AAI Limited v 92 Lichfield Street (in receivership and in liquidation)
[2015] NZHC 1421
•23 June 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000143 [2015] NZHC 1421
BETWEEN AAI LIMITED
Applicant
AND
92 LICHFIELD STREET (IN RECEIVERSHIP AND IN LIQUIDATION)
Respondent
Hearing: 17 June 2015 Appearances:
C R Langstone for the Applicant
S D Munro and V M Heward for RespondentJudgment:
23 June 2015
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on application to set aside statutory demand
Introduction
[1] An insured asserts that it reached a contractual settlement with its insurer. It issued a statutory demand for what it says is the agreed sum. The insurer applies to set aside the demand.
[2] 92 Lichfield Street (in receivership and liquidation) (Lichfield) owns the Christchurch property whose name it bears. The property was damaged in the Canterbury earthquakes.
[3] AAI Limited (AAI) (a subsidiary of Vero Insurance) was the insurer of the property for material damage and business interruption for each event.
[4] Vero settled the business interruption claim in full by paying Lichfield
$675,000, in relation to which Lichfield executed an interim form of discharge.
AAI LIMITED v 92 LICHFIELD STREET (IN RECEIVERSHIP AND IN LIQUIDATION) [2015] NZHC 1421 [23 June 2015]
[5] In the course of 2013, Lichfield’s receivers (the receivers) negotiated the sum
which Vero would pay to settle the material damage claim.
[6] On 21 June 2013, Vero made a written offer which read:
Revised offer of settlement
Given all of the foregoing and with a view to resolving matters pragmatically, and entirely without prejudice to our position, we are prepared to consider a revised settlement for the building loss at NZ$6,500,000, plus Claim costs incurred to date (to be confirmed) together with the outstanding cost associated with the protection measures (NZ$203,309 excl. GST), and net of the Deductible. This offer is open for
14 days from the date of this letter and will be withdrawn immediately upon expiry of that period.
Conclusion
If a revised settlement is acceptable, then please advise Adrian Bowness … and he will arrange for issue of a form of discharge in the appropriate sum to you.
[7] Vero granted three extensions of the period for acceptance to enable Lichfield to liaise with interested parties and to obtain a further valuation. When Vero granted the second extension on 10 October 2013, Vero’s brokers recorded:
… if the current offer is not accepted by you within 14 days, then Vero have advised that they will make a GST exclusive payment to you of $4,627,000 plus Claim Costs incurred to date, gross of deductible, and consider the matter closed.
The final date for acceptance of Vero’s offer (by extension) became 1 November
2013.
[8] On 1 November 2013, one of the receivers, David Ruscoe, telephoned Vero’s broker to advise that Lichfield was prepared to accept the offer of $6,500,000 (net) in settlement of the material damage claim. Mr Ruscoe sent an email confirming the conversation and asking the brokers what further information was needed from the receivers.
[9] Vero subsequently forwarded a seven page form of Release, Discharge and
Indemnity for completion and return by Lichfield (and others). A significant amount
of correspondence and discussion followed, both in relation to the gross and net settlement sums, after allowance for claim costs and protection measure costs and other matters, to which I return below.1
[10] To this day the parties have not agreed the gross and net settlement sums for inclusion in the discharge document.
Lichfield issues its demand
[11] On 6 March 2015, Lichfield served AAI with a statutory demand for
$7,000,093.74 (the claimed debt). The claimed debt was stated to be in respect of the agreement made between Vero and Lichfield on or about 1 November 2013 to settle in full Lichfield’s material damage claim. The notice explained the components of the claimed debt as being:
· Principal sum
(excl. GST and net of deductible) $6,500,000.00
· Claim costs and protection measure costs to 1 November 2013 (excl. GST) $ 27,028.18
·
Protection measure costs since
1 November 2013 (excl. GST)
$ 51,901.63
·
Interest on $6,500,000 from 15 November
2013 to 3 March 2015 at 5% per annum
$ 421,163.93
Total
$7,000,093.74
[12] Vero’s solicitors on 10 March 2015 wrote to Lichfield’s solicitors requiring an undertaking that the statutory demand would be withdrawn. In summary, Vero’s
solicitors asserted:
1 At [49].
· Vero does not owe a debt to Lichfield.
·Vero’s 21 June 2013 offer required execution of a settlement agreement before payment was made.
