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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2005-404-002693
BETWEEN ANDREW NICHOLAS HOLDGATE
Applicant
AND BLOCCASSA LIMITED & ORS
First
Respondent
AND THE OFFICIAL ASSIGNEE & ORS
Second Respondent
Hearing: 5 May 2008
Appearances: P L Rice for Applicant
R B Hucker for Creditors
G S Caro for Second Respondent
Judgment: 4 July 2008 at 2:30 pm
RESERVED JUDGMENT OF COURTNEY
J
This judgment was delivered by Justice Courtney
on 4 July 2008
at 2:30 pm
pursuant to r 540(4) of the High Court Rules
Registrar
/ Deputy Registrar
Date.............................
Solicitors: Grove Darlow, P O Box
2882, Auckland
Fax: (09) 309-9877 P Rice
Hucker & Associates, P O Box 3843 Shortland Street, Auckland
Fax: (09) 368-1814 R Hucker
Meredith Connell, P O Box 2213, Auckland
Fax: (09) 336-7629
G Caro
HOLDGATE V BLOCCASSA LTD & ORS HC AK CIV-2005-404-002693 4 July 2008
Introduction
[1] Mr Holdgate was adjudicated
bankrupt on 7 December 23005 and the
Official Assignee admitted various proofs of debt in the bankruptcy. Mr Holdgate
has applied
for orders reversing the Official Assignee's decision in relation to three
of those proofs of debt.
Although the application
was brought under s 86 Insolvency Act 19671 it
[2]
should properly have been brought under s 89(5) which provides a right of appeal
specifically against the admission of proofs of debt by the Official Assignee. For
practical purposes that distinction makes no difference
to the approach to be taken in
this case and it was agreed that the application would be treated as having been made
under s 89(5).
[3] The subject debts and the grounds for the appeal are:
a) SB Properties Ltd (in liquidation) Mr Holdgate
asserts that the debt
is owed by a company, JR Construction Limited, rather than by him
personally.
SB Properties Ltd, however, asserts that as a result of an
assignment of the debt by JR Construction Limited to
Mr Holdgate he
is now personally liable for it;
b) Infrastructure Services Mr Holdgate accepts
that he is personally
liable to Infrastructure Services but disputes quantum;
c) Acme Electric Limited
Mr Holdgate only accepts that he is liable
for one of the four invoices and says that another company, NZ Dairy
Foods Limited, is liable for the others.
[4] The appeal in respect of a debt to W Stevenson & Sons Limited
abandoned
prior to the hearing.
1
Although repealed as from 3 December 2007 by s 443(1) Insolvency Act 2006 this application
falls
to be dealt with under the Insolvency Act 1967
Approach on appeal
[5] The Official Assignee's power to admit proofs
of debt is conferred by s 89(1)
which provides:
The Assignee shall have power to admit or reject proofs either wholly or
in
part and he shall examine every proof and the grounds of the debt and, as
soon as is convenient, admit it or reject
it in whole or in part or require
further evidence in support of it.
[6] Section 89(5) provides a right of appeal against
decisions made under
s 89(1):
The Court may, if it thinks that a proof has been improperly admitted, on the
application
of the Assignee or the bankrupt or any creditor, after notice to
the creditor who made the proof, expunge the proof or reduce its
amount.
[7] Counsel disagreed as to the proper approach to be taken to the applications.
Mr Hucker, for the creditors, submitted
that the correct approach is that described in
Callis v Pardington; re Callis2 that an appellate court should only interfere in a
decision by the Official Assignee in the case of fraud, lack of a bona fide exercise of
the Official Assignee's decision or reasonableness.
The Court in Callis adopted the
test applied in Repeaters ex parte Lloyd3 that:
The Court will not interfere unless the
trustee is doing that which is so
utterly unreasonable and absurd that no reasonable man would so act.
This test
has recently been followed in this Court in Re Bicknell4 though there
[8]
did not appear to be any real debate about a possible alternative
approach.
[9] On the other hand, Mr Caro, for the Official Assignee, submitted that the
approach of Penlington J in Murray
v Official Assignee5 that the appellate power
under s 86 required a de novo hearing and not an enquiry as to whether the
administrative
decision of the Official Assignee was correct. Penlington J proceeded
on the basis that, even in the context of a de novo hearing,
the appellate court must
pay due regard to the decision of the Official Assignee given that he is charged by
2
(1996) 7 CLC 261,
211 (CA)
3
(1882) 47 LT 64, followed in Leon v Yorko-matic Limited [1966] 3 AllER 277
4
HC ROT CIV-2004-463-000883 6 December 2006 Andrews J
5
HC HAM B138/92 9 September 1992
statute with the administration of
the bankrupt's estate. This approach was approved
subsequently by the Court of Appeal in Edmonds Judd v Official Assignee6 and
followed
recently by Clifford J in Rao v Official Assignee7.
