Williams v BDO Auckland
[2020] NZHC 2886
•3 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2097
[2020] NZHC 2886
IN THE MATTER OF FIVE STAR CONSUMER FINANCE LIMITED BETWEEN
NEILL ALLAN WILLIAMS
Plaintiff
AND
BDO AUCKLAND
First DefendantRICHARD DALE AGNEW, ANTHONY DAVID KENNETH BOSWELL and COLIN THOMAS McCLOY
Second Defendants
COVENANT TRUSTEE SERVICES LIMITED
Third DefendantOFFICIAL ASSIGNEE
Fourth Defendant
Hearing: 23 June 2020 Appearances:
The plaintiff in person, with his McKenzie Friend, Mr Balzat MC Smith and HE Savage for the First Defendant
NFD Moffat and RA Morris for the Second Defendants J Adams for the Third Defendant
Judgment:
3 November 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 3 November 2020 at 5pm
……………………………………….
Registrar/Deputy Registrar
Williams v BDO Auckland & Ors [2020] NZHC 2886 [3 November 2020]
[1] The defendants all apply for summary judgment, or in the alternative, orders striking out Mr Williams’ claims against them. If they are not successful with those applications, they ask for an order fixing security for their costs of the proceeding.
The parties, and Mr Williams’ claims
[2] Mr Williams’ claims arise out of the collapse of a finance company called Five Star Consumer Finance Limited (Five Star). Five Star collapsed and was put into receivership on 29 August 2007.
[3] Five Star was an issuer of debt securities regulated under the Securities Act 1978 and the Securities Regulations 1983. As such, it was required to appoint a statutory trustee to act on behalf of investors. The trustee was the third defendant, Covenant Trustee Services Limited (Covenant), appointed under a debenture trust deed entered into by Five Star and Covenant on 27 April 2001 (the debenture trust deed).
[4] The first defendant, BDO Auckland (BDO), was Five Star’s auditor at all material times up to the date Five Star was put into receivership.
[5] The second defendants (collectively, “the receivers”) are partners or former partners in PriceWaterhouseCoopers, Auckland. At different times, they acted as receivers of Five Star, appointed by Covenant.
[6] The fourth defendant, the Official Assignee (the Assignee), was appointed liquidator of Five Star by order of this Court made on 6 December 2013.
[7] Mr Williams is a gentleman in his eighties. He says in his statement of claim filed on 30 September 2019 that he is the assignee of various debenture securities in Five Star, and that he is entitled to sue in that capacity. He also sues in his capacity as trustee of a trust known as the Antares Consumer Trust (the Trust), which he says holds 4,096,226 shares in a company called Antares Finance Holdings Limited (Antares). Mr Williams pleads that Antares was the sole shareholder of Five Star from November 2005, when it acquired the shareholding of Five Star Finance Limited.
The claim against BDO
[8] Mr Williams’ first claim is against BDO, for alleged breaches of duty as auditor of Five Star’s financial statements in the period before Five Star was put into receivership. Mr Williams says that BDO owed a duty of care to Antares as the shareholder of Five Star, and to debenture holders and future debenture holders of Five Star, and that BDO acted in breach of that duty of care. BDO is said to have owed a duty to audit the books and records of Five Star in a professional, careful, and prudent manner, and in accordance with generally accepted accounting practice. He says that BDO also owed a duty to certify that the accounts of Five Star represented a true and fair picture of Five Star’s financial position.
[9] Between 2001 and September 2006, BDO provided unqualified audit reports approving the accounts and records of Five Star. Mr Williams contends that the audit reports were defective, in that they failed to take any or proper account of a number of transactions, any one or more of which would have precluded BDO from providing unqualified audit reports. BDO’s failure to take any or proper account of the pleaded transactions is said to have constituted negligence on its part. Mr Williams says that it was reasonably foreseeable that Antares would suffer loss as a result of that negligence, and that it has suffered loss (in the sum of $29,293,000, being the alleged value of Antares’ shares in Five Star).
[10] In addition to the alleged loss suffered by Antares, Mr Williams says that losses were also suffered by debenture holders who relied on the audit reports prepared by BDO in deciding whether to invest or re-invest in Five Star. Mr Williams pleads that the debenture holders have suffered losses totalling $103,671,910 as a result of BDO’s negligence, and that, having taken assignments of the debentures, he is entitled to recover that sum.
[11] Mr Williams asks for damages from BDO in the total sum of $132,964,910, made up of Antares’ alleged loss as a shareholder ($29,293,000) and the loss he says he has suffered as assignee of the debenture securities ($103,671,910).
The claim against the receivers
[12] Mr Williams contends that, on their appointment, the receivers were under a duty to maximise the return to Antares and recover the losses suffered by the debenture holders. To discharge those duties, they should have commenced an appropriate proceeding against BDO for negligence in the preparation of the audit reports.
[13] The receivers did not bring any proceeding against BDO, with the alleged result that the shareholders in Antares lost the value their shares had when they were purchased from Five Star Finance Limited, another member of the Five Star group. The receivers’ failure to sue BDO is also said to have caused the debenture holders to suffer the loss of the value of their debentures. Mr Williams sues the receivers in negligence for his losses, being the value of the shares in Antares plus the value of the debentures (total $132,964,910).
The claim against Covenant
[14] Mr Williams alleges that Covenant acted in breach of its obligations under the debenture trust deed, and in breach of duties of care owed to the shareholders in Antares and to the debenture holders. He lists a number of alleged breaches by Five Star of its obligations under the debenture trust deed, including breach of cl 5.3 (restrictions on related party lending), cl 5.1(a)(i) (restriction on allowing total liabilities to exceed 91 per cent of total tangible assets), and cl 5.2(d) (restriction on allowing any debtor or group of debtors to owe more than 10 per cent of Five Star’s total tangible assets).
[15] Mr Williams contends that, in appointing the receivers, Covenant owed a duty of care to the shareholders in Antares and the Five Star debenture holders to ensure that the receivers carried out their obligations in a good, proper and competent manner. It was reasonably foreseeable that the shareholders in Antares and the debenture holders would suffer loss if the receivers failed to properly carry out their obligations as receivers (by suing BDO), and they did suffer that loss.
[16] Mr Williams repeats against Covenant his allegation that the receivers were negligent in failing to bring a claim against BDO to recover damages for its negligence in carrying out the audit work. He then contends that Covenant breached its obligations to the shareholders of Antares and to the debenture holders, when it failed to ensure that the receivers sued BDO.
[17] Mr Williams says that, as a result of Covenant’s negligence, he has suffered loss in the same amount he is claiming from BDO and the receivers.