·Lichfield’s acceptance on 1 November 2013 was an acceptance “in principle”.
·The parties have still not reached agreement on the final settlement amount.
· Such agreement “in principle” as was reached was only for costs up to
1 November 2013 (whereas the demand includes $51,901.63 of protection costs incurred after 1 November 2013).
·There is no contractual or other entitlement to the interest claimed in the statutory demand.
·Vero has been unable to reconcile the figure of $27,028.18 for costs up to 1 November 2013.
[13] Lichfield’s solicitors on 13 March 2015 replied to the letter sent on behalf of
Vero. In the response, Lichfield’s solicitors:
·rejected the suggestion that Vero’s 21 June 2013 offer had been conditional on the execution of a settlement agreement (or a form of discharge);
·stated that the exchange between the parties had constituted offer and acceptance and not merely acceptance in principle;
· stated that the parties had reached agreement as to the final settlement
amount, in terms of Vero’s formula set out in the 21 June 2013 offer;
·stated that while the claim costs incurred to 1 November 2013 had yet to be confirmed, they were capable of calculation in the sum claimed ($27,028.18);
· stated that the further protection costs incurred since 1 November
2013 were claimed against Vero as damages for breach of the 1
November 2013 agreement (and were supported by an attached table of calculations);
·accepted that there was no contractual right to interest but asserted a right to claim interest at the Judicature Act rate as damages for breach of the settlement agreement;
·nonetheless accepted that the latter two sums claimed are not yet due and owing (and therefore fall to be excluded from the sum demanded);
·concluded that (upon the exclusion of the latter two sums) the debt due and owing stands at least at $6,527,028.18; and
·stated that any application to set aside the statutory demand would be opposed.
Vero applies to set aside the statutory demand
[14] Vero has made application, in reliance upon s 290 Companies Act 1993, for an order setting aside the statutory demand.
[15] Vero expresses three grounds for the application, namely:
(a) There is a substantial dispute as to whether or not the debt specified in the statutory demand was owing or due.
(b)The statutory demand includes a claim for damages for an alleged breach of contract which is wholly untested and which is clearly in dispute.
(c) The use of a statutory demand in these circumstances is an abuse of process.
The jurisdiction to set aside a statutory demand – the principles
[16] The Court’s jurisdiction to set aside a statutory demand is contained in s 290
Companies Act, and I refer specifically to the basis upon which the Court may grant an application as contained in s 290(4) which reads:
290 Court may set aside statutory demand
…
(4) The court may grant an application to set aside a statutory demand if it is satisfied that—
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) the demand ought to be set aside on other grounds.
[17] For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction these five principles –
As to s 290(4)(a)
(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b)The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
As to s 290(4)(b)
(d)Alternatively, an applicant must establish that any counterclaim, cross demand or set-off is reasonably arguable in all the circumstances.
As to both ss 290(4)(a) and (b)
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[18] The discretion under s 290(4)(c) – whereby the Court finds that the demand ought to be set aside on other grounds – is a residual discretion which enables the Court to do justice between the parties. As Tipping J indicated in Commissioner of Inland Revenue v Chester Trustee Services Ltd, the exercise of the discretion comes down to the Court’s judgment as to whether the creditor’s prima face entitlement to liquidate the company is outweighed by some factor making it plainly unjust for
liquidation to occur.2
The damages portion of the statutory demand
[19] For Lichfield, Mr Munro responsibly accepts (as had been done in his firm’s letter of response) that the sums of $51,901.63 and $421,163.93 included as claims within the statutory demand are in the nature of damages. Mr Munro accepts that they fall to be excluded from the demand.
[20] The judgment of the Court of Appeal in United Homes (1988) Limited v
Workman recognised the established practice of allowing statutory demands to stand in reduced figures to reflect items not open to dispute.3 The defect in the statutory
2 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at
[3].
3 United Homes (1988) Limited v Workman [2001] 3 NZLR 447 (CA) at [46]. See also Spotburn
Farms Limited v Stockco Limited HC Auckland CIV-2010-404-3209, 22 February 2011 at [35].
demand that is represented by the incorrectly included portion of claim does not of itself invalidate the demand, unless to allow the demand to stand would cause serious injustice.4
[21] The issue raised in relation to the damages portions therefore falls away except to the extent that I must consider it in relation to Vero’s assertion of abuse of process and, in the event I dismiss the application, must make directions as to the extent to which the demand is to remain valid.
