there is no doubt that Tempest harbours such a suspicion.
[26] It wishes to have access to certain documentation to check whether the creditors’ meeting was held in accordance with the requirements of the Act and that the votes were counted properly.
[27] Tempest makes this application pursuant s 256 and there is no suggestion that it is not entitled to do so.
[28] Mr Haig submitted that I should not make such an order. In the course of advancing that submission he informed me that it was a “matter of principle”; never a compelling starting point. He levelled criticism at Tempest’s business model and its conduct in this case. There is no suggestion that Tempest has acted unlawfully or in any sense comes to the Court with unclean hands and should be deprived of a remedy on that basis. Beyond that it is not for Court to have a view about such matters.
[29] Mr Haig also contended that an order by the Court in this case entitling Tempest to gain access to the documentation it wishes to review would set a dangerous precedent. I do not accept that. What Tempest is asking for is access to documentation so that it can check that the creditors’ meeting was conducted lawfully. It seems to me that, if anything, such applications should be encouraged where they are warranted. The consequences are likely to be that liquidators are aware that their conduct of creditors’ meetings can, and on occasions will, be reviewed and that they should be conducted strictly in accordance with the Act. That appears to me to be no bad thing.
[30] I accept Mr Haig’s submission that there must be some basis for an application, and that the Court should not simply make orders entitling one of several creditors to access such material as a matter of course. Here it is evident that Tempest was concerned about the conduct of the meeting and I see no obvious reason why Mr Kamal cannot provide the information that it wishes to see. As a major creditor, Tempest certainly has a real interest in the conduct and outcome of the liquidation.
[31] Finally, Mr Haig suggested that for Mr Kamal to provide this information would impose an unnecessary cost on creditors. I don’t see that. It is information which should readily be available and easy to collate. An experienced accountant and liquidator such as Mr Kamal could, I expect, with the assistance of his secretarial staff, arrange for a bundle of relevant documentation to be put together within a very short period of time. It does not appear to me that this will impose a serious burden on creditors at all.
[32] For those reasons, I indicated that I was proposing to order Mr Kamal to disclose the information sought.
[33] Mr Haig did raise a pertinent point about the disclosure of the private information of third parties (that is to say, creditors other than Tempest).
[34]The order I propose to make will take account of that.
Orders
[35]For those reasons, I make the following orders:
(a)The applicant’s application for an order pursuant to s 283 removing and replacing Mr Kamal as the liquidator of Peter Richards Builders Ltd is dismissed;
(b)The respondent is however ordered to provide the applicant with copies of the documents referred to in para 1(c) of the applicant’s originating motion in this proceeding dated 19 August 2019 subject to one important qualification. The qualification is that if there is any information contained in that documentation which is confidential to any third party and which would not in the ordinary course of events be included in the liquidator’s reports, then the liquidator is entitled to protect the privacy of individuals by redacting their names and identifying them in some other way. That process however is not to reduce the value of the information to the point where the applicant cannot make a proper assessment of whether the creditors’ meeting was conducted lawfully in accordance with the Act and the Regulations. I grant the applicant leave to come back to the Court for further clarifying orders if, on receipt of the information referred to in this order it views any redactions as rendering that information incapable of enabling it to assess the lawfulness of the conduct of the creditor’s meeting.
[36] As to costs, both parties have had a measure of success. However, Tempest’s core application in this case was for the removal and replacement of Mr Kamal and on
that application it was unsuccessful. In the circumstances, having heard from counsel in relation to costs, my view is that substantial justice between the parties will be done if I make an order that the respondent recover costs on a 2B basis but reduced by a factor of 50 per cent, together with such disbursements as may be allowed by the Registrar.
Associate Judge Johnston
Solicitors:
Tempest, Auckland for applicant Langford Law, Wellington for respondent
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