Walker v G2 Finance Holdings Limited

[2013] NZHC 183

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-1088 [2013] NZHC 183

BETWEEN  GLENN ANDREW WALKER Appellant

ANDG2 FINANCE HOLDINGS LIMITED Respondent

Hearing:         11 October 2012

Counsel:         P J Andrew for Appellant

M G Kirkland for Respondent

Judgment:      13 February 2013

JUDGMENT OF KEANE J

This judgment was delivered by  on 13 February 2013 at 11.30am pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Wackrow Williams & Davies, Auckland for Appellant

Kirkland Morrison, Auckland for Respondent

GLENN ANDREW WALKER V G2 FINANCE HOLDINGS LIMITED HC AK CIV 2012-404-1088 [13

February 2013]

[1]      In a decision on 7 February 2012 Judge B A Gibson gave judgment for G2

Finance Holdings Limited against Glen Walker for NZ $111,049.89; the principal and interest then outstanding on an AU $60,000 loan made to Mr Walker on 31

March 2007, when he was G2FHL's managing director, to meet 'the subscription price of shares issued to him by G2FHL as approved by the Board of Directors'.

[2]      On this appeal by Mr Walker against that decision a single issue arises. Was the Judge wrong to enter judgment against Mr Walker on his undisputed debt, in the face of his two cross-claims, neither of which he could advance in the District Court but which he contended gave him a complete right of set-off in equity?

Matrix

[3]      Under the loan agreement the loan was to fall due on 'the date of GAW's resignation from G2FHL or three years after the date of advance'; G2FHL contended that it had fallen due on the latter date, 31 March 2010, not 19 February 2008, when Mr Walker had ceased to be managing director. The two trustees of Mr Walker's trust, the Windermere Family Trust, of whom he was one, still had 28 per cent of the shares.  He, if only formally, remained a director.

[4]      In his response Mr Walker did not dispute that the loan had matured at latest on 31 March 2010, or the debt as calculated, but offset against G2FHL's claim two cross-claims. First, he claimed that G2FHL had only made the loan advance to him to enable him to purchase shares in G2FHL, and he had only accepted it, because he was G2FHL's managing director, and would throughout the term of the loan repay it out of income. On 19 February 2008, however, within the term, he was dismissed as G2FHL's  managing  director,  and  that  of  its  related  company,  Geneva  Finance Limited, and its Australian subsidiary, G2FL. He contends that he was dismissed unfairly.

[5]      Second, Mr Walker claimed that the purpose for which G2FHL issued the shares to him, and advanced him the loan, was to enable his trust to purchase those shares, and to enable G2FHL itself to purchase equivalent shares in its Australian subsidiary G2FL. When he was dismissed from G2FHL, he contends, the other

directors and shareholders eroded the worth of his trust's shareholding in G2FHL by issuing shares in its Australian subsidiary, G2FL, at a gross undervalue.

[6]      G2FHL applied to have the two cross-claims struck out as beyond the jurisdiction of the District Court. It denied that Mr Walker was ever employed by G2FHL, or G2FL, and said that he was only ever employed by Geneva, from which he had  resigned  on  terms  precluding any claim.  It  contended  that  his  unlawful dismissal claim could only be brought before the Employment Relations Authority.

[7]      As to the oppression claim, G2FHL contended, that could only be brought by the trustees of the Windamere Family Trust, not by Mr Walker  in his personal capacity, as he did not hold the shares. It contended that any complaint the trustees had against the directors and shareholders of G2FHL concerned their conduct as directors and shareholders of the Australian subsidiary, G2FL. It contended that any such claim under s 174 of the Companies Act 1991 lay only in this Court.

[8]      On 26 October 2011, when Judge Gibson heard this application, Mr Walker did not dispute that the Judge was obliged to strike out his two cross-claims as beyond jurisdiction. Nor did he dispute his debt to G2FHL. He contended, however, that it would not be just for judgment to be entered against him before his cross- claims had been resolved. Though they were not within jurisdiction, he contended, they were so intimately linked with G2FHL's claim as to impeach it and to give him a complete equitable right of set-off.

