ISAC New Zealand Limited v Managh [2013] NZHC 3242 (5 December 2013)

Last Updated: 16 December 2013

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV 2011-441-396 [2013] NZHC 3242

IN THE MATTER OF the Companies Act 1993

AND IN THE MATTER the liquidation of Gambling Helpline

Limited (in Liquidation)

BETWEEN ISAC NEW ZEALAND LIMITED Applicant

AND JOHN MANAGH Respondent

Hearing: 5-7 August 2013

Closing submissions received on 13, 20 and 26 August 2013 (Heard at Wellington)

Counsel: R Hucker for the Applicant

M MacFarlane for the Respondent

Judgment: 5 December 2013

_{JUDGMENT OF MALLON J}

Table of Contents

Introduction ....................................................................................................................................... [1] The evidence ...................................................................................................................................... [3] Claim for future debt ...................................................................................................................... [65] Claim under clause 11.2 .................................................................................................................. [74] Authority to contract ...................................................................................................................... [83] Lost data......................................................................................................................................... [100] Penalty............................................................................................................................................ [109]

_{Relief............................................................................................................................................... [125]}

ISAC NEW ZEALAND LIMITED v MANAGH [2013] NZHC 3242 [5 December 2013]

Introduction

[1] ISAC¹ seeks payment of $178,802 for early termination of an IT services contract with GHL.² The contract came to an early end when GHL’s parent company, Lifeline,³ put GHL into voluntary liquidation without warning or notice to GHL or ISAC. Under the contract GHL was required to pay a monthly charge for

the IT services provided over the term of the contract. If the contract was terminated early in certain circumstances, a provision in the contract required GHL to pay those monthly charges as if the contract had not been terminated. ISAC filed a proof of debt in the liquidation pursuant to this provision. The liquidator rejected the proof of debt.

[2] ISAC’s claim is brought by way of an application under s 284 of the Companies Act 1993 seeking an order setting aside the liquidator’s decision to reject ISAC’s proof of debt and a direction that the debt as claimed by ISAC be paid. The issues are:

(a) whether the liquidator was required to accept ISAC’s claim

irrespective of the termination provisions in the contract;

(b) if not, whether ISAC terminated the contract in circumstances which enabled it to claim the $178,802 under the contract;

(c) if it did, whether the contract was entered into by GHL’s chief

executive officer (CEO) without actual or apparent authority;

(d) whether there is any substance to a claim that ISAC breached the contract;

(e) whether the clause under which the payment was sought was an unenforceable penalty;

_{(f) whether relief under s 284 is appropriate.}

¹ _{ISAC New Zealand Limited.}

² _{Gambling Helpline Limited.}

³ Lifeline Auckland trading as Lifeline Aotearoa.

The evidence

The background

[3] Lifeline is a charitable trading trust. It provides free confidential helpline counselling services and face to face counselling. Its wholly owned subsidiary, GHL, provided problem gambling counselling services via telephone, text and email. GHL’s main source of funding was under a contract with the Ministry of Health. Up until November 2008 the Ministry contracted directly with GHL for the provision of those services. After that, the Ministry awarded the contract to Lifeline who then subcontracted with GHL for the provision of services.

[4] GHL initially managed its own IT services. In 2004 it was proposed that ISAC would provide IT services. At this time, Mr Tonkin, a director and shareholder of ISAC, was also a director of GHL. For this reason the decision whether to enter into a contract with ISAC was referred to the GHL Board. The proposal first came to the GHL Board on at its meeting on 18 February 2004. The minutes record that Mr Tonkin declared his interest, that alternative quotes were to be considered and discussed by GHL’s CEO and Chairman and that a discussion paper was to be sent to the directors with a recommendation.

[5] The GHL Board next considered the IT contract at its meeting on 17 March

2004. The GHL Board minutes from 17 March 2004 state the following:

COMPUTER FACILITIES MANAGEMENT

The Directors discussed the computer facilities management further with the

CEO and Ms Ferguson. The following points were noted:

There was a termination clause included in the ISAC NZ Limited proposal with a minimum 12 month contract and a three month exit clause after the initial 12 months.

...

The issue was a management decision but had been taken to the Board in view of the interests of a director. The competitive quote was considerably higher and was duly noted.

AGREED:

Directors agreed to accept the recommendation to enter into a computer facilities management contract with ISAC NZ Limited on the terms and conditions to be agreed between ISAC NZ Limited and [GHL].

[6] Following this, the ISAC/GHL contract was entered into on 14 June 2004. Ms Ferguson, the then Business Manager of GHL, executed the contract on behalf of GHL. The contract set out the services to be provided and the charges for these services. The contract was for a minimum term of 12 months “[o]r until terminated in accordance with clause 11.” Clause 11 provided for early termination in the event of assignment, bankruptcy (or similar) or default. It also provided that, following the initial 12 month period, either party could terminate the agreement by providing one month’s notice in writing. It further provided that “[u]pon termination each party shall be regarded as discharged from any further obligations under this Agreement”.

[7] On 1 July 2005 a second contract, which replaced the 2004 contract, was entered into between GHL and ISAC. It was executed by Ms Ferguson who was by then GHL’s CEO. The contract did not go to the Board for approval. The contract was in similar terms to the 2004 contract, except that if a party wished to terminate the contract after the initial 12 month period, three months’ notice of that intention was required. After the initial 12 month term of the 2005 contract neither party gave notice. ISAC continued to supply IT services to GHL under that contract.

[8] From November 2008 the Ministry of Health funding to GHL was provided under a contract between the Ministry and Lifeline. With the Ministry’s approval Lifeline subcontracted with GHL. Dr Bellringer’s understanding was that this change in the Ministry/Lifeline/GHL contracts had come about because of a breakdown in the relationship between GHL’s then CEO and the Ministry. Dr Bellringer was appointed as GHL’s CEO on 12 October 2009. She understood that her “extremely good relationship” with the Ministry was one of the reasons why the GHL Board employed her as CEO.

[9] For present purposes the relevant Ministry of Health contract with Lifeline and Lifeline’s subcontract with GHL commenced on 1 July 2010. Each contract was for a term of three years. For Lifeline those contracts were executed by Lifeline’s CEO (Ms Denvir). For GHL the subcontract was executed by Dr Bellringer.

[10] Mr Bogan, who was the chair of Lifeline’s Board and the Audit and Risk Committee, was not happy that these contracts had been signed by Ms Denvir and Dr Bellringer without the authority of their respective boards. The GHL Board minutes at this time record that the contract between Lifeline and GHL should have been signed at Board level and a copy of the contract was requested so that the directors could ratify it. Ms Denvir’s evidence is that Mr Bogan reprimanded her for entering into the contracts without the authority of the Lifeline Board.

[11] Lifeline’s Audit and Risk Committee reviewed the contract with the Ministry of Health and the GHL subcontract at its meeting on 4 October 2010 (which Dr Bellringer and Ms Denvir attended). At that meeting a lawyer attended and provided advice about the risks under these contracts. This included advice as to the relative ease with which the Ministry could terminate the contract. The minutes record they all were agreed “[t]hat the importance is the relationship with the Ministry more than the contract document and having channels open for transparent discussions around grey areas and areas of re-negotiation.”

[12] For her part, Dr Bellringer considered the contract to be only one part of the equation and that the relationship between the parties was very important. Dr Bellringer knew from various discussions with the Ministry that they were “happy” with the services provided by GHL and that her relationship with the Ministry was a good one. She believed the Ministry would not terminate the contract without discussions and attempts to mediate.

[13] Mr Bogan agreed with Dr Bellringer’s evidence about this. He said that the advice of their lawyer was that the Ministry contract “really depended on the relationship between the parties” and that the GHL Board needed to work to maintain the relationship with the Ministry. Mr Bogan was reasonably comfortable the contract would continue because “we had a good relationship with the Ministry”. He said that the Ministry were “really happy” with the performance of the contract under Dr Bellringer’s stewardship and that Dr Bellringer went “way and above the call of duty in terms of fulfilling the Ministry requirements, to provide a good and capable gambling [counselling] service”.

The ISAC 2011 contract negotiations

[14] It was part of Dr Bellringer’s role as CEO of GHL to review the contracts

entered into by GHL and its service providers. As part of that role, in 2010

Dr Bellringer obtained a quote from another IT service provider, IT Live. Although the quote was cheaper than that provided by ISAC, Dr Bellringer considered that IT Live’s services were not of the standard that ISAC could and did provide. This was because GHL provided a 24 hour crisis helpline service. Dr Bellringer’s evidence was that it was important that there be IT support in the middle of the night for these services because those calling the helpline could be suicidal, particularly at night. Under IT Live’s proposed service it would only be able to respond the following working day.

[15] In early 2011 Dr Bellringer noted that the contract between GHL and ISAC dated 2005 was proceeding on a month by month basis. Dr Bellringer mentioned this to Mr Tonkin who replied that Kim Thibault, ISAC’s general manager, had also realised that the contract needed updating and she was looking into it. From ISAC’s perspective it was important to update the contract to recover the significant upgrades planned specifically for GHL. These plans were described as involving replacing an aging wireless network, being ready for high speed broadband, providing full and secure access to applications and data, and server upgrades.

[16] In February 2011 Dr Bellringer met with Ms Thibault to discuss the new contract. An increase in remuneration to ISAC was envisaged. Dr Bellringer considered this was reasonable given that there had not been any increase in the price for services since 2004 and GHL had changed from a 7 am to 10 pm, seven days a week provider, to a 24 hours a day, seven days a week provider. Ms Thibault also discussed with Dr Bellringer the possibility that the price could be reviewed later according to use but GHL would not have a contractual ability to insist on a variation in price according to use.