Did a contract come into existence on 1 November 2013?
Overview
[22] The most reliable starting point for assessing whether a contract came into existence lies in the words used by the parties in the events leading up to and surrounding November 2013. The evidence includes much that has subsequently passed between the parties and I will return to some of that which I accept is of evidential value. But the statements and assertions of the parties made after November 2013 carry the serious risk that they do not accurately reflect the intention of the parties objectively inferred from the context which applied and the words used up to and including 1 November 2013.
[23] The 2013 context was that Vero clearly wanted, without avoidable delay, to reach agreement with Lichfield on the quantum of the material damage claim, having revised its offer up to $6,500,000. If Vero could not obtain Lichfield’s agreement on that approach to settlement, the offer would be at an end (as AAI stated on 10
October 2013) and would be replaced by a unilateral payment of $4,627,000 together with claim costs incurred to date, which payment AAI would treat as “closing the matter”.
[24] For Vero, Mr Langstone developed two submissions as to the legal effect of the exchanges culminating on 1 November 2013. Mr Langstone submitted that no
contract to settle the insurance claim came into existence. Alternatively, if the Court
4 Companies Act 1993, s 290(5)–(6); see also Spotburn Farms v Stockco Limited, above n 3, at
[35].
were to reject that submission, Mr Langstone submitted that the execution of an appropriate form of discharge was a condition precedent to any obligation Vero had under the agreement to make payment.
[25] For the proposition that no contract came into existence, Mr Langstone referred in his written submissions to Lichfield’s response on 1 November 2013. Mr Langstone notes that the receivers expressly stated that they were prepared to accept the offer of $6,500,000 (net) in settlement of the material damage claim. However, Mr Langstone emphasises that Lichfield’s receivers did not refer to the other components of Vero’s offer (“Claim costs”) incurred to date (to be confirmed) together with the outstanding costs associated with the protection measures ($203,309 excl. GST) and net of the deductible. Mr Langstone did not further develop the proposition that Lichfield’s acceptance failed to encompass all terms of Vero’s offer and that accordingly no contract was formed.
[26] Mr Langstone’s submission as to the wording of the receivers’ 1 November
2013 acceptance was correct in terms of the express words used. Objectively, however, it is clear that the receivers intended to accept the total offer as made, of which the $6,500,000 sum was assuredly the most significant item. The receivers confirmed their acceptance via telephone and subsequently by email at 4.33 pm on the last day for acceptance – 1 November 2013. The very timing of this acceptance strongly implied that the intention of the receivers’ communication was to accept the total offer as made by Vero. Such is reinforced by Mr Ruscoe’s contemporaneous request, in which he asked Vero to advise what further information was needed from the receivers. If the receivers were not accepting the total offer there would have been a need for Mr Ruscoe to seek further negotiation of the subsidiary items rather than asking what further information Vero required.
[27] The response from Vero, which is essentially part of the same transaction, indicates clearly that Vero believed a comprehensive settlement agreement was in place. Vero, by its 7 November 2013 letter, attached Vero’s Discharge Form for completion and return so that Vero would “be in a position to conclude matters”. The request does not make sense unless Vero understood the receivers’ 1 November
2013 response to be the comprehensive acceptance which I find it constituted.
[28] There are later discussions and correspondence in which the effect of the 1
November 2013 acceptance is variously described. For reasons to which I will return, I do not find anything in the parties’ subsequent conduct or discussions which cuts across the very clear contemporary evidence establishing that the parties entered into a contract on 1 November 2013.
[29] One concept introduced in subsequent correspondence was the proposition that what the receivers did on 1 November 2013 was to “accept” Vero’s offer “in principle”. Vero’s solicitors advanced this proposition when requiring withdrawal of the statutory demand. (It had also appeared occasionally in comments made by Vero’s brokers, for instance in an email on 7 May 2014.) Mr Langstone in his written submissions did not develop the “agreement in principle only” proposition. It is unsupported by any of the words used up to and including 1 November 2013. The context is also against it – Vero was insisting on agreement as to the settlement by 1 November 2013. Vero clearly wished to have certainty as to settlement. I find that that is clearly the basis upon which the receivers accepted Vero’s terms.
