Chesterton Holdings Limited (in liq) v Durney HC Napier CIV-2011-441-007 [2011] NZHC 1474 (19 May 2011)

Last Updated: 14 November 2011

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

_{CIV-2011-441-007}

BETWEEN CHESTERTON HOLDINGS LIMITED (IN LIQUIDATION)

Plaintiff

AND JANICE COLLEEN DURNEY (NOW KNOWN AS SOPHIA CROSBY) Defendant

Hearing: 19 May 2011 (Heard at Napier)

Counsel: G. Dewar - Counsel for Plaintiff

No appearance for the Defendant

Judgment: 19 May 2011

_{ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

Solicitors: Thomas Dewar Sziranyi Letts, Solicitors, PO Box 31-240, Wellington

GCA Lawyers, PO Box 3241, Christchurch

CHESTERTON HOLDINGS LIMITED (IN LIQUIDATION) V JC DURNEY (NOW KNOWN AS SOPHIA CROSBY) HC NAP CIV-2011-441-007 19 May 2011

Introduction

[1] Before the Court is an application by the liquidators of the plaintiff, Chesterton Holdings Limited (in liquidation) a company in liquidation, for summary judgment against the defendant who was a shareholder and director of the plaintiff company.

[2] The claim is for a sum of $244,934.00 plus interest which the plaintiff contends represents a debt due from the defendant representing her accumulated shareholder’s current account debit in the books of the plaintiff company, this account having been overdrawn by her as to this sum.

[3] The application is opposed. A Notice of Opposition to the present summary judgment application was filed by the defendant together with an affidavit in support dated 8 April 2011.

Preliminary Matter

[4] Mr Dewar appeared before me today as counsel for the plaintiff. There was no appearance by counsel for the defendant. Instead, this Court received in the last day or so a Memorandum dated 17 May 2011 (the Memorandum) from counsel who had been acting for the defendant to indicate that there would be no appearance by them today. In that four page Memorandum, counsel raised certain points of argument in support of the defendant’s opposition to the summary judgment application with the request that this Court might consider and take them into account when determining this application.

[5] At the outset today, Mr Dewar for the plaintiff, expressed to the Court an apology from the bar for the non-attendance of counsel for the defendant today. He suggested that the rather casual approach taken by counsel for the defendant to this High Court hearing illustrated a disrespect for the Court which was inappropriate in all the circumstances.

[6] In my view those comments are appropriate here. The Court wishes to place on record its concern that counsel for the defendant has simply chosen unilaterally not to attend this hearing today either in person or by agent but simply to request the Court to take into account a range of matters listed in the Memorandum.

[7] Notwithstanding the concerns I have now raised, however, there was little choice but to proceed with the hearing today and I have done so and will take into account and address the argued points outlined in the Memorandum from counsel for the defendants.

[8] It was on this basis and addressing all the material before the Court including the memorandum that the hearing before me today proceeded.

Counsel’s Arguments and My Decision

[9] Essentially, as I understand the defendant’s opposition to the present summary judgment application, she opposes the claim against her on the sole ground that although she acknowledges she received the monies in question, she did so only as an employee of the plaintiff company and the monies took the character of wages rather than drawings and are not therefore repayable to the plaintiff.

[10] In response, the plaintiff liquidator’s position is that the annual accounts which have been placed before the Court and all other available evidence provide a compelling picture that the payments due from the defendant are indeed shareholder drawings and accumulated interest and not wages and are therefore a proper debt outstanding to the plaintiffs.

[11] As I have noted above, the application before the Court is one for summary judgment. On this the plaintiff relies on r 12.2 High Court Rules which states in part:

12.2 Judgment When there is No Defence or Where No Cause of Action Can

Succeed

(1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[12] The principles of summary judgment have been summarised recently by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187; [2010] NZAR 307:

[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1

NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR

373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ

84 (CA).

[13] Again, in Jowada Holdings Limited v Cullen Investments Limited and Pacific

Retail Group (CA248/02, 5 June 2003) the Court of Appeal noted:

In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant ...

... where, despite differences on factual matters, the lack of a tenable defence to a cause of action is plain on the material before the Court, and the Court is sure on that point, summary judgment will normally be entered.

[14] In the present case, as I have noted, the defendant does not dispute in any way that she received from the plaintiff company over a period of some years amounts together with accumulating interest which totalled $244,934.00 at 31 March

2008. This is the amount recorded in the accounts for the defendant company prepared by BDO Spicers for the year ending 31 March 2008 and shown as a debit (overdrawn balance) in the defendant’s shareholders current account at that time. For the year ending 31 March 2007 the defendant’s overdrawn shareholder’s current account balance was shown at $192,696.00.

[15] As mentioned above, the defendant’s contention, however, is that the amounts paid to her were in fact wages and not in the nature of shareholder’s current account drawings repayable to the plaintiff. She advances this contention

notwithstanding the evidence provided for the plaintiff before this Court in the annual accounts and annual report of the defendant company. As I understand it, the defendant claims that she did not personally sign off these annual accounts, although it appears they were signed by her husband and co-director, Mr Durney.

[16] Interestingly, I note at this point that those annual accounts for the defendant company did include significant amounts in the trading statements for wages paid to other employees but these at the time did not include the defendant.

[17] On the face of these documents and the defendant’s acknowledgement that she did receive the monies in question, I am satisfied that, unless the defendant is able to raise real issues of contention, the plaintiff liquidators have done enough here to show that the shareholders’ current account advances made to the defendant as outlined in these accounts remain an outstanding debt due to the plaintiff repayable on demand – Samarang Developments Limited (in Liq) v Campbell HC, Christchurch, CIV-2003-409-2094, 30 September 2004, John Hansen J, New Zealand Game Exports Limited (in Liq) v Lau, HC, Whangarei, 19 March 1999, M Gambrill.

