RABSON V CROAD COA CA289/2011

RABSON V CROAD COA CA289/2011 [31 October 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA289/2011[2012] NZCA 496BETWEEN MALCOLM RABSONAppellantAND ANDREW CROAD ANDCHRISTINE MARGARET DUNPHYRespondentsHearing: 17 October 2012Court: Harrison, Wild and Ronald Young JJCounsel: Appellant in PersonH L Thompson for RespondentsJudgment: 31 October 2012 at 10.15 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay costs to the respondents for a standard appeal on a band B basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Ronald Young J)Introduction[1] In September 2009 the appellant, Mr Rabson, transferred $240,000 from Vision Ltd (in which he was a director) equally to two family trusts. One, the MRF Trust, was associated with Mr Rabson and he was a trustee. The other was atrust controlled by Vision's other director, Mr Hitchens. Subsequently Vision and its holding company Double Zero Holdings Ltd (Double Zero) were put into liquidation.[2] Some of the funds transferred to the two trusts were used to pay Vision'sdebts. The liquidators (the current respondents) sought reimbursement from Mr Rabson and Mr Hitchens of the remaining funds taken from Vision. When the two directors refused to reimburse the company, the liquidators issued High Court proceedings seeking relief under s 301 of the Companies Act 1993. The liquidators reached a settlement with Mr Hitchens. Mr Rabson filed a statement of defence and counterclaim. However, although he was aware of the trial date, he did not appear at trial.[3] After hearing evidence and submissions from the respondents French J in the High Court entered judgment against Mr Rabson for $58,084.31 plus costs.1 She dismissed Mr Rabson's counterclaim.This appeal[4] Mr Rabson has filed several documents regarding his appeal points. We note that he has not sought to set aside the judgment entered in his absence or leave to adduce further evidence.[5] We take Mr Rabson's issues list, filed shortly before the hearing of this appeal, as identifying most of his grounds of appeal and supplement that with additional grounds identified by him in argument. Mr Rabson's issues list was:1 Croad v Rabson HC Wellington CIV-2010-485-793, 11 April 2011.1. Does the jurisdiction granted to the Court under Section 301 require that the Courta. Conduct an enquiry, and/orb. Find a breach of a particular section of the Companies Act 1993 by the Appellant, before issuing a decision against the Appellant.2. When the Appellant participates in proceedings (including filing statements of defence) and fails to appear at hearing can the Plaintiff proceed by way of formal proof and ignore the issues raised by the statement of defence.3. When a plaintiff files a statement of claim and proceeds at a hearing by way of formal proof and does not amend the pleadings can the Court give a judgment for more than was claimed in the Statement of Claim and not particularised.4. Might an injustice have occurred when a decision is given against the Appellanta. When the clear evidence given to the Court is that the payment contested was not paid to the Appellant personallyb. When no proper inquiry was conductedc. When no separate statutory basis under the Companies Act is identifiedd. When the Plaintiffs were awarded more than they claimed and the amount is not allocated against the claims madee. When evidence is tendered that is hearsayf. Is not present or representedg. When the counterclaim although pleaded is not considered as part of the inquiryh. A later separate Court heard the evidence and made a ruling, which having been complied with, effectively paid or [set off] the full amount.5. Does the leading of evidence by Counsel (as shown by the transcript of the High Court proceedings) amount to an inquiry.6. Should full and proper reasons been provided in the original decision.Further background facts and judgment appealed against[6] The background to the liquidation of both Vision and Double Zero arose from a dispute between Mr Rabson and Mr Hitchens. That shareholders dispute was described by Gendall J in Hitchens v Double Zero Holdings Ltd.2 The respondents were appointed liquidators of Double Zero and of Vision later on 5 February 2010 byshareholders' special resolution.[7] As we have noted in September 2009 Mr Rabson withdrew $240,000 from Vision's bank account and paid $120,000 each to his family trust and Mr Hitchens'family trust. The liquidators accepted that subsequently the two family trusts each repaid $68,654.35 to Vision. This left each of the trusts with $51,345.65 of the money originally advanced.[8] In the High Court there was evidence of an exchange of correspondence between Mr Rabson and the liquidators regarding this dispute. Essentially Mr Rabson claimed that he had paid significant sums to Vision's creditors andshould have credit for these payments before any repayment was required. The majority (in dollar amount) of the claimed creditor payments related to rental payments which Mr Rabson asserted were due by Vision to Casino Properties Ltd, the landlord of the premises that Vision had occupied. Mr Rabson is also a director of Casino Properties Ltd. Mr Rabson claimed that his payments of Vision's debtsexceeded the $51,345.65 taken from Vision. And so neither he nor the trust owed Vision any money.