Shephard v Ellison Holdings Limited [2012] NZHC 2798 (8 November 2012)

Last Updated: 14 November 2012

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2011-454-000634 [2012] NZHC 2798

UNDER the Companies Act 1993

IN THE MATTER OF the liquidation of Fineil Enterprises

Limited (in liquidation)

BETWEEN IAIN BRUCE SHEPHARD Applicant

AND ELLISON HOLDINGS LIMITED First Respondent

AND FUEL EXPRESS LIMITED Second Respondent

AND LARRY STEWART ELLISON AND JANE ELLISON

Third Respondents

Hearing: 6 and 26 September 2012

Appearances: E M S Cox for Applicant

P J Reardon for Respondents

Judgment: 8 November 2012

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] Mr Shephard is the liquidator of Fineil Enterprises Limited. Before liquidation Fineil operated a petrol station. Mr Shephard makes three claims:

a) In the month before liquidation Fineil paid to Ellison Holdings Limited

_{(EHL) $27,983.48 for fuel. Mr Shephard says this is a preferential payment.}

IAIN BRUCE SHEPHARD V ELLISON HOLDINGS LIMITED HC PMN CIV-2011-454-000634 [8 November

2012]

b) In the month before liquidation it paid $80,080.02 to Fuel Express Limited, without receiving anything in return. Mr Shephard says this is a preferential payment.

c) After the liquidation Larry and Jane Ellison, who owned the shares in EHL which was the landlord of the premises, retained fuel in the tanks, cash and other goods from Fineil’s retail shop valued at $31,885.50. He says Mr and Mrs Ellison should account to him for this sum.

[2] The following facts are not in dispute and form the framework for the issues falling to be decided:

a) Fuel was sourced from Chevron/BP. b) Chevron:

sold fuel to EHL on request from EHL

was paid for that fuel by EHL in advance of delivery delivered fuel to tanks at the petrol station

c) Larry and Jane Ellison:

own the petrol station and leased it to Fineil own EHL

own Fuel Express Limited

re-entered the leased premises on 28 October 2010 d) Fineil Enterprises Limited:

leased the petrol station premises from Larry and Jane Ellison

sold to retail customers the fuel supplied to EHL by Chevron/BP

paid EHL for fuel sold on any given day a few days after sale

ceased paying rent to Larry and Jane Ellison in 2009 ceased trading on 28 October 2010

went into liquidation on 23 November 2010

paid EHL $27,983.48 in October 2010

_{paid Fuel Express Limited $80,080.02 in October 2010}

e) At the date that Mr and Mrs Ellison re-entered the leased premises, fuel remained in the storage tanks, and plant, stock and cash belonging to Fineil were also on the premises. None of these assets were received by Mr Shephard.

f) Mr Shephard issued a notice to the defendants on 9 September 2011 claiming that the payments to EHL and Fuel Express Limited referred to in d), and retention of the fuel, plant and stock referred to in e), were voidable transactions under s 292 Companies Act 1993.

[3] The parties are referred to thus: The plaintiff: Mr Shephard

The first respondent: EHL The second respondent: FEX

The third respondents: Mr and Mrs Ellison

Fineil Enterprises Limited: Fineil

Procedure

[4] This is an originating application brought under Part 19 of the High Court Rules. Under r 19.2 applications under certain sections of the Companies Act must be made by this procedure. Applications under any other sections including s 294 may be brought with leave – r 19.5. Leave was not opposed. I am satisfied that this

is the correct procedure for resolution of the claims brought by Mr Shephard. Leave is granted accordingly.

Proceeds of sale of fuel

[5] There is a written contract between EHL and Fineil concerning the supply of fuel to the petrol station. It is signed by both but the copy presently available to the Court is undated. According to Mr Ellison it was executed after Fineil defaulted in payment of rent which was about October 2010.

[6] The document is headed “Petroleum Product Supply and Operating Agreement”. EHL is described as the “Seller” and Fineil is described as the “Buyer”. It contains provisions under a number of sub-headings, some listed under each sub-heading in columns titled “Seller” and “Buyer” respectively. Those of relevance are:

_{Seller Buyer}

1. Seller will supply or arrange for the supply of the Buyer’s total requirement of Motor Spirits for the business at the Site.

1. Buyer will purchase from Seller, Buyer’s total requirement of Motor Spirits for the business at the Site, except as agreed otherwise by Seller and Buyer in this agreement or elsewhere.

_DELIVERY

_{Seller Buyer}

_{Buyer Requested Delivery}

1. Upon receiving an email request for fuel delivery, the Seller will verify that there are sufficient funds in the Seller’s bank account and inform the Buyer by return email to contact Chevron or CRT of their requirement for product.

1. Buyer will send by email the daily dips and notification of fuel delivery requirements. This information to be sent each working day by 12 noon. The Seller will provide the template for such information in a spreadsheet format.

2. The delivery of fuel to the Buyer’s site will be at the sole discretion of Chevron, or their nominated agent. The Seller takes no responsibility of Chevron or their agent’s performance.

_{PRICE AND PAYMENT TERMS}

_{Seller Buyer}

1. Subject to any other agreement between Seller and Buyer, for each delivery of Motor Spirits Seller will charge the Buyer.

