VICTORlA STREET APARMENTS Ltd ((in Liquidation)) and ANOR v SHARMA and ORS HC AK
| Jurisdiction | New Zealand |
| Judge | Duffy J |
| Judgment Date | 14 October 2011 |
| Neutral Citation | [2011] NZHC 980 |
| Docket Number | CIV-2009-404-008377 |
| Court | High Court |
| Date | 14 October 2011 |
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[2011] NZHC 980
CIV-2009-404-008377
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Quantum decision — claim for compound interest and for indemnity costs — first defendant misappropriated funds of first plaintiff — co-defendants benefitted from the transaction — no proof of any personal benefit to first defendant — whether plaintiffs entitled to award of compound intereston judgment sums.
D W Grove for the Plaintiffs
D E Smyth for the Defendants
REASONS JUDGMENT OF Duffy J
The first plaintiff, Victoria Street Apartments limited (VSAL), is a company in liquidation. The second plaintiff, Treasury Technology Distribution limited (Treasury), is a creditor of VSAL. Until VSAl was placed in liquidation, the first defendant, Suren Sharma, was its sole shareholder and director. The other defendants are entities with whom Mr Shasma is personally associated.
VSAl and Treasury allege that, fraudulently and in breach of his duties as a director of VSAL, Mr Sharma has made improper payments from VSAL's funds for the benefit of himself and the other defendants. The effect of the payments has been that VSAl could not pay the debts it owed to its creditors, including Treasnsy. The plaintiffs seek orders from the Court that would enable VSAl to recover the payments from either Mr Sharma or the other defendants.
Mr Sharma and the other defendants deny that the payments made were improper, or that he has otherwise breached his duties as a director to VSAL. They also contend that any recovery by VSAL of those payments is now barred by the limitationAct 1950.
For the reasons set out below, I have found that the plaintiffs have proved their claims against the defendants.
VSAL was incorporated on 19 March 2003. It had a role in the development of a commercial building in Victoria Street, Wellington, into residential units. Treasury was carrying out the conversion and had purchased the property in Victoria Street from Australasian Investments Proprietasy limited for $1.35M. To assist Treasury to raise finance, VSAL entered into an agreement with Treasury to purchase the property after it was developed. Initially, the price was $6.4M plus GST (if any was payable) to be paid on the possession date. later, the agreement was varied and the price increased to $6.7M, plus GST.
Under the terms of the variation, it was agreed that unit titles for the proposed residential units were to be issued in Treasury's name but held on behalf of VSAL.On the sale of each unit, the net proceeds were to be applied to reduce the purchase price payable to Treasusy under the agreement. Clause 5 of the variation provided that if for any reason the full purchase price plus GST had not been paid to Treasury in the manner set out in the variation, then Treasusy could require the balance of the purchase price, plus GST then outstanding, to be paid by notice in writing to VSAL.
The sale of the units to third parties commenced in March 2004. By 20 October 2004, the last unit was sold to a third party. The remaining two units (the penthouse and the ground floor) were acquired by Treasury in September 2005.
Despite the price recorded in the sale and purchase agreement and the variation being exclusive of GST (in the original agreement this was qualified by the words “if payable”, whereas the variation had no such qualification), Treasury adopted a stance against the Commissioner of Inland Revenue where it contended that no GST was payable on the sale to VSAL. Treasury pursued this challenge until 2009, when the position was resolved in the Commissioner's favour. Consequently, Treasury did not issue a tax invoice for GST payable under the sale and purchase agreement until 2 February 2009. The amount sought came to $773,125.
VSAL disputed it was liable to pay the GST. The dispute went to arbitration. At the same asbitration, the arbitrator was asked to determine a dispute between VSAL and the trustees of the Otis Family Trust (Otis) regarding a debt of $350,000, being the unpaid balance of an advance of $400,000 that Otis claimed it had made to VSAL.
The arbitrator found in favour of Treasury and Otis. VSAL was found to owe a debt of $350,000 to Otis, as well as the GST debt of $773,125 to Treasury. These creditors then took steps to recover payment of the debts, which led to VSAL being placed in liquidation.
