White Pine Holdings Limited v Country Land Limited

[2012] NZHC 2964

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2012-470-633 [2012] NZHC 2964

BETWEEN  WHITE PINE HOLDINGS LIMITED First Plaintiff

ANDNEW ZEALAND PINE CORPORATION LIMITED

Second Plaintiff

ANDCOUNTRY LAND LIMITED Defendant

CIV-2012-470-634

AND BETWEEN            WAIMEA CONSULTANCY LIMITED Plaintiff

ANDCOUNTRY LAND LIMITED Defendant

Hearing:         5 November 2012 (Heard at Tauranga)

Appearances: Mr S Carey for Plaintiffs

Mr R Ferguson for Defendant

Judgment:      8 November 2012

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

08.11.12 at 4.30 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Counsel:

Date……………

Webb Ross McNab Kilpatrick, Lawyers, Whangarei

(Counsel: Mr Samuel Carey – [email protected]

Ferguson Law, P O Box 106-866, Auckland – [email protected]

WHITE PINE HOLDINGS LIMITED V COUNTRY LAND LIMITED HC TAU CIV-2012-470-633 [8

November 2012]

[1]      These are two applications for summary judgment made by, in total, three plaintiffs against the same defendant. The two applications were heard together. The applications each relate to sums allegedly advanced by the plaintiffs to the defendant, as follows::

a)        $310,000 by White Pine Holdings Limited (“White Pine”) between 19

March 2002 and 19 January 2004;

b)        $611,030  by  New  Zealand  Pine  Corporation  Limited  (“NZPC”)

between 20 January 2003 and 23 April 2004; and

c)        $325,463 by Waimea Consulting Limited (“Waimea”) between 1999

and 2009.

Were the advances actually made?

[2]      The fact of the making of the advances has been sworn to by Mr Blackley a director of the plaintiffs and by Mr Arnold another director.

[3]      The plaintiffs have given the usual affidavit verifying that the contents of the statement of claim are correct and that the defendant has no defenses.  The defendant says in the notice of opposition that the grounds upon which the entry of summary judgment is opposed include the following:

a)       The financial treatment of financial transactions in and between the plaintiff and the defendant company when under the control of David Blackley are unsatisfactory, unprincipled and not necessarily correctly classified in the company’s accounts;

b)The  plaintiffs  loans  recorded  in  the  accounts  of  the  plaintiff  are therefore dubious;

[4]      As I have already mentioned, the defendant in support of the opposition obtained an opinion from a Mr Bonney who is a chartered accountant in Tauranga.

Mr Bonney says that his instructions were to review the company documents available and provide feedback to, presumably Mrs Blackley, who is the principal of the defendant company, in relation to the debts in issue in this case, their legitimacy and the company’s ability or liability to pay them and the reasons for that.   In overview, Mr Bonney has isolated a number of issues which he thinks need to be the subject  of  further  investigation.     I  have  already  mentioned  the  Whangarei transaction.   Mr Bonney made the point that the financial details concerning the

$1,000,000  m  approximately  of  advances  which  were  described  as  “sundry advances” was not  satisfactory.   In  the light  of my conclusions above, nothing further need be said concerning this aspect of the case.

[5]      Mr Bonney also draws attention to discussions about a 55 foot catamaran which was  apparently worth $380,000, other  miscellaneous investments and the subject of some tax losses that were carried forward.  Mr Bonney also says that he referred to what he described as “the perplexing situation surrounding the forestry rights on the land owned by the company”.  I infer from what Mr Bonney says that a forestry scheme based upon subscriptions from the public was proposed for the defendant’s land and that that scheme was to be managed by the second plaintiff, New Zealand Pine Corporation Limited.  He describes as puzzling the fact that there does not seem to be any forestry management contract between the landowner, the defendant, and New Zealand Pine Corporation Limited.  He goes on to say:

9.The reason this information is important is so that sense can be made of the company’s contingent liabilities, assets and the question   of   advances   and   whether   these   are   landowner advances repayable on harvest of the trees rather than being current liabilities.

