Levin and Another v West City Construction Ltd

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 27 March 2014
• Neutral Citation: [2014] NZCA 98
• Docket Number: CA326/2013
• Court: Court of Appeal
• Date: 27 March 2014

Between

Henry David Levin and David Stuart Vance as Liquidators of St George Developments Limited (In Liquidation)

Appellants

and

West City Construction Limited

Respondent

[2014] NZCA 98

Court:

O'Regan P, Stevens and Asher JJ

CA326/2013

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal by a liquidator from a High Court (HC) decision that an oral assignment of a bond as a method of payment for services provided by the respondent to the liquidated company occurred before the two year period when the company when into liquidation — cross-appeal by the respondent from the finding that, if the assignment was inside the two year period, the respondent had no defence available under s296(3) Companies Act 1993 (“CA”) (acted in good faith and reasonable person would not have suspected that the company was, or would become, insolvent) — respondent alleged oral agreement to assign bond — oral agreement had been with a different respondent company with the same name as the current respondent — written deed was entered into with the “new” respondent entity a year later — whether the intention of the oral agreement was not to assign the development bonds, but to transfer the bonds once work had been completed — whether the respondent could have reasonably believed that the transaction did not involve any undue preference and appellant was not at risk of insolvency under s296(3) CA.

Counsel:

N H Malarao and K C Francis for Appellants

P J Davey and C J Taylor for Respondent

JUDGMENT OF THE COURT

• A The appeal is allowed and the cross-appeal is dismissed.

• B An order is made setting aside the assignment of the North Shore City Council bond.

• C The respondent is to pay the amount of $104,350 to the appellants.

• D The appellants are to have costs on a standard appeal for one counsel on a band B basis in this Court and usual disbursements.

• E The order that the respondent was entitled to costs on a scale 2B basis together with disbursements in the High Court is quashed, and substituted by an order that the appellants as liquidators are entitled to costs on a scale 2B basis together with disbursements as fixed by the Registrar of the High Court.

• F Any outstanding costs or interest issues are to be determined in the High Court.

REASONS OF THE COURT

(Given by Asher J)

Introduction

1 This case concerns the assignment of a bond as a method of payment for services provided by West City Construction Ltd (West City) to St George Developments Ltd (in liquidation) (St George). St George went into liquidation in January 2008 and the appellant liquidators say the assignment took place within the two year voidable transaction period. Associate Judge Abbott found it took place before the two year period began. 1 The issue is whether the assignment occurred by an oral agreement on 22 November 2005 as the Associate Judge found or later, when a deed of assignment was signed on 3 October 2006.

2 Messrs Levin and Vance submit that the Associate Judge was wrong in finding that there was an effective equitable assignment prior to 22 January 2006, the relevant date for voidable transactions. They claim that the date of the assignment was 3 October 2006, the date of a formal legal assignment, rather than 22 November 2005, the date of the alleged earlier oral agreement. On this basis they submitted the assignment was a voidable transaction and should be set aside.

3 The respondent, West City, submits that the Associate Judge was correct in finding that there was an oral assignment that occurred prior to 22 January 2006. It cross-appeals against the Judge's finding that there was no defence available to West City under s 296(3) of the Companies Act 1993 if the assignment was on 3 October 2006, inside the two year period. It also cross-appeals on the basis that the Judge

was wrong in indicating that if the assignment was within the two year period he would refuse to exercise his discretion not to set aside the transaction

Brief facts

4 West City is a construction company carrying out earthworks and other related projects, including the construction of residential subdivisions. Its principal is Len Ireland. Between 2002 and 2004, West City provided construction services to St George in relation to a residential subdivision known as No.9 Quail Drive in Albany (the Albany subdivision).

5 On 19 November 2004 St George had entered into a bond with the North Shore City Council in relation to various works it was carrying out to the value of $104,350. The date for the completion of the work specified in the bond was 19 November 2005, and it was provided that if all the work was completed the sum would be refunded in full. West City also carried out work on another construction job for St George at a nearby subdivision known as Point Ridge.

