Sanson and Anor v Ebert Construction Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeJudge J P Doogue
Judgment Date06 October 2015
Neutral Citation[2015] NZHC 2402
Docket NumberCIV-2014-404-2977

[2015] NZHC 2402

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2014-404-2977

Between
Craig Alexander Sanson and David John Bridgman
Applicants
and
Ebert Construction Limited
Respondent
Appearances:

M J Tingey and N Moffatt for Applicants

A Van Ammers and R J Gordon for Respondents

Application by a liquidator under s292 Companies Act 1993 (CA) (insolvent transactions voidable) — company had entered into a direct agreement in relation to the funding of a development contract — under agreement the lender would directly advance funds to the respondent on the instruction of the company — there were a series of transactions (including monetary transfers and the transfer of property to reduce indebtedness) to the respondent totalling $1.6 million — the monetary transactions had been made in the four days before being placed into liquidation — the transactions had occurred six and a half years previously — whether the payments made by the lender were “transactions” made by the company or whether they were the result of the lender meeting obligations under the direct agreement to the respondent — whether the arrangement amounted to a guarantee — whether the arrangements contravened the assets deprivation rule — whether the respondent had received preferential payments — whether the proceedings were time barred under the Limitation Act 1950.

Held: It was a mistake to view the issue that arose in this case as being soluble by having regard solely or principally to accepted principles of contractual interpretation. In the end, the question was whether the arrangements that the parties actually contracted for were caught by s292 CA and the other voidable transaction provisions of the CA. If they were, then it did not matter that the objectives of the contracting parties might be defeated. It was not open to the parties to assert that even if the arrangements adopted proved on analysis to fall within the voidable preference regime, the Court ought to decide otherwise because any other outcome would be inconsistent with what the parties had hoped to achieve. Evidence as to subjective expectations and belief that the Direct Agreement would provide protection against the voidable transactions regime was therefore inadmissible.

BOSI had engaged with TPL and Ebert with the intent that it would remit to Ebert amounts it had agreed to advance at TPL's request and in regard to which TPL was the debtor. The obligation was a conditional one. It was first conditional upon TPL owing a liability to Ebert under the construction agreement. BOSI was therefore not discharging a debt that it owed to Ebert but was paying on behalf of TPL a debt that it owed to Ebert. Secondly, it assumed that BOSI was contractually bound by its agreement with TPL to make finance available under the financing arrangements between those two entities. Only with those two preconditions in existence would the obligation under the Direct Agreement bind BOSI.

The funds that BOSI paid through the Direct Agreement mechanism must have had the character of funds that belonged to TPL because there was no dispute that they were used to pay debts that TPL owed to Ebert. Unless such a debt existed, BOSI's obligation to remit funds that TPL had borrowed did not come into play. As a result of a payment being made by BOSI to Ebert, TPL would receive a credit which was applied to reduce, by an amount equal to the payment made, the debt that it owed to Ebert. The fact that the payment was made directly to Ebert by BOSI was neither here nor there. BOSI had made payment on behalf of TPL of the latter's debts payment when it made the two payments.

The two payments were therefore transactions which fell within s 292.

The argument based on a guarantee was not viable. The nature of the obligation which BOSI assumed was ancillary to that of TPL. It was, in effect, to implement performance by TPL of the obligations which it owed to Ebert. Rather than BOSI being required to perform in circumstances where TPL did not, which was the essence of a guarantee, quite the opposite outcome was intended in this case. BOSI was only required to discharge the obligations of TPL. If TPL, in breach of its obligation, did not enable BOSI to provide to it the anticipated funding (by not providing the required security for example), there could be no separate obligation for BOSI to nonetheless make payment of the contemplated amount to Ebert. Being required to assist a party to perform its obligations was a different thing from performing the obligations in its place if it failed to perform them. The relationship was not one of principal and guarantor.

The payments had been made with the property of TPL. The payments were transactions which fell within s292 CA.

Ebert's alternative position was that even if a payment was made to it by TPL (rather than BOSI), because of the nature of the arrangements pursuant to which the payment was made, the assets deprivation principle was not contravened. However the relevant rule in this case was the pari passu rule, which had been engaged. The parties could not contract out of the rule which was embodied in s313 CA (claims of other creditors and distribution of surplus assets), even if there were good business reasons for doing so. Further, and unlike in the case of the deprivation rule, it was not necessary to demonstrate that a dominant purpose existed of defeating the creditors before the court will strike down the arrangements.

Section 292(3) CA embraced transactions comprising a conveyance and transfer of the companies property.

