Moffat Road Limited v North Harbour Motors Limited (in liquidation)
[2018] NZHC 2023
•9 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-0832
[2018] NZHC 2023
BETWEEN MOFFAT ROAD LIMITED
Applicant
AND
NORTH HARBOUR MOTORS LIMITED (IN LIQUIDATION)
First Respondent
DIGBY JOHN NOYCE
Second Respondent
Hearing: 6 August 2018 Appearances:
M J Ruffin for the Applicant
H L Thompson for the Respondents
Judgment:
9 August 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 9 August 2018 at 3.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Carson Fox Legal, Auckland M J Ruffin, Auckland
McMahon Butterworth Thompson, Auckland
MOFFAT ROAD LTD v NORTH HARBOUR MOTORS LTD (in liq) [2018] NZHC 2023 [9 August 2018]
[1] The applicant (Moffat) applies to set aside a statutory demand issued by the respondent (North Harbour) on 20 April 2018. The statutory demand was issued for the sum of $60,000, said to be made up of two separate deposits, each of $30,000, paid by North Harbour on the purchase of properties at 1/14A Moffat Road, Red Beach and 14A Moffat Road, Red Beach (collectively, "the properties").
[2] The deposits were paid by North Harbour under agreements for sale and purchase dated 6 July 2015 (the Agreements), in which the purchaser was North Harbour and its director and shareholder Michael Painter, or nominee. The purchase price was $1 million for each of the properties, and settlement was to be on 31 August 2015. Settlement was later extended to 21 September 2015.
[3] Moffat was incorporated on 17 September 2015. Its initial shareholders were Mr Painter and Mr Trent Bradley, who was a director of two finance companies that had provided financial accommodation to North Harbour. Mr Painter and Mr Bradley were the initial directors of Moffat.
[4] On 18 September 2015 North Harbour and Mr Painter executed a deed with Moffat (the Nomination Deed) under which North Harbour assigned the benefit of the Agreements to Moffat. The Nomination Deed provided that Moffat would be deemed to be the purchaser under the Agreements, and it authorised the vendors of the properties to transfer the properties to Moffat.
[5] Moffat duly completed the purchase of the properties. Credit was given by the vendors for the deposits that had been paid by North Harbour, but Moffat did not reimburse North Harbour for the deposits.
[6] North Harbour was put into liquidation by shareholders' resolution on 20 December 2017. Mr Digby Noyce was appointed liquidator.
[7] In the course of his investigations in the liquidation, Mr Noyce noted that North Harbour had paid $60,000 towards the purchase of the properties, but had apparently obtained no benefit for the payments. The statutory demand was then issued, not just on the basis of an alleged credit/debtor relationship between North Harbour and
Moffat, but also on the basis that the $60,000 paid by North Harbour to the vendors of the properties represented money had and received by Moffat, and/or that Moffat had been unjustly enriched at North Harbour's expense to the extent of the $60,000 paid by North Harbour.
Background
[8] According to the liquidator's first report to creditors dated 22 December 2017, North Harbour had owned and operated a residential construction business and a land development business prior to its liquidation. The residential development business had involved the purchase of other land apart from the properties, including a piece of land at Riverhead acquired in 2015 (the Riverhead property) that North Harbour planned to subdivide into three sites and on-sell.
[9] Moffat was specifically incorporated to develop the properties. A Heads of Agreement (the Heads of Agreement) was signed on 18 September 2015, setting out certain terms relating to the development of the properties. The Nomination Deed was signed later that day.
[10] The parties to the Heads of Agreement were Mr Painter and Mr Bradley. Mr Bradley was the sole director of Phoenix Capital Limited (Phoenix), a secured creditor of North Harbour. Phoenix had earlier advanced money to North Harbour for the purposes of North Harbour's residential development activities.
[11] The Heads of Agreement recorded that Moffat was to be owned on a 50/50 basis by Mr Painter and Mr Bradley, and that they would be Moffat's directors. Mr Painter would assign the Agreements to Moffat. Mr Bradley would run the finances for the project, and Mr Painter would manage it. Profits were to be split in the proportions 40 per cent to Mr Painter, 30 per cent to Mr Bradley, and 30 per cent to a company called Southern Cross Financial Limited (after all costs were deducted from the gross realisation).
[12]The Heads of Agreement provided that Mr Bradley would contribute
$250,000, and Southern Cross Financial would contribute a like amount. Southern Cross would also fund all interest and expenses. Mr Painter would not be called upon
to make a monetary contribution, but he was expected to run the project in the most efficient and time effective way.
