Petricevic v Bridgecorp Management Services Limited (in rec) [2008] NZCA 286 (4 August 2008)

Last Updated: 19 August 2008

IN THE COURT OF APPEAL OF NEW ZEALAND

CA371/2008

[2008] NZCA 286

BETWEEN RODNEY MICHAEL PETRICEVIC
Appellant

AND BRIDGECORP MANAGEMENT SERVICES LIMITED (IN RECEIVERSHIP)
Respondent

Hearing: 4 August 2008

Court: William Young P, O'Regan and Robertson JJ

Counsel: P J Dale and C M Brick for Appellant
M J Tingey and J C Caird for Respondent

Judgment: 4 August 2008

ORAL JUDGMENT OF THE COURT

A We dismiss the application for a stay.

2. The respondent is awarded costs on a standard (band A) basis along with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

Introduction

[1] On 5 June 2008, Bridgecorp Management Services Ltd (in receivership), or BMSL as we will call it, obtained summary judgment from Associate Judge Robinson against Mr Rodney Petricevic for $661,333.50. The primary claim was for $576,100 paid by BMSL on behalf of Mr Petricevic on 4 September 2006. The balance of the judgment sum is for interest and costs. Mr Petricevic has appealed against that judgment. By reason of that appeal, he obtained from Priestley J a stay of execution of the judgment on the condition that he pay $576,100 into court. He did not comply with that condition and now seeks a stay from this Court under r 12 of the Court of Appeal (Civil) Rules 2005.
[2] This application has particular relevance as bankruptcy proceedings by BMSL are to be called against Mr Petricevic on 7 August.
[3] If the appeal is to proceed, it could be heard on 20 August 2008 and we direct that it be set down for hearing on that date.

The background to the litigation

[4] BMSL is part of the Bridgecorp group of companies. Mr Petricevic was the chief executive officer of those companies. The material before us does not explain in detail the way in which those companies operated but we infer that BMSL provided management services to the Bridgecorp group. This group operated, inter alia, as a financier and raised considerable money from the public through the offering of debenture stock. Most of the companies in the group (but not BMSL) were placed in receivership on 2 July 2007. At that stage the amount owed to the debenture holders was in the order of $458m. The receivers anticipate that the debenture holders will eventually recover somewhere between 13 and 44 cents in the dollar, resulting in a deficiency of between $256m and $397m. BMSL was not placed in receivership until 18 December last year.
[5] Mr Petricevic is involved in two other sets of legal proceedings associated with the collapse. He is being prosecuted for alleged offences under the Securities Act 1978 and the Companies Act 1993. He is also a defendant in civil proceedings in which BMSL seeks to recover $2,749,347 from him, representing what the receivers claim to have been excessive remuneration over the period 1 July 2004 – 30 June 2007. According to the receivers, further claims are likely.

The summary judgment claim

[6] As noted, the present claim is based on a payment of $576,100 paid by BMSL on behalf of Mr Petricevic on 4 September 2006. This sum was paid to the Inland Revenue Department for tax owed by Mr Petricevic. The only internal BMSL documentation associated with this payment that has been produced is a hand-written note on an Inland Revenue Department letter of demand to Mr Petricevic, which is in these terms:

Please pay today: To be treated as an advance from BMSL. Rod when he returns on Wednesday, will need to get documentation to support the payment.

This note was written by Mr Will Martin, Bridgecorp’s general manager finance.