[9]      G2FHL pressed for immediate judgment. The two cross-claims not merely lay beyond jurisdiction, it contended, they related to distinct transactions or relationships and involved distinct parties. They were counterclaims that Mr Walker and the trustees were able, indeed obliged, to pursue independently, and could not impede  the  entry  of  judgment.  G2FHL proposed,  however,  that  the  Judge  stay execution as long as Mr Walker brought his unfair dismissal claim application before the Employment Relations Authority within 28 days and pursued it without delay. In this, implicitly, it allowed the trustees to pursue at the same time any oppression cross-claim in this Court.

[10]     In his decision, dated 7 February 2012, the Judge entered judgment, but stayed execution as long as Mr Walker filed his unfair dismissal claim within 28 days. He did not also require Mr Walker to pursue it without delay. He made no reference to the oppression claim. Presently the judgment remains stayed. Mr Walker did bring his unfair dismissal claim within 28 days. But he has not prosecuted it. Nor have the trustees brought any oppression claim in this Court. Instead Mr Walker seeks on this appeal to have the judgment set aside.

[11]     In resolving Mr Walker's application G2FHL accepts that I should take no account  of  a  concession  the Judge  attributed  to  his  counsel,  which  his  counsel denies; that the oppression claim was incapable of constituting a set-off because it concerned a separate transaction and different parties. G2FHL does not rely on any such concession.

Appeal principles

[12]     Section 72 of the District Courts Act 1947 confers a general right of appeal against almost all decisions taken in the District Court, whether interlocutory or final. An appeal is by way of rehearing.1  Mr Walker and G2FHL differ as to the nature of his appeal and as to his onus.

[13]     In contending that the Judge entered judgment in error, G2FHL says, Mr Walker is exercising his general right of appeal on the merits; and while he must demonstrate that the Judge was wrong to do so, I must assess the merit of the case afresh, giving such weight to the Judge's decision as I see fit.2

[14]     Mr Walker contends that in deciding to enter judgment against him, in the face  of  his  foreshadowed  cross-claims,  subject  only  to  a  conditional  stay  of execution, the Judge made an error of discretion and that all he needs to demonstrate

is  that  the  Judge  made  an  error  of  law,  or  took  into  account  an  irrelevant

1      District Courts Act 1947, s 75.

2      Austin Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141; Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31] and [32]; Spargo v Franklin HC Tauranga CIV-2010-470-91, 9 November 2011 at [30].

consideration, or failed to take into account a relevant consideration, or was plainly wrong.3

[15]     In Kacem v Bashir Tipping J said that the distinction between a general appeal and an appeal from a discretion 'is not altogether easy to describe in the abstract'. He continued to say 'the fact that the case involves factual evaluation and a value judgment does not of itself mean the decision is discretionary'; and in this instance,  it  seems  to  me,  whether the decision  under appeal  lies  in  one appeal category or the other does not matter.

[16]     G2FHL was entitled to immediate judgment in the District Court in this sense: Mr Walker did not dispute his debt and accepted that his two cross-claims could not give any immediate right of set-off because they had to be struck out. The issue for the Judge was not then whether the two cross-claims were counterclaims, or claims  that  might  give  rise to  an  equitable set-off.  It  was  how to  preserve Mr Walker's position until they were pursued and resolved.

[17]     Even  if  that  were not  so,  however,  Mr Walker must  still  on this  appeal demonstrate that the Judge categorised those claims wrongly. That is a confined issue of law and fact on which, to resolve his appeal, I must reach my own conclusion.

Counterclaim and set-off

[18]     In Grant v NZMC Ltd4 Somers J said, speaking for the Court, that while the distinction between cross-claims constituting counterclaims, and those giving rise to an equitable right of set-off, was clear, the test was less so. And as to the two forms of cross-claim, he said this:

A counterclaim is a cross-action which may have no connection at all with the subject matter of the claim, see e.g. Stumore v Campbell & Co. [1892] 1

QB 314, and is not confined to money claims. It is not of itself a defence to

the claim although under RR 534 and 535, where claim and counterclaim arise out of the same matter (McPhee v Wright Stephenson & Co. (1901) 19

3      Kacem v Bashir, above n2, at [32].

4      Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 11.