[13] The Heads of Agreement recorded that Mr Bradley and Southern Cross "are invited into the deal on the basis of the financial substance they provide. If there are cost overruns they will be asked to provide the funding."
[14]Moffat duly settled under the Agreements on 21 September 2015.
[15] Mr Bradley has since remained a director of Moffat, but Mr Painter no longer has any association with Moffat. In his affidavit in support of the application, Mr Bradley said that his relationship with Mr Painter in respect of the properties came to an end on 3 November 2016, when Mr Bradley purchased Mr Painter's 50 shares in Moffat. Mr Painter resigned as a director at that time.
North Harbour's opposition
[16] In its notice of opposition, North Harbour denied that there is any substantial dispute as to whether the amount demanded in the statutory demand is due and owing. It also denied that Moffat has any fairly arguable counterclaim, set-off, or cross-demand. It says that even on Moffat's version of events, there was no corporate benefit for North Harbour, and Moffat was unjustly enriched at North Harbour's expense.
[17] North Harbour referred to the decision of the Court of Appeal in OPC Managed Rehab Limited v Accident Compensation Corporation, where the Court of Appeal noted that while a statutory demand must be issued in respect of a "debt that is due",1 an action for money had and received had such similarity to an action for recovery of a debt that an obligation to repay in such circumstances could be treated as a debt due for the purposes of s 289 of the Companies Act 1993 (the Act). Where a payer had a clear entitlement to reimbursement of an amount overpaid, it might have recourse to the statutory demand procedure.2
1 Companies Act 1993, s 289(2)(a).
2 OPC Managed Rehab Limited v Accident Compensation Corporation [2006] 1 NZLR 778 at [24], [49], [54]-[55].
The evidence
[18] In his affidavits in support, Mr Bradley gave extensive evidence relating to the source of the funds North Harbour used to pay the deposits under the Agreements. In his first affidavit, he said that North Harbour never paid the deposits from its own initial resources.
[19] Mr Bradley's initial understanding appeared to be that North Harbour funded the payment of the deposits paid under the Agreements, from deposits paid under two advance agreements for the sale of sections in the proposed subdivision of the properties. On 21 July 2015, North Harbour onsold two lots in the proposed development at 14A Moffat Road, described as Lots 3 and 4, to a company called David Reid Homes (North Shore) Limited (DRH). There were separate agreements for Lots 3 and 4 – for convenience I will refer to them as the "Onsale Agreements".
[20] The Onsale Agreements both recorded that North Harbour was not then the registered proprietor of the lot being sold, but it had an unconditional agreement to purchase the land containing the lot from the then-registered proprietors. Each of the Onsale Agreements called for DRH to pay a deposit of $36,522 into the trust account of North Harbour's solicitor Mr Tattersfield on signing the Onsale Agreement. Mr Tattersfield was to hold the deposits pending completion of a number of conditions, including North Harbour completing settlement under the Agreements, North Harbour seeking and obtaining a resource consent for the subdivision of the properties, and DRH approving the terms and conditions of the resource consent.
[21] In his first affidavit, Mr Bradley said that, notwithstanding the deposits payable under the Onsale Agreements were not to be disbursed to North Harbour until the conditions of the Onsale Agreements had been satisfied, Mr Wiltshire of DRH authorised the early release of the two deposits so that North Harbour could pay the
$30,000 deposits under the Agreements. Mr Bradley said that the two deposits of
$36,522 were paid by Mr Tattersfield to North Harbour (less some costs of approximately $5,000) on 31 July 2015.
[22] Mr Bradley said in his first affidavit that he was not made aware at the time that the deposits on the Onsale Agreements were paid out to North Harbour, or that
North Harbour had used the Onsale Agreements deposits to pay the deposits payable under the Agreements. His understanding was that the deposits on the Onsale Agreements were being held in Mr Tattersfield's trust account. He said he would never have agreed to the Onsale Agreements deposits being used to pay the deposits on the Agreements as "it was simply not commercial". However in an email dated 20 January 2017, summarising where things then stood on the Onsale Agreements, Mr Tattersfield said in respect of each of lots 3 and 4:
… Deposit of $36,522 paid and disbursed to vendor (then) [North Harbour] 31/7/15.
Not yet unconditional.
Sunset date of 1/4/16 for approval of plans and resource consent but not exercised by either party. Limited ability for vendor to cancel under this.
