BWIP Limited v Singleton
[2012] NZHC 3174
•27 November 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-002020 [2012] NZHC 3174
BETWEEN BWIP LIMITED Applicant
ANDDIANE CLARE SINGLETON AND JAMES MICHAEL KIRKLAND AS TRUSTEES OF ATM FINANCE TRUST Respondents
Hearing: 10 July 2012
Counsel: A W Johnson for applicant
A D Marsh for respondents
Judgment: 27 November 2012
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 27 November 2012 at 12.30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Martelli McKegg Wells & Cormack, PO Box 5745, Wellesley Street, Auckland
Saunders Robinson Brown, PO Box 166, Rangiora
BWIP LIMITED V SINGLETON & ANOR HC AK CIV 2012-404-002020 [27 November 2012]
[1] BWIP Limited (BWIP) has applied to set aside a statutory demand made on it by the respondents for the sum of $1,404,630.35. The demand arises out of transactions between family members. It has given rise to questions as to the nature and source of the payments.
[2] The respondents are the trustees of the ATM Finance Trust (the trust). They say that the sum demanded comprises two loans made to BWIP (one in November
2004 and the other in May 2007), together with agreed interest payable on the 2007 loan and interest chargeable under the Judicature Act 1908 from the date that the
2007 loan became due.
[3] BWIP says that there is a genuine and substantial dispute as to whether the debt is due or owing. It contends that the transactions were an investment made by the brother of BWIP’s director (Lester Singleton) rather than a loan by the trust.
[4] The terms of the payments were not documented. BWIP says that their nature, and the true payer, cannot be determined summarily.
[5] The trustees advance two reasons for saying that there is no valid basis for setting aside the demand. First, they say that the application is a nullity because it was filed by BWIP’s director (Lindsay Singleton) rather than its legal representative. Secondly, they say that BWIP has failed to establish any evidential basis for its allegation that there is a substantial dispute on either the ground that the payments were not made by the trust (they contend that Lester Singleton was an undisclosed principal for the trust) or that the payments were not loans.
[6] They say that the transactions were not documented as they were essentially family arrangements, and that BWIP’s contentions are not credible when considered in relation to correspondence at the time of, or subsequent to, the advances.
[7] The nature of the transaction has, it seems, gained significance since the 2008 financial crisis depreciated the value of wines acquired by BWIP, ultimately preventing the establishment of an investment fund into which BWIP intended to sell the wines at a profit, and forcing BWIP to sell its wines in order to repay a
substantial debt owed to another creditor. If BWIP faces liquidation in the future, the trust may be able to recover a larger portion of the payments as an unsecured creditor than as an investor.
The parties
[8] The two persons at the centre of the transactions are brothers, Lindsay Singleton and Lester Singleton (for clarity, I will refer to them by their first names). Lindsay and Lester, together with two other brothers, Wayne Singleton and Ian Singleton, established a property development company, WAGIL Limited, in 2001 that developed a substantial apartment/hotel complex in Queenstown. It was a long- term project due for completion in late 2008. Both Lindsay and Lester had invested significant sums into the development: Lindsay’s investment was secured, in part, against the property in which his family resided; Lester’s investment came from the proceeds of sale of a software company.
[9] BWIP was incorporated in 2004 with Lindsay as the sole director and indirectly (through another company) the sole shareholder. It was incorporated to acquire fine wines from Bordeaux en primeur both for its own investment and on behalf of people participating in a “Bordeaux Members Plan”. BWIP’s intention in respect of its own investments was to purchase the en primeur wine with a view to transferring it into a fine wine investment fund to be established in Europe. The object was for BWIP to transfer wines at their market value at the time of establishing that fund (to be calculated by reference to the London International Vintners Exchange or LIV-EX) and to retain the difference between BWIP’s purchase price and the market value at transfer as its profit on the transaction.
