ROBT. JONES HOLDINGS LIMITED v MCCULLAGH [2018] NZCA 358

ROBT. JONES HOLDINGS LIMITED v MCCULLAGH [2018] NZCA 358 [10 September 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA568/2017[2018] NZCA 358BETWEEN ROBT. JONES HOLDINGS LIMITEDAppellantAND ANTHONY JOHN MCCULLAGH ANDSTEPHEN MARK LAWRENCERespondentsHearing: 26 April 2018Court: Cooper, Winkelmann and Williams JJCounsel: D G Chesterman for AppellantB P Keene QC and L M Van for RespondentsJudgment: 10 September 2018 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents one set of costs for a standard appealon a band A basis and usual disbursements. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Winkelmann J)Table of ContentsPara NoIntroduction [1]Background [4]The entities and people [4]The transactions [7]The voidable transaction proceedings [10]Legislative framework [12]First ground of appeal: did the liquidators prove the payments byColumbus were a redirection of licence fees due to Northern Crest?[18]Background [21]January 2009 Agreement [22]November 2009 Agreement [25]April 2010 Agreement [31]The Rutherford Agreement [36](a) Was the November 2009 Agreement a sham?RJH's argument on appeal[38]High Court judgment [40]Relevant principles [42]Did the Judge err in dismissing motivation for sham asspeculative?[44]Was the intellectual property illusory? [46]Did Northern Crest own the intellectual property? [53]Was the licence fee intended to be paid or recoverable? [64](b) If the November 2009 Agreement was not a sham, were thesepayments transactions of Northern Crest for the purposes ofs 292?[74]The payments [75]High Court judgment [76]RJH's argument on appeal [81]Should the Judge have relied on the MYOB records? [82]What did the MYOB records and other evidence prove inconnection with the payments?Payments prior to 1 April 2010 [91]Payments after 1 April 2010 [101]Analysis [106](c) Final observation regarding Columbus payments [107]Second ground of appeal: did the Judge err in finding that paymentsto RJH by MSH No 2 were transactions of Northern Crest?Was there adequate proof the payments were a loan fromMSH No 2 to Northern Crest?[110]RJH's argument on appeal [113]Analysis [115]Were the payments by MSH No 2 made at the direction of, or withthe consent of, Northern Crest?[122]Third ground of appeal: were the payments by MSH No 2 insolventtransactions if they did not diminish the pool of assets available tothe creditors?[125]Analysis [129]Fourth ground of appeal: relief under s 295 [146]Result [150]Introduction[1] In 2010 Robt. Jones Holdings Ltd (RJH) received payments totalling$751,941.52 in discharge of a debt owed to it by Northern Crest Investments Ltd(Northern Crest). The payments were made, not by Northern Crest, but by two otherentities: Columbus Property Marketing Pty Ltd (Columbus) and MSH No 2 Pty Ltd(MSH No 2).[2] In 2011, Northern Crest was placed in liquidation. Its liquidators applied unders 294 of the Companies Act 1993 to set aside the payments received from Columbusand MSH No 2 on grounds that they were insolvent transactions entered into byNorthern Crest in the two-year period before the date of commencement of theliquidation and at a time when Northern Crest was unable to pay its due debts.[3] The liquidators succeeded in the High Court before Gordon J. The paymentswere set aside and RJH ordered to pay the $751,941.52 to Northern Crest.1 RJH nowappeals that finding. It does not, on appeal, dispute that Northern Crest was unable topay its due debts at the time the payments were made. Nevertheless, it arguesthe Judge was wrong to find these were insolvent transactions for the purposes ofthe Companies Act because:(a) there was insufficient evidential basis for the Court to conclude thatpayments by the third parties were transactions by Northern Crest;(b) even if the payments by MSH No 2 were transactions byNorthern Crest, the Judge was nevertheless wrong to find these wereinsolvent transactions as the payments did not result in a diminutionof the net pool of assets available to the creditors of Northern Crestin the liquidation; and(c) in any case, the Judge erred in failing to order, under s 295 ofthe Act, that the amount RJH was required to pay should be reduced1 McCullagh v Robt Jones Holdings Ltd [2017] NZHC 2182, [2018] NZCCLR 8 at [217]–[219][High Court judgment].in light of the liquidators' conduct in attempting to set aside andrecover the amounts in question.BackgroundThe entities and people[4] Northern Crest is a New Zealand registered company.2 It was part of theNorthern Crest group of companies, which in earlier times had traded as the Blue Chipgroup of companies. Northern Crest was a promoter of a particular style of propertyinvestment. Liquidators were appointed to it in June 2011 by order of the Court.3The liquidators are the respondents, Messrs Anthony McCullagh and StephenLawrence.[5] MSH No 2 was an Australian registered company and a wholly-ownedsubsidiary of Northern Crest. Its sole director, Mr Eakin, was also a director ofNorthern Crest. It was placed into administration in Australia some time after thetransactions that are subject of these proceedings. Another related company,MSH No 1, appears from time to time in the chronology of relevant events.[6] Columbus is also an Australian registered company. When the payments weremade, Mr Robert Hughes was its sole director. Columbus' link with Northern Crest isthrough Mr Hughes' association with Mr Mark Bryers. Mr Bryers was a director ofNorthern Crest until he was bankrupted, but even then he continued to be involved inthe affairs of Northern Crest as a consultant.The transactions[7] Northern Crest fell behind in the rent it owed RJH under a lease of a buildingin Auckland. In October 2008, a settlement was documented in which a payment wasagreed to fully satisfy RJH's claims against Northern Crest.2 Formerly Blue Chip Financial Solutions Ltd, Blue Chip New Zealand Ltd, Newcall Group Ltdand The New Zealand Salmon Company Ltd.3 Northern Crest Investments Ltd v Haywood HC Auckland CIV-2010-404-7741, 2 June 2011.[8] Between 22 January 2010 and 28 May 2010, Columbus made payments to RJHtotalling $489,183.07. Between 7 September 2010 and 5 November 2010, MSH No 2made payments to RJH totalling $262,758.05. RJH received these payments, totalling$751,941.52, in discharge of Northern Crest's obligations under the settlementagreement.[9] On the liquidators' case, Columbus paid licence fees, due to Northern Crest,to RJH in discharge of Northern Crest's obligations. The liquidators say theMSH No 2 payments were also a redirection of licence fees or, alternatively, were aninter-group loan from MSH No 2 paid to RJH for the benefit of Northern Crest.The voidable transaction proceedings[10] The liquidators argue that these third-party payments were insolventtransactions by Northern Crest because they were of funds due to Northern Crest andmade at its direction or, at least, with its consent.[11] In pursuing this case, the liquidators had little cooperation from the directorsof Northern Crest, MSH No 2 or Columbus. Before the High Court the evidence andargument for both sides focused on the records of the Northern Crest group thatthe liquidators had been able to assemble and the work of experts retained by each sideto assist them.Legislative framework[12] Section 292 provides that a transaction is voidable by the liquidator if it is aninsolvent transaction and entered into within the specified period. The onus is on theliquidator to show that the transaction in question is an insolvent transaction.Section 292(2) defines insolvent transaction as follows:292 Insolvent transaction voidable(2) An insolvent transaction is a transaction by a company that—(a) is entered into at a time when the company is unable to payits due debts; and(b) enables another person to receive more towards satisfactionof a debt owed by the company than the person would receive,or would be likely to receive, in the company's liquidation.[13] Section 292(3) provides that transaction "means any of the following steps bythe company":(a) conveying or transferring the company's property:(b) creating a charge over the company's property:(c) incurring an obligation:(d) undergoing an execution process:(e) paying money (including paying money in accordance with ajudgment or an order of a court):(f) anything done or omitted to be done for the purpose ofentering into the transaction or giving effect to it.[14] The liquidators rely upon ss 292(3)(e) and (f). They say that these werecomposite sets of transactions by which RJH was paid money by the third parties dueto Northern Crest and at its direction or, at least, with its consent.[15] The principles as to when a payment by a third party can amount to atransaction for the purposes of s 292 are not in dispute. Courts will be concerned withsubstance, rather than form, when assessing third party payments.4 Payments bythird parties may constitute insolvent transactions for the purposes of s 292 where thepayment is made at the direction or with the consent of the insolvent company, and:(a) the third party makes that payment in discharge of an obligation itowes to the insolvent company;5 or(b) the money is not the third party's, but is paid from funds belongingto the insolvent company or to which that company has rights.64 Re Matthew Ellis Ltd [1933] 1 Ch 458 (CA) at 469; Re Mataura Motors Ltd [1981] 1 NZLR 289(CA) at 291; Westpac Banking Corporation v Merlo [1991] 1 NZLR 560 (CA) at 564; Re YukichBrothers Ltd (in liq); Porter Hire Ltd v Blanchett (2006) 9 NZCLC 264,070 (HC) at [92]; andPaul Heath and Mike Whale (eds) Heath and Whale: Insolvency Law in New Zealand (2nd ed,LexisNexis, Wellington, 2014) at 633.5 Levin v Market Square Trust [2007] NZCA 135, [2007] 3 NZLR 591 at 595–596; and ChiltonSaint James School v Gray (1996) 9 PRNZ 349 (HC) at 354.6 Westpac Banking Corporation v Nangeela Properties Ltd [1986] 2 NZLR 1 (CA).[16] This issue was fully discussed by the Federal Court of Australia in Re Emanuel(No 14) Pty Ltd (in liq), Macks v Blacklaw & Shadforth Pty Ltd.7 In that case Emanuelhad contracted with EFG that, in settlement of all claims between them, EFG would,amongst other things, make payments for Emanuel and at Emanuel's direction toBlacklaw, in partial discharge of Emanuel's debts to Blacklaw. At issue was whether,when payment was made and accepted by Blacklaw, Emanuel and Blacklaw wereparties to a transaction for the purposes of the unfair preference provisions of theCorporations Law.8 The Federal Court was satisfied that Emanuel was party to thetransaction since its authorisation was necessary for the payment to be effective indischarging the debt. The Court said:9We confine our observations for present purposes simply to a course of dealinginitiated by a debtor for the purpose of, and having the effect of, extinguishinga debt. It is not apparent to us why it should not be said that, where a debtorso acts and extinguishes a debt, the relevant "transaction" is the totality of thedealings through which the debtor procures the intended outcome, irrespectiveof whether one or more of the dealings in the sequence in question does notinvolve or require the participation of the debtor but does require that of a thirdparty. The transaction, in other words, is the totality of the dealings initiatedby the debtor so as to achieve the intended purpose of extinguishing the debt.