[23] Having set out that background, Mr Bradley then said "[North Harbour] clearly owes the balance of the deposits to [Moffat] being $73,044 [the total of the deposits received by North Harbour under the Onsale Agreements] less $60,000 equals
$13,044."
[24] I take that statement to be an expression of Mr Bradley's belief that, if Moffat did have an obligation to account to North Harbour for the $60,000 contributed by it to Moffat's acquisition of the properties, Moffat (as the nominated purchaser and the agreed developer of the properties) must have been entitled to the proceeds of any onsales of sections (developed or undeveloped) created by the subdivision of the properties. That would include any deposits that might have been received by North Harbour prior to it and Mr Painter nominating Moffat as purchaser under the Agreements.
[25] Mr Bradley said in his first affidavit that North Harbour did not have the financial capacity to settle under the Agreements.
[26] Mr Bradley said that the deposits paid by North Harbour under the Agreements were not considered in the Heads of Agreement. They were overlooked. However he said that changed when it came time to settle under the Agreements – it was then decided that the deposits paid under the Agreements would be "left in the transaction".
Mr Painter was to receive a 40 per cent share of the profit (calculated at that time at
$900,000 – 40 per cent being $360,000) on the development of the properties, and Mr Bradley said Mr Painter was happy to "leave [the paid deposits] in the deal".
[27] Mr Bradley said that at no time was there any suggestion that the deposits paid under the Agreements were to be treated as having been advanced by North Harbour to Moffat. The deposits were effectively Mr Painter's contribution, in return for his anticipated 40 per cent return. Nor would any loan have been entertained, as the other two parties (Mr Bradley and Southern Cross) were each putting in $250,000.
[28]In late 2016 Mr Bradley offered to buy out Mr Painter's interest in Moffat for
$100,000. The $100,000 was paid on 24 November 2016, and Mr Painter resigned as a director of Moffat at that time.
[29] Mr Bradley said that this settlement took into consideration Mr Painter having found the Moffat Road project and procured the assignment of the Agreements. It also allowed for what Mr Painter had put into the project.
[30] In his affidavit in opposition, Mr Noyce provided a timeline of what he considered to be the relevant events.
[31] On 6 July 2015 Phoenix lent $50,000 to North Harbour. The proceeds were received by North Harbour's solicitor, Mr Tattersfield. $49,425 of the $50,000 was disbursed to North Harbour.
[32] On 6 July 2015 North Harbour and Mr Painter entered into the Agreements. The Agreements required that the deposits be paid to the trust account of the real estate agents acting in the transactions, upon the Agreements being declared unconditional.
[33] On 13 and 14 July 2015, the deposits were paid by North Harbour to the real estate agent. The deposits were paid in two instalments, one of $50,000 and the other of $10,000. The deposits were duly credited in settlement statements sent by the solicitors for the vendor under the Agreements on 21 July 2015.
[34] On 21 July 2015, after the deposits had been paid under the Agreements, North Harbour entered into the Onsale Agreements. On 31 July 2015 Mr Tattersfield received the deposits payable by DRH under the Onsale Agreements on behalf of North Harbour. North Harbour's bank statement showed the receipt of $31,511.20 (after deduction of costs) and $36,522 from Mr Tattersfield's trust account on that date.
[35] On 31 August 2015 North Harbour failed to settle the purchases under the Agreements. However the Agreements were not cancelled, and they remained on foot.
[36] On or about 21 September 2015, after North Harbour and Mr Painter had executed the Nomination Deed and Mr Painter and Mr Bradley had signed the Heads of Agreement, Moffat settled the purchases of the properties.
[37]On 21 December 2015, North Harbour repaid the loan from Phoenix.
[38] Mr Noyce's evidence was accordingly that the deposits paid under the Agreements could not have been paid from the deposits paid under the Onsale Agreements. The deposits paid under the Onsale Agreements were not received until after the deposits paid under the Agreements had already been paid. Mr Noyce said that the deposits paid under the Agreements were partly funded by the loan from Phoenix, which North Harbour subsequently repaid in full, and partly from other funds held by North Harbour at that time.
[39] Referring to Mr Bradley's evidence that the deposits paid under the Agreements were overlooked when the Heads of Agreement was signed, but later considered when it came time to settle the Agreements (on the basis that the $60,000 comprising the deposits would be left in the transactions, as Mr Painter's contribution), Mr Noyce noted that the purchases under the Agreements were settled only three days after the Heads of Agreement was signed. North Harbour was not a party to the Heads of Agreement, and it did not stand to benefit from the joint venture. Nor did the Nomination Deed make any mention of transferring the benefit of the deposits paid under the Agreements to Moffat. The $60,000 was not Mr Painter's to contribute, because it had been paid by North Harbour and the Heads of Agreement clearly stated
that Mr Painter was not expected to make a "monetary" contribution – his contributions were to be sourcing and managing the project.
