SW Trust Services Limited v Grandad's Limited

[2012] NZHC 312

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2011-404-006382 [2012] NZHC 312

UNDER  the Companies Act 1993

IN THE MATTER            of an application to set aside a statutory demand

BETWEEN  SW TRUST SERVICES LIMITED Applicant

ANDGRANDAD'S LIMITED Respondent

Hearing:         27 February 2012

Counsel:         PM Hunter for the Applicant

A Commons for the Respondent

Judgment:      28 February 2012

[ORAL] JUDGMENT OF WYLIE J

Distribution:

PM Hunter: [email protected]

A Commons: [email protected]

SW TRUST SERVICES LIMITED V GRANDAD'S LIMITED HC AK CIV 2011-404-006382 [28 February

2012]

[1]      The applicant, SW Trust Services  Limited, seeks to set aside a statutory demand under s 290 of the Companies Act 1993.

[2]      The  demand  is  dated  21  September  2011.    The  respondent,  Grandad’s Limited, demanded payment of the sum of $147,857.  It asserted that the amount was owing  to  it  by  SW Trust  Services  Limited  as  trustee  of  a  trust  known  as  the Houhora Trust.

[3]      This application is unusual in two respects.

(a)      First, the applicant is a corporate trustee.  It was incorporated by the law firm Simpson Western, and partners in that firm are its directors. It administers approximately 100 trusts set up by clients of the firm. The respondent has no real desire to inconvenience it or the various clients of Simpson Western who utilise its services.   Rather, the respondent  asserts  that  it has  been  compelled  to  issue a statutory demand on the applicant, because it is a trustee of the Houhora Trust, and because a debt is owing to it.

(b)Secondly, the applicant alleges not only that there is no debt owing by it, but also that any debt that may have been owing has been extinguished  consequent  to  a  deed  of  settlement  entered  into  on

28 January 2010.  In the alternative, it also raises defences based on rectification and mistake.

Background

[4]      This  dispute  arises  out  of  a  joint  venture  between  a  Mr  Wayne  and  a

Mrs Amanda Hellier, and their interests, and a Mr Guy Jacobsen, and his interests.

[5]      In  1993,  the  Helliers  and  Mr Jacobsen  decided  to  purchase  a  block  of farmland in the Far North at Houhora, which had an area of approximately 131

hectares.  The intention was to farm the property, and to hold it for possible future development.

[6]      Mr and Mrs Hellier formed the Houhora Trust for the purpose of holding their half-share in the land.   The original trustees of that trust were Mr and Mrs Hellier and the applicant.  The Helliers resigned in January 2004, and the applicant is now the sole trustee of the trust.

[7]      Mr Jacobsen formed a company called Houhora Holdings Limited to hold his half share of the land.  It was a corporate trustee for his Family Trust.

[8]      The  purchase  price  for  the  land  was  $765,000.    The  Houhora Trust  and

Houhora Holdings Limited agreed to fund this sum in equal shares.

[9]      Mr and Mrs Hellier and Mr Jacobsen also incorporated the respondent on

29 April 2003.   It was to farm the land.   Both Mr Hellier and Mr Jacobsen were directors of the respondent, and their interests each owned half of the shares in the company.

[10]     The Houhora Trust and Houhora Holdings Limited purchased the land.  They also purchased the business that farmed the land.   The respondent leased the land from the Houhora Trust and Houhora Holdings Limited.  The rental it paid for the land was $52,000 (GST exclusive) per annum.   This rental was equally divided between the Houhora Trust and Houhora Holdings Limited.  The respondent did not pay the rental in cash.   Instead, the rent was allowed to accrue in its accounts as debts owing to both the Houhora Trust and Houhora Holdings Limited.

[11]     The respondent also purchased the farming business from the Houhora Trust and Houhora Holdings Limited.  The purchase price for this business was $106,636 (GST exclusive). This amount was also left outstanding as a debt, and it was divided equally between the trust and the company.

[12]     The respondent required capital both to purchase the farming business and to operate the farm.   It was initially funded by advances from the Helliers and their interests, and from Mr Jacobsen and his interests.  The present dispute involves part of the funding made by the Hellier’s interests.

