Commercial Factors Limited v Dalton [2019] NZCA 78 (29 March 2019)

Last Updated: 2 April 2019

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA309/2018 [2019] NZCA 78

	BETWEEN	COMMERCIAL FACTORS LIMITED AND COMMERCIAL FINANCE AND SECURITIES LIMITED Appellants
	AND	SIMON DALTON AND MATTHEW PETER KEMP AS LIQUIDATORS OF BRITISH PUB SUPPLIES LIMITED (IN LIQUIDATION) First Respondents SIMON DALTON AND MATTHEW PETER KEMP AS LIQUIDATORS OF THE ENGLISH CORNER SHOP LIMITED (IN LIQUIDATION) Second Respondents

Hearing:	10 October 2018
Court:	Cooper, Venning and Collins JJ
Counsel:	P J Dale for Appellants M A E Sullivan and S R Sussman for First and Second Respondents
Judgment:	29 March 2019 at 12.30 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The appellants must pay to the first and second respondents one set of costs calculated for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Cooper J)

Table of Contents

Para No
Introduction [1]
Background [4]
High Court judgment [27]
Argument on appeal [32]
Analysis [39]
Transfer of the lessee’s interest [41]
Commercial Factors’ GSA [52]
Result [54]

Introduction

[1] This appeal arises out of an application for directions under s 284 of the Companies Act 1993. The application was made by the first and second respondents as liquidators of two related companies, British Pub Supplies Ltd (BPSL) and The English Corner Shop Ltd (ECSL). Among other things, the liquidators sought directions:

• (a) as to the entitlement to all or parts of the proceeds from the sale and “disposition” of a bar called the “Spitting Feathers Bar”; and
• (b) as to whether a General Security Agreement (the GSA) between Commercial Factors Ltd and Commercial Finance and Securities Ltd (together Commercial Factors) and ECSL included an unregistered leasehold interest in the premises occupied by the Spitting Feathers Bar and/or all or part of the proceeds of sale derived from the transfer of that leasehold interest.

[2] In the judgment that follows it will be necessary to refer to two agreements entered into by parties acting without legal advice.^[1] Some uncertainties of meaning and intent arise that might have been avoided had such advice been sought. In addition, agreements were entered into successively, without a clear expression of the relationship between them, and sometimes different parties have been named in agreements dealing with the same or similar content.
[3] We also note that, in the absence of clear intituling, Associate Judge Smith adopted a nomenclature that related broadly to the content of the documents. While we repeat that nomenclature initially, we have concluded that the clarity of this judgment will be enhanced if we refer to them by number, as the First to Third Agreements respectively. This has simplified our discussion of the facts as they developed, which is nevertheless largely based on the account given by the Associate Judge. For present purposes there is no significant dispute about what happened; the difference between the parties is rather as to the legal consequences of what occurred.

Background

[4] BPSL ran the Spitting Feathers Bar, which was situated at level 1, 16 Wyndham Street in downtown Auckland (the premises). It was based on an English pub design, and sold beers and crisps sourced from the United Kingdom by ECSL. ECSL was the lessee of the premises, under a deed of lease dated 31 May 2011 from 777 Investments Ltd. ECSL effectively allowed BPSL to occupy the premises for the purposes of the Spitting Feathers Bar; there was no written sublease or licence between them. The Associate Judge found that such arrangements as existed between the two companies were informal, but the landlord knew that BPSL owned and ran the bar on the premises. BPSL paid the rent and operating expenses directly to the landlord.^[2]
[5] Prior to its liquidation, ECSL imported, distributed and sold British products through a retail outlet in Onehunga, and later at premises on Great South Road, Penrose. The shares in ECSL were owned by Mr Graham-Campbell Lane and his wife Rachel. The shares in BPSL were all owned by ECSL.^[3] Mr Lane was the director and controlling mind of both ECSL and BPSL. The High Court found that Mr Lane operated the two businesses separately, each having different business arrangements and creditors.^[4] ECSL entered into the GSA, a debt factoring finance arrangement with Commercial Factors on 20 June 2012, to secure financial accommodation made by Commercial Factors to ECSL. BPSL did not have an equivalent arrangement, operating essentially on a cash basis.^[5]
[6] Both ECSL and BPSL were placed in liquidation on 1 May 2017. The respondents were the liquidators of both companies. At the date of liquidation, BPSL owed ECSL $4,200 in respect of crisps and beer supplied by ECSL.
[7] ECSL had begun to struggle commercially in June 2015. BPSL began to support ECSL in the face of demands by both Commercial Factors and another major creditor of ECSL namely S D Ramsden and Co Ltd (Ramsden).^[6]
[8] In December 2015 ECSL and BPSL entered into a deed of acknowledgement of debt and assignment (the Ramsden Deed). The Associate Judge noted that under the Ramsden Deed:^[7]