[6]      The  question  then  is  whether  the  investigation  which  Mr  Bonney  was carrying out gives rise to a fairly arguable defence on the part of the defendant in regard to the claimed advances upon which the plaintiffs base their case.  In essence that requires a comparison between the assertions by the plaintiff companies and their directors and accountants that the advances were made and that they were repayable on demand, on the one hand, with the matters that Mr Bonney has raised on the other.   Some of the matters that Mr Bonney has raised are not sufficiently closely linked to the subject matter of the advances to give rise to what might be

arguable defences.  For example the question of what happened on the sale of the Whangarei property for over $3,000,000 involves an unrelated transaction.   It is difficult to see how that transaction could have affected the terms of the loans (so that they are not now payable) or give rise to a set-off or enable the defendant to demonstrate  that  when  considering  the  recoverability  of  the  loans,  it  will  be necessary to enquire further into the underlying structure of the dealings between the parties because matters might not be as they appear on the surface.

[7]      During  the  course of the hearing Mr  Ferguson  made submissions  which reflected a modified view on the issue of whether the transaction actually occurred in the first place.  He did not dispute that the payments that the plaintiffs claimed were made to the defendant actually occurred.  That position was a realistic one having regard to the fact that the accounts of the defendant company which were prepared to draft stage by Greg Finlay &Associates Limited showed that the amounts had been received and also showed them as “term” liabilities.

[8]      Mr Ferguson submitted to me that while there is no doubt that the payments were received; it was possible that they had been “mis-coded”.  That is to say, the submission was that while the payments might actually have been received their nature was not correctly reflected in the accounts.  Mr Ferguson agreed that it was unlikely that the mis-coding would have come about through a mistake on the part of the accountant who drew up the accounts.  Rather, he said, that the mis-analysis of what the transactions were concerned with may have come about as a result of Mr Blackley  giving   instructions   to   the   accountant   to   enter   the   transactions inaccurately in the annual accounts.

[9]      No reason why Mr Blackley might have done this is apparent.  Certainly, the accounts of the defendant company showed the liabilities as long ago as in the financial year March 2007.   Given that Mr and Mrs Blackley did not apparently separate until  2010,  it  seems  unlikely that  Mr  Blackley would  have  formed an intention to have the accounts drawn in a misleading way in order to deceive his wife as long ago as 2007.  Further, Mr Ogier who was the accountant for the plaintiffs has confirmed the treatment of the accounts as loans.  As well, Mr Arnold who is also a

director of the second plaintiff in CI-2012-470-633 and the plaintiff in CIV-2012-

470-634 has confirmed that the transactions were loans.

[10]     The principal plank in this submission by the defendant that there was a arguable issue as to whether the accounts had been inaccurately drawn arose out of the circumstances of the way in which accounts relating to a transaction which was unrelated to the present one had been drawn up so that, allegedly, this did not give a true and correct picture of the financial position.  It was submitted, in essence, that if that transaction had not been satisfactorily accounted for in the defendant’s financial accounts, there was reason to be suspicious about all other aspects of the defendant’s accounts including the treatment of the payments which the plaintiffs’ claim were advances.  This submission hinges on the way in which accounts treated the sale by the defendant of a property in Whangarei.  Approximately $1,000,000 from the net proceeds of that transaction was distributed to third parties directly from the trust account of the solicitors who acted for the defendant as vendor.  Subsequently those payments   were   shown   in   the   defendant’s   accounts   as   “sundry   advances”. Mr Ferguson said that the accountant instructed to assist Mrs Blackley, Mr Bonney, had characterised this form of narration as unsatisfactory and lacking in specifics. As a result, the defendants considered that it was possible that in fact Mr Blackley who  was   then  the  director  of  the   company  had  paid  out  the  $1,000,000 approximately to himself.   While that issue was not in direct contention in the present proceedings, he said that such an example of inaccuracy with the accounting treatment of transactions on the sale of the Whangarei property could lead to suspicion concerning the accuracy of the accounts now under consideration which relate to the alleged advances by the plaintiff companies to the defendant.

[11]     I agree with Mr Carey for the plaintiffs that this strains credulity.  Any weight that such an inference is entitled to is quite insufficient to raise an arguable defence in the light of the express averments not only by Mr Blackley but by Mr Arnold and the accountants all of which support the view that the plaintiffs did indeed make advances to the defendant.  I shall return to the topic of the Whangarei transactions subsequently   because   it   is   apparently   the   view   of   the   defendant   that   the circumstances of the dealing with the sale proceeds on that transaction may have a

bearing on the argument that the Court in this case should exercise its discretion against ordering summary judgment.

