FUGLE v VANCE [2023] NZCA 21

FUGLE v VANCE [2023] NZCA 21 [16 February 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA430/2022[2023] NZCA 21BETWEEN LESLIE WILLIAM FUGLEApplicantAND DAVID VANCE AND IAN MILLARD ASTRUSTEES OF THE ORANA TRUSTFirst RespondentsVEY GROUP LIMITED (INLIQUIDATION)Second RespondentTHE COMMISSIONER OF INLANDREVENUEThird RespondentCourt: Gilbert and Collins JJCounsel: F E Geiringer for ApplicantR L Roff for First RespondentsM G Colson KC and R L Pinny for Second RespondentK I S Naik-Leong for Third RespondentJudgment:(On the papers)16 February 2023 at 9.30 amJUDGMENT OF THE COURTA The application for leave to appeal is declined.B Costs are reserved.____________________________________________________________________REASONS OF THE COURT(Given by Collins J)Introduction[1] Mr Fugle applies under s 56(5) of the Senior Courts Act 2016 for leave toappeal an interlocutory judgment of Mallon J delivered on 2 February 2022.1 This isMr Fugle's second application for leave to appeal the interlocutory judgment, Mallon Jhaving declined leave to appeal.2[2] In Greendrake v District Court of New Zealand, this Court affirmed thefollowing factors are engaged when considering an application for leave to appeal aninterlocutory judgment:3(a) a high threshold exists;(b) the applicant must identify an arguable error of law or fact;(c) the alleged error should be of general or public importance warrantingdetermination or otherwise of sufficient importance to the applicant tooutweigh the lack of general or precedential value;(d) the circumstances must warrant incurring further delay; and(e) the ultimate question is whether the interests of justice are served bygranting leave.[3] Contrary to Mr Fugle's submissions, this is the appropriate test for allapplications for leave to appeal interlocutory decisions, even where the issue on aninterlocutory application may be dispositive of the underlying proceeding. The natureof the application can be properly assessed under the factors outlined at (c)–(e).Background[4] Mr Fugle was the sole director of Vey Group Ltd (Vey). The Orana Trust(the Trust) owned 49 per cent of Vey's shares. Mr Vance and Mr Millard were1 Vance v Vey Group Ltd [2022] NZHC 75 (High Court decision); Senior Courts Act 2016, s 56(3).2 Vance v Vey Group Ltd [2022] NZHC 1861 (High Court leave decision).3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6], referring toFinewood Upholstery Ltd v Vaughn [2017] NZHC 1679 at [13].appointed as independent trustees of the Trust by the High Court.4 The trusteessuccessfully brought proceedings under s 174 of the Companies Act 1993, alleging theaffairs of Vey were being conducted in a way that was prejudicial to the Trust.5The High Court judgment was upheld by this Court.6 Vey was subsequently placedinto receivership and liquidation.7[5] The current dispute arises from advice in the liquidators' report to theHigh Court that it was likely to admit a debt of $1,040,810 owed by Vey to the trustees.Mr Fugle responded by unsuccessfully pursuing an interlocutory application in theHigh Court to review the liquidators' decision as to the debt.8 The gravamen ofMr Fugle's claim was that the liquidators erred by accepting debts for which alimitation defence was available. He also claimed the liquidators were wrong to treattransactions between the Trust and Vey as a running current account without a moredetailed assessment of their nature and purpose.9[6] In his application for leave to appeal, Mr Fugle alleges the High Court erredin:(a) holding that the liquidators' determination on the nature of thetransactions could not be interfered with by the Court unless theliquidators had acted unreasonably, rather than being a question of lawfor the Court to determine;(b) finding that the law would infer money owed between shareholders andtheir company was not repayable until a specific demand was made;(c) relying on the evidence of Mr Nacey, one of the originalcourt-appointed receivers, which was both inadmissible opinion andhearsay;4 Turvey v Turvey HC Wellington CIV-2017-485-150, 27 October 2017.5 Vance v Vey Group Ltd [2019] NZHC 1676.6 Vey Group Ltd v Vance [2020] NZCA 232, [2021] 2 NZLR 541.7 Vance v Vey Group Ltd [2020] NZHC 2592.8 High Court decision, above n 1.9 At [10].(d) finding that the liquidators had acted reasonably in reaching theirdetermination on the nature and purpose of the transactions withoutmaking inquiries of the shareholder-directors as to the nature or purposeof them;(e) treating money paid to third parties by shareholders for which theremay have been an action available to the shareholders for recovery fromthe company as equivalent for limitation purposes as an advance offunds transferred between the shareholders of the company; and(f) upholding the liquidators' decision that the funds constituted a debtowed to the shareholders rather than a capital contribution.[7] Each of these grounds was considered and rejected by Mallon J when shedeclined leave for Mr Fugle to appeal to this Court.10Is leave to appeal required?[8] A preliminary issue was raised as to whether leave to appeal was required.Leave is required to appeal a decision of the High Court made on an interlocutoryapplication in respect of civil proceedings.11[9] Rule 31.35 of the High Court Rules prescribes that applications to the court inrespect of companies where a liquidator has already been appointed by the court, orwhere liquidation by court order is sought, should proceed as interlocutoryapplications.12 The second respondent company Vey was placed into liquidation bythe High Court, engaging r 31.35.