2. BP’s or Chevron Oil’s National Recommended Prices (if it can be obtained from a reliable source) for such Motor Spirits minus two and a half cents, being the Seller’s Wholesale price to the Buyer.

3. All applicable taxes, including GST, being taxes imposed by a government authority, which relate to the sale of the Motor Spirits supplied and not to profit or income and which are taxes of a kind ordinarily on-charged to a reseller by a wholesaler of Motor Spirits.

...

8. The Seller will keep a record of all costs associated with purchasing fuel for the Buyer’s site as well as all income from the Buyer’s site, and will provide the Buyer and the Seller with a monthly Profit and Loss statement of selling fuel to the Buyer. This profit will be called Ellison Holding’s Operational Profit (EHOP).

1. For each day’s fuel sold, on the next working day payment will be made by the Buyer into the Seller’s bank account by Direct Credit or by depositing the money in the Seller’s bank account.

2. Calculation of the amount payable will be the Buyer’s responsibility. Calculation of
the amount payable will be based on the
through put of pumps (totes), and the
National Recommended Price (NRP).

3. The Seller will be required to forward via email a copy of the Calculation sheet/invoice on the next working day at 12 noon
following that day’s sales. The Seller will provide the template for such information in a spreadsheet format.

_{GENERAL TERMS AND CONDITIONS}

_{1. Delivery, Risk and Title}

1.1 Delivery of bulk stored Motor Spirits to Buyer is made when all of the Motor

Spirits being delivered pass into the permanent hose connection at the filling point

of Buyer’s bulk storage area for those Motor Spirits and, in the case of all products, delivery to Buyer is made on completion of unloading and delivery of those other products to the Site. Buyer accepts the risk of loss of or damage to products once they are delivered. If there are losses of product the seller will invoice the buyer for those losses, and payment will be due immediately.

1.2 The Seller will provide the Buyer at the time of delivery or as soon thereafter as practicable, a delivery advice docket specifying the type and quantity of Motor Spirits delivered.

1.3 Property in any product supplied shall remain with Seller until full payment for such product has been made. Until property passes, the product shall be kept free from any charge, lien or other encumbrance. Where particular product for which full payment has not been made is not kept in a manner as to enable it to be clearly identified as the property of Seller then Seller is deemed to be the proprietor of the quantity of product equivalent to the quantity of product for which full payment has not been made.

...

_{11. Entire Agreement}

11.1 This Agreement is the entire agreement between the Seller and the Buyer in respect of the matters set out in this Agreement and supersedes any previous agreement, correspondence or representations between them in respect of the matters the subject of this Agreement. This Agreement does not negate or supersede any other agreement the Seller (or any related party) has, or may have in the future, with the Buyer.

...

_{13. No Partnership}

13.1 Nothing in this Agreement creates or evidences any partnership, joint venture, agency or employee relationship between the parties.

_{14. No Agency}

14.1 The Buyer acknowledges that the Buyer is an independent business entity and not an agent, partner or employee of Seller except where it is expressly provided otherwise.

[7] Between 4 October 2010 and 28 October 2010 Fineil paid $27,983.48 to EHL. It is not disputed that these were payments for fuel which had been delivered to the petrol station and sold to customers. The payments were not made with the precision agreed to, for example three were made on 6 October, none for the next five days and then four on 11 October. A similar sporadic pattern prevailed through the month. EHL was entitled to be paid daily but it does not seem that any exception was taken.

Are the payments by Fineil to FEX to be treated as payments to EHL?

[8] Between 1 October and 28 October 2010 Fineil paid $80,080.02 to FEX. Unlike the payments made to EHL, sums were paid on every day during the period. This followed a direction from Mr Anderson, the managing director of Fineil, to Westpac Card Operations (which evidently operated the EFTPOS system at the petrol station) to deposit receipts from payments to Fineil by EFTPOS into “a new bank account”. The balance of the letter read:

The name on the new account is “Fuel Express Limited”, the account

number is ...

Fineil Enterprises Limited Merchant Number ...* This is not as a result of change of ownership.

This is for credits only, debits are to stay under current arrangements. Thanking you in advance for your assistance in this matter.

* The name of the bank and the account numbers are in the letter but have been removed from this judgment for security reasons.

[9] The effect of this direction was to divert monies received from retail sales by Fineil to FEX which, as noted, is owned by Mr and Mrs Ellison, but not to divert debits. It seems the monies are accepted by the parties as being for fuel though other goods may also have been included in the payments.

[10] The sums involved in these two sets of transactions are the sums Mr Shephard seeks to recover. Mr Anderson is not a director or shareholder, or as far as I am aware a staff member of FEX, yet he knew FEX’s Westpac bank account number. Nonetheless, in a letter signed by Mr Ellison but written on behalf of himself and Mrs Ellison, FEX and EHL to the solicitors for Mr Shephard, Mr Ellison said:

Thank you for bringing it to our attention that Grant Anderson on behalf of Fineil Enterprises organized to pay money into Fuel Express Limited (FEX) bank account. Until you pointed this out, we were not aware that the EFT- POS money to pay Ellison Holdings for the fuel was being paid into Fuel Express Limited. The office person who was overseeing these transactions had realized a mistake had been made and believed it was easier to transfer

the money from the FEX account to the Ellison Holdings account on a regular basis, than to organize Fineil Enterprises and EFT-POS New Zealand to change this over to Ellison Holdings Limited.

