Ebr Holdings Ltd ((in Liquidation)) v Van Duyn and Others

• Jurisdiction: New Zealand
• Judge: Heath J
• Judgment Date: 01 June 2016
• Neutral Citation: [2016] NZHC 1169
• Docket Number: CIV 2009-404-1560
• Court: High Court
• Date: 01 June 2016

Between

Ebr Holdings Ltd (In Liquidation)

First Plaintiff

and

Vivien Judith Madsen-Ries And Henry David Levin

Second Plaintiff

And

Johannes Van Duyn (Senior) And Gerarda Jacoba Maria Van Duyn & Ors

Defendants

McLaren Guise Assoicates Ltd

Third Party

[2016] NZHC 1169

Heath J

CIV 2009-404-1560

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Catchline: Reasons for orders granting the defendants leave to amend pleadings and consequential adjournment — the first plaintiff was placed into liquidation in 2009 — the second plaintiffs were the current liquidators — the defendants wished to amend their pleadings on the grounds a reallocation of liability was required in respect of the alleged current account debt — the defendants accepted that some of the amounts that were previously asserted to be proper business expenses of the company were to be treated as part of the current account indebtedness of family members — a consequence of the proposed adjustments was the identification of a “debt” payable by the first plaintiff to the defendants — the plaintiffs opposed the application for leave to amend the pleadings on the grounds it would not be possible for the proceeding to be contemplated during the remaining time allocated — the plaintiffs were concerned that they may be met with a limitation defence, because of the need to go back to the first set of accounts when considering reallocation as among the defendants — the defendants joined the accountants who prepared the financial statements as a third party, alleging negligence on their part — whether leave should be granted — whether “unless” orders should be granted.

Counsel:

P C Murray and K H Morrison for Plaintiffs

I M Hutcheson, Auckland and K F Quinn for Defendants

S-J Telford and L G Cox for Third Party

REASONS FOR JUDGMENT OF Heath J

Heath J

CONTENTS

Introduction	[1]
Background	[3]
The present proceeding	[6]
Developments during the hearing	[16]
The application for leave to amend
(a) The defendants’ position	[27]
(b) The plaintiff ‘s position	[35]
(c) The third party's position	[41]
Analysis
(a) Legal principles	[47]
(b) Should leave be granted?
(i) Context	[60]
(ii) Statement of defence	[62]
(iii) The third party claim	[73]
(iv) The orders	[80]

Introduction

1 On 25 May 2016, after I had made a decision to abort the trial of this proceeding, I granted an application by the defendants for leave to file and serve both an amended statement of defence and third party claim. The hearing, which had begun on 16 May 2016 and was scheduled for 12 days, was adjourned. 1

2 My orders granting leave and consequential adjournment to 7 February 2017 were subject to stringent conditions. 2 These are my reasons for making those orders.

Background

3 EBR Holdings Ltd (EBR) was incorporated as a limited liability company on 3 January 2002. It was put into liquidation by order of this Court on 30 January 2009. The present liquidators are Ms Madsen-Ries and Mr Levin (the liquidators).

4 The total amount of proved creditors in the liquidation is $262,414.37. Of that, $126,663.38 is comprised of preferential claims, with the balance being unsecured. There is an issue over the status of an unsecured claim by ANZ National Bank Ltd for $63,481.91. It is said that guarantors 3 have satisfied the debt and should be subrogated to that claim. 4

5 The liquidators undertook inquiries to ascertain what assets were available for distribution to creditors. A number of physical assets were located. They have been sold for $31,988. The remaining “assets”, comprise claims that the liquidators assert either EBR or they have against the defendants in this proceeding.

The present proceeding

6 EBR and the liquidators sue the directors and shareholders of that company, as well as some associated persons. They claim both in respect of alleged current account debts and for breaches of duties owed under the Companies Act 1993. The defendants are:

• (a) Mr Johannes van Duyn snr and his wife Mrs Gerarda van Duyn, each of whom hold a 50 percent shareholding in EBR. They are the first defendants. They are sued on an alleged current account debt.

• (b) Their sons, Mr Rene van Duyn and Mr Johannes van Duyn jnr, as directors of EBR. Mr Rene van Duyn is the second defendant. Mr van Duyn jnr is the third defendant. They are sued both on alleged current account debts, and for various breaches of their duties as directors of EBR. 5

• (c) Mr van Duyn snr, Mrs van Duyn, Mr Rene van Duyn and Mr van Duyn jnr, in their capacities as trustees of the Awaroa Family Trust, which was settled on 23 June 2000. They are the fourth defendants. The trustees are sued in respect of both a loan said to be due to EBR, and in respect of alleged insolvent transactions. 6 As to the latter, the liquidators seek disgorgement of the sums paid.

