SENG BOU (PAUL) KEUNG AND ORS V GBR INVESTMENT LTD CA310/2010

SENG BOU (PAUL) KEUNG AND ORS V GBR INVESTMENT LTD CA310/2010 24 August 2010IN THE COURT OF APPEAL OF NEW ZEALAND CA310/2010 [2010] NZCA 396BETWEEN SENG BOU (PAUL) KEUNG First Applicant AND GBR TRUSTEES LIMITED Second Applicant AND GB MANAGEMENT LIMITED Third Applicant AND GBR INVESTMENT LIMITED Respondent Hearing: 17 August 2010 Court: Arnold, Ellen France and Stevens JJ Counsel: N Till QC and H D P van Schreven for Applicants A J Forbes QC for Respondent Judgment: 24 August 2010 at 4 pmJUDGMENT OF THE COURT A The application for a stay is declined. B The applicants must pay the respondent costs calculated on the same basis as for a standard application for leave to appeal on a band A basis together with usual disbursements. REASONS OF THE COURT(Given by Ellen France J)Introduction[1] This is an application for stay of a judgment ordering the applicants to pay costs to the respondent. The costs award was made by Associate Judge Gendall after the Associate Judge in an earlier judgment had ordered the liquidation of Goose Bay Ranch Holdings Limited (Goose Bay Ranch), on just and equitable grounds. 1Appeals have been lodged against the Associate Judge's decision to order liquidation and against the costs decision. The applicants seek a stay of the costs decision until the appeal is determined. French J refused to grant a stay, 2 hence the present application.Background[2] Goose Bay Ranch is a farming and tourist development company in which the respondent, GBR Investment Ltd, owns a minority shareholding (12.2 per cent). The first applicant, Paul Keung, is the sole director of Goose Bay Ranch. The second applicant, GBR Trustees Ltd, is a shareholder (84.6 per cent) of Goose Bay Ranch. GBR Trustees was broadly owned and controlled by Mr Keung. In August 2009, the shares in GBR Trustees were transferred to the third applicant, GB Management Ltd, of which Mr Keung is the sole director. [3] GBR Investment is an investment company. Mr Grigori Koulanov is its sole director. A friendship developed between Mr Keung and Mr Koulanov leading to GBR Investment acquiring an interest in Goose Bay Ranch. It seems that GBR Investment's involvement arose after Mr Keung told Mr Koulanov about the Goose Bay property he owned in Kaikoura and about his ideas for developing the property into a farming and eco-tourism business and sustainable hunting game park.1 GBR Investment Ltd v Goose Bay Ranch Holdings Ltd HC Christchurch CIV-2009-409-613, 27 November 2009 and 21 April 2010.2 GBR Investment Ltd v Goose Bay Ranch Holdings Ltd HC Christchurch CIV-2009-409-613, 21 May 2010.[4] From GBR Investment's perspective, problems began to emerge soon after the company's initial investment in November 2007. Essentially, Mr Koulanov and his interests became increasingly concerned about the affairs of the various companies being conducted by Mr Keung. GBR Investment had contributed some $2.9 million in cash to the venture before differences between the parties became critical. [5] Matters came to a head when GBR Investment applied under s 241(4)(d) of the Companies Act 1993 to place Goose Bay Ranch into liquidation. The application related also to some other companies but, for reasons we do not need to go into, those were not placed in liquidation.High Court decisionsLiquidation[6] In granting the application in relation to Goose Bay Ranch, the Associate Judge found that the relationship between Mr Keung and Mr Koulanov's interests had "irretrievably broken down". 3 The emails and other examples of the parties' interactions before the Court satisfied the Associate Judge that there was "a fundamental break down in the relationship between the parties" as would justify dissolution of a partnership. 4[7] Associate Judge Gendall also said he was satisfied that there was no basis to suggest that the breakdown had been caused solely by the conduct of GBR Investment or the Koulanov interests. [8] The real issue, the Associate Judge considered and as counsel for the parties accepted, was whether some alternative remedy to liquidation should be ordered. After considering possible alternatives, the Associate Judge concluded liquidation was the only realistic remedy.3 At [62].4 At [66] citing Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL).Costs[9] In making the costs award, Associate Judge Gendall considered that GBR Investment was entitled to costs having essentially succeeded in its application. The Associate Judge was satisfied that Mr Keung, although a non-party, should be jointly and severally liable for costs with GBR Trustees and GB Management (the past and present majority shareholders of Goose Bay Ranch). He and his interests had clearly controlled and directed the defence to the liquidation application and through his interests was likely to have funded the defence. 