Heyward Holdings Limited (in liquidation) v Booth

[2018] NZHC 1339

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-000003

[2018] NZHC 1339

BETWEEN

HEYWARD HOLDINGS LIMITED (In

Liquidation) Plaintiff

AND

MAITLAND COLIN BOOTH

Defendant

Hearing:

25 May 2018

Submissions: 22 June 2018

Appearances:

D M Lester for Plaintiff

D J Ballantyne for Defendant

Judgment:

3 July 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]                 Heyward Holdings Limited (Heyward) was placed into liquidation by order of the High Court at Dunedin on 5 May 2016. Heyward sues Mr Booth to recover from him the sum of $556,940, which is the sum shown as owing to Heyward by Mr Booth in its annual accounts to 31 March 2014, as an associated party loan account. At that time, Mr Booth was Heyward’s sole director.

[2]                 In the same set of annual accounts a company called Heyward Trustees Limited (HTL) is shown as owing $145,230 to Heyward. HTL was the sole shareholder in Heyward. It is a corporate trustee.

[3]                 In the 2015 annual accounts Mr Booth is not shown as owing anything to Heyward by way of an associated party loan, but HTL is shown as owing $755,490. In the general ledger for Heyward for the period 1 April 2014 to 31 March 2015, there

HEYWARD HOLDINGS LTD (In Liquidation) v BOOTH [2018] NZHC 1339 [3 July 2018]

is an entry on 31 March 2015, described as a journal entry, and noted as “assign AP advance to trust”. The sum to which this notation relates is $543,223.24. There is then a further notation on the same day “transfer to 500/001” and by this notation a credit of $543,223 is referred to. The effect of these entries is that the debt shown was recorded as assigned by Mr Booth to HTL and consequently transferred in the ledger to that entity.

[4]                 This accounts for the bulk of the difference between the sum shown as owing by Mr Booth as at 31 March 2014, $556,940, and zero shown as owing in the balance sheet as at 31 March 2015. It also accounts for the majority of the difference in the balances shown as owing to Heyward by HTL, as set out above.

[5]                 Heyward does not accept that the sum initially shown as owing by Mr Booth was at any point owing by any party other than him, and does not accept that an assignment of Mr Booth’s debt took place. It therefore applies for summary judgment on its claim.

[6]                 Mr Booth says that the associated party advances shown in the accounts as owing by him are not, and never have been, owing by him. He says there is a sum, as shown in the 2015 accounts, owing by HTL which had at all times been the recipient of the goods, services and cash for which debits are shown in Mr Booth’s name up to 31 March 2014.

Principles to be applied

[7]                 Rule 12.2 of the High Court Rules provides that the Court may give judgment against the defendant if a plaintiff satisfies the Court that the defendant has no defence to its claim. The onus of establishing this position is on the plaintiff. The Court must be left without any real doubt or uncertainty on this point.1

[8]                 As a general rule, the Court considering a summary judgment application will not attempt to resolve genuine conflicts of evidence or assess the credibility of statements made by the parties in their affidavits. However, it is also established that

1      Pemberton v Chappell [1987] 1 NZLR 1 (CA).

the Court is not prevented by this principle from rejecting spurious defences or plainly contrived factual conflicts on the evidence. The position is summarised this way in Attorney-General v Rakiura Holdings Ltd:2

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan,³ the Judge is not bound:

“to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.”

[9]                 It is established that the Court may take a robust approach to summary judgment applications.4 Affidavits must have an aura of credibility.5

The case for Mr Booth

[10]              Although the onus is on Heyward to prove that Mr Booth does not have a defence, it is convenient to summarise the case presented for Mr Booth first. This is because it is Mr Booth who contends that the 2014 accounts were validly altered, and it is necessary to set out why in order to understand Heyward’s case.

[11]              Mr Booth’s case is, in essence, straightforward. It is submitted that the Court cannot find that Mr Booth does not have a defence to this claim, and therefore cannot enter summary judgment.  The latest accounts before the Court  (2015) show that  Mr Booth does not owe anything to Heyward. Therefore judgment can only be entered if it is established to the requisite standard that the 2015 accounts are wrong and that the 2014 accounts are correct.

