Rea v Omana Ranch Ltd

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Rea v Omana Ranch Ltd

High Court Auckland CIV-2011-404-8002; [2012] NZHC 2639
27, 28, 29 August; 11 October 2012
Katz J

Insolvency – Receivership – Court-appointed receivers – Remuneration – By

whom receivers’ remuneration payable – Meaning of “remuneration”, “costs”, “expenses” – Receiverships Act 1993, ss 30A, 30B, 30C and 30D – High Court Rules, r 7.62.

Following protracted proceedings in the Family Court requiring James Lavas to pay the sum of $756,644 to Francesca Ann Taliano, and subsequent

proceedings in the High Court, Messrs Gerald Rea and Paul Sargisson were appointed (by consent order) as receivers of Mr Lavas’ shareholdings.
While the consent order specified the level of remuneration and stated that the receivership was to be conducted under the Receiverships Act 1993, it did not state whether their remuneration, costs and expenses were to be paid from
any proceeds from the assets in the receivership, or whether Ms Taliano or
Mr Lavas (personally) were required to meet such costs.

Held: 1 The starting point was that a court-appointed receiver was entitled to remuneration, costs and expenses out of the receivership assets, subject to the terms of the specific order in issue. Section 30D of the Receiverships Act 1993

was consistent with the common law position that receivers’ costs, expenses and remuneration were a preferential claim on the assets in receivership. While it would have been preferable for the consent order specifically to have addressed such payments, the order as drafted was consistent with the common law principles relating to the payment of receivers. If it had been intended that
Ms Taliano pay the receiver, the order would have specified that (see [14], [18], [19], [20]).
2 Rule 7.62 of the High Court Rules allowed the court to direct that a named party paid the costs of a receivership. On the facts, there was nothing unusual about this case to justify requiring Ms Taliano to bear those costs. As
this application had arisen out of a debtor/creditor relationship, the defaulting party was to bear the costs of the receivership (see [24], [40], [41]).
3 “Remuneration” meant professional fees (for the receivers themselves and their staff). “Costs” meant litigation costs. “Expenses” referred to all other expenditure necessarily or properly incurred by the receivers in the
performance of their duties (see [3]).

Result: Receivers to be paid out of assets of receivership.

Observation: Rule 7.62 of the High Court Rules refers only to “remuneration”. It remains open to argument as to whether that term extends to “costs” and

“expenses”. If it is to be narrowly construed, the inherent jurisdiction of the

Court may apply (see [21]).

Cases mentioned in judgment

Andrews, Re [1999] 1 WLR 1236, [1999] 2 All ER 751.
Capewell v Her Majesty’s Revenue & Customs [2007] UKHL 2, [2007] 2 5

All ER 370.

Evans v Robertson Orr [1923] NZLR 769 (SC).
Hopkins v Worcester & Birmingham Canal Proprietors (1868) LR 6 Eq 437.
Murtagh v Murtagh [1960] NZLR 890 (SC).

Vuletic v Vuletic HC Auckland CP1328/88, 28 July 1988. 10

Application

This was an application by Gerald Stanley Rea and Paul Sargisson as receivers appointed by the Court pursuant to a consent order over the assets of Omana Ranch Ltd for directions as to payment of their remuneration, costs and expenses. 15

RB Hucker for the receivers. B O’Callahan for Taliano. AM Swan for Lavas.

KATZ J.

Cur adv vult

20

Introduction

Mr James Ivan Lavas and Ms Francesca Taliano were in a relationship from 1992 to 2005. Following protracted proceedings in the Family Court (including an appeal to this Court) the Family Court issued a judgment on

21 September 2010. It required Mr Lavas to pay Ms Taliano the sum of 25

$756,644 within 28 days. Mr Lavas did not do so.