[17] Using the 2005 contract as a precedent, Ms Thibault sent Dr Bellringer a draft of the contract on 23 February 2011. The term in the draft contract was until 30 June

2013. The draft contract provided that if GHL terminated before this date early

termination charges would be payable. The draft set out what those charges would be.

[18] Ms Thibault’s evidence was that, in her experience of negotiating commercial IT services, contracts of 24 to 36 months were “completely normal”. She wanted the contract to be for a term of 36 months so that ISAC could recover its costs in providing upgrades for GHL. However the expiry date of 30 June 2013 was fixed because Dr Bellringer made clear to her that the contract could not go beyond the Ministry of Health contract, which expired on 30 June 2013. Ms Thibault also considered that the termination provisions were “fairly standard terms for trading”. She said that at the time neither she nor Dr Bellringer “thought the contract would do anything but work its way out”.

[19] Two days later, on 25 February 2011, Dr Bellringer sent the draft contract back to Ms Thibault with some queries which she marked up on the contract. These queries did not include a query about the term. Although the term was longer than the previous contracts, Dr Bellringer understood that the 2004 and 2005 contracts with ISAC were aligned with the 12 month terms of the Ministry of Health contracts in place at that time. GHL’s ability to pay the ISAC contract depended on the Ministry contract. She believed that the risk of the Ministry terminating its contract with GHL prior to June 2013 was “practically nil” and that the contract was “very safe”.

[20] Dr Bellringer’s queries also did not include any query on the provisions providing for payment in the event of early termination. Dr Bellringer considered that the charges for early termination were not “out of the ordinary”. She gave evidence that she had negotiated many contracts and these contracts had similar clauses.

[21] On 1 March 2011 Ms Thibault responded to Dr Bellringer’s queries about the draft. On 2 March 2011 Dr Bellringer confirmed that she was happy to sign the contract. The contract between ISAC and GHL was signed on 2 March 2011 (the

2011 contract) by Dr Bellringer on behalf of GHL and by Mr Armitstead, a director of ISAC, on behalf of ISAC.

The 2011 contract

[22] The 2011 contract was in several parts:

(a) The first part (which set out the definition of the service, the term of the agreement, the charges and the responsibilities of each party);

(b) Specific Terms for GHL;

(c) IT Support Definitions for GHL; and

(d) ISAC’s Standard Trading Terms.

[23] In relation to the payment for services:

(a) The first part provided that “[t]he charges for the supply of these services are listed in the Specific Terms and are valid for the term of the agreement ...”;

(b) The Specific Terms set out a monthly charge ($5,980 plus GST) for

ISAC Telecommunication Services and IT Services;

(c) The Standard Trading Terms provided:

5 CHARGES, INVOICING AND PAYMENT

5.1 Charges for the services are listed in the Specific Terms for the duration of the initial term of the agreement. At the conclusion of the term Charges are subject to change within 30 days written notice.

5.2 You will pay our Charges for all the Services we provide to you, irrespective of who ultimately uses them. You will pay any GST that may be payable in addition to the Charges.

5.3 We will invoice you monthly for the Services we provide to you. Fixed Charges will normally be invoiced in advance and variable charges will normally be invoiced in arrears. Sometimes Charges will not show on your invoice until some time after the month in which they are incurred. You will still be liable for all such Charges.

[24] In relation to the term of the agreement:

(a) The first part provided that:

The term of this agreement shall be no less than the term selected in the Specific Terms, and is valid from the date of signing. At the conclusion of the initial term services will continue on a casual basis, subject to the Standard Terms of Service for ISAC (NZ) Ltd.

(b) The Specific Terms provided in clause 1 that “[t]his supply agreement is effective from the date of signing” and in clause 4 that “[t]his agreement is valid until 30 June 2013.”

(c) The Standard Trading Terms provided in clause 1 that the agreement commenced on the date specified in the Specific Terms. In clause 19 it defined the “Initial Term” in “these Standard Terms, unless the context requires otherwise” as “the initial term of a Service as set out in clause 2 of the Specific Terms”.

[25] This last reference in the Standard Trading Terms, to clause 2 of the Specific Terms, is an error because that clause sets out the service specification, not the initial term of service. The reference ought to have been to clause 4 of the Specific Terms, which provides that the agreement is valid until 30 June 2013. The combined effect of all of these provisions was that the agreement commenced on 2 March 2011 and was in force until 30 June 2013. After that date it could continue on a casual basis.

[26] The Standard Trading Terms provided for termination of the agreement as follows:

10 TERMINATION

10.1 We may cease providing any Service or terminate this Agreement after the expiry of the Term by giving you not less than 30 days’ notice in writing.

10.2 You may give up any Service or terminate this Agreement at any time by giving us not less than 30 days’ notice in writing. Our charges are payable by you throughout the 30 day notice period even if you are outside the Initial Term. In addition, if you terminate during the Initial Term you will be required to pay any early termination charges that are payable under clause 11.2 ...

10.3 Notwithstanding clauses 10.1 and 10.2, either party may terminate this Agreement or particular Services at any time by giving the other party notice in writing where the other party:

commits a material breach of this Agreement which is incapable of being rectified;

commits a material breach of this Agreement which is not rectified within 30 days of written notice of that breach having been given to the other party by the terminating party;

(or its directors or principals) goes into liquidation, bankruptcy or receivership (or it appears that any of these events is likely to happen);

has a receiver or statutory manager appointed over any or all of its assets; or

is removed from the Companies Register (other than as a result of a solvent amalgamation), is dissolved or dies.

10.4 We may, without liability to you, end the availability of any or all of the Services provided to you or not commence the supply of any or all of the Services to you if:

The relevant Service is not commercially viable; or

We are unable to provide the relevant Service; or

We decide to withdraw the relevant Service from general availability.

...

11 CONSEQUENCES OF TERMINATION

...

11.2 If you give up any Service or terminate this Agreement under clause

10.2 or we terminate this Agreement or any Service under clause 10.3 prior to the expiry of the Initial Term, then we may require you to pay:

100% of the amount of the fixed Charges that would have otherwise been payable from the date of termination to the end of the Initial Term;

30% of the amount of any anticipated Charges (for example, variable charges such as development) payable by you for the Services terminated, from the date of termination to the end of the Initial Term. These charges are calculated based on your total average monthly spend with us over the past six months; and

If we have agreed to waive a set-up charge, the amount of that set-up charge multiplied by the number of months remaining in the Initial

Term at the date of termination divided by the total number of months in the Initial Term.

11.3 Termination and the rights set out in clause 11.2 are without prejudice to any other rights, remedies or obligations either party may have under this Agreement.

Tensions between GHL and Lifeline

[27] There were tensions between Lifeline and GHL dating back a number of years. These tensions were coming to a head around the time that the 2011 contract was negotiated by ISAC and GHL. The following events occurred:

(a) against GHL’s wishes, in December 2010 Ms Denvir allocated to Lifeline a $125,000 management services fee from GHL’s funds and was proposing to take a further $125,000 six months later;

(b) on 25 February 2011 Mr Bogan resigned as Chairman of the Lifeline Board because the Lifeline Board declined to sanction Ms Denvir for (a);

(c) in around February/March 2011 GHL indicated that it was going to move out of Lifeline’s building;

(d) on 15 March 2011 GHL gave notice that from 1 April 2011 it no longer required shared services and was intending to manage its own finance, marketing and payroll functions;

(e) in about the middle of March 2011 Ms Denvir started to draft a recommendation to the Lifeline Audit and Risk Committee that GHL be put into liquidation. At around this time Lifeline’s head of finance approached Mr Managh about acting as liquidator and Ms Denvir raised the possibility of a merger between Lifeline and GHL with the Ministry of Health but did not explicitly say that GHL could be liquidated;

(f) on the morning of 25 March 2011 Ms Denvir recommended to the Lifeline Audit and Risk Committee that GHL be liquidated. Immediately following that meeting Ms Denvir’s recommendation was put before the Lifeline Board who passed a resolution putting GHL into liquidation; and

(g) on the afternoon of 25 March 2011 Ms Denvir advised Dr Bellringer

of GHL’s liquidation.

[28] There was varying views in the evidence as to the background to these events. From Ms Denvir’s perspective, Lifeline was concerned that GHL had become “top heavy”, having employed four new managers and employing a fifth manager. It was concerned that GHL was intending to move out of the building and to terminate shared services. Ms Denvir said that she saw the separation of Lifeline and GHL as “one of the biggest risks facing our organisations”. Lifeline was also concerned at the nature of the communications between Lifeline and GHL (noting that, although they resided in the same building, communications were in the form of letters). Ms Denvir said that, as a result of these issues, Lifeline was concerned that GHL was using government funding in a way that was inconsistent with the delivery of the services it was contracted to provide. For that reason it was put into liquidation.

[29] From Dr Bellringer’s perspective, GHL and Lifeline were having a few disagreements but they were not “insurmountable”. Dr Bellringer did not know that Lifeline disagreed with GHL’s management structure. She did not know that Lifeline disagreed with GHL moving premises and terminating shared services. She understood when she was appointed CEO that Lifeline was happy for GHL to progress autonomously as it had for many years previously.

