Klavenes v Greer

[2020] NZCA 215

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

 CA639/2018
 [2020] NZCA 215

BETWEEN	KNUT KLAVENES AND MELENAU KLAVENES First Appellants KNUT JOHN KLAVENES Second Appellant
AND	SCOTT WILLIAM GREER Respondent

Court:	French and Gilbert JJ
Counsel:	J A van der Zanden for Appellants P J Dale QC for Respondent
Judgment: (On the papers)	4 June 2020 at 4 pm

JUDGMENT OF THE COURT

AThe appellants’ application to adduce further evidence in support of the appeal is declined.

BThe respondent’s application for an extension of time to cross-appeal is granted.

CThe appellants are to pay costs to the respondent for a standard application on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

Introduction

1. There are two applications before us for determination on the papers.  The first is an application for leave to adduce further evidence in support of the appeal.  The second is an application by the respondent for an extension of time to cross‑appeal.

2. The respondent, Scott Greer, is the liquidator of Klavenes Construction Ltd (KCL) which was incorporated in July 2011 and operated as a construction labour hire business in Auckland.  Knut Klavenes is the sole director and shareholder of KCL.  A separate entity, Klavenes Construction (Tonga) Ltd (KCL Tonga) was incorporated in Tonga and operated as a construction business there.  Mr Klavenes and his wife, Melenau Klavenes, are the directors of KCL Tonga.  Mrs Klavenes is its sole shareholder.  The second appellant, Knut Klavenes Jr., is their adult son. 

3. Mr Greer brought proceedings in the High Court at Auckland against the Klavenes’ for recovery pursuant to s 298 of the Companies Act 1993 of monies paid to them by KCL for which no consideration was given.  In a judgment delivered on 22 June 2018, Palmer J found Mr and Mrs Klavenes liable to repay KCL the sum of $128,124.99 plus interest and costs.[1]  This compared with a net amount claimed of $803,517.28.  The Judge rejected the claim to the balance, finding that these monies were dispositions by KCL to and on behalf of KCL Tonga, not to the Klavenes’.[2]  The Judge also entered judgment against Mr Klavenes Jr. for the amount claimed against him of $16,030.26.[3] 

Application to adduce further evidence

[1]Greer v Klavenes [2018] NZHC 1504.

[2]At [27]–[31].

[3]At [40].

1. Rule 45 of the Court of Appeal (Civil) Rules 2005 gives the Court the power to grant leave for the admission of further evidence on questions of fact.  The principles to be applied are well-settled.  Updating evidence since the judgment in the court below is often received.  However, stricter rules apply to evidence not falling into that category.  In such cases, the court must not only balance the interests of the person seeking to adduce the evidence against the interests of the other party, it must also take account of the important public interest in finality of litigation.  An applicant will usually need to establish that the evidence is fresh in the sense that it could not, with reasonable diligence, have been produced at the trial.  If the evidence is not fresh in this sense, it is generally not admitted unless the circumstances are exceptional and the grounds compelling.[4]  As this Court said in Lawrence v Bank of New Zealand, litigation would never end if parties were permitted to adduce further evidence following judgment in anything other than exceptional cases.[5]

   [4]Rae v International Insurance Brokers (Nelson/Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 193; approved by the Supreme Court in Paper Reclaim Ltd v Aotearoa International Ltd (Further Evidence) (No 1) [2006] NZSC 59, [2007] 2 NZLR 1 at [6].

   [5]Lawrence v Bank of New Zealand (2001) 16 PRNZ 207 (CA) at [18].

2. The evidence sought to be adduced on appeal is an affidavit from Mr Klavenes sworn on 2 December 2019 stating that he signed an employment contract with KCL on 3 March 2014.  Mr Klavenes attaches a photocopy of the alleged employment contract which he has signed twice, first on behalf of the employer and then as the employee.  The appellants have filed an affidavit from Joseph Kalepo stating that he witnessed Mr Klavenes sign this employment contract on 3 March 2014.  Mr Klavenes wishes to adduce this contract as fresh evidence to support an entirely new defence, not raised in the High Court.  He now seeks to set off all outstanding amounts payable to him under the alleged employment contract against the liquidators’ claim. 