[17] Section 294 of the Act confers on the court the power to set aside insolventtransactions. Section 295 details the range of orders a court may make where atransaction is set aside under s 294.First ground of appeal: did the liquidators prove the payments by Columbus werea redirection of licence fees due to Northern Crest?[18] RJH argues that the liquidators failed to prove that the payments to RJH byColumbus were a redirection of licensing fees due to Northern Crest for the followingreasons:(a) The licensing arrangements the liquidators built their case on werein fact a sham, put in place to help Northern Crest's attempts to gainlisting on the Australian Stock Exchange.7 Re Emanuel (No 14) Pty Ltd (in liq), Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281(FCA).8 At 282.9 At 288.(b) Even if the licensing arrangements were not shown to be a sham, theaccounting and company records relied upon to prove thesepayments were a redirection of licensing fees were demonstrablyunreliable. They did not and could not prove that the transactionswere from licence fees owed to Northern Crest.[19] These are two separate grounds of challenge to the judgment. We address eachof them in turn. However, as we come to, success for RJH with either argument wouldnot assist it. If the arrangements were a sham or the accounting records unreliable, inthe absence of other explanation the inevitable inference would be that these paymentsby Columbus to RJH were by way of loan to Northern Crest. It is to be rememberedthat the payments were used to discharge Northern Crest's indebtedness to RJH andwere therefore applied for the benefit of Northern Crest.[20] If by way of loan, the arrangements would still be a transaction byNorthern Crest for the purposes of s 292. It follows that even if RJH succeeded withthis first ground of appeal, it would still have to succeed on the third ground of appeal— its argument that a loan transaction to repay a debt cannot be an insolventtransaction because it does not diminish the pool of assets available to meet creditors'claims, the same argument it makes in connection with the MSH No 2 payments.Background[21] Four licence agreements are relevant to the issues in this proceeding.January 2009 Agreement[22] The January 2009 Agreement was between MSH No 2 as licensor andColumbus as licensee. Columbus was granted a non-exclusive licence to the "System"for the whole of Australia. Although Northern Crest was not a party to that agreement,it was defined as the Master Licensor for the purposes of the agreement.The background recitals to the Agreement include the following:A The Master Licensor has developed a licensed system and theMaster Licensor owns proprietary know how and trade secrets relatingto the establishment and operation of the System.C The Master Licensor has granted the Licensor [MSH No 2] rights to thename and all other Intellectual Property in relation to the System andthe right to licence the System.[23] The licensed System is said to enable "the Licensee to provide financialsolutions to their customers through the referring, processing and sale of residentialproperty and other investment solutions and related services and products". One ofthe distinguishing features of the System is said to be a "Licence Owner Manual".Columbus was required by the agreement to conduct its business in accordance withthis manual.[24] Columbus was also required to pay a monthly licence fee reflecting theproperties underwritten and settled by the licensee for the relevant month. That fee isdefined as "15.0% of the sale value of every third property underwritten by theLicensee in the territory [Australia] exclusive of GST".November 2009 Agreement[25] The November 2009 Agreement is the licence agreement the liquidators saygenerated the licence fees which were redirected to RJH. It was betweenNorthern Crest as licensor and Columbus as licensee, and was expressed to supersedeall previous agreements with respect to its subject matter.[26] The agreement used different language to the January 2009 Agreement.It involved the licensing of intellectual property, rather than systems. But theintellectual property was said to enable Columbus to conduct the "Business", and theBusiness was defined in very similar terms to the "System". We therefore infer thatthe November 2009 Agreement licensed similar rights to those licensed in theJanuary 2009 Agreement.[27] The rights granted were non-exclusive, non-transferable rights to use theintellectual property and to perform the "Licenced Services" (defined as services to beperformed by the Licensee in implementation of the Intellectual Property) in Australiafor a period of five years.[28] Like the earlier agreement, the November 2009 Agreement contained a clauserequiring the licensee to conduct its business in accordance with the manual, which inthis instance was described as the "Procurement Procedure Manual".[29] The fee structure under the November 2009 Agreement was more complexand, for Columbus, more costly than that documented in the January 2009 Agreement.A fixed fee of $3.5 million was payable for the period 26 November 2009 to31 March 2010, and there was to be an annual licence fee thereafter.[30] It is common ground that the full amount of that licence fee of $3.5 millionwas not paid. It was reflected as an impaired asset in the interim financial report ofthe Northern Crest Group for the six months ended 30 September 2010. The reasonfor the impairment was described by Northern Crest in the following terms:New licenseeNorthern Crest has entered into a license [sic] agreement with RutherfordFranchising Pty Ltd. This license [sic] agreement will see the bulk of theresidential investment property distribution activity channelled throughRutherford.As a consequence of the Rutherford license [sic] agreement, Northern Cresthas revised the agreement previously entered into with Columbus PropertyMarketing Pty Limited on 26 November 2009. The new agreement withRutherford had the effect that Columbus no longer had any exclusivity overdistribution.In recognition of the projected reduction in revenues available to Columbusunder the new licensing arrangements, [Northern Crest] has arrived at acommercial settlement with Columbus, resulting in minimum performancestandards under the licence arrangements being substantially lowered,including a reduction in the minimum licence fee for the March 2010 year.The effect of the settlement is a writing down of licence fee receivables fromMarch 2010 and as a consequence, Northern Crest will not now receive the$3.47 million licence fee receivable from FY2010 and has fully impaired thisamount as at 30 September 2010.April 2010 Agreement[31] This, the third licence agreement, was between MSH No 2 as licensor andColumbus as licensee. Clause 10.10 provides that the April 2010 Agreement"supercedes [sic] all previous agreements, accords, understandings between the partiesand specifically releases Northern Crest Investment Limited from any liability in anyevent".[32] The recitals to the April 2010 Agreement state as follows:A The Licensor has developed a licensed system and the Licensor ownsproprietary know how and trade secrets relating to the establishmentand operation of the System.B The Licensor has expended time, effort and money to develop andprotect the System.C This agreement supercedes a previous agreement between the partiesand has been modified by mutual consent as the relationship bymutual accord is no longer exclusive.D The new agreement takes into account the non exclusive relationshipand in doing so reduces the consideration.[33] A confusing feature of the April 2010 Agreement is that cl 14.1 of theagreement defines "Licensor" in two different ways as follows:Licensor includes its related Companies and in particular, in relation toownership of the system, the Intellectual Property and the Marks.Licensor means MSH No 2 Pty Limited (ACN 122 293 243).[34] Columbus was granted a licence to "[e]xploit the System commercially" and"[i]dentify the Business in accordance with the System". Again, the marketing of theSystem and referral of customers was to be governed by the Licence Owner Manual.The licensee was also required to comply with the provisions of the Licence OwnerManual in relation to accounting, insurance and use of the intellectual property ordatabase.[35] The licence fee was $25,000 including GST in respect of each property sold bythe licensee, which was said to cover the initial cost of training.The Rutherford Agreement[36] The final licence agreement in the chronology was between MSH No 2 aslicensor and Rutherford Franchising Pty Ltd as licensee. Dated 1 October 2010, it isthe agreement referred to above as the reason for the impairment of the $3.5 millionlicensing fee.[37] The terms of the Rutherford Agreement were largely identical to thosecontained in the April 2010 Agreement with two minor differences: first, there wasno provision regarding the superseding of any previous agreement between the parties;and second, the licence fee was said to be $10,000 for each property sold bythe Licensee rather than $25,000.(a) Was the November 2009 Agreement a sham?RJH's argument on appeal[38] It was argued before Gordon J that the November 2009 Agreement was a sham.RJH put its case that this was a sham arrangement as follows. Northern Crest'srelisting process (it had previously been listed) was underway from 2009. Relistingwould have resulted in a capital raising which would clear all debts and provide furthercapital. However, Australian Stock Exchange compliance required Northern Crest toshow $1.5 million in working capital. RJH argues that Northern Crest was thereforemotivated to create a licence fee income stream to secure the relisting and, in themeantime, to help channel funds through in order to pay Northern Crest's debt andkeep it afloat.[39] RJH says that Gordon J was wrong to dismiss the evidence that Northern Cresthad a clear motive to create a sham arrangement.10 RJH points to the relationshipbetween Mr Bryers, of Northern Crest, and Mr Hughes, the director of Columbus.In September 2009, Mr Hughes offered to pay $1.2 million to Mr Bryers' creditorsfrom his company Balboa PM Services Pty Ltd. That was just two months beforeColumbus signed the November 2009 Agreement (the second licence) and was aneffort to prevent Mr Bryers' bankruptcy. Two weeks prior to being adjudicatedbankrupt, Mr Bryers transferred his shares and directorships in three Australian-listedcompanies to Mr Hughes. This relationship of assistance between Mr Bryers and MrHughes, RJH argues, is evidence which suggests that the November 2009 Agreement10 High Court judgment, above n 1, at [102]–[103].may well have been arranged for an ulterior purpose. Since Mr Bryers' bankruptcycould not be avoided, the licence agreement was a backstop, under which a plan wasformulated to keep Northern Crest afloat and secure its relisting in Australia.11High Court judgment[40] The Judge addressed four critical aspects of RJH's case on this point:(a) Northern Crest created this sham arrangement to secure re-listing;12(b) there was, in reality, no intellectual property to be licensed;13(c) or if there was, it was owned by MSH No 2 not Northern Crest;14and(d) the licensing fee was inflated and, from the outset, was neverintended to be recoverable.15[41] Relying primarily on contemporaneous documentation, the Judge rejected thesuggested motive to create a sham arrangement as speculative.16 She expressed herselfsatisfied that there was indeed intellectual property to be licensed, that Northern Crestwas the master licensor of that intellectual property, and that the fee was agreed andintended to be paid so that the later impairment was legitimate.17Relevant principles[42] As to when a document will be treated as a sham, the Supreme Court inBen Nevis Forestry Ventures v Commissioner of Inland Revenue articulated therelevant principles as follows:1811 Mr Bryers was bankrupted on 1 October 2009.12 High Court judgment, above n 1, at [141].13 At [104]–[119].14 At [120]–[133].15 At [135]–[142].16 At [141].17 At [143].18 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115,[2009] 2 NZLR 289.