Island View Estates Limited (in liq) v Mainline Contracting Limited HC Ak CIV 2008-404-003840

[2010] NZHC 29

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2008-404-003840

IN THE MATTER OF     the Companies Act 1993

BETWEEN  ISLAND VIEW ESTATES LIMITED (IN LIQUIDATION)

Plaintiff

ANDMAINLINE CONTRACTING LIMITED Defendant

Hearing:         27 January 2010

Appearances:  R B Hucker and L F A Yaqub for Plaintiff

C T Patterson for Defendant

Judgment:      5 February 2010 at 1.00 p.m.

JUDGMENT OF VENNING J

This judgment was delivered by me on 5 February 2010 at 1.00pm, pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:            Hucker & Associates, Auckland

Macky Roberton, Auckland

Copy to:             C T Patterson, Auckland

ISLAND VIEW ESTATES LIMITED (IN LIQUIDATION) V MAINLINE CONTRACTING LIMITED HC AK

CIV-2008-404-003840  5 February 2010

Introduction

[1]      Island  View  seeks  an  order  placing  Mainline  into  liquidation.   It  says  that Mainline  is  insolvent  or,  in  the  alternative  that  it  would  be  just  and  equitable  to liquidate it.  Mainline opposes the application.

Background

[2]      Island View was placed into liquidation by special resolution of its shareholders on 21 April 2006. At that time the shareholders were members of the Buxton family, and Simon John Buxton was its director. Formerly, until February

2006, Mrs Susan Buxton had been Island View’s director. The shares in Mainline are held in the name of another member of the Buxton family and, as at the date of Island View’s liquidation Mrs Susan Buxton was  also  Mainline’s  sole  director. Simon Buxton was appointed sole director of Mainline in her place on 1 April 2007.

At all material times for this proceeding Mrs Buxton was the sole director of both

Island View Estates and Mainline.

[3]      Island   View   was   a   property   development   company.        Mainline   was   a construction company.  Island View owned land at Leigh that it was subdividing and selling.

[4]      Most of the subdivided lots were sold direct to third parties.  However, in the case of  lots  7  and  31,  Island  View  agreed  to  sell  the  land  to  Mainline.   After  the agreements for sale and purchase were made, but before settlement, Island View and Mainline entered construction contracts. Houses were constructed on lots 7 and 13 by Mainline pursuant to the construction contracts.   Mainline charged Island View for  the  construction  costs  of  the  houses  but  when  the  houses  were  completed  the land, complete with the houses, was transferred to Mainline.   When the properties were on-sold to third parties Mainline retained the proceeds of sale and benefits of not only the land but the added value of the houses.

[5]      Following Island View’s liquidation, Mr Buxton filed a proof of debt with the liquidators on behalf of Mainline. He  claimed  Island  View  had  not  paid  all  the

money it owed Mainline under  the construction  contracts. As  a  consequence,  the liquidators investigated the relationship between Island View and Mainline in more detail. They conducted interviews with both Mr and Mrs Buxton. The liquidators concluded that rather than Island View owing money to Mainline, it was Mainline that was substantially indebted to  Island  View. Fundamental to that conclusion is the  liquidators’ opinion that  Island View received  nothing in  exchange for  the payments it had made to Mainline in relation to the construction of the houses on lots

7 and 31 by Mainline, so that, not only did Island View not owe Mainline anything further  under  the  construction  contracts,  Island  View  was  entitled  to  repayment  of the money paid under the construction contracts.

[6]      Following   their   investigation,   the   liquidators   of   Island   View   rejected Mainline’s  proof  of  debt  and  instead  demanded  payment  from  Mainline  for  the money they considered Mainline owned Island View.   Mainline did not accept the liquidators’  findings.           The  liquidators  then  issued  these  proceedings  seeking  the liquidation of Mainline on the grounds it was insolvent and on the related just and equitable  ground.   Island  View  did  not  issue  a  statutory demand.   The  liquidators took the view that, on the basis of the interviews conducted with Mr Buxton as the director of Mainline at the time of the interview, it was clear Mainline was unable to pay its debts.  The liquidators considered that it was thus unnecessary to rely on the failure to pay a statutory demand as proof of insolvency.

