Sage Securities Limited v Rood HC Wellington CIV 2009-485-1150

[2010] NZHC 591

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2009-485-1150

BETWEEN  SAGE SECURITIES LIMITED Applicant

ANDHENDRICUS MARIA ROOD, WILHELMINA FRANCISCA ROOD, MARIA JULIANA ROOD AND ADVISORY TRUSTEES LIMITED Respondents

Hearing:         17 February 2010 and 1 March 2010

Appearances: M Taylor - Counsel for Applicant

P Withnall - Counsel for Respondents

Judgment:      9 March 2010 at 3.15 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 9 March 2010 at 3.15 pm pursuant to r 11.5 of the High Court Rules.

Solicitors:           Paul Cheng & Co, Solicitors, PO Box 27088, Wellington

Michael Chung Law Office, PO Box 85, Wellington

SAGE SECURITIES LTD V HM ROOD & ORS  HC WN CIV-2009-485-1150  9 March 2010

Introduction

[1]      This  is  an  application  to  set  aside  a  statutory  demand  issued  by  the respondents on 8 June 2009, seeking the sum of $660,369.86. The respondents are trustees of a trust known as the Rood Family Trust. The statutory demand is based on a debt alleged to be due from the applicant, Sage Securities Limited (“Sage Securities”),  for  loans  advanced  by the  respondents  to  Sage  Securities  between September 2008 and February 2009 on which there is now $600,000.00 principal outstanding plus accumulated interest.

[2]       Sage Securities contends that the demand should be set aside on the basis that there is a substantial dispute whether the money was advanced to it as a trustee or as a debtor.

Background Facts

[3]      Sage Securities is a property investment and lending company. Mr Philip McGaveston (“Mr Gaveston”) is the sole director and shareholder of that company. It is said that Mr McGaveston became aware of a property development project through an associate of his, a Mr Robert Cummins (“Mr Cummins”), which was being undertaken by the “Working Concepts Group” of companies. Mr Cummins is the director of Working Concepts Limited (“Working Concepts”). Mr McGaveston then discussed the proposed project with his accountant, Mr Alexander Watson (“Mr Watson”), who suggested that he and some of his other clients might be interested in investing in the project.

[4]      The respondents are also clients of Mr Watson and learned of the project through him. Mr Hendricus Rood (“Mr Rood”) says that Mr Watson advised him that funds for the project loan would be lent to Sage Securities, which would then on-lend the money to another company. The respondents subsequently advanced funds  to  Sage  Securities,  who  made  the  money  available  to  Bishop  Lenihan Concepts  Ltd  (“Bishop  Lenihan  Concepts”),  a  company  owned  by  Working Concepts.   The   first   advance   from   the   respondents   to   Sage   Securities   was

$150,000.00 made on 2 September 2004, and the second advance was $500,000.00, made on 29 November 2004

[5]      There is little documentation concerning these transactions. Back-tracking a little, on 31 August 2004, the respondents’ solicitor, Mr Michael Chung (“Mr Chung”) sent a fax to Mr Cummins to discuss the loan. The fax was headed “Bishop Lenihan Concepts Limited (“The Company”) – Henk Rood – Loan”, but recorded that Mr Rood had been “asked to advance funds to Sage with Sage on lending these funds to Bishop Lenihan Concepts Limited”. Mr Chung enquired about the trading history of  Sage  Securities,  and  also  sought  information  as  to  the  nature  of  the security provided by Bishop  Lenihan Concepts. Mr Chung further referred to a declaration of trust from Sage Securities that had been provided to him, and which he asked be completed and signed prior to the advance being made.

[6]      A fax in reply, also dated 31 August 2004, was headed “Sage Securities Ltd – Henk  Rood”.    In  this,  Mr  Cummins  advised  Mr  Chung  of  the  terms  of  the transaction,  including  the  interest  rate,  the  nature  of  the  security  and  that  the borrower would be Bishop Lenihan Concepts. More particularly, Mr Cummins said that security provided would be by way of a registered first mortgage over a property at 130 Stancombe Rd and two unregistered second mortgages over properties at 12

Laidlaw Way and 2 Progressive Way. In addition, he confirmed that Sage Securities was not involved in any transactions “that could impact on its ability to act as a bare trustee for the contributors as contemplated here”.