Ms Taliano took steps in this Court to enforce the Family Court’s judgment, including obtaining charging orders over shares held by Mr Lavas in several family owned companies. Ms Taliano then applied to this Court for orders appointing a receiver in respect of Mr Lavas’ shareholdings. Such 30 orders were made, by consent, on 11 February 2011.
The consent orders appointed Gerald Rea and Paul Sargisson as receivers. Their remuneration was fixed at $375 per hour plus GST. The consent orders did not, however, expressly state how the receivers were to be remunerated. In particular, it was not stated whether the receivers’ 35

remuneration, costs and expenses1 were to be paid from any proceeds from the

In this case (and seemingly in a number of previous cases) the words “remuneration”, “costs”, “expenses” and “fees” were used almost interchangeably. For clarity I will endeavour to follow the approach of the House of Lords in Capewell v Her Majesty’s Revenue & Customs [2007] UKHL 2, [2007] 2 All ER 370 at [7] and confine “remuneration” to professional fees (for the receivers themselves and their staff) and “costs” to litigation costs. “Expenses” refers to all other expenditure necessarily or properly incurred by the receivers in the performance of their duties. Occasionally I use the phrase “receivership costs” or “costs of the receivership” as shorthand for receivership costs, remuneration and expenses (as will be clear from the context).

assets in receivership, or whether Ms Taliano or Mr Lavas (personally) were liable to meet such costs. The orders did, however, state that the receivership must be conducted “under the provisions of the Receiverships Act 1993”.
[4] A dispute arose as to who was liable to meet the receivers’ costs. As the

issue could not be resolved, the receivers filed this originating application seeking directions. Ms Taliano asserts that the receivers’ costs should be met out of Mr Lavas’s assets in receivership. Mr Lavas asserts that Ms Taliano is liable. In addition, Mr Lavas asserts that the receivers are estopped from seeking payment from him because he claims that Mr Rea assured him that
Ms Taliano would have to meet the costs of the receivership. He says that he relied on that assurance, to his detriment.
[5] The key issues are:
(a) What are the general legal principles applicable to the remuneration of
Court appointed receivers?
(b) Are the consent orders consistent with such principles or do they provide (expressly or impliedly) for a different approach as to how the receivers are to be remunerated in this case?
(c) Should this Court exercise its discretion under r 7.62 of the
High Court Rules to apportion liability for payment of the receivers’
costs and expenses, having regard to the various matters which have been raised by the parties?
(d) If Mr Lavas is liable for the costs of the receivership (either personally or out of the assets in receivership):
(i) did Mr Rea represent to him that Ms Taliano would be liable for
the costs of the receivership; and
(ii) if Mr Rea did make such a representation, did Mr Lavas rely on
it to his detriment, so that it would now be inequitable for the receivers’ costs and expenses to be paid from the assets in receivership?
[6] I have not been asked to consider any issues relating to the reasonableness of the quantum of remuneration, costs or expenses in this case. However, it has been foreshadowed that such issues may well be raised subsequently, once it has been established who is liable to meet such costs.

What are the general legal principles applicable to the costs, expenses and

remuneration of court appointed receivers?
Court’s jurisdiction to appoint a receiver
[7] The Court’s power to appoint a receiver as part of its auxiliary equitable jurisdiction dates back to at least the 16th century. It was described in Hopkins v Worcester & Birmingham Canal Proprietors2 as one of the oldest remedies in
the Court of Chancery.
[8] In England the jurisdiction to appoint a receiver was vested in the Courts
of Chancery (as part of the inherent jurisdiction) until the enactment of the Supreme Court of Judicature Act 1873 (UK). Since then the Court’s power to appoint receivers in England has had a statutory foundation, most recently
derived from the Supreme Court Act 1981 (UK), s 37(1).

2 Hopkins v Worcester & Birmingham Canal Proprietors (1868) LR 6 Eq 437 at 447.

In contrast, the High Court of New Zealand has no general statutory jurisdiction to appoint a receiver but derives the power from its inherent jurisdiction, as preserved by the Judicature Act 1908, s 16. The jurisdiction to appoint receivers vested in the High Court has been held to be the law as administered in the Court of Chancery in England prior to the enactment of the 5

Supreme Court of Judicature Act 1873 (UK).3 This law survives in

New Zealand and is unaffected by the enactment of the Supreme Court of Judicature Act 1873 (UK) and its successors. The Court’s inherent jurisdiction to appoint a receiver is also recognised by s 2(1) of the Receiverships Act

1993.4 10

Receivers have historically been appointed by the Court in its equitable

jurisdiction in two situations, namely where:

(a) There was a need for the interim protection of property (and the income of property), including disputes about partnerships, sales or mortgages of land, and administration of estates. 15
(b) To facilitate execution of judgments where no remedy by execution at
law is open to an entitled party or is likely to be ineffective owing to the peculiar nature of the property of the liable party. In such circumstances the Court may appoint a receiver of specific items of the liable party’s property.5 20

[11] Court-appointed receivers are officers of the Court. They are answerable to the Court alone and are not controlled by either the grantor or its creditors. A Court-appointed receiver must always act within the limits of the Court order making the appointment and within any subsequent directions of the Court. The

Court retains the right to review and control the receivers’ conduct. In 25 administering the property to which the receivership extends, a receiver has a

duty to act impartially and in accordance with the directions of the Court.