[33] There is no need for us to engage in any extended discussion of whatconstitutes a sham for present purposes. In essence, a sham is a pretence. It ispossible to derive the following propositions from the leading authorities.[19]A document will be a sham when it does not evidence the true commonintention of the parties. They either intend to create different rights andobligations from those evidenced by the document or they do not intend tocreate any rights or obligations, whether of the kind evidenced by thedocument or at all. A document which originally records the true commonintention of the parties may become a sham if the parties later agree to changetheir arrangement but leave the original document standing and continue torepresent it as an accurate reflection of their arrangement.[43] RJH's argument before us was not addressed to these legal principles but wehave attempted to frame it in conformity with them. We understand RJH's argumentto be that the November 2009 Agreement was a sham because neither party intendedthat there be a licensing of intellectual property (because there was no such property,or at least none owned by Northern Crest) and that neither party intended that there bepayment of the licence fee. RJH does not offer an explanation or evidence to suggestthe true nature of the transactions allegedly concealed by sham licensingarrangements.Did the Judge err in dismissing motivation for sham as speculative?[44] The Judge rejected as speculative RJH's arguments as to why Northern Crestand Columbus would set up sham licensing arrangements.20 We agree.Mr Chesterman for RJH did not identify for us any evidence tending to prove a linkbetween the proposed relisting on the Australian Stock Exchange and the decisionstaken to enter into the agreement, or to make the payments in question. There ishowever evidence tending the other way. As the Judge observed, the licence fee wasimpaired at the latest by 30 September 2010, at which time Northern Crest had notbeen re-listed.[45] Against this background we are satisfied that the claimed link betweenthe re-listing and the November 2009 Agreement can be discounted. At its highest,the evidence of the close relationship between the two men, which extended to their19 Snook v London & West Riding Investments Ltd [1967] 2 QB 786 (CA); Paintin andNottingham Ltd v Miller Gale and Winter [1971] NZLR 164 (CA); and NZI Bank Ltd vEuro-National Corp Ltd [1992] 3 NZLR 528 (CA).20 High Court judgment, above n 1, at [141].business dealings, is a factor to be borne in mind when considering the other aspectsof the licensing arrangements.Was the intellectual property illusory?[46] On appeal, RJH argues that Gordon J erred in rejecting arguments that theintellectual property and systems purportedly licenced were illusory in the face of thefollowing evidence:(a) Mr Eakin could not describe the intellectual property when he wasinterviewed.(b) The absence of intellectual property manuals or other supportingdocuments to evidence the existence of the System.(c) No asset value was attributed to the intellectual property inNorthern Crest's accounts. Mr Robertson, Northern Crest'saccounts contractor, confirmed that he believed the intellectualproperty was of questionable value and he had never been asked toinclude it in the accounts.[47] In weighing the significance of Mr Eakin's statements made post-liquidation,we bear in mind the evidence produced by the liquidators that the directors ofNorthern Crest did not cooperate with the liquidators. This lack of cooperation on thepart of the directors extended to a failure to hand over relevant documents or to providedocuments. Mr Christopher McCullagh, who assisted the liquidators with theliquidation, gave evidence in the High Court. He explained that the records theyretrieved were in disarray. They were found in shredder bins, loose or in files. In hisopinion, the state of disorder suggested someone had been through the records to"sanitise" them. While Mr McCullagh confirmed that the Liquidators did not knowwho undertook the santisation process, he said "[i]t is likely that the process wasundertaken by the management/directors of [Northern Crest] prior to the Liquidatorsobtaining custody/control of the records/documents."[48] Given this context, little if any weight can be attached to the liquidators' failureto produce a Procurement Procedure (Licence Owner) Manual, or to Mr Eakin'sinability to describe the intellectual property.[49] As RJH submits, there was evidence that no value was given to theintellectual property in Northern Crest's accounts. Again, we agree with the Judgethat, in the absence of expert evidence as to what to make of this, no weight can safelybe attributed to this aspect of RJH's case.21[50] The most reliable evidence as to the existence or otherwise of theintellectual property is the evidence of statements made and actions taken by theNorthern Crest group and Columbus directors and personnel around the time thelicensing agreements were entered into. This is before liquidation, before the prospectof litigation, and so before the time at which there were interests for the originalparticipants to further or protect.[51] It was not in dispute that the Northern Crest group (formally Blue Chip group)operated a particular kind of property investment scheme. There was evidence thatproperties were sold by the licensee and that payments were made pursuant to thelicence agreement, payments which flowed in part to RJH:(a) In January 2010, a financial report prepared by Northern Crest statedunder the heading "Revenue":Revenue on settlements received to date amounts to $211k.In addition we have accrued a further $2.2m which equates tohalf of the revenue anticipated in the license agreement.(b) In a board memorandum dated 24 February 2010, Mr Eakin wrote:(a) BackgroundOver a number of months, the Board expressed its concernabout the delays in property settlements and theconsequential impact on Northern Crest's cash flow. SinceNovember 2009, [Columbus] has settled 33 properties with21 At [111].a significant cashflow impact in favour of[Northern Crest](ii) Debtors[Columbus] has recently advised that [Northern Crest] canexpect to receive a minimum of $500,000 from [Columbus]in March, resulting from the release of the security deposit[Columbus] holds with Korda Mentha on the Aqua project.Prior to any additional cash payments from [Columbus], atleast $1.6 million will have been received by[Northern Crest] from [Columbus] in the last five months ofthe financial year. As at the end of the financial year, thatwould mean [Columbus] had accounted to [Northern Crest]for approximately 46% of the total licence fees accrued of$3.5 million as provided for in the Licence Agreement.(c) In March 2010, Mr Eakin prepared a further report titled"Northern Crest Executive Monthly Report for March 2010."Under "Performance/Sales", Mr Eakin wrote: Under the licence agreement, Columbus is obliged to payNorthern Crest a minimum of $3.5 million for the yearended 31 March 2010 which reflected a component forreceiving the licence as well as for sales performance. Upuntil 31 January 2010 Columbus had paid approximately$730,000 to Northern Crest out of a total accrual of$3,030,000. Columbus has since paid an additional$300,000 to Northern Crest, and they have recently advisedthat a further $500,000 minimum amount should be receivedby Northern Crest during March 2010, resulting fromforecast net revenue exceeding $900,000 for the samemonth and the return of the Columbus security deposit of$500,000 from the AQUA development. The balance of thefees owed ($1,970,000) should be paid prior to31 May 2010.[52] There was therefore ample evidence to satisfy the Judge that theintellectual property did exist.Did Northern Crest own the intellectual property?[53] Before Gordon J, RJH advanced the argument that if there wasintellectual property, MSH No 2 owned it. On appeal, RJH argues:(a) Although acknowledging that in his 6 June 2011 interview with theliquidators Mr Eakin stated Northern Crest had always owned theintellectual property, RJH relies on the fact that by the timeMSH No 2 was placed into administration, Mr Eakin had changedhis account. Mr Arnautovic, administrator for MSH No 2, issued areport in which he recorded that "[t]he company's director has alsoadvised that [MSH No 2] has at all times owned the IntellectualProperty for the "[Northern Crest] group".(b) Mr Lawrence, one of Northern Crest's liquidators, gave evidencethat it was unclear who owned the intellectual property.(c) The assets of MSH No 2, including its intellectual property, weresold by its Administrator for $10,000.(d) While the January 2009 Agreement referred to Northern Crest asthe "Master Licensor", and the November 2009 Agreementdescribed Northern Crest as the "Licensor", the April 2010 andOctober 2010 license agreements described MSH No 2 as the"Licensor".[54] As to RJH's first point, Gordon J accepted that inconsistencies in Mr Eakin'sstatements regarding ownership of the intellectual property raised real questions as tohis credibility and veracity.22 She preferred to place weight on documentationgenerated around the time of the transactions. As we have outlined above, that is ourapproach also. We think it the correct approach in the particular circumstances of thiscase.[55] As to the second point, Mr Lawrence's evidence, relied upon by RJH, was thatthe liquidators could not ascertain ownership of the intellectual property butnevertheless considered all of the material they had sighted suggested it was ownedby Northern Crest. Mr Lawrence's evidence on this issue was opinion evidence onthe issue of ownership. The Judge was correct to attach no weight to it.22 At [125].[56] The same is true of evidence that the administrator of MSH No 2 sold itsintellectual property, RJH's third point. It is not clear what intellectual property wasthe subject of that sale and, as Gordon J observed, the full circumstances of that salewere not in evidence. And even if it was the same intellectual property as that whichwas licensed, that does not tend to prove who owned it. At best this is evidence of theadministrator's opinion on ownership (he must have believed MSH No 2 owned it ifhe sold it). Again it has no value as evidence relevant to the issue of ownership.[57] We pause here to note that Mr Chesterman for RJH advanced arguments insupport of various grounds of appeal, which attached significance to positions takenby the liquidator and administrator in discussions with each other, and in respect ofclaims made and rejected. We do not propose to set out all of those arguments in thecourse of this judgment. They depend on evidence of actions and positions taken inthe liquidation/administration context by insolvency professionals who have to act inthe best interests of their creditors, and on advice. The evidence relied on is, at best,evidence of the liquidators' and administrator's opinions on the issues before theCourt. It is not helpful in determining the nature of the contested actions, agreementsand intentions of the companies and their officers at the critical times.