The claim against the Assignee
[18] Mr Williams pleads that, as liquidator of Five Star, the Assignee was under a duty to the shareholders of Antares and the debenture holders to maximise the return to Antares and to the debenture holders. Mr Williams pleads that the Assignee failed to discharge that duty of care in the following respects:
(1)Failing to bring a claim against BDO for its negligence in the audit work;
(2)Failing to bring a claim against the receivers for failing to sue BDO during the limitation period within which a claim against BDO could have been commenced;
(3)Failing to bring a claim against Covenant for failing to bring a claim against the receivers.
[19] Mr Williams claims the same loss from the Assignee as he claims from the other defendants.
Mr Williams’ criminal convictions relating to Five Star
[20] Mr Williams was himself convicted of criminal offending associated with the collapse of Five Star. On 5 October 2010 he pleaded guilty to certain charges laid under s 58 of the Securities Act 1978 and s 66 of the Crimes Act 1961, in which he was alleged to have been a party to mis-statements in a Five Star registered prospectus
or advertisement, offering, distributing or allotting in contravention of the Securities Act 1978, and false or misleading statements made in financial statements.
[21] Mr Williams later sought (on two occasions) to withdraw his guilty pleas, contending that he had good defences. His attempts to withdraw the guilty pleas were unsuccessful in the District Court, and an application for a judicial review of the District Court decisions was dismissed by Venning J on 8 February 2013.1
[22] Mr Williams was sentenced in the District Court to three years and seven months imprisonment after certain determinations of fact were made by Judge DM Wilson QC in a reserved decision given on 12 March 2013.
[23] Judge Wilson rejected Mr Williams’ proposition that he was a mere employee in the Five Star group, uninvolved in the critical decisions about the direction of the group. His Honour said:2
The Crown evidence as a whole satisfies me that [Mr Williams] was the guiding hand of the group.
[24] Later in the decision, Judge Wilson found that “Mr Williams was an integral part of all major strategic decisions within the Five Star group”.3
[25] Mr Williams was prosecuted separately by the Serious Fraud Office, for theft by a person in a special relationship (s 220 of the Crimes Act 1961). He initially pleaded not guilty to two charges but he changed his plea to guilty four days into the trial.
[26] In sentencing Mr Williams to five years’ imprisonment on the charges under s 220, Gilbert J noted that Mr Williams was “heavily involved” in the management and operations of the Five Star group, including Five Star.4 His Honour noted that, between 2003 and 2007, Five Star entered into a number of related party loans in breach of the restrictions in the debenture trust deed. His Honour found that Mr Williams was
1 Williams v The District Court at Auckland [2013] NZHC 127.
2 The Queen v Williams DC Auckland CRI-2009-004-024026, 12 March 2013 at [24].
3 At [39].
4 R v Williams [2013] NZHC 2139 at [2].
involved in arranging and approving these unauthorised related party loans, knowing that they breached the terms of the debenture trust deed.5
[27]On one of the counts of theft, His Honour said:6
… By disguising the related party lending in this way, you and the directors of Five Star intended to mislead the trustee and the auditors so that Five Star could continue to borrow further funds from members of the public.
[28] Mr Williams’ position in this proceeding is that he pleaded guilty at age 76 due to major health problems he suffered after the receivership, as he was not physically well enough to stand the rigours of a major trial. He also said that he was incorrectly advised by counsel in the Securities Act proceeding that it would not be a difficult matter to change his guilty plea if he later wished to do so.
The statements of defence of BDO, the receivers, and the Assignee
[29] Statements of defence have been filed by BDO, the receivers, and the Assignee. Covenant has deferred filing a statement of defence pending the determination of its application for strike-out or summary judgment (or in the alternative, security for its costs).
BDO’s statement of defence
[30] BDO admits that Five Star was placed into receivership on 29 August 2007, and that Mr Agnew and Mr Boswell were appointed receivers of Five Star on that date. It admits that Five Star was put into liquidation on 6 December 2013, and it says that Five Star was struck off the Register of Companies on 4 November 2015.
[31] BDO admits that Antares was the sole shareholder of Five Star, and it says that Antares was put into liquidation on 7 May 2008. It admits that it was the auditor for Five Star and Antares between 2001 and 2007.
5 At [4].
6 R v Williams, above n 4, at [5].
[32] BDO denies that it owed the shareholders of Antares any duty of care, and it says that any assignments of debentures to Mr Williams would have been contrary to public policy and invalid. The invalidity is said to arise from Mr Williams’ role and conduct in the affairs of Five Star before its receivership.
[33] Finally, BDO says that Mr Williams’ claims are out of time under the Limitation Act 1950. Any cause of action Mr Williams might have had would have accrued when shareholding or investment decisions were made in reliance on BDO’s audit reports, or at latest on the receivership of Five Star on 29 August 2007. On that basis, the six-year limitation period for Mr Williams to issue his proceeding7 expired on or before 28 August 2013. As Mr Williams’ claim was not filed in this Court until 30 September 2019, the claim is out of time and cannot succeed.
The receivers’ statement of defence
[34] The receivers deny that Mr Williams has standing to bring the claim. They say that Companies Office records show that none of the 7,851,094 issued shares in Antares were allocated to Mr Williams. The first report of the liquidators of Antares, dated 12 June 2008, records that the shareholders in Antares were the subscribers to a cumulative preference share issue, and there could not have been any transfer of Antares shares to Mr Williams after Antares was put into liquidation: s 248(d) of the Companies Act 1993 (the Act) prevents any transfer of shares in a company in liquidation without the prior approval of this Court, and no such approval has been given.
[35] The receivers also deny that the secured debenture stock in Five Star was held by Mr Williams. At the date of the receivership, the secured debenture stock was held by approximately 2,130 investors, and Mr Williams was not one of them.
[36] The receivers plead that Mr Williams acted as a de facto director of Five Star at material times. They refer to the decision on disputed facts given by Judge Wilson in the District Court on 12 March 2013, and the sentencing remarks of Gilbert J when Mr Williams was sentenced in the High Court. They say that Mr Williams had full
7 Limitation Act 1950, s 4.
knowledge of, and responsibility for, any issues with Five Star’s lending and accounting practices, and with its non-compliance with the debenture trust deed.
[37] The receivers deny that they owed any duty of care to shareholders of Antares. Under the debenture trust deed, their obligation was to recover amounts from the Charged Assets (as defined in the debenture trust deed), and to assist Covenant in distributing those amounts to investors.
[38] The receivers say that in the course of the receivership they did consider whether a claim should be made against BDO (for not detecting the criminal offending by Five Star’s actual and de facto directors, including Mr Williams). They made the decision not to bring a proceeding against BDO in light of the risks and uncertainties as to whether such a proceeding would be successful, and the substantial costs of bringing the proceeding. They advised Covenant of that decision in August 2012, and they also informed the Financial Markets Authority of the information they had arising from the criminal prosecution of Five Star’s actual and de facto directors.