Remuneration of court appointed receivers

In Capewell v Her Majesty’s Revenue & Customs the House of Lords

summarised the principles relevant to the remuneration costs and expenses of 30 court appointed receivers in the following terms:6

It has always been a basic principle of receivership that the receiver is entitled to be indemnified in respect of his costs and expenses, and his remuneration if he is entitled to be remunerated, out of the assets in his hands as receiver. Warrington J stated the principle in a well known 35 passage in Boehm v Goodall [1911] 1 CH 155, 161:
“Such a receiver and manager [that is one appointed by the Court] is not the agent of the parties, he is not a trustee for them, and they cannot control him. He may, as far as they are concerned, incur expenses or liabilities without their having a say in the matter. I think 40 it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the

Evans v Robertson Orr [1923] NZLR 769 (SC); Murtagh v Murtagh [1960] NZLR 890 (SC) at 901; Vuletic v Vuletic HC Auckland CP1328/88, 28 July 1988.
Definition of “receiver” para (b).
Evans v Orr.
At [21].

assets which are under the control of the Court. The Court itself cannot indemnify receivers, but it can, and will, do so out of the assets, so far as they extend, for expenses properly incurred; but it cannot go further. It would be an extreme hardship in most cases to

parties to an action if they were to be held personally liable for expenses incurred by receivers and managers over which they have no control.”
This passage was cited and applied by Vinelott J in Evans v Clayhope
Properties Ltd [1987] 1 WLR 225 at 229–230 (upheld by the Court of
Appeal [1988] 1 WLR 358, Nourse LJ, at p 363, sharing Vinelott J’s doubts as to whether a receivers’ remuneration could be recovered at litigation costs).
[13] Their Lordships also noted that these principles were applied (though with some reluctance) by the Court of Appeal in Re Andrews7 and by the Court
of Appeal in Hughes v Customs & Excise Commissioners, which accepted the appellant’s argument that a Court appointed receiver is a recognisable creature of the common law, an officer of the Court whose essential rights, powers and duties have been established down the years “including not least the right (indeed the requirement) to recover the costs of the receivership from the assets
under his control”.8
[14] The proposition that a Court appointed receiver is entitled to his or her
remuneration, costs and expenses out of the receivership assets is therefore the necessary starting point. I now turn to consider whether there is anything in the court order appointing the receivers which would suggest that a different
approach was intended in this case.
The Consent order – reference to the Receiverships Act 1993
[15] The order appointing the receivers did not expressly address remuneration, but did specify that the receivership was to be conducted under the provisions of the Receiverships Act 1993.
[16] Sections 30A–30D of the Receiverships Act 1993 set out how the proceeds of assets in receivership shall be applied. Section 30D provides as follows:

30D. Meaning of surplus and net proceeds – (1) For the purposes of sections 30A to 30C, there is a surplus if the receiver has disposed of

personal property in receivership, and the net proceeds exceed —
(a) the amount of the debt owed by the grantor to the person in whose
interests the receiver was appointed (where the property secures payment of that debt); or
(b) the monetary value of the obligation owed by the grantor to the
person in whose interests the receiver was appointed (where the property secures performance of that obligation).
(2) In subsection (1), net proceeds, in relation to the disposal of personal property in receivership, means the net proceeds of the disposal after deducting —

7 Re Andrews [1999] 1 WLR 1236.
8 Hughes v Customs & Excise Commissioners [2002] EWCA Civ 734, [2003] WLR 177
at [45].

(a) the receiver’s expenses and remuneration; and
(b) any amount or the monetary value of any obligation, as the case may be, secured by any security interest that ranks in priority to the security interest granted to the person in whose interests the
receiver was appointed; and 5 (c) any other preferential claims or priority claims according to law.