[7] The summary judgment claim thus unsurprisingly proceeded on the basis that the payment to the Inland Revenue Department represented an advance to Mr Petricevic.
[8] Mr Petricevic’s defence to the summary judgment application was that it was agreed between him and BMSL that the $576,100 paid on his behalf was to be off set against “sums due to me”. In this Court, Mr Petricevic has filed an affidavit from Mr Robert Roest, who was a director of BMSL. He maintains that the payment was for salary and bonuses to which Mr Petricevic would become entitled. This explanation is not particularly convincing as the pattern of payments made to Mr Petricevic before and after 4 September 2006 suggests that, leaving aside the $576,100 in issue, he received his contractual entitlements in full measure. The payments made to him included all regular salary payments, together with a payment in November 2006 of $575,833 (which was presumably the bonus for the 2006 year) – virtually the same amount as the advance.
[9] When the off-sets came to be particularised in the context of the summary judgment claim, the claims advanced fall under the following heads:

• (a) Salary from 1 July 2007 – 19 December 2007 (gross $275,000, net $167,700);
• (b) Incentive payment (apparently for the for year ending 30 June 2007 (gross $550,000, net $335,500);
• (c) Redundancy (gross $190,385, net $116,135);
• (d) Reimbursement for business expenses ($27,129);
• (e) Holiday pay for 2007 (gross $63,461.54, net $38,461.54);
• (f) Motor vehicle finance payments ($21,950.55); and
• (g) Loss on sale, apparently on termination of the lease of a Mercedes provided to Mr Petricevic by BMSL ($50,000).

The first three claims proceed on the basis that for the year ending 30 June 2007, Mr Petricevic is entitled to an incentive payment of $550,000, that for the period from 1 July 2007 up to BMSL’s receivership on 18 December 2007 he is entitled to his old salary and that upon receivership he is entitled to redundancy of $190,000. The other claims were not the subject of substantial discussion before us.

[10] The hearing before Associate Judge Robinson was on 29 May 2008. By this stage BMSL had challenged the jurisdiction of the Court to entertain the set-offs. There is now some dispute as to whether this hearing was intended to resolve the claim or simply the question whether the Court had jurisdiction to consider the set-offs. The Associate Judge was obviously of the former view. He entered summary judgment on the basis that determination of the set-offs claimed by Mr Petricevic fell within the exclusive jurisdiction of the institutions established under the Employment Relations Act 2000 and that the existence of these undetermined cross-claims did not preclude summary judgment, cf Grant v NZMC Ltd [1989] 1 NZLR 8 (CA). This latter conclusion was not the subject of elaborate reasons in his judgment. As well, he did not address the submission that the judgment be stayed pending determination of the employment claim.

The basis of the appeal

[11] The basis of the appeal against summary judgment is two-fold. First, that the Associate Judge was wrong to enter summary judgment given the unresolved alleged off-sets. And secondly, that there was a misunderstanding as to the nature of the hearing on 29 May 2008: because Mr Petricevic believed that only the jurisdictional issue was to be resolved, not all possible defences to the summary judgment claim were canvassed.
[12] The latter point draws some apparent support from a minute from the Associate Judge in advance of the hearing on 29 May which was in these terms:

The hearing at this stage will be limited to the preliminary point raised by counsel for the plaintiff in the appearance by the plaintiff under protest to jurisdiction relating to the defendant’s defence dated 22 May 2008.

That said, counsel for both parties did address the substantive summary judgment claim at the hearing on 29 May. As well, after the judgment was delivered, no application was made to the Associate Judge for him to recall his judgment. In all probability, any problems associated with the alleged misunderstanding could be addressed on appeal, although this may require additional evidence.

[13] More generally, any challenge to the existence of the debt seems forlorn.
[14] Against that background, the primary issue on appeal is likely to be whether the unresolved set-off claims precluded summary judgment (or perhaps warranted a stay of the judgment). It is fair to say that the reasoning of the Associate Judge is pretty limited as to why the unresolved set-offs did not warrant an adjournment or the summary judgment claim (or a stay of the judgment) pending determination in the Employment Relations Authority of the amount (if any) owed by BMSL to Mr Petricevic. We doubt whether the jurisdictional issue would be a complete justification for ignoring the set-offs. If it is the case that Mr Petricevic has a genuine claim for hundreds of thousands and dollars, we are prepared to accept that this would have provided a basis for substantial argument that summary judgment should not have been entered against him. On the other hand, purely speculative claimed set-offs devoid of plausibility would not be a bar to entering summary judgment or warrant a stay of judgment.