Jurisdiction

[7]      Mr  Patterson  submitted  that  Island  View  had  no  standing  to  bring  these proceedings under s 241(2)(c)(iv) of the Companies Act 1993 as, in his submission, it could not be said to be either a creditor or a contingent creditor.   He submitted at most it might be a prospective  creditor but it could not meet that test  either as  its claim did not have any real  prospect  of  success: Re Austral Group  Investment Management  Ltd  [1993] 2 NZLR 692; Automatic Parking Coupons Ltd v Time Ticket International Ltd (1997) 10 PRNZ 600.

[8]      Mr Patterson also referred to s 288(5) of the Act which provides that where a contingent or prospective creditor seeks to have a company placed into liquidation

on the ground that it is unable to pay its debts the application requires leave of the

Court.  He noted that no application for leave had been made in this case.

[9]      As leave has not been obtained Mr Patterson submitted that even if it were a prospective creditor, Island View could not rely on  Mainline’s inability to pay its debts  (which  was  not  accepted) as  a  ground to liquidate and,  absent  a  finding  of inability  to  pay  its  debts,  it  could  not  succeed  on  the  just  and  equitable  grounds either.  While  not  conceding  the  point,  Mr  Hucker  accepted  that  if  his  primary submission,  that  because  of  the  debt  Mainline  owned  Island  View,  Mainline  was unable  to  pay  its  debts,  failed  then  it  would  be  difficult  to  make  out  the  just  and equitable ground standing alone.

[10]     The first issue is whether Mr Patterson is right to categorise Island View as,

at best, a prospective creditor.  A contingent creditor is one towards whom, under an existing obligation, the company may or will become subject to a present liability on the happening of some future event or at some future date:  Re William Hockley Ltd [1962]  2  All  ER  111.   Island  View’s  claim  against  Mainline  is  not  based  on  the happening  of  some  future  event  or  some  future  date  being  reached. It  is  not  a contingent creditor.

[11]     Prospective creditors are those who, at the time of the  hearing  of  the liquidation proceedings, are creditors of debts which will certainly become due in the future:   Stonegate Securities v Gregory [1980] 1 All ER 241. But the category of prospective creditors also includes a person in respect of whom there is a real prospect of their becoming a creditor of the company in the future, in other words a true prospective creditor: Re Austral Group Investments Management Ltd.  A person with a bona fide unliquidated claim against the company will be such a prospective creditor.  Whether they are a creditor or not, and in what sum, will be dependent on either admission by the company or judgment.

[12]     However where, as in this case, the claim is for a liquidated sum said to be immediately due and owing, the claim is not a prospective one.  Island View’s claim

is of that nature.  The debt Island View relies on to support the claim that Mainline is unable to pay its debts is based on a liquidated claim for the money it has paid to

Mainline  under  the  construction  contracts  but  for  which  it  says  it  has  received  no consideration.  Put another way, Island View’s claim is for money had and received based on a total failure of consideration.  If Island View’s submission is correct then it is a creditor.  The nature of the debt claimed by Island View is neither contingent nor prospective.  If the Court finds Island View’s claim established, or that there can be no bona fide or substantial dispute the debt is owing, that is merely confirmation of Island View’s status as creditor.

[13]     If Mr Patterson’s submissions were taken to their logical conclusion, the result would be that, absent a judgment or  admission of the debt by the  company, any person claiming a liquidated debt against a company could only ever be, at best, a prospective creditor who would require leave of the Court to commence liquidation proceedings where the liquidation proceedings are based on the company’s inability

to pay its debts.  In the present case Island View claims a liquidated sum, namely the balance  due  to  it  of  the  monies  paid  by  it  to  Mainline  under  the  construction contracts.