[39] The receivers did bring proceedings against Five Star’s actual and de facto directors, including Mr Williams, for breaches of duties owed by them to Five Star under the Act. The claim against Mr Williams was stayed when he was adjudicated bankrupt on 17 February 2011.
[40] The receivers also plead that Mr Williams’ claims are out of time. In addition to s 4 of the Limitation Act 1950, they rely on s 11(1) of the Limitation Act 2010, which provides a defence to a money claim if the claim is not filed within six years after the act or omission on which the claim is based.
[41] The limitation position is different for Mr Boswell on the one hand, and Messrs Agnew and McCloy on the other. Any act or omission of Mr Boswell must have been an act or omission before 27 January 2009, when he resigned as a receiver of Five Star. The limitation position on the claim against Mr Boswell is therefore governed by the Limitation Act 1950.8
8 Under s 59 of the Limitation Act 2010, the 1950 Act continues to apply to causes of action based on any act or omission occurring before 1 January 2011.
[42] Mr Agnew and Mr McCloy were the receivers in office following Mr Boswell’s resignation, but any omission by Mr Agnew and Mr McCloy to commence a proceeding against BDO would have to have been at a time when it was still possible to sue BDO. That could not have been any later than six years after the commencement of the receivership of Five Star (29 August 2013), as by then at least some loss must have been caused by any negligence there may have been in BDO’s audit work. Any claim by Mr Williams against Mr Agnew and Mr McCloy therefore had to be filed no later than 29 August 2019, being six years after the last date a proceeding could have been issued by the receivers against BDO. As Mr Williams did not commence his proceeding until 30 September 2019, he was approximately one month out of time. His claim is accordingly barred under s 11(1) of the Limitation Act 2010.
The Assignee’s statement of defence
[43] The Assignee admits he was appointed liquidator of Five Star on 6 December 2013. He says that he retired on 7 August 2015.
[44] The Assignee denies owing any duty to maximise the returns to Antares and the debenture holders. He says that he was not obliged to carry out any duty or exercise any power in the liquidation that would have resulted in him incurring expense, and nor was he required to carry out any duty in respect of any property of Five Star which was subject to a charge.
[45] Pursuing a proceeding against BDO would have incurred substantial expense, and there were in any event no available assets in the liquidation of Five Star to meet that expense. Further, any such claim was and remained secured property throughout the course of the liquidation.
[46] The Assignee also pleads that any claim against BDO was statute-barred from at least 29 August 2013.
Mr Williams’ reply
[47] Mr Williams has filed a reply, briefly denying all of the affirmative defences pleaded in the statements of defence.
Defendants’ applications for summary judgment, strike-out, or security for costs
[48] Each of the defendants has filed an application for summary judgment or an order striking out Mr Williams’ claim. In the alternative, each asks for an order for security for its costs.
[49] Mr Williams has filed brief notices of opposition to each of the defendants’ applications, generally opposing the making of the orders sought. In each case, Mr Williams denies any relevant limitation period has expired, and he says that each of the defendants owed him a duty of care as alleged. He avers that he is the assignee of various debenture securities, and says that he has acted properly in bringing his claim.
[50] In response to the summary judgment/strike-out application by the receivers, Mr Williams says that he was not aware of or complicit in breaches of Five Star’s obligations under the debenture trust deed.
[51] On each of the security for costs applications, Mr Williams admits that he is impecunious, but pleads that it is just and equitable that his claim should be allowed to proceed.
Defendants’ strike-out and summary judgment applications – legal principles
Strike-out applications
[52]Rule 15.1 of the High Court Rules 2016 provides as follows:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
[53]The following principles have been established by the Supreme Court:9
(1)the jurisdiction to strike out a cause of action is one which is exercised rarely and only where the cause of action is clearly untenable (i.e. has no prospect of success);
(2)a strike-out application proceeds on the basis that the facts pleaded against the applicant are true;
(3)the Court should be particularly slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new situation;
(4)developments in negligence need to be based on proved rather than hypothetical facts; and
(5)if a pleading may be saved by amendment, that amendment should be allowed.10
Defendants’ summary judgment applications
[54]Rule 12.2(2) of the High Court Rules provides:
…
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
9 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.
10 Kupenga v Hayes HC Auckland A1523/84, 4 February 1986.
[55] The principles applicable to an application for summary judgment by a defendant were discussed by Elias CJ in Westpac Banking Corp v MM Kembla NZ Limited:11
[61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim ...
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.
The applications by BDO
[56] I will deal first with BDO’s application for summary judgment and/or strike- out.
Submissions for BDO
[57]BDO made two principal submissions:
(i)The claims against it are statute-barred;
(ii)It did not owe Mr Williams the pleaded duties of care.
11 Westpac Banking Corp v M M Kembla NZ Limited [2001] 2 NZLR 298 (CA) at [61] - [63].
[58] For BDO, Mr Smith submitted that the Limitation Act 1950 applies, and that s 4 of that Act provides that an action founded on tort (as Mr Williams’ claim is) shall not be brought after the expiration of six years from the date on which the cause of action accrued.
[59] Under the 1950 Act, a cause of action in negligence accrues when the plaintiff first suffers loss attributable to the breach.12 That is generally the position whether or not the plaintiff is aware they have suffered loss. There is no general doctrine of reasonable discoverability under the 1950 Act.13
[60] When a plaintiff sues a professional adviser for financial damage, the cause of action accrues (and time begins running for limitation purposes) as soon as the plaintiff who relied on the advice is “financially worse off”, even if quantification is difficult and measurement of the loss may ultimately depend on further contingencies.14 The loss must be material, but it need not be complete or readily measured.15
[61] Where an investor has purchased an investment that does not have the represented characteristics, the investor suffers loss immediately on the purchase. The reason for that is that the investment is less valuable to the investor for that reason; it remains uncertain whether the investment will in fact underperform in comparison with an investment that had the promised characteristics.16
[62] Mr Smith submitted that the effect of those authorities is that any shareholder or investor in Five Star must have suffered loss when he or she purchased shares or investments in Five Star. On the date of purchase, the investor acquired an investment that was not what had been represented in the prospectuses, including BDO’s audit letters. Mr Smith submits that must be the case here, particularly having regard to Mr Williams’ pleading in his statement of claim that Five Star was insolvent from as early as 31 March 2004.
12 Thom v Davys Burton [2008] NZSC 65, [2009] 1 NZLR 437 at [15].
13 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [37].
14 Thom v Davys Burton, above n 12, at [16].
15 Westland District Council v York [2014] NZCA 59 at [13].
16 Shore v Sedgwick Financial Services [2008] EWCA Civ 863, [2009] Bus LR 42, at [37] – [39], referred to in Smith v Singleton [2015] NZHC 1643 at [43].