[30] Dr Bellringer explained that the fifth manager to be employed was a Kaiwhakahaere (a bicultural manager). It was a junior management position for a fixed term contract until the end of June 2013. She said that the Ministry of Health required that GHL provided wider coverage for Māori and was “particularly pleased”

about the employment of a Kaiwhakahaere. She said that the new manager was also employed for succession planning purposes.

[31] Dr Bellringer said that the decision to move premises arose out of a decision by Lifeline to move into the floors and car parks rented by GHL without any reduction in GHL’s rent. The GHL Board considered that the rent needed to be renegotiated but Ms Denvir would not make herself available to meet with Dr Bellringer. This is confirmed by the GHL Board minutes for 23 March 2011 which record that Dr Bellringer reported to the Board that Ms Denvir was “unable or unwilling to be available for any such meeting”. Dr Bellringer noted that the cost of GHL moving to new premises would have been less than the Lifeline management fee and in the past Lifeline and GHL had previously resided in different premises.

[32] Dr Bellringer said that it seemed sensible to her for Lifeline and GHL to share services, but the shared services were not delivered in the way that she and the Board felt they should have been. She found it very difficult to communicate with Ms Denvir, because she did not respond to her communications. She described GHL providing Lifeline with $90,000 for the refurbishment of the premises. GHL was told that all the money had been expended. The directors of GHL asked for a breakdown of the costs but no response was forthcoming.

[33] Mr Tonkin supported Dr Bellringer’s evidence on these matters. Mr Tonkin said that there had been discussions over the years about whether GHL and Lifeline should merge, but each time it was concluded that GHL should remain independent. He said that GHL was developing opportunities outside of those offered by Lifeline and that Dr Bellringer was instructed by the Board to explore other options for obtaining services. He said that Lifeline liquidated GHL to obtain its assets. That was also Mr Bogan’s view. Around the time of liquidation GHL had cash reserves of

approximately $750,000.⁴ By liquidating GHL, Lifeline gained immediate access to

_{these funds.}

⁴ Amount of cash reserves at the date of entry into the ISAC contract according to Dr Bellringer.

Notice of liquidation

[34] Lifeline did not give GHL any advance warning that liquidation was contemplated. Ms Denvir accepted that Dr Bellringer, Mr Tonkin and Mr Bogan would not have known that GHL was about to be liquidated prior to 25 March 2011. But she did not regard the problems between GHL and Lifeline as resolvable and, given the increasingly hostile relationship between Lifeline and GHL, she said they ought to have known that liquidation was a “viable consequence”.

[35] Dr Bellringer said she “had no inclination” that the company would be placed into liquidation and that Lifeline intended to deliver the services provided by GHL itself. She said that both she and the GHL Board thought that by moving premises and terminating shared services with Lifeline, they would be able to continue functioning until the completion of the Ministry of Health contract in June 2013.

[36] Mr Bogan said that he was not at the Lifeline Board meeting where the resolution was passed to liquidate GHL and only became aware of the liquidation after someone told him a liquidator had been appointed. His response to the liquidation was “complete disbelief”. He could not recall any time prior to GHL’s liquidation when the Lifeline trustees or GHL directors had discussed liquidation.

[37] There was a suggestion in an undated email from Mr Managh (the appointed liquidator) reporting on the liquidation that Mr Tonkin had notice of the liquidation through his friendship with a trustee of Lifeline and that the ISAC contract was renewed to put ISAC in a privileged position. Mr Managh was cross examined about this and was unable to elaborate on the basis for this view. Mr Tonkin denied this. He said that he was shocked that GHL was liquidated and there had been no indication or warning that Lifeline was considering this. Ms Thibault said that during the time she was negotiating the contract with Dr Bellringer she did not know anything about the problems between GHL and Lifeline. Mr Tonkin and Ms Thibault were not challenged on this evidence in cross examination. I accept their evidence about this over what seems to have been nothing more than speculation on Mr Managh’s part.

Events post-liquidation

[38] On 25 March 2011 Mr Managh provided a letter to all GHL employees. He advised them of his appointment as liquidator. The letter advised that GHL’s business activity would come to an end. He said that “service contracts will likely revert to Lifeline Auckland, as they were the party to whom the contracts were granted by the government agencies concerned.” He advised that all employment would cease at the close of business on 1 May 2011 and that in the meantime “we will seek to assign existing service contracts.” He said that he anticipated meeting with directors and staff on 28 March 2011.

[39] Mr Managh said that in this letter he was referring to employment agreements, not service contracts such as the contract with ISAC. He said that when GHL ceased carrying on business, Lifeline (as grantor of the Ministry of Health contract) would either continue providing the services formerly provided by GHL or stop providing the services. In the letter he was “alluding to the prospect ... that if the Ministry of Health contract were to revert back to Lifeline, which was likely to occur because it had the prime obligations, it would need employees to discharge those duties.”

[40] On 28 March 2011 Dr Bellringer met with Mr Managh at GHL’s offices. She said that she provided him with a copy of the ISAC contract and other supplier contracts. Mr Managh denied that. He said that he did not make enquiries as to GHL’s service contracts. His thinking was that the staff who were retained following the liquidation would manage those contracts until GHL ceased trading. He said that his sole intent was to liquidate the company and it was not his role to become involved with the liabilities of the company. He said that the existence of the contract with ISAC “came into focus” towards the very end of the liquidation when the issue arose regarding termination.

[41] On 15 April 2011 Ms Thibault, on behalf of ISAC, emailed Mr Managh. She noted that ISAC was a creditor of GHL and that it had received no official notice of the liquidation. She asked to be advised of the situation and what it meant for the services ISAC provided to GHL. Mr Managh did not respond.

[42] Ms Denvir was advised of the ISAC contract by email from Dr Bellringer on

18 April 2011. However her evidence was that she inadvertently missed that email. She said that she first became aware of the contract between GHL and ISAC on

29 April 2011.

[43] On 21 April 2011 Ms Thibault emailed Dr Bellringer noting that ISAC was not listed as a creditor of GHL. She asked Dr Bellringer to let the liquidator know that ISAC should be on the list. Dr Bellringer replied immediately by email saying that she would do this and there seemed to be a lot of creditors missing from the list. Ms Thibault then emailed Mr Managh, noting that she had sent ISAC’s agreement with GHL by fax. In the email she said that ISAC needed to understand Mr Managh’s intention with regard to ISAC’s contract with GHL and that ISAC was concerned that it was not on the list of creditors. The email stated:

We request a response by 5:00pm on 28 April 2011 otherwise we may need to initiate termination of the services under clause 10.3 of the Standard Trading Terms and putting in a creditor’s claim under section 11.2 for the balance of the fixed charges. Please be aware that the amount of that claim would be $161,460.00+GST.

[44] In a letter also dated 21 April 2011 Ms Thibault said that ISAC wanted to know why Mr Managh had not been in contact with them as creditors, and whether he was confirming the contract and assuming responsibility for it. The letter contained a paragraph in similar terms to that set out above.

[45] On the same day Mr Managh replied by email as follows:

...

Are you owed monies that are past due for payment?

No requests from the company’s management have been made to make a payment to your firm. The contract you refer to had not been drawn to our attention until your fax.

All sums properly owed by the company are being and will be paid on their due date.

[46] On the same day Ms Thibault replied by email to Mr Managh saying that no

payments were outstanding. She said “[o]ur concerns rest with the intention

regarding the contract as we invested considerable sums in setting this up as well as

incurring regular monthly costs.”

[47] On 28 April 2011 Ms Thibault emailed Ms Denvir, copying in Mr Managh and Dr Bellringer. She said that she sent this email to Ms Denvir because she wanted to engage with Lifeline and Mr Managh about the future of the contract and she was not getting much of a response from Mr Managh. The email stated:

...

ISAC (NZ) Ltd is a supplier of IT infrastructure services to Gambling Helpline Ltd (GHL). We currently have a service supply agreement with them until the end of June 2013. ...

We have been advised by the liquidator, John Managh, that Lifeline is directly handling the discharging of contracts so I am now contacting you.

We are concerned that GHL has been placed into liquidation and we request your immediate engagement with us to discuss Lifeline’s intention to assume responsibility for the contract. Please be aware that within the contract, in the event of liquidation, we are permitted to immediately terminate the agreement and suspend all services. The agreed damages for an early exit by GHL would be payment of the fixed charges for the remainder of the agreement. Please be aware that the amount of that claim would be

$161,460.00+GST. It would not be our first choice to do this, however we are concerned about the situation, the lack of communication with us, and

we would be required to take these steps to mitigate our exposure.

Please contact me, by either email or mobile before the end of this week to set up a time to discuss the future of the agreement.

If I do not hear from you by 5:00pm on 29 April 2011, services may be immediately terminated without further warning.

[48] Ms Denvir said that she had left the office for the day when this email was sent. She said that she was then out of the office all day on Friday 29 April 2011 (attending meetings in Auckland) and on Saturday 30 April 2011 (attending meetings in Christchurch). She was, however, briefed by her head of finance on the afternoon of 29 April 2011 on the ISAC contract prior to a Lifeline Board meeting that was taking place that day. Following that briefing, she reported to the Lifeline Board meeting that ISAC had a contract with GHL and that there was an early termination clause in the contract which potentially created a liability of about $160,000. Ms Denvir did not obtain and review the contract herself at this time.