By setting out the meaning of “net proceeds” and “surplus”, s 30D effectively provides for how the proceeds from assets in receivership are to be distributed in the first instance. The other sections (ss 30A–30C) govern the procedure when there is a “surplus”. 10 [18] Section 30D is consistent with the common law position that receivers’ costs, expenses and remuneration are a preferential claim on the assets in receivership. Once the preferential claims in s 30D(2) are satisfied the funds

are applied to the debt owed (in this case) to the judgment creditor (s 30D(1)).

Only once those obligations are satisfied is there a surplus. The surplus is then 15 distributed in accordance with ss 30A–30C.

The consent order expressly provided for the receivership to be conducted in accordance with the Receiverships Act 1993. With the benefit of hindsight, it would have been helpful if the consent orders had expressly addressed the issue of the receivers’ costs, expenses and remuneration. That 20 would have avoided the uncertainty which has culminated in the present application. However, as drafted, the orders are consistent with the common

law principles relating to payment of receivers. This outcome is achieved

(indirectly) by reference to the Receiverships Act 1993.

Accordingly, although the consent order did not expressly state who 25 must pay the receivers’ remuneration, correctly interpreted it is consistent with

the general principles of receivership. If it was intended that the judgment creditor (Ms Taliano) should be responsible for the receivers’ remuneration, costs and expenses I would expect this to be stated expressly, as it would be a

departure from the normal principles. 30

High Court Rule 7.62

There is still, however, scope for the application of r 7.62, which provides as follows:
7.62 Remuneration of receiver
(1) A receiver must be paid the remuneration9 fixed by a Judge. 35 (2) A Judge may, in the order appointing a receiver or in a later order,
name the party or parties who must pay the remuneration and, if more than 1 party is named, the proportion to be paid by each party.
(3) A Judge may order any party or parties to give security for the
receiver’s remuneration. 40 (4) Subclause (3) does not affect subclause (2).

I note that r 7.62 is directed only to remuneration, not to costs and expenses, although the application and the parties’ submissions appeared to proceed on the assumption that r 7.62 was directed to remuneration, costs and expenses. The issue was not argued and, given my findings below, it is not necessary to determine in this case whether r 7.62 allows the Court to order a party or parties other than the grantor to pay the costs and expenses of the receivership or is confined solely to remuneration (in which event the inherent jurisdiction may apply).

[22] One relatively common situation in which r 7.62 may be useful is where a receiver is reluctant to accept a court appointment due to a possible deficiency of assets in the receivership, leading to uncertainty regarding payment of the receivers’ fees. In such circumstances a Court could specify

who is to meet the receivers’ fees in the event of a shortfall, for example a judgment creditor who has applied for the appointment of a receiver.
[23] Counsel were unable to identify any cases where the general legal principle that a receiver is entitled to his remuneration out of the assets in receivership had been replaced with a direction that the receivers’ remuneration
should be paid entirely by a third party, regardless of any insufficiency in assets.
It appears that r 7.62 allows for such a course, however, in appropriate
circumstances.
[24] In this case it is asserted that the circumstances are unusual and make it unfair for the receivers’ remuneration (and also their costs and expenses) to be
paid out of the assets in receivership. In particular, it is asserted that Ms Taliano, both personally and through her solicitors, caused attendances in the receivership which were unnecessary. Counsel for Mr Lavas submitted that:

(a) At the commencement of the receivership the property owned by

Omana Ranch Ltd was already on the market with the aim of using the sale proceeds to pay the judgment debt. (Mr Lavas’ shareholding in Omana Ranch Ltd was one of the assets in receivership).
(b) In early discussions with the receivers it was agreed that this was an appropriate course to follow in order to pay out Ms Taliano.
(c) However, Ms Taliano “instructed” the receivers that Mr Lavas’ shares in his various companies were to be put up for tender and/or auction. The receivers took steps therefore to realise the shares, before ultimately deferring the sale of shares and continuing with the original plan to sell Omana Ranch’s property (which was already in train).

(d) These and other actions of Ms Taliano and her legal advisers added significantly to the costs of the receivership costs.

