GAPES v DEMPSEY WOOD CIVIL LTD [2023] NZCA 435

GAPES v DEMPSEY WOOD CIVIL LTD [2023] NZCA 435 [12 September 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA605/2021[2023] NZCA 435BETWEEN ANTHONY JOHN GAPESAppellantAND DEMPSEY WOOD CIVIL LIMITEDRespondentHearing: 18 October 2022Court: Miller, Brown and Gilbert JJCounsel: J W A Johnson and S T Dymond for AppellantE St John for RespondentJudgment: 12 September 2023 at 2 pmJUDGMENT OF THE COURTA The appeal is dismissed save that the orders made under the Companies Act1993 and reflected in orders (a), (b) and (c) in the sealed judgment of theHigh Court are set aside.B The appellant must pay costs to the respondent for a standard appeal on aband A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)[1] Mr Gapes was the sole director of Panama Road Development Ltd (Panama),a company formed for the purpose of carrying out a substantial residential propertydevelopment in Auckland known as the Springpark development. Panama contractedDempsey Wood, one of New Zealand's largest civil works contracting companies, tocarry out the civil works. Panama was placed in receivership on 3 December 2015 byits secured creditor, Koi Structured Credit Pty Ltd (Koi), a Singapore-based lender thatprovided Panama with a $30 million development facility personally guaranteed byMr Gapes. The receivers sold the development in March 2016 for around $25 million.This left a shortfall of approximately $2.57 million outstanding to Koi.Liquidators were appointed by special resolution of Panama's shareholder (Mr Gapes'interests) on 6 April 2016. Unsecured creditors, including Dempsey Wood, withcombined debts totalling some $1.4 million, received nothing.[2] Dempsey Wood brought proceedings against Mr Gapes in the High Courtalleging a breach of s 9 of the Fair Trading Act 1986 (the FTA) and breaches of ss 131,135, 136 and 137 of the Companies Act 1993.1 Dempsey Wood sought relief pursuantto s 301 of the Companies Act in respect of the alleged breaches of that Act.High Court judgment[3] In a careful and comprehensive judgment delivered on 10 September 2021,Fitzgerald J found that Mr Gapes breached his duties as a director under ss 135 and136 of the Companies Act from 13 November 2015.2 The Judge rejected the claimthat Mr Gapes breached his duty under s 131.3 The Judge made an award of $100,000pursuant to s 301 of the Companies Act in respect of the ss 135 and 136 breaches.4[4] The Judge also found that an email Mr Gapes sent to Mr Dempsey on12 November 2015 (the email) was misleading and deceptive and was reasonablyrelied on by Dempsey Wood in continuing to carry out works from that date untilreceivers were appointed 15 working days later.5 The Judge ordered Mr Gapes to payDempsey Wood the sum of $286,295 pursuant to s 43 of the Fair Trading Act.6This sum was calculated as the cost to Dempsey Wood of carrying out this work afterdeducting its profit margin.1 The claim under s 137 of the Companies Act 1993 was not pursued.2 Dempsey Wood Civil Ltd v Gapes [2021] NZHC 2362 [High Court judgment] at [181], [203] and[263(a)–(b)].3 At [215].4 At [233].5 At [252] and [256].6 At [261].[5] The Judge sought further submissions on whether the amount she awardedunder s 301 of the Companies Act should be paid to Dempsey Wood or to Panama andon the interaction of that award and the order made pursuant to s 43 of the FTA.7[6] In a subsequent judgment delivered on 1 November 2021, the Judge directedthat the s 301 award should be paid to Panama.8 The Judge considered there was nodouble recovery, but she made an order that the FTA award was to be reduced by anyamount received by Dempsey Wood as a result of Mr Gapes' payment to Panama ofthe award made under s 301 of the Companies Act.9[7] The sealed judgment recorded the following orders:(a) [Mr Gapes] breached section 135 of the Companies Act 1993, with abreach date of 13 November 2015.(b) [Mr Gapes] breached section 136 of the Companies Act 1993, with abreach date of 13 November 2015.(c) Pursuant to section 301 of the Companies Act 1993, [Mr Gapes] is topay $100,000 to [Panama], together with interest of $16,803.16 from6 April 2016 to 10 September 2021, calculated using the Civil DebtInterest Calculator established by the Interest on Money Claims Act2016.(d) [Mr Gapes] breached section 9 of the [FTA].(e) Pursuant to section 43 of the [FTA], [Mr Gapes] is to pay $286,295 to[Dempsey Wood], plus interest of $52,858.20 from 13 November2015 to 10 September 2021.(f) The award paid to [Dempsey Wood] under the [FTA] is to be reducedby any amount received by [Dempsey Wood] as the result of[Mr Gapes'] payment to [Panama] under the Companies Act 1993.(g) [Mr Gapes] is to pay [Dempsey Wood] costs of $90,342.00, calculatedas set out in Schedule 1.(h) [Mr Gapes] is to pay [Dempsey Wood] disbursements of $64,479.28,calculated as set out in Schedule 2.7 At [263(j)].8 Dempsey Wood Civil Ltd v Gapes [2021] NZHC 2933 at [15].9 At [18], [21] and [23].Grounds of appeal[8] Mr Gapes appeals against the judgment granting relief under s 43 of the FTA,contending the Judge erred in finding:(a) the email was misleading and deceptive;(b) Mr Dempsey relied on the email; and(c) the email caused Dempsey Wood's loss.[9] Mr Gapes appeals the judgment granting relief under s 301 of theCompanies Act, contending the Judge erred in finding:(a) Mr Gapes created a substantial risk of serious loss to creditors byallowing Panama to continue trading from 13 November 2015 andtherefore breached s 135;(b) the obligation to Dempsey Wood was incurred for the purposes of s 136from 13 November 2015, rather than when the contract was entered intoon 5 September 2014, as contended by Mr Gapes;(c) Mr Gapes did not have a reasonable basis for believing that Panamacould meet its obligations to Dempsey Wood; and(d) in applying the "new debt" approach when assessing Mr Gapes'liability for the purposes of the award under s 301.