5 The Associate Judge declined to award costs on an indemnity basis but considered that an uplift of 50 per cent on scale costs on a category 3B basis was appropriate.Stay application in the High Court[10] In refusing the stay application, French J noted that the fact an appeal may be rendered nugatory absent a stay is not determinative. Her Honour saw as more important the adverse effect of a stay on the respondent and that the grounds of appeal related to factual findings made after hearing and seeing witnesses.Principles to be applied on stay application[11] The stay application is brought under r 12(3) of the Court of Appeal (Civil) Rules 2005. In determining whether or not to grant a stay, the Court must weigh the factors "in the balance" between the successful litigant's rights to the fruits of a judgment and "the need to preserve the position in case the appeal is successful". 6Factors to be taken into account in this balancing exercise include:7(a) Whether the appeal may be rendered nugatory by the lack of a stay; (b) The bona fides of the applicant as to the prosecution of the appeal; (c) Whether the successful party will be injuriously affected by the stay;5 At [19]-[20] applying Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145 (PC).6 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.7 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].(d) The effect on third parties; (e) The novelty and importance of questions involved; (f) The public interest in the proceeding; and (g) The overall balance of convenience.That list does not include the apparent strength of the appeal but that has been treated as an additional factor. 8The present case[12] The applicants for the stay accept that generally a stay upon payment of a judgment sum would only be granted on provision of security. 9 The issue is whether there is anything in the present case in terms of the factors outlined above to warrant a departure from that general rule.Submissions in support of stay[13] Mr Till QC emphasises the effect of a lack of a stay on his clients where, he says, the proposed appeal against the liquidation order has real merit. He also relies on the lack of any adverse impact on the respondent. [14] On the first aspect, Mr Till submits that the appeal will be rendered nugatory unless a stay is granted. That is because Mr Keung will become bankrupt and that is likely to bring an end to the appeal unless the Official Assignee is willing to prosecute it, which is unlikely in the absence of funding. [15] The notice of appeal as presently drafted seeks to challenge a number of factual findings. However, as Mr Till explained it, the focus of the appeal will be two-fold. First, a complaint that the Associate Judge was wrong to refuse an application to adjourn the substantive hearing following the late filing of an affidavit from Kieran Horne, who had been appointed as the interim liquidator of Goose Bay8 Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004-404-3230, 11 February 2009.9 Contributory Mortgage Nominees Ltd v Harris Road No 10 Ltd (2006) 22 NZTC 19,752 (HC).Ranch and of two related companies. Mr Keung was thereby deprived, it is submitted, of the opportunity to respond to Ms Horne's affidavit and extensive exhibits. In his response, Mr Keung would have been able to show that far from sucking funds out of Goose Bay Ranch, Mr Keung and his interests were both very substantial contributors to and very substantial creditors of the company. [16] Secondly, Mr Till says the appeal will challenge the failure of the Associate Judge to adequately consider the position of the respondent as minority shareholder against that of the majority shareholder especially where the respondent had delegated governance of Goose Bay Ranch to Mr Keung as sole director. Mr Till described this winding up as "unusual, almost unique" given that Mr Koulanov's interests held only around 10 per cent of the shares in Goose Bay Ranch and Mr Keung's interests around 90 per cent. [17] As to the effect on the respondent if a stay is granted, the submission is that the respondent would not be injuriously affected. That