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Madsen-Ries v Rapid Construction Ltd

Madsen-Ries v Rapid Construction Ltd

Case [2013] NZCA 489 16 October 2013

Good Faith

Alteration of Position

Unconscionable Conduct

Statutory Interpretation

Set-off

Contract Formation

Commercial Law

Corporate Law & Governance

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA76/2013
[2013] NZCA 489

BETWEEN	VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN Appellants
AND	RAPID CONSTRUCTION LIMITED Respondent

Hearing:	2 October 2013
Court:	Harrison, White and Priestley JJ
Counsel:	R P Coltman and A C N de Hamel for Appellants B D Gustafson for Respondent
Judgment:	16 October 2013 at 10.30 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellants must pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Harrison J)

Introduction

The liquidators of Giant Engineering Ltd (in liq) (Giant) appeal against a decision of Associate Judge Abbott that the respondent, Rapid Construction Ltd (Rapid), had established a statutory defence to the liquidators’ application for an order seeking repayment of a sum of money on the ground that the payment constituted a voidable transaction.[1]
[1]Madsen-Ries v Rapid Construction Ltd [2012] NZHC 3572.
The liquidators’ appeal falls for determination solely on the application of the statutory test contained in s 296 of the Companies Act 1993 (the Act) to undisputable facts.

Background

Rapid is an event management and construction company. Prior to its liquidation, Giant manufactured and supplied equipment in the scrap metal and rubbish collection industry. Rapid and Giant had provided services to each other since 2007.
In or about August 2009 Giant suffered a disruptive fire at its business premises. Rapid and another of Giant’s customers agreed to continue trading with the company and help it to re-establish its business. Rapid’s director, John Paul Hume, gave unchallenged evidence in the High Court (which was accepted by the Associate Judge) about the nature of the arrangement. In essence, Rapid agreed to provide Giant with materials for work which Giant was undertaking for Rapid and other customers. On periodic completion of Giant’s services the companies were to calculate the value of each other’s respective contributions, and make a payment to settle the net difference.
In late October 2010 the parties calculated that Giant owed Rapid $129,482.22 and Rapid owed Giant $90,713.50. On 4 November 2010 Giant paid $15,930.38, leaving a balance owing to Rapid of $113,551.84. That sum remained owing following Giant’s payment of an additional invoice for $13,374.09 in December 2010. On 7 January 2011 the parties swapped cheques for the amounts of their respective indebtedness; that is, Giant paid Rapid $113,551.84 and Rapid paid Giant $90,713.50. Giant was then in a state of insolvency.
The liquidators gave Rapid notice of an intention to set aside Giant’s payment of $113,551.84 because it was a voidable transaction in terms of s 292 of the Act.[2] Rapid failed to file a notice of objection within the statutory period. As a result, the transaction was set aside automatically under s 294(3).[3]
[2]Such notice must be given under s 294 of the Companies Act 1993.
[3]Rapid was required to serve a notice of opposition within 20 working days under s 294(3), the last date for…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Madsen-Ries v Rapid Construction Ltd

Details

AGLC: Madsen-Ries v Rapid Construction Ltd [2013] NZCA 489
Case: [2013] NZCA 489
Decision Date: 16 October 2013 at 10.30 am

CaseChat Overview and Summary

Madsen-Ries and Levin, liquidators of Giant Engineering Ltd, appeal against a decision of the Associate Judge that Rapid Construction Ltd had established a statutory defence to their application for repayment of a sum of money, claiming it constituted a voidable transaction. The sole issue on appeal is whether the Associate Judge erred in determining that Rapid satisfied all three elements of the statutory defence under s 296 of the Companies Act 1993. The Court found that the liquidators failed to establish that the Associate Judge erred in finding that Rapid had satisfied the first limb of good faith, as Rapid acted on the basis of an honest belief of no element of undue preference. The Court also found that there was nothing to suggest that a reasonable person in Rapid’s position would have had the requisite suspicion of insolvency, and that Rapid altered its position by foregoing an opportunity to have a set-off applied on Giant’s liquidation under s 310 of the Act. The appeal is dismissed, and the liquidators must pay Rapid costs for a standard appeal on a band A basis together with usual disbursements.

Orders