[10] Because of the coincidence in the Judge's findings as to the timing of thevarious breaches of obligation, both under the Companies Act and FTA, any lossesrecoverable by Dempsey Wood under the Companies Act (for the period 13 Novemberto 3 December 2015) are subsumed in the damages awarded under the FTA caused byreliance on the 12 November 2015 email in continuing to carry out work under thecontract for the same period. This overlap was recognised in the order made bythe Judge and reflected in order (f) of the sealed judgment. For this reason,Mr St John, for Dempsey Wood, advised at the hearing that the appeal in respect ofthe Companies Act claims leading to orders (a) to (c) of the sealed judgment is notresisted. This sensible and practical concession means that we do not need to engagewith the appeal against the judgment in respect of the Companies Act claims. This partof the appeal can be allowed without opposition given Dempsey Wood is the onlycreditor found to have suffered loss as a result of Mr Gapes' breaches of duty underthe Companies Act. Our attention can therefore be focused on the appeal against thejudgment given under the FTA, the only part of the judgment Dempsey Wood activelyseeks to defend.The facts[11] The Judge set out the largely uncontested factual background in considerabledetail.10 The following summary will suffice for present purposes.[12] Stage 1 of what was intended to be a three-stage development was to comprise107 townhouses, 44 terraced houses, four apartments and 150m2 of retail. Panama,which was beneficially owned by interests associated with Mr Gapes, wasincorporated on 24 May 2012 for the purpose of taking title to the land and carryingout stage 1. The development was marketed in 2013 leading to 149 sale and purchaseagreements being entered into. These pre-sales off the plans were for a combined totalof approximately $60 million. Most of these sales had a practical completion date of15 September 2015 and a sunset date of 20 December 2015 for the issue of title.Either party could cancel the sale and purchase agreement after the sunset date ifpractical completion had not been achieved, a code of compliance certificate had notbeen issued in respect of the dwelling, or a separate title had not been issued for theproperty.[13] The development was initially funded by Crown Financial Limited (Crown).Crown appointed receivers on 30 April 2014. The development was refinanced a shorttime later, in June 2014, with funding from Koi personally guaranteed by Mr Gapes.Koi's $30 million facility was provided in two tranches of $15 million. The firsttranche was to repay the debt to Crown. The second tranche was paid into two trust10 High Court judgment, above n 2, at [27]–[110].accounts held by Panama's solicitors, Russell McVeagh, to be drawn downperiodically to fund the development works. One trust account (the constructionaccount) was to pay construction costs to the builder, KN Construction. The othertrust account was to meet other development costs, including those of Dempsey Wood(the project account). Payments from these trust accounts could only be made withKoi's approval and no more frequently than once a month. Koi would only be obligedto direct a payment from the project account if it had received certification from itsconsultant, Kingstons, on various matters including:(a) the cost of the works to be carried out during stage 1 of the developmentand the costs to complete those works; and(b) that all previous contractors' and subcontractors' claims had been paid.[14] Panama entered into the civil works contract with Dempsey Wood inSeptember 2014. The original contract sum was $5.384 million (excluding GST) butthis was later increased by approximately $2 million for approved variations.[15] The development was beset by serious delays and costs overruns. It was clearby July 2015 that the development was going to cost significantly more than wasinitially budgeted. Without a cash injection, the Koi facility would be exceeded duringthe August 2015 drawdown from the project account. This problem was addressed bythe sale of land that had been intended for stages 2 and 3 of the development(referred to as the "Superlot") for approximately $14.78 million. This money was paidinto the project account.[16] On 27 August 2015, Kingstons noted that the project contingency was forecastto be overrun by approximately $4.3 million and, given the delays incurred to date,there was no prospect of the work being completed prior to the practical completiondate of 15 September 2015 and the majority of the sunset dates were unachievable.[17] By this stage, the housing market had risen significantly meaning it would bedesirable to terminate the pre-sales if possible and re-sell at the higher prices thenavailable. Mr Gapes succinctly explained the critical importance of being able tocancel the pre-sale agreements:If you can't cancel [them] then the land probably isn't worth anything and ifyou can, then it's worth plenty.