[10] There is no evidence before the Court as to when the trust was established, nor as to its beneficiaries. However, Lester says that he was a trustee during the period when the contentious payments were made to BWIP. Lester is no longer a trustee (although, again, there is no evidence as to when that occurred). One of the respondent trustees, Dianne Singleton, is Lester’s wife. The other, James Michael Kirkland, is a professional trustee.
Background to the transactions
(a) The 2004 payment
[11] In 2004 Lindsay spoke to Lester about his plan to purchase wines for investment, with a view to creating an investment fund and transferring wines into it. He says that he invited Lester to advance $300,000 to him personally to fund his (Lindsay’s) personal contribution to the venture, and a further $300,000 to BWIP (the investment vehicle). This money was to be used by BWIP to invest in en primeur wine.
[12] There is no dispute over the fact that these amounts were transferred to Lindsay and BWIP on 9 November 2004 from a bank account in the joint names of Lester and his wife, nor that the basis for the payments was never formally documented. The brothers differ, however, as to what the payments represented:
(a) Lindsay says that he understood the payments were coming from Lester personally, and comprised a personal loan to himself and an investment in BWIP for which Lester acquired a 50% partnership interest. Lindsay also says that their understanding was that the money lent to him personally was to be repaid from profits from the Queenstown development because Lindsay had no other funds from which to repay. Lindsay contends that neither security for nor interest on the money was ever discussed. He says that he kept Lester informed about BWIP’s business.
(b) Lester says that both of these payments were loans made by the trust.
He accepts that payment was made from his and his wife’s joint account, but contends that it was always intended that the trust was to provide the money, and says that this is evidenced by the trust having recorded a loan advance of this amount to BWIP and a liability of the same amount to himself and his wife in its financial statements for the period to 31 March 2005. He says that it was agreed that “they” (which suggests he was refering to himself and his wife, but he does
not make it clear in what capacity) would receive 50% of the profits when the wine purchased with this money was sold. He contends that his view of the transactions (that is, loans) is supported by his lack of involvement in BWIP’s business – he says that if the payment to BWIP was an investment for a 50% interest, he would have been involved as a partner or director (as he had been with his investment in the Queenstown development), whereas he was not involved in running BWIP’s business and was not provided with financial information about it.
(b) The 2007 payment
[13] The investment wines purchased by BWIP in 2004 increased in value by some 30% over the following two years. The 2005 vintage in Bordeaux was reported to be a particularly good one. It appears that BWIP entered into an agreement to purchase wines from that vintage to a value of $1.8 million. It had difficulty obtaining finance for the purchase. Lindsay wrote to Lester asking him to provide an $890,000 shortfall. He attached documents showing the current market value of the wines (and hence the profit already available from them). He stated:
You backed me initially. The return for you will be 50% of the wine....
If you can see a way to contribute the $890,000 shortfall then we need to finalise the partnership agreement and trust deed (I have drafts ready), recognise the input and run this investment solely for you and I.
[14] Lester declined this initial proposal. Lindsay made a second written proposal on 29 May 2007, the terms of which were outlined as follows:
A short term loan of $920,000 for a maximum of 9 months.
Interest will be paid in one lump sum at 24% or $165,000. This equates to
33.33% of the amount that would be lost if the funds aren’t forthcoming.
The loan and interest will be repaid from proceeds of sales through Liv-ex or from the fund as funds come to hand. The first funds available will be used to clear the loan, on a 3 monthly basis.
[15] In an email sent by Lindsay to Lester the following day, Lindsay referred to a discussion of the proposal the night before and assured Lester that “debt end interest would be cleared inside 9 months”. He said that Lindsay would draw up an agreement in which he would personally guarantee the loan. That document was never prepared. Lindsay repeated this in an email sent to Lester on 5 June 2007 where he said:
I will put together a doc covering the terms of the relationship and commitment to repayment and interest arrangements.