[40] Mr Noyce rejected Mr Bradley's contention that there is a net $13,044 owing by North Harbour to Moffat (the difference between the deposits paid under the Agreements and the net amount received by North Harbour from the deposits paid under the Onsale Agreements).
[41] As for the November 2016 purchase of Mr Painter's shares in Moffat, Mr Noyce considered that that transaction between the two individuals did not involve North Harbour. Any question of whether Mr Bradley paid too much for the shares would be a matter between him and Mr Painter.
[42] In his reply affidavit, Mr Bradley accepted that $49,425 was disbursed to North Harbour from the Phoenix advance made in early July 2015. At the time, he thought that these funds were to be used to pay the deposit on North Harbour's acquisition of the Riverhead property. When the $49,425 was received North Harbour was left with a credit balance in its account of $88,317.17.
[43] Mr Bradley further accepted that $50,000 was paid from North Harbour's bank account to the real estate agent in respect of the purchase of the properties on 13 July 2015, leaving North Harbour's account in credit in the sum of $36,450.67. He also accepted that a further $10,000 was paid from North Harbour's account on 14 July 2015 under the Agreements.
[44] Mr Bradley acknowledged that sums apparently representing the deposits payable by DRH under the Onsale Agreements (less some costs) were deposited into North Harbour's bank account on 31 July 2015.
[45] Mr Bradley referred to various other advances to North Harbour and/or to Mr and Mrs Painter from his company Bradley Associates 1998 Limited (Bradley Associates), or from Phoenix. Bradley Associates had been involved in assisting Mr Painter and North Harbour to raise funds for the acquisition of development land, including the Riverhead property.
[46] It is not necessary for me to refer to all of these transactions, but I note that North Harbour made a loan application to Bradley Associates on 6 July 2015, when
$248,500 was sought by way of short term funding to complete the purchase of the Riverhead property. It would be repaid when North Harbour had sold sections from a subdivision of the Riverhead property. That was expected to occur within six months.
[47] There were other loans made to North Harbour and/or Mr and Mrs Painter, including Phoenix loans of $56,625 and $248,211.57 (both made in July 2015).
[48] Mr Bradley noted that, at the time the Nomination Deed was signed, North Harbour had an unconditional $2 million obligation under the Agreements, with no ability to settle. It was facing the loss of the deposits it had paid, and an obligation to repay the deposits paid under the Onsale Agreements, and probably further losses and a claim for damages. The Nomination Deed had the effect of relieving North Harbour and Mr Painter from their purchase obligations, and Mr Painter, Mr Bradley and Southern Cross all stood to gain significantly under the joint venture arrangement recorded in the Heads of Agreement. Mr Bradley noted that the Onsale Agreements could never be settled unless settlement was completed under the Agreements.
[49] Mr Bradley said that the Heads of Agreement was entered into early on the same day as the Deed of Nomination.
Applications to set aside statutory demands – legal principles
[50] A statutory demand is a demand, made in accordance with s 289 of the Act, by a creditor in respect of a debt owing by a company to the creditor.3 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secured payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.4 If a company fails to comply with a statutory demand, that failure provides prima facie proof that the company is
3 Companies Act 1993, s 289(1).
4 Section 289(2).
unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.5
[51] In a clear case a claim for money had and received can be the subject of a statutory demand.6 The Court of Appeal did note in OPC that the complexities which may be inherent in an action for money had and received in many circumstances might mean that recourse to the statutory demand procedure would not be appropriate. But that would be no different from the situation where the circumstance allegedly giving rise to a debt in contract was complex. In principle, where a payer had a clear entitlement to reimbursement of an amount overpaid to a recipient in an action for money had and received, it could have recourse to the statutory demand process if it was otherwise appropriate to do so.7
[52]Section 290 of the Act materially provides:
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.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
5 Sections 287(a) and 241(4)(a).
6 OPC Managed Rehab Limited v Accident Corporation, referred to at paragraph [17] of this judgment, at [24], [49], [53] and [54].
7 At [55].
(7)An order under this section may be made subject to conditions.
[53]Section 291 of the Act materially provides:
291 Additional powers of court on application to set aside statutory demand
(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—
(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or
(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,— on the ground that the company is unable to pay its debts.
