IN THE EMPLOYMENT COURT CHRISTCHURCH [2016] NZEmpC 168 EMPC 338/2016. PREET PVT LIMITED First Respondent

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1 IN THE EMPLOYMENT COURT CHRISTCHURCH IN THE MATTER OF BETWEEN AND AND AND [2016] NZEmpC 168 EMPC 338/2016 an application for freezing orders JEANIE MAY BORSBOOM (LABOUR INSPECTOR), MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT Applicant PREET PVT LIMITED First Respondent WARRINGTON DISCOUNT TOBACCO LIMITED Second Respondent PALLAVI KAUR BAL (AKA TINA BAL) Third Respondent Hearing: Appearances: (on the papers filed on 14 December 2016, and hearing by telephone on 14 December 2016) C Milnes, counsel for Applicant Judgment: 16 December 2016 REASONS FOR JUDGMENT OF JUDGE B A CORKILL Introduction [1] Today I granted the applicant a without notice freezing order against the first, second and third respondents. I now set out my reasons for doing so. [2] The applicant, Ms Borsboom, is a warranted Labour Inspector. She obtained judgment against the first and second respondents in the Employment Relations Authority (the Authority) for arrears of wages and holiday pay owed to five JEANIE MAY BORSBOOM (LABOUR INSPECTOR), MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT v PREET PVT LIMITED NZEmpC CHRISTCHURCH [2016] NZEmpC 168 [16 December 2016]

2 employees who worked for the first and second respondents, by a consent determination dated 13 April The arrears totalled $73, [3] Subsequently, the Authority determined that penalties should be paid for breaches of minimum standards described in the Minimum Wage Act 1983, the Holidays Act 2003 and the Employment Relations Act 2000 (the Act). 2 That determination was challenged, and it resulted in a judgment of this Court being issued on 4 November [4] In that judgment Preet PVT Ltd (Preet) was ordered to pay penalties totalling $40,000. Warrington Discount Tobacco Ltd (Warrington) was ordered to pay penalties totalling $60,000. The Court directed that all penalty payments were to be made to the Wellington Registry of the Employment Court to the use of the Crown; and that sums of $7,500 from those penalties were to be paid to each of the five affected former employees of the defendants pursuant to s 136(2) of the Act. [5] Despite being requested to pay those penalties, neither Preet nor Warrington has done so. [6] The Labour Inspector has now applied for orders against each of Preet, Warrington and the director of those entities, Ms Tina Bal. The Labour Inspector seeks orders restraining the removal or disposition held by any respondent of assets to a total value of $100,000; and an ancillary order requiring each respondent to provide information as to their financial circumstances. The business operations of Preet and Warrington [7] It is necessary to outline briefly the business operations of the two respondent companies. The evidence establishes that Preet operated a number of retail liquor stores around the South Island. Warrington operated retail dairy outlets, also around the South Island. In the case of Preet, the penalties were imposed for breaches in Borsboom (Labour Inspector) v Preet PVT Ltd [2015] NZERA Christchurch 47. Borsboom (Labour Inspector) v Preet PVT Ltd [2016] NZERA Christchurch 32. Borsboom (Labour Inspector) v Preet PVT Ltd [2016] NZEmpC 143.

3 respect of two former employees; in the case of Warrington, the penalties were imposed for breaches in respect of three former employees. [8] The shareholders and directors of both companies were the third respondent, Ms Bal, and her former husband, Mr Dilbag Singh Bal. The evidence before the Court is that they separated in December Subsequently, Ms Bal became the sole director of both Preet and Warrington. [9] On 5 August 2015, Mr Bal began making monthly payments of $4,075 of the arrears of minimum wages and holiday pay which the two companies had been ordered to pay in the Authority s first determination. [10] In evidence placed before the Authority, Mr Bal deposed that Preet and Warrington operated dairies and liquor stores as follows: a) Preet: Sunny s Liquor in Ashburton; Opawa Liquor Centre in Christchurch; Warringon Liquor Centre in Christchurch; Hanmer Bottle Store in Hanmer Springs. b) Warrington: Opawa Dairy in Christchurch; Woolston Dairy in Christchurch; Ashburton Discount Dairy in Ashburton. [11] Omitted from this list was the Warrington Discount Dairy in Christchurch; the Labour Inspector has obtained evidence that suggests this was a business operated by Warrington.