[7]      Attached to the fax was the previously mentioned declaration of trust by Sage Securities, dated September 2004.   This recorded that Sage Securities and Bishop Lenihan Concepts had entered into a loan agreement, and that Sage Securities had agreed to raise loan finance of $2.6 million from certain contributors and to hold first mortgage security for the contributors as bare trustee. The declaration was not signed by the respondents, but they accept that they were aware of this document. Clause 6 provided that Sage Securities held “the monies raised for the Loan and all securities granted by the Borrower and the Guarantor on trust for those persons who contribute to the Loan and in proportion to the amount so contributed”.

[8]      The  term  loan  agreement  between  Bishop  Lenihan  Concepts  and  Sage Securities in turn provided that the loan, which was to be secured by a first registered mortgage,  was  for  the  sum  of  $2,600,000.00,  and  that  it  was  advanced  for  a maximum  term  of  12  months  from  1  September  2004.    It  appears  that  Sage Securities used the investors’ funds to refinance $1,800,000.00 of a $3,000,000.00 loan it itself had previously advanced to Working Concepts.

[9]      On  1  September  2004,  Mr  Cummins  sent  the  term  loan  agreement  and security  documents  to  Mr  Chung,  and  advised  that  the  respondents  would  be required to pay the sum of $150,000.00 if they were willing to proceed with the loan.

[10]   On 2 September 2004, the respondents advanced $149,077.00 to Sage Securities’ bank account, being the balance of the advance of $150,000.00 once legal fees were deducted. Mr Cummins later advised Mr Chung that on 9 June 2004 a mortgage had been registered over the property at 130 Stancombe Road in the name of Sage Securities as first mortgagee.

[11]     Mr Cummins and Mr Chung subsequently discussed a further advance of

$500,000.00 from the respondents. That transaction was completed on 29 November

2004.  Significantly, the advance at this time was paid directly to the solicitors for Working Concepts.  It seems Sage Securities executed a further declaration of trust to reflect the change in contributors and (perhaps somewhat surprisingly) the respondents were now recorded as contributors of $600,000.00.

[12]     Then, on 30 August 2005, a sum of $50,000.00 plus interest was repaid to the respondents to bring the total loan contribution down to this $600,000.00 figure.

[13]     Although both declarations of trust indicate a 12-month loan term from 1

September 2004, no further declarations were executed. The respondents’ loan was in fact rolled over on a six-monthly basis, until Mr Watson advised on 13 November

2008 that the respondents did not wish to renew the loan after 1 March 2009. There was  regular  correspondence  between  Sage  Securities  and  Mr  Chung  concerning these rollovers and interest rates.

[14]     Interest on the investment was paid out by Sage Securities pro-rata according to the relevant level of participation in each investment. Sage Securities did not take a commission and did not deduct a fee from these interest payments.

[15]     The funds it seems did not remain with Bishop Lenihan Concepts.   They were lent to other companies owned by Working Concepts and to Working Concepts itself. Mr Rood says that he was unaware of this. In February 2006, Mr McGaveston proposed that the loan be transferred to Port Nic Limited, a company of which Mr McGaveston is a director and the major shareholder, but this proposal never eventuated.

[16]     In terms of the annual financial statements prepared for Sage Securities by its accountant Mr Watson, the respondents’ advances were referred to as “loans” in the

accounts for the years ended 2006 to 2008. The accounts for the year ended 31

March 2005 do not show the “contributors’ funds” in the company’s balance sheet, but refer to the funds as “farm out” loans under the heading “Working Concepts Ltd” in the following way:

“This  was originally a  loan of $3,000,000.00   from Sage Securities Ltd to Working Concepts Ltd, but subsequently $1,800,000.00 was “farmed out” to the following... the “farm out” loans were on the same terms and conditions as the loan to Working Concepts Ltd.”

The sum of $1,200,000.00, referred to as a “Contributory Mortgage Working Concepts Ltd”, is shown as an asset in Sage Securities’ balance sheet. The treatment of the “contributory” funds however changed in the accounts for 2006, in which they were listed as individual term liabilities and balanced by an asset entitled “Contributory Mtge Working Concepts”.

[17]     The respondents’ accounts list the loan as “Deposit – Sage Securities Ltd”, and the part repayment to the respondents of $50,000.00 on 30 August 2005 was noted as “Sage Loan”.