[14]     Even in the case of a  liquidated  demand  there  will  often  be  an  argument whether the debt is owed.  The issue of whether there is a genuine bona fide dispute

as to whether the defendant company is indebted to the plaintiff creditor is usually resolved  at  the  statutory  demand  stage. If  the  demand  is  opposed  the  Court  will determine  the  issue. The  result  of  such  a  hearing  on  that  issue  however,  is  not  a judgment for the sum in issue.  The outcome is a finding whether there is a bona fide or  substantial  dispute  the  debt  is  owed.     If  there  is  no  such  dispute,  then,  if  the defendant company fails to pay within such further time that may be permitted, it is deemed to be unable to pay its debts and is at risk of being liquidated on the ground of insolvency.   The plaintiff could have followed that procedure in this case but as noted,  on  the  basis  of  admissions  by  Mr  Buxton  as  director  of  Mainline  the liquidators consider it is clear Mainline is unable to pay its debts.  The difficulty with that approach is that it has left resolution of Mainline’s challenge to the debt claimed by Island View to the substantive liquidation hearing.  With the benefit of hindsight, given the nature of the claim, perhaps Island View should have pursued the issue of a statutory demand.  Generally the liquidation hearing itself will not be an appropriate venue for determining genuinely disputed debts.  However, in appropriate cases, the

Court will determine the dispute, particularly where it is satisfied that there is or can

be no bona fide dispute  as  to  the  debt: Automatic  Parking  Coupons  Ltd  v  Time

Ticket International Ltd;  Re Taylors Industrial Flooring [1990] BCC 44 (CA).

[15]     In  the  particular  circumstances  of  this  case  and  given  the  time  that  has elapsed  in  these  proceedings  already,  I  accept  that  this  is  one  of  those  rare  cases where the Court may determine the issue at this stage.   It is clear enough from Mr Buxton’s interview that if Island View’s claim is correct Mainline is unable to payits debts.   The issue for the Court is whether, (adopting the statutory demand test) there is a “substantial dispute whether or not the debt is owing”:  Pioneer Insurance Company Ltd v White Heron Motor Lodge Ltd [2008] NZCA 650. The onus is on Island View to satisfy the Court there is no such substantial or bona fide dispute.

[16]     Mr  Patterson relied on the findings and observations  of  Associate  Judge Doogue when he granted leave to the defendant to defend this application as to the existence of a bona fide dispute.  But with respect to those findings, they were made in the context of a quite different issue and, since that hearing, the liquidators have amended their  claim and  presented further  evidence to the Court.   For the reasons that  follow  I  have  come  to  the  view  that  in  this  case  there  can  be  no  bona  fide dispute, substantial or otherwise,  as to the existence of the debt  claimed  by Island View, which  is a liquidated  demand. The plaintiff Island View is a creditor of Mainline and was entitled  to  bring  these  proceedings. I reject the  jurisdiction argument advanced on behalf of Mainline.

Decision

[17]     There   are   a   number   of   other   issues   concerning   Mainline’s   claim   for consultancy fees and the like but the fundamental issue in this case is Island View’s claim based on a total failure of consideration under the construction contracts.   If there can be no substantial dispute about that, then even if Mainline’s other cross- claims  were  accepted,  the  balance  due  to  Island  View  substantially  exceeds  the prescribed amount under the Act and, more importantly, it is conceded Mainline will not be in a position to pay the sums claimed by Island View under the construction contract.

[18]     Fundamental  to  determining  whether  there  is  a  bona  fide  or  substantial dispute  as  to  the  debt  Island  View  claims  under  the  construction  contracts  is  the construction  of  the  agreements  for  sale  and  purchase  between  Island  View  and Mainline  for  lots  7  and  31. On  Island  View’s  case,  the  agreements  for  sale  and purchase were for the sale of the land only.  On Mainline’s case, the agreements for sale and purchase were to include not only the bare land but also the house which Island View was to pay to have constructed on it.   Mainline’s position is set out by Mr Buxton in his affidavit as follows:

9.        ... In relation to the relevant properties, prior to construction of the houses  commencing  Mainline  contracted  to  purchase  the  properties  from [Island View] together with the houses to be constructed on the properties with the purchase price based on the valuation of the land and houses (which were  yet  to  be  built)  as  at  the  date  of  the  sale  and  purchase  agreements. Mainline took the risk that house and land values would decrease between the  contract  dates  and  the  dates  the  houses  were  finished.    Conversely, Mainline  would  obtain  the  benefit  if  house  and  land  prices  increased between the contract dates and the dates the houses were finished.   [Island View]  avoided  the  risk  of  the  market  falling,  and  had  contracts  in  place which would assist it with obtaining finance to undertake the development.