is because there is nothing of substance that could be affected in the interim period. The applicants do not seek a stay of the order that Goose Bay Ranch be placed in liquidation but only of the costs order. Further, Mr Till emphasises that the applicants have provided security for costs on the appeal to this Court although he accepts that nothing further is available to meet costs beyond that. [18] The combination of these factors and Mr Keung's assertion of his bona fides mean, it is submitted, that the overall balance favours a stay.Discussion[19] In terms of the effect of a lack of a stay on the appeal, there is force in Mr Forbes QC's submission that the appeal is not necessarily rendered nugatory. Mr Keung refers in his affidavit to a property which has sufficient equity to meet the liability of those creditors in Goose Bay Ranch whose claims he acknowledges. It appears that there is at least some possibility then that he may be able to fund the litigation. Alternatively, he could apply to the liquidator to ask the liquidator to pursue the matter. There is, further, no issue in relation to the substantive appeal.Goose Bay Ranch is already in liquidation and that appeal is not affected by the bankruptcy or liquidation of the applicants for the stay. [20] In any event, as French J observed, the fact that the appeal is rendered nugatory is not determinative. 10[21] Added to this, the merits of the appeals are not so obvious as to be a critical factor in favour of a stay. [22] It is not possible or appropriate for us to make any assessment now of the adjournment decision. But we note that Ms Horne's affidavit was filed on 11 November 2009 and that the hearing commenced on 16 November 2009 (14 and 15 November were a Saturday and a Sunday). The Associate Judge in declining the application for adjournment noted that Ms Horne was available for cross- examination. In addition, Ms Horne in her affidavit refers to the fact that she had made numerous requests to Mr Keung for access to financial records but they had not been provided. While the material annexed to the affidavit has had some influence on the Associate Judge's view that the concerns of Mr Koulanov and his interests about the management of the companies appeared justified, he also had the evidence of Mr Koulanov and his interests. [23] Further, it is plain from the judgment that, by the end of the hearing, the parties had got to the position that Mr Keung and the Koulanov interests could not remain in business together, 11 nor could Goose Bay Ranch continue in business.12The Associate Judge put it in this way:[70] Before me, both Mr Forbes QC for the plaintiff and Mr van Schreven for the defendants conceded that the real issue to be determined by the Court here is whether some alternative remedy to liquidation of [Goose Bay Ranch] such as relief under s 174 of the Act should be ordered. Both counsel appear to accept that there is little alternative but to have the properties owned by [Goose Bay Ranch] and its subsidiary sold. The process by which those sales might be best achieved and the judicious untangling of the various companies' affairs seemed to be the real issue.10 Cousins v Heslop [2007] NZCA 377, (2007) 18 PRNZ 677.11 At [68].12 At [81].[24] It appeared that Mr Keung's interests favoured voluntary administration but for various reasons the Associate Judge did not consider that was a realistic possibility. [25] In addition, a number of the matters raised in the notice of appeal are factual and turn on the credibility of the witnesses the Associate Judge heard from over the course of a three-day hearing. [26] As to the impact on the respondent, Mr Forbes points to the possibility that the applicants could use the time leading up to the appeal to manage their affairs to the detriment of the respondent. It is not possible to reach any conclusive view about that but certainly, as matters stand, the respondent has an exposure to costs in the High Court and on appeal to the extent that those costs exceed the security paid. [27] Weighing these various factors, we consider the overall balance does not favour the granting of a stay.Disposition[28] The application for a stay is accordingly dismissed. The respondent, having succeeded, is entitled to costs calculated on the same basis as for a standard application for leave to appeal on a band A basis together with usual disbursements.Solicitors: Clark Boyce, Christchurch for Applicants Buddle Findlay, Christchurch for Respondent