[25] Counsel for Ms Taliano strenuously disputed that the actions of Ms Taliano or her legal advisers had unnecessarily or inappropriately escalated the receivership costs. He submitted that:

(a) The most effective way to realise the assets was to conduct a sale of the shares, which in respect of two of the companies involved offering them to existing shareholders in terms of the pre-emptive rights in the constitutions of those companies. The obvious buyers would have been the existing shareholders or the judgment creditor herself. It was
anticipated that such a process would yield fair value for the shares because it was unlikely that the existing shareholders (other members of the Lavas family) would allow the judgment creditor to acquire the shares at a discount and accordingly the existing shareholders would end up bidding at a reasonable level.
(b) The judgment debtor and his family proposed an alternative solution, namely to defer realisation of the shares until one of the companies, Omana Ranch Ltd, sold a property owned by it.
(c) The general proposition was that Ms Taliano would be paid from the

proceeds of that sale. But to achieve that there needed to be agreement on a number of topics including:
(i) a timeframe for the sale;
(ii) a reasonable approach to the sale process that would give confidence that a sale would likely be achieved (against the 5 history of the Lavas family saying they were willing to sell the property, but having unrealistic expectations as to its sale price);
and
(iii)how the proceeds of sale would actually be distributed. Given the interests of Westpac as a secured creditor (and cross guarantees 10 with other family companies) this was not straightforward. Further, even if Westpac was prepared to give a discharge of mortgage in return for the Omana Ranch Ltd facility only being repaid, the liabilities of Omana Ranch Ltd to other Lavas family members or entities was such that, even after a sale of its 15 property, the judgment debt could not be satisfied if all parties relied on their legal rights.

Ms Taliano’s evidence was that she was concerned about the prospect of ongoing delays and continued uncertainty and was therefore reluctant for the receivers to agree to a proposal that her judgment debt be met out of the sale of 20 the Omana Ranch property unless all the elements were brought together in a

clear, workable and reasonable agreement. She continued to press for such an agreement.

A formal agreement to the terms of distribution was not, however, concluded until after this application was brought by the receivers in 25

December 2011. In evidence it was suggested by members of the Lavas family

and their accountant that their “word” was good enough. Given the acrimonious background to this dispute, however, Ms Taliano wished to have a formal written commitment as to distribution of the sale proceeds.

Ms Taliano’s position therefore is that, through her solicitors, she 30 continued to make inquiries designed to give her a degree of comfort that the property sale strategy would enable her judgment debt to be met. If not, it may

have been necessary to reactivate the earlier strategy of seeking a sale of the shares.

It was apparent from the evidence before the Court that Ms Taliano’s 35 solicitor was very proactive in his dealings with the receivers. However, the issues raised on behalf of Ms Taliano appeared to be legitimate issues which

were appropriate to raise with the receivers. In his second affidavit, Mr Rea acknowledged this, as follows:10

[46] I refer to the claim that I made adverse comments about 40
Mr O’Callahan. I did adopt a different strategy to that proposed by
Mr O’Callahan. There were a number of phone calls and requests made by Mr O’Callahan for information and to insist upon a particular strategy (ie the share sale strategy) to be pursued. I accept that the issues raised by
Mr O’Callahan were legitimate issues to raise. However, I decided to 45

Rea affidavit sworn 6 March 2012.

adopt an alternative realisation strategy as the share sales strategy would have enormous consequences on the Lavas interests.

[30] Under cross-examination Mr Rea qualified this to some extent, stating that some of the issues raised by Mr O’Callahan were “unnecessary”. When

pressed on this, however, the only specific matter he identified was the pursuit of the share sale strategy. Even then, he appeared to be somewhat equivocal. [31] Overall it is clear from the evidence that Ms Taliano’s legal adviser was more proactive in the receivership process than the Lavas family advisers. However, that is perhaps not surprising. Ms Taliano was the judgment creditor
and there were many obstacles that needed to be worked through in order to realise proceeds from which the judgment debt could be met. Given that the parties’ marriage had dissolved some six years previously and there had been protracted proceedings in the Family Court, Ms Taliano was keen to secure payment of her debt in order to be able to purchase a house and move on with
her life. She was clearly concerned that matters would continue to drift and was anxious that her legal advisers keep pressure on the receivers to ensure that matters were resolved.
[32] There was clearly a genuine risk that a sale of the Omana Ranch property would not result in full satisfaction of the judgment debt in the
absence of a binding commitment as to distribution of the proceeds. In such circumstances, and given the lengthy delays which had already been incurred in satisfying the judgment debt, pressing for the underlying shares to be sold was a legitimate alternative strategy. On balance I do not find that it was inappropriate or unnecessary for Ms Taliano to raise such issues.
[33] Given that quantum is not before the Court, I am not required to determine whether the amount of time the receivers spent dealing with such issues, or the level of costs (for example, legal fees) incurred in relation to them were reasonable. That is an issue for another day. For present purposes I simply find that the issues raised on behalf of Ms Taliano were reasonable and

