JINDAL v ORANGE CAPITAL LTD [2022] NZCA 540

JINDAL v ORANGE CAPITAL LTD [2022] NZCA 540 [14 November 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA743/2021[2022] NZCA 540BETWEEN GAUTAM JINDALAppellantAND ORANGE CAPITAL LIMITED(IN LIQUIDATION)RespondentHearing: 31 October 2022Court: Gilbert, Venning and Mander JJCounsel: Appellant in personJ K Mahuta-Coyle for RespondentJudgment: 14 November 2022 at 2 pmJUDGMENT OF THE COURTA The application for leave to adduce further evidence is declined.B The appeal is dismissed.C We answer the question of law as follows:Does the District Court have jurisdiction to hear a liquidator's commonlaw debt claim against a director in respect of an overdrawn shareholder'saccount?Yes.D The appellant must pay costs to the respondent for a standard appeal ona band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)[1] This is a second appeal, with leave, against the grant of summary judgment foramounts due on Mr Jindal's shareholder current account with Orange Capital Ltd(in liquidation) (the company).[2] Summary judgment was entered by Judge Hinton in the District Court atAuckland in the sum of $68,680.03 plus costs and disbursements.1 On appeal, Whata Jgranted Mr Jindal's application for leave to adduce further evidence.2 In reliance onthis further evidence, the Judge allowed the appeal in part, reducing the amount forwhich summary judgment was entered to $50,696.49.3[3] Whata J then granted leave to bring a second appeal to this Court.4 The Judgewas persuaded it was arguable he was wrong to find that the District Court hadjurisdiction to determine the matter. He said that he could not discount the reasonablepossibility that this Court may find that the District Court does not have jurisdictionto hear a common law debt claim by a liquidator against a director in respect ofan overdrawn shareholder's account.5 The Judge considered the other grounds onwhich Mr Jindal sought leave to appeal were untenable.6 He accordingly granted leaveto appeal on only one question:7Does the District Court have jurisdiction to hear a liquidator's common lawdebt claim against a director in respect of an overdrawn shareholder'saccount?[4] The Judge directed that costs should lie where they fall because of the mixedresult.8 Mr Jindal also appeals against the Judge's refusal to award costs on the leaveapplication.[5] Three preliminary issues arise. First, Mr Jindal applies for leave to adducefurther evidence in support of the appeal,9 being the liquidator's reports dated1 Orange Capital Ltd v Jindal DC Auckland CIV-2017-004-2856, 31 May 2021 [District Courtjudgment].2 Jindal v Orange Capital Ltd (in liq) [2021] NZHC 2917 [High Court judgment] at [4]–[6].3 At [74].4 Jindal v Orange Capital Ltd (in liq) [2021] NZHC 3449 [Leave judgment].5 At [45].6 At [47]–[52].7 At [57].8 At [60].9 Court of Appeal (Civil) Rules 2005, r 45.23 July 2021 and 30 June 2022. Secondly, Mr Jindal seeks to expand the scope ofthe appeal beyond the issue for which leave was given. Thirdly, Mr Jindal filedsupplementary submissions on 25 October 2022 for which no provision was made inthe timetabling directions for this appeal. As there is no opposition, we will receivethese further submissions. We will address the other two preliminary issues aftersetting out the relevant background and summarising the judgments below.Background[6] The company was incorporated on 24 May 2013. Mr Jindal was at all timesits sole director and shareholder. As Whata J observed, the evidence about the natureof its business is sparse.10 It appears that it was incorporated to provide consultancyservices. It is common ground that the company had no assets or capital to begin withand it seems to have been undercapitalised throughout. The company was placed intovoluntary liquidation in June 2017. According to the liquidator, proper businessrecords and financial statements were not kept.Application for summary judgment[7] Based on a review of the company's bank statements, the liquidator identifiedcash drawings by Mr Jindal of $99,698 over the period of the company's operationand cash deposits by him over the same period of $17,421. The company's claim forsummary judgment was for the balance of $82,277 as a debt due on current accountpayable on demand.[8] Mr Jindal's notice of opposition raised five grounds:(a) The liquidator was acting ultra vires in seeking to avoid the transactionsunder s 292 of the Companies Act 1993 (the Act) without filingthe requisite notices under s 294 of the Act.(b) The insolvency manager, who had reviewed the bank statements andfiled the affidavit in support of the application for summary judgment,had overlooked material facts, specifically amounts allegedly paid by10 High Court judgment, above n 2, at [7].Mr Jindal on behalf of the company to MTF Ltd (for the purchase ofa company motor vehicle), ASB Bank Ltd (under his guarantee offacilities provided to the company) and for operational expenses.(c) The liquidator did not come to the Court with "clean hands" (allegedlyfailing to provide correct affidavits, not following relevant laws whenexercising his powers, exercising his powers fraudulently and forpersonal gain, and making false and misleading statements tothe District Court).(d) The liquidator adopted incorrect accounting practices in arriving ata factually incorrect analysis of the amount due on the current account.