... the proceeds of a sale of the Bar would be applied to the debt owed by English Corner to Ramsden. The amount to be repaid from the proceeds of sale (the “Lump Sum Repayment”) would be GBP200,000 if the sale price was NZD650,000 or more; if the sale price was less than that sum, the Lump Sum Repayment would be reduced proportionately.

[9] Under one clause of the deed, BPSL agreed that the proceeds of sale of the Spitting Feathers Bar would be applied to the debt as set out in the Ramsden Deed, and it covenanted that it would take all necessary steps to ensure that such application of the proceeds of sale occurred. Under another clause, BPSL and ECSL assigned the proceeds of the sale of the Spitting Feathers Bar. BPSL then assumed a further obligation, by acknowledging and agreeing that:

... the proceeds of the sale of Spitting Feathers (to the extent necessary to meet the obligations set out in clause 3) shall be impressed with and held on a quistclose (special purpose) trust in favour of the Creditor and in order to pay those funds to the Creditor in satisfaction of the obligations of the Debtor and British Pub Supplies under this Deed.

[10] Although the parties were influenced by the Ramsden Deed in some of the actions they took, and Commercial Factors sought to ensure that it was not disadvantaged by its terms, it is not significant for the purposes of the issues that now arise. Confronted with financial circumstances which he described as “dire” towards the end of 2016, Mr Lane entered into what the Associate Judge described as the “first sale agreement”, providing for the sale and purchase of the bar business.^[8] That agreement, which we will call the First Agreement, was between BPSL and Mr Lane as vendors, and Mr Green who was to pay a total purchase price of $200,000, made up of tangible assets of $190,000, stock in trade of $9,999 and goodwill of $1. At that stage, however, the parties were unable to obtain the landlord’s consent to an assignment of the lease, and Mr Green was not able to arrange finance.
[11] BPSL was unable to pay rent for the premises that was due in January and February 2017. At the end of February, there were rent arrears of $22,757.72.^[9] Mr Lane was concerned that the landlord might cancel the lease. He and Mr Green then negotiated the “lease to own agreement” under which Bar Red Ltd would take over the running of the Spitting Feathers Bar, retain the profits of the business and assume certain liabilities previously met by BPSL. Bar Red Ltd was Mr Green’s company. The agreement, which we will call the Second Agreement, was contained in a onepage document in the following terms:

Contract between British Pub Supplies and Bar Red Limited

For the Lease of Spitting Feathers Bar.

Lease Price is $200,000

Less Deposit of $32,000

Total to be Repaid $168,000

This is a Lease to Own Contract and any monies repaid gets taken off the total sale price of $200,000 when the Landlord approves the takeover of the lease at 16 Wyndham Street, Auckland CBD.

In lieu of stock, Red Bar will take on the liability of any outstanding Holiday Pay owing to staff.

Red Bar will take over lease payments, lndeserve Contract, Smart Pay Cadmus (Eftpos Machines) and Telecom Rental Contract (for Security System).

Repayment of the $168,000 is to be made in weekly payments of a minimum of $1300 per week (or greater) to be paid directly to CFF,^[[10]] until advised of any change.

The Alcohol Licence belonging to British Pub Supplies will cease and Red Bar will obtain their own Licence.

Red Bar will continue to use The English Corner Shop Limited for the provision of English Beers and Crisps and in return The English Corner Shop will assist with Accounts and staffing issues.