[12]              On this point, the evidence given by Mr Booth is brief. He says that after the accountant who initially acted for Heyward, Mr Ibbotson, was struck off for mismanaging the affairs of his clients, Mr Wearing of the same firm took over management of Heyward’s accounts. Although there is no evidence that Mr Ibbotson

2      Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.

3      Eng Mee Yong v Letchumanan [1980] AC 331 at 341 E.

4      Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [28].

5      Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).

specifically mismanaged the handling of Heyward’s affairs, Mr Booth implies this to be the case. He says that Mr Wearing and other directors at the firm were left:

‘picking up the pieces’, and for the first couple of years afterwards they were still trying to work out what work had been undertaken correctly, what work needed correction and what further and unknown losses the previous firm’s clients might have sustained as a result of Mr Ibbotson’s involvement.

[13]Mr Booth then continues:

Mr Wearing brought to my attention that HTL’s current account had been coded as “associated party advances” and put into my personal name. I immediately advised him that that was not correct, and that I had not been loaned, nor agreed to be loaned any funds from [Heyward]. These Associated Party Advances were recorded as totalling $556,940.00 …

Until then, I was not aware that these drawings had incorrectly been attributed to me as “associated party advances”. I had financially contributed significant sums to [Heyward] over the years in order to progress the project, provided several guarantees and arranged for various cross-guarantees through other companies which I have an interest in including Tremaine Holdings Limited.

In 2015, Mr Wearing advised me that the appropriate way to correct the accounts would be for the debt to be assigned. I understood this would simply involve a journey (sic) entry to correct the accounts. I therefore agreed to his recommendation and the debt was assigned to HTL with the consent of [Heyward] and on advice from its accountant. The 2015 accounts which are relied upon by [Heyward’s] liquidators correctly show that I am not indebted to [Heyward].⁶

[14]Later in his evidence Mr Booth summarises his position:

The debt was incorrectly attributed to me, and was later corrected to reflect the true position. The debt is, and has always been, owed by HTL.

[15]              Mr Booth has filed a statement of defence in this matter. His notice of opposition refers to this as grounds for opposing entry of summary judgment. In it he pleads that he instructed Mr Wearing “that there be a correcting journal entry” into HTL’s shareholder current account with the knowledge and consent of all parties, and he then says:

He denies that he ‘purported’ to assign his indebtedness, and say (sic) that the correction of the financial statements was absolute, and undertaken with the knowledge and consent of all parties.

6      Reference in this evidence to “the project” is to the sole activity of Heyward, a subdivision of a block of land. Further discussion of this may be found in Cargill Contracting Ltd v Heyward Holdings Ltd [2016] NZHC 351.

[16]He further says that:

He has never been indebted to [Heyward], that there was therefore no indebtedness to be assigned …

[17]              There is an evident inconsistency in Mr Booth’s evidence. As can be seen, he says “the debt was assigned to HTL”, but he also says the debt was incorrectly attributed to him. If the latter is correct, there was no debt to assign. I return later to the legal difficulty with the purported assignment of the debt.

[18]              Taking the approach that the accounts were ‘corrected’, Mr Ballantyne for  Mr Booth says that the journal entry in Heyward’s general ledger, which is dated    31 March 2015 and reads “Assign AP advance to trust”, is wrong. However, that is not how Mr Booth puts it, as may be seen from the quotation from his affidavit above. He says that he was advised that the debt should be assigned and he agreed to that recommendation, and the debt was in fact assigned.

[19]              Mr Ballantyne also says that although the 2014 accounts show a debt owing by Mr Booth, the accounts “are only financial statements” and do not themselves create the debt: it is the actual transactions which must be examined. Thus Mr Ballantyne summarises his client’s position by saying that the focus of the Court should be on the substance of the transaction, not the words used to describe it and it was in substance the correction of an error.

