PacLII Home | Databases | WorldLII | Search | Feedback

Supreme Court of Samoa
You are here:  PacLII >> Databases >> Supreme Court of Samoa >> 2023 >> [2023] WSSC 14

Database Search | Name Search | Recent Decisions | Noteup | LawCite | Download | Help

Chan Mow & Co Ltd v Progressive Insurance Co & Ltd [2023] WSSC 14 (21 April 2023)

IN THE SUPREME COURT OF SAMOA
Chan Mow & Company Limited v Progressive Insurance Company Limited & Ors [2023] WSSC 14 (21 April 2023)


Case name:
Chan Mow & Company Limited v Progressive Insurance Company Limited & Ors


Citation:


Decision date:
21 April 2023


Parties:
CHAN MOW & COMPANY LIMITED (Applicant) v PROGRESSIVE INSURANCE COMPANY LIMITED (First Respondent); DAVID ROSS PETTERSON (Second Respondent); MURRAY ROY DRAKE (Third Respondent).


Hearing date(s):
28th, 29th, 30th November & 01st December 2022


File number(s):
CP33/21


Jurisdiction:
CIVIL


Place of delivery:
Supreme Court of Samoa, Mulinuu


Judge(s):
Chief Justice Perese


On appeal from:


Order:
The court makes an order that Ms Jackson and Ms Burrett be appointed joint liquidators, with their appointments operative from the date of the Court receiving their disclosure of conflicts, or this judgment, whichever is the latter. There was no need for them to file affidavits as to what they might do differently, they simply need to comply with their statutory duties, and given the issues in this case, it is enough that they bring an independent and impartial approach to this liquidation.

I further record that the Applicant has undertaken to pay the future costs of the liquidation.

The liquidators are directed to file a report for the Court within 90 days of their appointment to advise the Court of the status of their work.

Costs are to follow the event.

No order for costs is made against Mr Drake. It is unclear how he has come to be included as a party to this proceeding, which has primarily been between the applicant and the first two respondents. If Chan Mow considers otherwise, then it is to file submissions on the issue within two weeks of the date of delivery of this judgment.

If the parties are unable to resolve costs between them, they are to provide written submissions within four weeks of the delivery of this judgment.


Representation:
M Kersey, T Lam, and S Jones for the Applicant
B Gustafson for First and Second Respondent
K Francis for the Third Respondent


Catchwords:
Liquidation – insurance claim – double might test – liquidator.


Words and phrases:
“Company put into liquidation” – “appointment of liquidator” – “opposing appointment of liquidator” – “payment of insurance claim” – “disqualification of liquidators”.


Legislation cited:
Acts Interpretation Act 2015, ss. 7(1)(4); 9(4)(d);
Companies Act 2001 ss. 211; 212(1); 213; 213(3); 215; 216; 217; 218; 218(2);
Evidence Act 2015, s. 16.


Cases cited:
Asiata Peniamina v Land and Titles Court [2004] WSSC 12;
Australian Securities and Investments Commission v Franklin [2014] FCAFC 204;
Heath and Whale on Insolvency (online ed, LexisNexis);
Hyndman v Newson [2014] NZHC 2513;
In Re Biposo Pty Ltd (1995) 17 ACSR 730 at 736;
Newman v Norrie [2014] NZHC 648; [2014] NZCCLR 15;
Reupena v Senara [2017] WSCA 1;
Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 72, [2010] 1 NZLR 35;
Stehlin v Police [1993] WSCA 5.


Summary of decision:

CP 33/21


IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU


IN THE MATTER OF:


Part XVIII and Part XIX of the Supreme Court (Civil Procedure) Rules 1980


BETWEEN:


CHAN MOW & COMPANY LIMITED


APPLICANT


A N D:


PROGRESSIVE INSURANCE COMPANY LIMITED


FIRST RESPONDENT


A N D:


DAVID ROSS PETTERSON


SECOND RESPONDENT


A N D:


MURRAY ROY DRAKE


THIRD RESPONDENT


Counsel: M Kersey, T Lam, and S Jones for the Applicant

B Gustafson for First and Second Respondent
K Francis for the Third Respondent


Hearing: 28, 29, 30 November and 1 December 2022


Closing Submissions: 18 January 2023 (Applicant, First and Second Respondents)


