McRaeway Group Ltd v Lane Neave - [2017] NZHC 1138

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2017-409-000054 [2017] NZHC 1138

BETWEEN
MCRAEWAY GROUP LIMITED

Plaintiff

AND

LANE NEAVE Defendant

Hearing: 11 May 2017

Appearances:

T J Mackenzie for Plaintiff
P Hunt and A Colgan for Defendant

Judgment:

29 May 2017

JUDGMENT OF ASSOCIATE JUDGE OSBORNE
[on plaintiffʼs summary judgment application]

Introduction

[1] The plaintiff was served with a statutory demand.1 It gave the demand to its lawyers (the defendant) with instructions to dispute the claim as soon as possible. The lawyers did not provide any advice as to the time limits under the demand.2
They did not take steps to dispute the demand within the statutory time limits. The plaintiff was therefore presumed to be unable to pay its debts.3

[2] During this period, the plaintiff was entitled to benefits as licensee under a licence agreement with a third party. The third party under the licence agreement had a right of cancellation in the event the licensee was presumed, as a matter of law, to be insolvent. The third party, upon becoming aware of the plaintiffs’ presumed
inability to pay its debts, cancelled the licence agreement.

1      Under s 289 Companies Act 1993.
2      Ten working days for the filing of a setting aside application (s 290 Companies Act) and 15 working days for satisfaction of the demand (s 289(2)(d)) Companies Act.
3      Companies Act 1993, s 287(a).

MCRAEWAY GROUP LIMITED v LANE NEAVE [2017] NZHC 1138 [29 May 2017]

[3] The plaintiff was unable to resurrect the licence agreement.

[4] The plaintiff sues for the losses incurred through its inability to trade under the licensed brand.

[5] The plaintiff seeks summary judgment as to the defendant’s liability (but not

as to the amount of damages).

[6] By the time the licence agreement was cancelled, the plaintiff had received a second statutory demand. It also gave that demand to the lawyers to deal with. The lawyers again failed to provide advice or to dispute the demand within the statutory time limits. A presumption of insolvency also arose on this second demand. While the plaintiff pleads that the defendant was negligent in relation to both demands, there is, by reason of the analysis which follows, no need to examine in detail the aftermath of the second demand.

The relevant facts

The MHL/McRaeway licence agreement

[7] The plaintiff (McRaeway) traded as a house building company with a long established brand “McRaeway”. In January 2015, McRaeway sold the business to McRaeway Homes (2015) Ltd (MHL). Under the sale agreement McRaeway was licensed to use the branding “McRaeway Christchurch” in parts of North Canterbury. McRaeway had for some 10 years used Lane Neave (a Christchurch law firm) as its lawyers. Lane Neave acted for McRaeway in transacting (but not negotiating) the sale. After settlement, Lane Neave drafted and negotiated the terms of a more detailed licence agreement, first drafted around February 2015. It was ultimately (in final form) executed by McRaeway on 17 June 2015 and by MHL on 21 September

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.

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Details

Case: [2017] NZHC 1138
Decision Date: 29 May 2017

CaseChat Overview and Summary

The plaintiff, McRaeway Group Limited, sued its former lawyers, Lane Neave, for professional negligence. The basis for the claim was that Lane Neave failed to provide advice on statutory demands served on McRaeway, resulting in the loss of a licence agreement. The case came before the court on a summary judgment application, with the plaintiff seeking judgment as to the defendant’s liability, but not as to the amount of damages. The court found in favour of the plaintiff and ordered that the defendant pay the costs of the application on a 2B basis. The parties were to proceed to a trial as to the amount of damages.

Lane Neave had been acting for McRaeway in relation to the sale of its business. After the sale, the purchaser, McRaeway Homes (2015) Limited (MHL), entered into a licence agreement with McRaeway which was subject to the condition that MHL could terminate the agreement if McRaeway was presumed, as a matter of law, to be insolvent. McRaeway was served with two statutory demands by two different companies. McRaeway gave the demands to Lane Neave with instructions to dispute the claims as soon as possible. Lane Neave failed to provide any advice as to the time limits under the demands, and did not take any steps to dispute the demands within the statutory time limits. The presumption of insolvency arose. MHL terminated the licence agreement.

The court was required to determine whether Lane Neave had breached its duty to advise and act, and whether that breach had caused the plaintiff to suffer loss. The court found that Lane Neave had breached its duty. Lane Neave had been instructed to dispute the statutory demands, but it had failed to act as instructed. Lane Neave had also failed to provide advice as to the time limits and the procedures for disputing the demands. The court found that, on the evidence, it was clear beyond doubt that, if properly advised as to their options and consequences, McRaeway would not have allowed acts of insolvency to occur. The very risk that a liquidation proceeding might flow from an unpaid claim of $1,216.43 strongly indicated as much. The suggestion that either of the directors would have supported the defendant’s “option 3” (to seek to resolve the matter with the creditor without paying the demand or applying to set it aside) was unsustainable. It was not credible to suggest that businessmen of the directors’ conceded acumen would have taken a risk as to such eventualities. The court found that the defendant’s breach of duty had caused the plaintiff to suffer loss.

Orders