(e) Mr Jindal claimed to have a statutory defence under s 296(3) of the Act.[9] Mr Jindal supported his notice of opposition with an unsigned affidavit dated12 October 2020 in which he summarised the benefits he claimed to have provided tothe company over the period of its operation from 1 April 2014 to 26 June 2017 inthe total sum of $109,370.08. This more than offset the drawings he received fromthe company. These benefits comprised rental for a home office, electricity, internetand phone charges, car payments to MTF, other sundry operational expenses, andpayments to ASB Bank under his guarantee.[10] The liquidator responded by deducting from the claim a car payment allowanceof $3,596.97. This was calculated for the period from 22 October 2015 to 27 July 2017and was split 50:50 between personal and business use. This reduced the amount forwhich summary judgment was claimed to $78,680.03.District Court judgment[11] Judge Hinton considered that s 292 of the Act had no application to the claim.In short, this was not an insolvent transaction the liquidator was seeking to avoid.1111 District Court judgment, above n 1, at [27].[12] The Judge observed there was no evidence that the company ownedthe vehicle.12 There was no evidence of the nature and extent of the company'sbusiness operations let alone that it needed an expensive car to carry outthose operations.13 The Judge considered the allowance given by the liquidator of$3,596.97 for the car was "generous".14[13] The Judge referred to Mr Jindal's evidence that he received a consolidateddemand notice dated 15 August 2017 (post liquidation) from ASB Bank in the sum of$21,925.67.15 Mr Jindal estimated that approximately $10,147 of this was on accountof his personal guarantee of the debt due by the company to ASB Bank. The Judgenoted there was no other detail or evidence provided.16 In particular, there was noevidence of the current indebtedness to ASB Bank, or of any payment made byMr Jindal in satisfaction of the company's indebtedness. The Judge concluded therewas no basis on the evidence for Mr Jindal's claim.17 Even if Mr Jindal had satisfiedany of the company's indebtedness to ASB Bank, he would have no right to priorityrecourse against the company.[14] The Judge considered no adequate detail had been provided to support the otherexpense claims.18 Nevertheless, he allowed a further credit of $10,000 "for somelegitimate expenditure or benefit Mr Jindal may have provided to the company",but for which he had "been unable to provide evidence".19 The Judge consideredthis allowance was generous to Mr Jindal. Summary judgment was accordinglyentered for $68,680.03.20Further evidence admitted on appeal in the High Court[15] Mr Jindal applied for leave to adduce five further affidavits in support of hisappeal to the High Court.21 The Judge admitted three of these affidavits, which all12 At [30].13 At [31].14 At [36].15 At [21].16 At [38].17 At [39].18 At [50] and [52]–[59].19 At [63].20 At [64].21 High Court Rules 2016, r 20.16.concerned expenditure allegedly incurred by Mr Jindal on behalf of the company,in particular as to ownership of the car, home office expenses and a new claim for"salary forgone".22 The Judge was not prepared to receive two other affidavitsconcerning the liquidator as this evidence was not relevant to the issues he neededto determine.23High Court judgment[16] The key issues on the appeal were, first, whether the claim engaged aspects ofthe Act such that only the High Court had jurisdiction to determine it and, secondly,whether Mr Jindal had an arguable defence based on liability assumed, expensesincurred, and salary foregone.24[17] The Judge found that there was nothing in the claim that sought to rely onthe voidable transaction regime or other powers of the High Court; it was simplya claim in debt.25 There was therefore no jurisdictional objection to that claim beingheard in the District Court. The Judge observed that Mr Jindal's defence engagedvarious provisions of the Act, including whether the payments to him were authorisedunder s 161 and whether he was entitled to claim the benefit of a set off in accordancewith s 310.26 The Judge was satisfied the District Court could make the requiredassessments and this would not involve invoking powers conferred exclusively onthe High Court.27Scope of the appeal in this Court[18] As noted, the Judge gave leave for a second appeal to this Court on a singlequestion of law, namely whether the District Court has jurisdiction to heara liquidator's common law debt claim against a director in respect of an overdrawnshareholder's account. The Judge considered the other grounds Mr Jindal wishedto raise were not tenable.22 High Court judgment, above n 2, at [4]–[5].23 At [6].24 At [30].25 At [46].26 At [47].27 At [47].[19] Undeterred, Mr Jindal advanced five grounds in his notice of appeal:(a) The District Court judgment was a nullity because it involvedthe exercise of powers contained in s 301 of the Act, the exclusivepreserve of the High Court (this ground is within the scope of the leavejudgment).(b) The High Court erred in finding that the salary claimed by Mr Jindal of$200,000 could not meet the fairness threshold under s 161(5) ofthe Act (because the company earned only $72,000 in the four-yearperiod it was active).