TS Training Limited v Lee
[2024] NZHC 1789
•3 July 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-174
[2024] NZHC 1789
UNDER THE District Court Act 2016 IN THE MATTER OF
An appeal against the Judgment of the District Court of New Zealand, Hamilton Registry
BETWEEN
TS TRAINING LIMITED
Appellant
AND
TONI-ANNE LEE
Respondent
Hearing: 4 June 2024 Appearances:
E R Anderson and J Field for the Appellant
D M O’Neill and F Oback for the Respondent
Judgment:
3 July 2024
JUDGMENT OF POWELL J
This judgment was delivered by me on 3 July 2024 at 4.00 pm.
Pursuant to R 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
TS TRAINING LIMITED v TONI-ANNE LEE [2024] NZHC 1789 [3 July 2024]
[1] The appellant, TS Training Limited (“TST”) has appealed a decision of Judge P R Spiller declining its claim against the respondent, Toni-Anne Lee (“the judgment”).1 TST had sought payment of $66,491.61 (including interest) which had been paid to Ms Lee in November 2020 and March and April 2021. It sued Ms Lee on the basis that the sums claimed constituted shareholder advances repayable on demand,2 or in the alternative that otherwise there had been a total failure of consideration such that the sums should be repaid.3
[2] In his judgment, Judge Spiller concluded there was insufficient evidence to conclude the amounts claimed were shareholders advances4 nor that there had been a failure of consideration.5
[3] There is no dispute this appeal proceeds by way of rehearing.6 This Court must reach its own view on both the facts and law. If the opinion of the Court differs from the conclusion reached by the District Court, the appeal must be allowed.7
Background
[4] The relevant background was generally as set out by Judge Spiller in the judgment:
[2] On 15 October 2020, the Company was incorporated by Ms Lee and her brother, Mr Scott Lee (Mr Lee) as co-directors and equal shareholders. The Company trades as “The Change Within” and provides educational and training courses, primarily to the Ministry of Social Development (MSD) and, occasionally, other businesses.
[3] Both Ms and Mr Lee provided consultancy services to the Company and were paid weekly contractor fees. The services provided by Ms and Mr Lee included:
preparation and delivery of workshops;
coaching and completing reports on participant progress; developing, drafting and procuring contracts;
1 TS Training Ltd v Toni-Anne Lee [2023] NZDC 19504.
2 At [19].
3 At [20].
4 At [23].
5 At [34].
6 High Court Rules 2016, r 20.18.
7 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
producing tenders for new contracts and pursuing contract opportunities;
preparation and drafting of MSD social accreditation documentation; and
coordination and management of contractors, accounts and payroll.
[4] Initially, Ms Lee was paid [$1,000.00]8 per week while Mr Lee was paid $600.00 per week. The fees were subsequently increased and equalised to [$1,250.00] per week, as contractor fees, which covered the work that Ms and Mr Lee did for the Company.
[5] In or around November 2020, the Company entered into a contract with MSD (November Contract).
[6]On 13 November 2020, the Company received a lump sum payment of
$100,000.00 for the November contract.
[7]On 27 November 2020, Mr and Ms Lee were each made a payment of
$7500 which was initially recorded as “TCW Contract”.
[8] In December 2020, Mr Lee discussed the payment and any future payments with the Company’s accountant, Ms Kerry Bennett. Ms Bennett advised that: any funds taken from the Company should be taken as shareholder loans or advances; the Company could not afford to make lump- sum payments to Ms and Mr Lee unless they were loans repayable on demand or a set time in the future; and it would be irresponsible as directors to take funds knowing that the Company could not afford it or complete its contractual obligations to MSD.
[9] On 2 March 2021, Ms Lee received a payment of $1,125.00 for GST not included in the previous payment.
[10] On 31 March 2021, the Company entered into another contract with MSD (March Contract).
[11] On 13 April 2021, the Company received a payment of $340,000.00 for the March contract.
[12]On 15 April 2021, Mr Lee and Ms Lee each received a payment of
$57,500.00.
[13] On 10 June 2021, Ms Lee resigned as a director and transferred her shareholding to Mr Lee for no payment. Since then, Mr Lee has been the sole director and shareholder of the Company.
[14] On 9 July 2021, demand was made by the Company against Ms Lee for repayment of the sums of $7500.00, $1,125.00 and $57,500.00 (totalling
$66,125.00), on the basis that the funds were: shareholder advances repayable on demand; or, in the alternative; payments for services in advance and yet to
8 In the judgment, Judge Spiller recorded the weekly amount initially paid to Ms Lee as $7,000 and the “increased and equalised” amount as $7,250. This was not correct but both parties accept that nothing turns on this.
be provided by Ms Lee and for which there was a complete failure of consideration.
