Macky Trustee Company Limited v Mainline Contracting Limited (in liq) HC Auckland CIV 2010-404-006585
[2011] NZHC 167
•1 March 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-006585
BETWEEN MACKY TRUSTEE COMPANY LIMITED
Applicant
ANDMAINLINE CONTRACTING LIMITED (IN LIQUIDATION)
Respondent
Hearing: 8 February 2011
Counsel: G P Blanchard for applicant
R B Hucker and D L Lang Sui for respondent
Judgment: 1 March 2011 11:00:00
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 1 March 2011 at 11:00am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Macky Roberton, PO Box 37622, Auckland 1151 for applicantHucker & Associates, PO Box 3843, Auckland 1140 for respondent
MACKY TRUSTEE COMPANY LIMITED V MAINLINE CONTRACTING LIMITED (IN LIQUIDATION) HC AK CIV 2010-404-006585 1 March 2011
[1] This application to set aside a statutory demand has its genesis in an agreement for sale and purchase under which the respondent, Mainline Contracting Limited (in liquidation) (Mainline), sold a property to the applicant, Macky Trustee Company Limited (Macky Trustee), and Susan Buxton as trustees of the Lax Family Trust. The property was transferred from Mainline to the trustees in May 2007. Mainline contends that the trustees still owe it the sum of $1,375,000 as the balance of purchase price. It has issued a statutory demand against Mackay Trustee seeking payment of that sum.
[2] Macky Trustee does not dispute that it had an obligation to pay the full purchase price, but seeks an order setting aside the statutory demand on the ground that there is a genuine dispute as to whether that obligation has been discharged. It says that Mainline instructed it to pay the money now being demanded to a related company, Mainline Investments Limited (Mainline Investments), and that it made the payment to Mainline Investments.
[3] The issue for the Court is whether the applicant has established the existence of a genuine and substantial dispute, so as to render the statutory demand inappropriate.
Background to the dispute
[4] Macky Trustee is a trustee company which provides trustee services to clients of the law firm Macky Roberton.
[5] Mainline and Mainline Investments, at all material times, were controlled by the Buxton family, including Simon and Susan Buxton. Macky Roberton acted for the Buxton family, Mainline and Mainline Investments, and various associated interests including the Lax Family Trust.
[6] In the mid 2000’s, Buxton interests undertook a residential property development near Leigh in Northland. Mainline undertook some construction work for the developer Island View Estates Limited (also now in liquidation).
[7] In March 2006 Mainline took a transfer of one of the properties in the subdivision (Lot 31, now known as 116 Lax Crescent) from Island View Estates. In early 2007 Mainline entered into an agreement to sell Lot 31 to the trustees of the Lax Family Trust, Susan Buxton and Macky Trustee, for $2.1 million. Mainline has accepted for the purpose of this application that the purchase was funded, in part, by a loan of $725,000 from a finance company. There is a dispute, however, as to the funding of the balance of $1,375,000.
[8] The property was transferred into the joint names of Susan Buxton and Macky Trustee in May 2007, subject to a mortgage to Mainline Investments stipulating a priority amount of $1,375,000.
[9] The trustees on-sold the property a year later for the sum of $2.9 million. The sum $1,375,340 from the net proceeds of sale was transferred to Mainline Investments and the mortgage was discharged.
[10] Macky Roberton acted for both Mainline and the trustees of the Lax Family Trust on both the 2007 sale and the on-sale in 2008. The firm no longer acts for the Buxtons or their interests including those two companies and the trust. Macky Trustee retired as a trustee of the Lax Family Trust on 5 October 2010.
Principles for setting aside
[11] This application is brought under s 290 of the Companies Act 1993. The relevant provisions read:
290 Court may set aside statutory demand
(1) The Court may, on the application of the company, set aside a statutory demand.
....
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or is due; or
(b) The company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) The demand ought to be set aside on other grounds.
....
(7) An order under this section may be made subject to conditions.
[12] The courts[1] have established a number of general principles when determining such applications, including the following that are material to the present application:
[1] In Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA); Queen City Residential Ltd v Patterson
Co-Partner Architects Ltd (No. 2) [1995] 3 NZLR 307; United Homes (1998) Ltd v Workman [2001] 3
NZLR 447 (CA); Pioneer Insurance Company Ltd v White Heron Lodge Ltd (2008) 19 PRNZ 286 (CA); amongst others.
a) The applicant must show that there is a genuine and substantial dispute as to the existence of the debt;
b)It is not sufficient to merely assert the existence of a dispute – some material falling short of proof is required to support the claim;
c) If that material is produced, the dispute should normally be resolved by means other than liquidation proceedings;
e) In most cases it will not be possible or appropriate to resolve disputes of material facts on these applications, particularly where issues of credibility arise. Having said that, the court is not required to accept uncritically any or every allegation of a dispute of fact – it can and will assess whether facts being advanced as constituting a dispute pass a threshold of credibility, often by reference to contemporary
documents or other statements of a witness;
f) The task for the court is not to resolve the dispute, but to determine whether there is substantial dispute as to whether or not the debt is due, or whether there is a reasonably arguable basis for a counterclaim or set-off which exceeds the demand, or that there is some other factor which makes it plainly unjust for liquidation proceedings to ensue.
