Cardno (NZ) Limited v GLW Group Limited [2016] NZHC 1124 (26 May 2016)

Last Updated: 13 June 2016

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2016-441-006 [2016] NZHC 1124

UNDER	the Companies Act 1993
BETWEEN	CARDNO (NZ) LIMITED Plaintiff
AND	GLW GROUP LIMITED Defendant

Hearing:	10 May 2016
Counsel:	C F J Reid for the Plaintiff M Lawson for the Defendant
Judgment:	26 May 2016

_{JUDGMENT OF ASSOCIATE JUDGE SMITH}

[1] On 12 January 2016, the plaintiff (Cardno) applied for an order putting the defendant (GLW) into liquidation. Cardno claimed that GLW owed it $49,804.78 in respect of outstanding costs for services rendered to GLW between April and November 2014. Cardno also claimed interest and legal costs.

[2] Cardno relied on the presumption of insolvency created by GLW’s failure to

comply with a statutory demand served on it on 30 November 2015.¹

[3] GLW does not dispute that it contracted with Cardno as alleged, or that it owed Cardno the sum of $49,804.78. However it says that the amount of the claim has been paid and/or secured since at least May 2015.

[4] When Cardno’s liquidation claim was called on 21 March 2016, Mr Lawson advised that he was holding a bank cheque sufficient to pay Cardno’s claim.

_{However he had recently become aware of circumstances which suggested that the}

¹ _{Companies Act 1993, s 288.}

CARDNO (NZ) LIMITED v GLW GROUP LIMITED [2016] NZHC 1124 [26 May 2016]

Cardno debt may have been paid. Arrangements were made for the bank cheque to be held by an independent firm of solicitors, pending written agreement between the parties as to its disbursement or direction from the Court.

[5] As a result of counsel’s subsequent enquiries, GLW has come to the view that it is not liable to Cardno. It has filed a statement of defence, in which it makes the contention (referred to at para [3] above) that the debt had been paid and/or secured as early as May 2015.

[6] On 28 April 2016 I directed that the liquidation claim was to be heard on a defended basis on 10 May 2016.

Background

[7] GLW is the owner of certain land in Hawke’s Bay, not far from Havelock North (the land). In or about 2014 it set about subdividing the land. Cardno provided engineering and resource management services to GLW associated with, and in furtherance of, the subdivision.

[8] GLW gave a first mortgage over the land to Westpac Banking Corporation (Westpac). When GLW fell into default under that mortgage, the mortgage was acquired by Lepionka & Company Investments Ltd (the Lepionka mortgagee). The Lepionka mortgagee entered into possession of the property.

[9] It is common ground that at that time GLW owed Cardno the sum of

$49,804.78 for the work carried out by Cardno on the land.

[10] GLW says that the Lepionka mortgagee continued with the subdivision of the land which GLW had commenced, and that in so doing it obtained substantial benefit from the work already undertaken on the land by Cardno.

[11] In an affidavit sworn in support of the liquidation claim, Mr Holder, formerly the New Zealand planning manager of Cardno, stated that, as of 20 April 2016, the debt of $49,804.78 remained due and owing by GLW to Cardno. Mr Holder said that, following the failure of GLW to pay the debt, the Lepionka mortgagee agreed

with Cardno to make a payment to Cardno in order that Cardno would continue to provide its services, so that the subdivision of the land could be completed. Mr Holder confirmed that the Lepionka mortgagee made a payment to Cardno in the sum of $24,902.39, representing half of what was owing by GLW. But he says that that payment was made and received pending payment by GLW; it was agreed between Cardno and the Lepionka mortgagee that in the event of payment of the debt by GLW, Cardno would credit the Lepionka mortgagee with the $24,902.39.

[12] Mr Paterson, formerly a director of GLW, has provided an affidavit in opposition to the liquidation claim. Mr Paterson says that he had a good working relationship with Mr Holder, and that he has no issues with the services that Cardno provided to GLW.

[13] Mr Paterson produced with his affidavit a copy of an invoice from Cardno to the Lepionka mortgagee dated 26 May 2015. The invoice was for the total sum of

$49,804.78, and the narration stated that it was for services provided between 28

March 2014 and 30 May 2014. It is not disputed that this invoice was for precisely the same work which had previously been invoiced to GLW and that is the subject of the present liquidation claim.