(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[54] The onus is on the applicant for an order setting aside a statutory demand to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient. An applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.8
[55] If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.9
8 Howes & Ors Brookers Company and Securities Law (looseleaf ed, Brookers), at CA 290.02, citing North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007.
9 AMC Construction Limited v Frews Contracting Limited [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].
Claims based on money had and received, or unjust enrichment – the arguments
[56] In support of the application, Mr Ruffin relied strongly on the judgment of Downs J in Glenvar Properties Limited (In Liquidation) v 153 Holding Limited.10 The facts in Glenvar were similar in many respects to the facts in this case. Glenvar entered into an agreement to purchase a property, and paid a deposit. It later nominated the defendant as purchaser. The defendant completed the purchase and acquired the property, but it never reimbursed Glenvar for the deposit. Glenvar was later put into liquidation, and its liquidator sought to recover the deposit from the defendant.
[57] The precise basis on which the claim was made by the liquidator in Glenvar was not clear, although an initial letter of demand by the liquidator referred to the deposit having been paid by Glenvar "on your behalf" (it appears that the liquidator had difficult reconstructing Glenvar's financial affairs, as he had not been able to find its sole director, or locate most of Glenvar's records).
[58] The claim came before Downs J on Glenvar's application for formal proof. Glenvar contended that its payment of the deposit gave rise to an enforceable debt. In the alternative, it contended that the transaction was an undervalue transaction in terms of s 297 of the Act.
[59] Downs J was unable to discern how the evidence established a debt for the amount of the deposit in relation to the defendant. His Honour considered the deed of nomination, and noted that it contained no express requirement for the defendant to repay Glenvar the amount of the deposit. Moreover, as the deed was executed on the date of settlement (three months after the deposit had been paid) the reference in the deed to "purchase moneys" could have been understood to refer to those outstanding as at settlement, thereby excluding the deposit. Glenvar simply asserted that, when it nominated the defendant as purchaser, "a debt was created between the two companies in relation to the deposits previously paid by Glenvar". No authority was cited for the proposition that an act of nomination necessarily created liability in that way.
10 Glenvar Properties Limited (In Liquidation) v 153 Holding Limited [2016] NZHC 2272.
[60] The deed of nomination in Glenvar also contained an indemnity provision, but Glenvar's statement of claim did not rely on the indemnity provision, and no evidence was subsequently directed to it. In the end, the Judge found that the cause of action could not be sustained. There was no evidence to support the bare proposition that Glenvar had paid the deposit on behalf of the defendant.
[61] In this case, it was common ground that, in a "money had and received" claim based on money mistakenly or otherwise wrongly paid to the defendant, the defendant's obligation to repay must exist at the time the money or other benefit is paid or given. In this case, the deposit payments under the Agreements were made in July 2015, and Mr Ruffin submitted that Moffat could not have come under any obligation at that point – it was not even incorporated until 17 September 2015. And the deposits were not paid not to Moffat, but to the agent for the vendors under the Agreements.
[62] Mr Thompson did not dispute the proposition that Moffat never actually received the deposits paid under the Agreements, as the money went to the vendors' agents. However, he submitted that Moffat was credited with the $30,000 deposit paid on each of the Agreements. He pointed first to the settlement statements dated 21 July 2015 from the solicitors for the vendors under the Agreements, in which credit was clearly given to North Harbour for the $30,000 deposit payable under each of the Agreements. He then referred to the statement of account from Mr Tattersfield, who acted not only for North Harbour and Mr Painter but also for Moffat on the settlement of the Agreements. Mr Tattersfield's statement of account was addressed to Moffat c/- Mr Painter, and dated 21 September 2015. It referred to the amounts paid to the solicitors for the vendors under the Agreements, which matched the sums said to be due in the vendors' settlement statements dated 21 July 2015. Mr Thompson argued that at that point Moffat was credited with the deposit amounts, and sufficiently "received" them for the purpose of the claim based on money had and received. Because (on Mr Thompson's submission) Moffat had no entitlement to receive credit for the deposits, it was at that point unjustly enriched, in that it received a benefit (paid for by North Harbour) which it was not entitled to receive.
[63] Counsel agreed that whether or not the parties intended that Moffat was entitled to take the benefit of the $30,000 deposits paid by North Harbour, without being obliged to reimburse North Harbour, would substantially depend on the interpretation of the Nomination Deed, construed against the background circumstances known to the parties. I now consider the Nomination Deed.