[13]     The Houhora Trust borrowed $600,000 from the TSB Bank in April 2003. The then trustees of the trust recorded in a resolution dated 28 April 2003:

The  trustees  are  to  enter  into  an  agreement  to  borrow  loans  totalling

$600,000 (―the advance‖) from TSB Bank (―the bank‖) for the purchase of a

half share in a property at Far North Road, Houhora (―the property‖) and to

fund the investment in a farming business to be operated at the property.

[14]     This money was used to fund the trust’s share in the purchase of the land and the purchase of the business by the respondent.  To this end, part of the money was advanced to the respondent.  It is common ground that $50,000 was advanced to the respondent on 7 May 2003, $70,000 on 21 May 2003, $10,000 on 8 September 2003, and $10,000 on 1 October 2003.   Who made the advances is in issue in these proceedings.

[15]     The respondent subsequently borrowed $475,000 from the National Bank on

27  January  2004.     It  then  made  payments  of  $200,000  each  to  both  the

Houhora Trust  and  to  Mr  Jacobsen’s  interests  in  March  2004.    The  trust  used

$195,000 of this payment to repay the borrowings which it had obtained from the

TSB Bank.

Respondent’s Financial Statements for the Year Ended 31 March 2004

[16]     The year ended 31 March 2004 was the respondent’s first financial year.  Its financial statements for that year contain the following entries for the Houhora Trust under the heading ―Schedule of Loans to/from associates‖:

Houhora Trust,

Opening balance credit (debit)  –

Purchase of business  $  53,318

$  53,318

Funds withdrawn  $200,000

$200,000

Closing balance credit (debit)           ($146,682)

There was an identical entry for Mr Jacobsen’s Family Trust.   The financial statements also contain the following entry on a page which is headed ―Schedule of shareholder current accounts‖:

Wayne and Amanda Hellier

Opening balance credit (debit)  –

Funds introduced  $185,000

$185,000

Funds withdrawn  $    5,072

$    5,072

Closing balance credit (debit)           $179,928

[17]     The amount that was recorded in the 2004 financial statements as being owed by the Houhora Trust to the respondent was repeated in the 2005 and 2006 financial statements.   In 2007, the debit increased to $147,857 due to a payment that was described in the 2007 financial statements as ―personal expenditure‖ of $1,172.

[18]     It is this amount that the respondent is seeking to recover from the applicant through its statutory demand.

Breakdown in the Relationship

[19]     The  relationship  between  Mr  and  Mrs  Hellier  and  their  interests,  and Mr Jacobsen and his interests, broke down during 2009.  The parties wished to end their joint involvement by splitting the Houhora block into two separate parcels of land.   Mr  Jacobsen  believed  his  interests  should  receive a  greater share of the property because he and his interests had made substantially greater advances to the respondent over the period that it had farmed the Houhora block.   The Helliers considered that this was not appropriate, because Mr Jacobsen and his interests had made the advances to the respondent in the knowledge that the Helliers and their

interests could not match the advances, and in the knowledge that they were unlikely to be repaid as the respondent was not operating profitably.

[20]    Mr Jacobsen subsequently formed a company called Houhora Securities Limited.  It purchased the mortgage that the National Bank held over the property.  It then took steps to initiate a mortgagee’s sale of the property.  The Helliers and their interests then issued proceedings in this Court. They sought an injunction restraining Houhora Securities Limited from selling the property using the power of sale contained in the mortgage.  They also filed proceedings seeking the partition of the Houhora block.

[21]     The proceedings came before this Court shortly before Christmas in 2009. With some prompting from the presiding Judge, the parties agreed to put the proceedings and the mortgagee’s sale on hold, and to attend a private mediation in the New Year.

[22]     The  parties  attended  a  mediation  conducted  by  Mr  Warren  Sowerby  on

28 January 2010.   Matters were resolved, and the parties entered into a deed of settlement at the conclusion of the mediation.  The parties subsequently implemented the terms of that deed.  The Houhora block was split.  Mr Jacobsen and his interests received approximately three quarters of the land, and the Helliers and their interests received the balance.  Mr Hellier resigned as a director of the respondent, and he and his  wife  transferred  their  shares  in  the  respondent  to  Mr  Jacobsen.    They  also assigned any debts owed by the respondent to their interests to Mr Jacobsen.  To this end, they signed a deed of assignment of debt on 17 February 2010, which assigned a debt of $137,313 that the respondent owed to the Houhora Trust to Mr Jacobsen’s Family Investment Trust.  This debt represented the Houhora Trust’s share of the rent for the Houhora block that had accrued over the period that the respondent had leased the land from the Houhora Trust and Houhora Holdings Limited.