[58] As the Judge found, the contemporaneous documents are the best guide toownership.23 That takes us to RJH's fourth point, both the January 2009 andNovember 2009 Agreements treat Northern Crest as the licensor of that property.The position in respect of the April 2010 Agreement between MSH No 2 andColumbus is, we accept, less straightforward. Nevertheless, we are satisfied, that forthe reasons we now give, it is consistent with Northern Crest as master licensor.[59] MSH No 2 is defined, at the very commencement of the April 2010 Agreement,as the licensor. In the definitions part of the agreement "Licensor" is defined as"includes [MSH No 2's] related Companies and in particular, in relation to theownership of the system, the Intellectual Property and the Marks". But then in thesame part of the agreement "Licensor" is defined as "MSH No 2 Pty Limited".23 At [132]–[133].[60] In our view, these provisions can be reconciled as a simple matter ofcontractual interpretation. Although the drafting may be poor, combining thecompeting definitions gives a coherent and plausible definition: the "Licensor" isMSH No 2 and its related companies. However Gordon J saw the rest of the agreementas inconsistent with such an interpretation of the relevant clauses.24 That is becausecl 10.10 of the April 2010 Agreement records that the agreement supersedes allprevious agreements and releases Northern Crest "from any liability in any event".[61] While we agree this clause rather muddies the waters, cl 10.10 can be readilyreconciled with the interpretation of the definition of "Licensor" we have suggested.The release of Northern Crest from "any liability in any event" can be construed as anamplification of the stated intention that the agreement supersedes earlier agreements.On this approach, cl 10.10 simply released Northern Crest from obligations toColumbus arising under the previous agreements. That is not inconsistent withMSH No 2 having entered into its own licensing arrangement with Northern Crest toenable it to sub-license to Columbus. That is after all the model utilised in theJanuary 2009 Agreement.[62] Other company documents treat Northern Crest as the licensor. For example,a draft announcement to the Australian Stock Exchange, dated 12 April 2011, wasprepared which included the following statement:Northern Crest Investments creates and licenses intellectual property to thirdparty acquirers and distributors of property, who provide their clients with anapproach to property investment which focuses on long term passive incomestreams and wealth creation.[63] We are satisfied the Judge was correct to conclude that when the variousNorthern Crest and licensing documents are assessed, Northern Crest, rather thanMSH No 2, was the intellectual property owner.Was the licence fee intended to be paid or recoverable?[64] RJH argues that the $3.5 million fee was never intended to be recovered orrecoverable. It says the payment of such a large amount of money was unexplained24 At [130].and unusual. And if the licencing fees were legitimate, the impairment was simplyinexplicable. It made no commercial sense for Northern Crest, which was strugglingfinancially, to write down such a large asset to that extent. The reason given forthe impairment was implausible because the November 2009 Agreement was alreadya non-exclusive agreement. Why should Northern Crest give away a contractual rightto payment of a fee, for granting rights to other licensors it was contractually entitledto grant? RJH argues that conflicting explanations given in the group's accountingrecords support its arguments that this was all part of the unwinding of a shamarrangement. In one place, the Rutherford Agreement was referred to, and in another,the April 2009 Agreement (with MSH No 2).[65] The Judge was satisfied that the $3.5 million was a wildly optimistic figure,rather than a fictional one, noting a number of internal documents which referred tothe fee and Mr Eakin's initial confidence that Northern Crest would receive it.25[66] For our part, we accept RJH's argument that the fee arrangements are unusual.The fee is large. It is also seems strange, without further explanation, that this fee wasagreed in the November 2009 Agreement when there had been no provision for sucha fee in the January 2009 Agreement. The latter granted essentially the same rights.Moreover, the fee was later largely impaired. We also weigh the fact of the close andsupportive relationship between Mr Bryers, the former director of Northern Crest, andMr Hughes, of Columbus. Is this enough to show it was sham?[67] No witnesses were called from Northern Crest or Columbus to explain the feeor why it would be imposed under the November 2009 Agreement but notthe January 2009 Agreement. Mr Chesterman argued that the failure to call directorsand staff on this, and other issues, supported an inference that had they been called onthe issue, they would have been unhelpful. It followed, Mr Chesterman submitted,that Gordon J erred in failing to draw that inference.[68] Where a party fails to call a witness or evidence of primary facts, and thecircumstances suggest that evidence would be adverse to the party's interests, then thecourt may draw inferences adverse to the party where there is no credible explanation25 At [135].for the failure. It is for the judge what weight is attached to the failure to call. InIthaca (Custodians) Ltd v Perry Corp this Court described the principle as follows:26There is no rule. Rather, there is a principle of the law of evidence authorising(but not mandating) a particular form of reasoning. The absence of evidence,including the failure of a party to call a witness, in some circumstances mayallow an inference that the missing evidence would not have helped a party'scase. In the case of a missing witness such an inference may arise only when:(a) the party would be expected to call the witness (and this can be soonly when it is within the power of that party to produce the witness);(b) the evidence of that witness would explain or elucidate a particularmatter that is required to be explained or elucidated (including wherea defendant has a tactical burden to produce evidence to counter thatadduced by the other party); and(c) the absence of the witness is unexplained.[69] Here there was good reason not to draw such an inference. The evidence wasthat the directors had not cooperated with the liquidators. The Judge was satisfied thatMr Eakin had given inconsistent explanations to the liquidators and there was evidenceof the sanitising of the company records. Moreover, it was equally open to RJH, as itwas to the liquidators, to call those witnesses.[70] Because we do not have evidence from participants in the transaction, we donot know the commercial context in which the November 2009 Agreement and, moreparticularly, the fee arrangements were negotiated. We do not know what commercialinterests the parties may have been pursuing or protecting, or their respectivebargaining positions or strengths. But the evidence tends to show that the parties, atleast initially, acted in a manner consistent with this being a genuine bargain betweenthe parties, intended to be carried into effect. There is evidence in the documents,referred to at [51] above, that the fee was structured partly as a capital payment for therights granted, and partly to reflect anticipated sales. The internal documents we haveset out above tend to prove that Northern Crest initially expected payment of the fee.There is also the evidence (we come to shortly) that part of the fee was paid byColumbus for the benefit of Northern Crest.26 Ithaca (Custodians) Ltd v Perry Corporation [2004] 1 NZLR 731 (CA) at [153].[71] What of the impairment? The Judge dealt with this issue as follows:[136] There is then the matter of the subsequent impairment.[Northern Crest's] interim financial report for the six months ending30 September 2010 states under the heading "New licensee" that as aconsequence of a new licensing agreement with Rutherford, [Northern Crest]has revised the Nov09 agreement with Columbus and has arrived at acommercial settlement including a reduction of the minimum licence fee forthe March 2010 year. I note however that the only Rutherford agreement inevidence in the present proceeding is an agreement dated 1 October 2010,some six months after the payment deadline of 31 March 2010. In thecircumstances of this liquidation, however, it is possible that there was anotheragreement which came into force at an earlier time but which has subsequentlybeen lost or deliberately destroyed.[137] Returning to the matter of the impairment, the statement in[Northern Crest's] interim financial report that the licence fee was impairedafter a change in licensing arrangements is consistent with other statements inthe interim financial report and other documents prepared around that time.The interim financial report stated under the heading "Fundamental Error"that:The prior period financial report for the year ended 31 March2010 did not disclose the revised agreement entered into betweenMSH No2 Pty Limited and Columbus Property Marketing PtyLimited dated 1 April 2010. The effect of this agreement was thatlicense [sic] fee income of $3,466,000 recorded as income in theyear ended 31 March 2010 was written off on 1 April 2010.This agreement should have been disclosed as a subsequent eventin the 31 March 2010 Financial Report.(footnotes omitted)[72] We see no error in the Judge's reasoning on the issue of the impairment. Thereis no apparent inconsistency in the explanations in the company's records. The reasonfor the impairment was both the April 2010 Agreement and the Rutherford Agreement.The April 2010 Agreement released Columbus from the obligation to pay the licencefee. The Rutherford Agreement was the reason for that. Was there a commercialjustification for Northern Crest foregoing that fee, when theNovember 2009 Agreement was already non-exclusive? As the Judge observed, whileColumbus was not contractually entitled to exclusivity, it initially had exclusivecontrol over the "distribution" side of the business.27 The arrangement withRutherford changed this so that Columbus shared this side of the business.27 High Court judgment, above n 1, at [140].[73] To conclude on this point, the fee arrangements were unusual but there isevidence Northern Crest expected the fee to be paid, and part of the fee was paid. Itmay be that Mr Hughes was committing Columbus to a bad deal, or a wildly optimisticone as the Judge put it, but that is not enough to show the arrangements were a sham.There was some commercial logic for the impairment. On the evidence produced athearing, we are satisfied the Judge was correct to conclude thatthe November 2009 Agreement was not a sham arrangement.(b) If the November 2009 Agreement was not a sham, were these paymentstransactions of Northern Crest for the purposes of s 292?