[49] Ms Denvir said that she did not have any contact with Mr Managh between

28 April 2011 and 2 May 2011. She believed her head of finance had contact with Mr Managh although the details of this contact were not in evidence. For his part, Mr Managh said that, although he was copied into the 28 April 2011 email, he did not see any need to respond to it given Ms Thibault was requesting a meeting with Ms Denvir. He said that he never told ISAC that Lifeline was handling the discharge of contracts. He said he did not discuss the IT services with Ms Denvir between his appointment and the cessation of the business because they were not “an issue” during the liquidation.

GHL ceases trading

[50] Ms Denvir said that she did not become aware of Ms Thibault’s email of 28

April 2011 until she was next in the office, which was on 2 May 2011. By then the deadline in the email had passed and GHL had ceased trading on 1 May 2011. Her evidence was that she did not want the services to be discontinued and that she was “more than happy to keep the relationship going.” She said that she would have expected ISAC to approach Lifeline with a view to entering into a new contractual relationship but instead it discontinued its services. Ms Denvir’s evidence of her interest in a continuing relationship contrasts with the communications that followed.

[51] On the morning of 2 May 2011 Ms Thibault again emailed Ms Denvir, copying in Mr Managh. The email said:

I request an appointment with you as soon as possible to discuss the situation with Gambling Helpline and the services we supply to you. We are concerned that we have not received a response to our questions on the contract and would like to meet with you today or tomorrow. Please advise a time that suits.

[52] About twenty minutes after that email was sent Mr Managh emailed Ms

Thibault the following:

...

Your 28 April email refers. I advise I will not adopt the contract or create a novation. Payment will be made for reasonable services properly provided by you up to the close of business today.

I note you have written to Lifeline Auckland seeking to involve them in this company’s affairs. Your approach is misconceived. Any dealings between your company and Gambling Helpline Ltd remain a matter between those two parties.

You still remain able to file a proof of debt in the liquidation.

...

[53] In her evidence Ms Thibault said that she considered this email to be notice of termination by the liquidator. This was because Mr Managh said he would only pay ISAC to the end of that day and because Mr Managh sent the email in response to her email requesting that Lifeline and Mr Managh engage with her. She said that if Lifeline had said to ISAC it wanted to continue with the 2011 contract ISAC would have “happily” continued to provide its services to Lifeline.

[54] Mr Managh’s evidence was that he intended to convey by this email that no further services were required by GHL from that point in time. He said that he was not giving notice of termination because he did not have the ability to do that. He understood “novate” to mean creating a fresh contract, and he was trying to convey in this email to Ms Thibault that he would not create a new contract between GHL and ISAC or assume personal liability for the contract. He did not enquire with Lifeline whether it would be prepared to accept an assignment or a novation of service contracts. He did not see that as part of his duties as liquidator.

[55] On 2 May 2011 Mr Managh contacted ISAC regarding access to GHL’s information and procedures stored on ISAC’s system. Mr Managh requested that ISAC “deliver up immediately” all company records or material held or maintained by ISAC for GHL to David Sadie of IT Live, Lifeline’s contracted IT provider. On the same day Ms Thibault acknowledged receipt of Mr Managh’s demand and agreed to make the requested information available provided that Mr Managh/GHL paid the costs involved with the request. She also noted “[w]e have disabled the services as advised could occur as per my email 28 April”.

[56] On 3 May 2011 Mr Managh agreed to pay the reasonable and proper costs for the electronic transfer of the records under protest. Ms Thibault replied to Mr Managh by email that day copying in Ms Denvir. She said that the cost was to

recover the reasonable costs incurred in providing the data. She said that she was not sure why ISAC’s frequent requests to engage in dialogue were refused. She said that the 30 day termination notice period in the agreement was in part to enable sufficient time for a handover in a controlled and non-disruptive manner. She asked “would you like to negotiate a restoration of services on an hourly basis and a supported hand-over of services in a manner which is not disruptive to the daily operations?”

[57] Ms Denvir’s evidence was that, given the way ISAC terminated the services with at best one and a half days’ notice, she “wasn’t inclined to want to enter into a relationship at that stage with ISAC”. She also said that IT Live and Irie had started transferring data to Lifeline’s servers. Ms Denvir replied to Ms Thibault via email also on 3 May 2011. In her reply she said that Ms Thibault’s claim that she had made frequent requests to engage in dialogue was “somewhat overstated”. She went on to say:

Until reading your emails I was completely unaware that you had a supply contract with Gambling Helpline. Given that your employee, Mr Bruce Tonkin, was a Trustee of Gambling Helpline and therefore fully aware that the organisation was in liquidation, I am surprised that you had not contacted Lifeline to discuss this rather substantial contract earlier on in the process.

[58] On 4 May 2011 Ms Thibault replied to Ms Denvir. Her email set out a timeline of her previous communications with Mr Managh. She stated:

...

At each step of the way we initiated contact and repeatedly asked to discuss the contract and its future. We have been more than fair and reasonable in the circumstances and are still baffled as to why the agreement for such critical services would be terminated so abruptly and without discussion with us.

We are surprised that you were not aware of our agreement with GHL prior to the liquidator’s decision not to novate the agreement. Generally this would be decided after discussion with the future provider of the services – in this case Lifeline.

We share your concern on the impact this cessation of services may have on GHL clients and offered to re-instate the services on an hourly basis. The suggestion was put to you yesterday at 2:30pm, but neither Lifeline nor the liquidator have acknowledged our offer. GHL’s full computer capability could have been restored before close of business yesterday but you chose not to.

[59] On 4 May 2011 Ms Denvir replied. She asserted that Mr Tonkin “had more than adequate notice of liquidation and the then looming cessation of business”⁵ and said:

My expectation would have been for ISAC to approach Lifeline with the view to entering into a new contractual relationship with the new service provider. Your approach with threats of liability for very significant sums of money for a contract yet to be fulfilled does not encourage the view that a fair and balanced business relationship could be renewed or established.

Proof of debt submitted

[60] On 9 May 2011 ISAC sent its proof of debt claim to Mr Managh. The letter, signed by Ms Thibault, stated as follows:

RE: Gambling Helpline Ltd Debt to ISAC New Zealand Ltd

Hello,

ISAC NZ Ltd has the following debt claim with Gambling Helpline Ltd at the time and date of liquidation:

Item Description Amount (ex

_GST)

GST

_{Invoice 4483 For services in April 2011 $5980 $897}

Invoice 4502 Damages for early contract termination (26 months of fixed charges as per contract terms)

Telecom charge Contract Early Termination charge from Telecom for GHL DSL circuit

$155,480 $23,322

$176.89 $26.53

Explanation:

ISAC NZ Ltd had an IT service supply agreement with Gambling Helpline Ltd to supply 100% of their office IT and Internet requirements. This agreement was formalised with a signed contract between the parties. In the contract both parties agreed in advance what the damages would be for early termination by Gambling Helpline Ltd.

On the 2 May 2011 the liquidator sent notice that the contract would not be adopted or novated so the early termination clauses of the contact apply.

⁵ By this it is apparent that she was referring to notice that the GHL had been placed into liquidation and its business would cease, rather than advance notice of an intention to put GHL into liquidation.

ISAC NZ Ltd incurred significant direct costs and opportunity costs in February and March 2011 in setting up the IT services for Gambling Helpline Ltd. These costs were not invoiced to Gambling Helpline Ltd as they were to be recovered over the life of the contract.

Issue over lost data

[61] On 9 May 2011 Mr Sadie from IT Live asked Ms Thibault for the recovery of Dr Bellringer’s email account and user directory. On 16 May 2011 he asked for the restoration of Dr Bellringer’s email as at 24 March 2011. Ms Thibault replied “I’m afraid the backup service we had with GHL is only for a rolling month of backups. The oldest backup we have is for the 17 April”.

[62] On 18 May 2011 there were a series of emails between Mr Sadie and Ms

Thibault as follows:

(a) Mr Sadie sought an explanation as to why ISAC did not have the backups since its contract with GHL said that it would keep six weeks of backups.

(b) Ms Thibault replied saying:

With weekly backups only available after two weeks, to recover information prior to 25 March we would need to go back to the Sunday prior, 20 March, and that date was 9 Sundays ago. The Sunday after was 8 weeks ago.

Your request was made on 16 May – six Sunday’s back from then takes us to 10 April. The tape from 10 April failed a recent verification and has been replaced, so the next available date is 17

April.

(c) Mr Sadie’s response was to say that the six weeks should be prior to 2

May 2011 when the services were cancelled and asked “are you busy

destroying the only backups there are?”

(d) Ms Thibault replied explaining that the backup service was a shared service and not exclusive to GHL. She said that this meant that the backup tapes were shared by other customers and each week the

oldest data is overwritten. She said that the earliest backup they had was from 17 April 2011.

(e) Mr Sadie responded:

I would suggest ISAC find a way to store the last backups you have as nowhere in your contract does it say you are sharing backups. I am not sure how Lifeline are going to respond to this but I will report back that this data is lost.

Proof of debt rejected

[63] In response to ISAC’s proof of debt, on 17 May 2011 the liquidator requested

“all documents relating to [ISAC’s] involvement with [GHL] for the period 1 April

2010 until today’s date”. On 16 June 2011 the liquidator rejected ISAC’s proof of

debt claim. In a letter to Ms Thibault he stated:

1. Your Proof of Debt signed 9 May 2011 and our unanswered information requests refer. You have not sufficiently identified relevant documents (s304 (1) (b) Companies Act 1993).