[12]     For  the  defendant,  it  was  further  submitted  that  the  way  in  which  the defendant, while it was under the control of Mr Blackley, dealt with the $1,000,000 distribution issue involved a breach of the duties that Mr Blackley owed to the company.  It was further asserted for the defendant that Mrs Blackley, as the current director  of  the  defendant,  had  been  “starved  of  information”  relating  to  the company’s dealings before she took over running of the company and in particular that  the  solicitors  who  had  acted  on  the  sale  of  the  property  at  High  Street, Whangarei and from whose trust account the $1,000,000 approximately was distributed were not being cooperative in providing her with information.

[13]     However, none of this could amount to an arguable defence available to the defendant against the plaintiffs’ claims.   The underlying premise is that because Mr Blackley  is  a  director  of  some  of  the  plaintiff  companies  that  those  other companies must account for breaches of his personal obligations which he owed to the defendant.  In my view that cannot be correct.  The reasoning ignores the fact that each of the companies is a separate corporate entity.

[14]     In any event, the defendant must have contractual entitlements against the solicitors who acted for it on the Whangarei transaction to supply details of the disbursement of the funds from the trust account and any other information that the solicitors hold which could throw light on the destination of the $1,000,000 distribution.

[15]     As well, if Mr Blackley did breach the duties that he owed as the director of the company, the company would have rights of action against him personally.  The first of these considerations means that there is no real substance to the submission that summary judgment ought not to be granted in this case in order to give the defendant an opportunity to obtain discovery.  It is, in any event, unlikely that the defendant could obtain discovery in this proceeding which would throw light on the unrelated transaction relating to the Whangarei sale.  The defendant could of course obtain pre-proceeding discovery under Rule 8.20 against Mr Blackley directly if it

was genuinely interested in investigating what it considers to be an irregular transaction that he was involved in.

[16]     Mr Bonney, it is true, does raise one area of interest and that concerns the dealings between the second plaintiff and the defendant in regard to the forestry investment scheme.  While it is perhaps of note that there does not seem to be any contract between the forest manager and the landowner, that is between the second plaintiff and the defendant respectively, that does not of course give rise to any inference that advances which the second plaintiff says it made to the defendant are not in fact owing.

[17]     But the forestry contract has been adequately explained by the plaintiffs.  The background to the matter was as follows.  PC 7 entered into a forestry contract with the previous owner of the property which the defendant acquired.   The forestry contract was registered on the title to the property and remained there after the defendant acquired the property and the title was transferred to it.   Mr Carey compared the situation to the defendant acquiring a property which is subject to an easement.   No fresh contract was entered into between the defendant and PC 7. Mr Carey said, and I accept, that that explains why there is no contract between PC 7 and the defendant which is one of the subjects which Mr Bonney said he was concerned about.

[18]   The other matters which Mr Bonney raises may well require further investigation in the context of the relationship property claims between Mr and Mrs Blackley.     These  include  the  distribution  to  the  children’s  trust  and  the circumstances surrounding a catamaran.   They do not however indicate a sensible basis upon which the Court can say that there is a fair argument available to the defendant that the loans alleged were not made or that if they were made they were not made on the terms which the plaintiff says and are therefore not recoverable on demand.

[19]     The further ground upon which the defendant resists the plaintiffs’ claim is that  the  Court  ought  to  exercise  its  residual  discretion  not  to  enter  summary judgment.

[20]     The notice of opposition states that the reason that the defendant is not able to re-pay the advances is because of

a)        Mr    Blackley’s    actions    “in    removing    $1,042,984.20   from    the

defendant’s accounts to use for his own purposes” and: because;

b)A  judgment  entered  will  compromise  Mrs  Blackley’s  rights  to  a proper treatment of relationship property rights “to the defendant and related companies shares and may therefore cause an injustice”.

[21]     The first submission was made on the grounds that because Mr Blackley lodged a notice of claim against property that the defendant owns, it is not possible for the defendant to meet the claim that the plaintiffs now bring.

[22]     As to the first point I observed in the course of argument that the defendant company in a recent proceeding to set aside a statutory demand had argued that it was  solvent  and  able to  meet  its current  obligations  which  included  the claims brought by the plaintiffs.   However because the plaintiffs did not rely upon this ground it would be unsafe for me to have regard to that issue when dealing with sub- ground “a” above.