Decision: 21 April 2023


RESERVED DECISION OF PERESE CJ

  1. The first respondent, Progressive Insurance Company Limited (“Progressive”), was established in 1993 to meet a gap in the insurance market for cyclone risk.[1]
  2. However, almost three decades after opening its doors, Progressive was put into liquidation by shareholder resolution, on 9 September 2021.
  3. Mr David Petterson (“Mr Petterson”), the second respondent, an experienced New Zealand based insolvency practitioner, was appointed liquidator.
  4. Chan Mow & Company Ltd (“Chan Mow”) opposes Mr Petterson’s appointment. It is alleged that Mr Petterson has a long-standing relationship with Mr Murray Drake (“Mr Drake”), and members of Mr Drake’s family, which may mean that he is biased or appear to be biased in favour of Mr Drake’s interests in the liquidation, because he may not act independently, objectively and impartially, as liquidator.
  5. Mr Petterson denies that any of his dealings with Mr Drake or other family members disqualify him from being appointed and continuing to act as liquidator. Mr Petterson says he has almost completed the liquidation and should be allowed to continue to finish the work as liquidator.
  6. Chan Mow seeks the making of orders to remove and replace Mr Petterson with new joint liquidators - Neale Jackson (“Mr Jackson”) and Natalie Burrett (“Ms Burrett”), insolvency practitioners based in Auckland, New Zealand.
  7. This judgment is organised as follows:

BACKGROUND

Progressive’s corporate structure

  1. Progressive’s structure was relatively complex. It was registered in 1993, and then re-registered in 2010; it had local and overseas shareholders, and offered services in both Samoa and American Samoa.
  2. The local shareholder was a company known as Pegasus Investments Limited (“Pegasus”), and the overseas shareholder was Woodvale Investments Ltd, a Hong Kong company.
  3. The shareholders of Pegasus were Chandra Finance Ltd (“Chandra”) and Ruby Drake (Mr Drake’s wife).[2] Chandra was established in 1984 as a joint venture between the Drake family and the Chan Mow family to assist the Chan Mow family in its acquisition of assets owned by Burns Philp. Chandra’s shareholders were Chan Mow as to two-thirds, and Ruby Drake as to one-third.[3] The Chan Mows’ sold their shares in Chandra in about 2019.
  4. Mr Drake was appointed director in 1993, and its sole shareholder at the time of the liquidation was another overseas registered company - Decatur Corporation, Marshall Islands. There was no evidence before the Court to identify Decatur’s shareholders. For completeness, Mr Komisi Chan Mow, the Managing Director of Chan Mow, had been a director of Progressive but ceased acting as such in 2016.
  5. There is no evidence that Mr Petterson has ever carried out any work, directly with the company, or been shareholder or director. It appears the first time Mr Petterson’s name arises, in the affairs of Progressive, is when Mr Petterson is appointed liquidator. There is no evidence before the court as to how Mr Petterson’s name came to be considered by Progressive’s shareholders, and whether the shareholders carried out any due diligence on Mr Petterson’s appointment, or whether other liquidators were considered.

The fire

  1. Chan Mow’s wholesale business suffered a major fire in July 2016. The damage caused by the fire led to several claims on policies Chan Mow held with Progressive.
  2. The size of the claims, valued in the millions of Samoa tala, were described by Mr Drake as “by far the biggest claims Progressive had at the time”[4]. He said they were a “significant financial pressure” on Progressive.[5] Mr Petterson concluded in his first liquidator’s report, dated 4 October 2021 that Chan Mow’s claims were one of two primary reasons for the failure of the company; the other being the low level of the premiums.[6]

The Insolvency evidence

  1. There are other proceedings involving Chan Mow and Progressive that are presently before the court. It is not intended that this determination should have any effect or influence on the issues which need to be determined in those matters. For that reason, the substantive issue in this determination is deliberately limited to the allegations of bias or apparent bias arising from a lack of independence, objectivity and impartiality.

Mr Petterson

  1. Mr Petterson has provided a large amount of material to the court in the following documents:
  2. It is said that the reports have been filed with the Company’s office, though no one from the Company’s office gave evidence to that effect. Mr Petterson said in his evidence that the second report, which is the most recent in time (nos. (4) above), was sent to the email addresses of creditors which were known to him.

Applicant’s Expert insolvency evidence

  1. Two insolvency experts were called by Chan Mow; Mr Oloipola Terrence Betham and Mr Jeffrey Phillip Meltzer. Both are highly qualified and experienced in their respective areas of practice.
  2. Expert opinion evidence is admissible if the court is likely to obtain substantial help from the opinion.[7]
  3. The Chan Mow experts were, with respect, poorly briefed. When they gave evidence, they had not had regard to Mr Petterson’s second liquidators report. The applicant argued that the second report had been filed outside of the agreed timetabling directions for the filing of evidence, and so its witnesses did not need to be given the document for comment. Respectfully, the approach was unhelpful in the context of this case. The court had before it very competent witnesses, who should have been briefed about the matters raised in the second liquidators report. Indeed, Chan Mow should have filed updated affidavits to take account of the further evidence.
  4. The failure to properly brief these witnesses led to lengthy cross examination as Mr Gustafson had to cross examine the second report into the evidence. The document was always going to be relevant to the determination of the issues of a lack of independence, objectivity and impartiality.
  5. Chan Mow’s witnesses appeared to mostly agree with Mr Petterson’s work and methodology, as he has set out in his second report, which may suggest that these witnesses tacitly opined that there was no bias or apparent bias in the work undertaken and conclusions reached. But that conclusion is considered unsafe, and is not accepted.
  6. It was suggested to Mr Betham in cross examination:[8]