2. Your Proof is in any event rejected.

2.1 There was no valid variation of the existing information services contract.

2.2 The claim for damages on the unexpired portion of the purported contract is in any event unsupported by consideration.

2.3 The claimed contract was not authorised by the company and was not binding on the company.

2.4 Moreover it is a claim which is entirely inconsistent with the company’s own records of such contracts with you (Any such variation or new contract is not mentioned in any reports to the Board nor in any of its minutes).

2.5 The claimed contract was ultra vires to your knowledge, in that it was not properly authorised by the company and involved a director with an interest in the claimed contract who did not disclose such interest in respect of the company’s dealings in respect of the contract.

[64] The liquidator has since paid out “several hundreds of thousands of dollars” to Lifeline. He retained $195,000 in the liquidation estate to cover ISAC’s claim. That sum is now insufficient to pay the claim as it now stands. The liquidator has

made provision for Lifeline to reimburse the liquidation estate if there is a shortfall in the funds available to meet this claim.

Claim for future debt

Submissions

[65] ISAC submits that:

(a) The liquidator should have accepted its proof of debt because the monthly charges under the balance of the agreement were a contingent obligation as at the date of liquidation.

(b) The obligation to accept the debt does not depend on an analysis of the termination provisions under the agreement. At their highest the liquidator’s subsequent actions turned the contingent obligation under the agreement to an actual obligation.

(c) It would only be if the liquidator’s actions were treated as a disclaimer of the agreement that the question of damages (and an obligation to mitigate) would arise.

[66] The liquidator’s submissions do not address this submission except possibly very briefly in reply submissions. In those reply submissions the liquidator says that the “proof of debt materially claimed the whole of the balance of the contract fixed charge without provision of service or without reference to any form of discount or credit” and that “the liquidator was entitled to reject a contingent proof of that kind.”

Legislative provisions

[67] Section 303(1) of the Companies Act 1993 provides that:

... a debt or liability, present or future, certain or contingent, whether it is an ascertained debt or a liability for damages, may be admitted as a claim against a company in liquidation.

[68] The amount of a claim is ascertained as at the date of liquidation.⁶ If the claim is subject to a contingency the liquidator may make an estimate of the claim or refer the claim to the Court for a decision on the amount.⁷ A claim for a future debt, that is debts that but for the liquidation would not be payable until a date that is six or more months after the date of liquidation, is to be treated as a claim for the present value of the debt.⁸

My assessment

[69] ISAC submits that the case is “on all fours” with Pitfield v Dorchester Finance Ltd.⁹ That case concerned a contract for the lease of office equipment. The contract required the company to make monthly payments for the lease of the equipment. At the date of liquidation there was still nearly four years of the lease left to run. The liquidators requested that Dorchester uplift the equipment, which it did. Dorchester submitted a proof of debt for the lease payments for the balance of

the lease. The High Court found that, through Dorchester acting on the request to uplift the equipment, it exercised its right to terminate the lease.

[70] It was argued for the liquidator that Dorchester’s right to claim for the contingent liability of the monthly lease payments for the balance of the lease was extinguished when Dorchester terminated the lease. The Court disagreed. A clause in the lease expressly provided that, if the agreement was terminated, the company was required to pay the balance of the monthly payments until the end of the lease. It was held that the effect of this clause was to crystallise the contingent liability. The payments payable under that clause were an actual liability which could be proved in the liquidation.

[71] I accept that as at the date of liquidation there was a future contingent debt. That future debt was to pay the monthly service charges under the 2011 contract. It was contingent on provision of the services. That is because, under the terms of the agreement, the charges were payable for services provided (refer [23]). If the

_{services were not provided there was no entitlement to payment for them except if}

⁶ _{Section 306(1).}

⁷ _{Section 307(1).}

⁸ _{Section 309(1).}

⁹ Pitfield v Dorchester Finance Ltd [2004] 3 NZLR 237 (HC).

clause 11.2 applied. In Pitfield v Dorchester Finance Ltd the claim for ongoing monthly payments could be made because the contract provided for them in the event of termination. Just as in Pitfield v Dorchester Finance Ltd, here a claim could be made in the liquidation for GHL’s actual liability under clause 11.2 if it applied. The amount of that claim would be determined as at the date of the liquidation.

[72] The proof of debt was submitted to the liquidator on this basis. It was not a claim for the future debt of the monthly charges remaining under the agreement. It was submitted as “Damages for early contract termination (26 months of fixed charges as per contract terms)” (refer [60] above). That was a claim under clause 11.2. Although that clause was not specifically referred to, it was the only contract term providing for payment of fixed charges for the balance of the contract, which was 26 months (1 May 2011 to 30 June 2013).

[73] It follows that I do not accept the submission for ISAC that the provisions of clause 11.2 need not be analysed. It is relevant to consider whether clause 11.2 applied.

Claim under clause 11.2

Submissions

[74] Because ISAC’s submissions were put on the basis that clause 11.2 was not relevant, it did not make submissions on whether it applied. The liquidator did, however, make submissions on it. The liquidator contends as follows:

(a) The liquidator did not at any point terminate the agreement under clause 10. His 2 May 2011 email (refer [52] above) was sent to absolve him of any personal liability to ISAC.

(b) ISAC did not terminate the services under clause 10.2 or 10.3 because formal written notice was required but not given. Rather it claimed that the liquidator had terminated the agreement. It then unilaterally and without notice switched off access to the servers on or before 2

May 2011.

(c) Clause 10.3 requires strict compliance. It was not strictly complied with. This means that clause 11.2 cannot be relied upon. As a result, either the contract was terminated under clause 10.1 (with an inadequate length of notice), but more likely the contract was terminated outside the terms of the contract (by ISAC accepting the repudiation of it). This left ISAC with its common law remedies.

My assessment

[75] Under clause 10.3 of the agreement ISAC was entitled to terminate the agreement by giving notice in writing where GHL goes into liquidation. In contrast with clauses 10.1 and 10.2, no time period was stipulated for that notice. If notice was given under clause 10.3, then clause 11.2 applied.

[76] ISAC’s email on 21 April 2011 (refer [43] above) requested a response by 28

April 2011 as to the liquidator’s intentions under the agreement. That email put the liquidator on notice that in the absence of a response, ISAC “may need to initiate termination of the services under clause 10.3”. That email also put the liquidator on notice that in that event, a claim under clause 11.2 for the balance of the fixed charges would be submitted.

[77] When the liquidator failed to provide ISAC with any indication as to his intentions with the contract going forward, by its email on 28 April 2011 (refer [47] above), ISAC put Lifeline and the liquidator on notice that “we are permitted to immediately terminate the agreement and suspend all services.” The email also gave notice that ISAC would then claim the agreed damages for an early exit (ie a reference to clause 11.2). It further gave notice that “[i]f I do not hear from you by

5:00pm on 29 April 2011, services may be immediately terminated without further

warning.”

[78] Neither Lifeline nor the liquidator replied within the timeframe requested. ISAC gave them a further opportunity to reply by Ms Thibault’s email on 2 May

2011 (refer [51] above). The only response she received was that from the liquidator (refer [52] above) informing ISAC that he would not be adopting or creating a novation, that ISAC would be paid for services up to the close of business that day,

that ISAC was wrong to involve Lifeline in GHL’s affairs, and that ISAC could file a proof of debt in the liquidation. After receiving that response, and a request to deliver up GHL’s information, ISAC disabled the services (refer [55] above).

[79] ISAC was entitled to terminate because GHL was in liquidation. It gave notice of its intention to terminate under clause 10.3 in its emails of 21 and 28 April

2011. The liquidator contends that these emails were not notice of termination because “threats do not count”. However the emails made it clear that termination could occur if ISAC did not get a response from the liquidator or Lifeline about their intentions for the contract. That was “notice in writing” of an intention to terminate dependent upon the response it received.

[80] ISAC then decided that it would act on the notice it had given. It did so after receiving the response on 2 May 2011. By that stage it had not received any indication that services would continue to be required under the contract. Rather it was clear (from the liquidator’s response on 2 May 2011 and the failure of Lifeline to respond) that those services were not required. In those circumstances it acted on the notice it had given when it disabled the services on 2 May 2011.

[81] The liquidator says that the 2 May 2011 email was not notice of termination because ISAC claimed that it was the liquidator who terminated. That submission seems to be based on Ms Thibault’s evidence that she viewed the liquidator’s 2 May

2011 email as notice of termination by the liquidator and the reference to termination by GHL in the proof of debt that was filed. That, however, is not a correct legal statement of what occurred. The legal position was that notice of an intention to terminate was given in the 21 and 28 April 2011 emails and notice that termination had in fact occurred was given in Ms Thibault’s 2 May 2011 email.

[82] As notice in writing was given under clause 10.3, it follows that clause 11.2 applies. ISAC was entitled to terminate the contract regardless of whether it could also exercise a right to cancel the contract for GHL’s repudiation of the contract and regardless of whether GHL could also have terminated under clause 10.2 (in which case clause 11.2 would also apply). This conclusion means that it is necessary to consider whether the contract, and clause 11.2 in particular, is enforceable.

Authority to contract

Submissions and evidence

[83] The liquidator contends that ISAC cannot claim under the 2011 contract because Dr Bellringer did not have authority to enter into the 2011 contract without GHL Board approval and that ISAC must have known that. ISAC says that Dr Bellringer had delegated authority to enter into the contract.