[23]     Turning to the exercise of the discretion, the starting point is to note that the power to withhold summary judgment can only be “a discretion of the most residual kind”.[1]

[1] Pemberton v Chappell [1987] 1 NZLR 1, 5.

[24]     In effect what the defendant is contending for is that because of irregularities in the conduct of its own affairs by its own directors, that any resulting difficulty in meeting the debt owed to the plaintiffs can justify a refusal to give judgment for that debt.   In the first place, there is no evidence that the defendant company does not have sufficient assets to meet the amount of the claim.  The complicating feature of the notice of claim which Mr Blackley has lodged against one of the company’s properties is a separate issue which I will deal with next.   But putting that issue

aside, there is no evidential basis for the claim that Mr Blackley has removed the

money from the company in the sense that it has been permanently deprived of it. The  distributions  in  question  have  been  recorded  in  the  company’s  account  as “sundry advances”.  That would suggest that loans have been made.  Therefore the underlying factual assumption that the money has been removed from the company for his own purposes cannot be other than speculation.  As well, Mr Bonney did not say that the making of the advances of $1,042,984.20 meant that the defendant would not be able to repay the debt.  Even if it did, I would not see that as being a ground upon which a discretion should be exercised in favor of the defendant against the plaintiffs (who are not the parties who removed the money from the defendant company) ought to be exercised.   Further, I consider that there is strength in the submission which Mr Carey made that issues about ability to pay would appear to have relevance more to the issue of satisfaction of the debt or execution of it than to the question of whether a judgment ought to be entered in favor of the plaintiffs in the first place.

[25]     Much the same considerations that I have just been discussing also apply to the relevance of the lodging of a notice of claim which is apparently one of the matters said to compromise Mrs Blackley’s rights to her interests in the relationship property.  It must be doubtful that Mr Blackley has any entitlement to lodge a notice of claim against the title to property which is owned by the defendant company.  He may have an interest in the shares of the company but he would not seem to have a direct claim against land owned by the company.  If I am correct in that regard, the notice of claim should be able to be removed.   Mr Ferguson submitted that the defendant/Mrs Blackley does not have the resources to bring litigation but I note that the defendant recently brought a successful application for setting aside a statutory demand in the Whangarei High Court.  Given Mr Bonney’s statement of the matter in an affidavit that he filed in that proceeding, I would be surprised if the company did not have the resources to bring proceedings.  In his affidavit Mr Bonney said:

[19]     The company is  solvent  in  a balance sheet  sense from  the information I have available to me.   The latest financial statements are 2010 and therefore not an ideal snapshot of the company’s current position.   The 31st March 2012 draft statement  of  financial  position  shows  an  excess  of  current assets over liabilities of $955,296 (2010 $679,525).

[26]     For these reasons I do not consider that even if the Court was entitled to exercise its jurisdiction against entering summary judgment for reasons connected with the lodging of the notice of claim, such an exercise would not be necessary because the company has other remedies available to it.

[27]     My  conclusion  overall  therefore  is  that  the  defendant  does  not  have  an arguable defence to the summary judgment application which the plaintiffs bring. The disputes between Mr and Mrs Blackley do not give rise to any such defence and the  invocation  of  such  grounds  of  defence  ignores  the  fact  that  the  plaintiff companies are separate entities from Mr Blackley.   Secondly, the evidence of the plaintiffs that the transactions were bona fide advances is supported by the treatment of them in statements of account which were prepared concurrently for the defendant company.   Further, there is no discretionary basis upon which the Court should exercise its discretion against entering summary judgment.   The exercise of that discretion rarely occurs.   The discretion ought not to be exercised in a way which would obstruct the rights of third parties.  In this case, the relevant third parties are the companies which are seeking to enforce the loans. In any event, the grounds upon which exercise of the discretion are said to rest are factually speculative and the defendant has other remedies available to it.

[28]     For all of those reasons the application for summary judgment is granted in both proceedings.

[29]     The parties should confer on the matter of costs and if they are unable to agree them they should file memoranda not exceeding five pages on each side within

14 days of the date of this judgment.

J P Doogue

Associate Judge