Bar Red will obtain and maintain Insurance to cover any damages and replacement costs to the Building and Assets of Spitting Feathers Limited. Bar Red will list The English Corner Shop as an interested party.

Any maintenance required on either the furnishings, equipment or building will be the responsibility of Bar Red Limited in accordance with the existing lease. Bar Red will also be responsible for any additional Opex charges during their lease.

On behalf of

The English Corner Shop Limited Bar Red Limited

Graham Lane Chris Green

Date: 28/2/17 Date: 28 02 17

[12] The Associate Judge described the “broad intention” of this document in terms of evidence given by Mr Lane.^[11] Mr Green was to take over the staff, stock, fit out, chattels, lease and the “Spitting Feathers” name. As had been the case with the First Agreement, the actual amount to be paid would be $168,000, with a $32,000 loan earlier made by Mr Green to help keep the business afloat, to be treated as a deposit. As can be seen, the weekly payment of $1,300 was to be paid to Commercial Factors; that company had been demanding the proceeds from the sale of the bar business and Mr Lane accepted that was its entitlement.
[13] Although Mr Green’s evidence was generally to the same effect as that of Mr Lane, he considered the lease-to-own agreement was analogous to a hire purchase; it would “fill the gap” until Mr Lane and he were able to complete the First Agreement.^[12]
[14] It is apparent from email exchanges referred to by the Associate Judge that over the period the Second Agreement was negotiated, Mr Lane was in contact with Mr Haydon, an employee of Commercial Factors with whom he dealt. The Associate Judge referred to an email of 22 January 2017 in which Mr Lane told Mr Haydon that he needed to sell the bar to Mr Green having agreed a price and signed the First Agreement. The Associate Judge commented:^[13]

This email shows that Mr Lane was concerned about the effect of the Ramsden Deed if [the First Agreement] proceeded according to its terms, and that was no doubt also a concern of Mr Haydon ... .