Interpretation of the Nomination Deed – was Moffat to keep the benefit of the deposits?
[64] On the interpretation of the Nomination Deed, counsel were both content to adopt the Court of Appeal's approach in Air New Zealand Limited v New Zealand Airline Pilots' Association Inc, where the Court adopted the following statement of principle by Lord Neuberger in the United Kingdom Supreme Court in Arnold v Britton:11
When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Limited v Persimmon Homes Limited [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be ascertained in light of (i) the natural and ordinary meaning of the clause, and (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions …
[65] The Nomination Deed referred to the Agreements, and to the fact that the Agreements provided for nomination by North Harbour and Mr Painter of any person to take over as purchaser.
[66]The Nomination Deed then provided:
1.In consideration of these presents, [North Harbour and Mr Painter] do hereby assign the benefit of the [Agreements] to [Moffat] and [Moffat] shall be deemed to be the purchasers under the [Agreements] and to be seized of all rights on the part of [North Harbour and
11 Air New Zealand Limited v New Zealand Airline Pilots' Association Inc [2016] NZCA 131, [2016] 2 NZLR 829 at [35], citing with approval Lord Neuberger in Arnold v Britton [2015] UK SC 36, [2015] AC 1619 at [15].
Mr Painter] thereunder subject only to payment of the purchase price and performance pursuant to the [Agreements].
2.[North Harbour and Mr Painter] hereby authorise the Vendor to transfer the land to [Moffat] who [is] to hold the same in the manner aforesaid and this deed shall be deemed to be sufficient authority for the Vendor to convey the land direct to [Moffat].
3.[Moffat] hereby covenants with [North Harbour and Mr Painter] that it will pay the purchase price owing under and observe and perform all the terms of the [Agreements] and indemnify [North Harbour and Mr Painter] from all actions, claims, demands, costs and proceedings under the contracts or in the future observance and performance of all the terms of the [Agreements] on the part of [North Harbour and Mr Painter] to be observed and performed.
[67] The Heads of Agreement was signed earlier on the same day the Deed of Nomination was executed. Mr Bradley signed the Heads of Agreement, and he also executed the Nomination Deed on behalf of Moffat. Mr Painter signed the Heads of Agreement and the Nomination Deed. I think it is clear enough in those circumstances that the Heads of Agreement can be regarded as part of the factual matrix relevant to the interpretation of the Nomination Deed.
[68] The Heads of Agreement referred to Moffat as a new company, set up to run the development at the properties. It recorded that the ownership of Moffat would be 50/50 as between Mr Painter and Mr Bradley.
[69]The Heads of Agreement then provided:
Mike Painter is to assign the Agreements from [North Harbour] to [Moffat].
[70]The Heads of Agreement then stated:
[Mr] Bradley is to run the finances of the project … All payments are to be made on a consultative basis.
[Mr] Painter is to manage the project with reasonable consultation on all significant decisions.
Profit is to be split as follows: 40% [Mr Painter]
30% [Mr Bradley]
30% [Southern Cross Financial] after all costs deducted from Gross Realisation.
[71] Under a heading "Contributions", the Heads of Agreement recorded that Mr Bradley and Southern Cross would each contribute $250,000 to the project. In addition to its $250,000, Southern Cross would fund all interest and expenses.12 The Heads of Agreement recorded:
[Mr] Painter will not make a monetary contribution but is expected to run the project in the most efficient and time effective way.
[72] Finally, the Heads of Agreement recorded that Mr Bradley and Southern Cross had been invited into the deal on the basis of the financial substance they provide. If there were cost overruns, they would be asked to provide the funding.
[73] Mr Thompson relied on the Nomination Deed as the source of Moffat's alleged obligation to refund the deposits to North Harbour. He referred in particular to the obligation on Moffat, which appears in both clause 1 and clause 3 of the Nomination Deed, to pay the purchase price under the Agreements, and observe and perform all of the terms of the Agreements. He submitted that a promise by Moffat to pay the entire purchase prices under the Agreements (including refunding the deposits) was consistent with the statement in the Heads of Agreement that Mr Painter would not make any monetary contribution.
