Trans Otway Ltd v Shephard - [2005] NZCA 145

IN THE COURT OF APPEAL OF NEW ZEALAND
CA98/04
BETWEENTRANS OTWAY LIMITED

Appellant

ANDIAIN BRUCE SHEPHARD AND CHRISTINE MARGARET DUNPHY

Respondents

Hearing:12 April 2005

Court:Anderson P, William Young and Chambers JJ
Counsel:D M Law for Appellant

H L Thompson for Respondents

Judgment:13 June 2005

JUDGMENT OF THE COURT

A The appeal is dismissed.
BAn order that the transaction referred to in the section 294 notice dated 25 September 2003 is set aside.
CThe appellant must pay costs to the respondents in the sum of $6,000, plus usual disbursements.
DThe proceeding is remitted to the High Court for the hearing of the respondents’ application for recovery of the payment made and the appellant’s outstanding application under section 295 of the Companies Act 1993.

REASONS
(Given by Chambers J)
The nature of a set-off
[1]        This case involves an interesting question as to the true nature of a set-off. A owes B $X. Subsequently, A agrees to sell B an asset for $X. A and B expressly agree that the two sums will be set off against each other. At settlement, does A pay B $X and B pay A $X or is the correct analysis that neither pays the other?
[2]        The problem in this case arises in the context of s 292 of the Companies Act 1993, the section under which certain “transactions” may be set aside by the liquidator of a company. If, in the above example, A went into liquidation shortly after the set-off arrangement was entered into, has A made a “payment of money” to B in the sum of $X which A’s liquidator can claw back under s 292?
[3]        Associate Judge Sargisson held that A had made a payment of $X which could potentially be clawed back. This appeal is concerned with whether she was right in that conclusion.
Issues on the appeal
[4]        Trans Otway Limited, the appellant, was B in the above example. It raised a number of issues on this appeal.
[5]        First, did Newman Carrying Limited (A in the above example) make a “payment of money” to Trans Otway for the purposes of s 292(1)(e)? Trans Otway says that Newman did not pay anything because of the set-off. Newman’s liquidators, the respondents, dispute that.
[6]        If Newman did make a payment, then the next issue is whether the liquidators have proved the elements of s 292(2)(b).
[7]        The third issue relates to whether the court should give relief under s 296(3).
[8]        We shall first set out the relevant statutory provisions for ease of reference. We shall then summarise the facts insofar as they are relevant to the issues we must determine. We shall then set out the High Court reasoning, followed by our analysis of the issues.
Relevant statutory provisions
[9]        For ease of understanding of the reasons that follow, we set out the relevant statutory provisions from the Companies Act:
292.Transactions having preferential effect –
(1)      In this section, “transaction”, in relation to a company, means –
(a)      A…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] NZCA 145
Decision Date: 13 June 2005

CaseChat Overview and Summary

This appeal concerns the nature of a set-off and whether a payment of money under a set-off arrangement can be set aside under s 292 of the Companies Act 1993. Trans Otway Limited (appellant) had a debt owed to it by Newman Carrying Limited (now in liquidation) which was settled by a set-off arrangement. The liquidators of Newman, the respondents, sought to set aside the set-off arrangement on the basis that it was a "payment of money" under s 292(1)(e). The liquidators' application was successful in the High Court. The Court of Appeal considered whether the set-off arrangement was a "payment of money" under s 292(1)(e), whether the set-off arrangement enabled Trans Otway to receive more towards satisfaction of its debt than it would otherwise have received in the liquidation, and whether the Court should grant relief under s 296(3). The Court of Appeal found that there was a "payment of money" under s 292(1)(e) and that the set-off arrangement enabled Trans Otway to receive more towards satisfaction of its debt than it would otherwise have received in the liquidation. The Court of Appeal noted that the issue of whether to grant relief under s 296(3) is not relevant at this stage of the proceeding. The Court of Appeal dismissed the appeal and remitted the proceeding to the High Court for consideration of Trans Otway's outstanding application and the liquidators' application for recovery. The appellant is ordered to pay the respondents' costs of $6,000 plus usual disbursements.

Orders