Gustafson: Okay Mr Betham, I’m going to tell you that evidence will be produced that will show that this report was emailed to every unsecured creditor in the Progressive liquidation on 22nd July this year. What I am asking you is having read that you cannot sit here as a quasi-independent person and say I think David Petterson is biased in favour of Murray Drake, can you?

Wit: No, I can still say it and I’ll tell you why because it’s a different thing putting in a report and actually carrying out what is in the report. Until I see the end result of it I will reserve my judgment on it but to me that perception of lack of independence still remains. Anybody can write a report as good as that but the test of the matter is what actually happens to that report? Does that person actually carry out what he says he’s going to do in that report? That’s the actual test.

  1. Mr Betham’s reserve appears well founded. Mr Petterson might have been suggesting to creditors, as Mr Gustafon put it - to sue Mr Drake for millions of tala,[9] but the reality was in fact somewhat different. Mr Petterson said he was concerned about whether Mr Drake was worth powder and shot in relation to recovery against him;[10] he had himself decided not to pursue a claim against Mr Drake;[11] and he told the creditors to get legal advice before they sued Mr Drake because the chances of recovery were minimal.[12] Mr Petterson said he considered Mr Drake’s liability was not in question, but that he believed there “was no point in pursuing somebody unless there’s money at the end of the exercise a positive net gain”.[13] It is the exercise of Mr Petterson’s judgment and the options he may take which are at the heart of this case.

FIRST ISSUE: Does the Act bar Mr Petterson from acting or continuing to Act as liquidator?

  1. This is a novel issue. The Court is of course required to apply the usual principles of statutory interpretation. However, in cases where there is either a paucity of or no relevant authority in our jurisdiction, the Court may have regard to how other common law jurisdictions approach similar issues. The judgment follows that well-worn route and refers to authorities from New Zealand and Australia.

The Act – liquidations

  1. By its short title, the Act provides for the formation and governance of Companies in Samoa.
  2. It deals with liquidations in Part 9, Division 3 subdivision D, which has as its purpose:
  3. A liquidation begins when a liquidator is appointed (s.212(1)). The appointment can be made by a Board of Directors (s.215); Shareholders of the company (s.216); by creditors (s.217), or by order of the Supreme Court (s.218).
  4. The Court may appoint a liquidator if it is satisfied the company is unable to pay its debts, or the company directors have persistently or seriously failed to comply with the provisions of the Act; or, it is just an equitable that the company be put into liquidation (s.218(2)).

Restrictions on appointment as liquidator

  1. There are statutory restrictions on who may be appointed liquidator, this is set out in s. 213, as follows:
  2. Turning to cl. 1 Sch 14, this provides for certain classes of people who may not be appointed liquidator;
  3. A person may not be appointed liquidator if they come within one of these classes, unless the Court orders otherwise. A person acting as liquidator in contravention of s.213(3) commits an offence and is liable to a fine not exceeding 50 penalty units.

Disqualification of liquidators under the Act

  1. The Court may make an order to disqualify a person from becoming or remaining as a liquidator. These powers are really at the heart of the issue, and so they are set out for ease of reference:
  2. The phrase “is or becomes disqualified” is used in two different contexts. In the first setting – cl.18 Sch 13, the phrase is included in a clause with the heading of “Consequences of non-compliance with Court order”. The heading in cl 18 refers to non-compliance with a court order the heading does not affect the interpretation of the Act.[14] The second situation refers to the circumstances of a vacancy in the office of liquidator.

Disqualification under cl. 18 Sch 13

  1. The word disqualified is the past simple and past participle of the verb disqualify, and it has the ordinary meaning of to stop someone from doing something because they are unsuitable, or they have done something wrong.[15] So the critical issue is what triggers the disqualification?
  2. Disqualification under cl 18 arises under two alternative scenarios:

The difference between these circumstances is the lack of a trigger point for the phrase “is or becomes disqualified” in scenario (b) – when and upon what grounds does a person become disqualified?

