IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-289

UNDER	Section 290 of the Companies Act 1993

IN THE MATTER OF	an Application to Set Aside a Statutory
Demand

BETWEEN	JADIE TRUSTEE LIMITED Applicant

AND	CHARLES FLETCHER, PRACTICING AS FLETCHER LAW
Respondent

Hearing:	10 November 2010

Appearances: Mr W Nabney for Applicant
Mr D Delic for Respondent

Judgment:	16 November 2010 at 4 p.m.

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on
16.11.10 at 4 pm, pursuant to
Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:
W T Nabney, Tauranga Chambers, P O Box 13007, Tauranga – by email:  bill@tgachambers.co.nz
Fletcher Law, P O Box 29, Hamilton – by email:  dushan@fletcherlaw.co.nz

JADIE TRUSTEE LIMITED V FLETCHER HC TAU CIV-2010-470-289  16 November 2010

Background

[1]       The respondent has acted for Mr and Mrs Tye for some 30 years.   More recently Mr and Mrs Tye (“the Tye’s”) instructed the respondent to act for them on a proposed subdivision and development of a farm property near Kati Kati.   The property at material times was owned by the applicant.  The applicant is a trustee in both family trusts which have been settled by Mr and Mrs Tye respectively. Unfortunately  the  development  project  ran  into  difficulties  and  the  Tyes  have declined to pay the invoices charged to them by the respondent.  The invoices will be discussed below but for present purposes they include bills of costs for work done on the Tyes’ affairs generally, advice provided and services rendered in respect of the sub-division and development proposal including resource consents, and a disbursement in the form of counsels fees which the respondent has paid on behalf of the Tyes to an Auckland barrister who was instructed to act on an appeal to the Environment Court.   On 29 March 2010 the respondent served on the applicant a statutory demand claiming payment of the sum of $62,197.11.  On 20 April 2010 the present application was filed for an order setting aside the statutory demand.  The application was opposed by the respondent.

[2]       The proceeding raises two issues for determination.   The first is which (if any) of the various Tye entities is liable for the fees and disbursements of the respondent.   The second issue arises from the fact that in July of 2010 the Tyes submitted a costs complaint to the New Zealand Law Society.  This gives rise to an issue of the effect of section 161 of the Lawyers and Conveyancers Act 2006.   In order to resolve the first issue it is necessary to say something further about the various Tye entities.

[3]       The two Tye family trusts were settled 20 March 1992.  In each case Mr and Mrs Tye were the trustees together with Mr Fletcher.  However those trustees retired in September 2004 and Jadie Trustee Limited (“JTL”) accepted appointment as a new trustee in each case.   The deeds pursuant to which these changes were made provided that the retiring trustees would be indemnified against all liabilities etc in respect of which the retiring trustees may become liable.  The shareholders in JTL, up until at least 21 December 2009, were two limited liability companies one

of which was Fletcher Law Trustees Limited which I understand is the corporate trustee operated by the respondent law firm.

[4]       It is necessary to mention a further company, Kaimai Trust Limited.   That company was the applicant for the relevant resource consent.   It did not own the properties with respect to which the consent was to operate.  There is no dispute that it is essentially a shell company.   At one point it was apparently intended that Kaimai Trust Limited (“KTL”) would acquire the property which was to be sub- divided and developed but this never in fact occurred.  The property has remained in the ownership of JTL as trustee of the two trusts on which the property was settled. The Tyes are firmly of the view that it is this company that has any liability there may be for the respondent’s invoices.

[5]       One of the relevant background factors is that the respondent prepared a memorandum with terms of engagement.  Mr Fletcher deposes:

11.	A copy of our standard letter and terms of engagement, sent to Edy and Jan Tye, dated 29 January 2009 is attached and marked “F”.