[63] Mr Smith submitted that the precise date on which any cause of action would have accrued is academic in this case, because the shareholders and debenture holders must have suffered loss when Five Star was put into receivership on 29 August 2007. He submitted that the shareholders and investors could certainly have commenced a claim against the registered directors, Mr Williams, and any other allegedly liable parties at that point. Under s 4 of the Limitation Act 1950, any claim had to be brought within six years of that date. In this case, Mr Williams’ claim was not filed until 30 September 2019, more than 12 years after any cause of action against BDO must have accrued.
Submissions by Mr Williams
[64] Mr Williams first submitted that time did not begin to run under the Limitation Act until the completion of the receivership.
[65] Secondly, Mr Williams argued that the claim against BDO is one of mistake. He appears to rely on s 28 of the Limitation Act 1950, which provides as follows:
28 Postponement of limitation period in case of fraud or mistake
Where, in the case of any action for which a period of limitation is prescribed by this Act, either—
(a)the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or
(b)the right of action is concealed by the fraud of any such person as aforesaid; or
(c)the action is for relief from the consequences of a mistake,—
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:
Provided that nothing in this section shall enable any action to be brought to recover, or enforce any charge against, or set aside any transaction affecting, any property which—
(d)in the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know or have reason to believe that any fraud had been committed; or
(e)in the case of mistake, has been purchased for valuable consideration, subsequently to the transaction in which the mistake was made, by a person who did not know or have reason to believe that the mistake had been made.
[66] Mr Williams also referred to the 15-year longstop limitation period provided at s 23B of the Limitation Act 1950. He submitted that the longstop limitation period:
… is to allow for [an extension of the limitation period to 15 years] in the case of Audit Mistake of which BDO as auditor are guilty of not reporting that
90.35 per cent irrecoverable losses had not been written off. Last unqualified audit longstop period of limitation BDO 20/9/2006 plus 15 years is 20/9/21.
Discussion and conclusions on the limitation issue
[67] I accept Mr Smith’s submissions on this issue. Mr Williams’ claim against BDO is clearly statute-barred under s 4 of the Limitation Act 1950.
[68] On Mr Williams’ own pleadings and evidence, Five Star was actually insolvent from as early as 31 March 2004, and the last of the audit reports issued by BDO was issued in September 2006. According to Mr Agnew’s affidavit for the receivers, it was the directors of Five Star who concluded in August 2007 that the company was no longer able to operate due to lack of liquidity and reduced investment rate in the marketplace. The directors then requested that Covenant appoint the receivers under its powers contained in the debenture trust deed, and the appointment was made on 29 August 2007.
[69] Five Star’s insolvency appears to have been made public immediately after the receivers were appointed. In a document prepared by Mr Williams and sent by him to the receivers’ solicitors on 17 November 2019, Mr Williams said:
Appendix 2: PWC receivers first report 9 days after appointment
PWC appointed 29/08/2007 reported within 9 days that two of the Five Star Directors revealed and signed that irrecoverable NZ loans not written off were
$30 million which mean that Five Star was insolvent.
[70] A major part of Mr Williams’ complaint against BDO is that it failed to pick up breaches of the debenture trust deed, and/or the fact that commercial loans entered into by Five Star were outside normal commercial lending practices and were made without any or proper security, such that approximately 78 per cent of the loans were irrecoverable. Mr Williams himself acknowledges in his statement of claim that no or insufficient allowance was made for bad debts, and that the restrictions on related party lending contained in the debenture trust deed were breached by Five Star.
[71] Mr Agnew described in his evidence the issues the receivers found with Five Star’s loan book. He said that of the total loan book of $65,520,000 at the date of the receivership, $40,965,000 comprised large consumer loans to 72 private individuals. It transpired that the majority of this lending had been conducted on non-commercial terms with either no security or inadequate security. The loans were made to companies related to the directors of Five Star, or to individuals for the purpose of buying redeemable preference shares in Antares. The receivers issued proceedings against the directors and Mr Williams for breaches of their directors’ duties owed to Five Star, in July 2008. Mr Williams was bankrupted in February 2011, preventing the proceeding against him being pursued any further.
[72] On any view of it, any loss caused to shareholders, debenture holders, or other investors in Five Star as a result of reliance on BDO’s audit reports, must have occurred by the date of the receivership at latest. Anyone acquiring shares or other investments in Five Star in reliance on the allegedly defective audit reports issued by BDO could not have been in any doubt at that point that their investments were worth substantially less than they would have been if there had been no defects in the audit reports. Applying cases such as Shore v Sedgwick, and Smith v Singleton, the investors or shareholders relying on the audit reports to obtain their investments probably suffered loss immediately when the investments were acquired. However, I do not need to make any finding to that effect, because it is clear from Mr Williams’ own statement of claim and the evidence of Mr Agnew that, by the date of receivership at latest, Five Star was insolvent. Shareholders or investors who may have relied on BDO’s audit reports must have suffered loss by that point.
[73] For those reasons, there is no merit in Mr Williams’ submissions that any relevant loss did not occur until the conclusion of the receivership. It had occurred, at latest, by the date of receivership in August 2007. By then, the investors were clearly financially worse off, as their investments were less valuable than they would have been if Five Star’s financial position, on a true and fair view, had been as it was said to be in the financial statements which were the subject of BDO’s unqualified audit reports.
[74] Section 28(c) of the Limitation Act 1950 cannot assist Mr Williams on the limitation issue. Section 28(c) had the effect of extending the six year limitation period in an action for relief from the consequences of a mistake, so that time would not begin to run against the plaintiff for limitation purposes until the plaintiff had discovered the mistake (or could, with reasonable diligence, have discovered it). Mr Williams’ present action is not an action for relief from the consequences of any mistake. It is a claim for substantial damages for alleged negligence in the conduct of audit work.17
[75] Nor can the longstop limitation period of 15 years prescribed by s 23B of the Limitation Act 1950 assist Mr Williams. The 15-year longstop provision is not designed to extend the period within which plaintiffs can bring proceedings. Rather, it is designed to provide prospective defendants with certainty that they will no longer be exposed to possible claims when 15 years have expired from the dates of their acts or omissions which might have been the subject of a claim. That purpose is made clear in s 23B(2), which provides that the longstop period is to apply in addition to every other period of limitation that applies to the action. In this case, Mr Williams’ claim is caught by the six-year limitation period prescribed by s 4 of the 1950 Act.
[76] For all of those reasons, the claim against BDO is clearly out of time. That situation is incapable of being remedied by any amendment to the pleadings, and the appropriate relief is to enter summary judgment for BDO on the claims against it. There will be judgment accordingly.
