Commercial Factors Ltd v Meltzer - [2017] NZHC 3267

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-001398 [2017] NZHC 3267

BETWEEN
COMMERCIAL FACTORS LIMITED

Plaintiff

AND

JEFFREY PHILLIP MELTZER, LLOYD JAMES HAYWARD AND AARON LESLIE HEATH Defendants

Hearing: 24-26 July 2017

Appearances:

E Telle for the Plaintiff
A C Challis and D Turnbull for the Defendants

Judgment:

20 December 2017

JUDGMENT OF HINTON J

This judgment was delivered by me on 20 December 2017 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Solicitors:

COMMERCIAL FACTORS LIMITED v MELTZER & ORS [2017] NZHC 3267 [20 December 2017]

Neilson Lawyers, Auckland
McElroys, Auckland

[1] This case is about interpretation of a funding agreement and whether the liquidators of Blue Chip New Zealand Ltd (Blue Chip NZ) failed to act in good faith in connection with it.

[2] Mr Meltzer and Mr Heath were partners, and Mr Hayward was a consultant in the accountancy firm of Meltzer Mason Heath (MMH), now Meltzer Mason. They were the liquidators of Blue Chip NZ and about 22 other Blue Chip companies.

[3] Commercial Factors Ltd (CFL) carries on business in debt factoring and finance, including providing funds for litigation. Its principal is Mr Haydon.

[4] Under a funding agreement dated 24 August 2009, CFL paid Blue Chip NZ

$60,000 plus GST, for the liquidators to obtain a legal opinion as to potential proceedings against Blue Chip NZ’s directors and auditors (the reckless trading proceeding). CFL sues to recover that payment, plus interest at 24 per cent per annum. The liquidators say that under the agreement, the terms for repayment have not been triggered and, if repayment has been triggered, the liquidators are not personally liable because they acted in good faith.

Facts

[5] Blue Chip NZ went into voluntary liquidation in early 2008. It was a difficult and complex liquidation.

[6] The liquidators were interested in taking proceedings against the directors and auditors of Blue Chip NZ. A Queen’s Counsel agreed to provide an opinion for a cost of $50,000. The liquidators were short of funds and approached CFL for funding for the opinion.

[7] CFL agreed to provide funding of $50,000, which then changed to $60,000 (plus GST).

[8] On 18 May 2009, Mr Haydon of CFL wrote to Mr Meltzer, setting out basic terms, as follows:

1) The advance to incur a fee of $15,000.00 as suggested by you and/or
24.00%pa until repaid, whichever is the highest in dollar terms.
2) The advance and interest to be treat [sic] as though it is a preferential creditors [sic] to the Liquidation regardless where receipts come from.
3) In consideration for funding the explanatory opinions that we share 2.5% of any recovery that is received from a claim against the Directors and/or Auditors.
4) That in considerate [sic] for funding this request CFL and/or its nominee be given the first right of refusal to any additional legal funding
requirement for claims against the Directors and/or Auditors.
5)…

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.

Keep reading for free

Create a free CaseChat account to read Commercial Factors Ltd v Meltzer and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2017] NZHC 3267
Decision Date: 20 December 2017

CaseChat Overview and Summary

Commercial Factors Limited (CFL) filed a claim against the liquidators of Blue Chip New Zealand Limited (Blue Chip NZ) and related companies, Mr Meltzer, Mr Hayward and Mr Heath, for recovery of a payment made under a funding agreement. The funding agreement provided that CFL would receive repayment of an advance of $60,000, plus interest, if Blue Chip NZ was able to obtain funding for a proceeding against the directors and auditors of Blue Chip NZ. If Blue Chip NZ did not obtain funding for the proceeding, it would repay CFL from any other funds it received. The liquidators issued the proceeding without obtaining funds from an independent source, instead using funds from the practice account of their firm. CFL argues that Blue Chip NZ breached the agreement by failing to repay it from the funds it received. The court disagreed with CFL's interpretation of the agreement and found that Blue Chip NZ did not breach the agreement. The liquidators were not personally liable because they acted in good faith. The court found that the liquidators did not act dishonestly or unreasonably and they did not fail to act in good faith. The liquidators were entitled to rely on the opinion of a Queen's Counsel that there were grounds for the proceeding and a reasonable prospect of success. The liquidators also took steps to obtain alternative funding and kept creditors informed of their progress. The court held that the liquidators did not act in bad faith by failing to repay CFL, because they honestly and reasonably considered that the terms of the agreement did not require them to do so. The liquidators were entitled to the protection of the exclusion of personal liability clause in the agreement. The court dismissed CFL's claim and ordered the defendants to file a memorandum as to costs.

Orders