Watts & Hughes Construction Limited v Biala - [2020] NZHC 3041

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-106

[2020] NZHC 3041

UNDER the Companies Act 1993

BETWEEN

WATTS & HUGHES CONSTRUCTION LIMITED

Plaintiff

AND

VIJAY BIALA

Defendant

Hearing: 3 August – 6 August 2020

Counsel:

D J Jackson for the Plaintiff S Cottrell for the Defendant

Judgment:

17 November 2020

JUDGMENT OF CULL J

[1] A national construction company sues a director of a café and wine company (in liquidation) for $39,629.88 plus interest for reckless trading under s 135 of the Companies Act 1993 (the Act). It is claimed the director carried on the business of the company in a reckless manner and did not make proper provision for the last of the construction costs for a fit-out of the company’s café and wine bar premises.

[2] The construction company, Watts & Hughes Construction Ltd (Watts & Hughes) claims against Vijay Biala, the director of the liquidated company La Di Da Expresso & Wine Bar Ltd (the Company). Watts & Hughes alleges that the Company did not have the funds to meet the fit-out costs, either at the time it engaged Watts & Hughes or throughout the time of its short trading life. Watts & Hughes claims that Mr Biala carried on the business of the Company in a manner likely to create a substantial risk of serious loss to Watts & Hughes, because the Company did not have

WATTS & HUGHES CONSTRUCTION LIMITED v BIALA [2020] NZHC 3041 [17 November 2020]

the funds to pay the construction costs at the time that they were incurred, at the time of the final invoice on 12 November 2014, or in February 2015 when a new agreement between the parties was allegedly reached, and instead paid other creditors in preference to the pre-existing debts of Watts & Hughes.

[3] Mr Biala rejects the allegation that the Company was insolvent at the time it engaged the plaintiff or throughout the construction of the fit-out. By the end of April 2015, however, the financial situation for the Company was untenable and it ceased trading. Mr Biala says that Watts & Hughes breached its construction agreement by failing to complete the fit-out by 20 September 2014 and incurred unauthorised costs over and above the contract price. The unexplained delays by Watts & Hughes, Mr Biala says, prevented the Company from trading and caused loss to the Company.

Background facts

[4] Since 2000, Mr Biala and his family had operated a successful restaurant business known as Maharaja, which was the trading arm of their company Sher-e- punjab Ltd. However, as a result of the Christchurch earthquakes in 2010 and 2011, the Maharaja premises were destroyed. After a period of almost two years of not operating at all, the Biala’s found and moved into a new premises for Maharaja in September 2012.

The Company and fit-out

[5] On the rebuild in Victoria Street, Christchurch, the Bialas decided that their family business could expand and incorporated the…

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: [2020] NZHC 3041
Decision Date: 17 November 2020

CaseChat Overview and Summary

The case of Watts & Hughes Construction Limited v Biala, heard in the High Court of New Zealand, involved a claim by Watts & Hughes Construction Limited against Vijay Biala, a director of La Di Da Expresso & Wine Bar Ltd, for $39,629.88 plus interest. Watts & Hughes alleged that Biala carried on the business of the Company in a reckless manner and did not make proper provision to pay the construction costs for a fit-out of the café and wine bar premises, creating a substantial risk of serious loss to Watts & Hughes. Biala rejected these allegations, asserting that the Company was not insolvent and that Watts & Hughes breached its construction agreement. The court considered whether Biala breached s 135 of the Companies Act 1993 by carrying on the business of the Company in a manner likely to create a substantial risk of serious loss to creditors. The court found that Biala did not carry on the business of the Company in a reckless manner, as the decision to engage Watts & Hughes was a planned and calculated risk, and the decision to continue trading was based on a reasonable expectation of profitability. The court also found that the plaintiff's loss was uncertain and not "serious" within the meaning of the Act. Therefore, the plaintiff's claim was dismissed, and the defendant was entitled to costs.

Orders