[77] In those circumstances there is no need to consider BDO’s argument based on the absence of any duty of care owed to Mr Williams. Nor is there any need to consider BDO’s applications for strike-out and security for costs orders.
17 Section 28(c) was considered by Allan J in James v McMahon [2013] NZHC 3018, [2014] NZAR 295 at [59] – [61]. His Honour held (at [61]) that a plaintiff who wishes to rely on the provisions of s 28(c) must plead and prove a cause of action that involves mistake as a necessary ingredient. His Honour noted (at [59]) that mistake was not an essential element of the causes of action pleaded – rather, the plaintiff’s claim was that the defendant solicitors were negligent in the discharge of their obligations to the plaintiffs. So in this case, Mr Williams case is one of negligence – there is no attempt to invoke the statutory provisions relating to mistake in Part 2, subpart 2 of the Contract and Commercial Law Act 2017, or to rely on any other form of mistake made by Mr Williams. Nor could there be on the facts of this case.
The applications by the receivers
[78] Again, I will deal first with the receivers’ application for summary judgment and/or strike-out.
Submissions for the receivers
[79]Mr Moffat made the following submissions for the receivers:
(1)The proceeding against the receivers is statute-barred. Any losses arising out of any deficiencies in BDO’s last audit letter dated 20 September 2006 would have been suffered no later than the date Five Star was put into receivership, and the receivers could not have brought any claim against BDO after six years had elapsed from the date of the receivership. The relevant omission relied upon by Mr Williams (failure to issue a proceeding against BDO while there was still time to do so) must have occurred at latest by 29 August 2013, being the sixth anniversary of the commencement of the receivership. Any claim against the receivers had to be filed within six years of that date, and Mr Williams missed that filing deadline by a little over one month.
(2)Mr Williams has no standing to bring the proceeding, as he is neither a shareholder of Antares nor a holder of Five Star debenture stock. Further, the receivers owed no duty of care to a shareholder of Antares.
(3)The claim against the receivers is frivolous, vexatious, and an abuse of process, given that Mr Williams effectively seeks damages for BDO’s alleged failure to uncover his own wrongdoing.
[80] Mr Moffat substantially adopted the submissions made for Covenant in respect of Mr Williams’ lack of standing, and the submissions of the Assignee in respect of the claim being an abuse of process.
[81] On the limitation argument, Mr Moffat referred to the different limitation provisions applicable in respect of Mr Boswell on the one hand, and Messrs Agnew and McCloy on the other. Any economic loss allegedly suffered due to Mr Boswell failing to issue a proceeding against BDO would have occurred no later than the date he retired as a receiver on 27 January 2009 (once he retired as a receiver, he had no ability to bring a claim on behalf of Five Star against BDO). The six-year time limit for bringing a claim against Mr Boswell therefore started running from 27 January 2009, and expired on 27 January 2015, more than four years before Mr Williams filed this proceeding.
[82] In respect of the claims against Messrs Agnew and McCloy, the alleged omission to sue BDO continued after 1 January 2011, and the Limitation Act 2010 applies in respect of that period. As Messrs Agnew and McCloy could not have brought a claim against BDO after 29 August 2013, time began running for any claim against them from 29 August 2013 at latest, and the limitation period for claims against them expired on 29 August 2019.
[83] In support of the submission that Mr Williams has no standing to bring the claim, Mr Moffat submitted that the clear documentary evidence is that, despite his claims, Mr Williams is neither a shareholder of Five Star’s parent company Antares, nor a holder of debenture stock in Five Star. And even if Mr Williams had been a shareholder of Antares, he would have had no claim in that capacity against the receivers.
[84] A receiver’s principal duty is to the person in whose interests he or she was appointed. In this case, that person was Covenant. While s 18(3) of the Receiverships Act 1993 recognises a secondary duty for a receiver to have reasonable regard to the interests of certain other persons, those other persons do not include the shareholders of the grantor (let alone a shareholder of the shareholder of the grantor).18 The receivers acknowledge that it is arguable that they could have owed a duty to Mr Williams in his claimed capacity as a debenture holder but, on the facts, he does not genuinely hold debenture stock in Five Star.
18 Rogers v Bullen (1992) 6 NZCLC 67,636 (HC); Irdoss Computer Systems Ltd v Arthur Andersen & Co [1993] MCLR 397.
[85] On the issue of abuse of process, Mr Moffat submitted that Mr Williams effectively seeks damages of approximately $130 million for BDO’s alleged failure to pick up Mr Williams’ own wrongdoing, even though this Court sentenced Mr Williams to five years’ imprisonment, in part for wrongfully trying to disguise that wrongdoing from BDO.
Submissions by Mr Williams
[86] Mr Williams essentially relied on the same limitation argument he relied upon in opposing BDO’s summary judgment application. Specifically in respect of the receivers, he argued that the receivership was not completed until 23 May 2014, so that the six year time limit for commencing a claim would not have expired until 23 May 2020.
[87] Mr Williams contended that he was entitled to sue as the holder of shares in Antares and as the holder of the debenture stock. Relevant to the abuse of process issue, he said that he was suing in the interests of others (many small investors in Five Star), and not for his own personal gain.
Discussion and conclusions on the limitation issue
[88] I have held that any cause of action against BDO must have accrued, at latest, when Five Star was put into receivership. Mr Williams’ case is that, from that point, Five Star held a contingent asset in the form of a claim against BDO, and each of the receivers was negligent in failing to issue a proceeding against BDO in order to realise that asset.
[89] Assuming (for the sake of the limitation argument only) that the receivers were negligent in failing to commence a proceeding against BDO, that negligence must have caused relevant loss (at the latest) when any claim against BDO became statute- barred – at that point, the value of any claim against BDO would have become worthless.
[90] Applying the Limitation Act 1950 to the claim against Mr Boswell, it follows that the cause of action against him must have accrued by 29 August 2013 at latest.
After that point, any prospect of successfully suing BDO was gone.19
[91] The same result must follow in respect of any negligent omission by Mr Agnew or Mr McCloy to commence a proceeding against BDO in the period from the dates of their appointment as receivers up to 31 December 2010. The Limitation Act 1950 applied to causes of action against them in respect of any negligent acts or omissions up to that date, and any cause of action based on such acts or omissions must have accrued by 29 August 2013 at latest (when any claim against BDO became valueless). Under s 4 of the 1950 Act, Mr Williams had six years running from that date to commence an action against the receivers. He did not do so, missing the limitation deadline by a little over one month.