[16] Following this email, still on 30 May 2007, the sum of $890,038.70 was lodged to the credit of BWIP’s account. The payment was again made from a personal account of Lester and his wife, with the trust appearing to record that sum as a loan advance to BWIP in its financial statement as at 31 March 2008. Lester states in his affidavit in support of the trustees’ opposition that the financial statement also recorded the sum as a liability owing to him. The copy of that statement produced in evidence shows the existence of loans to both Lester and his wife, but the figures have been redacted so it cannot be said whether the statement supports Lester’s statement or not.
[17] Lindsay says that this correspondence does not represent the arrangement that the brothers ultimately agreed upon. He contends that discussions continued after the funds were transferred, which discussions resulted in an agreement whereby the money was applied to a share of the wines (rather than being a loan), giving Lester a half share of the profits when the wines were transferred into the investment fund. He contends that they came to this position as a result of him convincing Lester to invest in the enterprise in light of the high profits that were forecast.
[18] BWIP completed the purchase of the 2005 vintage wines with a loan obtained from a third party lender secured over Lindsay’s family home and a general security agreement over BWIP’s assets including the investment wines. BWIP later defaulted on this loan, leading to the investment wines being sold to repay this debt as well as holding costs.
Subsequent correspondence
[19] The nature of the payments came up again in email correspondence in 2008 and 2009:
(a) 2008
[20] On 19 April 2008 Lindsay emailed Lester attaching a summary of the value
of “your BWIP wines” and referring to profits. No mention of a loan was made.
[21] On 26 April 2008 Lindsay wrote in an email to Lester:
Re your investment in the wine to date, the following considerations arise:
*We need to establish the value of the wine assets used to seed the fund. These are the wines we hold between you and I. They need to be valued by Liv-ex... The sooner we do that the sooner the funds can be distributed to you....
*By the time I return from [a trip to the UK] I expect to have the necessary timelines determined and dates for your funds to be repaid.
[22] Lester’s response two days later indicated that he was aware that he would be getting a return on the money once the wine had been transferred into the investment fund, that he had some interest in an on-going involvement but could not commit at that point and ended:
...I am relying on receiving repayment of the monies advanced as per our agreement as soon as can be achieved.
[23] On 10 June 2008 Lester sent an email to Lindsay saying:
I also need to talk to [you] soon about commitment re repayment of BWIP
$$.
[24] Lindsay replied to that email on 13 June 2008 saying:
...the very first investors into the fund will create the funds to acquire the stock we have available. That is the source of your funds....I am intending to clear both your debt and mine (after yours) by 1st September.
I will be retaining some GBP333k of investment in the fund, which is the amount of stock remaining after you are paid and my lender is paid....
Then once the first funds come into [the investment fund] the wine will be paid for and you first.
[25] Lindsay has produced a note which he says he received from Lester after the
2007 transaction (which appears to have been written in 2008 as it refers to valuation information provided “last year” including information on the 2005 vintage purchased in 2007). That note included the following:
Re BWIP loans.
Lindsay I know this is not the most significant priority right now, but I want to understand your thinking on this as we never documented it, therefore a lot of detail is unclear:
Myunderstanding is that of the original $600,000, 50% is a loan to you [and] 50% [is] a profit share.
With regard to the last loan, you proposed a share of profit which [you] had forecast, are [you] assuming that the return to me will be a proportion of the profit or a 33% return, or some other amount?
What currency are these denominated in, NZD or Euro’s?
What is the latest valuation of this[?]
Ihave never reconciled any of this, are the amounts listed below the stock we are talking about?
I understand that this stock is all going into the hedge fund.
Can [you] give me an estimate based on current valuation, of what I
can expect to receive please.
What is your expectation re timing for this to be in place – is it possible by mid October?
Loan schedule
Principal
NZD Balance
9-Nov-04 Loan to LNS 300,000.00 300,000.00
Loan to BWIP 300,000.00 600,000.00
30-May-07 Loan to BWIP 890,038.70 1,490,038.70
(b) 2009
[26] The next significant correspondence between Lindsay and Lester took place in November 2009. By this time the international economy had deteriorated badly, the asset value of BWIP’s wine was reducing and the plan to sell into investment funds had not eventuated.