[15] This concern arose from the fact that if the First Agreement were implemented, that would give rise to an immediate issue as to whether the proceeds should be paid to Ramsden, or whether part or all of the proceeds would go to Commercial Factors under the GSA.^[14] The arrangements set out in the Second Agreement followed, with Mr Lane advising both a representative of Ramsden and Mr Haydon what was proposed. Mr Haydon wrote on 8 February 2017 stating that what was proposed was along the lines of what they had discussed.
[16] Bar Red Ltd began running the bar from 1 March 2017. It also began paying the rent to the landlord. The Associate Judge found that while ECSL owed the landlord approximately $22,700 at the date of liquidation for outstanding rent and operating expenses, none of that sum related to payments falling due in March or April 2017.^[15]
[17] The new arrangement, however, did not work for Mr Lane. He no longer had income from the activities of the bar and he realised that ECSL could not survive much longer. On 1 May 2017 he signed shareholders’ resolutions to place both ECSL and BPSL in liquidation.
[18] After his appointment as liquidator, Mr Dalton investigated the position. He was concerned that there were two agreements between different parties, both purporting to deal with the lease and sale of the bar. He was concerned that in the Second Agreement, ECSL was purporting to lease and transfer the bar which it did not own (apart from being the lessee under the lease). He was concerned that the attempts to document the sale were unsatisfactory and posed a risk to both of the companies in liquidation. There were “multiple Vendors with different interests attempting to sell or lease [the bar] to different purchasers and with differing descriptions or uncertainty as to what constituted the assets to be transferred”. There was also no security for payment of the purchase price although possession had passed. He gave consideration to disclaiming the lease of the premises but decided that would not be appropriate because there was an opportunity to assign the lease as a necessary incident to completing the sale of the company’s business and he thought that would be achievable.^[16]
[19] Mr Dalton decided that it would be appropriate to properly document the sale of the bar. Assignment of the lease would benefit the creditors of ECSL by reducing its liabilities and the number of its creditors: Bar Red Ltd would be responsible for meeting the ongoing rental obligations until expiry of the lease in 2019. The landlord subsequently agreed to consent to an assignment of the lease.^[17]
[20] On 29 May 2017 a further agreement was entered into as a variation to the First Agreement. We will call this the Third Agreement. The recitals referred to both the First and Second Agreements. The parties to the Third Agreement were BPSL and Graham Lane (together referred to as the “vendor”), ECSL, Mr Green (called the “purchaser”) and Bar Red Ltd. A recital recorded Mr Green’s desire to nominate Bar Red Ltd to become the purchaser of the business. Clause 2.2 noted that Mr Lane had been erroneously included as the vendor under the First Agreement, and provided for his removal as a party to that agreement. It noted that BPSL was solely liable for the vendor’s obligations under the First Agreement. Under cl 3.1, the parties agreed that the Third Agreement superseded and replaced the Second Agreement, and cl 3.2 provided that ECSL and Bar Red Ltd agreed that the Second Agreement automatically terminated on execution of the Third Agreement. Clause 4 listed various other amendments to the First Agreement. These included a possession date of 1 March 2017; deleting “$120,000” from the finance condition and replacing it with $160,979 and the deletion of a schedule of “Further Terms of Sale”, replacing it with a more comprehensive provision.
[21] Under cl 19.1 of the new Further Terms of Sale, Bar Red Ltd agreed to sign a loan agreement under which it would be obliged to repay the “loan amount” (that is, the $160,979) to the bank account nominated by BPSL/Mr Lane in weekly instalments of at least $1,300 per week, and agreed that the loan amount would be repaid by or before 31 May 2019. There was an acknowledgment that $19,300 had already been repaid. Mr Green guaranteed the repayment of the loan.
[22] Under cl 20.2 Mr Green also agreed to assume liability, on the possession date, in respect of accrued employee entitlements. Under cl 22, BPSL/Mr Lane (as vendor) assumed responsibility for satisfying all rent, services and other costs incurred by the business (the bar and restaurant situated on the premises) up to the possession date. BPSL/Mr Lane agreed that following settlement it would use its best endeavours to release any financing statements registered against it on the personal property securities register over the assets. Pending the discharge of such financing statements, it would direct Mr Green to pay all loan repayments to the trust account of Jackson Russell, the solicitors for the liquidators, to be held on trust as security against any successful claims made by secured parties.
[23] The First Agreement had provided for the sale of the business (described as a bar and restaurant) and gave its address. The front page of what was a standard form agreement for sale and purchase of a business contained a box headed “lease details” but no details were given.^[18] The agreement nevertheless provided for the landlord’s consent within 15 working days from the unconditional date of the agreement. Under cl 8.2 of the agreement, that implied that the lease was to be assigned, and at that point the parties contemplated that there would be a deed of assignment of the lease to Mr Green. That would have required the agreement of ECSL as well as the landlord, but ECSL was not a party to the First Agreement.
[24] The Third Agreement provided more fully for the relevant details as follows:^[19]

(c) The Lease Details section on the first page^[[20]] is amended by adding the following details:

(i) Landlord: 777 INVESTMENTS LIMITED

(ii) Commencement Date: Level 1: 1 June 2011

Basement: 1 January 2013

(iii) Term: Level 1: 8 years

Basement: 6 years, 5 months

(iv) Present Rental: $126,113.74 plus GST (for both leases)

(v) Rights of Renewal: None

(vi) Rent Review Dates: Every 2 years.

[25] At the same time, BPSL, Bar Red Ltd and Mr Green entered into a term loan agreement and general security agreement for the unpaid balance of the purchase price. This was to be paid by ongoing weekly instalments of $1,300 plus interest to BPSL; the payments were to be made into the trust account of the liquidators’ solicitors, not to Commercial Factors. Further, by deed of assignment of lease dated 13 June 2017, ECSL (in liquidation) assigned to Bar Red Ltd all of its estate and interest in the premises. 777 Investments Ltd gave its formal consent to the assignment by executing this document. The deed recorded the date of assignment as 1 March 2017. The deed contained no provision providing for payment in respect of the assignment.
[26] At the time of the hearing in the High Court, Bar Red Ltd was continuing to pay the $1,300 into the liquidators’ solicitor’s trust account for BPSL.^[21] The funds were held pending performance and completion of all the obligations under the Third Agreement, including the discharge and release of certain securities registered over the assets of the bar.^[22]