In effect all EFT-POS money went from the customer via EFT-POS to FEX and then to Ellison Holdings Limited, which was the right identity as it owned the product that was being sold on its behalf. There were never any invoices or agreements that money was to be paid to FEX; it was a genuine mistake that money was paid by Fineil Enterprises to this identity. Any monies the FEX did receive were transferred to Ellison Holdings Limited on a regular basis. Therefore if you believe you have a claim against Ellison Holdings Limited, it should be increased to cover the money that was banked initially into the FEX account.

[11] There was no evidence from Mr Anderson on who, if anyone, instructed him to set up this arrangement for EFTPOS receipts, nor was “the office person” a witness, or even identified. Mr Ellison does not identify who made “the mistake”, as he describes Mr Anderson’s redirection of monies to his company FEX. The arrangement started on 6 July 2010, nearly five months before the liquidation and nearly four months before Fineil ceased to trade, and in October alone involved side- tracking around three-quarters of the payments made by Fineil for fuel to a company which was not a party to the product supply agreement and played no part, on the evidence before me, in the commercial arrangements for the supply of fuel to the petrol station. It is perhaps surprising that Mr Ellison was unaware of this arrangement until notified of it by the liquidator, given that in his first affidavit in opposition to this application he says that he monitored closely the payments made by Fineil; this can only be referring to monitoring the receipt, not the making of those payments, as Mr Ellison did not (at least on the evidence) have access to Fineil’s records. I should have thought that this level of diversion of payments would have become apparent promptly.

[12] Mr Anderson was interviewed by one of Mr Shephard’s staff who made a

note:

Larry – owned the fuel, came to arrangement. Funded $40K on account he controlled. F placed order with Chevron, Larry paid it and F paid him out of sales every day. EFTPOS directed to Larry’s account.

[13] This brief note is described by Mr Ellison as accurate. In my view, however, neither that description nor the note assists. Whoever owned the fuel, to which I return below, it was not Mr Ellison, nor did he pay for it, nor did Fineil pay him out

of sales, or every day. EFTPOS was not directed to Mr Ellison’s account. The note fails to recognise any difference between the various entities and is unhelpful. A description of it as accurate is plainly wrong. Beyond that, I refrain from further comment on these aspects of the transaction as Mr Ellison was not cross-examined. It may have been helpful if he had been.

[14] Mr Ellis says the funds paid to FEX were “payable” by FEX to EHL. On that basis Mr Reardon submitted that all the payments should be treated for the purposes of this application as payments by Fineil to EHL, with FEX in the role of agent for EHL. By that means he sought to bring both the payments made by Fineil directly to EHL, and the payments made by Fineil to FEX, into the running account equation which he submitted, relying on s 292(4B) of the Companies Act 1993, should apply to the period of the payments in question. On the other hand, if the payments to FEX are not characterised as indirect payments to EHL, they would not be subject to any running account calculation. This is the position advanced for Mr Shephard.

[15] In my opinion it is not correct to characterise the payments to FEX as payments to EHL. First, the payments to FEX were not made accidentally – they were made deliberately to a bank account of FEX, the number of which could only have been supplied to Fineil by someone within the business group operated by Mr and Mrs Ellison. Secondly, this arrangement stepped outside the agreed supply and payment regime between EHL and Fineil. I will return to the nature of this arrangement shortly, as EHL seeks to categorise it as an agency relationship not a vendor/purchaser relationship, but either way FEX was not involved. Thirdly, the evidence does not establish that Mr Anderson set up this arrangement off his own bat. Vague though the note of his response ([12] above) is, notably it does not say that the idea came from him. Nor is any reason apparent why it might have been. His obligations were clear and simple, and until July 2010 he complied with them. Although he fell behind with rent he did not fall behind in payments for fuel apart from a day or two here and there, accepted as being of no moment. Fourthly, there is no evidence that the payments to FEX then went to EHL. A record of EHL’s bank account has no reference on it to payments from FEX. Fifthly, the payments to FEX were from retail sales paid for by EFTPOS. Both counsel treated them as being for fuel, but the business sold other products witnessed by there being unsold stock on

the premises for which Mr Shephard claims. There is no apparent distinction between one product and another in the information available about the diverted EFTPOS payments, so they could include the proceeds of sale of goods apart from fuel. There is no evidence that EHL provided other goods to Fineil, so diverting the proceeds of their sale to FEX (if that occurred) would not be a justified payment to EHL.

[16] I am satisfied, therefore, that the payments to FEX should not be treated as payments to EHL.

Was the EHL/Fineil relationship one of principal and agent?

[17] Notwithstanding the descriptions of EHL and Fineil in the product supply agreement as seller and buyer, Mr Ellison says that this document was part only of a wider agreement between the companies, the balance of which was oral. He says:

I consider that the terminology while imperfect does not change the substance of the agreement which was that FEL was acting as a commission agent.

[18] He says that after Fineil defaulted in rental payments he and his wife decided that they were better off to keep Fineil on the premises selling petrol but as Mr Anderson was cash-strapped, and he and his wife were at significant risk of further loss beyond unpaid rent, the arrangement by which they would carry on dealing with Fineil had to be very carefully thought through. Therefore, they entered what he described as an agency agreement between Fineil and EHL, partly oral and partly documented, the product supply agreement being the documented part of the agreement. The thrust of the alleged agency agreement was that EHL owned the fuel right up to the point where it was purchased by a retail customer and Fineil acted merely as an agent in the sale process, in return for a commission on a per litre basis.