[19]     In the case of both lots 7 and 31 the agreements for sale and purchase were entered after Island View  obtained  valuations from a registered valuer some  time prior to  the  entry into  the relevant construction  contract between Island View  and Mainline. Subsequently, on completion of the construction contract both properties were transferred to Mainline, with Mainline taking the benefit of the houses attached to the land. In the case of lot 31 there is evidence that the  property  was  then transferred to a trust associated with the Buxtons and subsequently on sold.

[20]     The  issue  for  determination  then  is  whether,  as  Island  View  says,  the agreement  for  sale  and  purchase  of  lots  7  and  31  was  for  the  section  alone  or whether, as Mainline (on the basis of Mr Buxton’s evidence) says, the agreements included the value of the house which was to be built on the property by Mainline but to be paid for by Island View.

[21]     The agreements for sale and purchase are ambiguous.  They contemplate the construction of a dwelling on the sections but they are silent as to how the cost of the dwelling is to be treated or who is to be ultimately responsible for the costs of the construction. They  are  not at all clear, as suggested by Mr Patterson,  that  the

purchase price included the homes to be constructed on the land.   For example the agreements exclude from the sale all chattels associated with such houses.  The high point  for  Mainline  is  the  reference  in  the  agreements  for  sale  and  purchase  to  the agreements being conditional upon the issue of a code compliance certificate and the fact the settlement dates under the agreements were to be determined by the issue of the code compliance certificate.   The code compliance certificate must relate to the house  to  be  constructed  on  the  land. But  the  agreements  do  not  state  who  is  to ultimately bear the cost and take the benefit of the construction of the houses.

[22]     As  the  agreements  for  sale  and  purchase  are  ambiguous  it  is  necessary  to consider the background to the entry of the agreement for sale and purchase and the construction contracts.

[23]     At the relevant time Mrs Susan Buxton was the director of both Island View and Mainline.  In her interview with the liquidators of Island View she confirmed the reason  the  agreements  for  sale  and  purchase  included  the  reference  to  the  code compliance certificate:

Liquidator:     The settlement  date in  respect  of  each  of  these agreements for sale and purchase was set by reference to the issuing of a code of compliance certificate, weren’t they?

Mrs Buxton:    Yes.

Liquidator:      How  was  the  settlement  date  determined?    How  was  the agreement reached for the settlement date to be determined by the issuing of a certificate of compliance certificate?

Mrs Buxton:    We  needed  to  leave  the  sections  as  long  as  possible  in

[Island  View’s]  name  because  they were  part  of  the  value, the  overall  value  of  [Island  View]  holdings  for  the  first mortgage  manager.    So  until  we  could  have  a  house  at  a stage that it had value in itself, in other words, a certificate of compliance certificate, we couldn’t get a mortgage on the house, so we could pay [Island View] for the purchase.

[24]     Later, on the issue of ownership of the land and construction of the houses, Mrs Buxton said:

[Island  View]  only  owned  the  section.   They  didn’t  own  the  house.   The house was paid for and built out of other funds.  ...

Simon  was  in  charge  of  building  the  houses.   I  think...  I  just  don’t  really know... But I know [Island View] owned the section, and continued to own the  section  until  the  certificate  of  compliance  was  issued  on  the  house,  at which time the section was paid for.

And later:

Liquidator:     Was [Mainline] ever  constructing houses  or  did [Mainline]

ever agree to construct houses on behalf of [Island View]?

Mrs Buxton:    Well  it  wasn’t  my  understanding  that  it  was  on  behalf  of

[Island View].  My understanding of it which may be wrong, was that [Mainline] would own the houses and [Island View]

would own the sections, and then the sections would be paid

for at the completion of the house.  Because the land formed part of the value for the first mortgage.

[25]     Mrs  Buxton’s  statements  to  the  liquidator  are  contrary  to  Mr  Buxton’s evidence in this Court.  Mrs Buxton accepted that Island View sold the bare land or sections pursuant to the agreements for sale and purchase, not the land together with the  obligation  by  Island  View  to  pay  for  the  construction  of  a  dwelling  for Mainline’s  benefit.   Importantly,  Mrs  Buxton’s  understanding  of  the  position  as  a director  of  both  companies  at  the  relevant  time  is  consistent  with  the  logic  of  the documentation  the  parties  completed  at  the  time  and  the  supporting  independent documentation, including valuation reports and the report and analysis prepared by the Buxtons’ own accountant.