High Court judgment

[27] Commercial Factors filed a notice of opposition to the respondents’ application under s 284 of the Companies Act. It relied on the GSA, contending that its security extended to ECSL’s leasehold interest in the premises and that it was entitled to the money paid by Bar Red Ltd pursuant to the Second Agreement.
[28] Commercial Factors argued in the High Court that the consideration of $200,000 referred to as the “Lease Price” in the Second Agreement was intended to be the price payable for the lease for the premises. The Associate Judge rejected that contention, finding that the $200,000 was intended to be the price payable in respect of all the assets that were to be transferred under the First Agreement.^[23] He concluded further that the weekly payments required of Bar Red Ltd under the Second Agreement were payable in respect of the tangible bar assets owned by BPSL. While he held that the weekly payments of $1,300 were to be made to Commercial Factors up to the date of liquidation, that was because of the contractual obligations assumed by Bar Red Ltd under the Second Agreement. But thereafter, the payments were to be made to the liquidators in their capacity as liquidators of BPSL.
[29] Those weekly payments of $1,300 payable by Bar Red Ltd were not covered by the GSA.^[24] The payments were made to acquire assets owned by BPSL, to which the GSA did not apply.
[30] Finally, the Associate Judge held that the liquidators were holding the payments made by Bar Red Ltd in their capacity as liquidators of BPSL; Commercial Factors had no interest in either the payments made by Bar Red Ltd presently held by the liquidators’ solicitors, or in the payments to be made in the future by Bar Red Ltd under the Second Agreement or the Third Agreement.^[25]
[31] As a consequence of these decisions, the Associate Judge resolved the respondents’ application by making the following directions:^[26]

(a) The liquidators, in their capacity as liquidators of British Pub, are entitled to retain the weekly payments of $1,300 paid to them by Bar Red under the [Second Agreement] and/or which have been paid or are payable by Bar Red under the [Third Agreement] which are now held in the trust account of the solicitors acting for the liquidators, or which may in future be received by them.

(b) The liquidators are entitled to deduct their reasonable fees or expenses from the funds so held (and from the funds to be paid in future by Bar Red under [the Second Agreement] and/or [the Third Agreement]).

(c) Leave is reserved to the parties to apply for any further directions that might be necessary.