The alleged dispute
[13] Counsel for Macky Trustee contended that this is a relatively simple case:
(a) He argued that the trustees had met their obligations to pay the purchase price by paying the balance to Mainline Investments, at the request of Mainline.
(b)He relied on the legal principle that payment of a debt to a third party, at the request of a creditor, is the equivalent of payment direct to the creditor and constitutes a good discharge of the debt.[2]
[2] HG Beale (ed) Chitty on Contracts (30th ed, Sweet & Maxwell, London, 2008) at [21.042] and Laws of New Zealand, Contract (online ed) at [297], both relying on Roper v Bunford (1810) 3 Taunt. 76;
128 ER 31.
(c) He referred to the evidence of Susan Buxton, Macky Trustee’s director Peter Macky (who is also a principal of Macky Roberton), and of a solicitor in the employ of Macky Roberton (Susan Wyness), all to the effect that:
(i) Susan Buxton had instructed Macky Roberton to act for both
Mainline and the Lax Family Trust;
(ii)Susan Buxton informed Macky Roberton at time of settlement that the Lax Family Trust would satisfy its obligation to pay the balance of purchase price ($1,375,000) to Mainline by making payment to Mainline Investments, but not
immediately, and that this sum was to be a loan from Mainline
Investments to the Lax Family Trust, secured by a mortgage over Lot 31;
(iii)Macky Roberton was instructed to prepare settlement documents reflecting these instructions; and
(iv) Susan Buxton, at that time, was the sole director of both
Mainline and Mainline Investments.
[14] Counsel for Mainline countered the submission that this was a straight- forward matter, with the submission that this transaction requires investigation by a liquidator. He referred to comments made by this court at the time of making an order placing Mainline into liquidation[3] that the transfer of Lot 31 from Mainline to the Lax Family Trust was a matter that warranted investigation by the liquidators of Mainline (the court noted the concern of the liquidators of Island View that its
creditors had effectively financed the construction of the house on Lot 31 as well as on another property and that the benefit appeared to have gone to Mainline and, through it, to Buxton interests).
[3] Island View Estates Ltd (in liquidation) v Mainline Contracting Ltd HC Auckland CIV 2008-404-
003840, 5 February 2010 at [43].
[15] Counsel argued that Macky Trustee had failed to produce sufficient evidence to establish a genuine and substantial dispute as to whether the trustees had discharged their obligation to pay the purchase price for Lot 31. He submitted that Macky Roberton’s contention that its liability was discharged by an instruction from Mainline to pay to Mainline Investments was no more than assertion, unsupported by the kind of documentary records that could be expected of such a significant transaction, and lacked any credibility:
(a) There was no evidence of any agreement which could supplant
Mainline’s obligation to pay the purchase price;
(b) There was no reason given for payment to be made by Mainline to
Mainline Investments;
(c) There was no payment of money to Mainline, or on to Mainline Investments at the time of the transfer of the property to Lax Family Trust (either through Macky Roberton’s trust account or otherwise);
(d)The evidence as to the ―instruction‖ to pay to Mainline Investments was in very general terms (it did not make clear when or how the instruction was given and did not expressly say that it was given on behalf of Mainline), and there was no written record to support it, no file note by the solicitor, no minutes of either Mainline or the Lax Family Trust, and no documentation of the arrangement with Mainline Investments (such as a deed of acknowledgment of debt).
[16] Counsel for Mainline argued that the settlement statements could not be taken as evidence of payment in these circumstances, and submitted that the court should reject the evidence of Mr Macky, Ms Wyness and Mrs Buxton as lacking in credibility (there was none of the documentation that an experienced solicitor could be expected to have produced to record a departure from what was otherwise a standard obligation under a sale and purchase agreement).
[17] The essential issue, therefore, is whether Macky Trustee has discharged its evidential onus of satisfying the court (by material short of the proof) that it has discharged its obligation to pay the purchase price, by paying to Mainline Investments on the instructions of Mainline.