[27] First there was an exchange of correspondence on 14 and 15 November 2009:
(a) On 14 November 2009 Lindsay wrote to Lester by email, regarding both the Queenstown development and a statement made to him (Lindsay) by a third party suggesting a concern on Lester’s part that his was the only money to have gone into BWIP, and that Lindsay was taking money out before him. Lindsay told Lester of the money that he had borrowed to match the payment that had come from Lester, and assured Lester that:
No money is coming out of the project before you get paid.
(b) Lester responded to Lindsay’s email on 15 November 2009:
OK thanks very much for this.
I think this is a good example of just not having any written information and accordingly no clarity about this.
Lindsay just to make this clear, our understanding is that the $$ that have been loaned to BWIP + the share of gains that were part of our deal; are secured by wine owned by BWIP.
I know [you] are doing all [you] can & I am not trying to be difficult but our confidence has been shattered & we have to have this to our
satisfaction before Telpen is executed.
Michael & Diane are trustees on ATM, the lender to BWIP & they have control over this matter, not me. Hope fully [sic] the information you are preparing will achieve this.
[28] The last item of correspondence which is said to bear on the nature of the payments is an email from Lester to Lindsay on 4 December 2009 in which Lester states:
ATM advanced the monies to BWIP on the basis that it has wine to at least the value of the outstanding loans as security for the monies owed to it.
[29] The issues for determination on this application are:
(a) Whether BWIP’s application is a nullity because it was filed by
Lindsay rather than a legal representative for BWIP;
(b)Whether BWIP has established a genuine and substantial dispute as to whether or not the debt is owing, either in relation to the identity of the parties to the transactions, or as to the nature of the transaction.
Principles for setting aside
[30] There was no dispute between the parties as to the legal principles that the Court applies on an application to set aside a statutory demand. The Court has a discretion under s 290(4) of the Companies Act 1993 to set aside a demand if satisfied that there is a substantial dispute whether or not the debt is owing or due. The principles that the Court applies in deciding whether to exercise that discretion are well established. For the purpose of the present application they are to be found
in the following summary:[1]
[1] North Harbour Equine Hospital Ltd v Little HC Auckland CIV 2006-404-7585, 19 February 2007 at
[17].
(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b) The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances.
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[31] It has also been said that when assessing whether or not there is an irresolvable conflict on material evidence, it is appropriate for the Court to assess
whether conflicting assertions pass a “threshold of credibility”.[2]
[2] Freemont Design & Construction Ltd v W Stevenson & Sons Ltd HC Auckland CIV-2005-404-4807, 20 April 2006 at [8].
[32] Counsel for the trustees submitted that the application to set aside should be dismissed as a nullity because it was filed by Lindsay as a director of BWIP, rather than by a legal representative. He relied on the decision of the Court of Appeal in Re G J Mannix Ltd:[3]
[3] Re G J Mannix Ltd [1984] 1 NZLR 309 (CA) at 310–311.
It is well settled in this country, and in England, Australia and Ireland, that a company has no right to be represented in the conduct of a case in court except by a barrister; or by a solicitor in courts or proceedings where solicitors have the right of audience... apart from statutory exceptions, no one has a right to present a case in any court unless in person or by a qualified lawyer.
There is a cognate rule that, apart from statutory exceptions, a corporation has no right to bring or carry on proceedings in a Court except by a solicitor. This refers to the filing of documents - writs, statements of defence, notices of appeal, etc. It is this rule which is now contained in England in RSC Ord
5, r 6(2). There is no express New Zealand equivalent in the Code of Civil
Procedure in the High Court, but the general understanding is that the
English rule embodies the former practice and that the New Zealand practice is the same. Arguably there might perhaps be more ground for relaxing this practice at the present day; but the present case does not involve that question and no opinion on it is called for. What this case is concerned with is the conduct of the case at hearings in Court or Chambers.