4 [12] There is also evidence before the Court that Ms Bal gave evidence in October 2015 to the Christchurch District Licensing Committee for the purposes of an application to renew a liquor licence for the Warrington Liquor Centre. That application was brought by Preet. Ms Bal told the committee that following her separation from Mr Bal the couple had agreed that she would retain the Warrington Street Dairy and Liquor Store, the Opawa Road Dairy and Liquor Store, the Woolston Dairy, the Ashburton Dairy and Liquor Store, the Nelson Liquor Store and the Hanmer Liquor Store. [13] Ms Bal also stated that she then chose to focus on the operation of the liquor stores and sub-lease the dairies, in particular the Opawa and Woolston dairies. She also stated that she would be closing the Ashburton Liquor Centre. [14] On the basis of enquiries which the Labour Inspector has made, that is what has occurred. In respect of two Preet operations, Ms Bal sub-let the premises for the Opawa Liquor Centre and the Warrington Liquor Centre; and in respect of Warrington s operations, she sub-let the Ashburton Discount Dairy and the Warrington Discount Dairy. [15] There is also evidence before the Court that the Warrington Liquor Store was sold by Ms Bal on 14 July According to the agreement for sale and purchase, the sale price was $440,000; vendor finance of $360,000 was left in with regular payments to be made to the vendor (Ms Bal), along with sub-lease payments. [16] According to enquires made by the Labour Inspector, the Hanmer Bottle Store was sold on 4 July 2016; details of sale are unknown. [17] Finally, the Labour Inspector has obtained information from which she has concluded that the Woolston Dairy, said to be a Warrington asset, has been leased out by Mr Bal s partner. The application for freezing and ancillary orders [18] The basis of the Labour Inspector s applications is that there is a danger the judgment which the Labour Inspector has obtained against Preet and Warrington will

5 be unsatisfied because the assets of those entities might be removed from New Zealand or might be disposed of, dealt with, or diminished in value whether those assets are in New Zealand or not. [19] There is a further concern that Ms Bal is in a position of control or influence concerning the assets of those entities. [20] Section 190(3) of the Act provides that the Court has the same powers as the High Court to make a freezing order, as provided for in the High Court Rules. [21] Rule 32 of the High Court Rules is applied by this Court, therefore, with appropriate modifications. [22] This means that a freezing order may be made under r 32.2, and ancillary orders may be made under r [23] Rule 32.5 provides that the Court may make a freezing order or an ancillary order against a judgment debtor if there is a danger that a judgment will be wholly or partly unsatisfied because the assets of that debtor, or of another person, might be removed from New Zealand or from a place inside or outside New Zealand; or disposed of or dealt with or diminished in value (whether the assets are in or outside New Zealand). [24] Rule 32.5 also provides that the Court may make a freezing order or an ancillary order against a person other than a judgment debtor if the Court is satisfied in all the circumstances that there is a danger that a judgment will be wholly or partly unsatisfied because the third party has exercised or is exercising, a power of disposition over assets of the judgment debtor; or the third party is in possession of, or in a position of control or influence concerning assets of the judgment debtor. [25] Numerous cases have established that in order to obtain such orders the applicant must satisfy four essential requirements: a) That she has a good arguable case;

6 b) That the respondents have assets within the jurisdiction; c) That there is a real risk that the property will be moved out of the jurisdiction or dissipated; and d) That the balance of convenience and interests of justice require that the injunction be granted. In making this assessment, the Court will need to consider any potential defence which a respondent may have. The availability of an undertaking as to damages from the applicant also requires consideration. [26] I turn now to consider those requirements. Good arguable case [27] In the case of Preet and Warrington, a judgment of this Court has been obtained for penalties: $40,000 in respect of Preet and $60,000 in respect of Warrington. Those penalties are unpaid, despite a request for payment. [28] In the case of Ms Bal, she is now the sole director and shareholder of both companies. I am satisfied from the evidence of the Labour Inspector, that Ms Bal appears to have taken control and possession of the assets of the first and second respondents. There is also evidence that she is administering the affairs of at least two of the retail outlets through a personal bank account. [29] I find for present purposes that the Labour Inspector has a strong arguable case as to entitlement for the freezing and ancillary orders which she seeks. The proposed order is for the sum of $100,000 in total from the respondents. Although each company owes a lesser sum, it is not apparent that each entity has been or is operated separately from each other. Furthermore, Ms Bal appears to have run the various businesses without indicating whether or not she is doing so as director of one or other entity, or on her own behalf. Accordingly, it is arguable that the freezing order should relate to a gross amount; the three respondents would have a responsibility to ensure that assets of the respondents to that value should not be removed or disposed of.

