Commercial Factors Limited v Meltzer - [2019] NZSC 17

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

SC 111/2018
[2019] NZSC 17

BETWEEN	COMMERCIAL FACTORS LIMITED Applicant
AND	JEFFREY PHILIP MELTZER, LLOYD JAMES HAYWARD AND ARRON LESLIE HEATH Respondents

Court:	William Young, Glazebrook and O’Regan JJ
Counsel:	P J Dale QC for Applicant A C Challis and D P Turnbull for Respondents
Judgment:	27 February 2019

JUDGMENT OF THE COURT

A The application for leave to appeal is dismissed.

B The applicant must pay to the respondents costs of $2,500.

____________________________________________________________________

REASONS

The applicant, Commercial Factors Ltd (CFL), seeks leave to appeal against a decision of the Court of Appeal[1] dismissing its appeal to that Court against a decision of the High Court.[2] The respondents were sued in their capacity as liquidators of Blue Chip New Zealand Ltd (Blue Chip).
[1]Commercial Factors Ltd v Meltzer [2018] NZCA 505 (Miller, Clifford and Williams JJ) [Commercial Factors (CA)].
[2]Commercial Factors Ltd v Meltzer [2017] NZHC 3267 (Hinton J) [Commercial Factors (HC)].
The background to the application is that CFL entered into an agreement with the liquidators under which CFL advanced $60,000 to enable the liquidators to obtain an opinion from a Queen’s Counsel as to the likelihood of success of an action against the directors and auditors of Blue Chip.
There are three provisions of the agreement that are in issue. These are:
(a)Clause 3.2.2, which says that if Blue Chip decides to commence proceedings and gets funding from “another party”, then it will procure the funder to repay CFL the amount CFL advanced plus interest.
(b)Clause 3.4, which provides that if proceedings are not commenced and Blue Chip receives amounts from other sources, it will apply those amounts in a particular order which gives preferential status to CFL.
(c)Clause 6.1, which limits the liability of the liquidators personally, providing that they would have no personal liability “except in circumstances where they fail to act in good faith”.
The opinion obtained by the liquidators using the CFL funding was positive, and so the liquidators tried to arrange funding but ultimately did not succeed. However, the firm in which the liquidators practised, Meltzer Mason Heath (MMH), provided money to fund the preparation of a statement of claim and the filing of proceedings.[3] In part, this was because the advice that had been received was that there could be limitation issues so the sooner proceedings were filed the better.
[3]Mr Meltzer and Mr Heath were partners in MMH and Mr Hayward was a consultant.
Ultimately, when no external funding was obtained the proceedings commenced by the liquidators against the directors and auditors were discontinued.
CFL claimed under cl 3.4 on the basis that proceedings had not been “commenced” and that therefore Blue Chip was obliged to pay to CFL from funds it had obtained from other sources. This required the Court to interpret the word “commenced” as meaning “commenced and continued until trial” or “commenced and continued for some time”. Both the High Court and…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZSC 17
Decision Date: 27 February 2019

CaseChat Overview and Summary

In the Supreme Court of New Zealand, Commercial Factors Limited, the applicant, sought leave to appeal against a decision of the Court of Appeal dismissing its appeal to that Court against a decision of the High Court. The respondents were sued in their capacity as liquidators of Blue Chip New Zealand Ltd. The applicant, Commercial Factors Limited (CFL), entered into an agreement with the liquidators under which it advanced $60,000 to enable the liquidators to obtain an opinion from a Queen’s Counsel about the likelihood of success of an action against the directors and auditors of Blue Chip. The agreement contained several clauses that were in issue, including Clause 3.2.2, Clause 3.4, and Clause 6.1. The liquidators had obtained a positive opinion, but ultimately did not succeed in arranging funding for the proceedings. The firm in which the liquidators practised, Meltzer Mason Heath (MMH), provided money to fund the preparation of a statement of claim and the filing of proceedings. Ultimately, the proceedings commenced by the liquidators against the directors and auditors were discontinued. CFL claimed under Clause 3.4 on the basis that proceedings had not been “commenced” and that therefore Blue Chip was obliged to pay to CFL from funds it had obtained from other sources. However, the Court of Appeal found that “commenced” meant “commenced” so Clause 3.4 was therefore inapplicable. CFL also argued under Clause 3.2.2, on the basis that funding had been provided for the proceedings by MMH, MMH was “another party”, and therefore Blue Chip had the obligation of requiring MMH to pay CFL the amount CFL had contributed. However, the Court of Appeal found that the MMH partners were, in effect, the liquidators, so there had not been any funding obtained from an external funder but rather the litigation had been funded by the liquidators themselves. If Clause 3.2.2 were interpreted in favour of CFL, the liquidators would be personally liable to pay CFL only if it was found that they failed to act in good faith. However, both the High Court and Court of Appeal found there had been no lack of good faith.

The legal issues the Court had to decide were whether the Court of Appeal’s interpretation of Clause 3.2.2 was wrong and whether this raised any matter of general or public importance or involved a matter of commercial significance. The Court found that this was a matter that was specific to the facts of the case and the wording of a particular contract. The Court did not consider that the criteria for the grant of leave were made out and dismissed the application. The Court awarded costs of $2,500 to the respondents.

Orders