[84] Dr Bellringer’s evidence was that she had authority to enter into the contract and did not need to take the decision to the Board. This was because ISAC was an existing contractor and the monthly payments were within the approved budget of the Board. Dr Bellringer said that, as CEO of GHL, she had authority to renew existing contracts as well as incurring new capital expenditure obligations of up to

$10,000 without reference to the GHL Board. She said that she would refer supplier contracts to the Board if GHL was changing suppliers, but otherwise she would renew contracts. Mr Tonkin and Mr Bogan supported this evidence. Mr Bogan and Mr Tonkin said that only major contracts that could put the organisation at risk needed to go the Board. They considered the Ministry of Health contract to be the only one in that category for GHL.

[85] They supported their position with reference to a draft governance handbook for GHL dated November 2010. Although the handbook was a “draft” Mr Tonkin said that it reflected the “standard practice” of GHL and was an attempt to “put in writing and codify the existing policies of the business”. Dr Bellringer and Mr Bogan both said that there was an earlier version of the governance handbook and the draft November 2010 version was an update of that and Dr Bellringer said it was “practically the same” as its predecessors.

[86] The draft governance handbook contained a “financial delegation policy”

which was as follows:

Delegation to Chief Executive Officer

Financial delegation policy:

The Chief Executive Officer will abide by the following policy statements:

1. Any expenditure decision is not permitted if there are insufficient funds to maintain known operational commitments and/or such action is likely to result in the Company being financially embarrassed.

2. All expenditure must be within approved specific budget allocations. The Chief Executive Officer holds individual authority to commit up to

$10,000 on capital expenditure items without Board approval subject to 1 and 2 above.

The Chief Executive Officer has the right to delegate this authority to a senior member of staff to a limit of $1,000 subject to 1 and 2 above.

[87] The draft governance handbook also provided:

(a) Under the heading “Budgeting”:

The Chief Executive Officer shall be responsible for preparing annual draft operating, maintenance and capital, cash flow and performance budgets (July to June) for discussion and approval by the Board. The budgets shall be consistent with the Board’s strategy.

(b) Under the heading “Contract and employment”:

Gambling Helpline will operate as a good employer, and pay its employees and contractors a fair remuneration. The Chief Executive Officer will be responsible for negotiations with staff and contractors for all budgeted items. The Chief Executive Officer will have the authority to implement all approved budgeted items as long as the cash flow remains positive ...”.

[88] Dr Bellringer, Mr Tonkin and Mr Bogan were all of the view the key requirement was that the CEO remain within budget. As Mr Bogan put it, Dr Bellringer could “implement all approved budgeted items as long as the cash flow remains positive”. For him it was “all about the money”. He explained that when he first joined the Lifeline Board it did not have the money to pay the wages for that week, so Mr Bogan endeavoured to get Lifeline to live within its budget. Mr Bogan said that once the Board approved the budget it was expected that contractors engaged by the CEO would fall within the approved figures in the budget. He said that it was the CEO’s responsibility to arrange suppliers, negotiate the terms of the contracts with the suppliers and the Board would have no involvement.

[89] The relevant budget in relation to the 2011 contract was contained in GHL’s draft business plan for the period July 2010 to June 2011. Under the heading “Communication” there was a line item for “Computers”. This showed an allocation of $8,500 each month for that period except for the month of May 2011 where the amount was $9,200. Dr Bellringer considered that the ISAC contract fell within this line item and the monthly ISAC charges were within this budget.

[90] Dr Bellringer, Mr Tonkin and Mr Bogan supported that evidence by reference to other supplier contracts. Mr Bogan said that during his time on the GHL Board no other supplier contracts were referred to the Board for approval. Dr Bellringer agreed with this and gave the example of GHL’s contract with Irie which was entered into 2010 and was for a fixed term of 12 months¹⁰ and cleaning contracts which she regularly reviewed. Mr Tonkin also agreed with this evidence.

[91] The liquidator contested this evidence in a number of ways. First he referred to the 2004 contract which went to the Board for approval. Mr Tonkin and Mr Bogan responded that the only reason this contract went to the Board was due to Mr Tonkin’s interest in ISAC as a director and shareholder. Once the Board was satisfied about the conflict, the CEO was left to negotiate the terms with ISAC. After that they considered that the 2005 and 2011 agreements did not need to go back to the Board as they were “renewals” of the 2004 agreement.

[92] Ms Denvir and Mr Managh, on the other hand, said that the 2005 and 2011 contracts were not renewals. They are correct in the sense that neither the 2005 nor the 2011 contract were extensions made pursuant to and in accordance with a renewal provision in an existing contract. The 2005 contract was a new contract entered into on essentially the same terms as the 2004 contract. The 2011 contract was a new contact entered into on new terms. These contracts were renewals of the

2004 contract only in the sense that ISAC continued to be the service provider. Mr Bogan and Mr Tonkin were of the view that, because Mr Tonkin’s conflict had been considered at Board level in 2004, it was not necessary to go back to the Board for

_{approval to continue with ISAC as the service provider. They also said that the}

¹⁰ GHL’s database was maintained by Steven Davies from Irie Solutions Ltd (Irie) under a separate contract. Irie maintained and stored back-up copies of database information which were to be overwritten every fortnight, as well as additional IT support services

Board was aware that ISAC continued to supply IT services and that, as Mr Bogan

put it, “they had contracts sitting behind them to support those services.”

[93] Secondly, the liquidator referred to smaller matters which had gone to the GHL Board for approval (namely, Dr Bellringer’s credit card limit of $10,000 and expenditure on a white board). Dr Bellringer explained that the Board wanted her to have a credit limit of $20,000 for an overseas trip, but the bank would not increase the limit, so she took the issue back to the Board. Dr Bellringer could not remember why she raised the issue of expenditure on the whiteboard but thought it could have been because the money for it was not included in the budget.

[94] Thirdly, the liquidator referred to the concern expressed by Mr Bogan when Ms Denvir entered into the Ministry of Health contract, and Ms Denvir and Dr Bellringer entered into the subcontract, without Board approval (refer [10] above). Dr Bellringer, Mr Tonkin and Mr Bogan considered that the difference between that subcontract and other contracts such as the 2011 contract was the importance of the subcontract to GHL, comprising almost all of its income stream for a three year period.

[95] Fourthly, the liquidator referred to the risks associated with the 2011 contract. In particular it was for a longer period than the 2004 and 2005 ISAC contracts, it incorporated a price increase and it provided for a payment if the contract was terminated early. Further, the ISAC contract was the second most significant expense for GHL after salaries. GHL’s ability to meet the payments under the ISAC contract was dependent on the contract between Lifeline and the Ministry, which was able to be terminated by the Ministry (refer [11] above). It was also dependent on GHL’s income under the Lifeline subcontract at a time when the relationship between GHL and Lifeline had become very difficult.

[96] In response, the witnesses for ISAC said that they did not regard the ISAC contract as risky. The increased price was for increased services. The term of the contract and the payment for early termination was regarded as not out of the ordinary. The term of the contract was to allow ISAC to recover upgrade

expenditure. It aligned with the Ministry of Health contract. That contract was

regarded as “very safe”. There was no inkling of imminent liquidation.

The law

[97] A contract can be entered into on behalf of a company by a person acting under the company’s implied or express authority.¹¹ Even if there is not actual authority, there may be apparent or ostensible authority. This will arise where a company holds out or represents to a third person that a person is authorised to contract on its behalf. In that case the company cannot assert against that third person that there is no authority to enter that contract unless the third person has or ought to have knowledge that there was no authority.¹²

My assessment

[98] In my view the evidence establishes that Dr Bellringer had actual authority to enter into the contract. Dr Bellringer, Mr Tonkin and Mr Bogan all say that Dr Bellringer had that authority. Their evidence is not contradicted by the matters relied on by the liquidator. In particular:

(a) The draft Governance Handbook supports their evidence that Dr Bellringer could enter into the 2011 contract. It does not matter that this was a “draft”. The evidence was that it reflected the practice of GHL. The draft provided that the CEO had delegated authority to negotiate contracts within current budgeted expenditure for the year. The cost of the monthly payments under the ISAC contract fell within the budgeted expenditure approved by the Board for “computers”. There is nothing in the draft Handbook to suggest that there needed to be specific authorisation for the ISAC contract rather than the specific “computers” budget allocation.

(b) The Board minutes in 2004 record that the contract was a management decision (refer [5] above). It only went to the Board

¹¹ _{Companies Act 1993 s 180(1)(b).}

¹² Section 18.

because of Mr Tonkin’s conflict. The Board dealt with that conflict by requiring that other quotes be obtained. They left the terms for management to negotiate. Thereafter ISAC remained the supplier and the Board was aware of that. It may have been good governance practice for the 2005 and 2011 contracts to have gone back to the Board for approval (in light of Mr Tonkin’s conflict), but there is no evidence that this was required by the Board and that if such approval was not obtained the Board did not intend the company to be bound by those contracts. There is no suggestion that the Board was concerned to know on what terms ISAC’s continued supply of services was occurring, or that it otherwise wished to exercise control over the terms on which ISAC would remain as a supplier.

(c) Mr Bogan’s concern with Dr Bellringer entering into the Ministry of Health subcontract without the Board’s approval was explained by the importance of that contract to GHL’s ongoing existence. The ISAC contract was not of the same significance and it was not viewed as particularly risky for the reasons the witnesses for ISAC gave.

(d) The two instances of small matters going to the Board were explained.

No other supplier contracts were referred to the GHL Board for approval.

[99] I therefore find that GHL was bound by the 2011 contract.