(c) The High Court erred in failing to "apply its mind to the equitableconsiderations" in s 296(3) of the Act and wrongly denied equitablerelief.(d) The High Court failed to "fairly consider the facts in evidence whilealso considering commercial and factual realities".(e) The High Court erred in failing to "realise that there was alwaysa serious question to be tried".[20] Having reviewed the evidence placed before the High Court, we are satisfiedthere is nothing in the additional grounds of appeal Mr Jindal seeks to advance."Serious question to be tried"[21] This ground is a catch-all conclusory submission that adds nothing tothe earlier grounds. It need not be addressed separately."Salary foregone"[22] Mr Jindal did not oppose the application for summary judgment on the basishe had an arguable claim for salary. Nor could he have properly done so. A directorhas no entitlement to be remunerated for his or her services in the absence ofauthorisation under s 161(1) of the Act. No salary was ever authorised. For thisreason, Mr Jindal's suggestion, post-liquidation, that a salary of $200,000 overthe four-year period of the company's operation might have been reasonable takes himnowhere. Mr Jindal has no arguable defence by way of set-off for "salary foregone".The reasonableness or otherwise of the salary Mr Jindal suggested might have beenappropriate simply does not arise and the High Court need not have considered it.Failure to "fairly consider the facts in evidence"[23] Both courts below carefully examined whether the other claimed benefitsprovided by Mr Jindal to the company afforded him an arguable defence. There wasno failure to "fairly consider the facts in evidence". Moreover, Mr Jindal was granteda considerable indulgence in being permitted to adduce further evidence in support ofhis appeal to the High Court. We consider the Judge was generous to Mr Jindal inassessing the extent of any arguable defence to the claim. We detect no arguable errorin the Judge's detailed analysis, certainly none that would assist Mr Jindal.Applicability of s 296(3) of the Act[24] Finally, s 296(3) of the Act, which is located in the section of the Act dealingwith voidable transactions, has no application to the present claim for reasons we willexplain more fully when we address the jurisdictional issue below.Further proposed ground — admissibility of affidavit filed in support of applicationfor summary judgment[25] Mr Jindal sought to raise yet another issue in his supplementary submissions.He contended that an affidavit filed in the District Court in support of the applicationfor summary judgment was inadmissible because it was opinion evidence the deponentwas not qualified to give and the code of conduct for expert witnesses was notcomplied with. We are not prepared to entertain this argument for two reasons.First, an appellant cannot normally raise on a second appeal a point that was not raisedor considered in the District Court or on appeal to the High Court.28 Secondly, thereis nothing in the point anyway. The insolvency manager who completed the affidavitwas not purporting to give expert evidence; he was merely identifying receipts and28 Needham v Samy Trustee Ltd [2017] NZCA 117, (2017) 24 PRNZ 184 at [13]–[16]; andPerkowski v Wellington City Corp [1959] NZLR 1 (PC) at 5.payments made to or by Mr Jindal as shown in the primary records of the company,being the bank statements, which were annexed to his affidavit. Mr Jindal'ssubmission that the affidavit was inadmissible is plainly wrong.[26] For these reasons, we are not willing to engage further with the additionalgrounds now sought to be advanced by Mr Jindal on this second appeal. Before weaddress the question of law for which leave was granted, we consider Mr Jindal'sapplication for leave to adduce further evidence in this Court.Application for leave to adduce further evidence[27] Mr Jindal applies for leave to adduce further evidence in support of the appeal,being two six-monthly reports prepared by the liquidator in accordance with s 255 ofthe Act. We decline to admit these reports because they contain nothing of relevanceto the legal issue we are required to decide.Appeal[28] The question of law for which leave was granted is whether the District Courthas jurisdiction to hear a liquidator's common law debt claim against a director inrespect of an overdrawn shareholder's account. The answer to this question is "yes".[29] The general jurisdiction of the District Court is set out in s 74 ofthe District Courts Act 2016 and includes jurisdiction to determine a proceeding inwhich the amount claimed does not exceed $350,000. The equitable jurisdiction ofthe Act is set out in s 76. The District Court has power to grant the remedies describedin s 84, including to give effect to every ground of defence or counterclaim, whetherlegal or equitable. On the face of it, the District Court had jurisdiction to determinethe liquidator's claim for the balance due on Mr Jindal's current account withthe company.