Lilley v Shephard and Dunphy

[2006] NZCA 152

IN THE COURT OF APPEAL OF NEW ZEALAND

CA89/05

BETWEENALEX ANDREW LILLEY AND ALICE CHARLOTTE LILLEY

First Appellants

ANDVIVIENNE MARY LILLEY

Second Appellant

ANDIAN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY AS LIQUIDATORS OF FORMWORK HIRE LIMITED (IN LIQUIDATION)

First Respondents

ANDBRUCE MCCALLUM AS LIQUIDATOR OF FORMWORK CONSTRUCTION LIMITED (IN LIQUIDATION)

Second Respondent

ANDLANVARK LIMITED

Third Respondent

Hearing:20 June 2006

Court:Chambers, O'Regan and Robertson JJ

Counsel:A D Banbrook for Appellants

 T J Anderson for First Respondents

Judgment:4 July 2006 

JUDGMENT OF THE COURT

A        THE APPEAL IS DISMISSED.

BThe first and second appellants are jointly and severally liable to pay to the first respondents cost of $6,000, together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Robertson J)

Introduction

[1]       This is an appeal against the entry of summary judgment by Associate Judge Faire in the High Court at Auckland on 29 April 2005.

[2]       Comprehensive proceedings were commenced in 2004 with regard to the operation of three companies which at material times were in the control of members of one family.  Summary judgment was sought first in respect of the ownership of a Climetrac (at times in documents and proceedings called “Climbtrac” but herein consistently referred to as “Climetrac”) moveable scaffolding system (with consequential orders as to return and liability for conversion) and, secondly, the conversion of a Holden motor vehicle.

[3]       The appeal relates only to the scaffolding system.  The appellants contend that the Judge was wrong to find that the Climetrac system was owned by a company called Formwork Hire Limited;  rather it was owned by a company called Formwork Construction Limited.  The question for us is whether that contention was fairly arguable.  If it was, the Judge should not have entered summary judgment.

Factual circumstances

[4]       In the late 1990’s and early 2000’s, two companies were incorporated in Auckland.  We are told this was under the direction of Roger Lilley, although the probative evidence on the point is sparse.

[5]       The first was Formwork Construction Limited (FCL) which was incorporated on 11 November 1999.  Its directors were David and Rochelle Lilley who are children of Roger Lilley.  The sole shareholder was Mr I McElwee who appears to have held the shares on trust for Roger Lilley.  FCL was placed in liquidation on 16 May 2002.  The second respondent is the liquidator (Mr McCallum).

[6]       A second company was incorporated on 27 June 2000.  It was initially known as Boxer Hire Limited but subsequently changed its name to Formwork Hire Limited (for ease of reading we consistently refer to it as FHL).  Its shareholders and directors were Mr A A Lilley and his wife Mrs A C Lilley, the first appellants, who are the parents of Roger Lilley.  This company was placed into liquidation on 12 February 2003.  The first respondents (Mr Shephard and Ms Dunphy) are the liquidators.

[7]       Roger Lilley has left New Zealand and moved to Australia.  Various assertions are made about his position there, but they are not relevant to our inquiry.

[8]       In 2001, FCL agreed to sell to FHL the Climetrac system, the ownership of which is in dispute in the present appeal.  Although the actual agreement is undated, it appears to have been entered into on or about 1 April 2001 with a purchase price of NZ$545,902.00.  Payment of the purchase price was required to be made as follows:

(a)       $36,000 in cash on 1 April 2001 or on delivery;

(b)by bank cheque for $324,000.00; and

(c)the balance by FHL executing a deed of acknowledgement of debt in the sum of $185,902.00 in favour of FCL.

[9]       A deed of acknowledgement was signed but not dated on behalf of FHL for the sum of $185,902.  There is no evidence that FHL paid the balance of the purchase price to FCL.

[10]     Clause 17 of that sale and purchase agreement provides:

Time of transfer of title in goods to purchaser

When the goods are ascertained and deliverable, then the title in the goods passes to the purchaser:

(a)is made or the goods are delivered

(b)when the purchaser shall have paid the price together with any additional charges as set out in this agreement.

[11]     There are clearly typing or drafting errors in this provision, but for the purposes of argument we accept it could be found to mean that, until there is full payment, title does not pass.  Although evidence on the point is quite unsatisfactory for the purposes of the appeal, we accept that it could be concluded that at least part of the price remains unpaid.

[12]     At about the same time (regrettably there are many undated documents), four chattel leases were entered into between FHL as lessor and FCL as lessee in respect of Climetrac componentry.  All were for a term commencing 1 April 2001 and expiring 1 August 2012.  All provided:

The lessor retains full title to the chattel notwithstanding:

(a)       the delivery of the chattel to the lessee;

(b)the possession and use of the chattel by the lessee; and/or

(c)any temporary attachment of the chattel to any land or premises pursuant to clause 8 of this agreement of lease to facilitate the use of the chattel,

subject only to the rights of the lessee as a mere bailee of the chattel with a right only to use the chattel in accordance with, and under, this lease.