[10] Mr Caro submits that the latter approach exemplified by Murray, Edmonds
Judd and Rao is the appropriate one, subject, however, to the effect of Austin Nichols
& Co v Stichting Lodestar8 where the Supreme
Court observed at [16] that:
Those exercising general rights of appeal are entitled to judgment in
accordance with
the opinion of the appellate court, even where that opinion
is an assessment of fact and degree and entails a value judgment.
[11] Apart from Austin Nichols & Co v Stichting Lodestar the authorities referred
to were concerned with appeals brought under
s 86 rather than s 89(5). However in
Holdgate v Official Assignee9 Priestley J considered that correct approach under
s 89(5), having
noted the apparent lack of authority on that point. He thought that
assistance was to be gained from Re Kempwood v Constructions
Ltd10 and Re Trepea
Mines Ltd11, which dealt with similar provisions and in which the English High
Court applied the same principles
as those to be applied under s 86, namely that the
matter is to be approached de novo.
[12] I therefore intend to proceed on
the basis that an appeal under s 89(5) is an
appeal de novo and to be approached in the manner described in Austin Nichols &
Co v
Stichting Lodestar. This requires me to make my own assessment of the proofs
of debt and to decide what weight, if any, is to be
given to the Official Assignee's
decision to admit the proofs of debt.
SB Properties Limited
The proof of debt
[13] The proof
of debt related to two contracts entered into between SB Properties
Ltd and JR Construction Limited in November 2004. Both companies
are now in
6
[2000] 2 NZFLR 165 at 169
7
HC WGN CIV-2006-485-000004 17 October 2007
8
[2007] NZSC 103
9
HC AK B 1545/96 22 May 2001
10
[1960] 2 ALL ER 655
11
[1960] 3 ALL ER 304
liquidation. The sole director and shareholder was Ms Rosemary King, who had
purchased the company from a friend of Mr Holdgate's.
Although it was intended
that Mr Holdgate would eventually take control of the company, at the relevant time
he was an employee only.
[14] The contracts between SB Properties Ltd and JR Construction Limited
related to earthworks and construction works at Clemow
Drive, Mount Wellington.
The respective contract sums were $290,744 and $60,256, a total of $351,000. There
were variations to the
contract totalling about $23,000. SB Properties Ltd filed a
proof of debt for $130,195. According to SB Properties Ltd, JR Construction
Limited undertook work on the site between late 2004 and early 2005 and during that
time made claims that were greater than the work
justified. Then, in early 2005,
work ceased. By that time SB Properties Ltd had paid $248,578 of the total contract
price of $351,000.
When JR Construction Limited refused to re-start work
SB Properties Ltd gave formal notice of a breach nominating the required
time for
work to commence, failing which the contract would be terminated. Work did not
recommence so SB Properties Ltd terminated
the contract and engaged a
replacement contractor to complete the work.
[15] The final cost to SB Properties Ltd was greater
than the balance owing to
JR Construction Limited. The amount claimed of $130,195 is the difference
between the new contractor's
charge to complete the works and the balance owing
under the JR Construction Limited contract.
[16] Although the contract was
with JR Construction Limited, SB Properties Ltd
maintains that Mr Holdgate is personally liable for the debt. It says, firstly, that,
although the contracts were apparently signed by Rosemary King, it appeared that
she had resigned as a director around September
2004 and there was, therefore, an
issue as to whose signature was on the contract. Given the fact that Mr Holdgate
was not a director
SB Properties Ltd, asserted that "it may be" that it had, in fact,
contracted with Mr Holdgate personally. There was, however,
no evidence to
support that assertion and the Deputy Official Assignee, Ms Horgan, made no
reference to this point in the affidavit
in which she explained her reasons for
accepting the debt.
[17] Secondly, SB Properties Ltd pointed to the fact that in an affidavit
filed in
support of his application to annul the bankruptcy order Mr Holdgate listed
SB Properties Ltd as one of his personal debtors
to the extent of $69,919, which SB
Properties Ltd viewed as an admission that the contractual obligations in relation to
the project
were owed by Mr Holdgate personally. This was apparently on the basis
of an assignmetn by JR Construction Limited of its rights under
the contract with SB
Properties Ltd.