[74] This addresses RJH's second principal challenge to the Judge's reasoning inconnection with Columbus. RJH says that even if the November 2009 Agreement wasnot a sham, there was inadequate evidence to prove that the payments were of licensingfees due under it to Northern Crest.The payments[75] The payments made by Columbus at issue in this proceeding are as follows:Date Source Amount22 January 2010 Columbus PropertyMarketing Pty Ltd$150,000.0024 February 2010 Columbus PropertyMarketing Pty Ltd$135,133.072 March 2010 Columbus PropertyMarketing Pty Ltd$4,000.0020 April 2010 Columbus PropertyMarketing Pty Ltd$100,025.0028 May 2010 Columbus PropertyMarketing Pty Ltd$100,025.00Total Columbus payments $487,183.07High Court judgment[76] The Judge structured her consideration of this issue around two time frames.First she addressed whether the payments by Columbus before 1 April 2010 were aredirection of licence fees due by it to Northern Crest, and secondly whether the samewas true of payments by Columbus after 1 April 2010.28 She split her consideration28 At [74]–[101].of these payments up in this way because the latter group of payments was made afterthe (superseding) April 2010 Agreement between MHS No 2 and Columbus hadcommenced.[77] Gordon J said the starting point was that the November 2009 Agreementobliged Columbus to pay Northern Crest a licence fee of $3.5 million for the period26 November 2009 to 31 March 2010.29 Although a lump sum was required,Columbus made a series of piecemeal payments insufficient to meet this obligation —payments which were made to RJH, not Northern Crest.30 She noted that thelicence fee was not paid in full and linked this with the impairment of the fee.31 Butshe also noted the evidence of Mr Kerr, a member of the liquidators' staff who assistedin the liquidation and, in particular, investigated the transactions for the liquidators.Mr Kerr's evidence was that although the fee was impaired in its entirety,Northern Crest recognised income from that fee during the period from26 November 2009 until 31 March 2010.32[78] The Judge placed weight upon Northern Crest and Northern Crest groupdocuments, which referred to Columbus' obligations to pay Northern Crest the$3.5 million and to payments having been made on account of that obligation.33She also relied upon statements of directors and employees from around the time ofthe transaction, and the liquidators' notes of an interview with Mr Guy Robertson, whohad been employed by Northern Crest at the relevant times to prepare its accounts.The Judge concluded that this evidence supported the theory that payments byColumbus to RJH under both time frames were a redirection of licence fees.34[79] Gordon J next considered the primary accounting records for theNorthern Crest Group which were in the form of MYOB records. She acceptedMr Kerr's evidence that these accounts supported the conclusion the January, Februaryand March payments were a redirection of licensing fees owed by Columbus to29 At [75].30 At [79].31 At [76].32 At [87].33 At [93].34 At [82], [94], [101] and [144].Northern Crest.35 That was so notwithstanding the payments were accounted for in aseries of complex group transactions, including transactions reflected in the accountsof group company MSH No 1. She attached particular weight to an invoice issued byMSH No 1 to Columbus for licence fees which recorded a fee paid in instalments.One of those instalments corresponded in amount with the total of payments made byColumbus to creditors of Northern Crest up until that time.[80] The Judge addressed the expert evidence produced for both parties about thesignificance of those accounting records. She preferred the evidence of Mr Hagen,the accounting expert engaged by the liquidators, who supported Mr Kerr's analysisto that of Mr McCloy, the expert witness called by RJH. She concluded:36Given the surrounding context, the liquidators' theory that the payments toRJH represented a redirection of licence fees is entirely plausible. This theoryis supported by statements of individuals who were involved in the affairs of[Northern Crest] and, more importantly, by the contemporaneous accountingrecords of [Northern Crest] and [MHS No 1]. To the extent there is a conflictbetween the evidence of Messrs Kerr and Hagen and that of Mr McCloy,I prefer the evidence of Messrs Kerr and Hagen. The evidence offered bythese witnesses provided a compelling explanation for the treatment of theColumbus payments in both the [Northern Crest] and [MHS No 1] generalledgers.RJH's argument on appeal[81] RJH argues that Gordon J was wrong to treat the MYOB accounts as reliableand that her misplaced confidence in them is attributable to a number of subsidiaryerrors as follows:(a) The Judge wrongly proceeded on the basis that RJH did notchallenge the reliability of the MYOB accounts. She treated RJH'schallenge as being to the reliability of the audited accounts, whichcould not extend to the MYOB records as neither party suggestedthat the auditors had a hand in preparing or reviewing MYOBrecords.35 At [93].36 At [93].(b) The Judge ignored evidence from the liquidators' accounting expert,Mr Hagen, in which RJH argues he conceded the audited accountswere seriously unreliable and should have raised a red flag for anyaccountant viewing them.(c) The Judge ignored the evidence of Mr Christopher McCullagh, thatthe records had been "sanitised".(d) The Judge relied upon statements by Mr Eakin and Mr Robertson invarious documents, which she saw as corroborative of the financialrecords. Yet the liquidators had, in a variety of ways, evidenced theirdoubt as to the truthfulness or veracity of statements made by eachof Mr Robertson, Mr Bryers and Mr Eakin.Should the Judge have relied on the MYOB records?[82] Mr Chesterman argues it was implicit in RJH's challenge to the reliability ofthe financial records that the reliability of the source documents, such as the MYOBrecords, was also challenged. He argues that the Judge misunderstood RJH's argumentas to the significance of the role, or rather lack thereof, for the auditors in thepreparation of accounts. RJH's case was that the accounts lacked reliability becausethey were essentially prepared by Northern Crest without proper auditor oversight.Mr Chesterman submits that because the financial accounts had not been properlyaudited they were unreliable, and so too the underlying source documents.[83] We have reviewed the transcript of the hearing and are satisfied that Gordon Jwas correct there was no direct challenge to the reliability of the MYOB records.Mr Chesterman's challenge in cross-examination of Mr Kerr and Mr Hagen focusedinstead upon the accuracy of the accounts prepared in reliance upon the MYOBrecords — the audited accounts. We do not consider that it is necessarily implicit in achallenge to audited accounts that the reliability of the underlying source documentsis also challenged. In this case, the challenge to the audited accounts seemed to focusupon information omitted from them and not upon deficiencies in the underlyingMYOB records.[84] If RJH wished to challenge the reliability of the MYOB accounting records,that should have been raised directly with Mr Kerr, who had investigated the MYOBentries and the accounts prepared in reliance upon them. It was not. Instead thelimited cross-examination in relation to the MYOB records focused upon the meaningof the various entries.[85] We also think it significant that Mr McCloy, who was called as an expert byRJH, did not question the reliability of those source documents. Although heexpressed reservations about the reliability of the information he was asked toconsider, he did not link these concerns or reservations to any deficiency in the MYOBrecords. Rather he placed a different interpretation upon those records to that proposedby the liquidators' experts.[86] Mr Chesterman claims the liquidators' expert, Mr Hagen, conceded the auditedaccounts were seriously unreliable. This submission is based on Mr Hagen'sacceptance that Northern Crest's auditor's disclaimer to the 31 March 2010 accountswas "sufficiently unusual that it would raise red flags to anybody looking at thefinancial statements". Mr Chesterman also referred to Mr Hagen's evidence inconnection with the 30 September 2010 interim accounts. Those accounts referred toaccrued Columbus income of $3.46 million, when in fact that amount was impaired.Mr Hagen's evidence was that he was surprised the directors signed off on the31 March 2010 accounts on 30 June 2010, knowing of the 2 April 2010 licence.He said it was "very unusual".[87] Mr Hagen did concede there were unusual features to the audited accounts butthose features related to the omission of relevant information from the accounts —issues we do not understand to arise from any deficiency in the MYOB accounts.Whatever the true construction of Mr Hagen's evidence on those points, he made noconcession that the MYOB primary accounting records themselves were unreliable.[88] RJH also relies on evidence of Mr Christopher McCullagh as to the state of thecompany records. That evidence did not on its face relate to the MYOB records.The MYOB records were provided by Mr Robertson under a search and seizurewarrant issued by the Australian Court. They were not part of the records theliquidators recovered, which Mr McCullagh described in his evidence as disorderedand apparently incomplete.[89] Mr Chesterman is also critical of the Judge's reliance upon statements ofdirectors and Northern Crest staff in contemporaneous documents that arecorroborative of Mr Kerr's reconstruction of the nature and treatment of the payments.We see no validity in the criticism. The Judge was entitled to accept some statementsmade as credible and reliable, and reject others. As earlier observed, statements madeby participants to events as they are occurring and before the spectre of litigation, orthe prospect of personal risk or advantage, are inherently more reliable than thosemade with an eye to litigation.[90] We conclude that the Judge made no error in proceeding upon the basis thatweight could be attached to the treatment of the transactions in the MYOB primaryaccounting records of the Northern Crest group.What did the MYOB records and other evidence prove in connection with thepayments?Payments prior to 1 April 2010[91] As to the accounting records themselves, we adopt the Judge's summary ofthose in relation to the payments before 1 April 2010:37(a) Each of the payments by Columbus to RJH (and other creditorsof [Northern Crest]) was initially recorded in [Northern Crest's]New Zealand general ledger as a loan from Columbus to[Northern Crest]. By 31 March 2010, the balance ofthe Columbus loan stood at $362,535.94.(b) On 31 March 2010, a journal entry was posted in[Northern Crest's] New Zealand general ledger, which hadthe effect of eliminating the balance of the Columbus loan whileincreasing [Northern Crest's] indebtedness to [MSH No 1] bythe same amount. In other words, the liability was transferredfrom the account for Columbus to [MSH No 1]. The journalentry was narrated "Reclassify Columbus loan".(c) On the same day, a journal entry was posted in [MSH No 1's]general ledger described as the payment of an invoice,37 At [84].specifically "Invoice 2". The accounting entry for thistransaction recorded a debit to the "NCIL NZ IntercompanyAccount", representing an increase in the amount owed by[Northern Crest] to [MSH No 1]; and a credit to the"Trade Debtors" account.