[18] The Koi facility was due to expire on 15 October 2015 and a replacementfunder was needed because Koi was not prepared to extend. On 4 September 2015,Koi advised that the amount required to repay the facility was approximately$37.57 million, less the proceeds from the sale of the Superlot and whatever cashbalance remained in the construction account and the project account at the time ofrefinance. As the Judge observed, it was clear that whatever was left in these accountswould be returned to Koi. A cashflow forecast prepared as at 4 September 2015indicated that the additional amount required to refinance the Koi debt (taking accountof the monies held in the construction and project accounts) was approximately$22.5 million.[19] Considerable efforts were made from around June 2015 to find a replacementfunder. At some stage prior to 12 October 2015, Mr Dempsey became aware that thedevelopment was to be refinanced because Mr Gapes invited him to attend a meetingwith a prospective funder (which turned out to be Webber Capital, described byMr Gapes as a "tier 4" lender).[20] Prior to that meeting taking place, on 15 October 2015 being the day Koi'sfacility expired, Panama entered into an agreement to sell the development toWebber Capital for $22.5 million, conditional on successful due diligence. As noted,this was the amount required to repay Koi after taking account of the balancesremaining in the construction and project accounts. The agreement required Panamato continue the development pending settlement. The price was to increase by anamount equal to the costs incurred by Panama in relation to the development between16 October 2015 and settlement of the sale, effectively the contractors' costs includingDempsey Wood. Panama had no resources of its own and accordingly it was likelythat the only way it could fund this obligation would be if Koi agreed to provide themoney. An associated agreement provided for Panama to manage the developmentafter settlement for a fee. That agreement also contained put and call options enablingan entity associated with Mr Gapes to repurchase the development at a later date.[21] On 16 October 2015, Koi served Panama with a notice pursuant to s 119 of theProperty Law Act 2007 notifying it that if repayment of the total amount outstandingwas not made on or before 17 November 2015, enforcement rights under the facilitywould become exercisable. Mr Gapes did not inform Mr Dempsey of thisdevelopment.[22] In or around mid-October 2015, Mr Dempsey attended a meeting withMr Gapes and the principals of Webber Capital. By all accounts, this was anunpleasant meeting with threats of default and receivership being made.On 21 October 2015, Dempsey Wood issued a notice of intention to suspend worksfor non-payment of its September 2015 progress claim of approximately $740,000 duefor payment that day.[23] On 23 October 2015, Dempsey Wood submitted its invoice for the periodending 31 October 2015 in the sum of approximately $998,000.[24] On 27 October 2015, Koi authorised payment of Dempsey Wood'sSeptember 2015 progress claim.[25] On 29 October 2015, Dempsey Wood's solicitor, Mr Alan Jones, sent a letterto Mr Gapes setting out its concerns about Panama's financial position and ability tocomplete the development. He sought evidence of Panama's ability to meet itspayment obligations to Dempsey Wood including the extension of time claim.This letter provides the immediate context for Mr Gapes' email which was found tohave been misleading. We therefore set out the text of this letter in full:1. We act for [Dempsey Wood] which is party to a construction contractwith [Panama].2. Further to your recent meeting with our client (and the Chow interests[Webber Capital]), and recent telephone discussions, we confirm that(a) You have advised that [Panama] intends to sell thedevelopment;(b) [Panama's] purpose in selling the development is two-fold;(i) it does not have the resources to complete thedevelopment and;(ii) it cannot afford to honour the existing sale andpurchase agreements which are now considered tohave been sold too low compared to the currentmarket [value] of the properties;At the meeting, our client was told that the Chowinterests wanted to move quickly and take over thecontract with contractors. But since that meetingmore than a week ago, there has no update from[Panama];(c) Our client was told that one of [Panama's] options was to gointo receivership and thus repudiate its obligations to ourclient. Our client has serious concerns about [Panama's]financial position and its ability to meet the ongoingobligations under the contract.3. Our client requires, and will continue to require, [Panama] to meet itsfull payment obligations under the construction contract. This willinclude an [extension of time] claim expected to be in the vicinity of$1 million.4. Given further works are required to complete the contract, my clientrequests that you provide the following directly to me by 5pm Friday,30 October 2015:(a) Confirmation that [Panama] intends to meet all its paymentobligations under the construction contract; and(b) Evidence of the funding available to [Panama] to meet itspayment obligations including the [extension of time] claimforeshadowed above. This would include the monies said tobe in the trust account of Russell McVeagh.5. In the event [Panama] does not and cannot meet its paymentobligations, my client will look for recourse against Mr Gapespersonally as director of [Panama] and the person who has representedthe company.[26] Mr Gapes did not reply to this letter.[27] On 5 November 2015, Webber Capital terminated the agreement fornon-satisfaction of the due diligence condition. Webber Capital made a further offerto purchase the development on 8 November 2015. The price offered of$20.75 million was unacceptable to Panama and to Koi.