[18] In its application, and in counsel’s submissions, Macky Roberton also argued that there was a substantial dispute as to whether it could be liable for the purchase price, in any event, as the agreement for sale and purchase was likely to have contained a clause limiting its liability to the assets of the trust. Its counsel did not advance this argument any further at the hearing. The agreement for sale and purchase has been lost (as has the whole of Macky Roberton’s conveyancing file), so that the presence or absence of the standard form limitation of liability clause (clause
14 of the ADLS standard form) cannot be established. Counsel accepted that Mr Macky’s and Ms Wyness’ belief that the agreement was on the standard ADLS form, and included clause 14, could not be supported by any firm evidence.
[19] There was also a further argument advanced on behalf of Macky Trustee, that its liquidation would be pointless as it was no longer a trustee, did not hold any funds or relevant documents, and as it was no longer a trustee it had no power to obtain documents relating to the Trust. Counsel for Mainline submitted that these were not matters which should affect the exercise of the court’s discretion. There was still value to a liquidation in that it would give the liquidators an entitlement to exercise rights of indemnity, and it was accepted that there was still an asset within the trust (albeit that there is a dispute as to whether there is any equity in that asset).
Is there a genuine and substantial dispute?
[20] There appear to be questions in relation to this transaction generally which warrant further investigation. However, the issue on an application to set aside a statutory demand is to determine whether or not there is a substantial dispute as to the sum being demanded, before embarking on the process of liquidation and the investigation that is then possible.
[21] Similarly, there are a number of aspects to the case being advanced by Macky Trustee which raise doubts as to who received the benefit of the purchase price for Lot 31 in April 2007. It is curious that there was no documentation of the instruction, whether in the form of a file note or correspondence from Macky Roberton to Mainline to confirm it. There is also merit in the point made by counsel for Mainline that no evidence has been given either by the solicitors (who were acting for all parties at the time) or Mrs Buxton as to the reason for the payment to be made to Mainline Investments (such as to satisfy a prior obligation, or pursuant to an agreement).
[22] I am also conscious of the comments of this court as to the need to give proper emphasis to the words ―substantial dispute‖ in s 290(4)(a).[4] That is ultimately a question of fact, to be determined after taking all relevant circumstances into
account and requiring proof of facts sufficient to constitute a fairly arguable case.[5]
[4] Wealand International (NZ) Ltd v Safe Kids in Daily Supervision Ltd HC Auckland CIV 2008-404-004658, 3 December 2008.
[5] Refer authorities above, n 1.
[23] Macky Trustee’s case comes down to the fact that Mrs Buxton, director of Mainline, instructed Macky Roberton to pay the balance of the purchase price ($1,375,000) to Mainline Investments, and that Mainline Investments was to lend that money back to the Lax Family Trust on mortgage. Macky Roberton says it prepared settlement statements in accordance with those instructions. The statement issued to Mainline shows receipt of the whole of the purchase price, and payments to a third party mortgagee (not in issue in this application) and to Mainline Investments ($1,375,000). The statement to the trustees of the Lax Family Trust shows a payment out of the purchase price, and receipts by way of mortgage advance from both the third party financier (evidencing a transfer of the mortgage obligation on the land) and from Mainline Investments of the disputed sum of $1,375,000.
[24] The critical point is whether there was an instruction from Mainline to pay the money to Mainline Investments. If so, that payment will discharge the debt.[6]
Notwithstanding that questions remain as to the instruction and its implementation, the court has evidence before it of two experienced solicitors and the director of Mainline (being the party entitled to payment of the purchase price), that the sum of
$1,375,000 due to Mainline was to be paid to Mainline Investments. The settlement statements, which have been obtained electronically from Macky Roberton’s computer system, are evidence of the contemporaneous preparation of settlement statements reflecting the instruction. The other matters raised by counsel for Mainline such as lack of explanation for the payment may well warrant further investigation (Mainline Investments still exists and is thus available for recourse if it was not in fact entitled to the benefit of the payment), but that is a different issue. I am not prepared to reject this evidence, as I would need to do if I was to rule that there is no substantial dispute.
[6] Refer authorities above, n 2
[25] In coming to this view, I have not overlooked other aspects of Mainline’s
argument:
(a) There was no transfer of money between the parties at the time of the settlement and transfer to the Lax Family Trust. However, that was an aspect of the (disputed) instruction to Macky Roberton: the payment
was not to be made immediately, but was to become a loan from Mainline Investments (in other words it was to be a paper transaction at that point). There is documentary support for this in the mortgage to Mainline Investments that was subsequently registered. There is evidence of payment of this obligation in a journal transfer of
$1,375,340 in Macky Roberton’s trust account records at the time of
the on-sale of the property on 20 March 2008.