[15] On 23 July 2021, Ms Lee denied that she was liable to repay the above sums. Ms Lee claimed that the payments were for services done to ensure the March Contract and the work that would be done to deliver on the MSD contracts.
[16] On 4 August 2021, Cleland Hancox Limited provided a compilation report for the Financial Statements for the Company for the year ended 31 March 2021. On 3 September 2021, the report was signed by Mr Lee as director. In this report, Ms Lee is recorded as having total shareholder current accounts owing $67,996.00.
Were the funds paid to Ms Lee shareholder advances?
[5] On behalf of TST, Ms Anderson submitted that Judge Spiller erred in concluding there was insufficient evidence to support the claim that the amounts in question were shareholder advances. In particular, Ms Anderson submitted:
(a)The evidence in fact showed Mr Lee had accepted Ms Bennett’s advice in December 2020, that the monies paid to both Mr Lee and Ms Lee should be treated as shareholder advances, and this was consistent with subsequent advice received from Ms Bennett and the responses provided to that subsequent advice by both Mr Lee and Ms Lee.
(b)This approach was subsequently reflected in the TST accounts adopted for the 2020/2021 financial year.
(c)No weight could be given to the invoices subsequently provided by Ms Lee, the draft accounts for the 2020/2021 financial year prepared by Ms Bennett or the letter from DTI Solicitors on 23 June 2021 because these were either individually not credible or otherwise did not reflect the correct position with regards to the amounts paid to Mr Lee and Ms Lee.
(d)Mr Lee had subsequently repaid the equivalent payments he had received, on the basis that these were shareholder advances.
[6] Moreover, Ms Anderson submitted that treating the payments as shareholder advances was consistent with TST’s legal obligations to MSD under the contracts, noting in particular that the deposits paid by MSD needed to be used to purchase materials from an Australian company so that it could perform its obligations.
[7] Finally, Ms Anderson relied on the contradictory evidence provided by Ms Lee in relation to her affirmative defences, and in particular her pleaded contention that Mr Lee had agreed that Ms Lee did not owe anything to the company when she resigned, a claim she subsequently accepted could not have been correct. In Ms Anderson’s submissions, this went directly to Ms Lee’s credibility such that no weight could be placed on her evidence.
Discussion
[8] Having considered the case for TST on the first issue, I am not satisfied there is any error in the judgment under appeal and on this ground the appeal must be dismissed.
[9] There is in fact no contemporary evidence to support Mr Lee’s assertion that, having initially wished to have received the monies absolutely, he accepted Ms Bennett’s advice that the monies paid to both him and Ms Lee over and above the standard weekly payments should be treated as a shareholder advances. On the contrary, Ms Bennett was adamant in her own evidence that Mr Lee had not in fact changed his mind such that he agreed with her advice. As a result, in her draft 2020/2021 accounts Ms Bennett did not record the first of the payments of $7,500 (the only one falling within that period) as a shareholder advance to either Mr Lee or Ms Lee, and clearly reformed Ms Bennett’s understanding of the position. Indeed Ms Bennett subsequently reminded Mr Lee of his position in an email exchange on 18 June 2021 following Ms Lee’s departure from TST. Moreover, soon after his discussion with Ms Bennett in December 2020, and contrary to his evidence, Mr Lee, like Ms Lee did subsequently invoice TST for the monies in issue, including claiming for GST which would not have been payable had the payment been by way of shareholder advance.
[10] The other matters raised on behalf of Mr Lee add little. First, the fact that Mr Lee subsequently instructed Cleland Hancox Ltd to retrospectively treat the monies at issue as shareholder advances and has now himself repaid the equivalent monies paid to him does not provide evidence that that was what had been the position prior to Ms Lee’s departure from TST.
[11] Likewise, while it appears clear that neither the pro forma invoices belatedly provided by Ms Lee, nor the letter of the company’s solicitor stating that monies were not owed by Ms Lee, are of any real probative value given their timing and provenance, by the same token they do not add anything to the case for TST as to how the advance had been treated by the company at the time the advances were made.
[12] More broadly, having reviewed the relevant correspondence at the time the monies were paid to both Mr Lee and Ms Lee, it is clear that issues of prudence in relation to the ability of TST to perform the MSD contract do not appear to have been to the fore for either Mr Lee or Ms Lee.
[13] Finally, in relation to the first issue, while Ms Lee’s evidence in relation to her alternative defences does raise apparent credibility issues, it did not preclude Judge Spiller’s finding that she was a credible witness; a conclusion that his Honour was in a much better position to determine having heard the witnesses, rather than attempting to make sense of the contradictory testimony evident from the District Court notes of evidence. Even if Judge Spiller had not believed Ms Lee on the first issue, it remains clear that Judge Spiller was right to conclude there was minimal evidence to support TST’s claim that the monies at issue were shareholder advances. Taking those matters together, on the first issue TST’s appeal must fail.