[19] Elaborating on this proposition in submissions Mr Reardon refers first to the note of the interview with Mr Anderson, which I have already recorded and commented on. It does not assist the argument for EHL. Even if one substitutes EHL for the name “Larry”, in the note, it accurately records the arrangement recorded in the product supply agreement between EHL and FEL, save for the last

sentence which describes the diversion to FEX. Therefore it does not support the proposition that there was an agency agreement instead of a purchase and sale agreement; it is equally consistent with either.

[20] Next Mr Reardon refers to Mr Ellison’s evidence:

It is also plain from the documented part of the agency agreement that FEL [the Company] had to account for sales every day and pay that amount less the commission of $0.03/litre.

Mr Reardon notes that the written agreement actually refers to commission of 2.5 cents per litre and said that the difference accounts for GST. With respect, it does not: GST on top of 2.5 cents per litre equates to 2.875 cents per litre. I will assume Mr Ellison’s reference to 3 cents a litre to be a mistake. But more to the point, once more this is consistent with a sale and purchase agreement. Mr Ellison elects to call the sum to be retained by Fineil as commission, but in the written agreement he signed that word does not appear, and the two and a half cent reduction is integral to the establishment of the sum “the seller” (EHL) will charge “the buyer” (Fineil) – see the clauses under the heading “Price and Payment Terms”. I reject Mr Ellison’s quoted evidence.

[21] Mr Reardon then refers to certain terms of the product supply agreement. He notes the responsibility on Fineil to pay only after selling fuel to a retail customer, and to make the calculation of the amount to pay. This, he says, is consistent with an agent’s duty to a principal to account. Conceptually, it is; the amount to be paid by Fineil was Chevron’s national recommended price less two and a half cents per litre. But that formula can equally be seen as establishing a purchase price (as it expressly does) and the contract provides for buyer generated invoices, no doubt because the buyer knows how much fuel it has sold.

[22] Turning to clause 14, above, Mr Reardon first says this does not mean the buyer is not an agent for some purposes, because it provides that the buyer is not an agent unless “provided otherwise”. He says a true construction of the arrangement between EHL and Fineil discloses that it was an agent for the limited purpose of receiving fuel and accounting to “its principal” for sales. It did not have a general right of agency, and could not because of this clause. Secondly, Mr Reardon submits

that the agreement falls into two parts, a typed section dealing with specific terms, and a printed form dealing with general terms. He submits that where there is an inconsistency between these, the former will prevail.[1] By this submission Mr Reardon seeks to diminish the impact of the no agency clause on his interpretation of the earlier drafted portion of the agreement. I accept the premise upon which the submission is based but find it does not assist as, in my opinion, the specific terms of the agreement quite clearly set out an agreement for sale and purchase.

[23] Mr Reardon submits that however the parties might describe their relationship, the Court is bound to construe the contract according to its substance and effect.[2] Mr Reardon submits that a contract “expressing the opinion that there is no agency” is not binding on the Court which must determine the legal effect of the contract. Again, I accept the principle, but I do not see clause 14 as expressing an opinion. I see it as a clear contractual term.

[24] Mr Reardon then describes the nature of the agency – authority by EHL to Fineil to hold fuel on behalf of EHL until it is sold by Fineil and paid for after that sale. He interprets general term 1.3 above as an authority to Fineil to hold the fuel until sold, sell it on EHL’s behalf, and then account back to EHL (which he describes as the principal) with payment. He says this is compelling evidence that an authority for the agent existed by express agreement.

[25] I accept that this clause can be regarded as consistent with an agency arrangement: it specifically provides that property in fuel remains with EHL until it has been fully paid for. But it does so in the expressly stated context of seller and buyer, and is not in any way inconsistent with a seller/buyer relationship.

[26] One difficulty with the clause is that payment is not required until the fuel has been sold at retail, so the property in the fuel must have passed to the customer by

_{the time payment is due, but this difficulty exists whether the agreement is construed}

as a vendor/purchaser contract or as an agency contract. For the purposes of the present discussion, I do not find any basis to call it in aid of an agency construction.

[27] Mr Reardon then submits that even if the written agreement did not constitute a contract of agency the conduct of the parties was consistent with an agency relationship, by consent. He says EHL provided fuel to Fineil on the basis that Fineil would hold it for EHL until it sold it, and pay EHL. That does not advance an argument for an agency agreement existing outside the written agreement, because that conduct is required by the written agreement.

[28] As I have indicated, Mr Ellison also promotes the notion that there was an agency agreement between EHL and Fineil in his first affidavit. Apart from insisting that there was an agency agreement, his evidence adds nothing to the issue I have to determine.

[29] I am satisfied that the product supply agreement is an agreement for sale of fuel by EHL to Fineil by which Fineil was required to pay for fuel that it resold, the day after that resale occurred. In my opinion the document is clear in its terms. They are set out above, and I need not repeat them, nor emphasise any of them in particular apart from the plain descriptions of the parties as buyer and seller, the reference to the national recommended prices less two and a half cents being the “wholesale price to the buyer”, and express recognition of the buyer as an independent business entity and not an agent of the seller. Nowhere in the document, apart from in this clause, does the word “agent” appear. Construction of the document as an agency agreement is a fiction without foundation. I cannot put it

more clearly than did Lord Templeton in Street v Mountford:[3]

Both parties enjoyed freedom to contract or not to contract and both parties exercised that freedom by contracting on the terms set forth in the written agreement and on no other terms. But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.

