Fugle v Vance [2023] NZCA 21 (16 February 2023)

Last Updated: 20 February 2023

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA430/2022 [2023] NZCA 21

	BETWEEN	LESLIE WILLIAM FUGLE Applicant
	AND	DAVID VANCE AND IAN MILLARD AS TRUSTEES OF THE ORANA TRUST First Respondents VEY GROUP LIMITED (IN LIQUIDATION) Second Respondent THE COMMISSIONER OF INLAND REVENUE Third Respondent

Court:	Gilbert and Collins JJ
Counsel:	F E Geiringer for Applicant R L Roff for First Respondents M G Colson KC and R L Pinny for Second Respondent K I S Naik-Leong for Third Respondent
Judgment: (On the papers)	16 February 2023 at 9.30 am

JUDGMENT OF THE COURT

1. The application for leave to appeal is declined.
2. 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 to appeal an interlocutory judgment of Mallon J delivered on 2 February 2022.^[1] This is Mr Fugle’s second application for leave to appeal the interlocutory judgment, Mallon J having declined leave to appeal.^[2]

[2] In Greendrake v District Court of New Zealand, this Court affirmed the following factors are engaged when considering an application for leave to appeal an interlocutory 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 warranting determination or otherwise of sufficient importance to the applicant to outweigh 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 by granting leave.

[3] Contrary to Mr Fugle’s submissions, this is the appropriate test for all applications for leave to appeal interlocutory decisions, even where the issue on an interlocutory application may be dispositive of the underlying proceeding. The nature of 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 were appointed as independent trustees of the Trust by the High Court.^[4] The trustees successfully brought proceedings under s 174 of the Companies Act 1993, alleging the affairs of Vey were being conducted in a way that was prejudicial to the Trust.^[5] The High Court judgment was upheld by this Court.^[6] Vey was subsequently placed into receivership and liquidation.^[7]

[5] The current dispute arises from advice in the liquidators’ report to the High 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 the High Court to review the liquidators’ decision as to the debt.^[8] The gravamen of Mr Fugle’s claim was that the liquidators erred by accepting debts for which a limitation defence was available. He also claimed the liquidators were wrong to treat transactions between the Trust and Vey as a running current account without a more detailed assessment of their nature and purpose.^[9]

[6] In his application for leave to appeal, Mr Fugle alleges the High Court erred in:

(a) holding that the liquidators’ determination on the nature of the transactions could not be interfered with by the Court unless the liquidators had acted unreasonably, rather than being a question of law for the Court to determine;

(b) finding that the law would infer money owed between shareholders and their company was not repayable until a specific demand was made;

(c) relying on the evidence of Mr Nacey, one of the original court‑appointed receivers, which was both inadmissible opinion and hearsay;

(d) finding that the liquidators had acted reasonably in reaching their determination on the nature and purpose of the transactions without making inquiries of the shareholder-directors as to the nature or purpose of them;

(e) treating money paid to third parties by shareholders for which there may have been an action available to the shareholders for recovery from the company as equivalent for limitation purposes as an advance of funds transferred between the shareholders of the company; and

(f) upholding the liquidators’ decision that the funds constituted a debt owed to the shareholders rather than a capital contribution.

[7] Each of these grounds was considered and rejected by Mallon J when she declined leave for Mr Fugle to appeal to this Court.^[10]

Is 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 interlocutory application in respect of civil proceedings.^[11]

[9] Rule 31.35 of the High Court Rules prescribes that applications to the court in respect of companies where a liquidator has already been appointed by the court, or where liquidation by court order is sought, should proceed as interlocutory applications.^[12] The second respondent company Vey was placed into liquidation by the High Court, engaging r 31.35.

