Vance v Vey Group Limited (in rec and in liq)
[2022] NZHC 1861
•29 July 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV 2018-485-505
[2022] NZHC 1861
UNDER the Companies Act 1993 IN THE MATTER OF
Vey Group Limited
BETWEEN
DAVID VANCE and IAN MILLARD AS TRUSTEES OF THE ORANA TRUST
Plaintiffs
AND
VEY GROUP LIMITED (in receivership and in liquidation)
First Defendant
LESLIE WILLIAM FUGLE
Second DefendantTHE COMMISSIONER OF INLAND REVENUE
Third Defendant
Hearing: 21 July 2022 Counsel:
R L Roff for Plaintiffs
R L Pinny for First Defendant
F E Geiringer for Second Defendant Third Defendant abides
Judgment:
29 July 2022
JUDGMENT OF MALLON J
(Leave to appeal)
Introduction
[1] Vey Group Limited is in liquidation and receivership. The liquidators’ report to the Court advised that it was likely to admit in the liquidation a debt of $1,040,810
VANCE v VEY GROUP LIMITED [2022] NZHC 1861 [29 July 2022]
owed by Vey to the trustees of the Orana Trust (Orana).1 Leslie Fugle, who is now the sole shareholder of Vey (directly or through interests associated with him), applied to this Court to review the liquidator’s decision about this. His application was unsuccessful.2 He now applies for leave to appeal.
Test for leave
[2] The application to review the liquidator’s decision was an interlocutory application.3 This means that leave to appeal the decision to the Court of Appeal is required.4 An application for leave is made to the High Court.5 If that application is unsuccessful, leave may be sought from the Court of Appeal.6
[3] Relying on the analysis in Li v Chief Executive, Ministry of Business, Innovation and Employment (No 2), Mr Fugle submits that, because his appeal will be dispositive of the case, leave to appeal should be granted if: the argument in the appeal is capable of bona fide and serious argument; and the issue concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.7
[4] I accept these are relevant considerations but they are captured within the approach endorsed by the Court of Appeal in Greendrake v District Court of New Zealand, a decision that post-dates Li, where it said:8
[6] In Finewood Upholstery Ltd v Vaughan, to which Dunningham J referred to in the leave decision, Fitzgerald J appropriately observed that the requirement for leave to appeal should serve as a filtering mechanism to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were
1 Orana was formerly the sole shareholder of Vey. It became a 49 per cent shareholder when 51 per cent of the shares in Vey were transferred to interests associated with Leslie Fugle. Orana brought an application under s 174 of the Companies Act, which led to Vey being placed in liquidation. Subsequently Orana’s shares were transferred to Mr Fugle.
2 Vance v Vey Group Ltd (in liq and rec) [2022] NZHC 75.
3 Companies Act, s 284(1)(b); and High Court Rules 2016, r 31.35.
4 Senior Courts Act 2016, s 56(3).
5 Section 56(3).
6 Section 56(4).
7 Li v Chief Executive, Ministry of Business, Innovation and Employment (No 2) [2018] NZHC 1171 at [21] and [22].
8 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
made. The following considerations were recognised as relevant on an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[5] Whether an appeal will be dispositive of the case will be relevant to whether the alleged error is “of sufficient importance to the applicant” and whether the “interests of justice are served by granting leave”. It does not displace other considerations such as whether “the circumstances must warrant incurring further delay”. I accept the submission for the liquidators that relevant to this is a liquidator’s duty to act in a reasonable and efficient manner when distributing funds to creditors.9 That duty is frustrated if an unmeritorious appeal of a liquidator’s decision on whether to admit or reject a claim against a company in liquidation is permitted to proceed.
Arguable error?
Wrong review test?
[6]Mr Fugle submits that it is unclear from my decision whether I found that:
(a)the evidence identified a term agreed between Orana and Vey that all amounts owed between them were not repayable until a written demand was made; or
(b)from the relationship between shareholders and their closely held company, a Court will imply a requirement that all amounts between them are not repayable until a written demand is made.
9 Companies Act, s 253.
[7] Mr Fugle submits the former is a question of fact and the latter is a question of law. He says that the basis on which the Court found there was such a term seems consistent only with the latter question of law. If so, he submits that this means that the Court was required to ask itself whether this is a principle of law. He submits, however, that the Court asked only whether the liquidators acted reasonably in considering the question of law and deciding it in the way it did. In other words, he says the Court misidentified the correct standard of review of a liquidator’s decision.