[74] Mr Ruffin submitted that the Nomination Deed did not refer to the deposits payable under the Agreements at all, and that there is no basis for reading into the Nomination Deed an obligation on Moffat to not only complete unperformed obligations under the Agreements, but also to make separate and additional payments to North Harbour. Mr Ruffin also relied on the circumstances leading up to the execution of the Heads of Agreement and the Nomination Deed, including in particular the fact that North Harbour was faced with substantial financial commitments that it could not perform (to pay approximately $970,000 to complete each of the Agreements on 21 September 2015). In his submission, it made commercial sense for North Harbour to have foregone any claim for reimbursement of the relatively small
12 The balance of the total $2 million purchase price for the properties, beyond the contributions of
$250,000 from Mr Bradley and Southern Cross, was funded by Southern Cross.
deposits, because the arrangements recorded in the Nomination Deed relieved it of a substantial problem.
[75] I accept Mr Ruffin's submission that this case is very similar on its facts to Glenvar. However, the deed of nomination in that case did not contain express obligations on the nominee to "pay the purchase price" – it simply provided that the nominator nominated the nominee "to complete the said Agreement". It then provided that the nominee accepted the nomination and agreed to indemnify the nominator from any action in respect of the Agreement. So Glenvar was different, at least to that extent.
[76] In my view, North Harbour's claims based on money had and received, unjust enrichment, or debt, must all stand or fall with the interpretation of the Nomination Deed. If on its true construction Moffat was entitled to have the properties conveyed to it on paying only the balance of the purchase prices under the Agreements, there could be no unjust enrichment in it retaining the benefit of the deposits paid by North Harbour, and no obligation could have arisen that might have provided a basis for a claim for moneys had and received. Nor would the arrangements have created any debt owing by Moffat to North Harbour.
[77] Mr Ruffin's strongest point is that, although North Harbour was a party to the Nomination Deed, the Nomination Deed did not contain any express provision for Moffat to refund the deposits paid by it. One would have expected a businessman in the position of Mr Painter not to have overlooked the fact that his company had paid sums totalling $60,000. One would also have expected to see some provision (whether in the Nomination Deed or in a separate document) for that sum to be refunded to North Harbour if the parties intended that North Harbour would be reimbursed.
[78] Clause 1 of the Nomination Deed provided that Moffat would be "seized of all rights on the part of [the purchasers under the Agreements] …". What rights did North Harbour have under the Agreements on 18 September 2015 when the Nomination Deed was signed? The obvious and most substantial right it had was to require the vendors under the Agreements to convey the properties to North Harbour on payment of the balance of the purchase prices (subject, of course, to North Harbour fulfilling
any other obligations under the Agreements that might have been pre-conditions to settlement). It is true that clause 1 goes on to provide "… subject only to payment of the purchase price and performance pursuant to the contracts", but in the context, I think it is reasonably arguable that "payment of the purchase price" was intended to refer to an obligation owed to the vendors. (In ordinary usage, a "purchase price" is something that a seller, or vendor receives, and the expression "payment of the purchase price" was arguably not apt to describe a payment to be made to someone other than the vendors.) The expression "performance pursuant to the contracts" is also arguably more concerned with remaining undischarged obligations owed to the vendors.
[79] That view is arguably strengthened by the use of the words "owing under", in line 3. Clause 3 is also "forward looking" insofar as it refers to performance of the terms of the Agreements, and in that context I think the reference to "the purchase price owing under" [the Agreements] was arguably intended to refer to that part of the purchase price that remained "owing" as at the date of the Nomination Deed. That would not have included the deposits.
[80] I see nothing in the Heads of Agreement or in any of the other background circumstances referred to in the evidence to suggest that that interpretation is not open and reasonably arguable for Moffat. Mr Thompson referred to the statement in the Heads of Agreement that Mr Painter would not make any monetary contribution, but I think the parties to the Heads of Agreement were arguably addressing the situation they found themselves in on 18 September 2015 and looking forward. They appear to have been concerned only with the profit sharing on the development, who would carry out which role in the development, and how they would settle with the vendors in three days' time. The Heads of Agreement said no more than that Mr Painter (personally) would not be called upon to make any financial contributions after 18 September 2015, and I do not think that is inconsistent with the interpretation of the Nomination Deed I have discussed above.
[81] I think it was a relevant part of the factual matrix that North Harbour and Mr Painter appear to have had few other options by the time the Nomination Deed was signed on 18 September 2015. Settlement under the Agreements was due in three
days' time, and Mr Bradley says they did not have the money to settle. In those circumstances it would not have been surprising from a commercial standpoint if North Harbour had elected to abandon the deposits as part of the price of extracting itself from what appears to have been a difficult position.