[10] We consider that rule 31.35 is procedural only and does not alter the nature ofthe application. The Senior Courts Act defines an interlocutory application as being"for some relief ancillary to that claimed in a pleading."13 Previous decisions of thisCourt have clarified that an interlocutory application is one where the relief sought is10 High Court leave decision, above n 1.11 Senior Courts Act 2016, s 56(3).12 High Court Rules 2016, r 31.35(1).13 Senior Courts Act, s 4."collateral to" or supporting the substantive proceedings.14 That the outcome of aninterlocutory application might prove dispositive of the substantive proceedings isirrelevant as to whether the application is interlocutory in nature.15[11] We consider that the s 284 application is properly characterised as one seekingrelief ancillary to that claimed in the proceeding. In this case the substantive reliefsought in the proceeding was the liquidation of the company Vey. Mr Fugle's s 250application depended on an evaluation of whether all creditors had been paid. Adetermination of whether the Trust was a creditor or not (the subject of the s 284application) would be necessary to support the relief claimed in the s 250 application.However, the relief claimed by the s 284 application — a determination that theliquidators were incorrect to accept the Orana Trust debt — is not substantive relief.It is irrelevant that the s 284 decision by Mallon J had the effect of disposing of the s250 application, and thus was dispositive of the entire proceeding.[12] The s 284 application was interlocutory in nature. Leave to appeal is required.Analysis[13] We can deal succinctly with each of the proposed grounds of appeal.Review test[14] It is not open to argue that the Judge confused the standard of review for errorsof fact or law. As the Judge carefully explained in her decision declining leave, shedrew the relevant distinctions when considering the limitation defence.16 The Judgeclearly considered whether the liquidators were correct as a matter of law. She notedin her interlocutory judgment that the liquidators acted reasonably by consideringwhether the debt might be statute barred and that they "correctly concluded it wasnot".17 The Judge's final comment on this point was that "the decision on the existenceand quantum of [the] debt was reasonable and a limitation defence was not available14 Trotter v Telfer Electrical Nelson Ltd [2018] NZCA 231 at [21] and affirmed in 100 InvestmentsLtd v PVG Securities Trustee Ltd [2020] NZCA 458 at [18].15 100 Investments Ltd v PVG Securities Trustee Ltd [2020] NZCA 458 at [18]–[19].16 High Court leave decision, above n 2, at [8].17 High Court decision, above n 1, at [63].in respect of it".18 These words clearly show the Judge distinguished between thearguments relating to reasonableness and the arguments relating to law.Need for a specific demand?[15] It is not open to argue that the Judge erred when she inferred money owedbetween shareholders and the company was not repayable unless a specific demandwas made. The Judge relied on cases, including Joachimson v Swiss BankCorporation for the principle that the relationship between shareholders and acompany can be relevant when assessing whether there was an obligation to make ademand before a debt was due.19 Mallon J assessed the particular relationship thatexisted on the facts of this case when coming to her decision.20Mr Nacey's evidence[16] Nor is there a basis to argue the High Court erred when assessing the evidenceof Mr Nacey. The Judge correctly pointed out that it would be strange to assessMr Nacey's evidence through the lens of the Evidence Act 2006 because he was acourt-appointed liquidator and directed by the Court to ascertain Vey's liabilities.21Even if an Evidence Act analysis was appropriate, we agree with Mallon J thatMr Nacey's report would be that of an expert and substantially helpful.22Finding of reasonableness[17] There is no basis upon which it can be responsibly argued that the liquidatorsacted unreasonably. Mallon J was very familiar with the facts and carefully assessedthe reasonableness of the conduct of the liquidators.23Payments to third parties[18] We agree with Mallon J that Mr Fugle's proposed argument that the Judgefailed to draw any distinction between payments made between the parties and one of18 High Court decision, above n 1, at [64].19 Joachimson v Swiss Bank Corporation [1921] All ER Rep 92 (KB).20 High Court decision, above n 1, at [59]–[63].21 High Court leave decision, above n 2, at [18].22 At [19]; and Evidence Act 2006, s 25.23 High Court decision, above n 1, at [33]–[34].them to a third party is not arguable. The High Court interlocutory judgment dealtwith the payments made by the Trust to third parties on behalf of Vey comprehensivelyat [38]–[44], finding that the liquidators were entitled to rely on their experience withintermingled funds in closely-held companies and other context, such as the view ofVey's accountant.Capital contributions or loans?[19] Mr Fugle appears to suggest that the evidence relied upon by Mallon J wasmore consistent with being a capital investment rather than a loan. At the same timehe says that the payments were not capital contributions.24 We see no basis on whichthis proposed ground of appeal is properly arguable.Overview[20] Even if there had been an error in the Court below, we are far from persuadedthat any error was of sufficient importance to warrant further delay in theseproceedings. The amount in dispute is approximately $220,000. That is a smallpercentage of the overall debt in issue.[21] We are concerned Mr Fugle has engaged in a variety of delaying tactics andbrought numerous proceedings in which the liquidators' decisions have beenchallenged by him. If we were to grant leave, it would provide Mr Fugle with a sixthhearing for him to pursue his complaints against the liquidators.[22] We are also concerned that Vey's main asset is an apartment building inWellington which suffers from weathertightness defects. It is in the interests of theunsecured creditors for the main asset to be promptly liquidated.[23] We are also satisfied that this appeal is only of private importance to Mr Fugleand does not raise any legal issues that require consideration by this Court.24 High Court leave decision, above n 2, at [13].Result[24] The application for leave to appeal is declined.[25] The Commissioner of Inland Revenue seeks to be heard on costs. Accordingly,costs are reserved. If the parties are unable to reach agreement by 3 March 2023, theyare to each file memoranda not exceeding three pages setting out their respectivepositions.Solicitors:Dewhirst Law, Whanganui for ApplicantJAG Legal, Lower Hutt for First RespondentsBell Gully, Wellington for Second RespondentCrown Law Office, Wellington for Third Respondent