NZLR 321), one judgment only is given in favour of the party who on a balance is entitled to recover.

Whereas:

Set-off affords a defence to an action wholly or in part depending upon the amount and is by its very nature limited to money claims. When a set-off is established by judgment it will pro tanto extinguish the plaintiff's claim.

[19]     Speaking then of the test distinguishing the two forms of claim, Somers J said that a cross-claim will be rated a set-off where it:5

... so affects the plaintiff's claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant's claim calls into question or impeaches the plaintiff's demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.

[20]     In the same vein, in Hamilton Ice Arena v Perry Development Ltd6 Tipping J, also speaking for the Court, distinguished between the two forms of cross-claim in this way:

A set-off is a right vested in a defendant facing a money claim by a plaintiff to use its own money claim against the plaintiff to absolve itself wholly or partially from its obligation to the plaintiff. A set-off is different from a counterclaim which, if established, gives the defendant a right to an independent judgment against the plaintiff, but no ability to reduce or extinguish the plaintiff's claim against the defendant.

[21]     Common law, Tipping J said, set-off 'mutual liquidated debts', whereas equity intervened 'if the defendant could show a cross-claim which had the effect of impeaching the plaintiff's title to make the claim at law'. Then he said this:7

Equity always acknowledged the defendant's right to counterclaim but took the view that in some circumstances such right was not sufficient to do justice. The Courts of equity would not readily interfere with the proceedings at law and confined themselves to cases where the claim at law and the defendant's cross-claim was so closely interrelated that it would be unconscionable for the plaintiff to seek judgment at law without bringing the defendant's cross-claim to account.

5      At 12 - 13.

6      Hamilton Ice Arena v Perry Development Ltd [2002] 1 NZLR 309 (CA) at [3].

[22]     As it had been put in one English case,8  Tipping J said, 'the equity claimed must  go  to  the  very  root  of  the  plaintiff's  claim';9   and,  as  Hamilton  Ice  itself illustrates, that involves two essential considerations. One is whether the parties to the claim and any cross-claim are the same or not. The other is whether the claim

and cross-claim arise out of the same transaction, or interdependent transactions, or out of wholly independent transactions.

[23]     As to identity of parties, Tipping J said, 'the authorities seem to proceed on the basis that the need for identity of parties is axiomatic'.10 At common law, he said, according to Halsbury's Laws of England,11  claims can only be set-off against as

'between the same parties and in the same right.':12

The need for identity of parties is also consistent with the proposition that the cross-claim is regarded in equity as fully or pro tanto extinguishing the plaintiff's right to judgment on the claim. The concept of extinguishment is difficult if the cross-claim is made by a different party.

[24]     To that necessity, he said, the Court admitted this limited caveat:13

While we would not wish to rule out the possibility that in some unusual circumstance it might be appropriate to allow equitable set-off where there is no identity of parties, any such circumstance (other than one justifying the lifting of the corporate veil) would have to be consistent with the extinguishment rationale.

[25]     In that case Hamilton wished to offset against  rent owed  to  Perry for a Hamilton skating rink wages owed to its own shareholders, the Spiers brothers, for their work on Perry's ten pin bowling arena in Panmure, Auckland. On the appeal the Court held that they could not do so.

[26]     The parties to the two transactions, the Court held, were not the same. The Spiers were parties to one transaction and Hamilton to the other, and they and their company were not one person in law. The parties to the two transactions would have

been the same, the Court held, if Perry had called on the Spiers' guarantee   of

8      British Anzani (Felixstowe) Ltd v International Marine Management (U.K.) Ltd [1980] 1 QB

137 at 145.