[20]              In relation to the entries in the ledger which relate to personal expenditure, such as car repairs, dentistry and so forth, Mr Ballantyne says that HTL is trustee of a family trust (the trust deed was not before the Court but he draws this inference from a letter in evidence which Mr Booth wrote to the Inland Revenue Department), and HTL as a shareholder in Heyward was entitled to take such drawings as it wished. When asked whether this submission could be accepted in the absence of the trust deed, showing whether or not Mr Booth was a beneficiary, or the accounts for HTL, Mr Ballantyne said that it was a “tactical decision” not to produce them, but this does not weigh against Mr Booth as he simply says that the accounts required a correction and that was what was done.

[21]              After the close of argument I invited counsel to file supplementary written submissions on:

(a)Whether it is legally possible for a debtor to assign a debt, and

(b)If so, the legal requirements for such an assignment.

[22]Both Mr Lester and Mr Ballantyne filed submissions accordingly.

[23]              In his submissions Mr Ballantyne explained the use of the word “assignment”, in relation to the debt. He says first that there was no need for an assignment as the debt which is the subject of the case was a liability incurred by HTL not Mr Booth, describing the use of the word assignment as “unfortunate” and submitting that the journal represents no more than Mr Booth’s accountant adopting what he describes as “the appropriate accounting practice” to ensure that Heyward’s financial statements correctly reflected the legal position of the parties. As a consequence he says that no assignment or novation was necessary.

[24]              In the alternative Mr Ballantyne submits that while an assignment of a debt is not possible at law, the correction of the financial statements amounted to a novation which was consented to by all parties.

[25]Mr Booth cited this passage from Buchanan v Sirocco Area Leases Ltd:7

“Novation” describes the creation of a new contract following an agreement by two contracting parties that a consenting third party shall fully take over the contracting obligations of one of the two original contracting parties … At the concept’s heart is the consent of all three parties to contractual liability shifting from one party to another … Novation is different to assignment. An assignment involves not the substitution of a contracting party but rather an addition.

[26]              Mr Ballantyne says that as Mr Booth was the director of Heyward and HTL he had the capacity to consent on his own behalf. He was therefore capable of consenting on behalf of all three of the parties to the novation and did so on the advice of Heyward’s accountant.

7      Buchanan v Sirocco Area Leases Ltd (2008) 20 PRNZ 256 (HC) at [21].

[27]              Given that reference to a novation did not appear in Mr Booth’s affidavit, his notice of opposition, his statement of defence or Mr Ballantyne’s submissions presented at the fixture, there was no evidence presented to the Court to support the proposition that a novation had taken place, for example a deed of novation. This led to Mr Ballantyne submitting that there was “in any event sufficient consideration for a novation to occur”. The way in which he says this occurred is best described in his own words:

Submitted that if the novation had not occurred, Mr Booth would have defended any attempt by [Heyward] to recover [HTL’s] debt from him. The consideration was therefore that [HTL] would not defend any such claim as it was implicit that it acknowledged that it was properly liable for the debt in the first place.

The case for Heyward

[28]              The general ledger for Heyward is in evidence. Under the heading “M C Booth”, there is an opening balance on 1 April 2005 of zero, followed by pages of entries in the period 30 March 2006 to 31 March 2012, by which point the balance shown as owing to Heyward is $556,940.05. No issue is taken with the accuracy of the entries on this ledger save that Mr Booth says that they are not his debts.

[29]              Mr Lester says the Court should not accept Mr Booth’s evidence that the entries on this ledger should at all times have been entries debited to HTL. First, he notes that HTL is a corporate trustee not an individual, but there are numerous entries on the ledger which have the appearance of being of a personal nature. These include debits in respect of Johnathan’s Camera & Video, Telecom, Trustpower, Vodafone, Les Bamford Motors Limited (purchase of Mitsubishi), Susan J Mort Garden Plans, Davidson Honda, cash advances, payment of a BNZ Global Plus account, payments to the Ministry of Justice for fines, payments for other car expenses (some $20,000), parking fines, retail purchases (some $45,000), food (nearly $13,000) and dental fees. Mr Lester says these cannot have been expenses incurred by a corporate trustee as they are in the nature of personal expenses, which is more consistent with their being the expenses of Mr Booth. As well, Mr Jenkins, the liquidator of Heyward, gives evidence of Mr Booth personally owing money to another company of which he was the liquidator, Cardrona Investment Co Limited, a company of which Mr Booth was the sole shareholder and director. When Mr Jenkins sought to recover this debt, a

settlement was reached by which Mr Booth was to pay $13,000. Mr Jenkins has tracked all the payments made, 10 in number, totalling $13,000, from the bank accounts of Heyward, and all are shown as debits in the general ledger in Mr Booth’s name.