[18] In explaining her decision to admit the proof of debt, Ms Horgan referred to
both Mr
Holdgate's assertion in his affidavit 5 April 2007 that JR Construction
Limited had assigned its interest in the contract with SB
Properties Ltd to him prior
to its liquidation. Although she also referred to the fact that in November 2006
Mr Holdgate had claimed
that the SB Properties Ltd debt was owed by
JR Construction Limited without mentioning the assignment at all, the assignment
was
clearly influential in her decision to accept the debt.
What was the effect of the assignment?
[19] In his evidence before me
Mr Holdgate explained that he had prepared the
deed of assignment himself. Although it had been executed in April 2005 he had
dated
it 21 December 2004 because it was intended to reflect the contract between
SB Properties Ltd and JR Construction Limited. The purpose
of the assignment was
to ensure that Mr Holdgate would become entitled to any monies that SB Properties
Ltd might pay under the contract
because he had given a personal guarantee in
respect of JR Construction Limited's trading account and SB Properties Ltd was
behind
in its payments to JR Construction Limited, causing Mr Holdgate to become
concerned about his position as guarantor.
[20] I note that Mr Holdgate
was neither a director nor a shareholder nor had any
financial interest in the company. There was no apparent reason for him to have
given a personal guarantee and Mr Hucker invited me to infer that Mr Holdgate did
exercise control or had an interest in the company.
However, that is unnecessary for
the purposes of determining the effect of the assignment.
[21] Mr Holdgate's position was that
the assignment conferred on him no more
than the right to receive monies paid by SB Properties Ltd under the contract, but the
Official
Assignee and the creditors argued that, as a result of s 11(1) Contractual
Remedies Act 1979, the effect of the assignment was to
both confer the benefits of
the contracts on Mr Holdgate and also impose the burden of them. Therefore, they
submitted, he became
liable to meet claims arising from the non-performance of
JR Construction Limited's contractual obligations.
[22] Section 11(1)
provides:
Subject to this section, if a contract or the benefit or burden of a contract is
assigned, the remedies
of damages and cancellation shall, except to the
extent that it is otherwise provided in the assigned contract, be enforceable
by or against the Assignee.
[23] Historically, the position has always been that a contracting party cannot
relieve himself
of his contractual obligations by assigning the burden of the contract;
that can only be done with the consent of all three parties
and involves a release of
the original obligor12. It was argued in this case that s 11(1) alters that position, with
the effect that
with the assignment of a contract the assignee takes the burden as well
as the benefit and may become personally liable for the assignor's
obligations under
it.
The authors of The Law of Contract in New Zealand13 consider that s 11 has
[24]
not created a new
means by which the burden of a contract could be assigned and
therefore goes no further than the common law:
These provisions
[s 11(1)-(3)] appear to be drafted on the assumption that
the burden of the contract is freely assignable. However, in view
of the
wording of subs (1) "if...the burden of a contract is assigned" it is apparent
that the section does not
create any power to assign liabilities but operates
only when an assignment of the burden has been made. Exceptionally this
may be provided for by statute, but cannot be achieved at law or in equity.
So in this respect it appears that the
section is without effect.
[25] I agree with this view. The Official Assignee and the creditors relied on the
decisions in Gibbston
Valley Estate Limited v Owen14 and Field v Fitton15.
12
Tolhurst v Associated Portland Cement Manufacturers (1900) Limited [1902] 2 KB 660 at 668
13
Burrows, Finn & Todd 3rd ed
14
CA175/98 2 June 1999
However, neither of those cases appear to me to be authority
for the proposition that
s 11(1) has fundamentally altered the rule that, in the absence of novation, the
assignor remains liable
to the original contracting party and the assignee does not
become directly liable to the other contracting party for failures by
the assignor.
[26] In Gibbston Valley Estate an assignee asserted that, as a result of the
assignment he acquired a right
that did not previously exist under the contract. The
issue was determined without deciding the effect of s 11. Henry and Blanchard
JJ
specifically avoided reaching a conclusion on whether s 11 had the effect of
conferring on the other contracting party a remedy
against the assignee for the
assignor's breaches:
...even assuming that interpretation is correct and that the assignment
had
come within s 130 [Property Law Act 1952] it seems to us that the
combination of the two sections does not
alter the obligations of the parties
to the contract. Nor does it have the effect of making the assignee a party to
the contract. That cannot occur without novation.