3. Mr Klavenes states in a further affidavit sworn on 15 January 2020 that he did not alert his lawyer to the fact he had signed an employment contract with KCL until after the High Court trial.  He claims this was because he was not aware of its importance.  He says he found the employment contract between the pages of his vehicle logbook which was in a disorganised pile of KCL documents that had been bundled up into boxes.  Mr Klavenes does not explain why these KCL documents, which were in his possession and control throughout, could not have been obtained prior to the trial had reasonable diligence been exercised.  Further, Mr Klavenes’ claim that he was not aware of the potential importance of the contract until after the High Court judgment was delivered is difficult to accept in light of the background we now summarise.

4. On 23 December 2015, Mr Klavenes advised Inland Revenue that in the period from 8 October 2014 to 30 September 2015, KCL employed five people for which it had not filed any PAYE returns.  Mr Klavenes was not one of the five employees he identified. 

5. On 7 February 2017, Mr Greer, as liquidator, served a notice under s 261 of the Companies Act requiring Mr Klavenes, as the sole director of KCL, to deliver to the liquidator all books, records or documents of the company in his possession or control.  Mr Klavenes did not supply any documents in response to this notice. 

6. On 24 March 2017, Mr Klavenes completed and signed a detailed statement of affairs for KCL, declaring that the contents were true and correct.  One of the questions specifically asked whether there were any employment contracts.  Mr Klavenes wrote alongside this question: “no direct employees”.  Mr Klavenes’ signed declaration is irreconcilable with his present claim that he personally was party to an employment contract with the company.

7. In an email exchange on 6 August 2017, Mr Klavenes first raised with Mr Greer the prospect he might be credited with a manager’s salary.  He wrote: “Plus, a managers salary.  Which I believe I am entitled from 2014/2015 and 2016”.  This shows that Mr Klavenes understood the potential importance of being able to offset any salary he might be entitled to under the employment contract he now alleges he entered into.  Mr Greer responded three days later, on 9 August 2017:

   I was not aware you had an employment agreement with KCL for a managers salary - please advise if such an agreement existed or alternatively if no such agreement existed what basis you claim to be entitled to a managers salary (such as quantum meruit etc).  If the employment agreement did exist, please send me a copy of:

   a)   any written agreement;

   b)   any contemporaneous documents which refer to/evidence the managers salary;

   c)   KCL’s PAYE returns for the salary; and

   d)   a copy of any directors resolutions authorising the salary.

8. Mr Klavenes did not respond to this email, nor did he raise the topic again at any stage of the High Court proceedings until after the judgment was delivered.  Contrary to his claimed entitlement to a salary, Mr Klavenes stated in his affidavit sworn on 27 October 2017 that he had “taken it upon himself to draw down funds on the business as a means of living expenses”.  This indicates drawings, not salary.  Mr Greer responded in an affidavit sworn on 16 February 2018 confirming his understanding that there was no employment contract and that the monies taken by Mr Klavenes from KCL for his personal use had to be treated as drawings, creating a debt repayable on demand.  Mr Klavenes did not respond to this evidence, nor did Mr van der Zanden, counsel for the appellants, cross-examine Mr Greer about it.

9. Even if Mr Klavenes did not appreciate the potential importance of the employment contract, which is difficult to accept in the circumstances outlined, his evidence in support of the present application falls well short of establishing that he could not have obtained the evidence prior to trial had he exercised reasonable diligence.  He was formally required by the liquidator to produce all company documents, not just those Mr Klavenes regarded as important to the claim against him.  Had proper efforts been made at the time, no reason has been advanced why all such documents, including any employment contracts, could not have been located and produced.  Even if the employment contract could not be found at that time, there is no reason why Mr Klavenes could not have told Mr Greer of its existence when he was specifically asked about it on 9 August 2017.

10. In summary, the evidence is not fresh.  It may not be admitted unless exceptional circumstances are shown and the evidence is both credible and cogent.[6]

    [6]Erceg v Balenia Ltd [2008] NZCA 535 at [15].

11. In addition to the evidence summarised above which also bears on the credibility of the evidence, we have other reservations about it.  The form of the alleged employment contract may have been suitable for the labour hire workers engaged in the business, but it seems a particularly odd arrangement for Mr Klavenes to have entered into with KCL.  The employment contract purports to require the provision of directorship and management duties for which a salary is to be paid plus a daily rate for any weekend work and a separate hourly rate for any overtime.  It seems strange that these directorship and managerial services were to commence on 3 March 2014, nearly three years after KCL was incorporated in July 2011.  Even more strangely, the contract provides for a three‑month “probation/evaluation” period.  Exactly how that might work in practice is unclear.  There follows a “best endeavour” provision:

    K.C.L will present to the employee any particular job which it wishes the employee to perform and the employee will use its best Endeavour to accept and perform every such job. 