[26]     It is significant, in the context of considering the factual background to the agreements for sale and purchase, that the  value  of the sections in the  subdivision including  lots  7  and  31  was  fixed  in  reliance  upon  registered  valuations  from  an independent valuer. The registered valuations were not, as Mr Patterson sought to suggest, on the basis of land with houses to be constructed on them, but were clearly on the basis that the valuer was valuing the land as bare sections.   That can be the only sensible interpretation of the valuation reports.

[27]     A number of valuation reports were obtained by Island View for the purposes

of obtaining mortgage funding.  In the first valuation report of 24 July 2001, prior to both agreements for sale and purchase being entered, R A Purdy & Co Ltd placed values of $110,000 and $385,000 on lots 7 and 31 respectively. In the report  the valuers confirmed that they had inspected the subdivision, and noted that the block

was currently being subdivided in three separate stages into 50 residential units.  The valuation  report  is  clearly  based  on  a  valuation  of  the  land  as  bare,  unimproved sections. For  example,  the  valuation  report  noted  that  “sales  of  sections  should increase once the development stage is complete, and a start is made to construction of dwellings”.  The valuers then said that they had assessed the values of each of the “proposed” residential sites before giving the value of lot 7 at $110,000 and lot 31 at $385,000.

[28]     That the valuation report related to section values, not sections with completed houses on them, is further confirmed by the later valuation of lot 31 once the dwelling on it was completed.  On 20 January 2006 a valuation was obtained of

lot 31 with the completed dwelling on it.   The valuation was put at $2,225,000, as opposed to the earlier valuation of $385,000 for the land only.

[29]     Nor do the construction contracts support Mr Buxton’s evidence and Mainline’s  suggested  interpretation  of  the  agreement  for  sale  and  purchase. The building  contract  in  relation  to  lot  7  notes  a  contract  price  of  $258,000  including GST plus extras for the construction work.  On Mainline’s case, Island View agreed to transfer a section valued at $110,000 to Mainline for $110,000 and, in addition, agreed to pay for the construction of a house on that section to a value of $258,000 for the benefit of Mainline without any further consideration to be paid by Mainline. The position is even more extreme in relation to lot 31.   The contract price for the dwelling was $1,100,000 including GST.  So, it must be Mainline’s case in relation to  lot  31  that  Island  View  agreed  to  transfer  a  section  valued  at  $385,000  for $355,000 (being the price in the agreement for sale and purchase) and, in addition, agreed to pay for the construction of a house on that section to a cost of $1,100,000, all  to  avoid  the  risk  that  the  value  of  the  property  (on  Mr  Buxton’s  evidence $355,000)  might  move  against  it.   It  is  only  necessary  to  state  the  proposition  to disclose how unrealistic the argument advanced by Mainline is.

[30]     Further, the position Mr Buxton  takes  in  his  affidavit  sworn  in  November

2008 is a recent one. The affidavit was the first time Mainline formally advanced the suggestion that in selling lots 7 and 31 to Mainline, Island View was selling not only the land but also the houses to be constructed on it at Island View’s expense. It is

apparent  from  Mrs  Buxton’s  interview  that  that  was  not  her  understanding  of  the position at the time of the transactions. Significantly, it was not the understanding of Mr Hounsell, the accountant involved for Island View, Mainline and the Buxtons at the  relevant  time  either. In response to  the  liquidator’s  initial  demand  in  October 2007,  Mr  Buxton  sought  Mr  Hounsell’s  advice.   In  his  report  for  the  Buxtons  Mr Hounsell said:

They [the liquidators] have disallowed all construction costs relating to Lots

7 and 31 on the basis that [Island View] was not the eventual owner of these houses and therefore gained no benefit from the transaction, and could not be

expected to pay for their construction.   I can’t argue with the logic of this,

however  the  explanation  of  events  is  not  exactly  as  we  had  originally discussed.   I  recall  with  Lot  31  that  we  had  lengthy  discussions  over  the eventual  treatment  of  this  transaction,  as  the  construction  had  taken  place whilst [Island View] was the legal owner of the lots.   When the lots were eventually  transferred  to  [Mainline],  I  would  have  expected  [Mainline]  to also have had to purchase the completed houses.   However it appears that [Mainline]  only  paid  for  the  land,  not  the  buildings,  which  draws  me  to conclude that the liquidator may be correct in refusing to allow [Mainline] to

charge [Island View] for construction of these houses.  ...