9 At [6].

10 At [7].

11     Halsbury's Laws of England (4th ed, 1983) vol 42, Set-off and Counterclaim at [435].

12 At [8].

Hamilton's debt, making them also principal debtors, but it had not done so. That, the Court held, was fatal to any right of set-off in equity, but that apart, the two transactions 'did not have the necessary inter-dependence'.14

[27]     The  two  contracts,  the  lease  and  the  refurbishment  contract,  concerned different premises and different cities, one involved rent, the other wages and, the Court held, 'they really have no practical or conceptual linkage at all'.15   Nor did the fact that Hamilton was to pay Perry the rent from the wages Perry owed the brothers supply that linkage:

In almost all cases of money cross-claims one party can say to the other, if you had paid me I would have been able to pay you. If that were a sufficient justification  for  set-off,  the  difference  between  set-off  and  counterclaim would be blurred almost to the point of extinction.

[28]   In its recent decision, Herring v Herring,16 the Court of Appeal held unanimously to the need for a close nexus of parties and interdependence. That case turned finally, however, on the extent of the residual discretion to withhold summary judgment where there is no defence to the claim, and thus the effect of HCR 12.2, which states that the Court 'may' give judgment. The majority considered summary judgment ought to have been withheld because the property rights there in issue were more justly assessed within relationship property proceedings. Harrison J considered that summary judgment ought to have been withheld unless the summary procedure

had given rise to oppression or injustice.17

[29]     In this case judgment was given on the basis that there was no defence to the claim and no cross-claim within jurisdiction. In that sense it was summary. But it was not given under HCR 12.2, or any equivalent rule, and that issue does not arise.

Conclusions

[30]     In the absence of an arguable defence to the loan debt, and any immediate ability on Mr Walker's part to offset a cross-claim qualifying as an equitable set-off,

14 At [12].

15 At [41].

16     Herring v Herring [2010] NZCA 500, [2011] 2 NZLR 433.

the Judge was right to conclude that G2FHL was entitled to judgment. Whether the cross-claims were, once pursued within jurisdiction, independent counterclaims or claims giving notionally a right to set-off was academic and even if it was not, the Judge made no error.

[31]     The Judge accepted that in principle Mr Walker's cross-claim founded on unfair dismissal might give rise to a right of equitable set-off. But in that the Judge assumed  in  Mr  Walker's  favour  that  he  was  employed  by  G2FHL.  If  he  was employed only by Geneva, as G2FHL contends, his claim would not have qualified as a set-off. There would not have been the necessary identity of parties or interdependence of claims. That was not an issue of fact the Judge could begin to resolve.

[32]     The Judge was right to conclude that the oppression claim could not qualify as an equitable set-off. That claim could only be advanced by the trustees to Mr Walker's trust, not by him. It involved the conduct of the shareholders and trustees of G2FHL, primarily if not exclusively as shareholders and directors of the Australian subsidiary, G2FL. There was a lack of identity of parties and transactions.

[33]     All  that  apart,  the  Judge,  in  entering  a  stay  of  execution  on  G2FHL's concession, gave Mr Walker the ability to pursue his two cross-claims as if they did give a right of equitable set-off, as long as he brought his unfair dismissal claim within 28 days and the trustees took the opportunity to pursue at the same time any oppression claim.

[34]    Mr Walker brought the unfair dismissal claim within time and the stay continues. But he has not pursued that claim, nor have the trustees brought any oppression claim in this Court because both apparently require a grant of legal aid. That is an unfortunate impediment. But it does not and cannot touch the correctness of the Judge's decision. It confirms rather that the Judge was right to enter judgment in favour of G2FHL as and when he did.

[35]     Mr Walker's appeal will be dismissed. Unless Mr Walker pursued this appeal on a grant of legal aid, which is subject to a distinct regime, G2FHL is entitled to

costs.  If G2FHL wishes  to pursue costs, in any sense, it is to file and serve a memorandum  within  ten  working  days  and  Mr  Walker  is  to  reply  within  the

succeeding ten working days.

P.J. Keane J