[14] Cardno’s invoice dated 26 May 2016 addressed to the Lepionka mortgagee stated:

50% part pay due $24,902.39. Invoice 2

Remainder $24,902.39 to be paid upon title.

[15] The copy of the invoice produced by Mr Paterson was stamped “PAID”, with a note below confirming that the $24,902.39 was paid by direct credit on 30 June

2015.

[16] Mr Paterson also produced a copy of the “Invoice 2” referred to in the invoice just mentioned. It was also dated 26 May 2015. It related to the second of the two instalments of $24,902.39, and contained the statement: “Remainder

$24,902.39 (incl. GST) to be paid upon title”. This invoice was stamped

“UNPAID”.

[17] Mr Paterson also produced a copy of a document prepared by the Lepionka mortgagee headed “GLW Group Ltd Balance as of October 15 2015” (the Balance statement). He had obtained this document from a company called AFI Management Pty Ltd, which holds a second mortgage over the land.

[18] The Balance statement listed various “advances” said to have been made under the Lepionka mortgagee’s first mortgage, including the original loan made by Westpac. The Balance statement went on to list additional amounts said to have been advanced by the Lepionka mortgagee to GLW, including “consulting fees”, “earthworks”, “site power” and “Site Project Managers”. Included in this list, under the heading “Subdivision costs”, was the item “GLW Cardno bills - $68,011.29”.

[19] Cardno’s solicitors have confirmed that the item “GLW Cardno bills” set out in the Balance statement did include the amount of $49,804.78 now claimed by Cardno.

Counsel’s submissions

Cardno

[20] For Cardno, Mr Reid submits that the debt of $49,804.78 remains due and owing by GLW to Cardno. He acknowledges that Cardno has received the

$24,902.39 from the Lepionka mortgagee, but says that it is clear from Mr Holder’s explanation that the new arrangement made between Cardno and the Lepionka mortgagee did not discharge GLW’s existing liability to Cardno for the debt. GLW was not a party to the new arrangement between the Lepionka mortgagee and Cardno.

[21] Mr Reid submits that, for the Court to be satisfied that the debt remains due and owing by GLW to Cardno, it can enquire whether Cardno has received any payment or security for the debt from GLW. He submits that Mr Holder’s evidence

establishes that the answer to that enquiry is no. In those circumstances, Cardno is entitled to maintain its claim for the debt.

[22] Mr Reid asks the Court to direct that the Bank cheque presently held by the independent solicitors be released to Cardno. He confirms that if the full $49,804.78 is released to Cardno, a credit for $24,902.39 will be given by Cardno to the Lepionka mortgagee, thus reducing (by that amount) the amount for which GLW is liable to the Lepionka mortgagee under the first mortgage over the land.

GLW

[23] Mr Lawson accepts that Cardno has not yet been paid the second $24,902.39 which is owing to it, but says that the second $24,902.39 has not yet fallen due for payment. Under the revised arrangement entered into between Cardno and the Lepionka mortgagee, that payment will not be due until titles have issued for the subdivided sections. That has not yet occurred.

[24] Mr Lawson submits that the facts give rise to three possible interpretations:

(a) there was a simple advance by the Lepionka mortgagee to GLW to pay the debt on renegotiated terms; or

(b) the terms of payment have been renegotiated by the Lepionka mortgagee acting as attorney for GLW; or

(c) the debt has in law and in equity been assigned from Cardno to the

Lepionka mortgagee.

[25] Whichever way the facts are analysed, Mr Lawson submits that GLW is no longer indebted to Cardno.

[26] On his first alternative argument, Mr Lawson submits that the payment of

$24,902.39 by the Lepionka mortgagee to Cardno constituted an advance of that sum by the Lepionka mortgagee to GLW, and was therefore a simple loan by the Lepionka mortgagee to GLW for the purpose of paying the Cardno debt. The

amount was added to the principal debt secured by the mortgage to the Lepionka mortgagee, and payment of the full amount secured by the mortgage (including the amount of the Cardno debt) has been demanded from GLW by the Lepionka mortgagee.

