Gibson v Official Assignee
| Jurisdiction | New Zealand |
| Judge | Jagose J |
| Judgment Date | 21 March 2019 |
| Neutral Citation | [2019] NZHC 532 |
| Court | High Court |
| Docket Number | CIV 2014-404-3355 |
| Date | 21 March 2019 |
Under Receiverships Act 1993 s 34(1) and s 284(1) of the Companies Act 1993
In The Matter of Capital + Merchant Finance Limited (In Receivership and Liquidation)
[2019] NZHC 532
CIV 2014-404-3355
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Insolvency — varying consent orders -first respondent reached settlement with auditors of company in receivership and liquidation — GST liability on settlement — first respondent disputes liability for GST
R B Stewart QC, M D Arthur, and S R Holden for the applicants
C T Gudsell QC and R J Southall for the first respondent
JUDGMENT OF Jagose J
This judgment is delivered by me on 21 March 2019 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
……………………………………………..
Registrar / Deputy Registrar
In 2015, with the consent of the parties, this Court made interlocutory orders essentially disposing of the proceeding. The proceeding was the receivers' originating application for directions in the liquidation and receivership of Capital + Merchant Finance Limited (the “Company”), in which the Official Assignee was the liquidator.
The Official Assignee had secured $18.5m (“including GST, if any”) in settlement of the Company's claim against its former auditors. The Official Assignee claimed reimbursement of his consequent expenses (or ‘salvage costs’) from that fund, and the second and third respondents also claimed entitlement to payments from the fund.
By consent, this Court directed the Official Assignee to retain specified funds to meet the other respondents' claims (if established), to pay himself “in resolution” of his own expenses claim, and to pay the remainder of the fund to the receivers. That was done, the receivers returning the net balance to the Company's investors.
The Court's order included provision for further agreement or Court orders in relation to the retentions, which the Official Assignee expected to abide. Thus disposition of the whole of the fund was addressed. The second and third respondents' claims ultimately were resolved for amounts less than the retentions, leaving the balance of the fund with the Official Assignee.
It since has become apparent the settlement payment may impose a GST liability. There is at least a possibility that liability may fall on the Official Assignee. The Official Assignee disputes both, incurring further expenses in doing so.
Recognising — in the words of the Official Assignee's counsel, Christopher Gudsell QC — the ‘fortuity’ of his continued retention of the balance of the fund, the Official Assignee now seeks to have resort to it also to meet any such liability and expenses (including on its present application, essentially to vary this Court's 2015 orders). The receivers, meanwhile, have amended their originating application, now for directions the Official Assignee also pay the retained balance to them.
The primary issue for my determination is whether I should set aside the consent orders, which in large part have been performed. The matter is complicated by the Official Assignee's wish I only vary the orders to the extent sought, and the receivers' contention the orders embody their contractual resolution of the Official Assignee's claim to salvage costs. Although I have extensive discretion to grant relief from contractual mistakes, including by cancelling or varying the subject contract, the receivers say the circumstances do not qualify as such a ‘mistake’, but setting aside or varying the consent orders would effectively be to cancel or vary their contract.
The Company was a finance company, raising money from the public, primarily for property development. The third respondent (“Perpetual”) was appointed trustee for investors' interests, in terms of a Trust Deed dated 5 April 2002, and acquired a general security agreement (“GSA”) over the Company's assets. The Company obtained funding from the second respondent (“Fortress”), which also held a GSA over the Company's assets, by agreement with Perpetual in priority over Perpetual's GSA.
Fortress subsequently alleged the Company was in breach of its facility, and appointed Grant Thornton principals as receivers to the Company's secured assets. After this Court dismissed the Company's challenge to that appointment, Perpetual appointed KordaMentha principals (the applicants in this proceeding) as second receivers to those assets. At the time of its receivership, the Company owed approximately $167m to some 7,500 investors. On the basis the Company was unable to pay its debts, the Registrar of Companies applied to put the Company into liquidation. This Court appointed the Official Assignee liquidator on 15 December 2009.