7 Assets within the jurisdiction [30] The Labour Inspector has filed evidence that each respondent has assets within the jurisdiction. [31] Financial statements in respect of both Preet and Warrington have been placed before the Court. According to those statements, each such entity apparently held significant stock on hand as at March Each is also recorded as owning plant, equipment and a vehicle of some value. [32] Subsequently, two of the liquor outlets were sold by Preet. The details of sale are known in respect of one of those, indicating significant sale proceeds. [33] As far as Ms Bal is concerned, the Labour Inspector believes that she is receiving sub-lease payments from outlets associated with both Preet and Warrington. Further, Ms Bal told the Christchurch District Licensing Committee that she was operating bank accounts for both Warrington Street and Opawa Road Liquor Centres in her name, and that she had sole access to the accounts. [34] Although Ms Bal appears to have sub-let one of Warrington s outlets, the Ashburton Discount Dairy, from which she is receiving rental payments there is evidence that she is herself paying one of its employees from a personal bank account. She is also said to be responsible for paying an employee who works for the Opawa Dairy. [35] Finally, there is evidence of other assets held in New Zealand by Ms Bal an interest in real estate together with Mr Bal; and she is the registered owner of two motor vehicles. [36] I am satisfied that each respondent has relevant assets within the jurisdiction. Risk of dissipation [37] For the applicant, it is submitted that there is a real risk the respondents will dissipate their assets, and thereby preclude the possibility of the Court s judgment being enforced, unless a freezing order is granted. This is for the following reasons:

8 a) Preet has recently sold two of its retail businesses in two separate transactions, one of which is known to be for a significant sum. Although these transactions must have been in train when the Labour Inspector s challenge was heard by the Court on 25 July 2016, and although at that hearing Preet and Warrington sought and obtained leave to update the financial circumstances for the purposes of a submission as to impecuniosity, these transactions were not disclosed to the Court. They should have been. b) The sales of the retail stores were made in the absence of public advertisement. The Labour Inspector was unaware of these transactions until after the businesses had been sold. c) Warrington has also sub-let retail outlets, with some lease payments being made to Ms Bal personally, as well as to the partner of her former husband, who is a former director of both companies. Again, the Labour Inspector was unaware of these transactions. [38] The above concerns are compounded by the fact that on 6 December 2016 former counsel for Preet and Warrington, when asked by counsel for the Labour Inspector what the companies position was as to costs in respect of the challenge which had been determined by this Court, conveyed her instructions which were to the effect that neither company was trading and that neither had any money to pay for any costs. [39] It is conceivable that these instructions may have been given for the purposes of deterring the Labour Inspector from preserving with an application for costs, and to discourage enforcement of the judgment debts. [40] Given the opaque manner in which the operations of Preet and Warrington have been and are being conducted, I find for present purposes that there is a qualifying risk of dissipation of assets if a freezing order is not granted, at least for a limited period.

9 Possible defences [41] Counsel for the Labour Inspector submitted that the third respondent may argue that the first and second respondents are separate legal entities and that they are liable for the debts, not her. [42] I agree that such an argument could be raised. On the face of it Ms Bal is dealing personally with assets which until very recently were claimed to be assets of each of Preet and Warrington. It is possible that the various businesses she is operating have been transferred to her as an aspect of a relationship property settlement. However, in such circumstances, there would need to be reliable evidence that those assets had been transferred to her for value, with some explanation as to what happened to the consideration involved. Furthermore, I note that the certificates of registration for food premises were, earlier this month, held in two instances in the name of Preet and Warrington rather than Ms Bal; this evidence suggests that such a transfer has not occurred in respect of those businesses, and that Ms Bal is operating businesses in her own name on behalf of the companies. [43] But I also observe that the effect of making the orders sought would be to preserve a status quo at least until updated information is provided to the Court by each respondent. The making of the order does not require any respondent to meet the judgment debts. Were any respondent to raise such a defence, it would be considered and assessed before enforcement of those debts occurred. Undertaking as to damages [44] Rule 32.2(5) provides that an applicant for a freezing order must file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the respondent for any damage sustained in consequent of the freezing order. However, r 32.6(4) allows this requirement to be waived if there are special circumstances. [45] The Labour Inspector submits that s 65ZC of the Public Finance Act 1989 precludes the giving of such an undertaking, unless expressly authorised by any Act; it is further submitted that the Employment Relations Act 2000 provides no such