[27] Mr Lawson submits that, in making the new arrangements with Cardno, the Lepionka mortgagee acted on behalf of GLW. The result was that the original terms of payment of the sums due to Cardno were varied. GLW has adhered to the varied terms of payment.

[28] Mr Lawson further submits that GLW cannot be indebted to two different parties in respect of the same debt, and that the reality is that the sums owing to Cardno have been paid by GLW in accordance with the re-arranged terms – half in cash advanced by the Lepionka mortgagee, and the other half by addition to the amount owing by GLW under the mortgage.

[29] As an alternative argument, Mr Lawson submits that, in entering into the new arrangements with Cardno, the Lepionka mortgagee was acting as GLW’s attorney, with authority “to execute documents and do things that may be reasonably necessary or incidental” to the exercise of the powers conferred by subcls (1) and (2) of cl 14 of the second schedule to the Property Law Act 2007 (the PLA).

[30] Mr Lawson submits that the actions of the Lepionka mortgagee in making the further advance to GLW to pay half of the Cardno account, in renegotiating the terms on which the balance would be paid, and in making the first part payment in accordance with the revised terms, were actions undertaken by the Lepionka mortgagee as the attorney of GLW.

[31] On his third alternative argument, Mr Lawson submits that Cardno’s actions in reissuing the invoices to the Lepionka mortgagee for the same work represent an assignment in law and in equity of a “thing in action”, represented by the debt owed by GLW to Cardno.² In consideration of the assignment, the Lepionka mortgagee became liable to Cardno, and the terms on which Cardno would be paid by the

Lepionka mortgagee were the subject of a separate agreement between those parties. Mr Lawson submits that by reason of the assignment GLW became further indebted to the Lepionka mortgagee by way of the additional debt added to the principal sum secured by the mortgage. The assigned debt owed by GLW was then satisfied and/or secured by further advances from the Lepionka mortgagee to GLW.

[32] Finally, Mr Lawson refers to s 289 of the Act, which requires that a statutory demand must be in respect of a debt that is due and which is not less than the prescribed amount.³ Mr Lawson submits that half of the amount claimed by Cardno has been paid to it, and the other half is not due until titles have been issued for the lots in the subdivision. The result is that there was no debt due and payable when the statutory demand was issued, and the use of the statutory demand procedure was therefore inappropriate and an abuse of process.

Discussion and conclusions

[33] I do not believe Cardno has any claim against GLW for the $24,902.39 which was paid to it in June 2015. The simple fact is that when Cardno received that money the amount paid was no longer owing to it. To that extent, it was no longer a creditor of GLW.

[34] Mr Holder says that the payment was made “pending payment by [GLW]”, and that in “the event of payment of the debt by [GLW] it was agreed that [the Lepionka mortgagee] would be credited up to the amount of $24,902.39 by [Cardno]”. But he stops short of saying that Cardno assumed an obligation to the Lepionka mortgagee to pursue GLW for this part of the debt. As far as the evidence shows, Cardno had no such obligation.

[35] It is one thing to say that if GLW happened to pay the $24,902.39 to Cardno, Cardno would repay that money on to the Lepionka mortgagee. But if there was no obligation on Cardno to act in the Lepionka mortgagee’s interest in pursuing GLW for the amount paid (with the Lepionka mortgagee effectively being subrogated to Cardno’s rights to that extent), I do not see any basis on which Cardno can deny that

half of the debt has been paid, and is no longer owing to it. I think that view is also consistent with the fact that the Lepionka mortgagee immediately took its own steps to recover the $24,902.39 from GLW, adding that sum to the amount secured by its mortgage and demanding repayment from GLW.

[36] I conclude that Cardno has failed to show that it is a creditor of GLW for the

$24,902.39 which Cardno received from the Lepionka mortgagee. Subject to liability for costs, that sum will have to be refunded to GLW.

[37] Turning to the second $24,902.39, Mr Lawson submits that it is common ground that the amounts payable to Cardno were advanced by the Lepionka mortgagee to GLW prior to the issue of Cardno’s statutory demand. I do not think that can be correct insofar as the statement relates to the $24,902.39 which has not yet been paid. That $24,902.39 has not been received by GLW, and it has not (yet) been applied anywhere else for the benefit of GLW. In those circumstances I can see no basis for the argument that this $24,902.39 has somehow been advanced to GLW. The amount may have been debited to GLW’s account with the Lepionka mortgagee, but it is not at all clear how that could have occurred when it appears that the Lepionka mortgagee has not yet parted with the money. At best, there was an agreement between the Lepionka mortgagee and Cardno, to which GLW was not a party, to pay the money at a future time.