[30]              Secondly, Mr Lester refers to an email from Mr Booth to Mr Wearing dated 24 May 2011, relating to Heyward. Mr Booth explains a $200,000 advance from a third party lender which Heyward received in 2005. Mr Booth informed Mr Wearing “I recall getting 50K personally …”. He went on to inform Mr Wearing that a further advance was made in 2007 of $100,000 which he described as “mainly advances to both creditors and personal”.

[31]              Mr Lester’s third point is based on the following evidence. As noted earlier, Mr Booth says that Mr Wearing discovered what he describes as an error in the description of the ledger after he took over accounting services for Heyward, which had previously been carried on by Mr Ibbotson. After that, Mr Wearing brought to his attention that HTL’s current account had been coded as “associated party advances” and put into his personal name. Mr Booth says he immediately advised Mr Wearing that this was not correct and that he had not been loaned, nor agreed to be loaned, any funds from Heyward. Mr Booth says that until then he was not aware that these drawings had incorrectly been attributed to him as associated party advances. To the contrary, he says he had financially contributed significant sums to Heyward.

[32]              Mr Lester invites the Court to disbelieve these assertions. He says it is clear that Mr Wearing was undertaking accounting work for Heyward before the time claimed by Mr Booth. The email dated 24 May 2011 to which I have already referred was sent by Mr Booth to Mr Wearing. This email also refers to a meeting between these two, concerning the final accounts which at that point would appear to have been the final accounts for the year ending 31 March 2010. However, the email also refers to activities in 2005 and 2007, as I have noted. It is clear, therefore, that Mr Wearing was acting at least by April 2011. A newspaper report was produced in evidence reporting that Mr Ibbotson was struck off in July 2012. The amendment to the accounts for the year ending 2015 resulted from a journal entry in March 2015, several years after Mr Wearing began to act.

[33]              Fourthly, Mr Lester says that the allegedly incorrect details appeared in Heyward’s general ledgers over a number of years. He says Mr Booth specifically requested that the 2010 accounts be sent to his home address in March 2011, Mr Booth is a businessman familiar with accounts (he was sole director of HTL which was a land developer), and that Mr Booth’s close involvement with Heyward’s accounts and its taxation affairs is evident from the fact that, contrary to the advice of its accountants, Mr Booth took a position on the taxable status of Heyward’s activities that he took up personally with the Inland Revenue Department. All of this, Mr Lester submits, means the Court should not accept Mr Booth’s evidence that he did not know until 2015 that the ledger was in his name.

[34]              Finally, Mr Lester notes that Mr Jenkins says that tax returns were filed electronically by Mr Wearing’s firm and he expresses the view that these returns would not have been filed by an accountant without being approved by Heyward’s director which, at all material times, was Mr Booth. Mr Jenkins says the returns are consistent throughout the period in question with the annual accounts produced for Heyward, which showed the associated person’s account in the name of Mr Booth.

[35]              In supplementary submissions, on assignment of debt, Mr Lester says that it is impossible for a debtor to assign a debt to another party except by novation.8 This position has not been altered by s 54 of the Contract & Commercial Law Act 2017, and he refers to the judgment of the Supreme Court in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd.9 Mr Lester notes that novation is not asserted by Mr Booth in his defence. Nor is there any evidence of a novation having taken place. Rather, he asserts correction of the financial statements occurred with the knowledge and consent “of all parties”. Mr Lester notes, however, that this is in the context of Mr Booth denying that he had any liability in the first place which would make any novation unnecessary. Mr Lester says novation would require consideration, but there is no evidence or even suggestion that Heyward received any benefit from the alleged transfer of liability from Mr Booth to HTL.