[23]     Thereafter, the applicant did not hear anything further from the respondent, or from Mr Jacobsen or any of his interests, until it was served with a letter of demand dated 2 September 2011 on 7 September 2011.  That letter sought payment of the

sum of $147,857.  The letter did not explain how the sum was made up, or provide any evidence in support of the alleged debt.

[24]     The respondent subsequently served the statutory demand referred to in [2] above.     The  applicant’s  lawyers  corresponded  with  the  respondent’s  lawyers claiming  that  the  debt  was  disputed.    The  respondent  refused  to  withdraw  the demand, and the applicant subsequently made the present application.

Submissions

[25]     Mr Hunter, for the applicant, raised four issues:

(a)      First, he argued that the respondent’s financial statements for the year ended 31 March 2004 do not accurately record the actual transactions that  took  place.    He  said  that  the  Houhora Trust  made  advances totalling at least $140,000 to the respondent, and that these advances have been incorrectly recorded in the accounts as having been made by  Mr and  Mrs  Hellier  personally.    He  argued  that  this  mistake contained in the first set of financial statements was simply carried through to later financial statements prepared for the respondent.

(b)As an alternative argument, he submitted that the parties entered into the deed of settlement following the mediation, and that the deed precludes the respondent from seeking to recover any debt that may have previously been owed by the applicant to the respondent.

(c)      As a fallback, Mr Hunter argued that if the deed of settlement does not preclude the respondent from pursuing the debt, then the deed does  not  accurately  reflect  the  intention  of  the  parties,  and  the applicant is able to apply for rectification.

(d)Finally, and as a further alternative, Mr Hunter submitted that the deed of assignment of debt dated 17 February 2010 was entered into under

a mistake of fact and that the applicant is entitled to apply for relief under the Contractual Mistakes Act 1977.

[26]     Mr Commons, for the respondent, submitted as follows:

(a)      First, he argued that there is no  genuine or substantial dispute in relation to the respondent’s financial accounts.   He submitted that Mr and Mrs Hellier or their solicitors have consistently approved as accurate the respondent’s financial statements recording that the Houhora Trust owes the respondent $147,857.

(b)He argued that the settlement deed detailed the terms on which the Helliers, Mr Jacobsen, and their related financial interests separated, and went their different ways.  He asserted that the deed divided the land that had been farmed by the respondent, and that it assigned all debts  the  respondent  owed  to  the  Helliers  or  the  applicant,  to Mr Jacobsen  or  his  interests.    He  said  that  no  debt  owing  to  the respondent was forgiven, and that all debts owed by the Helliers or their interests to the respondent remain on its books.

(c)      He argued that rectification is not open to the applicant, because the parties did not share a common intention at the time the settlement agreement was executed.  He also pointed out that the respondent is not a party to the settlement deed.

(d)In  relation  to  the  alleged  mistake,  he  argued  that  the  applicant’s position is compromised because of the conflicting stances he submitted the Helliers have taken.   Furthermore, he argued that any unilateral  mistake  the  applicant  may  have  laboured  under  cannot assist, because it was not known to Mr Jacobsen or his interests.  He also argued that there was no common mistake because the Jacobsen interests considered that the applicant’s debt to the respondent was not affected by the settlement deed and that it remained outstanding.

Analysis

[27]     I start by referring to s 290.  Relevantly, it provides as follows:

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.

[28]     The general principles applicable to applications under s 290(4) are well established, and there was no significant disagreement between counsel.   Those principles can be summarised as follows: [1]

[1] North Harbour Equine Hospital Ltd v Little HC Auckland CIV-2006-404-7585, 19 February

2007.

(a)      The  applicant  must  show  that  there  is  arguably  a  genuine  and substantial dispute as to the existence of the debt.  The task for the Court is not to resolve the dispute, but to determine whether there is a substantial dispute that the debt is due.

(b)The mere assertion that a genuine and substantial dispute exists is not sufficient.  Material short of proof is required to support the claim that the debt is disputed.

(c)      If such material is available, the dispute should normally be resolved other than by means of proceedings in the Court.