The pre-contract involvement of Mr Henderson
[30] Lichfield had been one of a number of companies associated with David Ian Henderson of Christchurch which had been placed in receivership and/or liquidation. Mr Henderson, in mid-2013, was also representing Dominion Finance Group Ltd which held the second mortgage over 92 Lichfield Street. In a meeting with the receivers and representatives of the loss adjusters on 10 September 2013, Mr Henderson introduced himself as the second mortgagee’s representative, explained his intimate knowledge with the building, and explained that he had a personal interest in effecting repairs to the building, being confident of the rental yields it might have upon repair. He stated that he wanted to be involved with supervising and approving any settlement between the insurers and the receivers.
[31] Thereafter, Mr Henderson pursued negotiations with the receivers and the first mortgagee to take over the interest of the first mortgagee. The receivers made the loss adjusters aware of the progress of negotiations.
[32] By reference to the involvement of Mr Henderson, Mr Langstone submitted, in the event the Court were to hold that a contract came into existence on 1
November 2013, the contract was nonetheless subject to a condition precedent that AAI could require the execution of a form of discharge not only by Lichfield but also by the mortgagees.
[33] Such a requirement was not expressed by AAI in terms of its offer. Nor did the reference to a form of discharge in the conclusion to the offer letter refer to an expectation or requirement that other entities would be required to execute a form of discharge.
[34] At best, AAI argues for an implied term.
[35] The implication of a term requiring the involvement in the form of discharge of, say, Mr Henderson and the second mortgagee does not fit with the full record of the contemporary correspondence. When, on 10 October 2013, the loss adjusters forwarded AAI’s advice that the 21 June 2013 offer would remain open for acceptance for a further 14 days, they did so by a memorandum. Mr Bowness of the loss adjusters stated in his email to the receivers:
Please find attached memo, which hopefully covers off matters. You may wish to forward it to David Henderson, but that is your call.
[36] The email is inconsistent with a proposition that the loss adjusters or AAI were requiring Mr Henderson’s or the second mortgagee’s involvement in the proposed settlement.
[37] The implication of the implied term contended for by AAI must fail on that basis alone.
[38] I would also find, however, that it would fail upon the basis that it is not required for business efficacy. The form of discharge proffered by AAI includes an extensive indemnity from Lichfield to AAI in relation to all claims in any way related to the facts, matters and circumstances subject to the insurance claim. The discharge form provided by AAI (and executed by Lichfield) in relation to the earlier business interruption claim had similarly contained a sweeping indemnity. Given the
indemnity which Lichfield would provide, a demand for execution of a form of discharge by other parties, was not required for business efficacy. To the contrary, it might well have worked against the interests of AAI by having the compromise settlement derailed by the obstinacy or refusal of third parties.
A condition as to execution of a form of discharge?
[39] I must then come to Mr Langstone’s alternative proposition, given my conclusion as to the existence of a contract. In that event, says Mr Langstone, Lichfield’s entitlement to receive payment was conditional upon its executing an appropriate form of discharge. (In this context Mr Langstone’s submission focussed on the proposition that the 1 November 2013 agreement was subject to a “form of discharge”). In his letter requiring the withdrawal of the statutory demand, the proposition had been put on the basis that the execution of a “settlement agreement” was a pre-condition to settlement. Mr Langstone had recorded that as no settlement agreement was ever executed no moneys ever became payable. There is clearly nothing in the written requirements of Vero in 2013 which referred to the execution of a “settlement agreement”. AAI’s ground of application in this regard turns on the concept actually expressed at the time of AAI’s offer – that the broker would arrange for the issue of a form of discharge in the appropriate sum to Lichfield.
[40] Vero must be taken to be commercially experienced in the formulation of a contractual offer. Vero’s “revised settlement” offer for acceptance by the receivers was that contained in the paragraph which preceded the conclusion to the letter. The reference to a form of discharge was not expressed to be a condition of the offer or the acceptance. Rather, its inclusion appears, on its plain reading, to state an expectation that a document would come into existence which recorded the discharge – that is to say, Lichfield’s recognition that AAI had discharged its contractual duties to Lichfield by the agreed payment. It may well signal an expectation that in return for Vero’s tender of settlement sum, Vero will expect to receive in return an executed form of discharge.