  1. The court acknowledges that Parliament must have intended to give the court the power to disqualify. There being no express trigger point for when the power to disqualify is activated, the court must give the words such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit.[16]
  2. The court considers that Clauses 16 and 17 of Part 3 of Schedule 13, are relevant to the interpretation of cl 18. Clause 16 sets out the meaning to the phrase “failure to comply”, as follows:
  3. The liquidator is deemed to owe these duties, including under the rule of law, which necessarily includes the common law.
  4. Clause 17 sets out the powers of the court when there has been a failure to comply:
  5. In the court’s respectful view, such “other remedy” may include the remedy of disqualification under cl 18. In other words, disqualification under cl 18 may be triggered when the court determines that a breach of a duty cannot be excused or be satisfactorily remedied by an order to comply under cl. 17(b).
  6. In this case, whether the alleged common law duties of independence, objectivity and impartiality are alleged to have been breached, and they give rise to disqualification because the court cannot excuse compliance or an order to comply is not an appropriate remedy.

Disqualification under cl. 5 Sch 14

  1. This clause does not, in this court’s respectful view, give rise to the power of disqualification. The focus of the clause is on the status of the office of the liquidator, which is vacant upon the occurrence of distinct events – the resignation or the death or the disqualification of the liquidator which may arise as just discussed. The power to disqualify arises, as discussed, in cl 18.

Is there a relationship between cl.1 sch 13 and the power to disqualify?

  1. Mr Kersey invited the Court to disqualify Mr Petterson because of his alleged lack of independence, objectivity and impartiality, under the Act or pursuant to the Court’s inherent jurisdiction. Under the Act, the rationale for cl. 1 sch 14 (c) and (d) appear to provide for a statutory presumption against situations which might call into question the liquidators independence, objectivity and impartiality. Creditors of the company cannot be appointed liquidator, nor can persons who has been a shareholder, director, auditor or receiver of the company or of a related company, a person may not be appointed a liquidator.
  2. In this case, there is no evidence before the Court which suggests the statutory presumption applies to Mr Petterson. In relation to the company, Progressive, there is no evidence of Mr Petterson being a creditor, shareholder, director, auditor or receiver of the company or of a related company. If he was, he could be disqualified.
  3. The real value of cl 1 sch13 is in its easy, and efficient manner of determining whether someone can be appointed, thereby doing away with cost of issuing legal proceedings.
  4. But, as just discussed, the liquidator owes a duty to act independently and impartiality, and these duties may be enforced under the Act, as demonstrated.

THE LIQUIDATOR’S DUTIES

The nature of a Liquidator’s role

  1. The learned authors in Heath and Whale on Insolvency observe:[17]
  2. In the conduct of the liquidator’s duties there must not only be independence in the liquidation, there must be seen to be independence.[18] The liquidator owes a duty to shareholders, creditors and to the court to act impartially and independently, and in this regard, what is required of a liquidation is not only the absence of actual bias but also the absence of apparent bias or partiality.[19]
  3. The principal duties of a liquidator set out at s.211 (1) of the Companies Act:
  4. The Applicant relied on Newman v Norrie[20] as authority for the position of the New Zealand High Court has an unfettered discretion to remove a liquidator, who is or becomes disqualified, although it must be exercised having regard to the purpose of s.280 (1) of the Companies Act 1993 (NZ).
  5. The court endorses the position in Newman, which as just discussed is consistent with Samoa’s approach, that a court has an unfettered discretion to remove a liquidator who is or becomes disqualified by reason of bias or apparent bias.
  6. The applicant relied on Australian Securities and Investments Commission v Franklin[21] (“ASIC”) a decision of the Federal Court of Australia, in which His Honour Justice White delivered the Court’s decision on the issue of reasonable apprehension of bias. I respectfully summarise the Court’s determinations, which are relevant to this case, as follows:
Liquidators are officers of the court and are, accordingly, expected to conduct themselves with independence, impartiality and integrity. However, questions of bias in relation to liquidators arise in a context which differs in material respects from that of the judiciary or administrative decision-makers. Liquidators are themselves engaged in business in a competitive environment. They have to attract work. This makes it almost inevitable that they will develop contacts and relationships with those who are actual or prospective sources of referrals. Further, the success or otherwise of liquidators will depend in part on their maintaining good professional reputations.
  1. The New Zealand test with respect to apparent bias in the judicial context is set out in the New Zealand Supreme Court decision known as Saxmere (No 1):[26]
  2. The doctrine of disqualification for alleged bias has to be applied somewhat robustly in a jurisdiction the size of ours.[27] The test of apparent bias in our jurisdiction refers to a real danger of bias test:[28]
  3. Respectfully, it does not appear the “real risk” test is materially different to the double might test. The real risk test asks whether a judicial officer might unfairly regard a party or issue with favour or disfavour; this test is required to be carried out by a reasonable observer aware of all the relevant circumstances. Although this appears in essence, to be double might test, if it is not, then this court prefers the use of the double might test as it aligns the standards of apparent bias in our jurisdiction with those of other common law jurisdictions.