[10] We consider that rule 31.35 is procedural only and does not alter the nature of the 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 this Court have clarified that an interlocutory application is one where the relief sought is “collateral to” or supporting the substantive proceedings.^[14] That the outcome of an interlocutory application might prove dispositive of the substantive proceedings is irrelevant as to whether the application is interlocutory in nature.^[15]

[11] We consider that the s 284 application is properly characterised as one seeking relief ancillary to that claimed in the proceeding. In this case the substantive relief sought in the proceeding was the liquidation of the company Vey. Mr Fugle’s s 250 application depended on an evaluation of whether all creditors had been paid. A determination of whether the Trust was a creditor or not (the subject of the s 284 application) 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 the liquidators 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 s 250 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 errors of fact or law. As the Judge carefully explained in her decision declining leave, she drew the relevant distinctions when considering the limitation defence.^[16] The Judge clearly considered whether the liquidators were correct as a matter of law. She noted in her interlocutory judgment that the liquidators acted reasonably by considering whether the debt might be statute barred and that they “correctly concluded it was not”.^[17] The Judge’s final comment on this point was that “the decision on the existence and quantum of [the] debt was reasonable and a limitation defence was not available in respect of it”.^[18] These words clearly show the Judge distinguished between the arguments 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 owed between shareholders and the company was not repayable unless a specific demand was made. The Judge relied on cases, including Joachimson v Swiss Bank Corporation for the principle that the relationship between shareholders and a company can be relevant when assessing whether there was an obligation to make a demand before a debt was due.^[19] Mallon J assessed the particular relationship that existed on the facts of this case when coming to her decision.^[20]

Mr Nacey’s evidence

[16] Nor is there a basis to argue the High Court erred when assessing the evidence of Mr Nacey. The Judge correctly pointed out that it would be strange to assess Mr Nacey’s evidence through the lens of the Evidence Act 2006 because he was a court-appointed liquidator and directed by the Court to ascertain Vey’s liabilities.^[21] Even if an Evidence Act analysis was appropriate, we agree with Mallon J that Mr Nacey’s report would be that of an expert and substantially helpful.^[22]

Finding of reasonableness

[17] There is no basis upon which it can be responsibly argued that the liquidators acted unreasonably. Mallon J was very familiar with the facts and carefully assessed the reasonableness of the conduct of the liquidators.^[23]

Payments to third parties

[18] We agree with Mallon J that Mr Fugle’s proposed argument that the Judge failed to draw any distinction between payments made between the parties and one of them to a third party is not arguable. The High Court interlocutory judgment dealt with the payments made by the Trust to third parties on behalf of Vey comprehensively at [38]–[44], finding that the liquidators were entitled to rely on their experience with intermingled funds in closely-held companies and other context, such as the view of Vey’s accountant.

Capital contributions or loans?

[19] Mr Fugle appears to suggest that the evidence relied upon by Mallon J was more consistent with being a capital investment rather than a loan. At the same time he says that the payments were not capital contributions.^[24] We see no basis on which this proposed ground of appeal is properly arguable.

Overview

[20] Even if there had been an error in the Court below, we are far from persuaded that any error was of sufficient importance to warrant further delay in these proceedings. The amount in dispute is approximately $220,000. That is a small percentage of the overall debt in issue.

[21] We are concerned Mr Fugle has engaged in a variety of delaying tactics and brought numerous proceedings in which the liquidators’ decisions have been challenged by him. If we were to grant leave, it would provide Mr Fugle with a sixth hearing for him to pursue his complaints against the liquidators.

[22] We are also concerned that Vey’s main asset is an apartment building in Wellington which suffers from weathertightness defects. It is in the interests of the unsecured creditors for the main asset to be promptly liquidated.

[23] We are also satisfied that this appeal is only of private importance to Mr Fugle and does not raise any legal issues that require consideration by this Court.

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, they are to each file memoranda not exceeding three pages setting out their respective positions.

Solicitors:
Dewhirst Law, Whanganui for Applicant
JAG Legal, Lower Hutt for First Respondents
Bell Gully, Wellington for Second Respondent
Crown Law Office, Wellington for Third Respondent

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^[1] 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 to Finewood Upholstery Ltd v Vaughn [2017] NZHC 1679 at [13].

^[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].

^[10] 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.

^[14] Trotter v Telfer Electrical Nelson Ltd [2018] NZCA 231 at [21] and affirmed in 100 Investments Ltd 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].

^[18] 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].

^[24] High Court leave decision, above n 2, at [13].