30accordingly do not justify an order that Ms Taliano should be personally responsible for meeting some or all of the receivership costs.
[34] It is apparent from the contemporaneous documents that both parties at times placed significant pressure on the receivers. Ms Taliano through her legal advisers threatened to take steps to have the receivers replaced when they

preferred the strategy (sale of the Omana Ranch property) advocated by the Lavas interests over her preferred share sale strategy. On the other hand, the Lavas interests threatened to take legal action against the receivers if they did pursue the share sale strategy. The receivers were in an unenviable position. [35] A further argument raised by Mr Lavas as to why Ms Taliano should
meet the costs of the receivership was that the receivership was unnecessary or “overkill”.11 In particular, Ms Taliano already had charging orders over the relevant shares. The Lavas interests had, prior to the receivership, already indicated an intent to sell the Omana Ranch property.

11 James Lavas affidavit sworn 21 February 2012 at (9).

The short answer to this submission is that the receivers were appointed by consent. The appropriate time to raise an argument that the appointment of receivers was unnecessary or overkill was at the time of the application for their appointment.
The evidence of Mr Withers, the Lavas family’s accountant was that the 5 receivership was consented to because Mr Lavas was not in a position to meet

the costs of opposing the application. Further, Mr Withers had advised Mr Lavas that “we were more likely to be able to work to achieve an outcome alongside a receiver than we would be trying to deal with Ms Taliano and her

legal advisers”.12 10

Ms Taliano’s evidence, which was not contested (she was the only

deponent not cross-examined) was as follows:13

My solicitors spoke with the Registrar about issuing an order for sale in respect of the judgment debtor’s shares in the companies and the debts
owed to him by those companies. I understand that the Registrar did not 15 consider that he had sufficient powers to conduct a sale in part because he
had no obvious means of obtaining information in order to adequately put those shares up for sale. The matter was complicated by certain of the companies having pre-emptive rights entrenched in their constitutions. It
was for those reasons that I sought the appointment of a receiver to aid 20 execution, which order was granted, ultimately by consent.

The Family Court judgment was delivered in September 2010, requiring payment within 28 days. Even with the extensive assistance of Court appointed receivers the judgment debt was not able to be satisfied (in large part) until

some 14 months later, in December 2011. Having carefully reviewed the 25 history of that matter during that 14-month period it is clear that any concerns

the Registrar may have had as to whether the judgment debt could have been realised through ordinary court enforcement processes were well founded. [40] A debtor/creditor relationship lies at the heart of the issues in this case.

A judgment was issued by the Family Court. It required payment within 30

28 days. Payment did not occur, in breach of a Court order. Fairness will

usually require that the defaulting debtor be liable for the reasonable costs of the creditor in pursuing the debt. Given that a Court has determined that the legal obligation for the debt lies with the debtor, the creditor should not usually

have to suffer further loss in order to recover the debt. Without debtor liability 35 for the costs of enforcement, debtors would have no incentive to discharge the

debt prior to the commencement of enforcement proceedings.

In conclusion, I see no basis in this case for departing from the general principles in relation to receivers’ remuneration which requires that such costs

be met out of the assets in receivership. 40

Estoppel

DidMr Rea tell Mr Lavas that Ms Taliano would have to pay the receivership costs?