[92] The Limitation Act 2010 would have applied to negligent acts or omissions of Messrs Agnew and McCloy after 1 January 2011, and the six-year limitation period in s 11(1) of that Act runs from the date of the negligent act or omission relied upon by the plaintiff. Any negligent omission to sue BDO before 29 August 2013 cannot now be relied upon by Mr Williams, because more than six years had passed before he commenced his proceeding against the receivers. And Messrs Agnew and McCloy cannot be liable for electing not to sue BDO after 29 August 2013, as BDO would have had a complete (limitation) defence to any such claim. No one can be liable in negligence for failing to sue someone who has a complete defence.
[93] For the reasons set out at [73] above, the fact that two of the receivers remained in office until May 2014 is irrelevant to my conclusion that any claim the receivers might have brought against BDO became statute-barred on 29 August 2013 at latest. The six-year time limit is designed to provide defendants with some certainty that they will no longer be exposed to claims after the statutory limitation period has passed, and that protection is not lost (or the limitation period extended) if a prospective
19 It is not necessary for me to make any finding on whether the cause of action against Mr Boswell accrued on his retirement as receiver, as Mr Moffat submitted. It may be that any negligence on Mr Boswell’s part in failing to commence a proceeding against BDO did not affect the value of the contingent asset (the possible claim against BDO) until that claim later became statute-barred. If that is so, there would arguably have been no economic loss caused by Mr Boswell’s failure to sue BDO until as late as 29 August 2013.
plaintiff happens to go into receivership or liquidation before any proceeding is filed. And for the reasons set out at [74] and [75] above, Mr Williams’ claims against the receivers cannot be saved by s 28(c) or s 23B of the 1950 Act. The claims are quite clearly out of time, and that is a situation that cannot be cured by any amendment to Mr Williams’ pleadings. As with the claim against BDO, the appropriate relief is to enter summary judgment for the receivers. There will be judgment accordingly.
[94] It is not strictly necessary to consider the receivers’ other arguments, or their applications for strike-out orders and/or security for costs, except to say that (i) I would also have entered summary judgment for the receivers based on their lack of standing argument, for the reasons that are set out below at [114] – [122] in my discussion of Covenant’s summary judgment/strike-out application; but (ii) I would not have been prepared to enter judgment for the receivers, or strike out Mr Williams’ claim against them, on the basis that Mr Williams was effectively seeking damages for the failure of others to detect his own wrongdoing (or to sue others who should have detected it). That is not an issue suitable for determination on a summary judgment application, as it may be arguable for Mr Williams that, in circumstances where he was not suing in his personal capacity but as trustee for others (to whom no wrongdoing could be attributed), the “profiting from one’s own wrongdoing”/abuse of process principles referred to by counsel cannot be applied.
The applications by Covenant
[95]Again, I address first the applications for summary judgment and/or strike-out.
Submissions for Covenant
[96] Ms Adams’ principal submissions were that Covenant did not owe Mr Williams the pleaded duties, and that he has no standing to bring the claim against it. She also submitted, generally adopting the submissions of counsel for BDO and the receivers, that the claim against Covenant is out of time and an abuse of process.
[97] On the limitation issue, Ms Adams supplemented the submissions of Mr Smith and Mr Moffat, and adapted them to apply to Covenant, as follows.
[98] Mr Williams’ allegation is that Covenant as trustee owed a duty to Antares shareholders and Five Star debenture holders, to ensure that the obligations of the receivers of Five Star were carried out in a good, proper and competent manner. Covenant is alleged to have breached that duty by failing to ensure that the receivers brought a claim against BDO for negligent auditing.
[99] The time limit for Mr Williams to bring a claim against Covenant (for failure to ensure that the receivers sued BDO) ran from 29 August 2013 (at latest). That is so because any duty Covenant might have had to ensure that the receivers brought a proceeding against BDO must have ceased when it was no longer possible for the receivers to bring any timely claim against BDO. That point was reached by 29 August 2013 at latest, and Mr Williams had six years from that date to sue Covenant for failure to perform the duty he alleges it owed. On that basis, the time for Mr Williams to sue Covenant expired on 29 August 2019, a little over one month before his claim was filed.
[100] On the standing issue, Ms Adams submitted that Mr Williams is not a shareholder in Antares, and is not an assignee of any debentures issued by Five Star. She noted that the list of shareholders of Antares at the time of its receivership, and through to its removal from the Companies Register on 7 October 2011, did not include Mr Williams, nor any Antares entity. While Mr Williams has produced share transfer forms recording transfers of Antares shares from various individuals to the Trust, the share transfer forms are all dated in 2017. Antares was put into liquidation on 7 May 2008, and it was removed from the Companies Register on 7 October 2011. Once a company is in liquidation, a share in the company cannot be transferred unless the Court otherwise orders.20 Furthermore, the share transfers on which Mr Williams relies were signed approximately six years after Antares was removed from the Companies Register. You cannot validly transfer shares in a company that no longer exists.
20 Companies Act 1993, s 248(1)(d).
[101] Nor does the evidence show that Mr Williams, as trustee of the Trust, is the assignee of debentures in Five Star. A copy of the register of debenture holders maintained by Five Star makes no reference to Mr Williams or to any Antares entities. After the defendants each raised this issue in correspondence with him, Mr Williams provided an affidavit attaching a copy of an assignment of debentures to him as trustee of the Trust, from Boma Trustees Limited (Boma). But this document does not relate to Five Star. It purports to be an assignment of debentures in a different entity, Five Star Debenture Nominee Limited (Debenture Nominee). Debenture Nominee was part of the wider group of Five Star companies, and it did share some common directors with Five Star, but it was a separate entity, with separate receivers and liquidators to Five Star. Covenant was not the trustee for Debenture Nominee, and did not have any relationship with it.
[102] For those reasons, Mr Williams’ allegations that he is a shareholder in Antares and/or an assignee of Five Star debentures, do not meet the threshold of credibility. He is neither a shareholder of Antares nor the holder of relevant debentures, and he has no standing to bring the claim. An order striking out his claims against Covenant is justified on that basis.
[103] Next, Ms Adams submitted that Covenant did not in any event owe the duties of care alleged by Mr Williams. She acknowledged that a trustee of debt securities owes duties to the investors on whose behalf it acts as trustee, but no such duty was owed to the shareholders of Five Star,21 and Covenant’s duties to the holders of the debentures did not include a duty to supervise the receivers’ performance of their obligations.
Submissions by Mr Williams
[104] Mr Williams generally relied on the same limitation submissions he relied upon in opposition to the application by the receivers. He submitted that the limitation period for a claim against Covenant expired in May 2020, six years after the
21 Referring to National Finance 2000 Ltd (in rec and in liq) v William Buck New Zealand Ltd, CIV- 2010-404-007157 HC Auckland, 7 December 2011; Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA) and Christensen v Scott [1996] 1 NZLR 273 (CA).
conclusion of the receivership. He submitted that Covenant had been negligent in taking “no action prior to or after receivers final report 23.05.14”.