(d)An applicant must establish that any counterclaim or cross demand is reasonably arguable 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.

(e)      It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly where issues of credibility arise.

[29]     The position was recently summed up by the Court of Appeal as follows:[2]

[2] Industrial Group Ltd v Bakker [2011] NZCA 142 at [24]-[25].

[24]  We  note  that  the  statutory  scheme  is  for  applications  to  set  aside statutory demands to be a summary proceeding.   The application must be made  within  10  working  days  of  the  date  of  service  of  the  demand:  s

290(2)(a). No extension of time may be given: s 290(3).  It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with  the  principles  developed  in  cognate  fields  such  as  applications  to remove  caveats, leave to appeal  an  arbitrator’s award  and  opposition to summary judgment.

[25] The approach required by the ―appearance‖  test in s 290 is a review with a low threshold.   The tight time constraints distinguish the s 290 discretion  from  that  to  be  exercised  on,  say,  a  summary  judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.

[30]     Against  this  background,  I  turn  to  consider  the  arguments  advanced  by

Mr Hunter on behalf of the applicant:

a)        Are the Respondent’s Financial Statements Correct?

[31]     As  noted,  the  applicant’s  position  is  that  the  entries  in  the  respondent’s

financial statements purporting to show that the applicant owes the respondent a debt do not accurately record the true position as between the parties.

[32]     Both  Mr  Hellier  and  his  solicitor,  a  Mr Western,  have  deposed  that  the Houhora Trust made the advances referred to in [14] hereof, totalling $140,000, to the respondent, and that the advances were not made by the Helliers as shareholders.

[33]     There is some evidential support for this contention.

(a)       There is the resolution of the trustees of the Houhora Trust which I

have set out above at [13].

(b)Mr  Western  has  produced  copies  of  the  Houhora Trust’s  bank statements.  Those bank statements show that the trust made advances totalling $140,000 to the respondent in the year ended 31 March 2004.

(c)      Mr Hellier has annexed to his affidavit a letter he obtained from the TSB  Bank  confirming  that  the  payments  were  made  from  the Houhora Trust’s   bank   account.      While   that   letter   is   strictly documentary hearsay, Mr Commons did not suggest that it should not be received by me.

(d)      Mr Hellier has explained how the financial statements were prepared.

He  has  annexed  to  his  affidavit  a  computer  printout  used  by the in-house  accountant  who  collated  the  accounting  information.    It seems that all advances made by Mr Hellier and his interests were grouped under the one heading, and attributed to Mr and Mrs Hellier.

[34]     If  matters  stopped  there,  I  would  not  hesitate  to  set  aside  the  statutory demand, and require the respondent to prove the debt in the normal way.  However, matters do not stop at this point. There are a number of contemporaneous documents and subsequent assertions by Mr Hellier or his advisors that are inconsistent with the arguments now advanced on their behalf.  Some of those documents and assertions are weightier than others.  I refer to the following:

(a)      On 2 June 2005, PricewaterhouseCoopers wrote to Mr Hellier.  They had prepared the respondent’s 2004 financial statements and the letter

accompanied the statements.   Under the heading ―Matters for attention‖,   they  expressly  referred  to  the  ―Shareholder’s  credit balance‖   in   the   current   accounts,   and   recorded   Mr   Hellier’s instructions that he did not wish the respondent to pay interest on that balance.

(b)The 2004 financial statements, showing both the Houhora Trust debt, and  the  Hellier’s  shareholder  credit  balance,  were  approved  by Mr Hellier, and signed by him as being correct.

(c)      On  22  June  2005,  Mr  Hellier  signed  a  Director’s  Resolution approving the respondent’s 2004 financial statements.

(d)On  the  same  day,  Mr  and  Mrs  Hellier  signed  a  Shareholders’ Resolution approving and adopting the respondent’s 2004 financial statements.

(e)       Although there is no evidence before me suggesting that the 2005 and

2006 financial statements were signed by Mr Hellier, the entries in those years were carried through into the accounts prepared for the year ended 31 March 2007.  In that year, the accounts also recorded that the Houhora Trust debt had increased from $146,682 to $147,857. The   2007   accounts   were   signed   correct   by   Mr   Hellier   on

20 September 2007.

(f)       On  18  October  2007,  Mr  Hellier  signed  a  Director’s  Resolution

approving the 2007 accounts.