IS THERE ACTUAL OR APPARENT BIAS?

  1. Chan Mow’s claims in this proceeding have been the subject of subtle refinements over the life of the particular dispute, including at trial. Chan Mow’s initial objection is set out in a letter to Mr Petterson, dated 21 September 2021.[29] Three grounds were advanced, as I respectfully paraphrase them:

Grounds b. and c. above were either abandoned or not pursued.

  1. This letter advised Mr Petterson that Chan Mow would file an application with the Supreme Court seeking orders to have him removed forthwith, if he had not resigned by 5pm Friday 24 September 2021.
  2. Chan Mow had proceedings already on foot against Progressive, which proceedings appear to have been stayed, by the liquidation. Instead of filing a fresh motion, the applicant amended the stayed proceeding with a motion seeking an interim injunction against Mr Petterson’s appointment on 18 October 2021, and a supporting affidavit from Mr Komisi Chan Mow of the same date. This is the matter before court.
  3. Mr Komisi Chan Mow’s affidavit exhibited a number of company searches which he appears to use to justify his concerns:[30]
  4. In Mr Drake’s response affidavit, dated 26 November 2021, he said in relation to Chandra Finance Ltd, “the ownership of Chandra has no relevance to the liquidation”.[31] His response to Mr Komisi Chan Mow’s allegations about the deliberate use of secret offshore finance centers like the Marshall Islands and Mauritius, appears to be that “it is not appropriate to have regard to private arrangements which are clearly irrelevant (and not an issue pursuant to our Companies Act) to the liquidation and the liquidator”.[32]
  5. The evidence before the Court is that the Chan Mows New Zealand based solicitor then sought further clarity with respect to the liquidator’s relationship with Progressive and the Liquidators relationship with Drake interests, amongst other matters, in a letter of 13 June 2022: Chan Mow’s solicitors wrote:[33]
  6. By this letter, the Chan Mows have recast their concern to now be about longstanding relationships, regardless of whether Mr Petterson was strictly within the statutory disqualification criteria. Mr Petterson, however, was solely concerned with the types of relationships or standings set out in cl.1 Sch 14, and that appears to be the focus of his Counsel’s response letter of 17 June 2022. Mr Gustafson, advised:[34]
  7. Respectfully, now having heard the full extent of the evidence in this case, Mr Gustafson’s response is narrow.
  8. The court is satisfied that Mr Petterson has had sufficient notice of the gravamen of Chan Mow’s concern about an alleged longstanding relationship between Mr Petterson and Mr Drake and his family, leading to Mr Petterson’s alleged lack of independence, objectivity and impartiality. For the sake of clarity, the court is satisfied that Mr Petterson has had sufficient notice that the Chan Mows were pursuing concerns about a lack of independence, objectivity and impartiality, that were wider than those disallowed in cl 1 sch 14.

WHAT IS MR PETTERSON’S INVOLVEMENT WITH MR DRAKE, AND FAMILY?

  1. The evidence is that Mr Drake met Mr Petterson in 1989/90 or thereabouts, when Mr Petterson came to Samoa to conduct a liquidation, Mr Drake had acted on the other side of the transaction. Mr Drake and Mr Petterson were involved with 2 or 3 other liquidations. Mr Drake said he “frequently” consulted Mr Petterson, professionally, in relation to insolvency issues, and Mr Drake found the advice to be extensive and very helpful in reaching decisions.[35]
  2. Mr Drake was quite open and candid about his earlier dealings with Mr Petterson. Mr Petterson redomiciled companies from Mauritius to Marshall Islands to take advantage of lower registrations charges of USD$400 in the Marshall Islands as opposed to the USD$2500 in Mauritius. These companies were for all intents and purposes the same legal entity in Mauritius as they were in the Marshall Islands, and they were transferred as a lease. The company was simultaneously re-domiciled between Mauritius and the Marshall Islands.
  3. Mr Drake identified the companies which were re-domiciled – Kraven International, Folger Finance, Decatur Corporation, Evora Holdings, Acadia Trading, and possibly 3 or 4 other companies.[36] There is no evidence of a link between any of these companies and Mr Drake, either as an officer or shareholder. Accordingly, these might be conveniently described, for the purposes of this judgement, to be arms-length transactions, and contrasted with transactions involving the personal interests of Mr Drake and or his immediate family members.
  4. There were a number of these arms-length instructions; Mr Drake’s evidence is that most if not all of the re-domiciliation work was done at the same time, in 2015; [37] well before the liquidation. Mr Drake said “I think all developed from that original contact and I came to know Mr Petterson’s professional capacity and I took advantage of that situation”.[38] This development is perhaps the reality the Australian Federal Court observed in ASIC - liquidators are in business and will inevitably develop contacts and relationships with actual or prospective sources of referrals.
  5. However, it cannot be ignored that the number of instructions provided both men with the opportunity to build at least a business relationship. It is expected that they will have come to know of each other’s professional views.
  6. The relationship, however, did not strictly remain arms-length throughout. There are two instances, which concern the court. These are transactions where it is beyond argument that Mr Petterson became involved with Mr Drake’s personal interests, either directly, or indirectly through Mr Drake’s children.