[27] Tipping J rejected the proposition that s 11 could result in
an alteration of
contractual duties:
I am unable to accept [the] argument that by implication s 11 has that effect
because it gives the other contracting party a remedy in damages or
cancellation against the assignee. Those remedies
are afforded as a
consequence of the assignee now having the benefit/burden of the contract
and to that extent
standing in the shoes of the assignor. But the assignee can
expect no more from the other contracting party than what that
party has
already promised to the assignor. An enforceable novation is required to
alter the contractual duties
of the other contracting party...
(emphasis added)
[28] Although Tipping J did refer to the fact that remedies were
now afforded as a
consequence of the assignee now having the burden of the contract, he gave no
indication that he was contemplating
a means of assigning the burden of a contract
beyond those already recognised.
[29] Similarly, I read Bisson J's comment in
Field v Fitton that the assignees of
the equitable interest of the purchasers of land "must accept the burdens of the
15
[1988] 1 NZLR 482
contract along with its benefits"16 as relating to the well established principle that the
assignee takes subject to equities and
cannot enforce the contract unless the
assignor's obligations under it have ben duly performed. The effect of s 11 was not
considered
at all in that case and it is not possible to look to this comment as
indicating what effect it might have.
[30] I am satisfied
that the assignment by JR Construction Limited of its interest
in the contracts with SB Properties Ltd did not have the result of
imposing JR
Construction Limited's obligations under those contracts on Mr Holdgate personally.
It is apparent from this conclusion
that the assignee's decision to admit SB
Properties Ltd's proof of debt was based on the wrong view that, as a matter of law,
Mr
Holdgate became personally liable for JR Construction Limited's debts as a
result of the assignment. Further, there appears to have
been no consideration given
by the Official Assignee to the obvious question of whether the assignment was
voidable by the liquidator
of JR Construction Limited under s 292(1) Companies Act
1993 and what the attitude of that liquidator might be.
[31] I find
that, as a matter of law, Mr Holdgate was not liable for JR Construction
Limited's contractual obligations. In view of this conclusion
it is unnecessary to
consider the other issues that counsel raised.
Infrastructure Services Limited
[32] In June 2005 Mr
Holdgate (trading as JR Construction Limited) engaged
Infrastructure Services Limited (ISL) to supply and lay hot-mix at the New
Zealand
Dairy Foods Limited's Clemow Road site. ISL subsequently supplied and laid the
hot-mix. It rendered two invoices totalling
$108,352.63, of which $60,000 was paid.
This left a balance owing of $48,352.63, which is the amount ISL seeks to prove in
Mr Holdgate's
bankruptcy.
[33] Mr Holdgate accepts that he engaged ISL and does owe it some money.
However, he maintains that the contract
was made on a per square metre rate of
$16.80 plus GST, not charge-up as ISL claims. He also says that the quality of ISL's
16
See comments in The Law of Contract at para 17.3
work was unacceptable. ISL maintains that the work was to be undertaken on
a
charge-up basis, with the preparation work carried out by Mr Holdgate and that the
preparation was very poor.
[34] Mr Holdgate's
account is that he would never engage a contractor on a
charge-up basis and did not do so in this case because under such an arrangement
he
would have no control over the thickness of the asphalt laid and the materials used.
In comparison, once a square metre rate is
agreed it is up to the contractor to lay the
pavement at the required depth.
[35] Mr Brown, of ISL, gave evidence that he originally
gave a firm quote, which
Mr Holdgate rejected as too expensive and it was agreed that the contract would
proceed on a charge-up basis.
Further, ISL's first invoice of $68,681.81 in June
2005 was obviously rendered on a charge-up basis and Mr Holdgate paid $60,000
of
it without comment. ISL proceeded to complete the work and it was only after the
work was completed that Mr Holdgate raised any
concern.
[36] Mr Holdgate's challenge to the quality of ISL's work was based on a report
from Downer EDI Works showing five random
core samples that ranged in depth
from 39.7 millimetres to 56.6 millimetres. Mr Holdgate points out that the average
core height
is therefore 48.1 millimetres whereas it should have been 35 millimetres.
He says that too much hot-mix had been used for the area
covered, with the result
that there is significant variation in the depth of the hot-mix over the site.
