Galvanising (HB) Limited v Fisk - [2015] NZCA 529

IN THE COURT OF APPEAL OF NEW ZEALAND

CA69/2014
[2015] NZCA 529

BETWEEN

GALVANISING (HB) LIMITED
First Appellant

STUART DAVID EASTON AND ROBERT ELVIDGE AS TRUSTEES OF THE EASTON PROPERTY TRUST
Second Appellants

HOOKED ON TRANSPORT LIMITED
Third Appellant

STUART DAVID EASTON AND VIVIENNE JANE EASTON
Fourth Appellants

AND

JOHN HOWARD ROSS FISK AND TONY WAYNE PATTISON AS LIQUIDATORS OF EAST QUIP LIMITED (IN LIQUIDATION)
Respondents

Hearing:	17 June 2015
Court:	Cooper, Venning and Williams JJ
Counsel:	C R Carruthers QC and G J Harley for Appellants D Chan for Respondents
Judgment:	11 November 2015 at 11 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe respondents are entitled to costs calculated for a standard appeal on a band A basis, together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Cooper J)

Introduction

The respondents, as the liquidators of East Quip Ltd (EQL), applied to the High Court for orders:
(a)under s 294 of the Companies Act 1993 (the Act), setting aside specified transactions between EQL and the appellants as voidable (the transactions);
(b)under s 295 of the Act, requiring the appellants to pay EQL specified amounts in respect of the transactions, together with interest on those amounts from 10 July 2009 at the rates prescribed under s 87 of the Judicature Act 1908; and
(c)requiring the appellants to pay the respondents’ costs.
The application was made on the basis that the transactions were entered into at a time when EQL was unable to pay its debts, and within the specified period in s 292(5) of the Act, namely two years before the application to put EQL into liquidation was made on 5 May 2009. The respondents claimed further that:
(a)those transactions entered into after 5 November 2008 were entered into within the restricted period described in s 292(6) of the Act, being the period six months before the application to put the company into liquidation; and
(b)the transactions occurring before 1 November 2007 did not take place in the ordinary course of business.
The respondents claimed the transactions enabled the appellants to receive more towards satisfaction of debts than they would receive or be likely to receive in EQL’s liquidation.
The High Court granted the application.[1] The appellants now contend that in doing so, Associate Judge Osborne made various factual errors, and consequently misunderstood the relationship between the parties. This in turn led him to misapply s 292(4B) of the Act , which provides:
[1]Fisk v Galvanising (HB) Ltd [2013] NZHC 3543 [High Court judgment].
(4B) Where—
(a)a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including a relationship to which other persons are parties); and
(b)in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then—
(c)subsection (1)…

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: [2015] NZCA 529
Decision Date: 11 November 2015 at 11 am

CaseChat Overview and Summary

In this case, the Court of Appeal of New Zealand considered an appeal brought by various parties, including Galvanising (HB) Limited and others, against the liquidators of East Quip Limited. The liquidators had applied to the High Court for orders under the Companies Act 1993 to set aside certain transactions between East Quip Limited and the appellants as voidable, and to require the appellants to pay specified amounts in respect of those transactions, together with interest. The appellants argued that the transactions were part of a continuing business relationship and should be treated as a single transaction under s 292(4B) of the Act. The High Court had dismissed the appeal, and the Court of Appeal now considered the appeal on its merits.

The Court of Appeal found that the appellants' argument focused on the proper application of s 292(4B) of the Act, which provided for the treatment of a series of transactions as a single transaction if they were an integral part of a continuing business relationship. The Court considered that the statutory provisions were to be applied on the basis that the "company" was East Quip Limited and the "creditor" was whichever of the appellants was involved in that capacity in the impugned transactions with East Quip Limited. The Court found that the appellants' argument that the transactions between East Quip Limited and the creditor were an integral part of a continuing business relationship that included the Eastons as the bankers and source of funds for the transactions was incorrect. The Court held that only steps "by the company" fell within the definition of "transaction" in s 292(3), and the provision of funding to East Quip Limited to enable it to meet its debt to the creditor could not properly be described as a step "by the company." The Court also found that the transactions would remain separate, just as would be the case if the banker were not the Eastons but, rather, a trading bank.

The Court of Appeal further found that the appellants had failed to establish that the payments made by East Quip Limited to the creditor were more than simply to discharge a debt owing to the creditor, but had the wider purpose of maintaining an ongoing business relationship in which it was anticipated that the creditor would provide further goods or services on credit. The Court held that the Judge's findings on the evidence were open to him and there was no basis for going behind them.

The appeal was dismissed, and the respondents were entitled to costs calculated for a standard appeal on a band A basis, together with usual disbursements.

Orders