(d) On the same day, 31 March 2010, [MSH No 1] issued an invoiceto Columbus for a total of $716,898.68. The relevanttransaction documentation records that this invoice was paid infive instalments. One of those instalments was an amount of$362,535.94 — a figure which coincided exactly with the totalof the payments made by Columbus to creditors of[Northern Crest] up until that time.[92] Mr Kerr also gave evidence that note 18(e) to the 31 March 2010financial statements describes all accrued income as relating to the licence agreementbetween Columbus and Northern Crest.[93] Mr Kerr referred to "Invoice 2" issued by MSH No 1 to Columbus forlicensing fees and referred to in the above summary. It was put to Mr Kerr incross-examination that Invoice 2 was consistent with MSH No 1, rather thanNorthern Crest, having provided the services for which Columbus was billed. Mr Kerrsaid that would be right if MSH No 1 was a company on its own but not where, ashere, it was part of a group of companies. It was consistent in his view with MSH No 1billing Columbus on behalf of the group for services provided by Northern Crest.[94] Mr Kerr accepted, when cross-examined, that the invoice was also consistentwith MSH No 1 being the licensor of the intellectual property. But Mr Chestermandoes not suggest that MSH No 1 was the licensor. That would be a difficult argumentto mount because the surrounding documentary record, the licence agreements, andreference in numerous group documents all tend to prove that Northern Crest, notMSH No 1, was the licensor.[95] Mr Hagen explained the transactions as follows:It was recorded as a loan initially. What happened was that Columbus owedpayments to [Northern Crest] under the licence agreement. Columbus — soColumbus owed money to [Northern Crest]. [Northern Crest] owed money to[RJH]. Columbus paid money directly to [RJH] on the instruction of[Northern Crest] and that money — those payments were initially recorded by[Northern Crest] as a loan from Columbus. One way to have treated themwould have been just to have netted them off the amount that was owed byColumbus to [Northern Crest] but if you did that you would not be able toeasily state or follow how much money had been paid by Columbus to [RJH].So an easier way to keep track of the payments that had been made byColumbus to [RJH] is to put them in an account called a loan and then youcan immediately say, "That's the total amount that's been paid."My understanding is that at the end of the accounting period that sum was thenjournaled out of that loan account and offset against the amounts owed byColumbus to [Northern Crest].[96] Mr Colin McCloy, the expert for RJH, gave evidence that Northern Crest'saccounting records for the relevant period showed a reduction in the amount owed byNorthern Crest to RJH. He considered that the reduction was funded by way of a loanfrom Columbus. He said that if payments by Columbus to RJH represented aredirection of licence fees, he would have expected Northern Crest to record thosepayments in the accrued revenue account, rather than the loan account.[97] Mr Chesterman argues that Mr McCloy's evidence should have been preferredto the evidence of Messrs Kerr and Hagen. But Gordon J preferred the evidence ofMessrs Kerr and Hagen, that the accounting records were consistent with the paymentby Columbus being a redirection of the licence fees it owed Northern Crest.38 She wasstrengthened in that view by the reference in the MSH No 1 accounting records for thepayment of "Invoice 2".[98] While the accounting records may have been open to different interpretations,we are satisfied the Judge was correct in the view she took of those records. This isbecause contemporaneous documents support Mr Kerr and Mr Hagen's reconstructionthat these payments represented a redirection to RJH of license fees payable byColumbus to Northern Crest.[99] There are the Northern Crest documents we have already referred to whichrefer to Northern Crest receiving licence fee payments from Columbus. In additionthere are documents confirming that the payments to RJH are redirected licence fees.For example, in an email dated 8 September 2010 from Mr Eakin to Northern Crest'slawyer, Mr Terence Stapleton, Mr Eakin stated:In respect of the payments made by Columbus on behalf of Northern Crest to[RJH], this was done merely to shortcut the process. The payments made by38 At [93].Columbus represent monies that are owed by Columbus to Northern Crestunder the licensing agreement between both parties. They are not loans byColumbus to Northern Crest. We have approximately A$2 million in licencefees still outstanding from Columbus as at 31 March 2010, and a minimum ofa further A$2.1 million under the Licence Agreement for the period from1/4/10 to 31/3/11.[100] To similar effect was the statement made by Mr Robertson to the liquidatorMr Lawrence in his 7 June 2011 interview, recorded as follows:Mr Robertson advised that the bulk of creditor payments went throughMSH No 2 or through Columbus and those made by Columbus were thendeducted from property settlements. Mr Robertson said that all of thisinformation is in the MYOB files that he has provided to the liquidator.Payments after 1 April 2010[101] The Judge noted the situation was more complex in respect of the payments byColumbus after 1 April 2010.39 This was so for two reasons. The first, the agreementbetween MHS No 2 and Columbus, signed on 2 April 2010 with a commencementdate of 1 April 2010, contained cl 10.10. It will be remembered that clause recordedthat the agreement superseded all previous agreements and released Northern Crestfrom any liability arising under those previous agreements. The Judge was satisfiedthat the April 2010 Agreement was intended to, and did supersede, theNovember 2009 Agreement between Northern Crest and Columbus.40 It followed thatNorthern Crest had no further entitlement to licence fees generated by Columbus after1 April 2010.[102] The second complicating factor was that, unlike the payments between Januaryand March 2010, the MYOB accounting records in respect of the April and Maypayments were not tied to payment of an invoice.41[103] Nevertheless, the Judge considered the MYOB accounting records andstatements by Northern Crest personnel provided support for Mr Kerr's reconstructionof the transactions that the April and May 2010 payments by Columbus to RJH39 At [95].40 At [96].41 At [96].represented licence fees owed to Northern Crest under the November 2009 Agreementthat had accrued prior to 1 April 2010. She summarised Mr Kerr's evidence asfollows:42(a) Each of the payments by Columbus to RJH (and other creditors of[Northern Crest]) was initially recorded in [Northern Crest's]New Zealand general ledger as a loan from Columbus to [NorthernCrest]. By 31 August 2010, the balance of the Columbus loan stoodat NZ$209,050.00.(b) On 31 August 2010, a journal entry was posted in[Northern Crest's] New Zealand general ledger, which had theeffect of eliminating the balance of the Columbus loan whileincreasing [Northern Crest's] indebtedness to [MSH No 1] by thesame amount. In other words, the liability was transferred fromthe account for Columbus to [MSH No 1]. The journal entry wasnarrated "Columbus Receipts ex MSH # 1".(c) On the same day, a journal entry was posted in [MSH No 1's]general ledger narrated "Columbus Receipts Transferred to[Northern Crest] NZ Creditors". The accounting entry for thistransaction recorded a debit to the "NCIL NZ IntercompanyAccount" and a credit to the "NCIL AUS Intercompany Account"of A$165,388.00. This transaction had no effect on[Northern Crest] net indebtedness to [MSH No 1].(d) Also on the same day, a journal entry in [Northern Crest's]Australia general ledger recorded a debit to the "MSH1Intercompany Account" and a credit to the "Accrued Income"account of A$165,388. This entry was narrated "ColumbusReceipts transferred to NZ".[104] In describing the net effect of these transactions, the Judge said:43Each of the payments by Columbus to creditors of [Northern Crest] wasrecorded in [a Northern Crest] account named "Loan – Columbus". On31 August 2010, the balance of the loan was cleared and, via a number ofintermediate steps, was recorded instead as accrued income of[Northern Crest]. This is a factor that weighs very strongly in favour of theliquidators' case. [105] The Judge was strengthened in her view that these payments were a redirectionof licence fees by the additional contemporaneous evidence set out above in which42 At [99] (footnotes omitted).43 At [100] (footnotes omitted).Mr Eakin and Mr Robertson confirmed that the payments were made by Columbus tocreditors of Northern Crest and later deducted from property settlements.44Analysis[106] We are satisfied that the evidence the Judge had available to her did indeedsupport the findings that she made in respect of these payments, both prior to andpost April 2010. She was entitled to rely upon the MYOB records and she wasentitled to place weight upon contemporaneous statements by individuals in findingthat the payments by Columbus to RJH represented licence fees owed toNorthern Crest.(c) Final observation regarding Columbus payments[107] A final point to be made is this. RJH contends that the Judge was wrong toconclude that these payments were a redirection of licence fees becausethe November 2009 Agreement was a sham or because there was inadequate proofthose payments were a redirection of licence fees, and from money belonging toNorthern Crest. The difficulty with each of these arguments is that RJH does not seemto contest that Columbus made payments for the benefit of Northern Crest. If thepayments were not of licence fees, what were they?[108] RJH's own witness, Mr McCloy gave evidence that the payments were moreproperly analysed as loans to Northern Crest. But whether they were payments byway of loan or a redirection of licence fees, they would be Northern Crest transactionsfor the purposes of s 292. If the money Columbus paid RJH was a loan toNorthern Crest, the payments would still be made pursuant to Northern Cresttransactions for the purposes of the definition in s 292(3). The payments would, insubstance, be payments by Northern Crest. That would leave Northern Crest to argue,as it does in connection with the MSH No 2 payments, that the liquidators also had toshow that the payments depleted the available asset pool, and that the liquidators couldnot show that where the payment was from borrowed money — the third ground ofappeal. This argument is addressed below at [125].44 At [105].[109] The first ground of appeal accordingly fails.Second ground of appeal: did the Judge err in finding that payments to RJH byMSH No 2 were transactions of Northern Crest?Was there adequate proof the payments were a loan from MSH No 2 to Northern Crest?[110] Between September and November 2010, MSH No 2 made eight payments toRJH:Date Source Amount7 September 2010 MSH No 2 Pty Ltd $28,000.0014 September 2010 MSH No 2 Pty Ltd $26,000.0015 September 2010 MSH No 2 Pty Ltd $24,000.0016 September 2010 MSH No 2 Pty Ltd $27,000.0014 October 2010 MSH No 2 Pty Ltd $25,000.0027 October 2010 MSH No 2 Pty Ltd $30,000.004 November 2010 MSH No 2 Pty Ltd $98,000.005 November 2010 MSH No 2 Pty Ltd $4,758.05Total MSH No 2 payments $262,758.05[111] Before Gordon J, the liquidators put their case in respect of the MSH No 2payments on alternate bases:45(a) the payments by MSH No 2 to RJH continued to be a redirection ofthe licence fees payable by Columbus to Northern Crest under theNovember 2009 Agreement; or(b) the payments by MSH No 2 were a loan to Northern Crest.