[28] Following a discussion between them that day, Mr Dempsey sent an email toMr Gapes on 11 November 2015:Hi Tony it was good to talk today re subject of the Chow Bros./Webber Capitalre financing deal falling over for the Panama Road contract.This makes it even more imperative that all of our concerns outlined in ourletter sent by [Mr Jones] dated 29 October are addressed.The lack of communication recently has also not helped matters and isdecreasing our level of confidence in the ability for [Panama] to continue tofund this project.In our discussion today you again re-affirmed that there was a $3.9 milliondeposit in a Russell McVe[a]gh Trust account with the specific purpose ofassuring payment for the civil works for this project.You agreed today to organise a written statement from Russell McVe[a]gh tothis effect. Can you please forward this to us by close of business today.[29] Mr Gapes responded to Mr Dempsey early the following morning saying,"I have asked [Russell McVeagh] for this – will chase today". Mr Gapes did notforward Mr Dempsey's request to Russell McVeagh. At the same time as he sent hisemail to Mr Dempsey, he sent a separate email to Russell McVeagh asking them toprovide the following information:Can you please send me an email letting me know that there is still $3+m inthe project account to pay the civils works and consultants costs and that thereis a separate project account for the [KN Construction] payments.[Mr] Dempsey would like some comfort we have the money still available topay him.[30] Russell McVeagh replied to Mr Gapes later that morning:Project Account balance is $4,172,351.07.KN Construction Account balance is $1,312,989.77.[31] Mr Gapes forwarded this email chain to Mr Dempsey that afternoon(12 November 2015) with the following comment:Hi Email below from [Russell McVeagh]. The $4.172 is for civils andconsultants etc.[32] This was the email the Judge found to be misleading and deceptive.[33] Mr Dempsey emailed Russell McVeagh directly the following day with furtherqueries about the funds in the project account:[T]hanks for the confirmation of the Project Account balance. It is great tosee [there] seems to be an allowance for funding of works at Panama Road.What [Dempsey Wood] require from yourselves is verification of what theProject Account funds are for. It would be very helpful to know the answersto the following questions.*Is the fund specifically for the payment of the Civil contract works?*Is the fund able to pay out upon the producing of a monthly paymentcertificate or are [there] other requirements needed to gain access to the fund?*Is the purpose of the fund to allow for any shortfall in the financing of theproject from Olympus Capital [Koi's parent]?Thanks and look forward to hearing from you.[34] Russell McVeagh did not respond to this email for nearly two weeks.They eventually responded to Mr Dempsey on 24 November 2015, copying inMr Gapes, as follows:We respond to your queries as follows:• The funds held in the project account are to fund the project works(excluding the costs incurred by KN Construction, for which there is aseparate account). The project works are those works relating to Stage 1to be designed and constructed in accordance with the relevant designdocuments.• We are unable to pay out of the account unless [Panama's] lender hasapproved the payment. [Panama's] lender will only approve the paymentif it has received certification from a quantity surveyor acceptable to[Panama's] lender.• We understand that the purpose of the funds in the project account is tofinance all costs associated with the project works (excluding the costsincurred by KN Construction).Please advise if you have any further queries.[35] In the meantime, on 19 November 2015, Dempsey Wood gave Panama furthernotice of its intention to suspend works for failure to pay its October 2015 invoice,due for payment that day. Mr Gapes responded:This is getting silly because we get one of these every month because you keeplodging your invoice earlier than everyone else. We do one drawdownper month and we need to get all the invoices in together to enable them to beprocessed by Kingstons and Russell McVeagh. We need to get you alignedwith KN [Construction] and the others.[36] Kingstons certified payment for October costs, including Dempsey Wood'sinvoice, on 23 November 2015. Koi approved payment out of the project account forthese costs on 25 November 2015 but stated in its email, copied to Mr Gapes, that thisshould not be construed as a waiver of Koi's rights or Panama's defaults under thefacility.[37] On 1 December 2015, Koi gave Panama formal notice that it intended toappoint receivers the following day. The amount owing to Koi was $26.752 million.The receivers were duly appointed and subsequently sold the development for around$25 million. The eventual shortfall to Koi with accrued interest was $2.575 million.Unsecured creditors totalling approximately $1.41 million received nothing.Dempsey Wood did not receive any payment for the works it carried out inNovember 2015, totalling $503,374 (including GST). Nor did it receive payment forits extension of time claim in the sum of $200,279.Did the Judge err in finding that the email was misleading and deceptive?High Court judgment[38] The Judge considered it was clear that Mr Gapes knew Mr Dempsey wasseeking assurance that Dempsey Wood would be paid for ongoing works.11His request was not one of academic interest as to what amounts remained in theproject account.12[39] The Judge was not persuaded by the argument advanced on behalf of Mr Gapesthat the email was not capable of being misleading given it was made to a sophisticatedbusinessman who knew: the general concept of a secured lender having priority overunsecured lenders; how property funding