[30] It follows that the payments made by Fineil to EHL between 4 and 28

October 2010 were payments for fuel by Fineil as buyer.

Were the payments of $27,983.48 insolvent transactions?

[31] Mr Shephard says that the payments amounting to $27,983.48 from Fineil to

EHL were insolvent transactions. Section 292(1), (2), (3) and (4A) provide:

292 Insolvent transaction voidable

(1) A transaction by a company is voidable by the liquidator if it –

(a) is an insolvent transaction; and

(b) is entered into within the specified period.

(2) An insolvent transaction is a transaction by a company that –

(a) is entered into at a time when the company is unable to pay its due debts; and

(b) enables another person to receive more towards satisfaction of a debt owed by the company than the person would receive, or would be likely to receive, in the company’s liquidation.

(3) In this section, transaction means any of the following steps by the company:

_{(a) conveying or transferring the company’s property:}

_...

(b) creating a charge over the company’s property: (c) incurring an obligation:
(d) undergoing an execution process:

(e) paying money (including paying money in accordance with a judgment or an order of a court):

(f) anything done or omitted to be done for the purpose of entering into the transaction or giving effect to it.

(4A) A transaction that is entered into within the restricted period is presumed, unless the contrary is proved, to be entered into at a time when the company is unable to pay its due debts.

[32] The payments were within the restricted period so are presumed to have been made when Fineil was unable to pay its due debts. The payments enabled EHL to

receive more towards satisfaction of debts Fineil owed to EHL than EHL would have received or have been likely to receive in the company’s liquidation.

[33] I am satisfied that all the payments made to EHL in the period were for fuel. Mr Shephard expresses some uncertainty as to whether this may be the case or whether the payments might have been regarded as being for rent due to Mr and Mrs Ellison under the lease, but Mr Ellison’s evidence is that rent was not paid, and the payments were to EHL not Mr and Mrs Ellison, the landlords. I am satisfied on the evidence that the payments were for fuel.

[34] I am therefore satisfied that the payments of $27,983.48 to EHL were insolvent transactions.

Were the payments of $80,080.02 transactions at undervalue?

[35] Section 297 of the Companies Act 1993 deals with transactions at undervalue. Mr Shephard says that no value was given to Fineil by FEX but it received $80,080.02 within a period of one month of the liquidation, a period when the company was unable to pay its debts. Unlike s 292, s 297 does not contain a presumption that a transaction at undervalue made within a period of six months prior to liquidation is made at a time when the company is unable to pay its debts. Therefore, to establish that Fineil was unable to pay its debts, the liquidator relies on the evidence of Mr Ellison that the company was not paying its rent for the premises for a period of around a year prior to liquidation. There is no contrary evidence. I accept that is sufficient evidence to establish this position. Accordingly the payments to FEX were transactions which may be recovered by the liquidator under s 297.

Running account dispute

[36] Section 292(4B) provides:

(4B) Where

(a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account)

between a company and a creditor of the company (including a relationship to which other persons are parties); and

(b) in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;

then –

(c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and

(d) the transaction referred to in paragraph (a) may only be taken to be an insolvent transaction voidable by the liquidator if the effect of applying subsection (1) in accordance with paragraph (c) is that the single transaction referred to in paragraph (c) is taken to be an insolvent transaction voidable by the liquidator.

[37] Mr Shephard accepts that a running account calculation under this subsection could be made in respect of the payments from Fineil to EHL between 4 and 28

October, but opposes this course as there is no reference to this provision in the notice of opposition to the application. I am prepared to allow the calculation to apply notwithstanding this omission. Both counsel fully argued the point and there was no suggestion of any specific disadvantage to Mr Shephard in the presentation of his case by the point not having been pleaded. In this circumstance it would be to take a technical stand against the interests of justice to exclude the application of this calculation.

[38] Mr Cox says that if the Court accepts that the sum of $80,080.02 paid to FEX is in effect payment to EHL, then a running account defence analysis would apply to that sum as well and it would show that EHL has been preferred by $32,829.41.

[39] This issue is analysed in [8] to [16]. As the payments are not to be treated as payments to EHL, they cannot properly be taken into account in assessing whether Fineil’s net indebtedness to EHL was “increased or reduced from time to time as the result of a series of transactions forming part of the relationship” between Fineil and EHL.

[40] Accordingly, s 292(4B) does not apply to the payments made to FEX.

[41] So far as the payments made to EHL are concerned, both counsel filed memoranda after the close of argument, at my request, on how this sum should be calculated. Mr Cox, for Mr Shephard, refers to a calculation which had been undertaken in earlier submissions which included payments to FEX. Under that calculation he submitted that the reduction in EHL’s debt to Fineil was 31 percent, and he says, therefore, that the same percentage should be applied to the payments made to EHL during the period in question (4 – 28 October 2010). This results in a sum to be repaid of $8,674.88. He seeks recovery of this sum under s 295(a) and (c).