Paco Holdings Ltd (“Paco Holdings (NZ)”)

  1. Mr Petterson is involved with Mr Drake’s adult children - Ms Kirstin Kruse and Mr Justin Drake.
  2. Mr Petterson is one of two directors, with Ms Kruse. Mr Justin Drake holds all the shares in the company. The company was incorporated in New Zealand on 19 June 2015. Mr Petterson’s office at 181 Wallace Road, Rd 1, Levin, 5571, is noted in the New Zealand Companies Office Register as the registered office and address for service..
  3. The connection with Mr Drake here is indirect. On its own, this link may not necessarily reach the threshold of a type of relationship which might lead to a reasonable apprehension that Mr Petterson might not act independently or impartially with respect to Mr Drake and the other creditors. However, the Mr Justin Drake’s role, which is dicussed below, changes that view.

Paco Holdings Limited (“Paco Holdings (MI)”)

  1. This example is of a direct link between Mr Petterson and Mr Drakes personal affairs.
  2. Mr Petterson redomiciled this company to the Marshall Islands, from Mauritius, in 2015. His instructions included being appointed director of the company for the limited purpose of carrying out the re-domiciliation work.[39] So, whilst Mr Petterson was not a director of Paco Holding (MI), he was a director of the company (the same business entity) whilst it was registered in Mauritius – Paco Holdings Mauritius.
  3. A Samoan Ministry of Commerce Industry and Labour company extract for a company known as Corden Holdings Limited (“Corden”), was put into evidence as exhibit “E” of Mr Komisi Chan Mow’s affidavit dated 18 October 2021.[40] The extract appears to show Paco Holdings (MI) as the sole shareholder of Corden. Mr Justin Drake, who holds all the shares in Paco Holdings (NZ), is recorded as Corden’s sole director.
  4. Mr Murray Drake’s evidence suggests that Corden’s shareholder is Paco Holdings NZ.[41] Mr Drake’s assertion cannot be supported on the evidence before the Court. Corden is relevant because it shows Mr Justin Drake’s role with Paco Holdings (MI).
  5. Paco Holdings (MI) is the same legal entity as it was in Mauritius. Mr and Mrs Drake are the shareholders, in their capacity as trustees for the Drake family trust, Tiapapata trust. Mr Petterson during his time as the director of Paco Holdings in Mauritius must have known, or was in a position to know about Mr Drake’s ownership interest. It follows therefore that Mr Petterson and Mr Drake were director and shareholder, respectively, in the same company at one time, which was explained at the hearing to be only for the purposes of re-domiciling Paco Holdings from Mauritius to Marshall Islands.
  6. Mr Drake says that Paco Holdings (MI) has nothing to do with Progressive.[42] Respectfully, this assertion cannot be correct; at all material times Mr Drake was a shareholder of Paco Holdings (MI) and the director of Progressive. Mr Drake is the link. Mr Petterson knew or ought to have known about this link. Why this is critical is because there is the matter of a large advance of WST$2.6m made by Paco Holdings (MI) to Progressive, which has been made by Paco Holdings (MI) on its own behalf, or on behalf of Mr Drake, to Progressive between mid-2016 and the liquidation.[43]
  7. The advance was arranged by Mr Justin Drake, whom Mr Drake referred to as someone who looks after their affairs.[44] The terms of the advance were not disclosed to the Court.
  8. In the liquidation, Mr Petterson said he accepted a claim by Mr Drake that it was he who advanced the $2.6m, but then said:[45]
  9. The funds from the Drake family trust, or from Mr Drake, is a significant sum of money, and its repayment has a material impact on the other creditors’ interests.