8      Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, Lexis Nexis, 2017) at 17.2.2.

9      Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [85].

Discussion

[36]              The case for Heyward is simply that the 2014 accounts accurately state that Mr Booth is indebted to Heyward in the sum claimed and that it is entitled to judgment accordingly. Mr Booth says it is not, for all the reasons I have set out. It is necessary to decide, therefore, whether there is an arguable defence, bearing in mind the principles summarised in [7], [8] and [9] above.

[37]              I examine first Mr Booth’s contention that the debt was not in fact his liability but rather the liability of HTL.

[38]              The starting point is HTL itself. It is a trustee company which held a block of land. Documents produced to the Court show that its sole activity was holding that land and subdividing it, which involved the carrying out of physical works such as roading. It is not explained why it may have been in need of such services as dentistry and vehicle repairs, or of groceries, a camera, a cell phone, or any of the numerous other items for which it paid. At no point in his evidence does Mr Booth give any reason for HTL needing, wanting or receiving such items, nor does he say that anyone other than he received the goods, services and cash debited to the general ledger in his name. It is clear, therefore, that over a period of years he used money owned by Heyward, or possibly Heyward’s credit facilities, for his own purposes.

[39]              This is entirely consistent with Mr Booth personally being indebted to Heyward as recorded in the 2014 accounts. Despite this, Mr Booth asserts that the accounts were erroneous and the debits should have been to HTL. That proposition is not supported by the sort of evidence which one would expect to have been introduced if it was right. First, the Court does not have the trust deed for the trust of which HTL is the trustee. It does not know, therefore, whether Mr Booth is in fact a beneficiary of that trust, and may thus have received payment for goods and services, and cash, as distributions to himself as a beneficiary of the trust, even though directly from Heyward. The Court might have been provided with the accounts for HTL, but was not. Mr Booth’s assertion that the correct debtor to Heyward has, all along, been HTL is, on the evidence before the Court, nothing more than his statement without any evidence to back it up.

[40]              It is also contrary to documents created by Mr Booth, and Mr Wearing (who was acting for Heyward on Mr Booth’s instructions at all relevant times) which are in evidence. First, on 24 May 2011, Mr Booth told Mr Wearing by email, following a meeting in relation to the final accounts of Heyward for what must have been the 2010 or 2011 years, that “the 200K advance in 2005 was also paid into the trust account, I recall getting 50K personally, …” and “A further advance was made in 07 from PGG of 100K mainly advances, to both creditors and personal”. There is no mention of HTL, only of Mr Booth receiving money.

[41]              Secondly, on 25 August 2016, Mr Wearing  wrote to Mr Deuchrass of Insolvency Management, the then liquidator of Heyward, in relation to Heyward’s liquidation referring to “the M C Booth advance from inception as per the detailed ledger entries recorded when the  financial statements were compiled”.   By then   Mr Wearing knew of the 2015 ledger entry and the difference between the 2014 and 2015 accounts which he prepared. This is consistent with Mr Wearing, Heyward’s accountant, thinking in 2016 the debtor was Mr Booth all along, until the purported assignment.

[42]              Thirdly, the general ledger for Mr Booth, as an associated party, shows credits as well as debits. In his affidavit Mr Booth says “I had financially contributed significant sums to [Heyward] over the years in order to progress the project”. When the entries were made which changed the balances in the 2015 accounts from those in the 2014 accounts, there does not appear to have been any attempt to leave Mr Booth’s advances in the ledger in his name, and just remove from that ledger the debits which he says should have been debited to HTL. Rather, the entire balance shown as owing in the 2014 accounts was reduced to zero in the 2015 accounts. There is no evident reason, and none was proffered, why this should have occurred. If Mr Booth’s contention that the debits were those of HTL, only the debits would have been “corrected” or purportedly assigned, not the advances he says in evidence that he made.

[43]              Earlier I have referred to the fact that Mr Booth says he did not know of this account in his name until Mr Wearing drew it to his attention and a decision was made to effect an assignment to correct the accounts. The evidence shows good reason why

this assertion cannot be accepted on its face either. Mr Booth plainly took a close interest in Heyward’s finances. I refer to six matters that demonstrate this.