Counsel for Mr Lavas argued that the receivers are estopped from

asserting that the costs of the receivership should be met from Mr Lavas’ assets 45

Withers affidavit sworn 22 February 2012 at [6].
Taliano affidavit sworn 7 March 2012 at [16].

in receivership. It was alleged that Mr Rea advised Mr Lavas at the outset of the receivership that the receivership costs and expenses would have to be met by Ms Taliano. Mr Lavas says he relied on this statement, to his detriment. Counsel for Mr Lavas relied on both equitable estoppel and the principle of

estoppel by convention (albeit on the basis that essentially the same considerations applied to each). The key elements are whether a representation was made and whether Mr Lavas relied on such a representation to his detriment.
[43] Mr Lavas gave evidence that, during a conversation with Mr Rea in late
February or early March 2011:14
Mr Rea told us that I would not be responsible for any of the receivers’ fees. He said that since Ms Taliano had appointed him she was fully responsible for his fees.

[44] Mr Lavas’ brother Leonard and his father James Lavas Senior attended

the same meeting. Mr Lavas Senior’s evidence was that, during that meeting, Mr Rea “assured Jim that all the costs of the receivers [were] totally Ms Taliano’s responsibility because she had instructed the receivers”. He also said that Mr Rea “later repeated that Jim need not worry as he would have no responsibility for any costs”.15
[45] Leonard Lavas’ evidence was to similar effect. He deposed that:16
5.The important thing about that meeting that I recall clearly is that Mr Rea told us that Jim would not be responsible for any of the receiver’s costs. I recall that he repeated this twice. He qualified this by advising that Ms Taliano would be paying the receiver’s costs as
she had appointed him.
[46] Finally, Mr Withers, the chartered accountant for the Lavas family interests, deposed as follows:17

I did have a discussion with Mr Rea during this time relating to the question of costs of the receiver. This would have been in early

March 2011 although I cannot recall exactly. Mr Rea told me that the costs of the receivership would be taken out of Ms Taliano’s judgment because she had sought to appoint the receivers to facilitate payment of the judgment.

[47] Mr Withers’ recollection is corroborated by an email he sent to Mr Rea

on 28 October 2011, after it had emerged that there was a strong difference of opinion as to who was liable to meet the costs of the receivership. That email included the following passages:

Myself, Jim and Len were all told by you that Francesca must bear these costs and that they would be deducted from the settlement proceeds that

Jim pays in accordance with the money order before the receivership is discharged. ...

14 James Lavas affidavit sworn 21 February 2012 at [10].
15 James Lavas affidavit sworn 17 February 2012 at [5].
16 Leonard Lavas affidavit sworn 17 February 2012.
17 Withers affidavit sworn 22 February 2012 at [10].

Can you please advise us what you were relying on when you told us all that your costs would be deducted from the proceeds of Francesca’s money order?.

There was no written response to that email, although Mr Rea gave evidence under cross-examination that he may have responded verbally. 5 [49] Mr Rea’s evidence on the other hand was as follows:18

[37] At no time have I said that the Lavas interests would have no liability for the costs of the receivership.
[38] I accept that I said at the meeting referred to in the Lavas Affidavits
that the costs of the receivership would be deducted from the proceeds 10 received from the receivership. I did not to my recollection convey or say anything that would have led the Lavas interests to believe that they had no liability for the costs.

[39] I dispute that I advised the Lavas interests that I could guarantee that
they had no liability for the costs incurred in the receivership. 15

All four witnesses were cross-examined extensively on this issue. The members of the Lavas family and Mr Withers were very clear in their recollections of what had been said and came across as honest and credible on the issue. It was squarely put to them that they may have misunderstood or

misinterpreted what Mr Rea had said to them, but they all maintained the 20 position that it had been clearly stated that Ms Taliano would ultimately have

to bear the costs of the receivership.

Mr Rea also maintained his position under cross-examination, but his recollection did not appear to be as clear as that of the other witnesses. This is perhaps not surprising given that the receivership and the need to realise the 25 sum of over $750,000 from family assets was a matter of pressing concern for

the Lavas interests. For Mr Rea on the other hand, this receivership was one of a number of matters he was having to deal with in the course of a busy professional practice.

I also note that Mr Rea’s evidence was that during the course of his 30 career he has been engaged as a privately appointed receiver in a large number

of cases. His experience of acting as a Court appointed receiver, however, was much more limited. This is because Court appointed receiverships are relatively rare. It is therefore possible that he may have believed that different

considerations as to payment of receivership costs applied in the Court 35 appointment context of Court appointed receivers (namely that the person who applies for their appointment must meet the associated costs).