[41] For the role of the discharged document in this case, Mr Munro referred to the leading judgment of the High Court of Australia in Masters v Cameron, as
concisely summarised by Harrison J in RPNZ Ltd v The Real Estate of New Zealand
Inc.5 His Honour noted:6
[29] In Masters v Cameron (1954) 91 CLR 353 at 360-364 the High Court of Australia, after analysing the major authorities, identified three distinct classes of cases where negotiating parties reach agreement upon terms of a contractual nature and agree that the subject matter shall be covered by a formal contract. Those classes are where the parties (1) have finally arranged all terms of their bargain and intend to be immediately bound to their performance but also propose to restate those terms in a fuller and more precise way although not to different effect; or (2) have completely agreed upon all terms of the bargain and intend no departure from or addition to them but nevertheless have made performance of one conditional upon execution of a formal document; or (3) do not intend to conclude a bargain at all unless and until they execute a formal contract. In defining the first category the Court (361) adopted this statement of principle by Lord Blackburn (Rossiter v Miller (1878) 3 App Cas 1124 at 1151):
… As soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal document have not the power to vary the terms already settled, I think the contract is completed.
[42] As both the High Court of Australia in Masters v Cameron and Harrison J in RPNZ went on to note, the third category of cases (not intended to have any binding effect on their own are often cases where the parties have expressly imposed a “subject to contract” qualification. RPNZ was such a case – the offeror had used clear language to express that it would not be bound unless and until formal documents were signed by both parties.
[43] The wording and general appearance of AAI’s written offer (as set out at [6] above) firmly places the offer in the first class of case identified in Masters v Cameron. The terms of settlement to be agreed by Lichfield were clearly identified in the paragraph headed “Revised offer of settlement”. The “form of discharge” which AAI said the broker would issue was not stated to be part of the “Revised offer of settlement” but came as part of what may be described as the “tidying up” identified in the “inclusion”. The form of discharge would be issued if the revised settlement were acceptable. The clear intention of the contractual offer, as
subsequently accepted by Lichfield, was that it was in Masters v Cameron’s first
5 Masters v Cameron (1954) 91 CLR 353 at 360–364, cited in RPNZ Ltd v The Real Estate of New
Zealand Inc HC Auckland CIV-2003-404-527, 15 September 2005.
6 At [29].
class of cases, with the notice of discharge essentially re-stating terms in a fuller and more precise way but not to different effect.
[44] Plainly, the subsequent attempt by AAI to introduce a requirement of execution of contractual document by other parties was an attempt to introduce further terms or requirements.
[45] Issues which arose between the parties following the receivers’ receipt on 7
November 2013 of Vero’s seven page Form of Release, Discharge and Indemnity arose not through an unwillingness of the receivers to execute a discharge form. Rather, they arose because Vero drafted the form so as to require the consent of three interested parties and execution of the discharge by those parties. The receivers’ solicitors promptly responded on 14 November 2013 requesting that references to the interested parties be deleted and that the discharge be for execution by Lichfield only.
[46] On any view of Vero’s brief reference in its 21 June 2013 memorandum to “a form of discharge”, Vero had not stipulated for a requirement that Lichfield procure the execution of a discharge by its mortgagees. The claims of other parties had been dealt with in the 2012 form of discharge by Lichfield providing an indemnity against such claims. A clause to similar effect was already included in the draft Form of Release, Discharge and Indemnity provided by Vero on 7 November 2013.
[47] In addition to the fundamental issue concerning execution of the form of discharge by other parties, the receivers’ solicitors on 14 March 2013 also raised a number of drafting issues. These issues subsequently appeared capable of resolution as the parties came to focus on finalising the net amount which would be due to Lichfield after taking into account the deductible and previous payments made by Vero on account. Mr Langstone was not able to point me to any term of AAI’s proposed discharge form on which there was and remains apparent disagreement, other than AAI’s requirements that three other entities execute it.
[48] To the extent that there has been a significant impediment to the execution of a discharge, the responsibility lies with Vero through its insistence on execution of the form of discharge by other parties.
[49] The document trail and the evidence establishes that the receivers are ready, willing and able to execute an appropriate form of discharge. So long as Vero does not provide an appropriate form of discharge for execution it is not entitled to assert that the sum owing under the settlement agreement is not due for payment.