[44]              First, a letter by way of terms of engagement of Mr Wearing’s accountancy firm dated 9 March 2011 contains an instruction from Mr Booth for the 2010 financial statements to be sent to him at his home address.

[45]              Secondly, there is an email dated 14 April 2011 from Mr Wearing to Mr Booth referring to a discussion on that day and action required by Mr Wearing’s firm for completion of financial statements for Heyward. It also refers to Mr Booth arranging for completion of a statutory declaration giving a statement of position for himself and his wife, and Mr Booth preparing a formal proposal containing options for PGG Wrightson to consider, which must have been in relation to credit.

[46]              Thirdly, on 24 May 2011 Mr Booth wrote to Mr Wearing about the cash advances, as I have said.10

[47]              Fourthly, Mr Jenkins says in evidence that the directors of a company always approve tax returns before filing, and the returns filed for Heyward reflected the accounts prepared for Heyward each year. Mr Booth was the sole director at the time the 2014 and all previous accounts were prepared.

[48]              Fifthly, on 13 May 2016 Mr Wearing wrote to a representative of the liquidators advising that the information they held in relation to Heyward was available for collection, but then making statements showing Mr Booth’s involvement in the form of Heyward’s accounts and its taxation affairs:

The financial statements possibly require a little explanation as they are a bit unusual. Initially financial statements were prepared on the basis that the company was undertaking a taxable subdivision. The director of the company took a different view and engaged directly with Inland Revenue over the tax (and GST status) of the entity. He took independent advice and had quite detailed correspondence with IRD that apparently accepted his position. Copies of this are on our files because he used one of our administration staff to type them. We do not have copies of the IR side of the conversation. Subsequent to this dialogue being initiated the director requested the financial statements be prepared on a non-taxable basis.

10 [30] above.

In 2014 this was done by disclosing all property related expenses as non- deductible; however in 2015 we took the view it was better to have more (sic) a more detailed P&L with an adjustment through the tax return to reflect the non-taxable nature of the transactions.

Our view has always differed and subsequent to 2015 statements being prepared we have resigned as accountant for this entity.

[49]              Sixthly, there are two items of correspondence in evidence between Mr Booth and the Inland Revenue Department concerning Heyward. The first is dated 11 March 2013. In this letter Mr Booth sets out in detail the intended activities of Heyward and asks for a ruling from the Department that in the circumstances he has outlined there should be a certain non-taxable consequence. On 30 May 2013, Mr Booth wrote to the Department again in relation to Heyward’s taxation affairs, this time responding personally to a letter from the Inland Revenue Department, though that letter is not in evidence.

[50]              It is clear from all this material that Mr Booth was closely involved with the finances of Heyward. I find his assertion that he did not know about the existence of the associated party loan account in his name in the accounts of Heyward until      Mr Wearing pointed it out to him lacks credibility.

[51]              The assertions in Mr Booth’s letter to the Inland Revenue Department dated 11 March 2013 also cast doubt on another assertion in  his affidavit.  In that letter  Mr Booth informed the Department that:

As the land was purchased with no intention of resale, has been held by the taxpayer for more than 10 years and the development is being done after the land has been sold, the sale is not liable for income tax.

[52]In his affidavit sworn in opposition to this application, Mr Booth says:

The profit that HTL, as [Heyward’s] sole shareholder, expected the project to return once completed was significant (in excess of $1,000,000.00) given the low acquisition cost. Importantly, the return was projected to be more than sufficient to cover HTL’s current account which equated to around $50,000.00 in drawings per year by HTL over the 10 year period of the development from conception to sale of the final lot in 2015.

[53]              Mr Booth then goes on to say that the property was purchased to be subdivided into four blocks which were to be held as a long term investment, and eventually sold

with boundary adjustments. He says the lots had to be sold sooner, despite the intention to retain them as a long term investment, due to unforeseen circumstances. The holding costs after so many years of delay were significant and there was litigation about the roading.11 What Mr Booth does not explain is how there could have been an expected return in excess of $1,000,000, which enabled $50,000 a year to be withdrawn over a 10 year period, when it was not expected that the lots would be sold until unforeseen circumstances arose. Once more, on this topic, I sense that the Court is being given only part of the facts. Those facts appear to be internally inconsistent on this point, and are inconsistent with information given to the Inland Revenue Department as I have set out. This, too, casts doubt on Mr Booth’s credibility.