[8] I do not accept this raises an arguable question of fact or law for an appeal. My judgment set out the standard of review at [11]–[15]. As discussed at [18] of the judgment, the Orana debt comprised a “shareholder current account” balance of
$840,810 and a shareholder advance of $200,000. At [35]–[37] I discussed the liquidator’s treatment of payments Orana made to BNZ on behalf of Vey as forming part of the shareholder current account (a question of fact) and why that treatment was reasonable (the review standard). At [38]–[43] I discussed the liquidator’s treatment of other payments made by Orana to their parties on behalf of Vey as forming part of the shareholder current account (a question of fact) and why that treatment was reasonable (the review standard). At [46]–[58] I discussed the law concerning when a debt will be statute barred (a legal question), concluding on that legal question that a shareholder’s current account is the kind of relationship where, absent an agreement otherwise, an inference may be available that an obligation to repay does not arise unless and until a demand is made. At [59]–[62] I discussed the facts and arguments and at [63] concluded:
The liquidators concluded that, with the exception of the 2015 term loan, the Debt was a shareholder’s current account, repayable when demand was made on 28 June 2018 and therefore not statute barred. I consider the liquidators correctly turned their minds to whether any component of the Orana debt was statute barred and correctly concluded that it was not. …
[9] That conclusion was not couched in terms of whether the liquidator had acted reasonably. It was a conclusion that the liquidation applied the correct legal test and made the correct decision on the facts (on the facts, the inference was readily drawn at [59]).
Joachimson v Swiss Bank Corporation misapplied?
[10] Mr Fugle submits that my judgment misapplied Joachimson v Swiss Bank Corporation.10 As discussed in my judgment (at [49]), that was a decision concerning a current account held by customer with a bank. As discussed in my judgment at [50]– [53], the principle in that case was extended to a shareholder’s current account in Miller v Belmil Products Ltd and the accounts at issue in Brooker v Pridham.11 Mr Fugle submits, as he did on the application for review of the liquidator’s decision, that Miller was wrongly decided. He submits that Joachimson was dependent on evidence of the bank/customer relationship, identified in specific terms of their agreement, that were inconsistent with an obligation to immediately repay.
[11] For the reasons stated in my judgment, I consider that this ground of appeal is not arguable. The decisions in Miller and Brooker were grounded in the evidence (as the quotations at [51] and [53] emphasise). While Joachimson relied on the evidence about the bank/customer relationship (which included the nature of their relationship and whether the relationship would be subverted if there was no obligation to make a demand) for the conclusion it reached, Miller and Brooker relied on the evidence of the relationships that were before those courts. It is a perfectly ordinary approach to legal reasoning to extend a principle decided in one case in the context and evidence before the Court in that case, to another case where appropriate in the context and the evidence before that Court.
Capital contributions not loans?
[12] Mr Fugle submits that the evidence relied on in my decision is consistent with a capital investment rather than a loan. He says that if the agreement was simply “keep the money as long as you need it”, then it is an injection of capital and not a loan. He says that a shareholder cannot fund a company with necessary capital (for example, to purchase the building that is the principal purpose of the company’s existence) intending that the company hold the capital until it is no longer needed and then, after selling the company, turn around and say that the money was a loan that must now be
10 Joachimson v Swiss Bank Corporation [1921] All ER Rep 92 (KB).
11 Miller v Belmil Products Ltd [1976] 1 NZLR 311 (HC); and Brooker v Pridham (1986) 10 ACLR 428 (SASC).
repaid. He says there was simply no agreement of any kind about when the money would be repayable.
[13] This ground of appeal is confusing because Mr Fugle’s counsel explained that he was not suggesting that the payments at issue in this case were capital contributions. As the liquidators submit, all the evidence was that the parties and their advisers treated the money as a loan and not a capital injection. The evidence is discussed in my judgment (for example, at [36], [39], [40] and [42]). This confusing argument does not give rise to an arguable ground of appeal.
[14] I apprehend, however, that this ground of appeal is part and parcel of the next one – namely that there the Court made no findings about what the agreement to repay the money might look like.
No specificity as to form of demand required?
[15] Mr Fugle submits that, having found that there was an agreement between the parties that the monies owed between them were not repayable until a specific demand was made, the Court made no findings about what this agreement looked like. He asks: when did the agreement arise; what happened at the time that caused it; what form of specific demand was required; was a written demand required or only an express or oral one; if it was a written one, why; and how much notice was required?
[16] As the liquidators submit, these were not issues that needed to be determined. Should they have arisen, they would then be determined by the Court giving effect to what was intended on the available evidence including that: Orana and Vey was a closely held family company; Mr Turvey made decisions for both Orana and Vey to their mutual benefit and interests; and these decisions were documented each year in the financial accounts. This point does not give rise to an arguable ground of appeal.
Inadmissible evidence?