The parties’ conduct after November 2013
Subsequent actions
[50] The Court of Appeal has recently, in Pascoe Properties Ltd v Attorney- General, succinctly identified the relevance of subsequent conduct when a Court is considering contract formation.7 Asher J, delivering the judgment of the Court, stated:
[73] It is permissible when considering contract formation to look at the subsequent words and conduct of the parties towards one another. Analysis of the subsequent words and conduct of the parties in this case supports the above interpretation of the correspondence.8
[51] After Vero signalled its concerns about potential claims by Lichfield’s financiers through its draft form of discharge, a number of discussions occurred not only between these parties but also with others. The lawyers for one of the financiers advised Vero’s brokers that that financier did not consent to the settlement reached between Vero and the receivers. The receivers’ solicitors, however, did set about trying to obtain the support of the first mortgagee. Vero’s solicitors raised the possibility of having Vero pay the settlement sum into their trust account to be held on an interest bearing deposit as stakeholder for the receivers’ benefit. The concept suggested was that the receivers would then institute proceedings against the interested parties to seek declarations as to entitlements. Although the receivers initially contemplated pursuing a Court application along those lines, they did not
ultimately take that course. In the meantime, Vero and the receivers continued to try
7 Pascoe Properties Ltd v Attorney-General [2014] NZCA 616, [2015] NZAR 457.
8 Electricity Corp of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 (CA)
at [56].
to reach agreement on what the correct quantum of settlement would be in terms of the 1 November 2013 settlement.
[52] There are various points in that chronology at which the parties are potentially negotiating away from the position under the 1 November 2013 settlement. The negotiations were entirely explicable by dint of the need of the parties to work through the issues as they arose. Nothing in the receivers’ position throughout 2014 justifies a conclusion that the parties did not form a contract on 1
November 2013.
[53] On the other hand, to the extent that Vero continued to negotiate through its loss adjuster, there is much in the record of the 2014 negotiations to indicate, on an objective basis, that Vero and the loss adjuster were acting on the basis that a contract existed.
[54] The loss adjuster, John Broom, on 12 February 2014, stated to Lichfield (in
response to a request from the receivers for “the offer date to be extended”) that:
The offer has already been accepted by Grant Thorndon by email on
1 November 2013. That acceptance has been conveyed to the insurers. Settlement (i.e. the actual process of paying the agreed values has been
somewhat protracted and delayed for a variety of matters including the
potential challenges to the receivers from the second mortgagee following an assignment of a second mortgage) is merely a process to occur, including the
provision of a signed discharge which I will follow up separately.
[55] Similarly, Mr Broom wrote to Mr Ruscoe on 30 January 2015 with a response from Vero on points raised by the receivers. Mr Broom set out Vero’s response, including:
On 1 November 2013 Grant Thorndon via email agreed to the Settlement
Offer that was in front of them and had been reaffirmed in September 2013
…
Insurers …. are satisfied with the Settlement Offer that had been made and
accepted by the Insured and see no reason to vary that position …
They do not agree to vary the consideration to a net settlement increase of circa $6,800,000. The offer remains at a net settlement of $6,515,449.
Mr Broom went on to set out the calculations behind the $6,515,449.19 assessed quantum.
[56] As it was, Vero was continuing to insist that all the interested parties be signatories to the Release, Discharge and Indemnity. In February 2015, the receivers’ solicitors wrote rejecting that requirement and calling upon Vero to make payment of the settlement sum together with interest directly to the first mortgagee. Vero did not respond. Lichfield then issued its statutory demand.
[57] Taken as a whole, evidence of subsequent actions on the part of the parties indicates that the impasse between the parties was most significantly in relation to the involvement of and potential claims by interested parties. The correspondence and conduct of Vero and the receivers after the 1 November 2013 agreement does not materially undermine the conclusion from contemporary documents that the agreement was contractual. In fact, overall the representations of Vero (both through the loss adjuster) and as recorded by the loss adjuster generally contain a recognition of an existing contract and an outstanding issue. This issue was what Mr Broom referred to as “settlement”, or, as he described it “the actual process of paying the agreed values”.
Lichfield’s claim costs to 1 November 2013
[58] Lichfield included in its statutory demand a sum of $27,028.18 on account of the balance of claim costs incurred to 1 November 2013.
[59] In terms of AAI’s settlement offer, Lichfield was entitled to claim costs incurred to 1 November 2013 and to a total of $203,309 for protection measures. The lower sum demanded by Lichfield reflected the fact that the protection measures costs had since been reimbursed or otherwise dealt with.