[31]     Mr  Hounsell’s  analysis  for  the  Buxtons  supports  the  position  taken  by  the liquidator  from  the  outset.                 Significantly,  Mr  Buxton  did  not  take  issue  with  Mr Hounsell’s  statement  when  he  received  it.   To  the  contrary  Mr  Buxton  implicitly adopted it when he attached Mr Hounsell’s report to his response to the liquidator on 15  April  2008.   In  the  same  letter  Mr  Buxton  took  issue  with  a  number  of  other matters raised by the liquidators in reliance on Mr Hounsell’s report but did not raise this issue.

[32]     During  the  interview  with  the  liquidator  Mr  Buxton  was  asked  about  Mr Hounsell’s report.   When asked if there was any aspect of  the report he disagreed with he said:

Mr Buxton:     Not of his findings as such, but I think they reflect a lot of your findings anyway.   Although, yes the main aspect of it that  I  disagree  with  is  the  disallowment  of  the  project management, and  I haven’t as yet discovered whether I’m able to object to that officially or not.  I haven’t looked into that yet.

Liquidator:     Are  there  any  other  findings  by  Mr  Hounsell  that  you disagreed with?

Mr Buxton:     No, I don’t think so.

[33]     Further, in the course of the interview, when pressed with whether Mainline was constructing the houses for itself, Mr Buxton said:

Well, no, not – I don’t think so, I think [Mainline] were doing the work for the eventual benefit of [Island View].  That’s how I saw it.

[34]     The interpretation of the agreements and the transactions advanced on behalf

of Island View by Mr Hucker are thus supported by the logic of the transactions, the independent valuations, Mr Hounsell’s analysis and even by Mrs and Mr Buxton’s earlier statements.   Mr Buxton’s recent evidence is, by contrast, self-serving and an attempt to take advantage of a situation that has arisen through the rather loose way that the affairs of Island View and Mainline were operated by Mrs Buxton and him as manager prior to the liquidation of Island View.

[35]     I conclude there can be no doubt that the agreements for sale and purchase

for  lots  7  and  31  were  agreements  for  the  sale  of  the  bare  land  only.   Under  the separate  construction  contracts  Island  View  was  obliged  to  pay  Mainline  for  the construction cost of the dwellings.  That was to improve the value and facilitate the financing  of  the  subdivision. The  parties  originally  intended  that,  when  the properties  (with  the  houses  on  them)  were  sold,  there  would  be  an  accounting between the companies.  That never occurred because of the financial position of the companies at the time.  As a matter of law, when the houses were constructed on the sections  they  became  part  of  the  land  that  was  transferred  by  Island  View  to Mainline.   Island View were charged by Mainline and paid a substantial part of the construction costs of those houses to Mainline.  But Island View received no benefit from the construction of the houses.   From  Island View’s point of view, there has been a total failure of consideration under those construction contracts.

[36]     The test for a total failure of consideration is whether or not the party claiming  total  failure  of  consideration  has in fact received any part of the  benefit bargained for under the contract  or  purported  contract: Rover  International  Ltd v Cannon Film Ltd [1989] 3 All ER 423, 433 cited with approval by High Court of Australia in David Securities Pty v Commonwealth Bank of Australia  [1992] 175 CLR 353. In Goss v Chilchott [1996] 3 NZLR 385 the Privy Council, at 390 cited

with approval the following passage  from  Fibrosa  Spolka  Akcyjna  v  Fairbairn

Lawson Combe Barbour Ltd [1943] AC 32, 48:

". . . when one is considering the law of failure of consideration and of the quasi-contractual  right  to  recover  money  on  that  ground,  it  is,  generally speaking, not the promise which is referred to as the consideration, but the performance of the promise . . .