Taking all of these factors into account I conclude that a statement was made by Mr Rea along the lines asserted by Mr Withers, Mr James Lavas,

Mr Leonard Lavas and Mr James Lavas senior, namely that the costs of the 40 receivership would be met by Ms Taliano.

In order to give rise to an estoppel, however, James Lavas must establish that he relied on the representation made by Mr Rea, to his detriment.

Rea affidavit sworn 6 March 2012.

Reliance
[55] In my view reliance is not made out in this case. Under cross-examination James Lavas acknowledged that, at the time of the consent order, he had taken legal advice as to who was liable to meet the costs of the

receivership. It is that advice (whether correct or incorrect) he must have relied on when he consented to the Court orders. Mr Rea’s passing statement was made several months later and was clearly not intended to (nor capable of) supplanting the advice Mr Lavas received from his own professional advisers.
[56] Mr Rea was not an adviser to the Lavas interests. Mr Withers
(accountant), Mr Breen (instructing solicitor) and Mr Swan (counsel) were the professional advisers to the Lavas interests during the relevant period.

Detriment
[57] Assuming for present purposes that reliance can be established, what would have been done differently if Mr Lavas had been aware of his liability

for fees from March 2011 onwards?
[58] Counsel for Mr Lavas argued that if Mr Lavas had known he was liable (directly or indirectly) for the costs of the receivership then he would have monitored the course of the receivership much more closely and could have sought court supervision under s 34 of the Receiverships Act 1993 if it
appeared that excessive costs were being incurred. Mr Lavas could also have insisted that the receivers comply with their obligations under ss 23 and 24 of the Receivership Act to provide reports, as this would have assisted him to monitor the receivership and protect his position.
[59] Further, the Lavas interests agreed and allowed the receivers to go to the
Westpac Bank and arrange for $800,000 to be paid out of the sale proceeds of the property. It was submitted that they may not have agreed to the sale of the property if they were aware that James Lavas was responsible for the costs of the receivership. It was asserted that Len Lavas had other options open to him, such as purchasing James Lavas’ shares or possibly agreeing to auctioning the
shares.
[60] Mr Lavas had no way to terminate the receivership unless he could satisfy the judgment debt. This required either the sale of the Omana Ranch property or a sale of his shares. The evidence was that the Lavas’ interests were strenuously opposed to the latter option – to the extent of threatening an
injunction against the receivers if they pursued it. Although possible, it seems inherently unlikely that knowledge that Mr Lavas was liable for the receivership costs would have resulted in a radical change in strategy. One way or another, the receivership had to run its course until the judgment debt was paid.
[61] I have found the strategy adopted on behalf of Ms Taliano was reasonable. If, however, the receivers incurred excessive costs in responding to Ms Taliano’s requests (that is, if they could have dealt with the issues more efficiently and cost effectively) then Mr Lavas has retained the ability to challenge the costs incurred, under s 34 of the Receiverships Act. The issue is

primarily one of timing – he could have pursued a challenge at an earlier stage if he had been aware of his liability for costs. Of course this could have further escalated costs, particularly if successive challenges were made at different points in time.

In conclusion I find that even if Mr Lavas were assumed to have relied on the statement made by Mr Rea (instead of or in addition to the advice of his own advisers) no detriment arises.

Result

The receivers seek directions “as to the incidence and/or apportionment 5 of the costs of the receivership and directions as to which of the respondents is

to have liability for the costs of the receivership”.

I direct that the receivers’ reasonable remuneration, costs and expenses are to be met out of the assets in receivership, namely those listed at para 3(a)

of the Consent Order dated 11 February 2011. 10

If agreement cannot be reached between the parties regarding the costs

of this application, then I direct that the applicant is to file a memorandum within 10 working days, Ms Taliano within 15 working days and Mr Lavas within 20 working days.

Receivers to be paid out of assets of receivership. 15

Solicitors for applicant: Hucker & Associates (Auckland). Solicitors for Taliano: Carter & Partners (Auckland). Solicitors for Lavas: K McBreen (Taupo).

Reported by: David Robinson, Barrister

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Citations

Rea v Omana Ranch Ltd [2012] NZHC 2639

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[2012] NZHC 2639

11 October 2012