[6]       The letter of engagement was addressed to:

The Trustees

Ed Tye Family Trust and Jan Tye Family Trust

341 Ray Road, RD 2, Kati Kati
I shall return to this document further on in my judgment.

[7]       The various bills of cost and statements of account actually rendered by the respondent were as follows:

Nature	of document	
Addressee	
Amount	
Date	

Statement of account	
“The Trustee Ed and Jan

Tye  Trusts  Partnership  ...  Kati
Kati”	
-	
11.12.09	

Invoice	
“The  Trustee  Ed  and  Jan  Tye
Trusts Partnership ... Kati Kati”	
$  6,437.81	
11.02.09	

Invoice	
“The  Trustee  Ed  and  Jan  Tye
Trusts Partnership ... Kati Kati”	
$25,350.00	
13.02.09	

Invoice	
“The  Trustee  Ed  and  Jan  Tye
Trusts Partnership ... Kati Kati”	
$  2,829.95	
31.03.09	

Invoice	
“The  Trustee  Ed  and  Jan  Tye
Trusts Partnership ... Kati Kati”	
$25,753.57	
04.06.09	

Invoice  from  P Cavanagh QC		
$27,519.55*	
29.04.09	

Invoice	
“Mr E T and Mrs J D Tye

Kaimai Trust

Ed   Tye   Family   Trust and   Jan   Tye   Family Trust ... Kati Kati	
$  2,820.14	
11.12.09	

*This amount included with invoice dated 04.06.09.

Section 290 - Principles

[8]	As  Faire  AJ  stated  in  Waikato  Business  Equipment  Ltd  V  Taylor,  HC Hamilton, M324/00, 6 June 2001,

[8]	The application relies on two grounds. The first ground is based on
290(4)(a) of the Companies Act 1993. Pursuant to that section the
Court is required to determine whether there is a substantial dispute whether or not the debt is owing or due. The applicant must show a fairly arguable  basis  upon which  it  is  not  liable for  the  amount claimed. Forge Holdings Limited v Kearney Finance (NZ) Limited (High Court, Christchurch, M 149/95, Tipping J, 20 June 1995) at p
2  and  Queen  City  Residential  Limited  v  Patterson  Co-Partners
Architects (No 2) (1995) 7 NZCLC 260,936.

[9]	I also respectfully adopt what Gendall AJ said on this subject in Xo Limited v

Barterman Turkey SAPV HC Wellington CIV-2009-485-166, 21 May 2009.

[11]    ... the approach the Court is to adopt when considering applications   relying on s   290(4)(a) requires a plaintiff to show a fairly arguable basis upon which it is not liable for the amount claimed in the statutory demand — Forge Holdings  Limited  v  Kierney  Finance  (NZ)  Limited  HC

Christchurch  N149/95  20  June  1995  and  Queen  City
Residential Limited v Patterson Co Partners Architects (No.
2) [1995] 3 NZLR 307. This formulation was approved by the Court of Appeal in United Homes (1988) Limited v Workman [2001] 3 NZLR 447 at 451-2.

[12]      In other words, it must be shown that there is a genuine and substantial  dispute  as  to  the  existence  of  the  debt,  and further that it would be unfair to allow that dispute to be resolved  through  the  liquidation  provisions  of  the Companies Act 1993 rather than by actions in the usual way
— Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297 and
Pink Pages Publications Limited v Team Communications
Limited (1986) 3 NZCLC 99, 764.

[13]      In determining whether there is a genuine and substantial dispute as to the existence  of the debt, it is not  usually appropriate to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise: Androcles Investments Ltd v Highway Publications Ltd HC Christchurch M455/00 14 February 2001 at [6]; Carpet Plus
2003 Ltd v A Team Flooring Specialist Ltd HC Auckland
CIV-2008-404-4725 19 January 2009 at [4].

The issue of which party is liable for the legal costs

[10]     I pointed out earlier that the respondent forwarded to the Tyes a form of retainer which it invited them to sign by way of acceptance.   But the Tyes did not in fact add their signature to the document.   Nonetheless the fact that legal services were subsequently requested and supplied could be viewed as the acceptance by conduct of the offer to provide services on the terms set out in the memorandum. That view is based on the assumption that as a matter of fact it was the Tyes as trustees to whom the written offer was addressed who accepted the offer of services which was made to them.  If that occurred, a contract came into existence between the respondent as the offeror and the two family trusts as the offerees – assuming that in point of fact an entity which can be properly described as “the trustees” of the various family trusts did in fact accept the offer whether by conduct or in some other way.  One factual complication arises from the change of trustees.  In 2009 when the retainer was arguably agreed to, Mr and Mrs Tye were no longer trustees in their respective family trusts.  Yet it was apparent to them that the offer of legal services was sent, with the document being posted to Kati Kati.  At the relevant time, though, the actual trustee in the case of each trust had already changed to JTL, the applicant. Little is known about JTL but it appears that the trust company resides at Paeroa