Argument on appeal

[32] Mr Dale’s argument begins with the fact that Commercial Factors was a secured creditor of ECSL. The GSA to which Commercial Factors and ECSL were parties included the lease of the bar premises which ECSL held from 777 Investments Ltd. Although the Third Agreement had been described as a “variation agreement”, in truth it was not a variation. On its face, the Third Agreement purported to be a variation of the First and Second Agreements; but ECSL had not been a party to the First Agreement and although ECSL was named at the bottom of the Second Agreement, that agreement purported to be a contract between BPSL and Bar Red Ltd.
[33] Mr Dale noted that the Third Agreement recorded that ECSL and Bar Red Ltd wished to terminate the Second Agreement and incorporate some of its terms into the First Agreement. Under specific terms of the Third Agreement, Mr Lane ceased to become a party, and his obligations were assumed solely by BPSL. The lease was referred to although not identified in the list of assets set out in sch 2. Mr Dale submitted in this respect that the list of assets that was included could not have justified a valuation of $200,000, which had been referred to in the Second Agreement as the “lease price”. It followed that the lease must have been included in the assets transferred.
[34] Mr Dale argued that in these circumstances the lease had effectively been included as an asset to be transferred pursuant to the Third Agreement and this at a time when ECSL was in liquidation. He complained that the liquidators had not advised Commercial Factors of their intention to proceed with the Third Agreement, despite correspondence and discussions taking place between Mr Lane and representatives of Commercial Factors at the time. Given Commercial Factors’ “active role”, Mr Dale submitted it would clearly have reacted to the purported sale of the lease had they been aware of it.
[35] He submitted that the liquidators had no power to deal with the lease as a secured asset covered by the GSA. He dismissed as irrelevant evidence recording consideration given by the liquidators to disclaiming the lease, since there had been no purported disclaimer. He further submitted that there had been no power or authority to vary the Second Agreement of 28 February 2017. He argued that the Second Agreement remained on foot and was effectively being performed.
[36] Mr Sullivan submitted for the liquidators that the agreements showed a clear intention to sell the Spitting Feathers Bar and business and the assets belonging to BPSL. The transfer of the lessee’s interest was ancillary to the sale and had either no value or no value greater than the cost of dealing with it. In this respect, he relied on the evidence of Mr Dalton.
[37] Mr Sullivan noted that following the liquidators’ appointment to ECSL and BPSL, the liquidators had been faced with an uncertain and precarious situation. There were two unperformed agreements purporting to sell and/or lease the Spitting Feathers Bar, which involved different parties and uncertain terms. The bar manager, Mr Green and Bar Red Ltd were in possession of the premises and paying weekly instalments of $1,300, but that money was not being received by either BPSL or ECSL. Further, the landlord at that stage was refusing to transfer the premises lease to the purchaser and BPSL’s secured creditors were refusing to release the security over the bar assets. In these circumstances, the purpose of the Third Agreement was to conclude the sale of the Spitting Feathers Bar by adopting and varying the First Agreement and replacing and terminating the Second Agreement. While the premises lease formed part of and was ancillary to the sale of the business, it had no inherent value apart from and in connection with the business of BPSL.
[38] Neither BPSL nor Mr Green took steps to bring the First Agreement to an end. Mr Sullivan submitted that the High Court correctly found that the First Agreement had not been brought to an end or cancelled by the parties. Nor did it lapse. The Third Agreement was an attempt to record an interim arrangement whereby Bar Red Ltd would lease the business until such time as the First Agreement could be completed. While that agreement was not well drafted, and there was a lack of clarity concerning what assets were included in the lease and sale, it was at least clear that it provided for Bar Red Ltd to “lease” the Spitting Feathers Bar assets and pay weekly lease payments of $1,300. It was also clear that the Second Agreement was not solely for the sale of the premises lease, as submitted by the appellant. From 1 March 2017 Bar Red Ltd took possession as lessee of the Spitting Feathers Bar and made weekly payments of $1,300 to Commercial Factors.

Analysis

[39] There is no doubt that ECSL owned the lessee’s interest in the lease of the premises. It is also clear that ECSL’s interest in the lease was subject to the GSA over its assets held by Commercial Factors.
[40] The issue that must now be addressed is whether the arrangements set out in the various agreements have the effect of transferring the lessee’s interest, and if so, to whom? A further question concerns the consequences of resolution of that issue for the rights of Commercial Factors under the GSA.