[42] Mr Reardon submits that there is no decrease in the net value of the assets of Fineil over the period, as in that time Fineil received fuel to the value of $96,950.60, and paid only $27,983.46 for it. Mr Reardon therefore submits that by applying a running account assessment, no sum can be recovered by the liquidator.

[43] In his principal evidence Mr Shephard produced a list of payments received by Fineil for fuel in the period in question and a graph which he said shows the deliveries of fuel received by Fineil mapped against the payments made to EHL, and to FEX. I find the graph totally unintelligible despite counsel’s efforts to assist me in making sense of it. I am not prepared to use this information, which was the starting-point for Mr Cox’s submission that $8,674.88 is payable. Mr Shephard had every opportunity to explain the calculation he put forward, in clear terms, in his affidavit. The obscurity of his presentation is such that I reject the submission of counsel based on it.

[44] The principle to be applied is summarised in Airservices Australia v Ferrier,[4] followed by the High Court in Blanchett v McEntee Hire Holdings Ltd.[5] In the former judgment the Court said:

[8] ... if the purpose of the payment is to induce the creditor to provide further goods or services as well as to discharge an existing indebtedness, the payment will not be a preference unless the payment exceeds the value of the goods or services acquired. In such a case a court ... looks to the ultimate effect of the transaction ...

[9] ... To have the effect of giving the creditor a preference, priority or advantage over other creditors, the payment must ultimately result in a decrease in the net value of the assets that are available to meet the competing demands of the other creditors.

[45] I accept Mr Reardon’s submission that the assets of Fineil increased during the course of the period in question, as fuel supplied by EHL under the purchase agreement well exceeded the amount that Fineil paid for it in that time. Accordingly, applying s 292(4B), no sum is recoverable from EHL in respect of the payments made by Fineil to EHL in the period.

The unsold fuel

[46] The notice issued by Mr Shephard in relation to the fuel which remained in tanks on the site at the date of liquidation was described in the notice as a transaction in favour of Mr and Mrs Ellison, and as “retention of fuel in tanks on site”.

[47] As noted, Mr and Mrs Ellison owned the premises. They did not, however, buy the fuel from BP/Chevron. That purchase was by EHL. To determine whether or not the value of the fuel can be claimed from Mr and Mrs Ellison personally, it is necessary to determine whether they, personally (as distinct from in their capacity as directors or agents of EHL) asserted and took ownership of the fuel. Initially, it seems, they claimed to have distrained for unpaid rent.

[48] The right to distrain for rent was abolished by s 265(1) of the Property Law Act 2007. Secondly, any distraint could, in any event, only have been against the assets of Fineil, not against the assets of EHL. Whilst, as I have found, the agreement between EHL and Fineil was an agreement for sale and purchase, and Fineil was not selling EHL’s fuel as EHL’s agent, that does not mean that the property in the fuel had passed to Fineil on delivery into the tanks. Clause 1.3 of the general provisions of the agreement for sale and purchase provides that the property in the fuel remains with EHL until payment is made.

[49] I heard inordinately complicated argument about the application of the Personal Property Securities Act 1999 to the liquidator’s claim for the unsold fuel and the respective rights of EHL, Fineil and a third party which had security over the

fuel. In the end, however, I am not satisfied that this has any relevance, because the claim against Mr and Mrs Ellison personally can only succeed if they, personally, took the fuel. The evidence does not establish that this occurred.

[50] There is little evidence about what occurred in relation to the fuel after the liquidation. Mr Ellison says that he invited Mr Shephard to remove it if he considered he was entitled to it, but that it was in his (Mr Ellison’s) opinion, the property of EHL. The fuel was not removed by Mr Shephard. Mr Shephard says that he had a telephone conversation with Mr Ellison soon after the liquidation in which Mr Ellison informed him that he could take anything, as the landlord. A file note made by Mr Shephard generally supports that notion, but although it mentions other items, does not mention the fuel.

[51] Mr Shephard says that the petrol bowsers on the premises have been removed, suggesting to him that “the fuel may have been removed as well” and he indicates that “the respondents have declined to confirm whether or not the fuel remains in the tanks or what has become of it”.

[52] Mr Gair says that Mr Ellison informed him that he was adamant that EHL owns the underground fuel, and consistently denied that the fuel could be collected by the liquidators. He found Mr Ellison to be evasive in relation to whether the fuel was still on the premises, and that he and Mr Shephard had little confidence that the fuel was still available.

[53] Two facts are established. First, the liquidators did not receive the fuel. Secondly, given the removal of the bowsers, I find it established that the fuel has been removed from the premises. However, it is not established that this was done by Mr and Mrs Ellison against whom the notice was issued. There is no evidence of who removed the fuel, or who received the proceeds of sale of it. It could have been Mr and Mrs Ellison personally, but equally it could have been EHL. Each asserted a right to it. Accordingly, the validity of the notice against Mr and Mrs Ellison is not established.

Stock, fixed assets and cash

[54] Mr Shephard’s notice in respect of these items is also directed at Mr and Mrs Ellison personally. At the date of commencement of the liquidation they had retaken possession of the premises. Inside the premises were items of stock and plant. Mr Ellison has estimated the value of the stock at $9,493.30, and the plant at $5,000. All these items were locked in the premises. All were the property of Fineil. In addition there was a sum of $2,000 in cash, also the property of Fineil. Mr Shephard accepts these valuations, though at one point contended that a larger sum of cash was held. The notice seeking to set aside these transactions, however, refers to $2,000.