THE PUBLIC INTEREST

  1. There is a public interest in the way in which liquidations are conducted.[46] Creditors are entitled to have confidence in the work of a liquidator being carried out independently and impartially. The duties provide for self-regulation, and their importance underscore creditor confidence that whatever decisions might be made by a liquidator – and some of them will be unpopular, that they are made against the background of unquestioned independence and impartiality.
  2. The duty to act fairly meant Mr Petterson had no choice but to dispel the concerns about his alleged lack of impartiality and links with Mr Drake.
  3. Mr Petterson acknowledged there was a “wide statement in the media here about conflict of interest and allegations of NZICA Company offshore...”[47] He received a telephone call from someone purporting to be from the media, but that it was not his “practice to conduct a liquidation from the media”.[48] It was not just the media who raised the issue of conflict - the issue had been raised by Chan Mow’s solicitor at the very outset of Mr Petterson’s appointment as liquidator.
  4. A liquidator may not want to engage with media, however, Mr Petterson could have addressed the conflict issues in his reports to the creditors, over which he had full control. Mr Petterson could also have organized a zoom call, in lieu of a creditor face-to-face meeting. Such facilities were available in Samoa at the material time. He could also have written an email to creditors for whom he had email addresses.
  5. Mr Petterson’s concession that his communications with creditors generally did not involve transparency of relationships[49] is of very serious concern, coming as it does from someone who is an experienced liquidator. The court considers Mr Petterson’s failure to disclose the nature of his connections with Mr Drake and his family has incurably harmed the confidence of the creditors, many of whom dutifully paid their premiums to Progressive, some shortly before the company was put into liquidation.
  6. One of those creditors is Mr Masoe Li’o Norman Wetzell. His evidence is that he was concerned about what he had read, of a business relationship and friendship between Mr Petterson and Mr Drake.[50] Mr Wetzell said he had a small family company and his premium was a lot of money for them and they just wanted to get be treated fairly or strike a fair deal at the end of the day.[51]

THE DOUBLE MIGHT TEST

  1. As is obvious in the motion before the court, the apparent lack of confidence in the independence of the liquidator has led to every decision he has made, involving Mr Drake or Drake interests, or involving the Chan Mows, being challenged, including; the date when the company became unable to pay its debts: the treatment of the $2.6m Paco Holdings Ltd (MI) injection: the decision to leave the keys to the Progressive Office, to Mr Drake: the determination to issue recovery proceedings against the Chan Mows: and the determination not to pursue recovery against Mr Drake because he was not worth powder and shot.
  2. The court respectfully considers that there is evidence which supports a finding of a long-standing relationship of over thirty years between Mr Petterson and Mr Drake directly, and between Mr Petterson and members of Mr Drakes family, which is an indirect relationship with Mr Drake. During this relationship Mr Petterson has provided professional advice directly to Mr Drake, been a director of a company owned by Mr Drake as trustee for a Drake family trust. Further Mr Petterson continues to be a director of a company owned by Mr Drake’s son, who Mr Drake regards as a person who looks after “our affairs”.[52]
  3. In this liquidation, Mr Drake has three distinct interests – potential liability as a director; potential liability as a debtor in relation to any voidable transactions; and as a creditor – the $2.6m advance and its recovery. The decisions made on each of these interests has a material influence on the conduct of the liquidation and the funds which might be available to the creditors.
  4. The court is satisfied, that on an objective and independent view of the relationships and the interests involved, that, respectfully, Mr Petterson should have resigned as a liquidator on the basis of apparent bias. A fair-minded person might reasonably contemplate that Mr Petterson might not bring an independent mind to the conduct of the liquidation.

Rancour

  1. Mr Petterson sought to categorise Chan Mows concerns as “rancour”. Such a view does not assist Mr Petterson, indeed, it may suggest that Mr Petterson has taken sides, and failed to apply an objective and independent mind. Respectfully, issues concerning independence and impartiality are serious matters, however they are raised, and as the court has found, it was in the public interest that they should have been addressed.
  2. It is accepted the Chan Mows challenged Mr Petterson’s appointment, but experienced liquidators face challenges from time to time, it goes with the territory; creditors, often, themselves face financial ruin or at least serious financial hardship and so seek to ensure that their interests are being fairly treated– just as Mr Wetzell said in his evidence.

IS MR PETTERSON BARRED BY THE ACT TO CONTINUE ACTING AS LIQUIDATOR AND SHOULD HE BE DISQUALIFIED?

  1. Whilst Mr Petterson’s admitted lack of transparency is troubling, the court is nevertheless satisfied that had Mr Petterson applied an independent, objective and impartial mind, he should have earlier resigned, of his own volition.
  2. However, he has not resigned, and it remains for this court to declare that Mr Petterson is in breach of the duties of a liquidator as set out in cl 16 sch 13 of the Act.
  3. Mr Petterson is accordingly disqualified under cl 18 sch 13 of the Act.

SHOULD MR PETTERSON NEVERTHELESS CONTINUE IN OFFICE?