[82] I note also that the Nomination Deed appears to have been drafted by Mr Tattersfield. He had received the settlement statements dated 21 July 2015 from the vendors' solicitors, and he knew that the $30,000 deposits had been paid by North Harbour. A question arises as to whether Mr Tattersfield received any instruction relating to the deposits at or about the time he drafted the Nomination Deed. There was no evidence from him, nor any evidence from Mr Painter.
[83] Mr Tattersfield and Mr Painter were both aware of the fact that North Harbour had received the deposits paid under the Onsale Agreements. What was expected to happen with the Onsale Agreements after the Nomination Deed was signed was left unclear on the evidence, although I understood from Mr Thompson that the liquidator has not been concerned or involved with the Onsale Agreements at all since his appointment. Mr Ruffin submitted that Moffat, having agreed to stand in the shoes of North Harbour and Mr Painter as purchasers under the Agreements, must have been entitled in equity to all aspects of the properties, including the benefit of the Onsale Agreements.13
[84] In a summary proceeding such as this, where Moffat is only required to raise a genuine and substantial dispute as to the existence of the liability, I do not consider it necessary to determine whether Moffat was (and perhaps still is) entitled in equity to the benefit of the Onsale Agreements. It is enough to note that (i) North Harbour's entitlement to retain the deposits paid under the Onsale Agreements appears to have been entirely conditional on the discharge of its obligations under the Onsale Agreements (being obligations that only Moffat can now discharge), and (ii) that would have been known by the parties when they entered into the Nomination Deed (and Mr Bradley would have taken the Onsale Agreements into account in his calculation of likely profit from the development of the properties).
13 Referring to the judgments of Mahon J in Avondale Printers v Haggie [1979] 2 NZLR 124 (HC), and Mahon v The Station at Waitiri Limited [2017] NZCA 387.
[85] If the parties to the Nomination Deed intended that Moffat would assume the responsibilities of North Harbour under the Onsale Agreements, Moffat would presumably have been entitled to receive all of the benefits of the Onsale Agreements, including the deposits paid under the Onsale Agreements. Whether that was the intention is not clear, but it seems at least possible that Mr Painter and North Harbour may have been prepared to "let the deposits paid under the Agreements go" on the basis that North Harbour would retain the deposits paid under the Onsale Agreements.
[86] I cannot say any more than that that possibility is at least consistent with the (genuinely arguable) interpretation of the Nomination Deed that, as between Moffat, North Harbour and Mr Painter, Moffat would be entitled to full ownership of the properties on paying only the balance of the purchase prices that were unpaid as at settlement (including penalty interest payable to 21 September 2015).
[87] In the foregoing circumstances I am of the view that North Harbour's claims are not suitable for resolution using the statutory demand procedure. Moffat has raised a genuine and substantial dispute on the interpretation of the Nomination Deed, and a resolution of that dispute seems likely to require factual matrix evidence that is not presently before the Court.14
[88] There is no need to consider further the other arguments raised by Mr Ruffin, including the set-off/counterclaim argument based on Moffat's alleged entitlement to an equitable interest in the Onsale Agreements (and thus to the deposits paid under the Onsale Agreements).
[89] The application to set aside the statutory demand accordingly succeeds, and there will be an order setting the demand aside accordingly.
14 Most importantly relating to the Onsale Agreements. What understanding (if any) was reached between DRH and North Harbour that permitted the release of the onsale deposits to North Harbour before the conditions of the Onsale Agreements had been satisfied? What has since happened with the Onsale Agreements? Why did North Harbour apparently not make a claim for recovery of the deposits paid under the Agreements before the liquidation if it was entitled to reimbursement? I do not consider those questions can be satisfactorily answered in the absence of evidence from at least Mr Painter and Mr Tattersfield, and probably also DRH.
[90] There was an issue about costs raised in Mr Thompson's submissions. Mr Noyce was joined as a second respondent, but Mr Thompson says that, on the authorities, there is no reason Mr Noyce could be personally liable for the costs in this case. Any award of costs should be against North Harbour, not against Mr Noyce personally. Mr Ruffin requested an opportunity to file written submissions on costs. He said that he did not know what assets might be available in the liquidation of North Harbour to meet any costs awarded in Moffat's favour.
[91] In my view, costs should be awarded on a 2B basis, but I will hear from counsel by way of written submissions on the issue of whether the costs should be ordered solely against North Harbour, or whether the respondents should be jointly and severally liable for the costs. Moffat is to file and serve any memorandum directed to that issue, within 15 working days. The respondents are to file any memorandum in reply within 10 working days after their receipt of Moffat's memorandum.
Associate Judge Smith
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