worked at a basic level, including that Koi'squantity surveyor was required to sign off on any payments and Koi's approval wasrequired; refinance was needed to continue the development; and receivership was a11 At [246].12 At [248].possibility.13 Even accepting for the purposes of the argument that Mr Dempsey hadknowledge of all these matters, the Judge considered this is what led him to seekMr Gapes' assurance that Panama had the ability to pay for ongoing work.14[40] Viewed in context, the Judge was satisfied that the email was capable ofmisleading or deceiving a hypothetical reasonable person in Mr Dempsey's position.Mr Gapes' assurance was not qualified in any way. Mr Dempsey could reasonablyhave understood the email to mean that, on the basis of Mr Gapes' current knowledgeand arrangements with Koi, the funds would be available to pay Dempsey Wood.15[41] However, the reality was quite different to that conveyed in the email. The Koifacility had expired, and Koi had issued a Property Law Act notice. Mr Gapes knewthat the amounts remaining in the construction and project accounts were alreadyearmarked to be repaid to Koi in part repayment of the facility. At the time of theemail, there were no other arrangements on the table which would have enabledcontractors to be paid. Mr Gapes had also been put on notice the previous day,11 November 2015, that Koi was trying to sell its facility including the amountsremaining in the construction and project accounts.16 The Judge considered the emailwas therefore misleading and deceptive, in breach of s 9 of the FTA.17Submissions[42] Mr Johnson, for Mr Gapes, submits that the email was not objectivelymisleading or deceptive given it was sent to someone with the knowledge andexpertise of the hypothetical reasonable person in Mr Dempsey's position.18He developed this submission by referring to the meaning he contends was conveyedby the email and then reviewing the circumstances in which it was sent.[43] Mr Johnson argues that the email could not reasonably be interpreted to meanthat the funds in the project account would be available to pay Dempsey Wood, as13 At [247].14 At [248].15 At [249].16 At [250].17 At [252].18 Citing Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].found by the Judge. He contends that was not an available inference in thecircumstances. Read in isolation, he says the email was objectively correct inrepresenting two things — first, it confirmed the balance in the project account, andsecondly, it indicated the purpose for which those funds were being held. Mr Johnsonpoints out that the pleaded case was not that either of these statements was false, ratherthat the email was misleading because at the time it was sent, Panama was in defaultunder the Koi facility and Mr Gapes knew that the money in the project account wouldsoon be used to repay Koi's secured debt. For this reason, he endorses the Judge'sobservation that the essence of Dempsey Wood's pleaded claim was one ofmisrepresentation by omission.19[44] Mr Johnson says the Judge found that the email was effectively an unequivocalguarantee of payment, but he contends that is a stretch. He says the email cannotreasonably be interpreted to mean that all of the money in the project account woulddefinitely be available to pay Dempsey Wood in any circumstances and irrespective ofany actions taken by Koi which had control over how the funds in the project accountwere applied.[45] Turning to the circumstances in which the email was sent, Mr Johnson makesthe following points:(a) Dempsey Wood was a sophisticated corporate entity with annualturnover of approximately $200 million.(b) Mr Dempsey was aware that Panama had secured lending with Koi andhis follow-up email to Russell McVeagh reveals an understanding ofdevelopment financing and secured lending.(c) Mr Dempsey understood that Koi exercised a degree of control andsupervision over the funds being paid out to contractors. Mr Dempseymust have known that the funds could not automatically be distributedfrom the project account at Panama's discretion.19 High Court judgment, above n 2, at [16(a)].(d) Mr Dempsey was aware that Panama was looking to refinance thedevelopment and that receivership was a possibility.(e) Dempsey Wood was "perennially anxious" about Panama's ability topay its invoices, issuing notices of intention to suspend works for fourconsecutive months from August to November 2015.(f) It is possible that Mr Dempsey did know about Panama's default on theKoi facility.[46] In these circumstances, Mr Johnson argues it would be naive forDempsey Wood to interpret the email as an unqualified guarantee of payment.While he accepts that Dempsey Wood was anxious about Panama's financial positionand sought assurances that it would receive payment, Mr Johnson says it does notautomatically follow that the email gave such assurance.[47] Mr St John submits that the Judge was correct to find that the email wasobjectively misleading because of what Mr Gapes left unsaid. He supports the Judge'sanalysis.Assessment[48] We consider the Judge was correct to find that the email was misleading anddeceptive in the circumstances.[49] Mr Gapes knew that Mr Dempsey was very concerned about Panama's abilityto meet its payment obligations to Dempsey Wood. Dempsey Wood gave notice ofintention to suspend works for non-payment every month from August 2015.Mr Jones' letter on 29 October 2015 expressed serious concerns about payment forongoing works and sought not only confirmation that Panama intended to meet all itspayment obligations under the contract but also evidence of the funding available toPanama to meet those obligations, including the extension of time claim. Mr Jonesgave notice that Dempsey Wood would seek recourse against Mr Gapes personally ifPanama did not meet its payment obligations. This reinforced that what Mr Dempseywas seeking was an assurance from Mr Gapes that if Dempsey Wood continued towork on the development, it would be paid for doing so.