[33] Counsel also relied on the decision of this Court in YPG IP Ltd v Yellowbook.com.au Pty Ltd.[4] Although that decision concerned an application for leave for an officer of a defendant company to represent it (which application was declined), it is germane to the present application because the Court specifically directed the Registry to reject any further documents lodged for filing on behalf of the defendant unless they were filed by solicitors.
[4] YPG IP Ltd v Yellowbook.com.au Pty Ltd HC Auckland CIV-2007-404-2839, 29 June 2007.
[34] In his oral submissions, counsel for the trustees accepted that the Court has a discretion in the matter.
[35] This point was raised in the trustees’ notice of opposition. At the start of the
hearing counsel for BWIP sought leave to file a further reply affidavit from Lindsay, attesting to a legal background, both in legal practice and as an in-house corporate
solicitor. He states that he was concerned to have the application filed within the statutory time limits, and that he checked with Court staff about the filing and serving process and no mention was made of the need to have a practising solicitor file the application. I granted leave to BWIP to file the affidavit, accepting that the point may have been inadvertently overlooked given that it was not addressed in the affidavit in support of the opposition.
[36] The matter is not expressly covered by the High Court Rules, but this Court reviewed the rules (then in existence) in Time Ticket International Ltd v Broughton[5] and concluded that the clear intent of the rules was that a civil proceeding must either be issued by a solicitor or a litigant in person. The Court went further and said that the solicitor had to be the holder of a practising certificate (the issue in that case was that the proceeding had been issued by a director who had been admitted as a
barrister and solicitor of the High Court, but who held only a practising certificate as a barrister). The significance of that decision for the present case lies in the finding that the proceeding was irregular rather than a nullity.[6] The Court declined to strike out the proceeding on the basis that it was a nullity, and instead stayed it until it had been regularised by a solicitor entering upon the record for the plaintiff company. In doing so the Court noted the inherent power to regularise proceedings, as stated in the following passage from G J Mannix:[7]
But I consider the superior Courts have a residual discretion in this matter arising from the inherent power to regulate their own proceedings. Cases will arise where the due administration of justice may require some relaxation of the general rule. Their occurrence is likely to be rare, their circumstances exceptional or at least unusual, and their content modest. Such cases can confidently be left to the good sense of the Judges.
[5] Time Ticket International Ltd v Broughton [1996] 2 NZLR 176 (HC).
[6] Following the decision of the Full Supreme Court of Victoria in Hubbard Association of
Scientologists International v Anderson and Just (No.2) [1972] VR 577 (VSC).
[7] Re G J Mannix Ltd, above n 3, at 316-317; followed in Ecosse Afrique Enterprises Ltd v DB Breweries Ltd HC Wellington CIV 2008-485-1761, 18 May 2010 at [22].
[37] It is clear that Lindsay does not hold a current practising certificate as a solicitor, and hence the issue of the proceeding was irregular. I take into account his evidence that he was concerned about the time limit for bringing the application, that he has legal training (including time as a practising solicitor), and that he had engaged solicitors to act for BWIP (his counsel’s firm) before the application first
came before the Court. Those solicitors have since gone on the record by filing
documents on BWIP’s behalf. In the circumstances, I regard the irregularity as
having been cured.
Is there an arguable dispute as to the parties to the transactions?
(a) The arguments
[38] The trustees contend that there can be no issue over the identity of the party making the payments, relying on the doctrine of the undisclosed principal and on the authority of the Privy Council in Siu Yin Kwan v Eastern Insurance Co Ltd:[8]
[8] Siu Yin Kuang v Eastern Insurance Co Ltd [1994] 1 All ER 213 (PC) at 220-221.
For present purposes the law can be summarised shortly as follows. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal's behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal's right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
...