[105] Mr Williams contended that he was entitled to sue as the holder of shares in Antares and as the holder of the debenture stock.
[106]Mr Williams referred to cl 9.7 of the debenture trust deed, which provides:
9.7 Relevant Stockholders
The Trustee may either of its own volition or pursuant to any directions or in accordance with any policy given by any meeting of stockholders represent the stockholders in any matter or proceedings affecting the interests of the stockholders concerning them generally.
[107] He then submitted that no extraordinary meeting of Five Star’s stockholders was called, and no extraordinary resolution was passed by the stockholders releasing Covenant from its responsibilities to act properly in the interests of the debenture stockholders. Consequently, Covenant remained liable to the stockholders.
Discussions and conclusions
[108] In his statement of claim, Mr Williams says that Covenant owed a duty (to him as an Antares shareholder and/or debenture stockholder) to ensure that the obligations of the receivers were carried out in a good, proper and competent manner. He alleges that Covenant breached that duty by “failing to ensure that [the receivers carried out their obligations as receivers and managers in a good, proper and competent manner”. The particular default alleged against the receivers in this context, is their failure to sue BDO for negligently carrying out the Five Star audit work. Mr Williams says that the losses he or the Trust have suffered, were suffered “as a result of the negligence of [Covenant]”.
[109] I have found that any claim against BDO had to be brought by 29 August 2013, at latest, when the limitation period for claims against it expired. Any breach by Covenant of a duty of care to take appropriate steps to ensure BDO was sued, and any loss suffered as a result, must also have occurred and been suffered by 29 August 2013. After that date, Covenant could not have been negligent in failing to take any steps
that might theoretically have been available to it, to ensure that a hopeless, statute- barred claim was pursued against BDO. The claim against Covenant as pleaded, then, was filed outside the six-year time limits under both the 1950 Act and the 2010 Act.
[110] Ms Adams acknowledges that Covenant did owe duties to Five Star debenture stockholders (although not a duty to “oversee” the decisions of the receivers once appointed). I think the duties Covenant owed to the debenture stock holders would have been owed primarily in the law of trust, or equity. In such cases, the time limit for bringing any claim is normally fixed by analogy with the time limits for bringing similar claims for which limitation periods are prescribed by statute.22
[111] But regardless of what might have been the time limit for commencing a breach of trust claim, Mr Williams does not appear to be alleging that Covenant owed him a duty as the beneficiary of any relevant trust. The duty that he pleads is said to have been owed by Covenant to (inter alia) the shareholders of Antares, and he says that he has suffered loss as a result of the “negligence” of Covenant. As I understand it, there is no suggestion that Covenant was acting as a trustee for the shareholders of Antares.
[112] At very least, then, the statement of claim against Covenant in negligence must be struck out because it is statute-barred. The question is whether it might be re- constituted as a breach of trust claim by Mr Williams acting solely as the assignee of the Five Star debenture stock, in such a way as to give him an arguable route around Covenant’s limitation defence. I do not think there is any realistic prospect of that.
[113] First, I think the time limit for commencing a claim against Covenant for negligent breach of trust was the six-year time limit anyway, by analogy with the limitation periods in the Limitation Acts for claims to recover money for loss resulting from a defendant’s negligence.
[114] Secondly, and more fundamentally, the evidence on the question of Mr Williams’ standing to sue is in my view fatal to his case. He is not even arguably within the ambit of those to whom Covenant might have owed any duty.
22 Proprietors of Wakatu v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [943], referring to Gwembe Valley Development Co Ltd v Koshy (No 3) [2003] EWCA Civ 1048 at [111] and [112].
[115] Mr Williams was adjudicated bankrupt on 17 February 2011, so any Antares shares or Five Star debentures he might have owned prior to that date would have vested in the Official Assignee under s 101 of the Insolvency Act 2006. They would have remained so vested following his discharge from bankruptcy on 17 February 2014.23
[116] Next, and quite apart from the issue of whether Covenant could have owed any duty of care in negligence to shareholders of Antares (which I doubt), the purported transfers of Antares shares to Mr Williams in 2017 were clearly invalid. No leave of the Court had been obtained to transfer the shares while the company was in liquidation24, and there was in any event no entity in which shares could exist after Antares was removed from the companies register on 7 October 2011.
[117] Nor could Mr Williams’ acquisition of debenture stock in Debenture Nominee provide him with standing to sue Covenant. In his affidavit in opposition sworn on 10 February 2020, Mr Williams said that the Trust is the assignee of “various debenture securities in Five Star”. Exhibit “C” to his affidavit was said to comprise “copies of the transfer of debenture securities”. However Exhibit “C” consisted only of an assignment to the Trust (some time after September 2019 when the Trust was created) of debentures held by Boma Trustees Ltd in Debenture Nominee.
[118] Mr Spong’s reply affidavit for Covenant made it clear that Debenture Nominee is a separate entity from Five Star, and that Covenant was not the trustee for it. Nor did Covenant have any other relationship with Debenture Nominee. Debenture Nominee operated as debenture holder in respect of deposits made for the benefit of a different company within the group, Five Star Finance Ltd.
[119] Mr Spong also confirmed in his reply affidavit that Mr Williams’ name did not appear on the list of Five Star debenture holders at the time Five Star was put into receivership.
23 The Trust did not exist at that stage.
24 Companies Act 1993, s 248(1)(d).
[120] An affidavit provided by Ms Langley, a principal officer with the Auckland office of the Insolvency and Trustee Service, shows that Mr Williams was asked in November 2019 to provide documentation establishing the purported assignment of Five Star debentures to him. Although Mr Williams responded on 19 November 2019, he did not provide the requested evidence. He had earlier failed to include in his initial disclosure under r 8.4 the claimed assignments of Five Star debenture stock. On any view of it, those documents (if they existed) were critical documents relied upon by Mr Williams in his claim.
[121] The standing issue must have been obvious to Mr Williams by the time the various applications came on for hearing in June 2020, but he made no application to produce any further evidence to suggest that he or the Trust holds some Five Star debenture stock.
[122] In the foregoing circumstances, I consider that the defendants have sufficiently proved that Mr Williams holds no Five Star debenture stock, and that he has no standing to sue on that basis. His claim against Covenant as trustee for the Five Star debenture holders is accordingly misconceived. Nor does it appear that the claim might be capable of repair if Mr Williams were permitted to amend his statement of claim. The right answer in such a case is to enter summary judgment for the defendant, and there will be summary judgment for Covenant accordingly.
[123] Mr Williams’ submissions relating to the alleged need for an extraordinary resolution of debenture stockholders relieving Covenant of its responsibilities, cannot assist him to overcome the limitation and standing issues, which are fatal to his case.
