Commercial Factors Ltd v Meltzer - [2018] NZCA 505

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IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA66/2018
[2018] NZCA 505

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

Hearing:	26 September 2018
Court:	Miller, Clifford and Williams JJ
Counsel:	P J Dale and E Telle for Appellant A C Challis and D P Turnbull for Respondents
Judgment:	16 November 2018 at 2.30 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

The appellant, Commercial Factors Ltd, agreed to fund the respondents, Messrs Meltzer, Hayward and Heath as the liquidators of Blue Chip New Zealand Ltd,[1] to obtain a legal opinion as to the merits of commencing proceedings against Blue Chip’s directors and auditors. Pursuant to the funding agreement between Commercial Factors, Blue Chip and the Liquidators recording those arrangements (the Agreement), Commercial Factors provided the agreed funding of $60,000 (excluding GST) and the Liquidators obtained the legal opinion.
[1]Messrs Meltzer and Heath were at all material times partners in Meltzer, Mason, Heath. Mr Hayward was a consultant.
Proceedings were subsequently commenced by the Liquidators, but without litigation funding support. The proceedings were unsuccessful and were discontinued. The costs involved were ultimately funded by unexpected recoveries in Blue Chip’s liquidation from unrelated litigation and from funds of the partners of Meltzer, Mason, Heath (including two of the Liquidators) paid into the Meltzer, Mason, Heath practice account.
Commercial Factors then sued the Liquidators for monies it said were owing to it under the Agreement. In the High Court, Hinton J dismissed the claim.[2] Commercial Factors now appeals.
[2]Commercial Factors Ltd v Meltzer [2017] NZHC 3267.
Two issues arise: the first is whether, under the terms of the Agreement, the contractual circumstances which would entitle Commercial Factors to payment have arisen. If they have, the second is whether the Liquidators are themselves liable for that payment and, if they are, whether they can avoid that liability by showing they did not fail to act in good faith.

Background

Initial steps

Blue Chip was put into liquidation by its Australian parent in 2008. It joined some 20 other related companies that had also been put into voluntary liquidation by their Australian owner. There were some 3,000 investors and creditors in New Zealand who together had lost sums in excess of $80 million. Many of the investors lost a significant proportion of their lifetime savings in Blue Chip’s collapse.
Few, if any, funds were available to the Liquidators to investigate possible avenues for recovery of creditors’ funds. Third party funding would be required.
With funding provided from the Liquidation Surplus Account, the Liquidators investigated possible claims under the Securities Act 1978. Those inquiries came to nothing.
The Liquidators also considered the other option: suing the…

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: [2018] NZCA 505
Decision Date: 16 November 2018 at 2.30 pm

CaseChat Overview and Summary

Commercial Factors Ltd sued the liquidators of Blue Chip New Zealand Ltd, Messrs Meltzer, Hayward and Heath, for monies it said were owing to it under a funding agreement. The liquidators had obtained a legal opinion as to the merits of commencing proceedings against Blue Chip’s directors and auditors, but the proceedings were unsuccessful and discontinued. Commercial Factors argued that the liquidators breached the funding agreement by funding the proceedings themselves. The liquidators denied the breach and argued that the agreement did not provide for repayment of the funding if they funded the proceedings themselves. The Court of Appeal dismissed the appeal, holding that the liquidators did not breach the funding agreement. The Court of Appeal found that the liquidators acted reasonably and in good faith, and that the funding agreement did not provide for repayment of the funding if the liquidators funded the proceedings themselves. The liquidators were not personally liable for the breach of the funding agreement, as they acted as agents of Blue Chip and were protected by a clause in the agreement that limited their liability unless they failed to act in good faith.

Orders