(g)On  the  same  day,  Mr  and  Mrs  Hellier  signed  a  Resolution  of Shareholders of the respondent approving and adopting the respondent’s 2007 accounts.

(h)      On 27 November 2009, Mr Western, on behalf of the Helliers and

their interests, sent a letter to the respondent’s solicitors.   Inter alia,

the letter recorded that the respondent’s shareholders had advanced funding to the farming venture in disproportionate shares.  It recorded Mr Western’s instructions that Mr Jacobsen had advanced $1,124,000, and that the Helliers had advanced $306,300.  The letter went on to advise that there were other loans to and from the trusts and unpaid rent, but that those sums were equally shared between the trusts.

(i)On 14 December 2009, Mr Hellier filed an affidavit in support of the interlocutory application that had been filed seeking to restrain the exercise of the power of sale under the mortgage.   Inter alia, the affidavit recorded that Mr and Mrs Hellier, and Mr Jacobsen, had funded the respondent’s losses by making shareholder advances to the company.  He referred to the March 2009 financial statements for the respondent, which recorded that Mr and Mrs Hellier had advanced

$294,302  to  the  respondent,  and  that  Mr  Jacobsen  had  advanced

$1,154,016.   Mr Hellier went on to assert that as far as he was concerned, these advances were ordinary unsecured shareholders’ advances.

(j)Much the same assertions were made in the statement of claim filed in those proceedings.

(k)The deed of assignment of debt dated 17 February 2010 recorded that the respondent was indebted to the Helliers in the sum of $294,302 as at 31 March 2009.  The applicant as assignor covenanted that the debt to be assigned was due and owing in full, that it had full power to assign the debt, and that on assignment, the assigned debt would be taken by the assignee free of any claims or interests of any other person. This document was executed by Mr Western.

(l)On  3 August  2010,  Mr  Western  sent  a  letter  to  the  respondent’s solicitors.  In that letter, he recorded that Mr Jacobsen had taken all of the benefit of the respondent’s assets.

(m)In  an affidavit dated 6  October 2010, Mr Western confirmed that Mr Hellier’s affidavit of 14 December 2009 was correct to the best of his knowledge and belief.

(n)In a further affidavit filed by Mr Hellier on 9 December 2011, he confirmed  that  the  contents  of  the  affidavit  that  he  swore  on

14 December 2009 were correct.

[35]    In addition, the Helliers have failed to disclose the applicant’s financial statements.  This is notwithstanding that at one stage they offered to do so.  They subsequently resiled  from that offer, on  grounds  that do not seem to  me to be particularly persuasive.   The Houhora Trust’s financial statements may well have assisted in resolving the position.

[36]     While accounting entries per se do not create debts,[3] the preponderance of the available evidence does  not support the applicant’s  contention that the financial statements are wrong.

[3] Caffe Italiano Majoribanks Ltd v Caffe Italiano Wellington Ltd HC Wellington CIV 2011-485-

877, 28 July 2011.

[37]     I agree with Mr Commons’ submission that Mr and Mrs Hellier and their legal representatives have repeatedly reaffirmed the position as shown in the respondent’s financial statements, showing not only that their shareholder account was in credit, but also  that the Houhora Trust  owed the respondent the amount sought in the statutory demand.  There is force in Mr Commons’ submission that it is only after the event, and when the trust is faced with the obligation to repay its debt to the respondent, that Mr Hellier has raised the assertion that no debt is owing, and that there was a mistake in the 2004 accounts which he did not see, or take any steps to correct over the years.

[38]     In my judgment, the assertion of a dispute as to the existence of the debt now made by the Helliers is implausible.  I am not satisfied that there is any genuine or substantial  dispute  that  the  debt  was  owing  prior  to  execution  of  the  deed  of

settlement on 28 January 2010.

[39]     I now turn to consider that document.

The Deed of Settlement

[40]     As noted, the parties entered into a deed of settlement following a mediation held on 28 January 2010.  Agreement was reached in the early evening, at the end of a full day of mediation.  The settlement agreement was recorded in handwriting by Mr Jacobsen’s solicitor, a Mr MacDonald.  A copy of the handwritten document was then signed by the parties to the mediation, namely Mr Hellier, Mr Jacobsen, the applicant and Houhora Holdings Limited.