[50] Mr Dempsey's email of 11 November 2015 made it clear to Mr Gapes thatfollowing the meeting with Webber Capital, it was "even more imperative" that theconcerns set out in Mr Jones' letter were addressed. Mr Dempsey said that the lack ofcommunication was decreasing their confidence in Panama's ability to continue tofund the project. He referred to a telephone discussion that day in which Mr Gapesadvised that there was a sum of $3.9 million in a Russell McVeagh trust account for"the specific purpose of assuring payment for the civil works". Mr Dempsey recordedthis in his email to Mr Gapes and noted Mr Gapes had agreed to obtain a writtenstatement from Russell McVeagh "to this effect". Mr Dempsey asked for thisstatement to be sent to him by the close of business that day. Mr Gapes toldMr Dempsey by email that he had asked Russell McVeagh for this, adding that he"will chase today".[51] Of course, Russell McVeagh could not have made any such statement "assuringpayment" and Mr Gapes would have known that. This likely explains why he did notforward Mr Dempsey's email to Russell McVeagh and ask them to supply theassurance Mr Dempsey had been promised and was expecting. Instead, he obtainedan email from Russell McVeagh which did no more than record the balance held inthe project account (and the construction account). Mr Gapes added his own commentto bridge the gap in terms of what he knew Mr Dempsey was expecting by stating the"$4.172 is for civils and consultants etc". In context, the email conveyed the plainlyfalse impression that these monies would be available for payment of ongoing coststo Dempsey Wood if it continued to work on the development.[52] In summary, Mr Gapes told Mr Dempsey he would obtain a written statementfrom Russell McVeagh to the effect that the monies were held for the specific purposeof assuring payment for the works. The email he provided, with the addition of hisown shorthand comment, was intended to convey this assurance. It was misleadingand deceptive to advise that $4.172 million was being held in the project account forpayment of civil works when, as Mr Gapes knew, the money was likely to go to Koigiven its facility had expired and its Property Law Act notice was due to expire in thenext few days. Mr Gapes chose not to share any of this with Mr Dempsey because itwas in his interest for the works to continue.Did the Judge err in finding that Mr Dempsey relied on the email?High Court judgment[53] The Judge was satisfied that Dempsey Wood relied on the email in continuingto work on the development. She did not consider Mr Dempsey's follow-up enquiryof Russell McVeagh in his 13 November 2015 email undermined this conclusion.The Judge noted that Dempsey Wood continued to work on the development for sometime before Russell McVeagh replied to this email.20Submissions[54] Mr Johnson submits that the Judge erred in finding that Dempsey Wood reliedon the email. He contends that Dempsey Wood's conduct following the email suggeststhe complete opposite. He says Mr Dempsey's follow-up email to Russell McVeaghshows that he did not rely on the email. Either Mr Dempsey read the email as beinginherently unreliable or, given his understanding of the development, he interpretedthe email to mean that the funds in the project account were not exclusively for thepayment of civil works and consultant costs. His query as to whether the funds in theproject account were specifically for payment of the civil contract works shows thathe apprehended that the funds were being held for something other than just paymentof civil contract works. Mr Johnson says Mr Dempsey's further query about "otherrequirements needed to gain access to the fund", shows he appreciated there might berestrictions on the use of the funds and that Koi might have some control over them.Mr Johnson places particular emphasis on Mr Dempsey's enquiry as to whether theproject account was intended to "allow for any shortfall in the financing of the projectfrom Olympus Capital" (Koi's parent company). He says this shows that Mr Dempseywas openly speculating about the possibility of Koi claiming some of the funds in theproject account.20 At [254].[55] Taken together, Mr Johnson submits that Mr Dempsey's follow-up email toRussell McVeagh invites one of two conclusions. Either Mr Gapes' email did notobjectively amount to an unqualified assurance that Dempsey Wood would be paid ifit continued working, or Mr Dempsey did not rely on it because he actively doubtedwhat Mr Gapes had said and sought further clarification. He says if Dempsey Woodrelied on the email as an unqualified assurance of payment if it continued working, itwould have continued to do so, content in the knowledge it was guaranteed to receivepayment. However, Mr Dempsey's follow-up queries show that he was not satisfiedhe had received an unqualified assurance of payment. Mr Johnson points out thatDempsey Wood went so far as to serve a further notice of intention to suspend worksone week after receiving the email. He argues that these steps are not consistent withDempsey Wood's claim that it had been reliably assured of receiving payment.