12. Presumably, these jobs would be presented by Mr Klavenes as the sole director, shareholder and manager of KCL to himself as the employee providing the directorship and management services.  Somewhat bizarrely, the contract permits Mr Klavenes, as the employee, to refuse to do any particular job.  This appears to contemplate that Mr Klavenes might refuse to perform a task he had asked himself to undertake.     

13. Leaving to one side these and other curiosities, there is no evidence that KCL ever paid Mr Klavenes the salary he claims was payable under the employment contract going back to 3 March 2014.  Nor did KCL ever pay PAYE to Inland Revenue in respect of any salary payable to Mr Klavenes.  Nor did Mr Klavenes advise Inland Revenue that he was an employee of KCL. 

14. In summary, the evidence is plainly not fresh.  With reasonable diligence it could and should have been obtained long before the trial commenced.  The appellants must bear responsibility for this failure.  Although questions of credibility cannot be finally determined in the context of an application of this kind, the evidence provided for the purposes of this application raises serious questions about the credibility of the proposed evidence.  Further, to allow this evidence to be adduced for the first time on appeal in support of an entirely new defence not raised in the High Court would cause serious prejudice to the respondent liquidator and the creditors and other interests he is required to protect.  It would also be contrary to the public interest in finality in litigation.  The interests of justice require the application for leave to adduce this further evidence to be declined.

Application for an extension of time to cross-appeal

1. Mr Greer seeks an extension of time to file a cross-appeal against the High Court judgment.  He contends the Judge made errors in calculating the impact of removing all KCL Tonga transactions from the claim against Mr and Mrs Klavenes.  Mr Greer says the Judge did not give him any opportunity to be heard on this calculation.  He claims that if the exercise had been carried out correctly, the claim would have reduced to $522,124.99, not $128,124.99 being the amount of the judgment debt.

2. Mr Greer says in his affidavit that he did not seek to cross-appeal earlier because Mr and Mrs Klavenes claim to have no material assets and are currently repaying the judgment debt at the rate of $500 per week pursuant to an attachment order made following an examination hearing in November 2018.  At the current rate of payment, it will take in excess of six years to pay the current judgment debt.  In these circumstances, Mr Greer considered the expense of pursuing a cross-appeal could not be justified by any prospect of additional recovery in the liquidation.  However, given the potentially extended scope of the appeal, Mr Greer wishes to advance the cross‑appeal in order to protect the company’s position.

3. Mr van der Zanden filed submissions in opposition to the application for an extension of time to cross appeal.  In these submissions, Mr van der Zanden referred to “inconsistencies in Mr Greer’s washup analysis” that Mr Mendoza had found.  Mr Mendoza is Mr van der Zanden’s own accountant.  Mr Dale QC, for Mr Greer, advised Mr van der Zanden that he objected to this.  In response Mr van der Zanden filed an unsigned, unsworn document headed “Affidavit of Gem Mendoza in support of opposition to cross appeal of Scott Greer”.  We have taken no notice of this document.  Given the document is neither signed nor sworn, it has no evidential value and ought not to have been filed.

4. The appeal has been characterised by numerous defaults on the part of the appellants.  They too required an extension of time to appeal.  A compliant notice of appeal was not filed until 10 July 2019, more than a year after the judgment was delivered. 

5. In all the circumstances, we consider the delay is not inordinate and has been satisfactorily explained.  There is no disqualifying conduct on the part of the liquidator who is required to act in the best interests of the creditors and others with an interest in the company.  There is no prejudice to the appellants if the application is granted.  We are therefore satisfied it would be in the interests of justice to grant an extension of time to allow the liquidator to pursue the proposed cross-appeal.

Result

1. The appellants’ application to adduce further evidence in support of the appeal is declined.

2. The respondent’s application for an extension of time to cross-appeal is granted.

3. The appellants are to pay costs to the respondent for a standard application on a band A basis and usual disbursements.

Solicitors:
Castlefinn Law Limited, Auckland for Appellants
Whitlock & Co, Auckland for Respondent