The arbitral award is relevant to this proceeding. Relying on the law of issue estoppel, VSAL and Treasury contend that the award is binding on Ms Sharma, even though he was not a party to the arbitration. If they are right, Mr Sharma cannot deny the existence of the Otis and Treasury GST debts in this proceeding, or his knowledge of them at the time he made the allegedly improper payments (the suspect payments) to the other defendants.
Ms Shama disputes the application of issue estoppel. He contends that as he was not a party to the arbitration, he cannot be bound by any of the findings in the asbitral award.
The plaintiffs' reliance on issue estoppel led to them objecting to the parts of Mr Sharma's evidence where he denied VSAL owed liabilities to Otis and Treasmy. I dealt with the plaintiffs' evidence objection by admitting the evidence de bene esse.
The plaintiffs argue in the alternative that the evidence they have led in this proceeding is sufficient to prove the existence of the liabilities and Mr Sharma's knowledge of them at the relevant time. However, since they rely primarily on the findings in the arbitral award, I consider that the first step is to determine the effect, if any, that issue estoppel has on its defence.
A checklist of the technical elements required to establish an issue estoppel is conveniently given in CEF Rickett “The Travails of Issue Estoppel” (1992) 22 VULR 115 at 116:
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(i) a final judgment;
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(ii) between the same patties andlor their privies;
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(iii) litigating in the same capacity;
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(iv) on the same issue;
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(iv) which must be pleaded.
The plaintiffs have pleaded issue estoppel in their reply to Mr Shasma's defence. Thus, the final requirement is clearly present. The other elements require more attention. The purpose and policy behind issue estoppel informs this enquiry.
The concept of res judicata, which embraces cause of action estoppel, issue estoppel, and abuse of process is the means by which judicial process achieves the public interest of ensuring that litigants are not “twice vexed” by the same claim or point and that there is an end to litigation: see Joseph Lynch land Co v Lynch [1995] 1 NZLR 37 at 42–43; Gregoriadis v Commissioner of Inland Revenue [1986] 1 NZLR l10 at 114; and Shiels v Blakeley [1986] 2 NZLR 262 at 266. In Matai Industries Ltd v Jensen [1989] 1 NZLR 525 at 550, Tipping J referred to lord Upjohn's summary in Carl-Zeiss-Stiftung v Rayner & Keeler Ltd [1966] 2 All ER 536 of the broader principles on which res judicata is founded:
lord Upjohn succinctly summarised the broader principles involved in the following words:
“The broader principle of res judicata is founded on the twin principles so frequently expressed in latin that there should be an end to litigation and justice demands that the same patty shall not be harassed twice for the same cause. It goes beyond the mere record; it is past of the law of evidence for, to see whether it applies, the facts and reasons given by the judge, his judgement, the pleadings, the evidence and even the history of the matter may be taken into account (see Marginson v Blackburn Borough Council [1939] 1 All ER 273; [1939] 2 KB 426)”
Issue estoppel has a broader application than cause of action estoppel. For cause of action estoppel, “the cause of action sought to be estopped must be precisely the same as that upon which there has been an earlier adjudication” (see Joseph Lynch, 40–41), whereas issue estoppel focuses on:
[T]he prior resolution of issues rather than causes of action …issue estoppel precludes a pasty from contending the contraly of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him.
In Fidelitas Shipping Co ltd v V/o Exportchleb [1965] 2 All ER 4 at 9, lord Denning MR described the application of issue estoppel in this way:
[W]ithin one cause of action, there may be several issues raised which are necessary for the determination of the whole case. The rnle then is that once an issue has been raised and distinctly determined between the patties, then as a general rule, neither patty can be allowed to fight that issue all over again.
A decision of an arbitrator can form the basis of issue estoppel: see Fidelita Shipping Co Ltd at 10:
...Issue estoppel applies to an arbitration as it does to litigation. The patties having chosen the Tribunal to determine the disputes between them as to their legal rights and duties are bound by the determination by the tribunal of any issue which is relevant to the decision of any dispute referred to that tribunal.
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