Transfer of the lessee’s interest

[41] The first point to note is that BPSL’s occupation of the premises was pursuant to an informal arrangement. The landlord, 777 Investments Ltd, was aware of the arrangement but evidently took no steps to formalise the position. ECSL, no doubt reflecting the fact that Mr Lane was the principal of both it and BPSL, was also content for BPSL to occupy the premises informally. We consider it is inherently unlikely, in these circumstances, that in entering into the First Agreement, the parties considered that they were entering into an agreement for the sale and purchase of the lease.
[42] A number of other considerations point to that conclusion. First, the vendor under the First Agreement was BPSL. It had never owned an interest in the lease and Mr Lane well knew that. Second, the box headed “Lease Details” on the first page was effectively left empty. Beside the word “landlord” were the letters “TBA”. A period of 15 working days from the date of the agreement becoming unconditional was expressed for the “date for landlord’s consent”, this being crossreferenced to subcl 8.2. Clause 8.2, one of the standard conditions, provided that if a lease is to be assigned to the purchaser then the agreement is subject to a condition that on or before the date for the landlord’s consent stated on the first page, the landlord would consent in writing to the assignment to the purchaser of the “vendor’s interest as tenant”. As we have seen, there was no such interest on which this clause could take effect. Third, cl 18, amongst the “further terms of sale”, provided that the agreement would be subject to and conditional upon the purchaser being satisfied that the business was a suitable investment at the agreed price after undertaking due and diligent investigation of the business including an investigation of the lease documentation on the premises. It stopped well short of suggesting that the sum paid to BPSL and Mr Lane as vendors would include consideration for the lease.
[43] Turning then to the Second Agreement, the terms of which have earlier been set out, we note first that once again it is a contract between BPSL and Bar Red Ltd. The second line of the agreement says that it is “For the Lease of Spitting Feathers Bar.” A price is then given of $200,000, less a deposit of $32,000 leaving a total “to be Repaid” of $168,000. We see no reason to differ from the Associate Judge’s description of what this document was intended to achieve. The Associate Judge accepted Mr Green’s evidence that this Second Agreement was intended to “fill the gap” until the First Agreement could be completed. But there is nothing on the face of either agreement to suggest that a sum was being paid to acquire the lessee’s interest. Bar Red Ltd was to take over the lease payments, thereby ensuring that the premises lease continued to exist. But we consider the arrangements in the Second Agreement, as with the first, were for the purchase of the BPSL business comprised in the Spitting Feathers Bar.
[44] Although the Second Agreement was between BPSL and Bar Red Ltd, it was signed on behalf of ECSL by Mr Lane. Mr Lane’s signature must be regarded as binding both BPSL and ECSL. This explains why Bar Red Ltd was to make the stipulated weekly payments directly to Commercial Factors, “until advised of any change”. This would have assisted to reduce ECSL’s indebtedness to Commercial Factors. The payment can be seen as consideration for ECSL’s consent to Bar Red Ltd occupying the premises. But that is a different concept from the idea that the price stipulated in either the First or Second Agreements included an amount paid in order to acquire ECSL’s lessee’s interest.
[45] Further, as the Associate Judge found, the broad consistency between the sums payable by Mr Green and Bar Red Ltd under the First and Second Agreements is consistent with the idea that the sum being paid was for the Spitting Feathers Bar business. We have not been persuaded by Mr Dale’s argument based upon the words “Lease Price is $200,000” at the outset of the Second Agreement. We bear in mind this was an agreement between lay people. The terminology “this is a Lease to Own Contract” in the agreement is much more consistent with the idea that the business and its stock in trade was being acquired.
[46] As noted earlier, Bar Red Ltd assumed responsibility for running the bar on 1 March 2017. The liquidation of ECSL and BPSL then commenced on 1 May 2017. After Mr Dalton had considered the position, the Third Agreement was entered into intending to regularise the situation.
[47] We have already given a broad description of the Third Agreement. It expressly superseded and replaced the Second Agreement. We add here that the due diligence condition, which was cl 18 in the First Agreement, was repeated in the Third Agreement, making the agreement conditional on the completion of due diligence in relation to the “lease documentation on the premises”. However, we note that the Third Agreement included in sch 2 an asset list which made no reference to the premises lease. It comprised a list of “tangible assets”, including equipment and chattels, and a list of “intangible assets” referring to the business name of “Spitting Feathers” and the Facebook page of the business. The recitals made it clear that the subject matter of the Third Agreement was the sale and purchase of the Spitting Feathers Bar. As with the First Agreement, that was the “business” to be sold and purchased, with BPSL as the vendor. It had no lease to sell. Although ECSL was now a formal party to the agreement, it signed as the “shareholder” of BPSL. Its presence in the agreement is apparently only for the purpose of agreeing to the termination of the Second Agreement (to which it was a party).
[48] For present purposes, it should also be noted that cl 23.0, part of the further terms of sale, dealt with “leased assets”. Under its terms, Bar Red Ltd assumed the obligations of BPSL under certain leasing agreements which were set out. These were specifically described as the “Indeserve Contract”, the “Smart Pay Cadmus (eftpos)” and the “Telecom Rental Contract (security system)”. There is nothing in the agreement to suggest that the purchase price for the business included any amount payable in respect of the premises lease which, as we have seen, was to be transferred pursuant to a separate deed.
[49] This is consistent with Mr Dalton’s evidence that in his view the premises lease had no value, or if it did, then it was unlikely to be more than the costs of dealing with its assignment. Those costs he estimated at approximately $10,000. Contributing to his view as to value were the location of the premises in a side street of Queen Street, lacking noticeable signage or other indication of its presence. He also considered it significant that the bar’s point of difference was in providing English-sourced beers and crisps. Thus it was the business, rather than its location, which was of value. The fact that there was a “distressed sale situation” meant that if the lease had any value at all it was limited to the $10,000 figure earlier referred to. The only other evidence called on the subject of valuation was from Mr Haydon, who simply proffered a one sentence disagreement with Mr Dalton’s opinion. While neither witness was neutral we consider the Associate Judge was entitled to accept Mr Dalton’s evidence which was at least based on reasoning that the witness explained.
[50] The assignment of ECSL’s lessee’s interest was effected by the deed of assignment of lease. We do not see either the First or Third Agreement as having provided for a payment for that assignment. What changed hands pursuant to those agreements was the Spitting Feathers Bar business. In the circumstances, we consider that the Associate Judge was correct to determine that the weekly payments made by Bar Red Ltd were made to acquire the assets owned by BPSL and were not subject to Commercial Factors’ GSA. Consequently, we agree that the Associate Judge correctly determined that the liquidators in their capacity as liquidators of BPSL were entitled to retain the weekly payments paid by Bar Red Ltd whether under the Second Agreement, or, following its cancellation, under the Third Agreement.
[51] The Associate Judge also ordered that the liquidators were entitled to deduct their reasonable fees or expenses from the funds held. There has been no challenge to that conclusion.