[18]     In September 2008, Mr Cummins informed Mr McGaveston that the “Sage security position” had “deteriorated”. Mr Rood requested repayment of the loan in November 2008 from Sage Securities, but no such payment was ever made.

Counsel’s Arguments and My Decision

[19]     Sage Securities brings this application pursuant to s 290 of the Companies

Act 1993, which sets out the basis on which a statutory demand may be set aside:

“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.”

[20]     The sole ground relied upon by Sage Securities in bringing this application is that there is a substantial dispute whether or not the debt is owing or is due: s

290(4)(a).   It says the debt demanded was not advanced to Sage Securities by the respondents.  Sage Securities submits that it received or held the money on trust for the respondents and thus has no legal obligation to repay it. In response, the respondents  submit  that  there  is  little  doubt  that  they  lent  the  money  to  Sage Securities as the advance was consistently treated as a loan until the respondents demanded its return.

[21]     The approach the Court is to adopt when considering applications relying on s 290(4)(a) requires an applicant to show a fairly arguable basis upon which it is not liable  for  the  amount  claimed  in  the  statutory  demand:  Queen  City  Residential Limited v Patterson Co Partners Architects (No. 2) [1995] 3 NZLR, United Homes (1988) Limited v Workman [2001] 3 NZLR 447 at 451-2.

[22]     It must be shown that there is a genuine and substantial dispute as to the existence of the debt, and further that it would be unfair to allow that dispute to be resolved through the liquidation provisions of the Companies Act 1993 rather than by action commenced in the usual way: Taxi Trucks Limited v Nicholson [1989] 2

NZLR 297. Whether there is a “substantial dispute” is a question of fact to be determined in light of all the relevant circumstances: Lockwood Buildings Ltd v Hunter Douglas Coilcoaters Ltd (1988) 4 NZCLC 64,295.

[23]     The mere assertion that a dispute exists is not sufficient.  Material, short of proof, is required to support a claim that a debt is disputed.  And it is not usually possible in cases such as the present to resolve disputed questions of fact on affidavit evidence  alone,  particularly  when  issues  of  credibility  arise  –  see  Brookers Insolvency Law & Practice at CA 290.02.

[24]     The issue in this case is whether the relationship between the respondents and Sage Securities was one of creditor-debtor or beneficiary-trustee. It is important to note that there is no written loan documentation between Sage Securities and the respondents. The only documentation available concerning the arrangement appears to  be  the  applicant’s  trust  declarations,  the    term  loan  agreement  with  Bishop Lenihan Concept and correspondence between the respondents’ solicitor, Mr Chung, and Mr Cummins.

[25]     Sage   Securities   contends   that   the   respondents   provided   contributory mortgage funds to members of the “Working Concepts group of companies” and

that, in doing so, they were aware that it had executed a trust declaration undertaking to act as a trustee for the contributors. Sage Securities submits that there is no loan agreement or other document that is inconsistent with its role as trustee, and that it is relevant that the respondents here negotiated directly with the borrower.

[26]     The respondents, on the other hand, claim that a loan agreement was formed between the parties, and that there is little doubt that they did not transfer the funds to Sage Securities to be held on trust. They argue that they are not bound by the declarations of trust, and point out that Sage Securities borrowed the funds to refinance $1,800,000.00 of its $3,000,000.00 loan to Working Concepts. This, they say, is contrary to the notion of a trust, as the documentation shows that there was a debt between Working Concepts and Sage Securities, albeit sourced from the contributors.

[27]    Moreover, the respondents argue that the declarations of trust, properly construed, would not extend to Sage Securities holding the principal advanced on trust, as holding the funds on trust would be entirely inconsistent with its obligation to lend the funds to Bishop Lenihan Concepts. In short, it is submitted that for Sage Securities to on-lend $2,600,000.00 to Bishop Lenihan Concepts, it had to have acquired the legal and equitable interest in the investors’ funds. Clause 6 of the declaration could thus only be interpreted to mean that Sage Securities was to hold the security for the loan – but not the investors’ funds - on trust.

[28]     The question to be considered therefore for the purposes of this application is whether it is fairly arguable that Sage Securities received the funds as trustee for the respondents for investment, and therefore is not indebted to the respondents for the claimed  amount.  The  flipside  of  this  question  is  whether,  having  regard  to  the parties’ negotiations and other relevant surrounding circumstances, there is a substantial dispute that the parties did not intend to enter into a direct loan arrangement.

