Shanton Fashions' directors appeal fails

Shanton Fashions went into liquidation this year but thirteen Shanton stores are now back open under a new owner. Photo / File

The directors of Shanton Fashions have shaved US$72,000 off what they owe a Hong-Kong based garment supplier but were mostly unsuccessfuly when taking their case to the Court of Appeal.

Supplier BTC Group in July got a $700,000 judgment in the High Court against the company's two directors, Mandeep Pala and Inderjit Luthera.

Shanton Fashions formerly ran the clothing chain of the same name but earlier this year went into voluntary administration and later liquidation, owing creditors about $7.7 million.

Thirteen Shanton stores are now back open under a new owner.

Pala and Luthera last month appealed BTC winning the $700,000 judgment against them, which was for guarantees they had given for the amounts owed by Shanton Fashions.

They claimed they had arguable defences to BTC's claim.

This was mostly based on the propositions that the supplier had appointed Shanton Fashion's administrator, Bryan Williams, as its agent to sell the supplied clothes.

The pair claimed the administrator had failed to get the best price possible for the clothes and that BTC was liable for this failure because he was acting as its agent.

Shanton Fashions and BTC, according to the Court of Appeal, agreed in December 2012 for the Hong-Kong based firm to manufacture and supply garments to the New Zealand chain.

From September to November last year, BTC supplied clothes to the company and issued seven invoices, totalling US$596,470.

Shanton Fashions did not pay these on the due date, and paid a little over US$100,000 by December last year, the month before the company was put into voluntary administration.

In January this year, administrator Bryan Williams offered BTC $350,000 in full and finalsettlement of the company's debt but this was "promptly rejected".

BTC had a security interest over the clothing, which means it had the right to repossess it.
However, it did not exercise this right, given it was based in Hong Kong and the garments were labelled with Shanton's trade mark.

Much to-and-fro ensued between Williams and BTC about the stock, which by March of
this year was being sold at a heavily discounted price.

The Court of Appeal, in deciding on Pala and Luthera's challenge, said it was clear that at no stage did BTC take possession of the stock in question nor appoint the administrator to sell it as its agent.

"To the extent that the administrator did not account for the full amount to which BTC was entitled, that was a failure that benefited Shanton and for which it is liable," Justices Rhys Harrison, Robert Dobson and Murray Gilbert said this week.

"When the administration terminated, Messrs Pala and Luthera, as directors of Shanton, were responsible for ensuring that Shanton met its obligations to account for these monies. The fact that Shanton has not done so is not something that Messrs Pala and Luthera can rely on in answer to BTC's claim against them under the guarantee. Further, because the administrator was not BTC's agent in selling the stock, Messrs Pala and Luthera are not able to argue that BTC failed to obtain the best price reasonably obtainable for it," the three judges said.

They did, however, say Pala and Luthera had an arguable defence to US$72,816 of the claim and shaved that off the original US$467,699 judgment made in the High Court.

Given their appeal was "substantially unsuccessful", the two directors were ordered to pay 75 per cent of BTC's court costs.