The stay application in the High Court

[15] Attempts by BMSL to enforce the judgment resulted in Mr Petricevic seeking a stay. The trigger for this application was a visit by bailiffs to the Petricevic house on 27 June 2008. The bailiffs took away a Porsche motor vehicle, which Mr Petricevic claimed was owned by a trust. They otherwise left empty handed as Mr and Mrs Petricevic persuaded them that another car was owned by a trust and asserted that all other chattels that were present were owned by Mrs Petricevic. This latter claim (which rests on the basis of alleged gifts) has not been documented (for instance by reference to gift statements which might conceivably have been lodged with the Inland Revenue Department if chattels of substantial value had been given to his wife).
[16] In support of his application for a stay, Mr Petricevic has asserted that all identifiable assets that in a general sense belong to the Petricevic family are either owned by his wife or by trusts. He claims that the Porsche was transferred to his family trust on 5 July 2007. He has produced a trustees’ resolution which bears that date. He also produced change of ownership records, which show that the registered ownership of the vehicle was transferred shortly afterwards. His explanation for this transaction (which occurred only a few days after the Bridgecorp companies went into receivership) was that it was to secure advances to him from the trust, including advances which the trust might make to him in the future. He denies that he has sufficient assets to meet the amount of the judgment and claims that he owes the trusts associated with his family around $5m.
[17] Although Mr Petricevic has provided a good deal of documentation in support of his contentions, his disclosure has been far from complete and could fairly be described as selective. He has made no attempt to explain in any detail (other than in relation to payments made to the Inland Revenue Department) what happened to the money he received from BMSL, which in the four years prior to receivership exceeded $4m and the money he borrowed from the family trust (his debt to which has increased by around $1.6m over the last 8 years). He has not identified the assets he owns or his debts to other creditors.
[18] Priestley J dealt with the application for a stay on 7 July. He accepted that the appeal was genuinely arguable although he plainly thought that sooner or later Mr Petricevic was going to have to address the underlying liability. He was, however, unimpressed by the level of disclosure made by Mr Petricevic:

[33] I comment, as I am entitled to do, that the information which Mr Petricevic has chosen to place before the Court to support his application for a stay has been scanty. If, as he asserts on oath, he is indeed not in a position to meet the judgment debt then one might have expected more detailed information about his current assets and liabilities and in particular whether it was feasible for him to raise by way of loan from the R M Petricevic Family Trust or some other source the judgment sum.

He later described the evidence as “minimalist”. He pointed to inconsistencies in some of the documentation and the awkward timing associated with the transfer of the Porsche. He was plainly suspicious of the bona fides of the claim that all chattels in the home belong to Mrs Petricevic. The Judge recognised the significance of timing issues in relation to bankruptcies. He concluded in this way:

[58] I am satisfied on the basis of the evidence I have heard, having given full weight to counsel’s helpful submissions, that Mr Petricevic is able to access money when he needs or wants it, whether from the Trust or from assets he has not fully disclosed. The evidence he has chosen to put before the Court falls well short of satisfying me he is not in a position to give some form of adequate security. If I am wrong in that, then Mr Petricevic is indeed insolvent and as soon as he is adjudicated the better, so that past relevant dispositions can be examined and unnecessary further litigation, both pending and contemplated, is avoided.

[59] The duty I have is to balance the interests of both parties so that first the appeal itself does not become nugatory and secondly the interests of the judgment creditor are not eroded or imperilled.

[60] In terms of the powers I have in the exercise of my discretion under r 12, I consider the appropriate balance can be reached by imposing a condition under r 12(4)(b). I therefore am prepared to grant the stay sought, but such stay is to be subject to the condition that $576,100 is to be paid into the High Court’s trust account pending the final determination of the appeal by the Court of Appeal. I have opted for the amount of the alleged loan, or the payment made by BMSL to the IRD on Mr Petricevic’s behalf which he does not dispute, rather than the full judgment sum which includes interest and costs.