[18] As I have noted above, the defendant was at all times both a shareholder and a director of the plaintiff company. Her evidence before the Court is that she has been a long-standing member of the executive of the Durney Group of Companies dating back as far as 1966 when:

Ray (her husband) and I established Durney Construction Company which was the first of the Durney Group of Companies.

[19] During this time she had also been a shareholder and director in a large number of the Durney companies.

[20] The defendant’s evidence includes a claim by her that she was paid by the plaintiff company what she “thought” was a salary of “about $3,000.00” per month. She goes on to claim that on this she relied on representations by her husband that her salary was “tax-paid money”.

[21] Her evidence appears to be essentially that she was an employee of the plaintiff being paid a wage and she earned this as she had assisted her husband in running the affairs of the company, entertaining guests, looking after the home at Chesterton (their family home) co-ordinating the home help, assisting Mr Durney in relation to his personal business matters and attending director’s meetings.

[22] Notwithstanding these claims, it is clear that the defendant, as a director of the plaintiff, had all the obligations and duties that go along with being a director. One of those duties is to keep accurate and up-to-date company records. In Mason v Lewis [2006] 3 NZLR 225 (CA) the Court of Appeal noted:

the days of sleeping directors with merely an investment interest are long gone: The limitation of liability given by incorporation is conditional upon proper compliance with the statute.”

And further:

It was the Lewis’s (directors) ultimate responsibility to monitor the company’s

business.

[23] In the present case the defendant in her affidavit also maintains that she simply did not understand what a current account debt was. It seems that rather bluntly she asserts in her evidence that generally she did not really understand what was going on with the company.

[24] In the light of the comments noted above and the decision in Mason v Lewis that is simply unacceptable. At the very least, the defendant as a director in terms of s 194(1) Companies Act 1993 is obliged to ensure the company’s records, amongst other things, correctly record and explain the company’s transactions and enable its financial position to be determined with reasonable accuracy at any time and its financial statements to be readily and properly audited.

[25] Next, it is my view, that as a director of the plaintiff, the defendant here simply cannot point to any credible evidence to establish an arguable likelihood that she was truly an employee of the plaintiff. No written Employment Agreement was provided or in existence. No wage records applicable to the defendant (as opposed to wage records for company staff which were recorded) have been provided. The

basic requirements of s 189 Companies Act 1993, s 130 Employment Relations Act

2000 and, of course, the PAYE rules provided for in the Income Tax Act 1994 were not met.

[26] The defendant on her own acknowledgement has not paid income tax with respect to the payments she received which in the first instance would support the contention that these represented capital drawings. In my view, there is nothing before the Court to suggest that these payments that she has accepted from the company were anything other than distributions it made to her while under her directorship. They are acknowledged in the accounts as shareholder’s loan account advances and as such they remain debts due to the company by the defendant.

[27] The plaintiff here, as I see it, is entitled to rely on the defendant company’s accounts as being a true and accurate statement of the company’s financial affairs – New Zealand Game Exports (in Liq) v Lau. And clearly a current account advance to a shareholder is repayable upon demand – Thom Contractors Limited v Thom, CIV-2008-404-6829, HC, Auckland, 28 April 2009, Keane J.

[28] Finally, it is clear from the defendant’s affidavit that to a certain extent she seeks the sympathy of the Court on the basis of her assertion that she simply did not understand that the payments made to her over several years were anything other than wages or salary as an employee. The defendant on her own admission was intimately involved with and a director of a significant number of Durney companies dating back to 1966. As such, on her own evidence she maintained throughout an active role in corporate life. In addition, the evidence from the plaintiff before this Court is that, as recently as December 2010, she has accepted a new directorship in a new company incorporated at that time.

[29] The Court finds it difficult to accept as credible the claims by the defendant first, that the payments made to her were bona fide wages from the plaintiff company which were tax paid and secondly, that in the professionally prepared company accounts instructed by the directors the references to these payments as shareholders loan account debts were simply wrong.

[30] Having received large sums of money over several years from the defendant company, being effectively untaxed cash loan advances, it is appropriate from the perspective of the company, its creditors and the wider commercial community that the defendant should be now visited with the consequences of that. What is clearly a debt to the company should be restored to it on the basis of what I see as its clear entitlement.

[31] The short point here is that the defendant is unable to get over the fact that the plaintiff liquidators are entitled to rely on the accounts for the company prepared at the direction of the company directors at the time and that the defendant as one of those directors is responsible for the accuracy of those accounts. A similar defence to that raised by the defendant here was raised and rejected in Thom Contractors Limited v Thom a case with materially similar facts to the present case.

[32] Under all the circumstances prevailing in this case, I conclude that the critical evidence which the defendant endeavours to advance in support of her opposition to the present application entirely lacks credibility and does not assist the Court in any real way considering the present application. That said, the fact remains that the plaintiff liquidators in reliance on the company accounts have made a proper demand for repayment of the shareholder’s current account debt due from the defendant and this demand remains unsatisfied.

[33] The plaintiff here has done sufficient to show that the defendant has no defence to the claim which is brought against her. The plaintiff ’s application succeeds and it is entitled to an order by way of summary judgment.

[34] Summary judgment is now granted to the plaintiff against the defendant in terms of the plaintiff’s statement of claim for the sum of $244,934.00 together with interest on this sum at the applicable rate for current account debit balances prescribed by the Commissioner of Inland Revenue from 1 April 2008 up to the date of this judgment.

[35] As to costs, the plaintiff has succeeded in this application and I see no reason why it should not be entitled to an award of costs in the usual way. Costs are

therefore awarded to the plaintiff against the defendant on this application on a

Category 2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’