[9] In evidence, Mr Croad set out (in a table) how the liquidators calculated that Mr Rabson owed $58,084.31. The calculation began with the agreed sum being held by Mr Rabson of $51,345.65. Mr Croad identified the amounts Mr Rabson said he had paid on behalf of Vision and which amounts he (and Ms Dunphy) accepted aslegitimate payments of Vision's creditors and which they did not.2 Hitchens v Double Zero Holdings Ltd HC Wellington CIV-2009-485-1961, 5 February 2010.[10] As a result the original sum of $51,345.65 was reduced to $44,599.31. The liquidators then added to that sum three items. Firstly, $4,560 being the sale price of Vision assets sold by Mr Rabson (who had kept the proceeds). Secondly, $6,900 for Mr Rabson's purchase of items owned by Vision and finally, a rental payment of$2,025. These amounts, added to the $44,599.31, totalled $58,084.31.[11] At the completion of the hearing the Judge gave an oral judgment. French J said that she was satisfied that Mr Rabson had been well aware of the hearing and she had proceeded to hear the case by way of formal proof. She was satisfied that the evidence established the transfer of the sum of $240,000 to the family trusts. The Judge accepted that some of the money transferred to the Trusts was used for the benefit of either Vision or its holding company Double Zero. What remained, however, was $58,084.31 which was money Mr Rabson had failed to properly account for to Vision. She accordingly made an order under s 301 requiring repayment by Mr Rabson.[12] With that background we turn to the individual grounds of appeal. We consider some appeal points together given some are repetitive.Leading evidence, s 301 and an "inquiry" (Issues 1(a), 4(b), 5)3[13] The appellant alleged the hearing before the Judge involved counsel for theliquidators wrongly leading evidence and that this could not amount to an "inquiry"as required by s 301. Having reviewed the transcript we are satisfied there is nothing objectionable about the way the evidence was presented to the Judge.[14] As to an "inquiry", s 301 provides as relevant:301 Power of Court to require persons to repay money or return property(1) If, in the course of the liquidation of a company, it appears to the Court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager,3 The numbers after each heading refer to the paragraph number(s) of the appellant's appeal issuesat [5].[administrator,] liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the Court may, on the application of the 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 part of it with interest at a rate the Court thinks just; or(ii) To contribute such sum to the assets of the company by way of compensation as the Court thinks just; or[15] The use of the word "inquire" in s 301(1)(a) does not indicate that the Judge must embark upon his or her own investigation of the facts. New Zealand has an adversarial and not an inquisitorial system of justice. The Judge must rely uponcounsel for the parties' presentation of evidence and submissions and decide whetherthat satisfies the Judge that the conduct set out in s 301 is proved. An inquiry for the purpose of s 301 was undertaken through this very process.Why was the appellant liable? (Issues 1(b), 4(c))[16] Mr Rabson submits the Judge did not identify why he was liable to repay themoney, or identify "a separate statutory basis" under the Companies Act for thejudgment.[17] The liquidators' cause of action pursued at trial was based on money had andreceived. That is, Mr Rabson (either personally or as trustee) had received money belonging to Vision (a form of unjust enrichment). Mr Rabson, in correspondence with the liquidators, accepted he had received money from Vision. His claim is thathe had used this money to pay Vision's debts. This was, as the evidence of Mr Croad identified, partially accepted and partially rejected by the liquidators. The conversion cause of action also pursued at trial was based also on Mr Rabson'sadmission that he sold company assets and kept the proceeds.[18] The liquidators' evidence was accepted by the Judge. The basis of herjudgment was that Mr Rabson had and received money from Vision. What Mr Rabson had not spent on paying Vision's accounts had to be returned to Vision asits money. He also had to repay money received from the sale of company assets and pay for company assets purchased by him. This is where Mr Rabson's liabilityto Vision arises.[19] Section 301 sets out the procedure by which claims against directors (and others) can be heard. A s 301 claim must have a basis in law as set out in s 301(1). Here, the claim was based on the director having retained company funds.4 Theliquidators' evidence established that Mr Rabson had retained Vision's money and interms of s 301(1)(b)(i), the Court ordered the restoration of the money to Vision.[20] We, therefore, reject this ground of appeal.Formal proof and failure to appear (Issues 2, 4(f))[21] Mr Rabson's complaint was that the formal proof evidence of the liquidatorsignored the details contained in his statement of defence.[22] Rule 10.7 of the High Court Rules provides as follows:10.7 When only plaintiff appearsIf the plaintiff appears and the defendant does not, the plaintiff must prove the cause of action so far as the burden of proof lies on the plaintiff.