[38] Mr Lawson submits that the Lepionka mortgagee entered into the arrangements with Cardno on behalf of GLW. But there is no evidence of that. GLW appears not to have been consulted over the arrangements: it appears that the Lepionka mortgagee acted unilaterally in making the arrangements with Cardno and in debiting GLW’s account. But whether or not the Lepionka mortgagee was acting on GLW’s behalf, the fact remains that there has not yet been an advance of the second $24,902.39.

[39] Mr Lawson’s next argument is that the Lepionka mortgagee acted as the attorney of GLW in paying the first $24,902.39, and in agreeing to make the second payment when titles issued for the lots in the subdivision.

[40] Section 95 of the PLA provides that every mortgage over land contains the implied covenants, conditions, and powers set out in pt 1 of sch 2 to the PLA, to the extent that they are relevant in the circumstances. Clauses 13 and 14 of pt 1 of sch 2 deal respectively with the mortgagee’s power of sale, and the mortgagee’s specific right to exercise the sale power by subdividing the land.

[41] Clause 14 of pt 1 of the second schedule materially provides:

14 Power to subdivide

(1) For the purpose of exercising the power conferred by clause 13 to sell the whole or any part of the mortgaged land, the mortgagee (without the need to enter into possession of the land as mortgagee) or any receiver appointed by the mortgagee under the mortgage may subdivide the land.

(2) The power to subdivide conferred by subclause (1) includes the following powers:

(a) to apply for and obtain all necessary consents under the

Resource Management Act 1991:

(b) to comply with all reasonable and proper conditions of consent, including (without limitation)—

(i) the payment of any financial contributions: (ii) the vesting of reserves:

(iii) the provision of services:

(iv) the formation and dedication of roads and service lanes:

(v) the formation of access ways and rights of way: (vi) the creation of easements:

(vii) the execution of any bonds, covenants, or consent notices:

(c) to survey the mortgaged land and deposit a plan of subdivision under the Land Transfer Act 1952.

(3) The mortgagor irrevocably appoints the mortgagee as the attorney of the mortgagor to execute documents and do things that may be reasonably necessary or incidental to the exercise of the powers conferred by subclauses (1) and (2).

...

[42] Mr Lawson submits that Cardno was instrumental in obtaining the necessary subdivision consents under the Resource Management Act 1991, and that securing its ongoing services (and paying for the existing services rendered by it to GLW) were reasonably necessary or incidental to the continued subdivision of the land by the Lepionka mortgagee. He relies on cl 14(3), under which the mortgagor (GLW) is deemed to have irrevocably appointed the mortgagee as the mortgagor’s attorney to execute documents and do things that may be reasonably necessary or incidental to the exercise of the powers conferred by subcls (1) and (2).

[43] It is possible that promising Cardno to pay the balance of its debt was necessary or incidental to the exercise by the Lepionka mortgagee of one or more of the powers set out at cl 14(1) and (2), but it is not clear on the evidence before me which particular power or powers, or the respects in which making the promise was necessary or incidental to the exercise of that power or powers. None of the steps listed at cl 14(2) appear to be applicable in this case, and it is by no means clear that the Lepionka mortgagee was purporting to act as GLW’s attorney when it made the arrangements it made with Cardno in mid-2015. In the end, I think the critical question is that identified by Mr Reid, namely whether the Lepionka mortgagee’s promise to pay half of the debt at a future time was intended to deprive Cardno of the ability to pursue GLW for the debt in the meantime. On the limited evidence available, I am not satisfied that there was any such intention.

[44] I note first that the Lepionka mortgagee appears to be supporting Cardno’s claim, on the basis that the money is now currently due to Cardno: the same firm of solicitors has been (concurrently) representing both Cardno and the Lepionka mortgagee in pursuing separate liquidation claims against GLW. Secondly, I think Mr Holder’s evidence implies that Cardno still regards itself as entitled to pursue immediate payment from GLW.