(that fact appearing from the deed of appointment dated 23 September 2004).  Not only were the Tyes not trustees on that date but they were not shareholders in the new trustee company.  The position in summary therefore is that there is doubt about whether the offer of a retainer contained in the letter dated 29 January 2009 emanating from the respondent was ever accepted by an extant trustee of either of the family trusts.

[11]     The trusts do not, of course, have a corporate existence of their own: AMP General Insurance Ltd v MacAlister Todd Phillips Bodkins (CA) (2006) 22 NZTC
19,740 at [24].

[12]     In order for JTL (the trustee at the relevant time)  to be liable the Court would have to be persuaded that that company by one of its officers or by a duly authorised agent entered into a contractual relationship with the respondent from which liability for the bills of costs derives.   That is, the acceptance, whether express or implied from conduct, would have to be the act of JTL.  The most likely way in which such a contractual engagement might have been entered into by the applicant company would be through the exercise of actual or implied authority to contract on behalf of that company with the intermediary being Mr or Mrs Tye or both of them.   The answer to the question whether the Tyes would have had authority to  bind the trustee, JTL, is a straightforward enquiry into whether they were authorised agents of the company.  Whether the Tyes had such authority depends on the circumstances of the case.   It may be, for example, that the Tyes retained de facto control of the overall affairs of their family’s various legal entities such as trusts and companies.  If the Tyes and the solicitors shared the assumption that was so, then it would be possible for the respondent solicitors to establish that the Tyes had the necessary authority to enter contracts on behalf of JTL even though not formally office holders in that company.

[13]     There is also to be considered the argument for the applicant that the entity actually liable for the legal costs is Kaimai Trust Limited.  The strongest argument which can be advanced in favour of that submission is that the party which received the benefit of some of the professional attendances carried out was Kaimai Trust Limited which was the applicant for resource consent.  It cannot be safely assumed,

though,  where  moderately  sophisticated  corporate  and  trust  structures  are  in existence the sum being brought into being for different purposes – for example taxation advantages – that it necessarily follows that the party which was to receive the  benefit  of  professional  services  would  therefore  be  presumptively  the  party which would have to pay for them.

[14]     The foregoing discussion, I believe, shows that the issue is not a straight forward one.    My conclusion is that the dispute which the applicant relies upon as the basis for the application to set aside the statutory demand raises matters which show that there is a fairly arguable basis upon which the applicant can contend that it is not liable for the amount claimed in the statutory demand.

[15]     It is not necessary given my conclusion on the first issue to determine the further ground which the applicant advanced which is founded on s 161 of the Lawyers and Conveyancers Act 2006.   There is one aspect of the costs revision proceedings which I should briefly mention, though.  The fact that the applicant and the Tyes have made a complaint about the law firm’s professional charges does not necessarily disclose a fairly arguable basis upon which it is not liable for the amount claimed in the statutory demand which dispute is sufficient to justify the setting aside of the statutory demand.  If the applicant company is ultimately found to be liable for the various legal expenses, then it would also be liable not just for the costs of the law firm but also counsel briefed by the law firm.   Given the quantum of those overall costs, it seems most unlikely that the outcome of the costs complaint procedure will be that less than $1,000 is found to be owing to the respondent.  Such an outcome would only follow where the costs reviewers concluded that the entire work done both by the respondent and by counsel was of virtually no value to the applicant.  Common sense suggests that that proposition is not sustainable.

[16]     However, in the light of my conclusion that there is uncertainty on the issue of which entity of the Tye group is contractually liable for the legal costs, it follows that there is a substantial dispute between the parties on that issue.  That issue will have to be resolved by ordinary Court proceedings.  I therefore grant the application.

[17]     The parties should be able to agree the incidence and amount of costs.  If they are unable to do so they should file memoranda not exceeding five pages on each side within ten working days following the issue of this judgment and I shall make
any required orders.

J.P. Doogue
Associate Judge