[23] Thus, subject to an admission of any particular part of the plaintiff's cause of action in the statement of defence, the plaintiff must prove at any trial all aspects of its cause of action before judgment can be entered. What is contained in the statement of defence (and counterclaim) is not evidence. It is a description of what adefendant says its case is in response to the plaintiff's pleadings. The plaintiff in thiscase, therefore, did not have to overcome any evidential burden created by Mr Rabson's statement of defence. The plaintiffs simply had to prove their cause of4 Companies Act 1993, s 301(1).action. The Judge was satisfied they had done so. There is no error in this approach. Mr Rabson was aware of the trial date. He chose not to appear and must accept the legal consequences. As we have observed, the liquidators were on proof entitled to seek judgment.[24] We reject this ground of appeal.Judgment for more than the amount claimed (Issues 3, 4(d))[25] The various causes of action in the statement of claim seek inquiries pursuant to s 301. The reason for the inquiry is said to be that Mr Rabson:a) had had and received $51,345.65 which belonged to the company;b) breached directors' duties by permitting that sum to be transferred tohim; andc) converted assets of the company which he refuses to deliver up or which he has sold but failed to account to the company for the sale proceeds.[26] At trial the liquidators pursued the money had and received and the conversion causes of action. The statement of claim sought the following orders with respect to the s 301 inquiry based on money had and received:a) an order requiring Mr Rabson to repay the sum of $51,345.65 to the company or the holding company as the case may be together with interest in such a way as the Court thinks just; orb) an order requiring Mr Rabson to contribute such sum to the assets of the company and/or the holding company by way of compensation as the Court thinks just.[27] Pursuant to the conversion cause of action, the liquidators sought an order requiring Mr Rabson to contribute such sum to the assets of Vision and/or Double Zero by way of compensation as the Court thought just.[28] Thus, the liquidators' claim against Mr Rabson was not limited to the sum of $51,345.65. The prayer for the first cause of action (money had and received) as an alternative sought an order for compensation for a suitable sum. This gave the Court a discretion as to the damages awarded. Secondly, the prayer for damages for conversion was in addition to the damages for money had and received.[29] We are, therefore, satisfied that the statement of claim did permit the Judge to enter judgment for more than $51,345.65 without amendment to the pleadings. We, therefore, reject this ground of appeal.Jurisdiction to order money "not paid to the appellant personally" (Issue 4(a))[30] Mr Rabson submitted that no order could be made against him because the $120,000 had not been paid to him but to the MRF trust. We are satisfied the order under s 301 was properly made against Mr Rabson. Firstly, he was the person who removed the money from the company. Secondly, he was the trustee to whom the money was paid. The order was appropriately addressed to him for both reasons.Hearsay evidence (Issue 4(e))[31] This ground of appeal, as we understand it, relates to a statement made by Mr Rabson relating to the tenancy between Vision and Casino and the use of the statement at the High Court trial. Mr Rabson's statement is contained in an unswornaffidavit which was filed by him in other proceedings which involved Mr Rabson, Mr Hitchens, Casino and Vision. The document was included in the trial bundle by the liquidators in this case. Amongst other things, the statement by Mr Rabson said:Rental arrangements between Casino and Vision came to an end on 30 November 2009.[32] Mr Croad, in his brief of evidence filed at trial and in his oral evidence given at trial, referred to Mr Rabson's statement regarding the lease between Vision andCasino. Mr Croad also noted there was other evidence that confirmed that the tenancy between Vision and Casino ended as at 30 November 2009; for example, the fact Casino changed the locks on the premises on 1 December. Significantly, also, some of Mr Rabson's statements on this issue were inconsistent with each other andwith the careful affirmative denials pleaded in his statement of defence.[33] This evidence was designed to establish that Mr Rabson was not required to make any rental payments on behalf of Vision to Casino after 30 November 2009. The Judge accepted Mr Croad's evidence when she made the order for the liquidators' damages claim.[34] Mr Rabson says this unsworn statement referred to by Mr Croad was hearsay, inadmissible, and therefore incorrectly relied upon by the High Court to establish there was no rental due by Vision to Casino and thereby to discount his claim for reimbursement of rental payments made.[35] We agree with Mr Thompson that Mr Rabson's statement, which washearsay,5 was admissible pursuant to s 18 of the Evidence Act 2006. Mr Rabson'sstatement was reliable, in the sense that the circumstances relating to it provide reasonable assurance of its reliability (as opposed to the evidence itself which is a consequential question), it was tendered by him in court proceedings and was confirmed by other evidence, and undue delay would have been caused to the hearing by an adjournment to call Mr Rabson as a witness.[36] Further, even without this evidence, there was other evidence from which the Judge could reasonably have inferred the tenancy between Vision and Casino was at an end by 30 November.