Mr Holdgate accepted that
there may be a 10-15 millimetre plus or minus variation
when the hot-mix is laid, but no more. He rejected the recommended levels
of
thickness used by Transit New Zealand and referred to in one of Mr Brown's
affidavits of between 40-65 millimetres. His reason
for rejecting that specification
was that paving for government contracts on motorways involves different
considerations. In any event, he said that 35 millimetres
had been specified for the
contract, thus making the Transit New Zealand specifications irrelevant.
[37] Mr Brown did not accept
that the depth was unacceptable and considered that
a substantial amount of the asphalt used was required by reason of poor site
preparation on Mr Holdgate's part. He said that he had brought the issue of
preparation to the attention of Mr Holdgate's
engineer before starting work but was
told to start anyway because Mr Holdgate was under pressure to complete.
Mr Brown measured
the size of the site at 4,066 square metres, together with 355
square metres for carparking, making a total site size of 4,421 square
metres. He
calculated a site coverage of 4,066 square metres at 35 millimetre coverage would
equate to 355.77 tonnes. At an average
depth of 37.5038 millimetres the tonnage
required would be 386.27 tonnes, which he said was higher than the actual tonnage
used.
[38] Having considered the affidavit evidence and heard both Mr Holdgate and
Mr Brown give evidence I conclude that the agreed
contract was made on a charge-
up basis. The fact that Mr Holdgate paid $60,000 towards the first invoice without
any comment about
the basis on which it was rendered is only explicable if the
contract was as described by Mr Brown. Issues as to the quality of Mr
Holdgate's
preparation and ISL's workmanship cannot be resolved on the evidence available.
But since the work was obviously done
and no complaint ever raised until after the
date of bankruptcy I consider that the invoice was properly admitted.
Acme Electric
Company Limited
[39] In August-September 2005 Acme undertook electrical work at the same
Mount Wellington site. It rendered four
invoices dated 28 August 2005, 30 August
2005, 30 August 2005 and 15 September 2005 totalling $22,619.93. Mr Holdgate
does not dispute
engaging Acme and accepts he is only liable to pay invoice ST1151
rendered 28 August 2005 for $6,265.53. Following rendering of the
invoices there
was no indication that Mr Holdgate ever disputed the invoices on the grounds he is
now raising. In November 2005,
Acme instructed its solicitors to recover the debts
and Mr Wright, the director of Acme, annexed to his affidavit a fax to the company's
solicitors referring to the invoices and recording the fact that Mr Holdgate had not
disputed them and had told Mr Wright they would
be paid out of retentions. The
attempt by Acme's solicitors to recover the debts was unsuccessful and Mr Holdgate
was adjudged bankrupt
soon afterwards.
[40] Over the following year Mr Wright continued to have contact with
Mr Holdgate about payment of the invoices,
with Mr Holdgate promising that he
would honour the payments once certain difficulties with his bankruptcy had been
resolved. Mr
Wright viewed this as Mr Holdgate encouraging him not to file a proof
of debt at that stage. This is the reason, Mr Wright says,
that Acme did not file a
proof of debt until May 2007.
[41] Mr Holdgate says that invoice ST1083 rendered 30 August 2005 relates
to
the replacement of a card-reader that was smashed by one of the client's trucks
which he is not liable for. Although Mr Holdgate
claimed that this had been
damaged by one of his client's trucks, in evidence Mr Wright gave a detailed
explanation as to how the
card-reader had got damaged and the fact that it was one of
Mr Holdgate's own employees who had accidentally damaged it. According
to
Mr Wright, he had rung Mr Holdgate immediately and in his words Mr Holdgate
"was not too impressed that ... it had happened and
these guys cost me so much
money". Mr Holdgate denied that his worker was responsible. I prefer the account
given by Mr Wright which
had a ring of truth about it and, of course, I take into
account the fact that the invoice was not disputed until much later.
[42]
Acme says that it was engaged to motorise the automatic gate system and
install an access system. Invoice ST1082 rendered 30 August 2005 for $5,323.50
and invoice ST1102
rendered 15 September 2005 relate to this work. Mr Holdgate
denied that Acme was engaged to do this work. However, looking at the
detail
provided by Mr Wright and the fact that the invoices were not disputed when they
were rendered or when there was an attempt
to recover them. I accept Mr Wright's
evidence that Acme was engaged to do the electrical work on the gates and access
system.
Conclusion
[43] I find that:
a) The SB Properties Ltd invoices should not have been admitted and the
appeal succeeds to that extent;
b) The ISL and Acme invoices were properly admitted and the appeal
fails in relation
to those debts.
____________________
P Courtney J
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