[55] These items all remained on the property or were removed by Mr and Mrs Ellison. No part of them was accounted for to Mr Shephard. Mr Ellison says that initially he took the stock offsite to secure it, but after Mr Shephard repeatedly said that it belonged to Fineil, he returned it to the site. According to him, as at

3 September 2012 some of the stock was still on the premises but the cigarettes had been stolen. Also, according to him, “some of the confectionary went off”. He says the fixed assets are on the site and can be picked up by the liquidator. He says that all the staff of the company informed him they had not been paid and that there was also holiday pay owing, so all the cash went to the staff. Calculations were conducted through Ace Payroll, and neither Mr nor Mrs Ellison received any cash.

[56] Mr Gair produced an extensive list of stock which he says was prepared by Mr Ellison and which was given to Mr Gair by Mr Anderson of Fineil. Mr Gair denies that the liquidators were ever informed that the stock could be collected and said that when he met Mr Anderson at the premises in late 2010 or early 2011 he noted that there was no stock on site. He was told that Mr Ellison had been to the premises and taken the stock together with the cashbox, from which he paid staff holiday pay and wages. Mr Gair considered that as with the fuel, Mr Ellison was evasive and difficult on this issue too, so the liquidators elected not to engage with him further.

[57] Mr Ellison gave evidence on the stock and plant in his affidavit of 28 June which, despite not being tested by cross-examination, I do not accept. In relation to

the fuel in the tanks, he said that Mr Shephard could remove it if he considered that he was entitled to it, but that it was EHL’s property. He then said the same applied in relation to the stock and plant, but continued to say that the plant remained on the premises, as did the stock (apart from stolen cigarettes) and could be collected by Mr Shephard. It is, of course, quite outside any possible contention that EHL owned either the stock or the plant. EHL was not at any point, on the evidence before me, in any way financially involved with the operation of the business, apart from supplying it with fuel. The stock and plant were at all times owned by Fineil. It is not correct, therefore, to say that “the same applied” to the stock and plant as to the fuel.

[58] The liquidators have never had free access to the premises. I accept their contention that the stock and plant have not been available for them to collect, that Mr Ellison has removed items from the premises, and that Mr and Mrs Ellison have retained control over the plant and stock since the liquidation. I prefer the evidence for Mr Shephard over that of Mr Ellison on this point because of Mr Ellison’s obviously wrong contention that EHL owned these items. And Mr Ellison was not an officer or staff member of Fineil, so was not entitled to deal with Fineil’s cash in any way.

[59] The uncertainty over who acted in relation to the fuel is not present. EHL has never laid claim to the stock and plant, so the Ellisons’ actions in removing this property was in their personal capacities.

[60] Although I am satisfied on the evidence, for these reasons, that Mr and Mrs Ellison have taken and retained possession of these items of property owned by Fineil, it does not necessarily follow that the liquidator can recover their value from Mr and Mrs Ellison by a notice issued under the Companies Act, and a subsequent application for an order. This is because s 292(2), and s 293(3), define “insolvent transaction” and “transaction”, respectively, by reference to actions “by a company”. Similarly, a transaction at under value, which is dealt with by s 297, relates to transactions as defined in s 292(3).

[61] I raised this point specifically with counsel, in a Minute accompanying an interim judgment in this case, and invited submissions. Mr Cox commenced his submissions by telling me that he had already covered the point in two sets of earlier submissions, but that is not correct. Earlier he had submitted that the taking of these assets by Mr and Mrs Ellison was either by consent (presumably of Fineil) or it was a unilateral action of the creditor. So far as the former is concerned, there is no evidence to establish that their actions were by consent; indeed Fineil had ceased trading and the Ellisons appear to have simply re-entered and taken the items in question. Mr Cox submitted that alternatively it was a unilateral action of the creditor and then proceeded to explain why EHL was accountable for these items, overlooking the fact that the notice was issued against Mr and Mrs Ellison, not EHL. Mr Ellison submitted that what the company could do voluntarily must still be a transaction if imposed upon the company unlawfully by a creditor. I do not follow that reasoning. There is no evidence that Fineil did anything. The evidence has satisfied me that Mr and Mrs Ellison took the items in question. At the principal hearing Mr Cox informed me that there was no authority covering unilateral actions of a creditor in terms of this section.

[62] In submissions presented specifically on this point, Mr Cox referred to two Australian authorities, Re Trendent Industries Pty Ltd (In Liq),[6] and Re Kelly,[7] both of which dealt with bankruptcy legislation then in force. In Re Kelly, the Court held that a transfer was made by a debtor when it was effected by the respondent company as his agent, to itself in its capacity as his creditor, the transfer being effected by transferring figures in an account without any money passing. For present purposes, the crucial point is that the respondent company was found to be the agent of the debtor.

[63] In Re Trendent Industries, the Court received a submission that there had not been any act within the term “made or ... incurred” by the plaintiff company, and therefore the actions were outside the terms of the then current provision in the Companies Act 1961. However, the Court found that possession of the assets in

_{question was transferred by the company, as well as a right to possession, which was}

“property” within the definition in the Act. Thus the company took a step sufficient

to satisfy the Court that it had effected a transfer.