[37] We, therefore, reject this ground of appeal.5 Evidence Act 2006, s 4.Counterclaim not considered (Issue 4(g))[38] Mr Rabson says that the Judge was wrong not to consider the merits of his counterclaim. As to this the Judge said:6As regards Mr Rabson's counterclaim, not only was he in breach oftimetabling directions relating to the prosecution of his counterclaim, he has of course also failed to appear this morning. In those circumstances, the plaintiffs are also entitled to judgment on the counterclaim.[39] The Judge was clearly correct. Mr Rabson did not appear in support of his counterclaim nor call any evidence in support of his claim. Inevitably it was going to be dismissed.[40] The analogous position is described in r 10.8 of the High Court Rules. It provides as follows:10.8 When only defendant appearsIf the defendant appears but the plaintiff does not, the defendant,—(a) if the claim is not admitted, is entitled to judgment dismissing the proceeding; and(b) if there is a counterclaim, must prove it so far as the burden of proof lies on the defendant.[41] This was a counterclaim. The liquidators were entitled to judgment dismissing the claim given it had not been admitted by them.[42] We, therefore, reject this ground of appeal.Associate Judge Gendall's decision (Issue 4(h))[43] In correspondence with the liquidators, Mr Rabson claimed that he had paid, on Vision's behalf, lease payments due to Casino. The liquidators rejectedMr Rabson's claim concluding that during the relevant time Casino had granted6 At [14].Vision a rent "holiday" and immediately afterwards the lease had been cancelled. In the High Court the Judge accepted the liquidators' conclusion.[44] Some months after French J had delivered judgment in the High Court in this proceeding, the issue of rental payments by Vision to Casino came before an Associate Judge. The liquidators of Vision made a statutory demand of Casino seeking $52,0007 for "money that was transferred" to Casino from Vision which was truly Vision's money.[45] Casino made an application to set aside the statutory demand. It was that application that came before Associate Judge Gendall.8 Mr Rabson said the money held by Casino was rental payments by Vision. He claimed the money was for rent due by Vision to Casino on 1 December 2009, 1 January 2010 and 1 February 2010 together with rates.[46] The Associate Judge accepted that Mr Rabson had an argument based on a set off that the whole of the $52,000 should not be able to be recovered by way of a statutory demand. Accordingly, the Judge set aside the statutory demand, save for the sum of $18,579.40.9 Casino was ordered to pay that sum to the liquidators of Vision within ten working days from the date of judgment. We understand that the payment has been made.[47] Mr Rabson says, therefore, that the Associate Judge made a finding that rental payments were owed by Vision to Casino and that those rental payments had been made by Mr Rabson on behalf of Vision from the monies held by his trust as a legitimate debt owed by Vision to Casino. He submitted that this illustrated that the decision of French J which based on the liquidators' evidence concluded no rent was owed by Vision to Casino, was wrong.7 This is the same sum as the $51,345.65 referred to above at [7].8 Casino Properties Ltd v Vision Ltd (in liq) HC Wellington CIV-2011-485-924,7 September 2011.9 $52,000 less the claimed rental and rates payments of $33,420.60.[48] Mr Rabson has misapprehended the Associate Judge's function. TheAssociate Judge did not reach any conclusion that in fact Vision owed Casino any rental. The Associate Judge was responding to an application to set aside a statutory demand. A Court may grant an application to set aside a statutory demand if it is satisfied that there is substantial dispute as to whether or not the debt in question is owing or due.10[49] The Associate Judge did not decide that Vision owed Casino rent but only that there was a dispute that would need to be resolved by hearing.[50] There was, therefore, no conflict between the decision of the Associate Judge and French J.[51] Finally, we note that at para 11 of an unsworn affidavit of Mr Rabson's andfiled by Mr Rabson in the 2010 proceedings before Associate Judge Gendall, Mr Rabson said that Vision had paid rent to Casino to the end of August 2009, there was then a rental holiday and that the rental arrangements between Casino and Vision came to an end on 30 November indicating the end of the lease. There were other actions by Mr Rabson that were consistent with a conclusion that the lease ended as at that date. Understandably, therefore, the liquidators rejected Mr Rabson's claim that he had paid rent on Vision's behalf to Casino after30 November 2009 and unsurprisingly French J accepted that conclusion.[52] For the reasons given, we reject this ground of appeal.Full and proper reasons for judgment (Issue 6)[53] Mr Rabson says the Judge should have given fuller and in his words "proper"reasons for her decision. We are satisfied the Judge gave adequate reasons for her conclusions given there was unchallenged evidence before her.10 Companies Act 1993, s 290(4)(a).Summary[54] We have rejected each of Mr Rabson's grounds of appeal. We are satisfied that the Judge in the High Court correctly made an order under s 301 that Mr Rabson reimburse the $58,084.31 wrongly retained by him. We note that the liquidators have received11 some further funds from Casino which are properly deducted from the $58,084.31 owing by Mr Rabson.Costs[55] Mr Rabson is ordered to pay the liquidators costs for a standard appeal on a band B basis and usual disbursements.Solicitors:McMahon Butterworth Thompson, Auckland11 See above at [46].