[54]              When evidence is given by affidavit, the Court must be very cautious when there are reasons to doubt the credibility of evidence – see [8] above. For the reasons given, the Court has a sound basis to doubt Mr Booth’s credibility. His evidence is inconsistent with his own contemporaneous statements, and is inherently improbable for the reasons I have set out. As will be seen below, it is also inconsistent with contemporaneous documents. I reject Mr Booth’s contention that the debt shown in his name was all along a debt of HTL. It is established by Heyward that the debt is Mr Booth’s.

[55]              I now turn to the purported assignment recorded in Heyward’s ledger, and the later contention that there was a novation. As I have said, Mr Booth’s evidence is that he agreed to a recommendation that the debt be assigned with the consent of Heyward. He describes this in terms of it being Mr Wearing’s advice that this was the appropriate way to “correct” the accounts. It is entirely inconsistent, however, with the proposition now advanced by Mr Booth, that at no point has he “been loaned, nor agreed to be loaned, any funds from [Heyward]”. An assignment presupposes that the assignor has something to assign. The general ledger, however, specifically records an assignment. The written record produced at the time, therefore, conflicts with Mr Booth’s current explanation of what occurred. Material doubt is thus thrown on Mr Booth’s present version of events. The fact that on professional advice Mr Booth purported to assign his debt strongly suggests it was his debt and he knew it.

11     Cargill Contracting Ltd v Heyward Holdings Ltd, above n 6.

[56]              As I will discuss, a debt cannot be assigned as a matter of law, but I refer first to the evidence on the point as it reflects poorly on the veracity of the defence put to the Court by Mr Booth. Mr Booth did not produce a deed of assignment, or a deed of novation. Nor did Mr Booth lead evidence from Mr Wearing, and Mr Booth’s evidence on what Mr Wearing is said to have told him is hearsay.12 The Court is left with unreliable testimony by Mr Booth which conflicts with contemporaneous records of Heyward created when he was its sole director. Further, there is no evidence that HTL resolved to accept an assignment of the recorded liability of Mr Booth to Heyward, and although Mr Booth was the sole director of Heyward at the time the journal entry was made in March 2015, he was not a director of Heyward and HTL when the 2015 accounts for Heyward were completed in March 2016, according to an entry on those accounts. By that point Mr Booth had resigned. There is no evidence from the new director, Mr R M Blakely, who took office on 4 February 2016. No accounts from HTL have been produced to the Court which might have shown how HTL treated this transaction. It is true to state that the correct way to fix an error in a set of accounts is by a resolution with an accompanying explanation as to the reason for the correction. It seems unlikely that as a practising accountant, Mr Wearing would not have known this and advised appropriate action.

[57]              Through the haze created by relevant documents not being produced, relevant witnesses not swearing affidavits, hearsay evidence being proffered as true, and the inconsistency between Mr Booth’s evidence and argument presented on his behalf on the true nature of the transaction, the contemporaneous documents stand illuminated: the general ledger and the accounts. On the evidence before the Court I find that the steps purportedly taken in March 2015 were intended to be an assignment of the debt. That could only have been intended if Mr Booth was liable to Heyward and intended to pass that liability to HTL, at the same time being absolved of it.

[58]              Liability for a debt, however, cannot be assigned. That was the conventional view prior to the passing of the Contractual Remedies Act 1979, and is described thus in Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd by Lord Collins MR:13

12 Recorded at [13] above.

13     Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 (CA) at 668.