(b)Although the direct evidence of the instruction is general, and it would be reasonable to expect an instruction of that nature would be recorded, it may be that the instruction was recorded at the time (Macky Roberton’s conveyancing file cannot currently be located). Counsel for Mainline challenged the fact that there was no typewritten record (which could have been extracted from the computer system), but that does not rule out the possibility of a handwritten note. In any event, although not definitive, the settlement statements are consistent with the instruction having been given.
(c) The fact that there is no evidence that Lax Family Trust had the funds to settle, again is not determinative – particularly in light of the instruction that was allegedly given (which did not require cash from Lax Family Trust).
(d)There is some merit to the criticism of counsel for Mainline of the lack of specifics as to the alleged instruction but, again, that is insufficient to rule out the affidavit evidence and the settlement statements on a summary application such as this. The affidavit evidence is that the instruction was given just before settlement, and that it was given by Mrs Buxton who was sole director of both Mainline and Mainline Investments as well as being a trustee. It must be arguable, for the purposes of the present application, that if it was given, it was given on behalf of Mainline.
(e) The last criticism was that there was no detail of the instruction itself.
The affidavit evidence, however, is clear that it was to make the payment to Mainline Investments with effect from a future date. As I have said, there is support for that in the documents that have been produced, including the trust account ledger showing the payment to Mainline Investments in March 2008.
[26] Although Mainline’s criticisms of the evidence are understandable, I have
come to the view that there is sufficient evidence to raise a fairly arguable dispute.
Limitation of liability
[27] As counsel for Macky Trustee did not pursue this point, and in light of the finding I have just made, I do not have to address this ground of Macky Trustee’s application.
Discretion
[28] Counsel both addressed me on what I consider to be matters going to the court’s discretion: Macky Trustee contended that it would serve no useful purpose to liquidate it, as it is no longer a trustee and does not therefore hold the Trust’s remaining asset, and because it neither holds any further documents nor has any entitlement to request them. Mainline argued that an order for liquidation will nevertheless afford a liquidator the opportunity to take up Macky Trustee’s right of
indemnity out of Lax Family Trust assets[7], and to explore the currently uncertain
position as to any equity in the trust’s one asset.
[7] Levin v Ikiua [2010] 1 NZLR 400; Newmarket Trustees Limited v Commissioner of Inland Revenue
HC Auckland CIV 2009-404-008108, 14 April 2010
[29] The court has a wide discretion under s 290(4), but where grounds for a substantial dispute exist, the court will exercise its discretion not to set aside only
rarely, and where there are strong grounds for doing so[8]. In light of my finding that
there is a substantial dispute as to whether or not Macky Trustee has discharged its obligation (as one of the trustees) to pay the purchase price, Mainline’s wish to exercise Macky Trustee’s right of indemnity does not constitute the strong grounds needed. This is particularly so in light of the evidence that the trust asset is fully encumbered, or nearly so.
[8] Primary Health Remuera Limited v Avoca Residential Construction Limited (2004) 9 NZCLC
263,647 (CA) at para 42
[30] Counsel for Mainline also argued that I should decline to set the demand aside on the ground that the court should not allow asset-less companies to take up the role of corporate trustees, relying on Commissioner of Inland Revenue v Chester Trustee Services Limited[9]. I am not persuaded that that authority is on point. In that case Chester was found to be liable for tax that was payable by two trusts (in other words there was no dispute that the tax was due) but sought to have the demand set aside on the ground that the liquidation would be pointless and liquidation would require its removal from a number of properties which it held as trustee for other trusts. If Macky Trustee was relying solely on pointlessness or inconvenience, the
authorities would be relevant. However, the difference in this case is that there is a substantial dispute as to whether the debt has been discharged.
Decision
[9] Commissioner of Inland Revenue v Chester Trustee Services Limited [2003] 1 NZLR 395 (CA);
[31] I find that there is a substantial dispute as to whether or not Macky Trustee is liable for the sum demanded of it, namely $1,375,000, as part of the purchase price for Lot 31. This finding is not to be taken as a finding one way or the other on ultimate beneficial ownership of that money.
[32] The application to set aside the statutory demand is granted.
[33] As the successful party, Macky Trustee is prima facie entitled to costs on a
2B basis, together with disbursements as fixed by the Registrar. As counsel did not address me explicitly on costs, I reserve leave for either party to file a memorandum
within 10 working days if any other costs order is required. If no memorandum is
filed, Macky Trustee is entitled to seal an order for costs on a 2B basis, plus
disbursements.
Associate Judge Abbott
similarly Newmarket Trustees Limited v Commissioner of Inland Revenue HC Auckland CIV 2009-
404-008108, 14 April 2010
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