Did Ms Lee provide consideration for the payments?
[14] In the alternative, Ms Anderson submitted that, as neither Mr Lee nor Ms Lee had provided consideration for the sums paid, they were properly repayable to the company. In particular, Ms Anderson submitted that these sums, if not shareholder loans, must have been advance payments for services Ms Lee was to provide in addition to her normal contract services. As Ms Lee did not provide services over and
above those which were already covered by the weekly fees paid, she therefore provided no consideration for the payments in issue.
[15] In support of her argument, Ms Anderson noted that Ms Lee’s position changed over time. First it was contended that the payments were for work yet to be done and then for services provided, but Ms Anderson noted that the detail of any additional work was never particularised or quantified by Ms Lee. In contrast, Ms Anderson noted Mr Lee’s evidence that he did not observe Ms Lee undertaking any work over and above the contract services, and that there was otherwise no agreement for Ms Lee to be paid for any additional hours worked.
[16] Ms Anderson submitted that the onus was on Ms Lee to show what additional work/services/value she provided for the monies in issue and further submitted that she had provided no evidence to support her assertions. It was only in response to questions from Judge Spiller at the end of Ms Lee’s evidence that any elaboration was provided, but in Ms Anderson’s submission this was inadequate and only served to show that the additional work claimed to have been carried out fell within the agreed contract services, observing that Ms Lee was at that time working for two other companies. As a result, Ms Anderson submitted Ms Lee had not undertaken additional work to justify the payments, still less that it could have been completed between the time of her acknowledgment the funds were advances on 1 June 2021 and her resignation 10 days later.
[17] In the circumstances, Ms Anderson submitted that Judge Spiller erred in finding that TST failed to prove that there had been a failure of contribution.
Discussion
[18] It is acknowledged at the outset that Ms Lee’s evidence on this issue is somewhat inconsistent and/or lacking in precision. Likewise, it is clear that the contract services to be provided do appear to embrace all of the work undertaken by Ms Lee for TST. Specifically, as accepted in the pleadings, those services “included but [were] not limited to”:
5.1.1Preparation and delivery of workshops;
5.1.2Coaching;
5.1.3Developing, drafting and procuring contracts;
5.1.4Producing tenders for new contracts and pursuing contract opportunities;
5.1.5Preparation and drafting of MSD social accreditation documentation; and
5.1.6Coordination and management of contractors, accounts and payroll.
[19] As Mr O’Neill noted on behalf of Ms Lee, however, there was in fact no agreement that the weekly payments by TST to Mr Lee and Ms Lee represented a fair payment for the services provided by each under the contract. On the contrary there was no formal contract between TST and Mr Lee and/or Ms Lee, and therefore no baseline to say whether those weekly payments represented value or even knowing what value was given by Ms Lee (or Mr Lee for that matter) at any given point. Both Mr Lee and Ms Lee provided pro forma invoices to TST which provided little or no information, and neither completed timesheets of the work they respectively undertook. The payments made therefore were in the nature of drawings and therefore open to Mr Lee and Ms Lee to agree to increase the amount of drawings as they considered appropriate. This is in fact what occurred when Mr Lee advised Ms Bennett that the additional payments should be treated as contract fees rather than shareholder advances.9 Indeed, as Mr O’Neill observed, had the payments at issue not been treated as contract payments to Mr Lee and Ms Lee, Ms Lee’s remuneration for the 9-month period in issue would have been around $35,000.
[20] In reaching this conclusion, the fact that little work had been done by either Mr Lee or Ms Lee towards performing either or both the MSD contracts is irrelevant. The performance of the MSD contracts was entirely separate from the monies paid from TST to Mr Lee and/or Ms Lee.
[21] Taking these various matters together I am satisfied that Judge Spiller was entitled to accept Ms Lee’s evidence as to the works undertaken and to conclude it was not “established that there has been a failure of consideration in relation to the
9 See above at [5](c).
payments made to Ms Lee”.10 The second and final limb of the appeal must also therefore fail.
Decision
[22]The appeal is dismissed.
[23] Ms Lee is entitled to costs on a 2B basis. If these cannot be agreed, Ms Lee will have two weeks from the date of this judgment to file a memorandum setting out the amounts claimed. TST will then have two weeks to respond, following which I will determine costs on the papers.
Powell J
10 TS Training Ltd v Toni-Anne Lee, above n 1, at [34].
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