It is, I think, quite clear that neither at law nor at equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to some one else; this can only be brought about by the consent of all three, and involves the release of the original debtor …

[59]              This issue is discussed by the Supreme Court in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd.14 After referring to Tolhurst and s 11 of the Contractual Remedies Act, which refers to assigning the burden of the contract, the Supreme Court concluded:15

The text of s 11(1) does not provide that the burden of a contract may be assigned and when construed in light of its purpose, we think it is clear that it did not have that effect. So whatever the explanation for the opening words of s 11(1), we are satisfied that they do not operate so as to provide for the assignment of the burden of a contract.

[60]              The position, therefore, is as described in Tolhurst. The purported assignment was no more than that. The entry in the ledger recording an assignment was of no legal effect.

[61]              At no point prior to filing supplementary submissions was there any mention of liability for the debt having been assumed by HTL by novation. It is not pleaded in Mr Booth’s notice of opposition, or statement of defence, nor mentioned in his affidavit or the submissions of his counsel. The entire focus was on the accounts to 2014 being wrong, and having been corrected by an assignment.

[62]              For there to be novation there must be agreement by the original parties to the contract of debt and the new party said to now be liable: see Buchanan v Sirocco Area Leases Ltd, above at [25]. At all material times Mr Booth was the sole director of Heyward and HTL so was in a position to ensure the assent of Heyward and HTL was given in addition to his own. Indeed, he purported to enter a consensual arrangement for Heyward and himself by way of the intended assignment. A novation, however, is a new contract between the debtor and the party taking over the debt and for that to occur there must be consideration, or the contract must be made by deed. There is no evidence or suggestion that a deed was ever entered.

14     Savvy Vineyards 3552 Ltd v Kakara Estate Ltd, above n 9.

15 At [92].

[63] Mr Ballantyne’s explanation of the consideration involved is set out above at [27]. It seems to amount to Mr Ballantyne saying that HTL agreed to assume liability for the debt. That, however, is not the point, which is that there is no evidence of any consideration for HTL assuming that liability.

[64]              I find, therefore, that the contention that there was novation, raised for the first time in supplementary submissions, is without any foundation.

Conclusion

[65]              I conclude that there is no defence to Heyward’s claim. The defence put up by Mr Booth is of no merit. Until 2014 he was shown as owing monies to Heyward and a breakdown of the ledger in his name, described as an Associated Parties Loan Account in annual accounts, separate from the Shareholder’s Advance Account shown for HTL, shows drawings of a personal nature including cash drawings which he admitted receiving at the time, and cash injections which he claims to have made.

[66]              There is not one document in evidence which supports Mr Booth’s contention that HTL received the goods, services or cash debited to this ledger. There are no documents in evidence to show HTL was treated as a conduit from Heyward to     Mr Booth, not even a trust deed showing him as a beneficiary, let alone accounts. Nor does he say he is a beneficiary. The explanation as to how the accounts came to be drawn in 2015 differently from 2014 is entirely unsatisfactory.

[67]              Contemporaneous documents refer to an assignment which would have presupposed that the debts were always Mr Booth’s, contrary to his assertion that they were not. These cannot, however, have been an assignment as a matter of law. Then it is said there was a correction to the accounts, but that version of events is implausible for the reasons I have set out.

[68]              The evidence given by Mr Booth in his affidavit conflicts with contemporary documents and is, at best, unreliable. The suggestion of a novation was made late in the case when Mr Booth realised there could not have been an assignment. It was not pleaded, nor was there any evidence in relation to it, nor a deed of novation or evidence of consideration for the assumption of liability. I find the accounts for the year ended

2015 are incorrect and the debt by Mr Booth shown in the 2014 accounts was and remains his liability.

[69]It follows that Heyward is entitled to judgment.

Outcome

[70]The Court enters judgment for Heyward against Mr Booth for the sum of

$556,940.

[71]              Heyward is entitled to interest. This will run from the date on which demand was first made. Counsel are asked to confer, and if agreement on quantum is not reached, may file memoranda within 10 working days setting out their respective positions.

[72]              Heyward is entitled to costs. Counsel agreed that costs would be on a 2B basis and I so direct. Heyward is also entitled to disbursements, fixed by the Registrar.

J G Matthews Associate Judge

Solicitors:

Brandts-Giesen McCormick, Rangiora Canterbury Legal, Christchurch