[45] I think it was for GLW to produce sufficient evidence not only that the Lepionka mortgagee has promised to pay Cardno at an agreed future date, but that the effect of that promise was to settle GLW’s debt to Cardno. Although Mr Holder’s evidence lacks details of the arrangements made between Cardno and the Lepionka mortgagee, I think it is at least consistent with Cardno being left free to

pursue GLW for the balance of the debt if it wished to do so. I bear in mind that there would have been no obvious point in Cardno granting an extension of time to GLW to make payment of the balance of the debt: it only needed to make the time extension arrangement so that it could obtain an effective guarantee of payment from a third party, namely the Lepionka mortgagee. It was obviously in the interests of both Cardno and the Lepionka mortgagee that GLW pay the Cardno debt, in full, sooner rather than later.

[46] A further point is that Cardno’s revised invoice providing for deferred payment of the second half of the debt due to it by GLW was addressed not to GLW but to the Lepionka mortgagee.

[47] In the end, I think it is at least as likely that the arrangement entered into between the Lepionka mortgagee and Cardno was not intended to affect GLW’s liability to Cardno, but (at least as far as the payment provisions were concerned) to operate only as between Cardno and the Lepionka mortgagee. It did not preclude Cardno pursuing GLW for the balance of the debt if Cardno wanted to be paid immediately.

[48] While it is not necessary to make a finding on this point to decide on Mr Lawson’s “attorney” argument, I also have considerable doubt that cl 14(3) was intended to cover payments of the kind the Lepionka mortgagee has promised to make in this case. It seems to me that the broad purpose of cl 14(3) is to allow a mortgagee to get documents executed, and other things done, which would normally require the participation or consent of the mortgagor (which in many cases might not be forthcoming). Making a promise to Cardno that it would receive payment in full on completion of the subdivision was something the Lepionka mortgagee could do unilaterally: it did not require GLW’s participation or consent (as is evidenced by the fact that the Lepionka mortgagee dealt with Cardno without any reference to GLW at all).

[49] Mr Lawson’s third argument is that Cardno assigned the GLW debt to the Lepionka mortgagee, and that the effect of the assignment is that Cardno can no longer pursue the debt.

[50] I accept that the debt owed by GLW to Cardno constituted a “thing in action” for the purposes of s 48 of the PLA. Under that section, a “thing in action” means a right to receive payment of a debt, and includes part of a “thing in action”. Mr Lawson submits that the reissuing of the invoices to the Lepionka mortgagee for the same work represents an assignment in law and in equity of the “thing in action” which was the debt owed by GLW to Cardno. The consideration for the assignment was the payment of half of the debt which the Lepionka mortgagee made in June 2015, and the promise to pay the balance when new titles were issued. Mr Lawson submits that the effect of the assignment was that GLW became further indebted to the Lepionka mortgagee, the assigned debt being added to the principal debt secured over the property.

[51] Section 50 of the PLA materially provides:

50 How thing in action assigned

(1) The absolute assignment in writing of a legal or equitable thing in action, signed by the assignor, passes to the assignee—

(a) all the rights of the assignor in relation to the thing in action;

and

(b) all the remedies of the assignor in relation to the thing in action; and

(c) the power to give a good discharge to the debtor.

(2) Subsection (1) applies whether or not the assignment is given for valuable consideration.

(3) Subsection (1) applies subject to—

(a) section 51; and

(b) any equities in relation to the thing in action that arise before the debtor has actual notice of the assignment and would, but for subsection (1), have priority over the rights of the assignee.

...

(5) A legal or equitable thing in action is to be treated as having been assigned in equity (whether the assignment is oral or in writing) if—

(a) the assignee has given valuable consideration for the assignment; or

_{(b) the assignment is complete.}

...

(7) An assignment to which subsection (5) applies is complete when the assignor has done everything that needs to be done by the assignor to transfer to the assignee (whether absolutely, conditionally, or by way of charge) the rights of the assignor in relation to the thing in action.

(8) Subsection (7) applies even though some other thing may remain to be done, without the intervention or assistance of the assignor, in order to confer title to the rights on the assignee.

[52] Under s 51 of the PLA, a debtor who has not received notice of an assignment of the debt by the creditor to a third party may discharge the debt by paying the creditor. If the debtor does have notice of the assignment, the debtor must pay the assignee.