[30] However, Mr Jindal submits that the claim was brought by the liquidatorpursuant to s 301(1) of the Act and only the High Court has jurisdiction to determinesuch claims. Section 301(1) reads:301 Power of court to require persons to repay money or returnproperty(1) If, in the course of the liquidation of a company, it appears to the courtthat a person who has taken part in the formation or promotion ofthe company, or a past or present director, manager, administrator,liquidator, or receiver of the company, has misapplied, or retained,or become liable or accountable for, money or property of thecompany, or been guilty of negligence, default, or breach of duty ortrust in relation to the company, the court may, on the application ofthe liquidator or a creditor or shareholder,—(a) inquire into the conduct of the promoter, director, manager,administrator, liquidator, or receiver; and(b) order that person—(i) to repay or restore the money or property or any partof it with interest at a rate the court thinks just; or(ii) to contribute such sum to the assets of the companyby way of compensation as the court thinks just; or(c) where the application is made by a creditor, order that personto pay or transfer the money or property or any part of it withinterest at a rate the court thinks just to the creditor.[31] The section does not impose duties on directors or others and does not createa separate or distinct cause of action. It is merely a procedural mechanism enablinga liquidator, creditor or shareholder to pursue claims which a company in liquidationmay have against its directors, typically for breach of duty owed to the company.29Where the claim is brought by the company to enforce repayment of a common lawdebt owed to it by a shareholder, the appropriate course is for the liquidator to initiatethe proceedings in the name of the company.30 That is what occurred here.Section 301 of the Act has no relevance to the present claim.[32] Next, Mr Jindal submits that the common law debt claim should becharacterised as a claim by the liquidator to avoid an insolvent transaction entered intowithin the restricted period in terms of s 292 of the Act, which only the High Courtcan determine. He observes that the power to avoid a transaction in reliance onthis section vests in the liquidator and must be exercised in the liquidator's own29 Arataki Properties Ltd v Craig [1986] 2 NZLR 294 (CA) at 298; and Sojourner v Robb [2007]NZCA 493, [2008] 1 NZLR 751 at [53].30 Gilbert v About Body Corporates Ltd HC Auckland CIV-2009-404-2048, 23 June 2009 at [27]–[30]; and Waller v Paul (1997) 10 PRNZ 607 (HC) at 613.name.31 He says the liquidator has failed to follow the correct procedure set out ins 294 of the Act. The flaw in this submission is obvious. The liquidator has not soughtto set aside the debt as a voidable disposition. On the contrary, and as already noted,the company is simply suing to recover the debt. The voidable transactions provisionsin pt 16 of the Act have not been invoked by the liquidator and these provisions,including s 296(3), are simply not relevant.[33] For these reasons, we are satisfied there is nothing in the jurisdictional pointsraised by Mr Jindal. The District Court undoubtedly had jurisdiction to determinethis claim.Costs[34] Mr Jindal appeals against the refusal by the High Court to award him costs onhis partly successful application for leave. He argues the Judge was wrong to findthere were "mixed results". This is because he contends that he was the onlysuccessful party.[35] Costs are ultimately a matter of discretion. In the present case, a significantpart of the argument in the leave judgment concerned grounds in respect of whichthe Judge declined leave for a second appeal. The Judge also dealt with an applicationby Mr Jindal for a stay of execution pending appeal which was only partly successful.The Judge granted a temporary stay on the condition that Mr Jindal paid the fullamount of the judgment into court by 1 March 2022.32 The stay automatically lapsedwhen this was not paid by that date. In these circumstances, we see no error inthe Judge's assessment that both parties achieved a measure of success such that therewere "mixed results".[36] In any event, there is no invariable rule that a party who succeeds on anapplication for leave to appeal is entitled to costs on the leave application. There is noexpress provision in the High Court Rules 2016 for costs on such applications.The relevant event for costs purposes can properly be viewed as the outcome of31 Citing Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011]2 NZLR 25 at [10], n 6.32 Leave judgment, above n 4, at [59].the substantive appeal rather than the leave application. This is illustrated by r 53G(4)of the Court of Appeal (Civil) Rules 2005, which provides that where this Court givesleave to appeal but the appeal is subsequently dismissed, the respondent will normallybe entitled to costs on the application for leave to appeal (if reserved).[37] Mr Jindal is fortunate that the High Court fixed costs. Had costs been reserved,he may well have been exposed to an award of costs being made against him forthe appeal and on the leave application.[38] Costs on the present appeal should follow the event in the usual way.Result[39] The application for leave to adduce further evidence is declined.[40] The appeal is dismissed.[41] We answer the question of law as follows:Does the District Court have jurisdiction to hear a liquidator's commonlaw debt claim against a director in respect of an overdrawnshareholder's account?Yes.[42] The appellant must pay costs to the respondent for a standard appeal ona band A basis and usual disbursements.Solicitors:Langford Law, Wellington for Respondent