[112] The Judge rejected the argument that MSH No 2 was passing Columbus'payments on as a treasurer.46 Since, as she had held, the November 2009 Agreementbetween Northern Crest and Columbus was superseded by the April 2010 Agreementbetween MSH No 2 and Columbus, it followed that MSH No 2 had a right to receivethe licence fees for Columbus in its own name under the April 2010 Agreement. It alsofollowed that Northern Crest had no independent claim to the licence fees that were45 At [151].46 At [152].generated by Columbus after 1 April 2010. But she was satisfied that the paymentsby MSH No 2 to RJH constituted a loan to Northern Crest.47RJH's argument on appeal[113] RJH argues that there was no clear evidence of a loan agreement betweenMSH No 2 and Northern Crest in respect of the amounts paid to RJH. Again,the Judge placed undue weight on the MYOB records. No loan documentation waspresented in evidence. The Judge also failed to draw adverse inferences against theliquidators arising out of their failure to call as witnesses the people involved inarranging the alleged loan.[114] RJH says the Judge was also wrong when she attached no significance to theliquidators' rejection of MSH No 2's proof of debt, filed in the liquidation ofNorthern Crest, for $280,871.50. If the payments were a loan, then the proof shouldhave been accepted. She also erred, says RJH, when she failed to give weight to theliquidators' failure to challenge the administrator's rejection of their claim for unpaidlicence fees.Analysis[115] Gordon J addressed each of the arguments raised by Mr Chesterman for RJHin her judgment and we see no error in her approach. The Judge had before her theevidence of three witnesses, Messrs Kerr, Hagen and McCloy, who all agreed that theprimary accounting records were consistent with the payments from MSH No 2 toNorthern Crest being by way of loan.[116] We have already addressed and rejected the argument that the Judge waswrong to treat those records as reliable, and that she should have drawn adverseinferences from a failure by the liquidators to call witnesses from Northern Crest.48As to the absence of loan documentation, as the Judge observed, that was hardlysurprising given that MSH No 2 was a wholly owned subsidiary of Northern Crest.4947 At [163].48 See discussion at [67] and [106] of this judgment.49 High Court judgment, above n 1, at [163].[117] The Judge was correct to proceed on the basis that the contemporaneousdocuments, and the evidence of the experts, were the best guide as to the nature of thetransactions in question.[118] We also agree with the Judge's assessment that little weight should be placedupon the liquidators' decision to reject MSH No 2's claim and not to challenge therejection of the Northern Crest claim in the MSH No 2 administration. This falls intothe category of post-liquidation conduct we referred to earlier as unhelpful. The Judgenoted that when cross-examined about the failure to challenge the rejection of claim,Mr Lawrence said the liquidators had acted on advice received. The Judge commentedabout the exchange between counsel and Mr Lawrence in cross-examination:[162] This interaction reaffirms a familiar fact, namely that there are anumber of reasons why a party might decide against pursuing a dispute, evenif the party remains convinced of the merits of its case. For that reason, I donot consider that any significant weight should be placed upon the liquidators'decision not to pursue the claim against [MSH No 2].[119] We also note that a very significant difficulty for RJH's case is that it does notidentify any basis, other than by way of loan, on which MSH No 2 would make thepayments in discharge of Northern Crest's debt, and which would not amount to atransaction for the purposes of s 292.[120] For our part, we would be content to find either that it was a loan or aredirection of licence fees. The liquidators argued for either alternative, each of whichwould fall within the s 292 definition. As outlined above, we do not attach the sameweight to cl 10.10 of the April Agreement as the Judge did — since Northern Crestowned the intellectual property, it remained likely that Northern Crest was entitled topayments from MSH No 2 as the master licensor. This is more consistent withcontemporaneous documents at the time which continued to treat the payments to RJHas redirection of licence fees.[121] Ultimately it does not matter. Whether a loan or a redirection of licence fees,they would still be transactions of Northern Crest.Were the payments by MSH No 2 made at the direction of, or with the consent ofNorthern Crest?[122] The factual narrative set out above puts beyond argument that these paymentswere made, at the very least, with the full consent and knowledge of Northern Crest.While it is necessary that the insolvent company either direct or consent to thepayment, the fact of consent will usually be readily inferred where, as here, theinsolvent party is involved in the transaction and proceeds on the basis that its debt isdischarged by the payment.50[123] There was ample evidence before the Judge tending to prove thatNorthern Crest procured these payments to be made in order to meet its obligations toRJH, including correspondence from directors of Northern Crest referring to thepayments and also the treatment of the payments in Northern Crest's accounts.[124] This ground of appeal accordingly fails.Third ground of appeal: were the payments by MSH No 2 insolvent transactionsif they did not diminish the pool of assets available to the creditors?[125] RJH argues that it is an element of the definition of insolvent transactions unders 292 that the transactions must have the effect of diminishing the net pool of assetsavailable to creditors. This requirement of diminution is sometimes called the ultimateeffect rule. In this case, says RJH, the effect of the transaction was to swap one creditorfor another while the net pool of assets available to other creditors remainedunchanged. It follows that even if the liquidators proved the payments made byMSH No 2 to RJH were payments by way of loan to Northern Crest, those paymentsdid not reduce the net pool of assets of Northern Crest available for creditors.[126] Gordon J rejected this argument, relying upon the decision of this Court inLevin v Market Square Trust for the proposition that it was not a requirement of s 292that the liquidators prove the challenged payment resulted in a diminution of the pool50 Paul Heath and Mike Whale, above n 4, at 633. See also Westpac Banking Corp v NangeelaProperties Ltd (in liq), above n 6, at 4 and 10; Walsh as liq of Thompson Land Ltd v TerranovaPty Ltd (1994) 14 ACSR 432 (VSC) at 435–436; Chilton Saint James School v Gray, above n 5,at 261,124; and Levin v Market Square Trust, above n 5.of assets available to creditors.51 In Levin, this Court held that in order to satisfys 292(2)(b), a liquidator need only show that the creditor received a greater paymentthan they would otherwise have received in liquidation.52 The Court agreed with thefollowing statement by Randerson J in Chatfield v Mercury Energy Ltd:53 the focus of s 292(2)(b) is very different [from the focus of its predecessorsection, s 309 of the Companies Act 1959]. It is not concerned with the overalleffect of the transaction on the assets of the company. Rather, it is concernedwith whether the creditor has received a greater payment than it wouldotherwise have received in liquidation.[127] The Court said Randerson J's analysis was consistent with the plain wordingof s 292(2)(b) which requires only a comparison between the amount the creditoractually received from the company and the amount the creditor would have receivedas part of the general body of creditors in the liquidation had the payment not beenmade.54 It said the approach taken by Randerson J was also consistent with theposition in Australia, citing as authority the following passage from the judgment ofPhillips JA in Walsh v Natra Pty Ltd:55Moreover, counsel's argument depended very much on the submission thatoverall the general body of unsecured creditors was not being prejudiced; thegeneral pool of creditors was no worse off, he said, after the transaction thanbefore. I am by no means clear that that is an argument that still runs underthe new s 588FA [of the Corporations Law]; the section does not in terms lookto the effect of the transaction on "other creditors", as did the former law. Herethe question is, in terms at least, whether the transaction results in the creditorreceiving more than it would in a winding up if the transaction were set asideand the creditor were to prove — which as I have said invites a comparisonbetween a return in this case of 100 cents in the dollar on $40,000 and adividend of nothing in the winding up. The effect of the transaction on "othercreditors" does not per se have a part to play in the comparison required bys 588FA, although it might perhaps become material in certain circumstanceswhen an order for repayment was being sought under s 588FF [the Australianequivalent of our s 295].[128] Mr Chesterman invites us to depart from Levin. He argues that this Court inLevin proceeded on the mistaken basis that the voidable transaction provisions underthe Companies Act were no longer concerned with the overall effect of the transaction.The Court also misconstrued the approach taken by Australian courts to similar51 Levin v Market Square Trust, above n 5.52 At [38].53 Chatfield v Mercury Energy Ltd [1998] 8 NZCLC 261,645 (HC) at 261,655.54 Levin v Market Square Trust, above n 5, at [41]–[42].55 Walsh v Natra Pty Ltd [2000] VSCA 60, (2000) 1 VR 523 at 538.legislation. He submits that it is significant that this Court in Levin made no referenceto what he characterised as the leading Australian authority, V R Dye & Co v PeninsulaHotels Pty Ltd (In liq).56Analysis[129] Mr Chesterman asks us to depart from existing Court of Appeal authority. ThisCourt will only depart from an earlier decision in circumstances where it is persuadedthat there is good reason to do so.57 Having regard to certainty and stability of the law,R v Chilton set out a number of factors which might be relevant to this Court'sdecision, including an error of law, critical commentary (although this is not decisive)and significant changes in social conditions and legal developments that wouldwarrant departure.[130] We see no error in the analysis of this Court in Levin and therefore no basis todepart from it. We start with the language of s 292. Nothing in the language supportsthe importation of the additional requirement suggested by Mr Chesterman.Parliament took care to define what is an insolvent transaction. If the definition hadthis additional limb Mr Chesterman argues for, then we could reasonably expect itwould have been included in the section.[131] For ease of reference, we again set the definition out:58An insolvent transaction is a transaction by a company that—(a) is entered into at a time when the company is unable to pay its duedebts; and(b) enables another person to receive more towards satisfaction of adebt owed by the company than the person would receive, orwould be likely to receive, in the company's liquidation.