• (d) South Head Trustees Ltd (South Head) as the trustee of the South Head Trust, which was settled on 29 September 2003. It is the fifth

  defendant. Although previously removed from the Register of Companies, South Head has now been restored. South Head is sued on the same basis as the trustees of the Awaroa Trust.

7 The claimed current account debts arise out of payments made by EBR to Fidelity Life Assurance Ltd (Fidelity Life) that the plaintiffs assert were made for personal purposes. In the statement of defence on which the trial was due to begin, all five defendants accepted that the financial statements of EBR recorded the debts on which EBR is suing. The most recent manifestation appears in the financial statements for the year ended 31 March 2008 which were signed by the directors (Mr Rene van Duyn and Mr van Duyn jnr) on 4 December 2008. That was just over one month before EBR was placed in liquidation. The debts were disputed. The defendants contended that all payments ought to have been treated as company expenses, and that EBR's accountants had not classified the payments correctly, for accounting purposes. 7

8 In the most recent iteration of its statement of claim, 8 EBR alleged that, as at 31 March 2008:

• (a) Mr van Duyn snr and his wife owed $55,502 to EBR.

• (b) Mr Rene van Duyn owed $129,258 to EBR.

• (c) Mr van Duyn jnr owed $125,209 to EBR. The total indebtedness alleged was $309,969.

9 The defendants joined the accountants who prepared the financial statements 9 for the year ended 31 March 2008, McLaren Guise Associates Ltd (McLaren Guise), alleging negligence on their part. The defendants assert that errors were made in the accounting treatment of the moneys paid by EBR in the financial statements for the years ended 31 March 2005, 2006, 2007 and 2008. The accountants deny any

wrongdoing, and support the liquidators’ view that the amounts as recorded in the 2008 accounts are owed

10 The proceeding began life as a summary judgment application in the District Court at Waitakere, in which EBR sought recovery of the amounts owing on the current accounts. That application was filed as long ago as 31 August 2009, about seven months after the liquidation order was made. The summary judgment application was heard in the District Court on 3 May 2010. It was dismissed by Judge Recordon, in a judgment delivered on 7 September 2010. 10 It is clear that the Judge, while mindful of the need for a plaintiff to exclude the existence of an arguable defence, had concerns about the quality of the evidence offered by the defendants to resist the claim. 11 Among other things, the Judge relied on evidence from Mr Harrison, a director of McLaren Guise, who provided a foundation for the possibility that the amounts paid had been erroneously treated as part of the current account debts, and were properly payable by EBR. 12

11 On 23 November 2011, the District Court gave leave to the defendants to join McLaren Guise as a third party. At some point thereafter it appears that a non-party discovery order was made against each of Fidelity Life to obtain relevant documents held by it.

12 The proceeding was the subject of a number of further judicial conferences in the District Court, before an issue arose about whether the claims were within its civil jurisdiction. The question was whether the $200,000 limit 13 related to the total amount claimed or any one individual cause of action. While the total claim was for $309,969, each of the claims against the first, second and third defendants were for amounts well below $200,000.

13 The van Duyn interests applied to strike out the proceeding. In case their position was found to be wrong, the plaintiffs applied to transfer the proceeding to

this Court. On 12 June 2014, Judge Wilson QC upheld the jurisdictional objection. However, he decided to transfer the proceeding rather than order that it be struck out. 14

14 The first case management conference in this Court was scheduled before Associate Judge Doogue on 21 August 2014. By this time, the liquidators had been joined as second plaintiffs. The separate claims they make under the Companies Act 1993 were ones in respect of which the District Court had no jurisdiction. 15

15 At that conference, a number of timetabling orders were made by consent. At a substantive case management conference held on 23 June 2015, the Associate Judge was advised that the proceeding was ready for trial. Trial directions were made. A hearing for 12 days commencing on 16 May 2016 was allocated. The fourth amended statement of claim, on which the claim has proceeded to trial, was filed on 23 November 2015. On 13 May 2016, after I was assigned as trial Judge, I convened a case management telephone conference. At that time, both EBR and its liquidators were ready to proceed on the extant pleadings. So too was McLaren Guise, as third party. Mr Hutcheson, for the defendants, did not suggest that there was any difficulty...