[13]     Each of these was signed by the first appellants, Mr and Mrs Lilley, for FHL the company of which they were directors and shareholders.  The signature for FCL appears to be that of Rochelle Lilley (their granddaughter), who was one of the directors of that company.

[14]     Subsequently a further deed was entered into on 20 April 2002.  The parties to it were Downer Construction (NZ) Limited, FCL, FHL, Climetrac Hire Limited and the first appellants personally.

[15]     Critical to the issues before us are some of the Recitals:

…

C.The formwork to be used by Formwork Hire on the project is known as the “Climetrac formwork system” and was formerly owned by Formwork Construction and Climetrac Hire and is now owned by Formwork Hire.

D.Mr and Mrs Lilley are directors of Formwork Hire and have agreed to personally guarantee the performance by Formwork Hire of its obligations under the subcontract to be entered into between Downer and Formwork Hire.

And parts of the operative section of the Deed including:

1.Formwork Hire warrants that it is the owner of the materials and plant comprising the Climetrac formwork system which is to be used by it for the formwork support system on the project.

2.Formwork Construction acknowledges that the Climetrac formwork system to be used on the project is the property of Formwork Hire.

…

3.Mr and Mrs Lilley personally guarantee to Downer the performance by Formwork Hire of its obligations under the subcontract to be entered into between Downer and Formwork.

[16]     Mr and Mrs Lilley individually signed the deed.

High Court proceedings

[17]     These proceedings were commenced by Mr Shephard and Ms Dunphy as liquidators of FHL.  Inasmuch as it is relevant to the appeal, they were seeking a declaration that FHL was the owner of the Climetrac equipment and was entitled to possession of it.  An account for rents received during the time that it was unlawfully held by others was also sought.

[18]     There were three affidavits filed by Mr Shephard, one by Mr Peter Bragg (who had been the General Manager of FHL from February 2001 to October 2002), and two by the second appellant before us, Vivienne Lilley (who was a director of the third respondent, Lanvark Limited, and who asserted that she was authorised to speak on behalf of her parents Mr A A Lilley and Mrs A C Lilley).

[19]     The basic contest in the summary judgment hearing was that there were arguable defences to the claims of the liquidators of FHL.  In the statements of defence which had been filed on 2 November 2004, particular emphasis was placed on the 1 April 2001 purchase agreement.  It asserted that no part of the purchase price had been paid.  It also pleaded a possessory lien by FCL over the Climetrac componentry.

[20]     At the hearing before Associate Judge Faire on 21 April 2005 there was opposition from Mr and Mrs Lilley and Ms Vivienne Lilley (the current appellants) and Lanvark Limited. 

[21]     Of critical importance was the position of Mr McCallum, the liquidator of FCL, who advised the Court by letter dated 9 November 2004 as follows:

The liquidator of Formwork Construction Limited (in liquidation) consents to the above proceedings against Formwork Construction Limited (in liquidation) and does not oppose entry of judgment against Formwork Construction Limited (in liquidation) in terms of the statement of claim dated 3 September 2004.

[22]     As Associate Judge Faire noted, the effect of this letter is a consent by the liquidator of FCL to a declaration that FHL is the lawful owner of the Climetrac moveable scaffolding system.

[23]     One might have thought that concession by the party directly affected would be the end of the matter.  Notwithstanding there were vigorously contested hearings before the Associate Judge.  In a careful decision delivered on 29 April 2005 the Associate Judge noted the various contentions made, set out in a manner which is not criticised, the principles applicable on all summary judgment applications and concluded (amended to include the parties’ names):

[42]     The position summarised in relation to the first ground of opposition is:

(a)It is arguable that if payment was not made, the title in terms of clause 17 of the agreement of 1 April 2001, to the climetrac, has not passed to (FHL).  I appreciate and record that I discussed with counsel the approach that should be adopted to the interpretation of clause 17 of the 1 April 2001 agreement but, for reasons, mentioned in the next subparagraphs, it is unnecessary to traverse that further;

(b)The above point, however, is not taken by the only other party involved in the 1 April 2001 agreement, namely (FCL).  (FCL) simply has no objection to a declaration that (FHL) is the lawful owner of the climetrac.  In other words, (FCL) adopts a position which is consistent with the statements contained in documents executed subsequent to the purchase transaction by the principal parties involved.  In doing so it waives compliance by (FHL) with clause 17(b).  (FCL)’s action and acknowledgement clearly demonstrate an unequivocal intention to waive compliance with clause 17(b).  See for example: New Zealand Railways Corporation v Fletcher Development and Construction Limited (1990) 1 NZ ConvC 190,464 at 190,467 (CA);

(c)(Mr and Mrs Lilley) have not, themselves, advanced a claim that the documents which they signed, in particular the leases in 2001 and the Downer Construction (NZ) Limited deed in 2002, were shams or were in some way not binding on them;

(d)All the documents produced are consistent with an acknowledgement by (FCL) that it had passed title to (FHL) in respect of the climetrac;

(e)Points (b), (c) and (d) close the door on the arguable defence that the title was not passed because of a lack of evidence of payment.