[17] Mr Fugle submits the Court erred by relying on evidence from Richard Nacey who was one of the court-appointed receivers, then liquidators, of Vey. He says Mr Nacey gave evidence based on his experience of how shareholders of closely held
companies do things. He says this is opinion evidence that is not admissible under s 25 of the Evidence Act 2006 because it was not filed by an expert in accordance with s 26 of that Act. Specifically, Mr Nacey was not independent and gave no undertaking to abide by the Code of Conduct for experts in a civil proceeding.12 Mr Fugle says an example of the Court relying on inadmissible evidence of this kind is at [59] of my judgment.13
[18] It is somewhat odd to analyse the Court’s reliance on Mr Nacey’s evidence in Evidence Act terms. Mr Nacey was appointed by the Court as a receiver and then a liquidator of Vey on the basis of his experience. He was directed by the Court to ascertain the liabilities of Vey, including the Orana debt, and to report to the Court on that. His affidavit provided further detail to the Court about this. The Court permitted (in reality, required) Mr Nacey to provide the reasons for the decision he had made through his appointment. No further steps or approval was required for the evidence.
[19] However, if considered in Evidence Act terms, it was expert opinion evidence, albeit expertise that Mr Nacey relied on in making his decision about the Orana debt and providing his report about that to the Court. It was evidence that tended to prove the nature of and the terms on which Orana paid money to or on behalf of Vey.14 The evidence provided substantial help to the Court in determining why the liquidators accepted the Orana debt in the liquidation and why I considered the liquidators were correct to do so.15 I explained why that was so at [43]. Mr Nacey’s appointment meant that this was not a situation to which r 9.43 of the High Court Rules and the code of conduct in Schedule 4 had application.16 Through the appointment, the Court permitted Mr Nacey to provide the reasons for the decision and no further steps or approval was required for the evidence.
12 Evidence Act 2006, s 26.
13 There I referred to Mr Nacey’s evidence that, particularly for closely held companies, in his experience it was not uncommon for shareholders to provide financial support for a company over a lengthy period of time with the expectation that either when the funds are needed by them or when the company no longer required the shareholder support, the funds would be repaid. He went on to explain the ramifications if this were not the case.
14 Evidence Act, s 4(definition of “expert evidence”).
15 Evidence Act, s 25.
16 Evidence Act, s 26.
[20] Mr Fugle also submits that Mr Nacey gave evidence about the parties’ subjective intentions. In doing so, it is said he relied on inadmissible hearsay because he relied on discussions with the accountant, who in turn relied on Mr Holmes, who in turned derived his understanding or intention of the transactions from Patricia and Daryll Turvey. I do not accept this submission. Mr Nacey was tasked with investigating the debt. That investigation was not a civil proceeding to which the Evidence Act applied. He was entitled to conduct the investigation in the way he did and to explain to the Court what the investigation involved and why he reached the conclusion he did.
[21] The Court’s reliance on Mr Nacey’s evidence does not give rise to an arguable ground of appeal.
Liquidators not acting reasonably?
[22] Mr Fugle submits that the Court was wrong to rely on Mr Nacey’s evidence that he spoke to Mr Turvey multiple times. He submits that the liquidators did not go far enough in making their enquiries. This issue is addressed in my judgment at [33]. At [34] I concluded that there was “no basis for a finding that the liquidators’ decision on this component of the debt is unreasonable” and that “[r]elevant enquires were made and a judgment was made by experienced liquidators”. Nothing new is now raised. The point is not arguable.
Payments to third parties
[23] Mr Fugle submits that the Court failed to draw any distinction between payments made between the parties, and by one of them to a third party. My judgment dealt with the payments made by Orana to third parties on behalf of Vey at [38]–[44]. Nothing new is raised. The point is not arguable.
Other considerations
[24] It is true that if Mr Fugle cannot appeal my decision, then it is dispositive of whether Vey owes $1,040,810 to Orana. However, it is also true that Mr Fugle has resisted the evidence and findings that the debt is indeed owed despite multiple court
hearings and processes put in place to fairly determine its validity. It also appears to be the case that Mr Fugle is the only party who might be benefitting from delaying the inevitable (that is, that the debt is due and must be paid).17 While he continues to attempt to litigate the issue, the weathertightness issues of the property that is the major asset of Vey remain unremedied with the consequence that that the property is likely deteriorating. As well, the liquidators’ costs continue to mount while substantial creditors (Orana and Inland Revenue) remain unpaid. The circumstances do not warrant the further delay caused by an appeal and it is not in the interests of justice to grant leave for an unmeritorious appeal in these circumstances.
Result
[25]The application for leave to appeal is dismissed.
Mallon J
17 Through interest accruing under a mortgage held over Vey’s property by Aokautere Land Holdings Limited (ALHL), a company in which Mr Fugle is the sole director and shareholder.
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