Keshvara v Blanchett and Burns as Liquidators of APG Holdings Ltd ((in Liquidation))

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 30 November 2012
• Neutral Citation: [2012] NZCA 553
• Docket Number: CA665/2011
• Court: Court of Appeal
• Date: 30 November 2012

Between

Ranjit Keshvara

Appellant

and

David Murray Blanchett and Grant Edward Burns as Liquidators of APG Holdings Limited (In Liquidation)

Respondent

[2012] NZCA 553

Court:

Ellen France, Stevens and Asher JJ

CA665/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court (“HC”) decision which found the appellant had breached his duties as a director under s131 Companies Act 1993 (“CA”) (duty to act in good faith and in best interests of company), s133 CA (powers to be exercised for proper purpose) and s137 CA (director's duty of care) — respondents were the liquidators — claims related to advances made to the parent company, a related company and relatives — HC had admitted as business records, various documents relating to the transactions that contained hearsay statements — whether the HC had erred by admitting the documents into evidence pursuant to s19 Evidence Act 2006 (admissibility of hearsay statements contained in business records) as there had been no attempt by the respondents to identify who had supplied the information used for the composition of various of the documents relied on — whether there was any evidence that any of the transactions were improperly made or that the appellant had any involvement in the transactions.

Counsel:

L Herzog for Appellant

M D Branch and S J Rawcliffe for Respondent

• A The appeal is dismissed.

• B The appellant must pay the respondents costs for a standard appeal on a Band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Stevens J)

	Para No
Introduction	[1]
Background	[5]
High Court judgment	[8]
Evidentiary issues	[8]
Breaches of duty	[12]
Liability under's 194 of the Companies Act	[18]
Relief	[19]
First question — admissibility of business records	[20]
Statutory provisions	[26]
Our evaluation — admissibility	[31]
The second question — liability	[38]
Liability issues — High Court judgment	[41]
Submissions on liability	[55]
Our evaluation — liability	[57]
Result	[62]

Introduction

1 This appeal concerns findings in the High Court that the appellant had breached his duties as a director under ss 131, 133 and 137 of the Companies Act 1993. 1 In relation to those breaches the appellant was ordered to pay the sum of $1,439,084.00 by way of remedy under's 301 of the Companies Act. 2 The High Court also found that at the relevant times the board of directors of which the appellant was a member was in breach of s 194 of the Companies Act. In relation to that breach the appellant was ordered to pay $39,876.00 pursuant to s 300.

2 The appellant is a former director of APG Holdings Ltd (APG). The respondents, Messrs Blanchett and Burns, are the liquidators of that company.

3 The central question is whether Venning J was correct to admit into evidence certain documents relating to the transactions in question pursuant to the provisions of s 19 of the Evidence Act 2006 dealing with admissibility of hearsay statements contained in business records. That was the first issue raised in the agreed list of issues. The second was whether, if all or some of the evidence is not admitted, the findings of the High Court on liability were affected.

4 At the hearing, Mr Herzog, counsel for the appellant, also sought to challenge the Judge's findings on liability even if all of the challenged documents were ruled to be admissible. We address this question later in the judgment.

Background

5 The appellant was a director of APG from 11 March 2004 until 23 July 2004. APG was placed into liquidation on 9 February 2007. APG was one of the companies in a group known as “Capital Events”. The Capital Events companies were primarily controlled by Terry Wilson and David Andrew Tauber. The companies mainly provided hospitality services for sporting and cultural events.

6 The claims for breaches of duty related to three types of payment made by APG during the period in which the appellant was a director. These are: 3

• • An advance of $215,000 to Kap Nominees (2) Ltd (Kap Nominees) on 25 June 2004. The appellant was also a director of Kap Nominees, which was the parent company of APG.

• • Three advances totalling $475,000.40 made to Rita Wilson between 17 March 2004 and 27 April 2004. Ms Wilson is the appellant's daughter and the wife of Mr Terry Wilson.

• • Net payments of $749,084.00 advanced to a company called Jokers Wild Ltd between 13 April 2004 and 20 July 2004. Jokers Wild was one of the companies associated with the activities of Messrs Wilson and Tauber. It was later placed in liquidation.