[24]     The Associate Judge then turned to the opposition on the basis of a possessory lien.  Having referred to Mr Anderson’s submissions on the applicable law as identified in Garrow & Fenton Law of Personal Property in New Zealand (6ed 1998) at [9.004], he concluded:

(a)There is no direct evidence of an advance from (Mr and Mrs Lilley) to (FCL);

(b)No evidence is advanced of any agreement between (Mr and Mrs Lilley) and (FCL) concerning the advance;

(c)There is no evidence of any security documents executed between (Mr and Mrs Lilley) and (FCL) providing the first defendants with a security interest in the climetrac;

(d)There is no evidence of any registration of an interest under the Personal Properties Securities Act 1999 in respect of the climetrac;

(e)There is no evidence of any demand having been made by (Mr and Mrs Lilley) to (FCL) for sums that might be owing;

(f)Importantly, there is no evidence showing that (Mr and Mrs Lilley) are in possession of the climetrac.  Indeed, the contrary is the case because (Lanvark and Vivienne Lilley) acknowledge they are in possession of the climetrac.  In addition, Mr Peter Bragg, (FHL)’s general manager at the relevant time, has sworn an affidavit that (FHL) was in possession of the climetrac.

[25]     The Judge was accordingly satisfied that a summary judgment should be entered and the orders sought were made.

The appeal

[26]     At the start of the hearing before us, we alerted Mr Banbrook, for the appellants, to what seemed to us an insurmountable hurdle:  what right did the appellants have to challenge FHL’s claim to ownership and possession when FCL’s liquidator did not?

[27]     The contestants as to the ownership of the property were FHL and FCL.  Mr A A Lilley and Mrs C A Lilley were, prior to liquidation, directors and shareholders of FHL.  Upon liquidation, directors of a company remain in office but cease to have any powers, except for the limited powers permitted in part 16 of the Act:  Companies Act 1993, s 248(1)(b).  Thus they do not have any standing to commence proceedings on behalf of the company.  Further, as shareholders, they have no status to take action.

[28]     It appeared that their concern, at least as transmitted by their daughter Vivienne, was that they had advanced money to their son Roger which had gone into FCL.  This was used in the payment made to acquire the rights from the Australian company BEP and that they were unlikely to be able to recover that money.  Understandable as their concern may be in human terms, it provides no legal right of action.

[29]     Ms Lilley accepted that she and her company were in possession of the Climetrac.  She said this was on behalf of her parents, who had asserted a lien over the Climetrac “to secure repayment of a debt owed to them by Roger Lilley”.  Mr and Mrs Lilley Senior did not give evidence, but in any event it is clear that Vivienne Lilley’s claim to possession was quite untenable.  Her parents had no power to confer any possessory right to the Climetrac on either her or her company.  And she has no status, of course, to advance a claim on behalf of FCL.

[30]     We adjourned early for lunch to enable Mr Banbrook to reconsider his position in light of apparently insurmountable problems.

[31]     Although not specifically abandoning the appeal, he advised that he had no additional submissions to make beyond those contained in his written material.

Discussion

[32]     In light of the factual history, we are convinced that the arguments advanced by Mr Banbrook in his written submissions cannot assist his clients.

[33]     We are satisfied (and it was not argued to the contrary) that the Judge was alive to the proper principles governing an application for summary judgment and applied them.

[34]     At the heart of the appellants’ case was the contention that the agreement for sale and purchase of 1 April 2001 prevailed because the purchase price required had not been paid.  The uncontradicted evidence is that the parties subsequently agreed to something different.  There is a clear evidential foundation for the conclusion of the Associate Judge that title to the Climetrac system had gone to FHL prior to liquidation.

[35]     Mr Banbrook argued that the letter written by Mr McCallum (discussed above at [21]) consenting to these proceedings in line with s 248(1)(c) of the Companies Act 1993 amounted to an unlawful disclaimer of property by a liquidator.  Given our view as to the ownership of the Climetrac system, we reject this argument.  The letter could not operate as a disclaimer because, when written, title did not lie with FCL and therefore there was no property for the liquidator to disclaim.

[36]     There was sufficient evidence to satisfy the Court that the appellants had no defence to the claim made by Mr Shephard and Ms Dunphy and in view of that it was proper for Associate Judge Faire to grant summary judgment in accordance with r 136 of the High Court Rules.

Result

[37]     The appeal is dismissed.  The first and second appellants are jointly and severally liable to pay to the first respondents costs of $6,000, together with usual disbursements.

Solicitors:
C K Lyon, Solicitor for Appellants, Auckland
Gibson Sheat, Solicitors for First Respondent, Wellington