Commercial Factors’ GSA

[52] These conclusions do not detract from Mr Dale’s fundamental proposition that ECSL’s leasehold interest has been assigned, notwithstanding that it was covered by the GSA held by Commercial Factors. As we recorded at the outset, among the declarations sought by the liquidators was one concerning whether Commercial Factors’ GSA over ECSL’s assets included an unregistered interest in the premises, and all or part of the proceeds of sale derived from the transfer of that leasehold interest. The Associate Judge did not expressly deal with this aspect of the application. However, it is implicit in his reasoning that the relevant payments made by Bar Red Ltd were in respect of its acquisition of the bar business from BPSL, and not in respect of the assignment of the lease. In the circumstances we do not think the Associate Judge needed to go further to deal with the liquidators’ application.
[53] There is no doubt that the GSA included ECSL’s lessee’s interest, but the lease was assigned. The liquidators clearly took the view that there was no value in it, and the arrangements represented by the Third Agreement offered the best commercial outcome not only for BPSL but also for ECSL. We do not consider there is any merit in the suggestion that the liquidators, being of that view, had no power to implement the arrangements. Further, it was not established on the evidence in the High Court that the proceeds of sale of the bar included any amount referable to the assignment of the lease. The question of whether implementing the Third Agreement amounted to a breach of the liquidators’ obligations (a different question to the alleged absence of power) to Commercial Factors or other creditors of ECSL, and the consequences that should follow, were not issues that required a formal direction on the terms of the liquidators’ application before the High Court.

Result

[54] The appeal is dismissed.
[55] The appellants must pay to the first and second respondents one set of costs calculated for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Neilsons Lawyers, Auckland for Appellants
Jackson Russell, Auckland for First and Second Respondents

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^[1] A third agreement discussed below reflected the involvement of the respondents’ solicitors Jackson Russell.

^[2] Re Dalton [2018] NZHC 1197 [High Court judgment] at [6].

^[3] At [2].

^[4] At [7].

^[5] At [7].

^[6] At [9].

^[7] At [10].

^[8] The agreement was signed but not dated.

^[9] High Court judgment, above n 2, at [20].

^[10] CFF was the parties’ reference to Commercial Factors.

^[11] High Court judgment, above n 2, at [23].

^[12] At [25].

^[13] At [28].

^[14] At [28].

^[15] At [37].

^[16] At [43].

^[17] At [45].

^[18] It was in the form approved by the Real Estate Institute of New Zealand Inc and by the Auckland District Law Society Inc.

^[19] The reference to “both leases” is explained by the fact that there was a lease of both level 1, and of the basement.

^[20] This reference to the “first page” is clearly a reference to the first page of the First Agreement.

^[21] High Court judgment, above n 2, at [49].

^[22] At [49].

^[23] At [77].

^[24] At [90].

^[25] At [92].

^[26] At [93].