[60] The documentary evidence suggests that the balance payable for claimed costs had not been settled when Lichfield issued its statutory demand. The
$27,028.18 claim appears to have been stated to AAI in the demand for the first time. It was only in the correspondence following the demand that Lichfield’s solicitors supplied a table of the 18 invoices said to comprise the $27,028.18 figure.
[61] The terms of the AAI offer as accepted by Lichfield anticipated that the claim costs had yet to be “confirmed”. In other words, they anticipated a consultation between the parties and a mutual confirmation.
[62] The validity of the demand is to be measured at the date it was issued. It is at least arguable that at that date the $27,028.18 total had not been confirmed. The figure accordingly falls to be excluded from the demand.
Conclusion as to s 290(4)(a)
[63] I find that Vero has not shown that there is arguably a genuine and substantial dispute as to the existence of a contract dated 1 November 2013.
[64] Equally, Vero has not raised a substantial dispute as to there being the principal sum of $6,500,000 due and owing to Lichfield.
[65] I have recognised, as conceded by Mr Munro, that sums claimed in the nature of damages ($51,901.63 and $421,163.93) are not due and owing and therefore fall to be excluded from the demand.
[66] I have also recognised that the claim costs of $27,028.18 fall to be excluded from the demand.
Abuse of process
Discussion of “other grounds” under s 290(4)(c) of the Act
[67] Mr Langstone made a number of submissions in support of the proposition that, were I to come to the conclusion as to the contract which I have reached the statutory demand should nevertheless be set aside pursuant to s 290(4)(c) of the Act.
[68] I deal with Mr Langstone’s points in the same order as he raised them:
(a) “No suggestion that AAI is insolvent.”
· Mr Langstone noted that there are numerous references in the
correspondence to Vero, of which AAI is a subsidiary (with Vero being stated on the policy as the underwriter). I observe that the applicant elected to provide no evidence as to its solvency. But, in any event, it is not abusive on the part of Lichfield to issue a statutory demand in order to obtain evidence of insolvency. On the other hand, if AAI wishes to put its solvency in issue in a subsequent liquidation proceeding it would be entitled to pursue the point.
(b) “A significant portion of the sum demanded is disposable.”
·The portions of debt which I have found to be disputable can be dealt with, with no injustice to AAI, by excluding them from the recoverable demand. Lichfield does not abuse the Court’s process by pursuing through its statutory demand the agreed settlement of $6,500,000.
(c) “Lichfield only recently quantified aspects of its claim.”
·I have found the recently quantified demand of $27,028.18 to be disputable. It is appropriately dealt with by excluding it.
(d)“Lichfield’s purpose is to force Vero into payment without Lichfield having to issue proceedings.”
·Having regard to my finding that the $6,500,000 is indisputably owed, it is not abusive on Lichfield’s part to issue a statutory demand.
(e) “Lichfield wrongfully included an interest claim.”
·The incorrectly included interest claim is appropriately dealt with by excluding it.
(f) “There has been inconsistent conduct on the part of Lichfield.”
·This is essentially a general evidential point intended to weaken Lichfield’s argument that there is a debt due and owing. I have found that the evidence establishes no inconsistency which undermines Lichfield’s central case in contract.
(g)“Lichfield’s solicitors inappropriately issued the demand when in full possession of relevant facts.”
·This was a precursor to a submission that the application should be dismissed and that indemnity costs should be awarded to Vero. The submission suffers from the fact that I have concluded that the issuing of the statutory demand was justified (albeit for a smaller sum).
(h) “The demand was not withdrawn when requested.”
· This is in the same category of Mr Langstone’s previous
submission – I have found that the issuing of the demand was in large part justified.
Costs
[69] Costs must follow the event and it is appropriate that they be on a category 2 band B basis, together with disbursements.
Orders
[70] I order:
(a) The application to set aside the statutory demand is refused in respect of the sum of $6,500,000.00 in respect of which I find there was no dispute as at 6 March 2015.
(b)In the event that the applicant does not pay the sum of $6,500,000.00 within 15 working days of the date of this judgment, the respondent may apply to the Court to place the applicant into liquidation.
(c) The applicant shall pay the respondent’s costs on this application based on category 2 band B of the High Court Rules together with disbursements as fixed by the Registrar.
Associate Judge Osborne
Solicitors:
Jones Fee, Auckland
Anderson Lloyd, Christchurch
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