Lost data

Submission

[100] The liquidator contends that he is entitled to challenge the amount claimed by ISAC. He submits that there is evidence to support a claim that ISAC breached the contract by failing to maintain back up information and in overwriting GHL’s information. He submits that this should be the subject of an ordinary proceeding, rather than something for consideration under ISAC’s application under s 284 of the

Companies Act. ISAC submits that there is no substance to the liquidator’s claim of

breach of contract.

The evidence

[101] The basis for the claim of lost data was Mr Sadie’s evidence. He was critical of ISAC’s failure to retain the data he requested. He said:

I understand that the contract was cancelled by email dated 2 May 2011. If backups had been kept for the previous 6 weeks that would mean that backup information was available dating back to 25 March 2011. In fact, although the contract had terminated, it appears that the backup tapes then continued to be overwritten, with the result that some of Gambling Helplines data was lost.

[102] Ms Denvir claimed that there were client notes missing from GHL’s server.

She said:

It appears that the way in which the contract between [GHL] and Isac worked is that Isac kept only a “rolling” 6-week backup of data, which was then overwritten. This meant that, at any point in time, there was only a 6- week history of calls made, times and dates, and counselling given to users of the helpline. Earlier data was being over-written, unbeknown to Lifeline Auckland and, I believe, Gambling Helpline.

[103] On cross examination Ms Denvir could not specify what notes were missing. She said that it was telephone helpline counsellors who informed her that there were information gaps but they did not identify the gaps. She did not make further inquiries. She claimed that there had been a short-term effect on the service provided by Lifeline because of the information claimed to be missing, but no longer-term impact.

[104] Ms Thibault explained that ISAC retained six weeks of back up information and that by the time Mr Sadie made his request for emails as at 24 March 2011, that information was no longer available. She also explained that even if the request had been made on 2 May 2011 the oldest back up tape ISAC would have had was from

27 March 2011.

[105] Ms Thibault also explained that ISAC only hosted the database on its server and that they backed up the servers every day. She said that a back up of data on any

given day contained everything that was on the server at that time, which would include clients notes made on that day as well as client notes made at any time prior, and all user mailboxes. According to Ms Thibault the only way information would go missing was if it was removed for some reason. Emails would not be backed up if the user deleted the emails and then deleted it from their deleted items folder.

My assessment

[106] To the extent that the liquidator initially claimed there was missing data because Ms Thibault could not retrieve the information Mr Sadie requested, it was based on a misunderstanding. Mr Sadie acknowledged that the backups of Dr Bellringer’s email which he requested could not have been obtained under ISAC’s rolling backup system. The liquidator did not point to any contractual provision which required ISAC to retain data beyond a six week period at any given time.

[107] To the extent the claim was based on missing client information or counsellor notes it was unsubstantiated. Ms Denvir was unable to point to specific information that was missing or the time period to which it related. She did not undertake any further enquiries to determine the scope of the issue. She could also not confirm that the data was missing due to an IT fault. She could not point to any loss.

[108] The liquidator has had the opportunity to put forward evidence for the claim that ISAC breached the 2011 contract. The evidence put forward is without substance. I would not deny ISAC relief on this application on this basis.

Penalty

Submissions

[109] The liquidator submits that clause 11.2 is unenforceable because it is a penalty. He submits that ISAC has failed in its discovery obligations and that therefore all the relevant evidence is not before the Court. He submits that in so far as there is evidence:

(a) clause 11.2 purported to provide for more than ISAC could have ever claimed for damages for breach;

(b) there is not one single document produced which supports clause 11.2 as a genuine pre-estimate of damages that would be suffered;

(c) Ms Thibault said that it was agreed in the discussions with GHL that there could be flexibility in the makeup of the price on account of over or under use and that this could be discussed further if it occurred. This indicates that, where there has been no use for the balance of the contract, ISAC could not expect to receive the full monthly payment;

(d) of the total monthly charge, $2,000 was for a help desk service which required input from a human being. This cannot be a genuine pre- estimate of loss if that human being had nothing to do for the balance of the contract;

(e) to the extent that the balance of the monthly charge was for cost recovery for the hardware/software set up, some of that must have been recovered through other customers and, in any event, it is not clear on the evidence that to recover the set up this payment was required for the whole of the contract.

[110] ISAC submits that there is nothing penal in entering into a fixed term contract and payment of rental for that term. It submits that there was nothing penal in the term and this was particularly so when the cost of the technology upgrade was amortised over that term. It submits that there was also nothing penal or unreasonable in the monthly fee. It says that these provisions are in line with industry norms and no evidence has been produced to show otherwise.

[111] ISAC further says the liquidator’s approach to discovery was disproportionate and not specific. ISAC provided full discovery of the expenses directly attributable to the specific requirements of GHL. As no infrastructure costs were able to be cut there was no documents that were discoverable relating to this. Documents relating to ISAC’s overall performance were not relevant. There was no

obligation on ISAC to mitigate loss but even if there were the liquidator needed to identify what steps ISAC ought to have taken.

The evidence

[112] Ms Thibault said that the basis of ISAC’s contract with GHL was “to provide high availability services to the users and to maintain the IT infrastructure with current (up-to-date) hardware and software technology all within a fixed price.” The monthly fee was $5,980 although “it was agreed that over or under use on a regular basis would be discussed further if either party were aware of this occurring”. Of that $5,980, $2,000 per month was intended to cover IT services support as requested (calculated on the basis of about 20 hours per week). The balance of

$3,980 per month was to cover:

(a) capital expense recovery for a dedicated GHL server. The capital outlay up to March 2011 was $31,800 (excluding GST);

(b) outsourced server hosting and internet access services (co-location of four servers in a controlled environment, unlimited high speed internet access, email service, hosted exchange server, repositories for user and user group documents, spam and virus email filtering, with a high level of firewall protection for all systems);

(c) 24 hours, seven days a week help desk service (based on supporting

12 staff and three printers);

(d) individual backup of each server onto media and offsite storage of this information;

(e) managed services (network and server maintenance and monitoring, application support, backup and “DR” services).

[113] Ms Denvir and Mr Sadie provided evidence which seemed directed to contending that the $5,980 was excessive. They did that with reference to IT Live’s services to Lifeline. There are two problems with this evidence. The first is that Mr

Sadie accepted that IT Live’s service was different in scope and did not include any cost recovery for new hardware. The second is that the question is not whether GHL agreed to pay too much for the services provided by ISAC, but whether the payment under clause 11.2 was a genuine pre-estimate of ISAC’s loss in the event of early termination or amounted to a penalty for early termination.

The law

[114] Where a contract is breached by one party the innocent party may recover damages to compensate for that breach. The usual compensation measure is to put the innocent party in the position he or should would have been in if the contract was performed. This is a “net loss” approach in which the gains made by the innocent party (eg savings made because the innocent party is relieved from performing its side of the contract) must be set off against his or her losses arising from the breach

(after he or she has taken reasonable steps to minimise his or her losses).¹³

[115] Parties may agree in their contract that, in the event of a breach, the contract- breaker shall pay to the other party a specified sum of money. That specified sum is termed “liquidated damages”, in contrast with “unliquidated damages” which are where they are at large and to be assessed by the court.¹⁴ However equity and common law has “long maintained a supervisory jurisdiction, not to rewrite contracts imprudently made, but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather than compensatory.”¹⁵ In exercising this jurisdiction the courts must not be too ready to find unconscionablity or oppressiveness of this kind “lest they impinge on the parties’ freedom to settle for

_{themselves the rights and liabilities following a breach of contract”.}¹⁶

¹³ HG Beale and others (ed) Chitty on Contracts (31st ed, Sweet & Maxwell, London, 2012) at

_[26-001].

¹⁴ _{At [26-007] and [26-171].}

¹⁵ AMEV-UDC Finance Ltd v Austin [1986] HCA 63; (1986) 162 CLR 170 at 193 approved by the Privy Council in Philips Hong Kong Ltd v Attorney-General of Hong Kong (1993) 61 BLR 41 at 57, and cited and applied in Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA) at [57].

¹⁶ AMEV-UDC Finance Ltd v Austin, above n 15, at 194 cited in Amaltal Corporation Ltd v

Maruha (NZ) Corporation Ltd, above n 15, at [57].

[116] The party who contends that the sum is a penalty has the onus of proving it.¹⁷

The following propositions may assist in determining whether a sum is a penalty:¹⁸

(a) Whatever the language used by the parties, the Court must determine whether the required payment is in truth a penalty or liquidated damages.

(b) The essence of a penalty is a payment of money stipulated as in terrorem of the offending party. The essence of liquidated damages is a genuine pre-estimate of damage.

(c) The question of whether a sum stipulated is a penalty or liquidated damages is one of construction to be decided on the terms and inherent circumstances of each particular contract judged as at the time of the making of the contract, not at the time of breach.

(d) The sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach of the contract. Alternatively it will be held to be a penalty if the breach consists only in not paying a sum of money and the sum stipulated is greater than the sum which ought to have been paid.

(e) There is a presumption that there is a penalty when a single sum is made payable on the occurrence of one or more or all of several events.

(f) A sum can still be a genuine pre-estimate of damage even if the consequences of the breach are such as to make precise pre-estimation

¹⁷ John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [21.2.6].