The present-case is concerned with the fifth of the features noted above. The law in that connection was stated by Diplock LJ in Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 All ER 886 at 890, [1968] 2 QB 545 at
555, as follows:
‘Where an agent has ... actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.’
[39] The trustees say that Lester clearly had authority to act for the trust as he was a trustee at the time and, even if there was any question as to his authority, the
trustees have since ratified his actions. Additionally they say there is no evidence
that BWIP was unwilling to enter into the arrangements with the trust, nor of other circumstances from which Lester could have appreciated that.
[40] BWIP raises several points in answer to this argument. First, it says that as the trustees have raised the point, it is for them to put forward evidence that Lester was acting with actual authority, yet they have not produced the deed of trust to allow the Court to determine how the trustees were required to make decisions or any documents to show that Lester was a trustee at the relevant time. BWIP contends that the transactions were personal, arising out of Lindsay and Lester’s relationship as brothers (and as a consequence of their financial involvement in the Queenstown development) and Lester’s awareness of Lindsay’s personal financial circumstances such that he knew Lindsay’s only ability to repay other than from the proceeds of the wine investment could be from proceeds of the Queenstown development.
(b) Discussion
[41] The critical underlying issues are whether Lester had authority to act for the trust and whether the trustees’ right to demand payment is impliedly excluded by the terms of the transaction.[9] Although BWIP has the onus of showing that there is an arguable dispute, I do not consider it sufficient for the trustees simply to assert that Lester was a trustee “at all relevant times” and had the authority of the trustees at the time of entering into the transaction. The demand was issued by the present trustees, yet the only evidence is that given by Lester. There is no evidence as to whether there were other trustees at the time nor as to the requirements of the trust deed as to
how the trustees were to make decisions. There is no evidence of any resolution by the trustees as to the payments, nor as to when the alleged extracts from the financial
statements of the trust, which are undated and unsigned, were prepared.
[9] The trustees’ argument that subsequent ratification overcomes any arguable dispute based on lack of authority at the time of transactions is unavailable as that doctrine only applies where the contracting party has expressly made a contract as agent for another - refer the decision of the English Court of Appeal in Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 (CA) at 277, followed in Stokes v Insight Legal Trustee Co Ltd [2012] NZHC 1822 at [58]. See also Peter Watts and F M B Reynolds (eds) Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell, London,
2010) at [2 – 060] and [2 – 065].
[42] It is also significant that the present trustees have not given evidence, suggesting that they both had no direct involvement in the payments that were made and hence cannot provide any useful evidence on this application.
[43] Lindsay says in his evidence that he did not learn of the alleged involvement of the trust until late 2009 (he identifies two emails in which Lester makes reference to it). There is no other evidence before the Court to suggest that Lindsay knew or ought to have known of the trust’s involvement. To the contrary, all of the emails suggest that it was Lester personally who was making the payments.
[44] In those circumstances, I find that there is an arguable case for a substantial dispute as to whether Lester entered into these transactions as an agent for the trust (as the undisclosed principal).
[45] In light of that finding, I do not need to consider the second point as to whether the circumstances of the transaction excluded an undisclosed principal. I will do so, however, for completeness. In my view the significant aspect of these transactions is that they were essentially a family arrangement, rather than an arms- length commercial contract where the identity of the lender may not have been significant. The highly personal and family nature of the arrangements is reflected in the lack of documentation and the informality of the arrangements, including their apparently open-ended nature. Although there is some suggestion in the correspondence leading up to the 2007 transaction that Lindsay needed the finance urgently, that in itself is insufficient evidence that he would have accepted the money from any other party. That may, on further investigation, be established as the position, but at the moment the evidence indicates that Lindsay went to Lester because he knew the general background and Lindsay’s personal financial background, and that he was looking to Lester personally. I find that this is another ground for saying that there is an argument available to Lindsay to counter the argument of the trustees being an undisclosed principal.
Is there an arguable case as to the nature of the transactions?
[46] I will deal with the transactions separately.
