Director : Sheikh v. Sawhney

 

Angered that Karanvir Sawhney set up a shell company to buy their Auckland property and then walked away from the deal, Azad and Saiedah Sheikh are suing him directly in what stands as a test case for directors’ personally liability in tort where their undercapitalised company reneges on a contract.

The touted benefit of forming a limited liability company is to protect entrepreneurs from legal action.  If anything goes wrong, it is the company’s problem, not theirs.

The High Court was told Mr Sawhney set up Sawhney Enterprises Ltd to invest in property.  In early 2022, the Sheikhs agreed to sell their Papatoetoe property to Sawhney Enterprises.  It failed to pay the deposit on due date.  It failed to pay the purchase price.

The Sheikhs were told if they did not agree to renegotiate the price and to extend settlement date then Mr Sawhney would just walk away and put his valueless company into liquidation.  

After cancelling the contract and reselling, the Sheikhs sued both Mr Sawhney and his company for their loss on resale.

In a preliminary court hearing, Mr Sawhney challenged the Sheikhs’ claim against him personally.

Associate Judge Brittain ruled that, in principle, directors can be sued in tort for inducement of breach of contract where they deliberately prevent their company from performing an existing contract.

Directors are not liable where they act in their company’s best interests.  They are liable when acting in bad faith.

Fraud, or acting for an improper motive, when refusing to carry through a company contract can amount to bad faith Judge Brittain ruled.

There is a twist.  English case law has established that directors’ motives must be viewed from their company’s perspective, not the perspective of contracting parties like the Sheikhs. 

Judge Brittain declined to strike out the Sheikhs’ tort claim against Mr Sawhney.

Whether Mr Sawhney is personally liable requires a further court hearing to determine full circumstances surrounding his company’s failure to perform the contract.

Sheikh v. Sawhney – High Court (5.03.25)

25.078

Bankruptcy: Samson Corp v. Sutherland

 

With a history of failed businesses leaving creditors unpaid, Wendy Ann Sutherland was bankrupted by commercial landlord Samson Corporation for unpaid rent.

The High Court dismissed Ms Sutherland’s plea that bankruptcy should be averted because a new catering contract was expected to earn sufficient revenue to repay the debt.  She provided no evidence that any contract existed and no evidence of her current financial position.

Courts are unwilling to postpone bankruptcy hearings on grounds of vague promises to clear current debts over time.  Too often, this becomes a broken promise; the same broken promise patient creditors have been hearing for a long time.

Ms Sutherland was ordered in 2022 by the District Court to pay Samson some $66,000 in rent arrears.  She subsequently agreed with Samson to pay this debt in weekly instalments of $550.  Five months later, she stopped payments.  Still owing was $56,000.

With Samson’s subsequent High Court application for her bankruptcy, Ms Sutherland turned up in court claiming to have been offered a cafeteria catering contract with Employers and Manufacturers Association.  Profits from this contract will clear her Samson debt, she claimed.

Associate Judge Taylor adjudged her bankrupt.  She provided no evidence of her ability to meet Samson’s unpaid debt, he said.

Given her past commercial history, with two failed businesses, it is in the public interest to bankrupt Ms Sutherland, he said.

She was a director of Marvel Grill North Wharf Co Ltd (an Auckland restaurant, going into liquidation insolvent in 2019) and Marque Hospitality Ltd (a business providing advice to the hospitality industry, wound up insolvent in 2023).

Samson Corporation Ltd v. Sutherland – High Court (4.03.25)

25.077

Charitable Trust: Singh v. Singh

 

A schism within South Auckland’s Calvary Indian Assembly of God has seen part of the congregation barred from church attendance, doors locked and a trespass notice issued.  In the absence of a negotiated solution, a decision is needed on what are the criteria for church membership, followed by a vote for new church management, the High Court ruled.

The High Court was told of a split within Calvary Indian membership accelerating in late 2022 on the arrival of a new pastor.  With church board members split 2:3, each faction and its supporters sought, without success, to vote out the other faction.

After what proved to be fruitless efforts to have church business conducted under supervision of an independent chair, Mr Son Singh and Mr Rajesh Jattan unilaterally assumed control, the court was told.

The three other trustees were sidelined.  Meetings were not held.  Members of the rival faction and their supporters were barred from attending church services at the Nikau Road church in Otahuhu.

For a time, Mr Singh took sole control of the church’s bank account.

Messrs Singh and Jattan asked the High Court to remove all Church trustees from control, including themselves, with new elections to be held.

Justice van Bohemen declined to act.  Messrs Singh and Jattan had themselves been a major cause of the current impasse, he said.  There would be no satisfactory election outcome without first identifying who could stand for office and who could vote.

Evidence was given of confusion within the Church regarding its own rules.

Calvary Indian Church assets are held by a charitable trust, with trustees appointed.

No current financial information for the Church is held on the Charities Register.

Operational decisions were supposedly made separately by board members elected under rules of an incorporated society called the Calvary Indian Assembly of God.  Whilst rules had been drafted, no such incorporated society has been registered.

With one exception, all Church trustees were also elected board members.  The trustees/elected board members often appeared to be unaware of the legal distinction between the two different parts of their church organisation.

Rules governing societies (incorporated or not) differ from rules governing charitable trusts, in the same way that rules governing the game of rugby union differ from rules governing rugby league.  They are similar; but different.

The court cannot use rules governing charitable trusts, as Messrs Singh and Jattan requested, to deal with their separate organisational dispute over daily running of the Assembly, Justice van Bohemen said.  Daily organisation is governed by the Church’s unregistered rules, not charities legislation.

The court was told there is separate court proceedings already underway dealing with members’ dispute over election eligibility.

Singh v. Singh – High Court (3.03.25)

25.076