10 express statutory provision. Nor, it is submitted, could there be a suggestion that the Labour Inspector is not capable of meeting any costs or damages arising from the matter. [46] This issue has been considered in various previous decisions, most recently in A Labour Inspector v Taste of Egypt Ltd, 4 where a waiver was granted for the usual undertaking having regard to the provisions of the Public Finance Act. I agree with this approach and find that there are special circumstances which preclude the necessity of the normal undertaking being provided. Balance of convenience and overall justice [47] In my view, if assets of the respondents to the value of $100,000 were dissipated, there is a real risk that the judgment of the Court will be rendered nugatory. [48] That would be contrary to justice given the significant breaches of minimal standards to which the penalties relate, and given that a portion of the penalties are to be paid to the employees who were denied their minimum entitlements for extended periods of time. [49] But the Court must also consider any potential hardship to the respondents which would be occasioned by the making of freezing orders. In part, such hardship may be mitigated by r 32.6(3), which provides that: The freezing order must not prohibit the respondents from dealing with assets covered by the order for the purpose of: a) paying ordinary living expenses; or b) paying legal expenses related to the freezing order; or c) disposing of assets, or making payments, in the ordinary course of the respondent s business, including business expenses incurred in good faith. 4 A Labour Inspector v Taste of Egypt Ltd [2016] NZEmpC 31 at [31] [32].

11 [50] In addition, the Court s order will specifically refer to the possibility that any respondent may apply to the Court by interlocutory application to discharge or vary the order, on notice of no less than 48 hours. Such an application may be brought at any time after service of a freezing order and prior to its scheduled review. [51] I am accordingly satisfied that the balance of convenience and overall justice supports the making of a freezing order on a time limited basis. Result [52] I accept the submission made for the Labour Inspector that the interests of justice require the application to be determined on an urgent basis, and without serving the notice of application on any respondent. [53] I am satisfied that the orders sought should be granted. A draft order was submitted with the Labour Inspector s application. Following a telephone directions conference with counsel, an amended draft order was submitted to the Court which I have concluded is in an appropriate form. It has been sealed by the Registrar accordingly. [54] It provides for the making of a freezing order which will cease to have effect at 4.00 pm on 16 January 2017 unless on that date it is continued or renewed. A hearing will be convened at am on that date for the purpose of reviewing the order; any respondent or its representative will be entitled to be heard by the Court at that hearing. Further, as I have already observed, any respondent may apply at any time by interlocutory application to discharge or vary the order. [55] The order made today also requires each respondent to serve on the Labour Inspector a schedule which fully particularises their financial position and identifies all assets and their value. There is to be compliance with that order by 9.00 am on 16 January 2017, or such other date as the Court may fix.

12 Service [56] The sealed orders, as well as these Reasons for Judgment, are to be served forthwith upon each respondent. Either then or soon thereafter, I direct that the documents originally filed by the Labour Inspector (the statement of claim, affidavit of the Labour Inspector, without notice application for freezing and ancillary orders, and memoranda of counsel) are to be served on each respondent. [57] Service on the first respondents should take place at the registered office of each of Preet and Warrington. [58] The circumstances with regard to Ms Bal are less straightforward. There is evidence that she travelled out of New Zealand on 3 December The Labour Inspector has produced information she obtained from the manager of one of the dairies to the effect that it is believed Ms Bal has travelled to India for a time and will return to New Zealand. The relevant Immigration database to which the Labour Inspector has access shows that she has travelled in and out of New Zealand from time to time. [59] Counsel for the Labour Inspector has filed a memorandum indicating that there is reliable contact with the third respondent. In those circumstances I direct that service of the sealed order and of these Reasons for Judgment should be effected by to the address given at para 2 of counsel s memorandum of yesterday, as soon as possible. Ms Bal is to be asked whether she is prepared to provide an address for service of these documents, and the documents which were originally filed for the Labour Inspector; if so, a copy of all the aforementioned documents are to be served at that address. I further direct that a copy of all the documents just described is to be served at the address referred to at para 6 of counsel s memorandum of yesterday, addressed to Ms Bal. [60] It appears Ms Bal continues to have contact with Mr Bal. Accordingly, I also direct that a copy of the sealed order, these Reasons for Judgment and the other documents to which I referred earlier should all be served on Mr Bal in person. This order is made since the freezing order affects at least one asset of which he is the

13 joint owner; and because there is thereby a likelihood that these proceedings will be brought to the attention of Ms Bal. [61] The Court recommends strongly that each respondent obtain legal advice about their rights and obligations following this judgment. [62] Costs are reserved. B A Corkill Judge Judgment signed at am on 16 December 2016