(a) The 2004 payment
[47] I have previously referred to the parties’ competing arguments as to the
nature of this payment:
(a) BWIP contends that it was an investment rather than a loan. It points to the undated note that Lester gave Lindsay, apparently in 2008, in which he refers to the total of $600,000 being advanced, half as “a loan to you” and the other half “a profit share”. BWIP says that this reference to “a profit share” is irreconcilable with a loan and raises a dispute which can only be determined at trial.
(b)The trustees refer to the later part of the note where there is a heading “Loan schedule” under which the 2004 and 2007 payments are listed, including the reference to “loan to BWIP” alongside the sum of
$300,000. In addition the trustees rely on email correspondence on 28
April 2008 in which Lester refers to material sent to him by Lindsay and previous discussions, and tells Lindsay that he is relying on receiving “repayment of the monies advanced as per our agreement as soon as can be achieved”. The trustees also rely on Lester’s evidence that he was not involved in running BWIP’s business, did not receive financial information about it, and did not travel on BWIP’s business (although Lindsay does say that Lester did travel to Bordeaux on one occasion).
[48] The only contemporaneous document in relation to the 2004 payment (at least in the evidence before the Court) is a written instruction given by Lester to his bank at the time of the payment to obtain the $600,000 (which is the sum subsequently advanced to Lindsay and to BWIP). In 2007 there is email correspondence between the brothers in relation to the purchase of the 2005 en primeur wines which refers to the 2004 transaction, but gives no explicit guidance as to its nature. Lester’s 2008 note appears to be the first direct reference. As noted in relation to counsel’s submissions, there are internal inconsistencies (although I accept that the reference to a profit share is not necessarily inconsistent with the
advance being a loan). Nevertheless, the inconsistencies cannot be resolved on this application and the documents do not give any definitive assistance in resolving the otherwise conflicting oral evidence.
[49] Although BWIP’s evidence cannot be described as compelling, I consider
that there is enough to cross the “threshold of credibility”.
(b) The 2007 payment
[50] BWIP again relies on Lester’s 2008 note to support its case for a substantial dispute as to the nature of the 2007 payment. It relies in particular on the phrasing of the introduction to the note and Lester’s query as to whether the return to him would be a proportion of profit or a 33% return (the interest in Lindsay’s 29 May 2007 proposition) or some other amount. BWIP contends that this indicates uncertainty on Lester’s part as to the terms and nature of the transaction. It relies on Lindsay’s evidence that the arrangement changed as a result of discussions between the brothers after the payment was made, and the ambiguity of relatively contemporaneous documents including:
(a) In an email sent on 19 April 2008 Lindsay referred to profits, without mention of a loan.
(b)In an email on 26 April 2008 (seeking to encourage Lester’s involvement in the proposed investment fund) Lindsay referred to “your investment in the wine to date”, to the need to establish the value of the wine assets used to seed the fund, and to the wines that the brothers hold.
(c) On 28 April 2008 Lester responded to Lindsay’s email, thanking Lindsay for the material, commenting that the proposal was interesting and held some appeal, but saying that he could not make a commitment in the foreseeable future. He did not challenge Lindsay over his comments about investment in the wine nor mention that the nine-month term of the alleged loan had expired; Lester merely made the comment (to which I have already referred) that he was looking
forward to receiving repayment of the monies advanced as soon as possible (this is consistent with Lindsay’s evidence that repayment was related to the establishment of the investment fund, and he was expecting that to be done within nine months).
(d) There is no correspondence after Lindsay’s email of 5 June 2007 until
Lester’s email of 15 November 2009 expressly alleging a loan.
[51] The trustees rely on the correspondence at the time that the payment was made: Lindsay’s initial proposal of 29 May 2007 (rejected by Lester) and Lindsay’s subsequent emails of 30 May 2007 and 5 June 2007. They also rely on the fact that BWIP did not respond to Lester’s undated 2008 note (to correct the reference to a “Loan schedule” and “loan to BWIP” alongside the May 2007 payment), or to Lester’s email of 15 November 2009 where he referred expressly to the payment as a loan. They argue that Lindsay’s assertions that the arrangement evidenced by his email of 30 May 2007 was altered by subsequent discussions is insufficient to found an argument for a substantial dispute.