6 West City completed contract works in July 2004 and was entitled to receive retention monies that had been retained by St George. However, in October 2005, with retentions of $47,532.12 still owed by St George to West City, St George approached West City to provide a quotation to complete additional works and construct a storm water pond. West City provided a quotation for $46,376.05 plus GST to carry out these additional works, together with other minor work.

7 At the time there were still sections for sale in a subdivision that had been completed by St George. Mr Ireland deposed in his affidavit in opposition that he understood the North Shore City Council was requiring bonds from St George which would enable the Council to release completion certificates for the subdivision and allow further sales to continue. Therefore, by October 2005 St George was in the position where it wanted West City to carry out further work to the value of $46,376.05, but St George owed retentions under earlier contracts, and could not meet its existing indebtedness.

8 Mr Ireland deposed that he was not prepared to agree to West City carrying out further works for St George unless the outstanding retentions owed to West City of $47,532.12 were paid. As a result St George offered an agreement to pay its debt from the bond monies owed to St George by the Council. Mr Ireland stated:

I had discussions with [St George's director] Mr Andersen and he agreed to pay for the additional pond works and the outstanding amounts under the original contract by assigning the Council bond monies to West City.

9 Mr Ireland deposed that he followed up the oral agreement by a letter to Mr Andersen on 6 November 2005 “confirming” his willingness to do the work. He stated, “I advised that the arrangement was acceptable provided it was done with a formal agreement.” His letter read:

RE

Quail Drive Subdivision

I see they have final sorted the Pond planting plan [sic]

We would be happy to carry out this works but the balance of the retentions $47,523.12 [sic] were due on 31st January 2004.

We cannot proceed with the planting and minor works until this is paid

The quote for planting the pond and minor earthworks is $46,376.05 plus [GST]

We understand you intend payment of these amounts from bond monies held by [North Shore City Council]

This arrangement is acceptable provided it is done with a formal agreement

If you have any queries, please do not hesitate to call me on [cell phone number removed].

(emphasis added)

10 Mr Ireland then deposed:

Mr Andersen proceeded to have his lawyer prepare a formal deed relating to the payment of the bonds which is the Deed of Assignment…. I believe that this deed was prepared in November 2005 shortly after my letter to Mr Andersen as it refers to a completion date of 19 November 2005 in the definition section. However, it was simply “kept in the bottom drawer” and not actually signed at that time.

11 The Associate Judge set out what Mr Ireland said under cross-examination: 2

• (i) he told the engineer and Mr Andersen that he was not doing any more “until, unless you assign me the bond”;

• (ii) [Mr Andersen] told him he would arrange payment for the further work and the balance of the retentions from the bond monies held by [the Council];

• (iii) the deed was “just the assignment”, not necessarily what was agreed: “What he agreed to do was pay us using the Council bond money. This [the deed] is just the assignment of it.”;

• (iv) the first time he saw the deed was when he signed it on 3 October 2006 at St George's offices: he was happy with the agreement that West City would be paid out of the Council bond, as recorded in his letter of 6 November 2005, but had asked for the formal document so that he could take it to Council to get the bond changed into West City's name (which could not happen until the works were complete).

12 West City commenced the additional work in November 2005. It issued payment claims on 30 November 2005 and 16 January 2006. The work done by West City was completed by 16 January 2006. The payment claims were later certified. On 13 June 2006 West City presented a final claim for the balance of the money due and for the additional work done totalling $109,133.46. The work passed a final inspection of the Council and there was certification for payment of the amount of the extra work. Mr Ireland deposed that he had expected the bond monies to be paid by that time.

13 The Council then indicated there would be a two year maintenance period for additional work, and it would hold back payment of part of the bond for that two year period. Faced with these further delays Mr Ireland requested Mr Andersen sign the Deed of Assignment. He emphasised that the work had been long completed at this point. Mr Andersen agreed and the Deed of Assignment was executed on 3 October 2006.

14 On 22 January 2008 the Commissioner of Inland Revenue made an application to place the company into liquidation. The company was placed into liquidation by the Auckland High Court on 2 May 2008. Primary indebtedness is to

the Inland...