7 Evidence in support of the claims for breaches of provisions of the Companies Act was adduced in the High Court by the liquidator Mr Blanchett. In support of the claims the liquidators produced and relied upon a bundle of documents relating to the affairs of APG and the three types of payment made while

the appellant was a director. These documents had been obtained by the liquidators during their investigation into the running of the company

High Court judgment

Evidentiary issues

8 At the commencement of the hearing in the High Court counsel for the appellant had objected to a number of passages in Mr Blanchett's brief of evidence. The objection was twofold. First, that Mr Blanchett was seeking to introduce hearsay statements contained in documents he himself had not created. Second, there was a challenge to opinion evidence to be given by Mr Blanchett who was said not to be qualified as an expert. This aspect of the challenge was not pursued on appeal.

9 As to the documentary evidence, Venning J upheld the objection in relation to two paragraphs of Mr Blanchett's brief of evidence offering evidence referred to documents prepared by a Mr Barclay. Such documents were found to have no probative value. The Judge allowed the hearing to proceed on the basis that the remainder of the evidence was admissible. At the conclusion of the evidence the Judge heard further submissions on the admissibility of evidence advanced as business records under's 19 of the Evidence Act.

10 The Judge held that, while the documents referred to by Mr Blanchett contained hearsay statements, they were admissible as business records. 4 He held that the person most likely to have produced the documents was Mr Antoo, a former employee of APG. Given that seven years had passed since the time of the creation of the records, Mr Antoo could not reasonably be expected to recollect now the matters dealt with in the documents. Accordingly s 19(1)(b) of the Evidence Act

applied, as no useful purpose would be served by requiring Mr Antoo to be a witness. 5

11 The Judge also noted that, 6 as the objection to the documentary evidence was raised at a very late stage, 7 it would have been necessary to adjourn the trial to enable Mr Antoo to be located. The Judge found that undue expense and delay would have been caused and thus s 19(1)(c) also applied.

Breaches of duty

12 The liquidators argued that each of the payments referred to above at [6] amounted to a breach of s 131 of the Companies Act (the duty to act in good faith and in the best interests of the company). APG had advanced $215,000 to Kap Nominees, of which the appellant was also a director, without security and without any written loan agreement or terms as to payment of interest or repayment. The liquidators had been unable to find any documentation in the records of the company to explain why the payment of $215,000 had been made to Kap Nominees. Venning J held that it was difficult to imagine a clearer case of a breach of fiduciary duty or breach of the duty to act in good faith and in the best interests of the company. 8

13 As to the payments to Ms Wilson, the company records did not disclose any documents outlining why Ms Wilson, who was not a shareholder or employee of APG, had been in receipt of multiple payments including a cheque for $400,000 in March 2004. Venning J found that there was a “strong inference, which I draw, that [the appellant] was effectively a nominee or, more colloquially in this case, a “patsy” director acting on behalf of and at the direction of either or both of Messrs Wilson and Tauber”. 9 Accordingly the Judge found that these payments were also in breach of s 131.

14 The position in relation to the payments to Jokers Wild Ltd was different because Jokers Wild was not an entity related to the appellant or one in which he had an interest. However, there was no evidence to show why the payments had been made. Venning J noted that there was some suggestion that the money was given to satisfy personal guarantees given by Messrs Tauber and Wilson in support of Jokers Wild. The Judge held that “in the absence of defence evidence the inference the payments were not in the best interests of [APG] is irresistible”. 10

15 Section 133 of the Act places a duty on directors to exercise their powers for a proper purpose. The Judge noted that the existence of the s 133 duty added little given that the appellant had already been found to be in breach of s 131. However, he concluded that the defendant would also be liable for breach of s 133 in relation to the three categories of payment made by APG. In authorising those payments Venning J found that the appellant had exercised his powers as a director for an improper purpose. 11

16 Section 137 creates a duty to exercise the care, diligence and skill a reasonable director would exercise in the same circumstances, taking into account the nature of the company, the nature of the decision, the position held by the defendant as director and the nature of the responsibilities undertaken by him. The Judge held that, even if he had erred in concluding that the appellant had breached his duty under's 131, the circumstances in which the payments...