[52] The trustees also rely on:
(a) references in the correspondence of April and June 2008 to “repayments” and “debts”, and say that a statement by Lindsay in an email on 13 June 2008 that once money comes into the investment fund, the wine will be paid for and “you [Lester] first” is inconsistent with this being an investment transaction;
(b)inconsistencies in Lindsay’s evidence between his first affidavit where he says that the 2007 transaction was put forward as an investment and his reply affidavit (sworn after sighting a copy of the written proposal put forward with the email of 29 May 2007) that the arrangement was initially a loan, but subsequently altered to an investment; and
(c) Lester’s evidence that he made some 25 loans to Lester and his entities from 2000 onwards which were never documented and that Lester has not challenged that they were loans.
[53] The correspondence from Lindsay between 29 May 2007 and 5 June 2007 makes it clear that at that time the proposal was for a loan. However, no explanation has been given for the fact that the payment made was $890,038.70, as distinct from the proposal on 29 May 2007 for a loan of $920,000. The real question, however, is whether there is sufficient evidence before the Court to get Lindsay’s oral evidence that the arrangement was varied after that date past the “threshold of credibility”. Some support for this assertion can be found in the following:
(a) The acknowledgement in Lester’s 2008 note that a lot of the detail of
their arrangements was unclear, and particularly the inquiry:
With regard to the last loan, you proposed a share of profit which [you] had forecast, are [you] assuming that the return to me will be a proportion of the profit or a 33% return, or some other amount?
Following that question, and before setting out his “Loan schedule”, Lester sets out several points which appear to relate back to his comment as to the lack of clarity about detail, and to his question as to his likely return (refer paragraph [25] above). Then, after listing the payments under the heading of “Loan schedule” Lester sets out valuation information provided by Lindsay “last year”, with one heading being “Cost To us”.
(b) Inconsistency between the April 2008 correspondence and the June
2008 correspondence. In the former there is repeated reference to profits and investment (consistent with the arrangement being purely an investment) and in the June 2008 correspondence there is reference to repayment and debt, but not in terms that would suggest any agreement reached after the April 2008 correspondence (for example, that the brothers had decided to treat this as an investment but subsequently there was a change of heart).
[54] The trustees challenged Lindsay’s credibility over his change of position as to the nature of the transaction at the time that the payment was made. Whilst that certainly raises questions about Lindsay’s recall and record keeping, I do not consider that it is a matter on which I should make a determination on this application. Lindsay’s oral evidence as to a change in arrangements has some support in Lester’s 2008 note, and I cannot dismiss the possibility that Lester became increasingly attracted to the profits that appeared to be available. Whether that developed to the point of an agreement to vary the arrangement as at 30 May 2007 cannot be determined on this application.
[55] Both parties sought to draw support for their positions from a failure of the other to respond to correspondence which included statements or language inconsistent with their view of the transaction. I have no doubt that this will be a subject for cross-examination of both Lindsay and Lester at trial, but it is not something that necessarily points to a finding one way or the other at this stage. I do not find it completely unsurprising in the context of the family arrangement.
[56] In conclusion, and although I regard this as possibly the weakest of the alleged disputes, I find that there is just enough support for Lindsay’s contention that the arrangements altered after the payment in 2007 to get it over the “threshold of credibility”.
Decision
[57] For the reasons I have given I find that BWIP has established that there is a substantial dispute as to the parties to the transaction and as to the nature of the transaction. The trustees’ statutory demand is set aside.
[58] Counsel were agreed that costs should follow the event. The trustees are to pay BWIP its costs in relation to this application on a 2B basis, together with
disbursements as fixed by the Registrar.
Associate Judge Abbott
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