  1. The concern all along has been about a lack of independence, objectivity and impartiality. These principles are the pillars in the administration and maintenance of the law by quasi-judicial officers, such as liquidators when they are required to comply with their fiduciary duties. Mr Petterson has shown an inability to apply himself in an independent, objective and impartial way to the duties of a liquidator, and it is difficult to see how that situation might improve.
  2. There was just before the end of 2022, an attempt to call a creditors’ meeting. It appears that a creditor wished to call the meeting, and that at that meeting a vote might have been taken on whether to replace the liquidator. The court, directed that such a meeting of creditors could be held, after the court had delivered its decision in this proceeding. This is that decision, and the creditors meeting may now be held, but with the new joint liquidators appointed, below.
  3. Whilst it is accepted that Mr Petterson has done a lot of work, regrettably the finding of apparent bias goes to the issue of the degree of reliance that can be placed on that work. It is accepted that Chan Mow’s liquidation experts agreed with much of Mr Petterson’s work, as set out in the second report, but the court has now ruled on the issue of apparent bias, and it is necessary for an independent liquidator to review Mr Petterson’s work, and in particular the assumptions he has made about recovery.
  4. The court does not accept that the liquidation is nearly complete, there are clearly a number of significant and outstanding issues, which are yet to be concluded.
  5. For the reasons outlined, the court does not consider it appropriate for Mr Petterson to continue acting as liquidator.

SHOULD MR JACKSON AND MS BURRETT BE APPOINTED JOINT LIQUIDATORS?

  1. The court makes an order that Ms Jackson and Ms Burrett be appointed joint liquidators, with their appointments operative from the date of the Court receiving their disclosure of conflicts, or this judgment, whichever is the latter. There was no need for them to file affidavits as to what they might do differently, they simply need to comply with their statutory duties, and given the issues in this case, it is enough that they bring an independent and impartial approach to this liquidation.
  2. I further record that the Applicant has undertaken to pay the future costs of the liquidation.
  3. The liquidators are directed to file a report for the Court within 90 days of their appointment to advise the Court of the status of their work.

COSTS

  1. Costs are to follow the event.
  2. No order for costs is made against Mr Drake. It is unclear how he has come to be included as a party to this proceeding, which has primarily been between the applicant and the first two respondents. If Chan Mow considers otherwise, then it is to file submissions on the issue within two weeks of the date of delivery of this judgment.
  3. If the parties are unable to resolve costs between them, they are to provide written submissions within four weeks of the delivery of this judgment.
  4. The Court thanks counsel for their helpful submissions.

CHIEF JUSTICE

[1] Ministry of Commerce Industry and Labour, Company Extract.
[2] AB v2/20 page 3.
[3] Notes of Evidence (“NOE”) at 155
[4] AB 3/34 para 14
[5] AB 3/34 para 21
[6] AB v/5 page 8
[7] Evidence Act 2015, s, 16
[8] NOE at 46
[9] NOE at 45
[10] NOE at 234
[11] Idem
[12] Idem
[13] NOE at 238
[14] Acts Interpretation Act 2015, s 9(4)(d)
[15] https://dictionary.cambridge.org/dictionary/english/disqualified
[16] Above n14, s. 7(1)(4)
[17] Heath and Whale on Insolvency (online ed, LexisNexis) at [22.1]
[18] In Re Biposo Pty Ltd (1995) 17 ACSR 730 at 736
[19] Hyndman v Newson [2014] NZHC 2513 at [32] and [33]
[20] Newman v Norrie [2014] NZHC 648; [2014] NZCCLR 15 at [50]
[21] Australian Securities and Investments Commission v Franklin [2014] FCAFC 204
[22] Ibid at 218
[23] Idem
[24] Idem
[25] Above n 21, at 219
[26] Saxmere Company Ltd v Wool Board Disestablishment Company Ltd [2009] NZSC 72, [2010] 1 NZLR 35 at [3]
[27] Stehlin v Police [1993] WSCA 5; Reupena v Senara [2017] WSCA 1
[28] Asiata Peniamina v Land and Titles Court [2004] WSSC 12
[29] AB 1/18, Exh DGR p3
[30] AB v1/7
[31] AB v2/20 para 20
[32] AB v2/20 para 21(c)
[33] AB v3/33, first attachment
[34] Idem
[35] NOE at 189
[36] NOE at 160
[37] NOE at 159
[38] NOE at 189
[39] NOE at 162
[40] AB v1/7
[41] NOE at 160
[42] Idem
[43] AB 3/34 para 21
[44] NOE p 176
[45] NOE p 261
[46] Above n17, at 738
[47] NOE at 196
[48] NOE at 203
[49] NOE at 203
[50] NOE at 101
[51] Idem
[52] NOE at 176

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/ws/cases/WSSC/2023/14.html