[29]     On this, before me counsel for Sage Securities referred to the decision in

Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002]

2 NZLR 433 at [53]-[54], where the Court of Appeal reviewed the principles of contract formation. It is generally accepted that the question of whether parties intended to enter into a contract is to be determined objectively, on the basis of evidence of negotiations and all other relevant surrounding circumstances. Although it is permissible to look at the subsequent conduct of parties towards one another for this purpose, it is less certain that one may consider the unilateral subsequent conduct of a party: at [56].

Is Sage Securities a trustee or a debtor?

[30]     Sage  Securities  contends  that  the  present  case  is  on  all  fours  with  Re Mortgage  Management  Ltd  [1978] 1 NZLR 494, where the Court sought to determine the nature of the parties’ legal relations arising from the liquidation of a contributory mortgage scheme. The purpose of the scheme was to allow a number of investors to work together to satisfy the needs of the borrower, with the mortgage in question being taken out in the name of a contributory mortgagee or a nominee company rather than the names of the individual contributors. Interest was paid by the borrowers to the contributory mortgage manager and then from the contributory mortgage manager to the investors. There was frequent “switching” of individual investors’ funds from one mortgage to another, and most investors were unaware which mortgage their funds had been allocated to. The only rewards which accrued to the mortgage manager from the operation of the scheme were management and establishment fees paid by the mortgagors.

[31]     Unlike  the  situation  prevailing  in  the  present  case,  the  scheme  in  Re Mortgage Management Ltd was backed by the guarantee of an associated bank, which guaranteed payment of interest and repayment of principal to the contributors. The investors had also been provided with standard brochures outlining the nature of the scheme, and mortgagors/borrowers were sent a specimen letter, which referred to “several lenders [coming] together for the purpose of meeting the needs of the borrower”, to the mortgage being signed in the name of a nomine company for the investors, and to the mortgage manager  acting as agent for the investors. Most importantly, however, the investors had signed an investment authority, which instructed the mortgage manager to invest funds on their behalf on the security of contributory mortgages, and authorised it to use its discretion in arranging the investments on the investors’ behalf as their agents.

[32]     As in the present case, it was claimed that the investors had lodged the funds with the mortgage manager as a borrower, which had then in turn “on lent” the funds to the mortgagors. The Court rejected this submission on the basis of the forms of investment authority and the letter to mortgagors. It considered that there was an express agency and  trust relationship between  the contributor  and the mortgage manager or nominee company, and that the documentation clearly established a declaration of trust in respect of the mortgages (at 513-514). The Court further considered that unauthorised switching of funds between end investments was “at worst” a breach of trust and merely reinforced the trusteeship nature of that relationship, but was not an indication of lending (at 515).

[33]     A  similar  conclusion  was  reached  in  Re  Tricorp  Investments  Ltd  HC Auckland M2038/89, 14 November 1990. There, investors provided funds to a “manager”, who undertook the management of the funds as “agent” for the investor, using a nominee company. The nominee company was to maintain a register of beneficial holdings of the client, and could pay any moneys due to the investors by paying those moneys to the manager, who would receive those moneys on behalf of the  client.  Potential  investors  received  a  “General  Management  Agreement” outlining the nature of the scheme, but it was unclear whether every investor signed such a document. Some “Certificates as to Beneficial Holdings” were issued by the nominee company, which stated that the investor was the beneficial holder of securities which were held on trust. Based on these documents, the Court found that it was clear that the companies held funds for investment as trustees for the investing clients and that a fiduciary relationship was thereby established. The investors were not simply lenders of funds to the “manager” company.

[34]     Sage Securities contends that in the present case, very strong evidence would be required to show, in the face of the trust deed, that the relationship here was different to that provided for by this document. The present case is not as clear-cut, however, as Re Mortgage Management Ltd and Re Tricorp Investments Ltd, where the terms of the parties’ arrangements were relatively well documented in letters, brochures, and investment authorities or agreements. The only documentation available here  are two  unilateral  declarations  of  trust,  which  do  not  include  an authority by the investors to Sage Securities to act on their behalf.