The payments and the transfer of the apartment had taken place within the specified period. There was a limited amount of money which TPL could pay its debts from. The effect of Ebert receiving 100 per cent of the funding that BOSI provided was to exhaust all of the resources from which TPL would be able to pay its creditors. It was inevitable that the substantial body of other creditors that existed at the time when the transactions were made would receive less or would receive nothing in the liquidation.

It was clear that TPL was insolvent at the time that the transactions with Ebert occurred. Ebert had received more towards satisfaction than it would receive or be likely to receive in the company's liquidation.

The proceedings were not statute barred because limitation ran from the date of liquidation, which was 21 November 2008. Because the actions on which the present claim was based occurred before 1 January 2011, the Limitation Act 1950 (LA) continued to apply. It could not have been the intention of the legislature that relief should be declined in the circumstances because of alleged delays. The Court had powers to deal with failures on the part of liquidators to meet their obligations under s286 CA (orders to enforce liquidator's duties), including, failure to comply with the principal duty under s253 CA. The Court should not disallow relief because of delays. There was little evidence showing that substantial prejudice was caused to Ebert by the delay.

The good faith of Ebert had to be measured against what it knew about the circumstances of TPL at the time when the transactions had occurred. Ebert had concerns about TPL's finances and had known that the IRD had instituted liquidation proceedings. Ebert had not acted in good faith.

The transactions were set aside. Ebert was to pay to TPL the sum of $1,603,891.90 pursuant to s295 CA.

JUDGMENT OF ASSOCIATE Judge J P Doogue

Introduction
1

The applicant liquidators seek to set aside $1,603,891.90 in transactions between Takapuna Procurement Ltd (In Liquidation) (“TPL”) and Ebert Construction Ltd (“Ebert”) pursuant to ss 292 and 295 of the Companies Act 1993.

Background
2

The transactions comprise (together, the Transactions):

  • a) a payment of $499,226.50 to Ebert on 18 November 2008;

  • b) the transfer of apartment B401 and accessory unit AU40 (certificate of title 341326 (North Auckland registry)) (the Property) to Ebert on 20 November 2008 for reduction in indebtedness of TPL in the sum of $540,000; and

  • c) a payment of $564,665.40 to Ebert on 21 November 2008.

3

It is uncontroversial that the two monetary payments in (a) and (c) occurred in the four days before TPL was placed into liquidation on 21 November 2008. There is contention between the parties as to whether transaction (b) occurred at that time or at an earlier point. This will have to be resolved in the course of this judgment.

4

The claim which Ebert makes is for the balance of amounts which it was owed for the construction of an apartment complex, the Shoalhaven Apartments, located in Takapuna on the North Shore of Auckland (Shoalhaven Apartments).

5

The Court appointed liquidators to TPL on the application of the Commissioner of Inland Revenue (the Commissioner). The Commissioner alleged that TPL was insolvent and that it had failed to pay $2,272,575.80 in GST payments to the IRD.

6

It is not in dispute that TPL could not pay the debt owed to the Commissioner or the $17,496,821.61 that it owed to another creditor, Strategic Nominees Ltd (Strategic).

7

The claim which the liquidators make is that because TPL had failed to make a preferential payment to the IRD of over $3,000,000, Ebert would never have received any of the $1,603,891.90 in liquidation.

Financing and payment arrangements
8

In October 2005, TPL entered into a construction contract with Ebert to construct the Shoalhaven Apartments (the Construction Contract). The contract was for a lump sum of $32,497,188 (plus GST) (the Construction Sum).

9

The funding of TPL obtained for the development of the Shoalhaven Apartments came from two lenders, BOS International (Australia) Limited (BOSI) and Strategic (the...

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2 firm's commentaries
  • Direct deeds – not the protection expected
    • New Zealand
    • Mondaq New Zealand
    • 23 October 2015
    ...for the development and that the financier is critical to the success of the project. Case In Sanson v Ebert Construction Limited [2015] NZHC 2402 the liquidator successfully argued that payments made by BOS International (Australia) Limited (BOSI) to Ebert Construction Limited (Ebert) unde......
  • Voidable transactions in New Zealand – where to from here?
    • New Zealand
    • Mondaq New Zealand
    • 1 April 2016
    ...(in liq), Re Levin v BCS Holding Account Ltd [2015] NZHC 1564, Grant v McKenzie [2015] NZHC 1958, Sanson & Ebert Construction Ltd [2015] NZHC 2402. Various other interlocutory matters and costs decisions relating to the voidable transactions regime are not included in this total. 2 Timb......

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