By mid-2012, various developments had occurred. The Grant Thornton principals retired as receivers, leaving the KordaMentha principals as sole receivers with control of the Company's remaining assets. The Official Assignee issued proceedings against the Company's auditors, and the receivers issued proceedings against each Perpetual and the Company's solicitors, each being claims made on the part of the Company (in liquidation and receivership). On issue of the proceeding against Perpetual, given the conflict of interest arising in remaining as trustee, the Public Trust was appointed as replacement trustee under the Trust Deed.
In mid-2014, the Official Assignee, in negotiations including the auditors' insurer, settled the claim against the Company's auditors for payment of $18.5m (“including GST, if any”). The Official Assignee had ‘preliminary advice’ “the settlement had no GST consequences”. On payment between the parties' solicitors, the auditors' insurer, which had been involved in the negotiations, sought the Official Assignee's confirmation he had received “our funds”. The receivers claimed the fund, net of the Official Assignee's salvage costs, for investors. Fortress and Perpetual each also made claims of the fund under their respective securities.
The receivers issued the present proceeding, seeking directions as to the validity, priority and amount of the various claims. They then negotiated the amount of salvage costs with the Official Assignee, and a maximum sum for each of their claims with Fortress and Perpetual. Ultimately, the receivers proposed the Official Assignee retain two “ring-fenced” funds of some $3.869m in respect of Fortress' claim, and $2.500m in respect of Perpetual's claim, pay himself some $2.349m “in resolution” of his salvage costs claim, and pay the balance of funds to the receivers. That was accepted by the parties, and this Court directed accordingly on 26 February 2015, by consent.
The receivers later resolved Fortress' claim, and some of Perpetual's claim, with the result the Official Assignee only was required to continue to retain $1.75m in relation to the latter. The receivers and Perpetual agreed the originating application should be stayed in part, on condition the Official Assignee continue to retain $1.75m for Perpetual. The receivers and Perpetual had leave to progress that aspect of the originating application to hearing, if unable to resolve the remaining dispute arising in another proceeding. The Court made those orders also on 11 March 2015, by consent between the receivers and Perpetual. Then all parties sought consent orders discontinuing the proceeding so far as it related to Fortress, which was to remain “on foot” for resolution of Perpetual's claim but stayed. 1 Those orders were made on 27 July 2015.
In late 2016, through their respective solicitors, the receivers queried the Official Assignee's treatment of GST on the settlement with the Company's auditors. In particular, the receivers sought confirmation s 5(13) of the Goods and Services Tax Act 1985 — deeming GST payable on registered persons' receipt of payments from insurers — had been considered.
The Official Assignee responded, as the Company's ordinary taxable activity was exempt from GST liability, so too was the settlement payment, as “consideration for [the Company's] normal taxable activity”. By ‘exempt’, the Official Assignee meant the 1985 Act's specification of the provision of financial supplies as an exempt supply.
But the Company had elected to be registered for GST, 2 and claimed refunds of input tax at a 60 per cent rate reflecting its mix of business and non-business lending. The receivers replied they considered such meant “[the Company's] lending activity involves making taxable (zero rated) supplies as well as exempt supplies”. In another settlement for the Company involving a payment from an insurer, the receivers had agreed with the Commissioner of Inland Revenue GST should be paid on that settlement amount at the 60 per cent rate.
The Official Assignee responded his advisors were unaware of the Company's GST election at the time of his settlement with the Company's auditors: “[a]s such, the impact of the election was not considered at that time”. While the Official Assignee was ‘surprised’ the Company was permitted to make the election, he acknowledged its
The receivers raised the GST issue again directly with the Official Assignee in early 2017. At about the same time, through solicitors, the receivers advised the Official Assignee Perpetual's claim had settled without further claim on the retained funds, and sought to discontinue the balance of this proceeding by consent. Given the...
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