[124] Having regard to those findings, there is no need to address the other arguments made for Covenant, or to address its application for security for costs.
The applications by the Assignee
Submissions for the Assignee
[125] Mr Neil noted that the Assignee is alleged to have breached a duty of care owed to the shareholders of Antares, and to Five Star debenture holders, by failing to bring
claims against BDO, against the receivers (for failing to bring a claim against BDO), and against Covenant (for failing to bring a claim against the receivers). He submitted that the claim against the Assignee cannot succeed for the following reasons:
(i)Mr Williams does not have standing to bring the claim;
(ii)The Assignee had no duty to bring any of the specified claims; and
(iii)The claim that Mr William alleges the Assignee ought to have made against BDO had become statute-barred well before the Assignee’s appointment as liquidator.
[126] On the lack of standing issue, Mr Neil adopted the argument of other counsel that Mr Williams is neither a shareholder of Five Star nor of its shareholder, Antares. Nor is he the assignee of debenture securities in Five Star, or an unsecured creditor of Five Star. No relevant duty of care was owed by the Assignee as liquidator, whether in tort or under any statute.
[127] On the duty of care issue, Mr Neil first referred to s 254 of the Act. That section provides:
254 Liquidator not required to act in certain cases
Notwithstanding any other provisions of this Part,—
(a)except where the charge is surrendered or taken to be surrendered or redeemed under section 305, a liquidator may, but is not required to, carry out any duty or exercise any power in relation to property that is subject to a charge:
(b) where—
(i) a company is put into liquidation under section 241(2)(c); and
(ii) the Official Assignee is the liquidator of the company; and
(iii) the company has no assets available for distribution to creditors of the company,—
the Official Assignee shall not be required, without the consent of the Minister of the Crown who, under the authority of any warrant or with the authority of the Prime Minister, is for the time being responsible for the administration of this Act, to carry out any duty or exercise any power in connection with the liquidation if, to do so, would or would be likely to involve incurring any expense.
[128] In this case, the Assignee was not required to carry out any duty or exercise any power in relation to the claims Mr Williams alleges existed against other parties, because any such claims were properly subject to the charge over Five Star’s assets and undertaking created by the debenture trust deed, and that charge had not been surrendered or redeemed. The claim is barred by s 254(a).
[129] Even if that were not so, s 254(b) would have relieved the Assignee of any responsibility to bring any of the specified claims. That is because:
(1)Five Star was placed into liquidation by order of the Court made under s 241(2)(c) of the Act;
(2)Five Star had no assets available for distribution to creditors;
(3)To advance any of the specified claims would have, or would be likely to have, involved the Assignee incurring significant expense; and
(4)The Assignee did not have ministerial consent to carry out any duty or exercise any power in connection with the liquidation that would or would be likely to involve incurring expense.25
Submissions by Mr Williams
[130] Mr Williams submitted that the Assignee owed the duties he has pleaded, and that it was negligent in not bringing claims against the other defendants. He referred to a successful claim the Assignee had made against the same firm of auditors, in his capacity as liquidator of Capital + Merchant Finance Ltd (in liquidation).
[131] On the limitation issue, Mr Williams submitted that he had six years to sue the Assignee, running either from 6 December 2013 (the date of the Assignee’s appointment as liquidator) or from 7 August 2015 (when the liquidation was completed. Either way, the claim against the Assignee was in time.
25 Referring to Aladdin’s Motor Inn Ltd (in liquidation) v Bowcorp Holdings Ltd [2015] NZHC 843.
Discussion and conclusions
[132]The Assignee also succeeds, and is entitled to summary judgment.
[133] For the reasons outlined in my decision on the application by Covenant, Mr Williams is neither a shareholder in Antares nor a holder of debenture stock in Five Star, and he has not identified any other basis on which duties might have been owed to him by the Assignee. He is not even a creditor of Five Star.
[134] I also accept Mr Neil’s submissions based on limitation (in respect of the contention that the Assignee should have sued BDO), and on s 254 of the Act. On the limitation issue, the time within which BDO might have been sued expired on 29 August 2013 at latest, and the Assignee was not appointed until December of that year. The Assignee could not have been negligent in failing to pursue a claim that was already statute-barred.
[135] Turning to s 254 of the Act, any assets of Five Star were and remained subject to the charge created by the debenture trust deed, even after the retirement of the receivers in May 2014. Ms Langley’s evidence confirms that that charge was not surrendered or taken to be surrendered, or redeemed under s 305 of the Act, and any third party claims that might have been made against BDO, the receivers or Covenant would have been “property” of Five Star that was subject to s 254(a). The words “but is not required to” in s 254(a) are in my view incompatible with the existence of any duty on the liquidator to exercise any powers in relation to the charged property, including the pursuit of potential claims against third parties.
[136] Had it been necessary, I would also have accepted Mr Neil’s submissions based on s 254(b) of the Act. The various requirements of that subsection are established by Ms Langley in her affidavit, and it is clear that the Assignee would have incurred significant expense in suing the receivers or Covenant. No ministerial consent was given for any such action, and in my view the Assignee was not under any duty, enforceable by Mr Williams, to seek such consent.
[137] Mr Williams has endeavoured to make much of the fact that the Assignee sued the same auditors and recovered a sum in excess of $18 million, in the liquidation of Capital + Merchant Finance Ltd (in liquidation). There is nothing in that submission. Even if the facts in that case were similar (and I have insufficient evidence that they were), I think it is safe to infer that the claim against BDO in that case must have been brought within the relevant limitation period. That is not the position in this case.
[138] For all of those reasons it is clear that Mr Williams’ claims against the Assignee cannot succeed, and that the Assignee is entitled to summary judgment. There will be judgment accordingly.
[139] In those circumstances it is not necessary to address the Assignee’s strike-out application, or the application for security for costs.
Result
(1)Summary judgment is entered for all of the defendants on Mr Williams’ claims against them.
(2)Each defendant is entitled to costs against Mr Williams. Those costs will be on a 2B basis (with only one set of costs allowed for preparing the casebook for the hearing of the defendants’ applications, and with the scale amount for written submissions for each defendant reduced by 20 per cent to reflect the areas that were common to the defendants’ submissions (Mr Williams should not have to pay costs for four sets of written submissions addressing the same topics)), unless memoranda are filed seeking increased or indemnity costs by not later than 5pm on Monday, 9 November 2020. Any such memoranda are not to exceed three pages in length. In the event of any such memoranda being filed, Mr Williams may file a memorandum in reply by not later than 5pm on Friday, 13 November 2020. Costs will then be decided on the papers.
Associate Judge Smith
Solicitors:
Gilbert Walker, Auckland Bell Gully, Auckland
Chapman Tripp, Auckland Meredith Connell, Auckland
Copy to:
Neill Williams
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