[64] Mr Cox submits that these authorities show willingness by a court to grant a remedy to a liquidator where a transaction involving the company’s property falls within a relevant voiding provision, even where there has not been a formal or active step on the part of the company to transfer or convey its property to a creditor, charge its property or participate in execution against it. As an incidental submission he also says that s 292(3)(d), which includes “undergoing an execution process” in the definition of transaction shows that an actual step by the company is not required.

[65] In my opinion, neither of these cases assists the liquidator. In Re Kelly, there was a transfer by another company as agent of the debtor company. That is not the position here: the goods were taken by Mr and Mrs Ellison and they were not agents of Fineil. In Re Trendent Industries the company itself transferred possession. The evidence does not establish that position in this case. The evidence is that the acts were by Mr and Mrs Ellison, not by Fineil.

[66] Nor does “undergoing an execution process” describe a step by another party:

it is the company which undergoes such a process, but it is undertaken by a creditor.

[67] Section 292(3) is quite clear: the listed steps must be “by the company”. I accept that this could be satisfied by action by the company’s agent but whether undertaken by an agent or not it is the action of the company which is to be scrutinised. The actions of an unrelated creditor are outside the terms of the section.

[68] Mr Cox closed his submissions by saying that the effect of a finding that a transaction must be limited to a “step by the company” would mean that the Ellisons have contravened s 248(1)(c)(ii) of the Companies Act, but the liquidator would be left without a remedy. Section 248(1)(c)(ii) prohibits a person enforcing a right or remedy over or against the property of a company – it being Mr Cox’s position that Mr and Mrs Ellison were distraining on goods as landlords, in breach of that section. Mr Cox is correct in his submission that the interpretation I place on s 292 has the

effect of preventing the recovery mechanisms in relation to voidable transactions taking effect against a creditor who has contravened s 248, without any action by the company. However, that is the way the statute is drafted. Actions to recover property from creditors arise only where the company has taken steps which fall within the wording of the relevant sections of the Act. But it is not correct that the liquidator is left without a remedy. As Mr Reardon says, the liquidator can sue in the tort of conversion. The interpretation of s 292(3) of the Companies Act proposed by Mr Cox would broaden the ambit of that section and the succeeding sections of the Act to provide a statutory remedy for conversion, which is not necessary. The wording of s 292(3) is clear, and it is not for the Court to interpret the words “by the company” as meaning anything other than exactly what they say.

Outcome

[69] As a result:

a) Judgment is entered for the plaintiff pursuant to s 297(2) against the second respondent in the sum of $80,080.02.

b) The plaintiff’s application to recover from the third respondents the sum of

$15,392.24 for fuel remaining in the tanks on the premises is dismissed.

c) The plaintiff’s application to set aside the payments of $27,983.48 against the first respondent is dismissed.

d) The plaintiff’s application to set aside transactions by Mr and Mrs Ellison

relating to retention of stock, fixed assets and cash is dismissed.

Costs

[70] The liquidator has succeeded in recovering the payments made by Fineil to FEX. He has failed in his bid to recover payments made to EHL in the period running up to the close of business, his bid to recover a sum of money for fuel in the tanks on the premises at the date of liquidation, and his bid to recover the value of stock, fixed assets and cash remaining on the premises. Broadly, the liquidator on one hand and the respondents on the other have succeeded in equal measure. On that

basis costs should lie where they fall. The only hesitation I have had in this assessment is derived from my clear view that on the evidence before me Mr and Mrs Ellison have wrongly retained the stock, fixed assets and cash remaining on the premises when the business closed. The liquidator has failed in his bid to recover the value of those assets because the statutory remedy he sought is not available, and his remedy lay in the law of tort, not under the Companies Act for the reasons I have explained. I have considered whether the established wrongdoing by Mr and Mrs Ellison in relation to this property should be reflected in the award of costs but in the end have decided it should not. As I have found the wording of s 292(3), requiring the impugned conduct to have been undertaken by the company is clear on its face, and the liquidator’s election to seek recovery from creditors without establishing any intervening action by the company was flawed from the outset.

[71] Having considered all factors, therefore, I have come to the view that costs should lie where they fall, and I so direct.

J G Matthews

_{Associate Judge}

Solicitors:

Gibson Sheat, Private Bag 31 905, Lower Hutt. Email: [e-mail]

Cooper Rapley, PO Box 1945, Palmerston North. Email: [e-mail]

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[1] Homburg Houtimport B.V. v Agrosin Private Ltd [2003] 2 WLR 711 (HL) and

_{Neuchatel Asphalte Co Ltd v Barnett [1957] 1 WLR 356.}

[2] _{Street v Mountford [1985] UKHL 4; [1985] AC 809, South Sydney District Rugby League Football Club Ltd}

v News Ltd [2000] FCA 1541 and Bowstead & Reynolds on Agency (18th ed, Sweet & Maxwell, London, 2006) at 2-032.

[3] At 819.

[4] _{Airservices Australia v Ferrier (1996) 185 CLR 483.}

[5] Blanchett v McEntee Hire Holdings Ltd (2010) 10 NZCLC 264,763.

[6] _{Re Trendent Industries Pty Ltd (In Liq) (1983) 1 ACLC 980.}

[7] Re Kelly (1932) 4 ABC 258.