[41]     The parties have prepared a typed transcript of the handwritten document.  It is accepted by the parties that that transcript is accurate, and  I have used it in preparing this oral judgment.

[42]     Clause 1 of the deed recorded as follows:

All disputes between all or any of the parties including disputes relating to Grandad’s Limited (―GL") and the land at Houhora (―land‖) are in currently by SWL and HHL are settled by this deed.

The deed went on to provide for the termination of the various arrangements previously in place relating to the Houhora block.  It recorded that all shares held by Mr and Mrs Hellier or their interests in the respondent were to be transferred to Mr Jacobsen or his nominee.  All debts or other amounts owing by the respondent to Mr and Mrs Hellier’s interests were to be assigned to Mr Jacobsen or his nominee. Mr Hellier was to resign as a director of the respondent.  The Houhora block was to be divided between the parties in the manner specified in the deed.  Mr Jacobsen was to ensure that Houhora Securities Limited, which held a mortgage over the Houhora block, would not exercise the power of sale contained in the mortgage, and Mr and Mrs Hellier and their interests were to discontinue the proceedings that they had brought against Mr Jacobsen and his interests in relation to the Houhora block.

[43]     The  deed  contained  no  reference  to  the  debt  that  was  shown  in  the

respondent’s financial statements as owing by the applicant to the respondent.

[44]     The  applicant  has  asserted  that  the  deed  of  settlement  precludes  the respondent from seeking to recover any outstanding debt which it may have owed to the respondent prior to execution of the deed.  It referred to a decision of the Court of Appeal which discussed the correct approach to the construction of a settlement agreement.[4]   In that case, Tipping J noted as follows:[5]

[4] Tag Pacific Ltd v The Habitat Group Ltd (1999) 19 NZTC 15, 069.

[5] Ibid, at 15,074.

Before concluding this judgment, we will briefly address the approach to the construction of clause 12 evident from some aspects of the judgment below and the submissions of counsel in this Court.  Both tended to proceed on the basis that there was a general rule of construction applicable to releases couched in general terms.  Some debate took place as to the precise terms of such a rule i.e. whether it was enough for the issue in suit to have been in contemplation at the time the release was given, or whether there had to be an actual dispute.  Questions of when the present cause of action arose were also touched upon.

It is not always helpful to focus on so-called rules of construction. Certainly they are not to be elevated into principles of law.  The ultimate objective is always to ascertain the intention of the parties from the words they have used, interpreted in the light of the objective circumstances known to them at the time.  The general rule said to govern this case represents no more than a reflection of the inherent probabilities, i.e. that people are unlikely to intend to release a claim of which they are unaware at the time.  But it is always possible for parties to do so, and such an intention will be found if clearly demonstrated by the words used. This we consider to be the correct modern approach to the construction of documents such as releases and, indeed, all contractual documents…

[45]     The applicant submitted that the settlement agreement, properly construed, extended to the debt that is the subject of these proceedings.

[46]     The Courts will now receive evidence of surrounding circumstances, ―the matrix of fact‖, for the purpose of interpreting a written contract.[6]   Reference can be made to the matrix of fact, even if the words in the contract seem plain at first sight, because such extrinsic evidence may disclose that the prima facie clear meaning was not the right one.[7]

[6] Investors’ Compensation Scheme Ltd v West Brunswick Building Society (1998) 1 WLR 896 at

912–913; Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 at 81–82.

[7] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 at [22].

[47]     Applying these principles of construction to the settlement agreement here in issue, in my judgment, it is arguable that cl 1 of the deed was intended to settle all

disputes between Mr and Mrs Hellier and their interests, and Mr Jacobsen and his interests relating to the joint venture at Houhora.  I note that the clause contained an express  reference  to  disputes  relating  to  the  respondent.     There  is  force  in Mr Hunter’s argument that the reference to the respondent would be deprived of any effect if it were to be allowed to pursue the applicant for the recovery of the debt following the signing and implementation of the deed of settlement.