[61] I attach as a further condition that the sum I have stipulated of $576,100 is to be paid to this Court’s trust account no later than 5 pm on Tuesday 15 July 2008.

[62] To put the matter beyond doubt, if that condition is not met, if there is no such payment, then execution of the judgment can proceed.

Arguments before us

[19] For Mr Petricevic, Mr Dale explained the basis of the appeal against the summary judgment. He maintains that the Associate Judge should have adjourned the summary judgment proceedings (or stayed the judgment) until there could be a determination (before the Employment Relations Authority if necessary) of the set-off claims. He stressed that Mr Petricevic is prepared to accept an early fixture in this Court and will be seriously prejudiced if adjudicated in bankruptcy before then. He sought to defend the failure to lodge a claim with the Employment Relations Authority on the basis that BMSL is insolvent and there is no point in lodging a claim until the present judgment is set aside.
[20] Mr Dale defended the very limited disclosures which have been made, asserting that there is no obligation on Mr Petricevic or the trust to go further. He maintained that there is no evidence to suggest that the trust could or would be prepared to lend Mr Petricevic whatever is required to meet the judgment. He claimed that there is no likelihood that Mr Petricevic has substantial undisclosed assets. He stressed that Mr Petricevic’s asserted insolvency does not warrant the courts taking a short cut to bankruptcy. He contended that the possibility of the Official Assignee prosecuting the appeal hardly accommodates the prejudice that Mr Petricevic will suffer if adjudicated. He suggested that in the context of the likely timeframe for resolution of the appeal, the various time limits under the Insolvency Act 2006 will not come under pressure.
[21] For BMSL, Mr Tingey stressed the limited disclosure made by Mr Petricevic and his admitted (or at least asserted) insolvency. He contended that either there are undisclosed assets (in which case there should be no stay) or there are no such assets (in which case Mr Petricevic is insolvent and the sooner he is adjudicated the better). Given the suspicious conduct of Mr Petricevic, his affairs should be independently assessed. There is a potential for prejudice, particularly in a context where on the affidavit evidence Mr Petricevic is still leading an affluent lifestyle.
[22] He maintained that the merits of the appeal are dubious. The claim for the incentive payment for the year ending 30 June 2007 is implausible. So is the claim for a salary between 2 July 2007 and December 2007 (given that BMSL’s business stopped on 2 July 2007). He also challenged the claims for redundancy and holiday pay, business expenses and the loss on sale of the car.

Evaluation

[23] Cousins v Heslop [2007] NZCA 377; (2007) 18 PRNZ 677 at [18] (CA) suggests that we should address this application as if it were an appeal from the judgment of Priestley J on the basis that he addressed essentially the same issue as is before us. We do not need to decide whether this is the correct approach as the result of the application is the same whether we adopt an appellate or a de novo approach.
[24] We are inclined to think that the judgment of the Associate Judge did not engage adequately with the plausibility or otherwise of the claims made by Mr Petricevic. On the other hand, if the summary judgment appeal proceeds, it will be open to this Court to assess the plausibility of those claims.
[25] We have looked at the draft employment contract relied on by Mr Petricevic. For the moment, and on the material we have seen, we think that the claim for the bonus lacks plausibility. This bonus was never declared, which is hardly surprising given that any bonus would have to be based on the performance of, inter alia, the Bridgecorp group. The issue whether Mr Petricevic continued in the employment of BMSL from 2 July 2007 on the basis of the earlier contract (and was thus entitled to payment up to 17 December) has not been the subject of a great deal of evidence or even argument (except before us). Such a claim may face both factual and legal difficulties. On the facts, it may be open to question whether the employment could sensibly be seen as having continued after the substratum of the business (the management of the Bridgecorp companies) disappeared and all salary and PAYE payments stopped. As a matter of law, it is open to question whether remuneration arrangements of the kind alleged could withstand scrutiny under s 161 of the Companies Act 1993. It is also at least open to question whether an entitlement to redundancy (assuming there is one) would impeach the entitlement of BMSL (in receivership) to recover the advance made to Mr Petricevic. As well, there is an issue whether such a claim might be subject to the $16,240 limit which is provided for by the combined operation of s 30(2)b) of the Receivership Act 1993 and the seventh schedule to the Companies Act 1993. As to the other claims, they were not really discussed in argument and the logic underpinning at least some of them is not obvious.
[26] There is another potential problem with the alleged set-offs: s 310(3) of the Companies Act 1993 will bite if BMSL is placed in liquidation, which is likely to occur, according to Mr Tingey, on 29 August this year.
[27] The upshot is that we regard the set-offs that have been claimed with considerable scepticism. Although we accept that the appeal against summary judgment is arguable, such merit as it has is technical and seems largely to involve timing. As well, putting aside the incentive/bonus claim as implausible, allowing in full the net amounts of the salary and redundancy claims and making a reasonable allowance for the other claims, Mr Petricevic is still around $250,000 short of covering the amount advanced.
[28] Pointing against a stay (other than on terms requiring payment of the judgment amount) are the following considerations:

• (a) The High Court judgment was delivered on 5 June 2008. In a situation where there is obvious creditor concern as to what Mr Petricevic has done and might be doing with his assets, common-sense required that the appeal be prosecuted with an urgency which has been distinctly lacking until comparatively recently. An appeal was not filed until 30 June 2008 and the case on appeal was not filed until 30 July.
• (b) There has been a complete lack of diligence in prosecuting his claim against BMSL before the Employment Relations Authority. Even today, no claim has been lodged.
• (c) Whatever the merits of Mr Petricevic’s technical challenges to the summary judgment, the underlying merits of his set-offs/cross-claims seem pretty dubious.
• (d) There have been highly suspicious actions and claims associated with his asserted absence of assets. The transfer of the Porsche to the family trust within days of receivership was provocative to say the least. The undocumented claim that all chattels in the home belong entirely to Mrs Petricevic is not particularly plausible. In a context where activity of this sort has occurred, the courts must be astute to protect creditors against what could well be gaming behaviour.
• (e) Where assets are said to have been gifted (as is the case with chattels in the family home), the time limits for avoidance of those transactions may assume some importance
• (f) There has been “minimalist” (as Priestley J put it) and generally selective disclosure of his financial circumstances. In light of the factors to which we have already referred, complete candour was called for but has not been forthcoming. For instance, Mr Petricevic has asserted that he does not have sufficient assets to meet the judgment but has declined to say what assets he has. Selected extracts from the accounts of the trust have been provided but not a full set of accounts. Leaving aside information of payments made to the Inland Revenue Department, he has not provided any detail as to what he has done with the $4m received between 1 July 2004 and 30 June 2007 (including the $576,000 in issue in this case along with some $1.6m in advances from the trust since March 2000). He has not provided any information as to his other creditors.
• (g) There has been a failure by Mr Petricevic to counter with affidavits the conclusion by Priestley J that he could, if he wanted to, meet the judgment sum. To do this, he may well have to resort to trusts but there is no evidence (as opposed to submissions from counsel) to suggest that this is not possible. If Mr Petricevic’s answer to the summary judgment is good as he claims, there is no reason why one of the trusts should not put up security for the judgment sum. If the appeal is allowed, the money could be returned to the trust.

[29] As we assume that Mr Petricevic does not intend to secure the judgment sum, we simply dismiss the application. We do, however, reserve leave to reapply in the event that security for the full amount of the judgment together with the costs of today’s proceedings is provided.
[30] We award costs on a standard (band A) basis along with usual disbursements.

Solicitors:
Jones Fee, Auckland for Appellant
Bell Gully, Auckland for Respondent