[132] We see good policy reasons not to tack on to the existing comprehensiveprovisions of s 292 this additional requirement that the court have regard to the overalleffect of the transaction. The voidable transaction provisions of the56 V R Dye & Co v Peninsula Hotels Pty Ltd (In liq) [1999] VSCA 60, [1999] 3 VR 201.57 R v Chilton [2006] 2 NZLR 341 (CA) at [86]–[101].58 Companies Act 1993, s 292(2).Companies Act are a code intended to simplify the law, making it certain andpredictable.59 It is not consistent with this objective to graft onto the definition therequirement contended for.[133] Moreover, the policy of the voidable transaction provisions, apparent on theirface, is to ensure equality of treatment of creditors and by that means to ensure fairnessbetween them. The provisions are intended to avoid a scramble for priority betweencreditors in the period immediately preceding insolvency. They also avoid sharppractices such as, directors of a company, anticipating insolvency, borrowing moneyto pay off a creditor they wish to see paid in preference to other creditors and at theexpense of the lender. In this case, if Mr Chesterman's approach were adopted, RJHwould have been preferred as a creditor over MSH No 2 and the liquidators wouldhave been unable to challenge the transaction.[134] Mr Chesterman argues that parity of treatment of creditors is not the policybehind s 292. He points to the decision of the Supreme Court in Allied Concrete Ltdv Meltzer as authority for the proposition that the purpose of s 292 is to enable thesetting aside of transactions which have the effect of diminishing the assetpool available to the general body of creditors.60 He relies upon the following passagefrom the judgment of Arnold J, writing for the majority:61 a key purpose of the voidable transaction regime is to protect an insolventcompany's creditors as a whole against a diminution of the assets available tothem resulting from a transaction which confers an inappropriate advantageon one creditor by allowing that creditor to recover more than it would in aliquidation.This, he says, shows that the Supreme Court was satisfied that one of the policiesbehind the regime was preservation of the pool of assets, and so, it follows,the ultimate effect rule remains part of the voidable transaction regime under s 292.[135] Arnold J was not addressing the definition of an insolvent transaction as weare called upon to do. The passage cited is the opening paragraph of the judgment, in59 See Law Commission Company Law: Reform and Restatement (NZLC R9, 1989) at [121]–[122];and (4 September 1990) 510 NZPD at 984.60 Allied Concrete Ltd v Meltzer [2015] NZSC 7, [2016] 1 NZLR 141.61 At [1(a)].which Arnold J outlines, in a very general way, the policies behind the Act's voidabletransaction regime. The issue before the Court in Allied Concrete was the meaningand application of s 296(3)(c), which provides a defence to creditors who received apayment in good faith for value without knowledge of insolvency.[136] Nevertheless, we do agree that there are other policy considerations at play inthe context of the voidable transaction regime contained in 292 to 294, and that one ofthose objectives is that the pool of assets available to the general body of creditors notbe diminished by preferential payments. But the words of the Act are the best guideas to how that objective is achieved. The general body of creditors are protectedagainst diminution of assets by a rule which enables the setting aside of transactionsin certain circumstances whereby the creditor receives more in satisfaction of debtthan they would, or would be likely to receive, in the liquidation.[137] Not every policy objective need be given perfect effect through each provision.This is seen in the fact that the Act balances several policy objectives, some of themcompeting. For example, the provisions also seek to accommodate the public interestin enabling responsible businesses to trade out of difficult financial situations, and toenable commerce to be conducted with the certainty of outcome necessary for the flowof services and goods to achieve that.62 As discussed in Allied Concrete, s 296 createsa defence to the setting aside of a transaction for the creditor that has in good faithprovided valuable consideration for the payment received from the debtor company,without knowledge of, or reason to suspect the company was or would becomeinsolvent. Section 292(4B) creates another protection for a creditor dealing with thecompany, where the creditor receives payments as part of a continuing businessrelationship, such as a running account relationship, in which there are fluctuatinglevels of indebtedness between the debtor company and the creditor. That sectionrequires that the court treat the transactions in that continuing business relationship asa single transaction for the purposes of calculating whether the creditor has receivedmore than they would have in the liquidation.6362 Companies Act, s 292(4B). See also Report of the New Zealand Law Society Committee onInsolvency Law Reform (July 1989) at 91.63 See Timberworld Ltd v Levin [2015] NZCA 111, [2015] 3 NZLR 365 at [34] for a discussion ofthe key requirements for determining the existence of a "continuing business relationship".[138] The Act then is a carefully worked out framework, balancing several policyobjectives. We consider that to allow the doctrine of ultimate effect to be appliedmore widely in the section would cut across this statutory scheme. It wouldsubstantially undermine the policy objectives of s 292 (fairness between creditors) andcreate complexity where Parliament has aimed for simplicity.[139] Mr Chesterman also relies upon Australian case law, and what he characterisesas this Court's misstatement of the applicable law in Levin. In particular,Mr Chesterman relies on the decision of the Supreme Court of Victoria in V R Dyewhich dealt with the comparable provision in s 588FA of the Corporations Law.64That section relevantly provides:A transaction is an unfair preference given by a company to a creditor of thecompany if, and only if:(a) the company and the creditor are parties to the transaction (even ifsomeone else is also a party); and(b) the transaction results in the creditor receiving from the company, inrespect of an unsecured debt that the company owes to the creditor, morethan the creditor would receive from the company in respect of the debtif the transaction were set aside and the creditor were to prove for thedebt in a winding up of the company;even if the transaction is entered into, is given effect to, or is required to be giveneffect to, because of an order of an Australian court or a direction by an agency.[140] Notwithstanding the absence of anything in the language of s 588FA to thiseffect, the Supreme Court of Victoria (Court of Appeal) stated that the court shouldlook at the "ultimate effect" of the entire transaction before determining whether it hasworked an unfair preference within the meaning of s 588FA. Because of thesimilarities between s 588FA and s 292(2), Mr Chesterman argues this is the principlethe Court in Levin v Market Square Trust should have applied, noting that thecomments from Walsh v Natra Pty Ltd this Court relied upon in Levin were obiter.65[141] We accept Mr Chesterman's point that the passage from Walsh referred to bythe Court was obiter. In Walsh, the Judge concluded the comments relied upon in64 V R Dye & Co v Peninsula Hotels Pty Ltd (In liq), above n 56; now the Corporations Act 2001(Cth).65 Walsh v Natra Pty Ltd, above n 55.Levin with the statement "I merely mention the possibility; I say nothing more aboutit. It does not fall for consideration on this appeal"66[142] But we do not accept Mr Chesterman's point that V R Dye is leading authorityin Australia on the issue with which we are concerned. At issue in V R Dye was theprepayment of money by a company on account of fees to be incurred on theperformance of work by the company's accountants. Later courts in Australia havetended to confine the authority of V R Dye to those particular facts, the prepayment offees to secure services or goods in the context of an ongoing business relationship.67[143] In McKern v Minister Administering the Mining Act 1978 (WA), Nettle JAcommented that not all of the reasoning in V R Dye was completely convincing.68 Itdid not grapple with the plain meaning of the section nor the indications in theHarmer Report No 45 (1998), which led to the enactment of the particular provision,and in the explanatory memorandum which accompanied the Bill, that the new regimewas intended to be comprehensive and avoid common law exceptions.69 The Court inMcKern expressly declined to extend the ultimate effect doctrine to circumstanceswhere the payment was made in respect of a past debt.70[144] To similar effect is Federal Commissioner of Taxation v Kassem, in which theFull Court of the Federal Court of Australia again confined the application of theprinciples discussed in V R Dye to the facts of that case.71[145] For these reasons, there is no basis upon which we would or could depart fromthis Court's decision in Levin. This ground of appeal therefore also fails.Fourth ground of appeal: relief under s 295[146] RJH argues that Gordon J was wrong in failing to grant some form of reliefunder s 295 because of the liquidator's failure to properly exercise their investigative66 At [47].67 McKern v Minister Administering the Mining Act 1978 (WA) [2010] VSCA 140, (2010) 28 VR 1;and Federal Commissioner of Taxation v Kassem [2012] FCAFC 124, (2012) 205 FCR 156.68 McKern v Minister Administering the Mining Act 1978 (WA), above n 67, at [24].69 At [24].70 At [125].71 Federal Commissioner of Taxation v Kassem, above n 67, at [49]–[58].powers and because they were motivated by the primary purpose of recovering theirfee, which, RJH argues, amounted to an abuse of process. This argument can be dealtwith shortly.[147] We see the first ground, the alleged failure of the liquidators to properlyexercise their investigative power, as irrelevant to the exercise of the discretion unders 295. The s 295 jurisdiction only arises where the transaction is set aside, whichassumes that the grounds for setting aside have been proved. We do not propose toconsider the first ground further.[148] As to the issue of the purposes for which recovery is sought, the liquidators donot dispute, at least for these purposes, that the recovery will be used to pay the costsof the liquidation, including their fees. There is nothing objectionable in that, in andof itself. The Act gives priority to payment of liquidators' fees in a liquidation becausethere is a public interest in the orderly winding up of insolvent companies.72 We seethe position as well-encapsulated in the following passage from the judgment of theNew South Wales Court of Appeal in Hall v Poolman:73While it is plain that liquidators should not "churn and burn", in the sense ofpursuing litigation simply in order to generate fees without any view to theinterests of creditors or the public interest, we disagree with this passage ifand to the extent that it is intended to convey that liquidators are never entitledto bring proceedings where the only prospect of recovery is reimbursement ofthe liquidators' own fees and expenses.[149] Accordingly, this final ground of appeal must also fail.Result[150] The appeal is dismissed.[151] The appellant must pay the respondents one set of costs for a standard appealon a band A basis and usual disbursements. We certify for second counsel.Solicitors:Gillespie Young Watson, Lower Hutt for AppellantAnthony Harper, Auckland for Respondents72 Companies Act, Sch 7.73 Hall v Poolman [2009] NSWCA 64, [2009] 254 ALR 333 at [157].