[48]     The  position  is  supported  by  affidavits  filed  by  Mr  Western,  and  by Mr Hellier.  Mr Western attended the mediation.  He had deposed to his belief that the parties intended the settlement to be a full and final settlement of all matters between Mr and Mrs Hellier and their interests and Mr Jacobsen and his interests, relating to both the division of the Houhora block, and the respondent.  Mr Hellier for his part states that when Mr MacDonald was writing out the agreement, he said to him: ―If I understand this correctly, if I sign this document then that’s the end of it. It all ends here in this room‖.   He deposed that Mr MacDonald looked up from his writing,  and  answered  ―Yes,  that’s  right‖.     He  further  went  on  to  state  that Mr Jacobsen, who was in the room, did not say anything at that point, and that he subsequently signed the settlement agreement in reliance on what the respondent’s solicitor had said.   Mr Western has confirmed Mr Hellier’s account of events in a second affidavit.

[49]     It is noteworthy that neither Mr MacDonald nor Mr Jacobsen have expressly contradicted Mr Western’s and Mr Hellier’s affidavits.  Rather, Mr Jacobsen asserted that the settlement deed correctly records the matters that were resolved, and does not  omit  or  misstate  any  other  matter.     Mr  MacDonald  stated  that  he  and Mr Jacobsen were specifically aware that the settlement being contemplated and ultimately recorded did not impact in any way whatsoever on debts owed by the applicant or the Houhora Trust to the respondent.

[50]     The matrix of fact is not fully before me, but I accept that it is arguable that the principal parties, the Helliers and Mr Jacobsen, would have wanted to deal with all of the issues which existed between them so as to bring a final end to their joint venture, and the disputes which have arisen between them.  If that is the case, then it is also arguable that the deed of settlement should be interpreted as providing a

comprehensive  mechanism  for  unwinding  the  joint  venture  arrangements,  and

detailing the parties’ future obligations towards each other.

[51]     In this regard, I note that in interpreting a contract, subsequent conduct after the making of the contract can be admissible evidence, which can help the Court in construing the contract.[8]

[8] Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277.

[52]     In the present case, it may be arguable that the conduct of the parties in preparing and executing the deed of assignment of debt is relevant.   The deed of assignment recorded that the respondent was indebted to the applicant as assignor in the sum of $137,313 as at 31 March 2009, and also in respect of the applicant’s share of rent due by the company under the deed of lease of the land.  It made no mention of the entry in the respondent’s accounts for the year ended 31 March 2009 which showed that the applicant owed the respondent the sum of $147,857.  It is arguably unlikely that the applicant would have signed the deed as assignor if it knew that the respondent still considered that the applicant owed it the sum of $147,857.  Instead, it would have set off the two debts.

[53]     The deed of assignment of debt was prepared by Mr Jacobsen’s solicitors. The fact that Mr Jacobsen and his solicitors prepared the document, and forwarded it to  the  applicant,  and  the  fact  that  the  applicant  signed  it,  arguably support  the contention that the deed of settlement was intended to bring all matters to an end.

[54]     Mr Commons noted that the respondent was not a party to the mediation or to the settlement deed.  I am not persuaded that that argument is decisive.  Mrs Hellier was not at the mediation.  She did not sign the settlement deed.  Nor did Houhora Securities Limited.   It seems to have been envisaged by both Mr Hellier and by Mr Jacobsen that they would be bound, and both have complied with the terms of the settlement deed insofar as it affects them.

[55]     The ambit of the settlement deed is not a matter which can be resolved on the affidavits.   For present  purposes,  I accept  that  there is a genuine and  plausible

dispute which goes to the question of whether or not there is a debt outstanding as between the parties. The Court will need to hear evidence to determine the matter.

[56]     In the circumstances, it is appropriate to set aside the statutory demand, and I

so order.

Rectification and Mistake

[57]     It is not necessary to go on to consider either of these matters, given that they may still be in issue when and if this matter proceeds to a full hearing.

Costs

[58]     I indicated to the parties that it was my preliminary view that costs should lie where they fall.  This indication notwithstanding, Mr Hunter submitted that an award of costs should be made to his client, given that  I have set aside the statutory demand.  He submitted that costs are appropriate to recognise that the respondent’s use of the statutory demand procedure was inappropriate.

[59]     Mr Commons for his part accepted that costs should lie where they fall.

[60]     I am not persuaded that an order for costs is appropriate.  Both parties have had a measure of success.  Further, in my view, the applicant could and should have put its financial statements before the Court.  That may have avoided the need for argument in relation to the first issue of whether or not the 2004 financial statements were accurate.

[61]     Accordingly, I direct that costs should lie where they fall.

Wylie J