If this were not so, there could never be any recovery of money, for failure

of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be

recovered,  as  for  a  complete  failure  of  consideration,  in  cases  where  the promise was given but could not be fulfilled."

[37]     In Goss v Chilcott the appellants had failed to perform their obligations under the contract to repay the loan. In  the  present  case  Mainline  has  failed  under its contractual obligations to provide Island View  (defined  in  the  contract as “the owner”) with the building works as the contract  contemplated  –  see  for  example cl 12 which provided for notice of completion to be given to Island View as owner.

[38]     Island View never received the benefit contracted for under the construction contracts which was the ownership, both legal and  beneficial,  of  the  houses  for which it was charged by Mainline: Rowland v Divall [1923] 2 KB 500, 504. As between Island View and Mainline, in relation to the contracts for the construction of the houses there has been a total failure of consideration. Island View is entitled to the moneys it has paid under the construction contracts to Mainline. The money was a debt as from the time it was received by Mainline. The moneys were due and owing as from that time: Nimmo v Westpac [1993] 3 NZLR 218, 238.

[39]     Further, Island View can have no obligation in relation to the balance claimed

by  Mainline  in  relation  to  those  construction  contracts  in  the  liquidation.   To  the extent  the  proof  of  debt  was  based  on  such  claim  it  was  properly  rejected  by  the liquidators.  (I note that although Mr Buxton said in his affidavit of November 2008 that he intended to challenge the rejection within three weeks he has taken no steps to do so).

[40]     Island View is thus a creditor with standing to bring these proceedings.  The next issue is whether Mainline is insolvent.   On Mr Buxton’s own admission of its

position Mainline is unable to pay the debt it owes Island View.   During the course

of the interview with the liquidator Mr Buxton said:

Liquidator:     Can  [Mainline]  pay  that  debt  if  it  is  ultimately  found  that

[Mainline] is indebted to [Island View]?

Mr Buxton:     I don’t know at this time.

Liquidator:     Does [Mainline] have any assets to be able to pay that debt? Mr Buxton:    No, not to my knowledge.

Liquidator:     What assets does [Mainline] have? Mr Buxton:  None.

Liquidator:     What income does [Mainline] have? Mr Buxton:   None.

[41]     An admission by an authorised agent, particularly a director, that a company does  not  have  the  ability  (or  means)  to  pay  a  debt  is  evidence  of  insolvency: Re Douglas  [1962]  1  All  ER  498.           I  also  note  that  s  288(2)  of  the  Act  confirms insolvency  may  be  established  by  evidence  other  than  a  failure  to  pay  a  statutory demand.

Conclusion

[42]     Island View satisfies the Court that Mainline has no bona fide or substantial defence  to  its  claim  as  a  creditor.  Mainline  is  not  able  to  pay  the  debt  it  owes Mainline.  It has no assets nor income.  It is insolvent.  The ground for liquidation on the basis of insolvency is made out.

[43]     As noted above, Island View also relies on the alternative just and equitable ground.       In  support  of  that  ground  the  following  facts  are  relevant. Lot  31  was ultimately  sold  to  a  third  party  for  $2.9  million  dollars.   The  sale  was  by  a  trust associated  with  the  directors  of  Mainline.   It  followed  the  transfer  of  the  property (with  the  completed  house)  from  Mainline  to  the  trust.   The  liquidators  of  Island View are properly concerned that such actions seem to have been designed to defeat the creditors of  Island View who have effectively financed the construction of the

houses, the benefit of which has gone to Mainline and, through Mainline, the Buxton interests.   It is appropriate that the inquiries the liquidators wish to make be made and  that  access  be  had  to  Mainline’s  records  so  that  the  liquidators  can  take appropriate action to investigate further and trace the payments if necessary.

Result

[44]     There will be an order for the liquidation of Mainline.   Karen Betty Mason and   Lloyd  James  Hayward   are   appointed  liquidators  of  Mainline  Contracting Limited.   The liquidation is timed and dated as the time and date of the delivery of this decision.

Costs

[45]     Costs to the plaintiff on a 2B basis.

Venning J