[56] Mr St John submits it is clear Dempsey Wood relied on the email in continuingto work on the development. He notes that Mr Dempsey did not receive a reply to hisfollow-up email for nearly two weeks and Dempsey Wood continued working in themeantime. In any event, Mr St John supports the Judge's finding that the furtherenquiry did not negate Dempsey Wood's reliance on the email. Borrowing from theexpression used in Red Eagle, Mr St John says that the email had a "crucial continuinginfluence" on Dempsey Wood's decision to continue working.21Assessment[57] We are not persuaded there is any justification for us to depart from the Judge'sassessment that Dempsey Wood relied on the email in continuing to work on thedevelopment. Such reliance was not negated by Mr Dempsey's follow-up email toRussell McVeagh asking for further information. There is ample evidence to supportthe Judge's conclusion, which has a distinct air of reality about it. If Mr Gapes hadbeen open with Mr Dempsey that he could not provide the assurance as to payment hewas seeking, it appears very likely that Dempsey Wood would have ceased work.The fact that Dempsey Wood continued to work on the development indicatesMr Dempsey did rely on the email. That he sought further information does not meanhe disbelieved Mr Gapes, disregarded the email, or placed no material reliance on it.21 Red Eagle, above n 18, at [32].Rather, it shows that he remained anxious and so he continued to seek assurance,directly from Russell McVeagh, that his understanding based on what Mr Gapes hadtold him, was correct.[58] It seems to us that Mr Gapes, in furtherance of his own interests, was stringingMr Dempsey along so that he kept working. The flaw in Mr Johnson's submission isthat it does not follow from the fact that an assurance is not fully nailed down that itcannot be misleading and cannot have been reasonably relied on by a recipient whoseeks to shore up the position by requesting that further nails be added.Did the Judge err in her assessment of the losses caused?High Court judgment[59] The Judge accepted Mr Dempsey's evidence that in the absence of Mr Gapes'assurance in the email, Dempsey Wood would have "downed tools", stopped work,and "worried about the legals later".22[60] In assessing quantum, the Judge rejected Dempsey Wood's claim forrecompense for its extension of time claim because that was spread over the entirecontract period.23 She apportioned the November 2015 progress claim to allow for the15-working-day period from the date of the email (12 November 2015) up to andincluding the day receivers were appointed (3 December 2015). She calculated this tobe $20,974 per day, for a total of $314,610.24 From this, the Judge deducted anine per cent margin for profit, bringing the total to $286,295.25Submissions[61] Mr Johnson submits there are flaws in the Judge's causation analysis,describing it as "cursory". He cites Red Eagle for the proposition that s 43 requires a"practical or common-sense concept of causation",26 and he refers to the statement in22 High Court judgment, above n 2, at [255] and [257].23 At [205] and [259].24 At [259].25 At [261].26 Red Eagle, above n 18, at [29].Goldsbro v Walker that a "clear nexus" is needed between the impugned conduct andthe claimed loss.27[62] Mr Johnson submits that the Judge should not have accepted Mr Dempsey'sevidence that Dempsey Wood would have "downed tools" had he not received theassurance in the email. He says Dempsey Wood was contractually obliged to continuework and the Judge should not have accepted so readily that it would have simply"repudiated" the contract. Mr Johnson referred us to the following exchange incross-examination to support his contention that "the unavoidable point is thatDempsey Wood was contractually obliged to continue work":[Mr Johnson]So you say, as I understand it, you know the project could go into receivershipby this time because Mr Gapes has told you, you know there was an attemptto find a new funder that had failed, you [then] asked specifically about fundsin the account, Mr Gapes gives an answer. You did not actually rely on thatanswer, did you?[Mr Dempsey]We did, because we were carrying on working. We hadn't stopped. We werein the field doing our contract works or carrying out our contract work so foryou to say that I didn't trust what [Mr Gapes] had said I think is wrong.[63] Mr Johnson contends that the suggestion Dempsey Wood would have stoppedwork is at odds with Mr Dempsey's evidence that Dempsey Wood continued workingdespite reservations about Panama's financial position because it was "contracted tocarry on" and he had "committed the company to building the project". As a matterof logic, he says it is difficult to argue causation in circumstances where a claimanthas already committed to doing something before the impugned representation.Mr Johnson describes Mr Dempsey's rejoinder as "obvious" but "unpersuasive":[Mr St John]So notwithstanding what may have been in the contract, again, what wouldyou have done if you hadn't had that assurance?[Mr Dempsey]We would've stopped work and probably looked at, yeah, the legal ways onhow we bring the contract to a close. That'll be the process for that.27 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 401.[64] Mr Johnson says that beyond "bare assertion" from Mr Dempsey, there wasnothing before the High Court to enable a finding that Dempsey Wood would havesimply quit the site.[65] Next, Mr Johnson submits that the Judge failed to address the issue of timing.He asks, rhetorically, how quickly would Dempsey Wood have downed tools — wouldit have been a day, a week, a month? He says there was no evidence to supportthe Judge's conclusion that Dempsey Wood would have stopped work immediatelyapart from Mr Dempsey's evidence to this effect which he discounts as mere assertion:[Mr St John]My question is what would you have done if you hadn't received theseassurances?