[53] Mr Lawson acknowledges that there is no signature by Cardno, so any assignment cannot be an absolute assignment covered by s 50(1) of the PLA. However he submits that there was an equitable assignment under s 50(5), on the basis that the assignee (the Lepionka mortgagee) has given valuable consideration for the assignment, and/or that the assignment is complete.

[54] In Parmalat Capital Finance Ltd v Food Holdings Ltd (in liq) & Anor,⁴ the respondent liquidators had filed a petition to wind up the appellant (Parmalat). Parmalat opposed the winding up petition on the grounds that the respondents had no locus standi as petitioners because they had assigned the entire benefit of the relevant agreement on which their liquidation claim was based. The two questions addressed by the Privy Council were whether the respondents were in fact creditors, and whether the trustee for the noteholders (the assignee of the relevant debt) should have been joined in the proceeding. The debt had been assigned by way of security.

[55] The Privy Council, hearing the case on appeal from the Court of Appeal of the Cayman Islands, considered that a winding up order does not affect the legal rights of the creditors of the company – it only puts into effect a process of collective execution against the assets of the company, for the benefit of all creditors. In the

_{course of that process, the rights of creditors may have to be determined. But such a}

⁴ Parmalat Capital Finance Ltd v Food Holdings Ltd (in liq) & Anor [2008] UKPC 23.

determination is not necessary at this stage when the order is made. An equitable assignor therefore has a sufficient interest without joining the assignee.

[56] The Board held that the fact of the assignment did not deprive the liquidators of the status of creditors.

[57] Parmalat was followed by Associate Judge Abbott in Waterfront Capital

Trustee 1 & Ors v Hanover Finance Ltd.⁵

[58] As was the case in Waterfront, the statutory demand here was issued when the issuer was the legal owner of the relevant debt. The Associate Judge in Waterfront considered that legal ownership was sufficient for Hanover to pursue its claim. Notwithstanding the assignment of the loan in equity, Hanover remained a creditor for the purposes of s 289 of the Companies Act 1993.

[59] In this case, any assignment was equitable, and GLW had no notice of it until after Cardno had commenced its liquidation claim. In those circumstances, I think Cardno was a creditor of GLW in respect of the $24,902.39 that remained outstanding when the liquidation claim was filed. GLW did not apply to set aside Cardno’s statutory demand, and it has given no evidence of any enquiries made, or other steps taken, with a view to either challenging the demand or paying the amount claimed. The fact that the demand was overstated is not decisive: a statutory demand which is overstated may be allowed to stand in respect of items which are not open

to dispute.⁶ Cardno was in my view entitled to bring the liquidation claim.

Orders

[60] In the result, the $49,804.78 held by the independent solicitors is to be paid to Cardno as to $24,902.39, plus the costs and disbursements ordered at para [63] below. The balance is to be paid to GLW. Leave is reserved to the parties to apply by memorandum for any further direction which may be necessary in respect of the payment out of the funds held by the independent solicitor.

_{[61] Cardno’s liquidation claim is dismissed.}

⁵ Waterfront Capital Trustee 1 & Ors v Hanover Finance Ltd HC Auckland CIV-2009-404-

_{006241, 11 August 2010.}

⁶ _{United Homes (1988) Ltd v Workman [2001] NZCA 183; [2001] 3 NZLR 447, (2001) 9 NZCLC 262,605 (CA) at}

[44]-[45], and 21^st Century Investments Ltd v ANZ National Bank [2011] NZCA 548 at [41].

[62] On the question of costs, each party has achieved some measure of success. However I have found that Cardno was a creditor, and was therefore entitled to commence the liquidation proceeding. It should be entitled to some costs.

[63] However I do not think those costs should be at the 2B level ordinarily awarded to the successful party in cases such as this. Cardno did not disclose until fairly late in the piece that it had in fact been paid half of the amount it was claiming, and of course it has lost the argument on that part of its claim. In those circumstances the justice of the case will be met if GLW is ordered to pay Cardno’s disbursements (as fixed by the registrar), together with 50 per cent of what would have been awarded on a ‘2B’ basis. I make orders accordingly.

Associate Judge Smith

Solicitors:

Lawson Robinson, Napier for the Defendant