¹⁸ Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79 (HL) in a number of New Zealand cases. See for example, Durran Holdings Ltd v Cone Enterprises (NZ) Ltd HC Dunedin CP29/01, 17 October 2001 at [44]; Smith Developments Ltd v Dormer Construction Ltd HC Christchurch CIV-2005-409-2742, 26 May 2006 at [26]; Camatos Holdings Ltd v Neil Civil Engineering (1992) Ltd [1998] 2 NZLR 596 (HC) at 606; FM Custodians v Patullo HC Christchurch CIV-2010-409-684, 4 June 2010 at [30].

almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.

[117] There may be other provisions in a contract requiring payment of a sum of money for reasons other than in the event of a breach. The law is not so clear as to when the court will exercise its supervisory jurisdiction and consider whether the clause is unenforceable as a penalty.¹⁹ However a recent decision of the High Court of Australia has held that it is not just situations of breach of contract that engage the penalty doctrine.²⁰ In this case it is not necessary to consider the precise limits of when a clause will be subject to that supervisory jurisdiction because:

(a) ISAC did not put its case this way. It contended that the GHL, through the actions of the liquidator, had repudiated the agreement. The liquidator agreed that it was “beyond doubt” that there was a breach given the refusal to pay for or expect to continue to take and receive the services provided by ISAC under the contract.

(b) Clause 11.2 is similar to provisions which have been subject to scrutiny as a penalty. An example is Lombard Plc v Butterworth.²¹

The case involved the hire of a computer, the payment for which was to be via instalments over the term of the contract. When payments were made late the lessor exercised its right under the contract to repossess the computer. A clause in the contract provided that in the event of repossession the lessee was liable to pay all future payments which would have been payable under the balance of the contract. It

_{was held that this was an unenforceable penalty.}²²

¹⁹ _{See Beale and others, above n 13, at [26-183]-[26-188].}

²⁰ Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30, (2012) 247 CLR 205 at [46] in a case concerning various bank fees charged to customers.

²¹ _{Lombard North Central Plc v Butterworth [1987] 1 QB 527 (CA).}

²² It was a penalty in that case because it obliged the lessee to pay the whole of the contract regardless of the materiality of the breach that led to the right to repossess. Damages could, however, be claimed for the whole of the contract on the basis that this was in fact the actual loss in that case.

[118] If the provision for the payment of a sum is unenforceable as a penalty, it is a condition of the exercise of supervisory relief that the party will have to pay the damages which the innocent party has in fact sustained. In the present case that position is expressly reserved in clause 11.3.

My assessment

[119] The 2011 contract is for a minimum term. Although GHL may give up a service or terminate early, they do so under the “threat” that ISAC will require payment for the full term under clause 11.2. Clause 11.2 also applies if GHL commits a material breach or where GHL’s ability to continue to take services and pay for them is in doubt (due to liquidation or insolvency). Either way, clause 11.2 seeks to enable ISAC to recover payment in full for the minimum term.

[120] Outside the position provided for in the contract, if GHL repudiated the contract or committed a substantial breach and ISAC elected to cancel the contract, ISAC would be entitled to damages that put it in the position it would have been in had the contract been performed. That would be the monthly payments for the services to the end of the minimum term less the costs saved to ISAC in providing those services. ISAC would also be required to mitigate its loss. In contrast with that position clause 11.2 makes no attempt to take into account costs saved by ISAC in the event of early termination. In theory at least there ought to be some savings if services no longer need to be provided. That theory is supported by Ms Thibault’s evidence that an adjusted price might be agreed upon if it turned out that there was under or over use. To the extent that an early termination of the contract involved any savings in ISAC’s human resources or savings in other costs involved in the supply of services, the full monthly charges would not approximate ISAC’s loss.

[121] At the hearing Ms Thibault gave evidence to the effect that there were no savings in costs to ISAC when it ceased to provide services. She said that equipment was purchased exclusively for use by GHL, and it had been set up and configured with all their data and information copied onto it. She said that ISAC could not reuse the majority of the equipment for GHL. She said that ISAC would destroy hard drives and tapes used to store GHL’s data because they contained confidential

information. She says that ISAC could try to sell parts of the dedicated server but second-hand computer equipment does not tend to sell well. She said that if a new client required a dedicated server ISAC would look at buying a new server because the hardware was then almost two and a half years old. She acknowledged that

$2,000 of the monthly price was for IT services as requested and they would not be incurred once the contract was terminated. But she contended that ISAC would still have to absorb the cost because the 20 hours was spread across different employees. Ms Thibault also said that since the termination of the ISAC contract, ISAC’s client numbers have decreased.

[122] While this evidence may be entirely correct, there are two problems with it The first is that it is about ISAC’s alleged actual losses post termination. Clause 11.2 is to be construed on the circumstances judged at the time of making the contract. Evidence was not directed to that issue and counsel for ISAC did not advance submissions as to why, in light of those circumstances, clause 11.2 was a genuine pre-estimate of loss for early termination.²³ The liquidator has raised matters as to why clause 11.2 may not be a genuine pre-estimate.

[123] Secondly, this evidence came partly in re-examination of Ms Thibault. Counsel for the liquidator objected to this evidence. He says that discovery was sought about this but not provided. Counsel for ISAC says no infrastructure costs were saved and so there were no relevant documents to discover. But the liquidator was entitled to access to ISAC’s documents to test that assertion. The liquidator ought to have pursued this through an application for further and better discovery. But nevertheless there was an obligation on ISAC to discover relevant documents. As Ms Thibault said, she thought that it was “too difficult to provide access” to this information and she did not think it was necessary. This approach did not enable the liquidator to test the information as he was entitled to do. It may be that, because ISAC was contending that clause 11.2 was not relevant (refer above [65]), it

_{misunderstood what discovery ought to have been provided.}

²³ Counsel’s submissions on this part of the case were focussed on a submission that clause 11.2 was a usual provision and that ISAC could mitigate its loss only through offering its services to Lifeline, which it did. These are different points to whether there was any costs saved to ISAC if it were no longer required to supply services to GHL (or Lifeline).

[124] The position I am left with is that, on the state of the evidence before me, I cannot find that the full monthly charges for the remainder of the term is a genuine pre-estimate of ISAC’s loss. Nor, if I was to find that clause 11.2 was an unenforceable penalty, can I determine the damages properly payable to ISAC.

Relief

[125] The application for relief has been made under s 284 of the Companies Act. ISAC seeks an order that I set aside the liquidator’s rejection of the proof of debt and that I make an order that it be paid. The liquidator contends that the application under s 284 was misconceived and that the appropriate course was for ISAC to seek leave to commence proceedings against GHL under s 248 instead.²⁴ Regardless of which procedure was the appropriate one, on the state of the evidence and the basis on which the claim was made I am not able to order the relief as sought. However it is clear that the grounds on which the liquidator rejected the proof were wrong. The

thrust of them was to contend that the contract was not valid. The real issue was whether clause 11.2 was an unenforceable penalty and, if it was, what loss ISAC had suffered. Although the liquidator made an information request in response to the proof of debt filed, it was broadly framed and not focussed on these issues. It was also made against a background of the liquidator and Lifeline refusing to engage with ISAC about the contract and an erroneous accusation by Lifeline’s existing IT provider that ISAC was destroying or not retaining information.

[126] In these circumstances I consider that the appropriate course is to make directions under s 284(1)(a). I direct as follows:

(a) The liquidator is to reconsider the proof of debt filed by ISAC.

(b) In reconsidering that proof, the liquidator cannot reject it on any of the bases he purported to do in his letter of 16 June 2011 nor can he reject

²⁴ See Warren Metals Ltd v Grant [2013] NZHC 263; Bastin Enterprises Ltd v Graham HC Auckland CIV-2008-404-4443, 4 November 2009; Commissioner of Inland Revenue v Zurich Apartments Ltd (2009) 24 NZTC 23,069 (HC) where applications for leave to bring an application under s 284 or to obtain leave to commence a proceeding under s 248 have been sought in the alternative.

it on the basis that ISAC lost or failed to return data as alleged in this proceeding.

(c) The proof of debt is to be accepted if ISAC provides information showing that clause 11.2 reflected a genuine pre-estimate of its loss if the 2011 contract was terminated prior to 30 June 2013. This depends on whether ISAC would save any costs involved in the supply of the services if it was no longer required to supply these services. It does not depend on whether Lifeline or the liquidator views the monthly charges as excessive.

(d) Alternatively, ISAC is to provide information to the liquidator setting out its loss from early termination. Relevant to this are the matters Ms Thibault has raised (at [121]) and that ISAC did act reasonably in attempting to mitigate its loss by offering its services to Lifeline.

(e) The liquidator may request access to information from ISAC in relation to (c) and/or (d) but must act reasonably in making any such request.

[127] It is hoped that both parties will co-operate and act reasonably to finalise the amount that ISAC is entitled to receive. ISAC is entitled to payment and the only question is whether it is for the full amount it has claimed or whether a lesser figure properly represents its loss. I have considered whether to reserve leave for the parties to seek further directions if they are unable to resolve matters. I have decided it is not appropriate to do so. ISAC brought its case on the basis that it did. Its primary submission in this application was that it was entitled to payment of that claim under ss 303 and 309 of the Companies Act. That was not correct. If the parties are unable to resolve matters, a further application may need to be made under s 284 on the issue that has arisen. If the parties act fairly and pragmatically that should not, however, be necessary.

[128] Costs are reserved. The parties may submit brief memoranda if they are

unable to resolve costs as part of the resolution of ISAC’s claim in the liquidation.

Any such memoranda are, however, to be submitted no later than three months of the date of this judgment.

Mallon J