[35]     Nevertheless, it is significant that the transactions, which were negotiated between Mr Chung and Mr Cummins, were made against the background of those declarations of trust, and an intention could therefore be inferred that the relationship between the respondents and Sage Securities was to be one of trust for the purposes of investing the respondents’ funds. Contrary to the respondents’ contention, the term loan agreement between Sage Securities and Bishop Lenihan Concepts would not appear to be inconsistent with such an arrangement. If the nature of the arrangement was in fact a contributory mortgage scheme, Sage Securities would simply have to be understood as having entered into the agreement in its capacity as trustee for the investors.

[36]     Sage Securities submits that it is material in this context that the respondents did not seek any written material or agreement consistent with the alleged loan. There is no loan documentation between the respondents and Sage Securities, no

security from Sage Securities to the respondents, and no personal guarantees from the directors of Sage Securities.

[37]     Furthermore, Sage Securities contends that its failure to profit personally from the transactions and payment of the whole of the interest on the funds to the respondents are entirely consistent with its obligations as a trustee, but would be in conflict with the commercial purpose of a loan if this was to be the case here. In my view, however, the payment of interest at least would be consistent with both a trustee and beneficiary and a debtor and creditor relationship.

[38]     It  is  also  relevant  that  the  second  advance  was  paid  directly  to  Bishop Lenihan Concepts, which would appear to be consistent with a trustee-beneficiary rather than a debtor-creditor relationship here. It is unclear, however, whether in entering into these arrangements, the parties expected that Sage Securities would be liable to pay out interest on the loan if Bishop  Lenihan Concepts defaulted, or whether  Sage  Securities  was  required  to  keep  the  funds  and  interest  payments separate from its own accounts: cf Stiassny v North Shore City Council [2009] 1

NZLR 342 at [21]-[22].

[39]     There is no evidence that the nature of the parties’ arrangement was such to confer benefits on Sage Securities that would be inconsistent with its claimed role as trustee. The respondents’ argument that one such benefit was the applicant’s ability to “free up” its own funds by refinancing its loan to Bishop Lenihan Concepts with the  investors’  funds  is  unconvincing.  As  I  understand  it,  similar  circumstances existed in Re Mortgage Management Ltd, where the mortgage manager sought to refinance a number of projects by setting up a contributory mortgage scheme (at

499).

[40]     The respondents argue that, if Sage Securities did not owe an obligation to repay the funds, there would be a vacuum in which nobody owed this obligation. It is true that the identity of the alleged debtor is not entirely clear at present. While the initial loan was made to Bishop Lenihan Concepts, the funds were then moved to Working Concepts or to a company called Concepts 128 Limited. The respondents were unaware of this. Sage Securities simply refers to the borrower as the “Working Concepts group”, which appears to me to be unhelpful in the present circumstances. Although  it  would  be  necessary,  therefore,  to  trace  the  funds  to  their  current borrower, this should not be taken to mean that there is a “vacuum” in which no company owes an obligation of repayment of the funds.

[41]     The respondents further submit that, even if cl 6 of the declaration could be construed to mean that Sage Securities held the funds advanced to it on trust, no such arrangement was put in place following termination of the loan’s maximum term on

1 September 2005. The funds were subsequently moved from Bishop Lenihan Concepts, and the respondents claim that any previous arrangement had become redundant by virtue of this “radically changed situation”.

[42]     In response, Sage Securities contends that it continued in its role as a trustee once the loan had rolled over and Sage Securities did not seek to recover the funds and return them to the investors. Sage Securities argues that the rollover represented a  variation  of  the  transaction  recorded  in  the  declaration  of  trust,  but  that  this variation did not destroy or vary the trust relationship with the respondents. Sage Securities seeks to find support for this contention in the correspondence between Mr McGaveston and Mr Chung in February 2006, concerning the proposal by the applicant that the loan and mortgage securities should change from the Working Concepts group to Port Nic Limited. It is submitted that unless the security was held on trust for the investors, there was no reason for Sage Securities to discuss subsequent business arrangements with the respondents.

[43]     The  respondents  place  considerable  weight  on  the  way  in  which  the transactions  were  recorded  in  Sage  Securities’  financial  statements.  Affidavit evidence by Mr Purcell, who is a chartered accountant, suggests that the treatment of the respondents’ funds in the accounts for the year ended 2006 to 2008, which are listed as “loans”, is inconsistent with the notion of the applicant as trustee. The respondents  refer  to  this  change  from  the  accounts  for  2005  as  an  “attempt  at revision of history”.