[Mr Dempsey]Stop work immediately and that's what I told [Mr Gapes] we'd do and that'shence the calls, $4.172 million in the account, don't [worry], you'll get paid.[66] Mr Johnson says that evidence is difficult to square with Dempsey Wood's owndelay in raising concerns after the meeting with Webber Capital. Mr Jones' letter wasnot written until 29 October 2015 and, despite there being no response, Mr Dempseydid not speak to Mr Gapes until 11 November 2015. In summary, Mr Johnsoncontends that Dempsey Wood's arguments as to causation were conceptually confusedand unsubstantiated. The Judge should have recognised this.[67] Turning to quantum, Mr Johnson says Dempsey Wood's evidence about thiswas distinctly lacking. Dempsey Wood did not adduce any reliable evidence whichcould assist in determining the costs it incurred by continuing to work beyond12 November 2015. This led the Judge to observe that a "broad-brush approach is allthat is possible on the evidence".28 The Judge reverted to what Mr Johnson describesas a "rudimentary" per-day calculation and deducting a "hypothetical" margin becauseMr Dempsey could not say what the actual margin on the contract was. In thesecircumstances, he submits that the Judge should have declined to make any award or28 High Court judgment, above n 2, at [261].at least significantly discounted the claim. He argues that Mr Gapes should have beengiven the benefit of the doubt.[68] Mr St John drew attention to Mr Dempsey's evidence that if he had known howbad Panama's financial position was, he never would have agreed to continue workingon the development through November 2015. He only continued working because ofMr Gapes' assurance in the email. When Mr Dempsey was notified of the receivershipon 3 December 2015, Dempsey Wood immediately ceased work on the site.He submits that the Judge was entitled to find on the evidence that Dempsey Woodwould have ceased working immediately had it not been misled by Mr Gapes' email.[69] As to quantum, Mr St John notes that almost six years had passed by the timethe matter went to trial and detailed records to establish the appropriate profit marginwere not available. The Judge's assessment was the mid-point of Mr Dempsey'sevidence that the margin was generally between seven and 11 per cent. He argues thatthe Judge's approach was perfectly appropriate and necessary to do justice betweenthe parties.Assessment[70] We are not persuaded the Judge was wrong to accept Mr Dempsey's evidencethat he would have directed his company to cease work immediately had he not beenmisled by the email into thinking that the continuing work would be paid for. As thesole director of the company, Mr Dempsey was the only person in a position to givethis evidence. While the Judge was not obliged to accept his evidence, she was entitledto do so and could not simply disregard it as nothing more than a bare assertion.This applies not only to the decision to cease work, but the timing of theimplementation of such a decision. Mr Dempsey consistently stated that this wouldhave occurred immediately. That is what happened when the receivers wereappointed. There was no evidential basis for a conclusion that having taken thedecision to stop work, it would have taken days, weeks or even a month to implementit. If there was no assurance of payment, it is reasonable to assume Dempsey Woodwould not have carried on working.[71] It is not uncommon for there to be a lack of precision in the quantification ofloss. Dempsey Wood bore the onus of proof, but it cannot be said there was noevidence on which to base the assessment. It would have been wrong for the Judge todismiss the claim for lack of proof. Nor do we consider it would have been appropriateto apply an arbitrary discount to give Mr Gapes, as the wrongdoer, the benefit of thedoubt. Rather, the Judge was required to do the best she could on the basis of theavailable evidence to arrive at an assessment of loss that did justice to both parties.We see no error in her approach or in the conclusion she reached.Conclusion[72] For the reasons given, the appeal against the judgment in respect of the FTAclaim must be dismissed. The damages awarded under s 301 of the Companies Actwere calculated by reference to the same losses suffered by Dempsey Wood over thesame period and these are subsumed in the judgment given in respect of the FTA claim.The liquidator took no part in these proceedings. For these reasons and because of thestance adopted by Dempsey Wood on this appeal, the orders made in the High Courtunder the Companies Act can be set aside without opposition.[73] In these circumstances, Mr Johnson invited us to direct that costs in theHigh Court be remitted to that Court for reconsideration in the light of this Court'sjudgment. However, on reflection, we do not consider this is appropriate.Dempsey Wood succeeded on both causes of action in the High Court. We are notpersuaded there is any reason why costs in that court should be reduced merelybecause the appeal against orders made under the Companies Act was not resisted forpragmatic reasons.Result[74] The appeal is dismissed save that the orders made under the Companies Act1993 and reflected in orders (a), (b) and (c) of the sealed judgment of the High Courtare set aside.[75] The appellant must pay costs to the respondent for a standard appeal on aband A basis and usual disbursements.Solicitors:WynnWilliams, Auckland for AppellantAlan Jones Law Limited, Auckland for Respondent