[44]     Sage Securities maintains however that, as evidence of unilateral subsequent conduct,  the  accounts  must  be  considered  with  reservation.  It  argues  that  this evidence is unhelpful, as the accounts were prepared by Mr Watson and not by a member of Sage Securities, and that in any event they are contradictory because the accounts for 2005 differ from the accounts for 2006 to 2008 in their treatment of the respondents’ funds. It further refers to Mr Watson’s evidence that the change in accounting treatment was his decision and that this was not done on the basis of a changed understanding of the nature of the relationship between the parties.

[45]     I   agree   that   evidence   of   Sage   Securities’   financial   accounts   is   not determinative in this context. Although the accounts for 2006 to 2008 may suggest that the true nature of the relationship between the parties may have been one of creditor and debtor, in the context of the present application to set aside a statutory

demand, it is not appropriate having regard to the reasons advanced by the applicant, to give any real weight to this evidence here.

[46]     On  the  basis  of  these  considerations,  I  consider  that  the  applicant  has succeeded in establishing a fairly arguable basis upon which it is not contractually liable for the amount claimed. I acknowledge the respondents’ argument that mere knowledge of a unilateral declaration of trust cannot be equated with a binding consensual arrangement. There may also be force in the respondents’ contention that a contributory mortgage scheme should not have been set up without a form of express authority by the investors and a waiver of liability.

[47]     However, the material that is presently before the Court clearly reveals that there is a substantial dispute whether the parties intended the respondents’ funds to be transferred to the applicant in the capacity of a borrower or of a trustee. If Sage Securities’ contention is accepted, it may be that the only remedy available against it (as opposed to the ultimate borrower/s) would be a claim for breach of trust.

Residual Discretion

[48]     The  respondents  submit  that,  even  if  this  Court  found  that  there  was  a substantial dispute as to the debt, there are significant reasons why it should exercise its discretion not to set aside the demand. The respondents here refer to the deemed insolvency of Sage Securities by virtue of s 287(a) of the Companies Act, and argue that an insolvent company should not be allowed to continue acting as a trustee – Commissioner of Inland Revenue v Chester Trustee Services Ltd (CA).

[49]     The Court retains a residual discretion under s 290 to refuse an application to set aside a statutory demand even if satisfied that the grounds under s 290(4) are made out: Alfex Doors and Windows Ltd v Alutech Windows and Doors Ltd (2001)

16 PRNZ 963 (CA). However, the Court of Appeal in that case also commented that it would be a rare case in which the residual discretion would be exercised where grounds for setting aside are clearly established.  And in the present case, it is clear from the material before the Court that Sage Securities is not simply a bare trustee company.  It has other assets of some significance, and from its financial statements and other evidence provided to the Court, I am quite unable to say that it is actually insolvent.

[50]     For all these reasons, in my view, the circumstances of the present case do not provide good reason to refuse the application to set aside the demand despite there being a substantial dispute as to the debt.

Result

[51]     For the reasons outlined above, the present application succeeds and the statutory demand is to be set aside.

[52]     Section 290(7) Companies Act 1993, however, enables a statutory demand to be set aside subject to conditions imposed by the Court.  In my view, under all the circumstances prevailing in this case, that is appropriate here.   Some progress in achieving the object the respondents seek to reach in this case can be made by setting aside the statutory demand as against Sage Securities but on condition that:

(a)Sage Securities and its director/s promptly disclose to the respondents the names and addresses of the actual borrowers of the $600,000.00 loans, any guarantors, and the security/securities held by Sage Securities for such loans; and

(b)Sage Securities as Trustee forthwith takes all reasonable steps first to call up the loans from the borrowers and secondly, to properly and promptly realise all securities held for such loans.

[53]     A similar condition to that noted in [52](a) above was imposed by Master Thomson in Lower Hutt Law Centre Solicitors Nominee Co Ltd v Hutt City Council (1995) 7 NZCLC 260,637 (referred to by the Court of Appeal in Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR395 at 409.)

[54]  An order is now made setting aside the statutory demand in question issued by the respondents against Sage Securities but strictly on the conditions specified at para. [52] (a) and (b) above.

[55]  I now adjourn the present application to a call in the List at 10.00 am on 25

May 2010 for my order outlined at [54] above to be complied with. [56] In the mean time, costs are reserved.

‘Associate Judge D.I. Gendall’