Aisleworx Group Limited v Tompkins Wake
[2024] NZHC 3223
•5 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1149
[2024] NZHC 3223
UNDER the Companies Act 1993, section 290 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
AISLEWORX GROUP LIMITED
ApplicantAND
TOMPKINS WAKE
Respondent
Hearing: 7 October 2024 Appearances:
Applicant is self-represented M K Brady for the Respondent
Judgment:
5 November 2024
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application to set aside a statutory demand]
This judgment was delivered by me on 5 November 2024 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Tompkins Wake (Chen.Jiang/Morgan Brady), Auckland, for the Respondent
Copy for:
The applicant, Aisleworx Group Limited
AISLEWORX GROUP LIMITED v TOMPKINS WAKE [2024] NZHC 3223 [5 November 2024]
Introduction
[1] Aisleworx Group Ltd (Aisleworx) applies to set aside a statutory demand made on it by Tompkins Wake for payment of legal fees.
Background
[2] In May of 2022, Aisleworx engaged Tompkins Wake to defend the company against claims under the Companies Act 1993 and in contract, equity and deceit. After a series of failures by Aisleworx to pay invoices/scheduled payments on time, Tompkins Wake applied for, and was granted, leave to withdraw as Aisleworx’s legal counsel.1 Tompkins Wake then rendered invoices for their attendances up to that point, totalling $72,904 (the debt).
[3] On 27 July 2023, Aisleworx complained about Tompkins Wake’s invoices to the New Zealand Law Society. The complaint was dismissed on 30 November 2023.
[4] On 26 April 2024, after unsuccessful efforts to obtain payment of the debt, Tompkins Wake served a statutory demand on Aisleworx (the statutory demand).
[5] On 9 May 2024, Aisleworx filed an application to set aside the statutory demand pursuant to s 290 of the Companies Act 1993.
[6] The application was heard on 7 October 2024. By application dated 2 October 2024, Mr Bartlett, a director of Aisleworx (Mr Bartlett), applied for leave to represent Aisleworx even though he was not a lawyer. Due to a misunderstanding of the Court procedure by Mr Bartlett, he was not able to be represented at the hearing by counsel, and I granted him leave to represent Aisleworx at the hearing.
Aisleworx’s application to set aside statutory demand
[7] Aisleworx seeks an order setting aside the statutory demand under section 290 of the Companies Act 1993.2
1 Minute of Gordon J dated 15 May 2023.
2 Originating application for order to set aside statutory demand, dated 9 May 2024 at [1].
[8]The grounds on which the order is sought are, in summary:3
(a)the invoices underlying the statutory demand are disputed invoices;
(b)the dispute is based on the fact that Tompkins Wake resigned as counsel for Aisleworx on 12 May 2024 and as a result failed to deliver the documentation charged for, being a brief of evidence for Mr Bartlett and Rudi Bublitz, together with analysis of the process and key points for the upcoming Court case (CIV-2021- 404-1015 – the Proceedings);
(c)Tompkins Wake did not give adequate notice of their withdrawal as counsel in breach of r 4.2.3(b) of the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care Rules 2008 (LCA Rules);
(d)breach of s 29 of the Consumer Guarantees Act 1993 (CGA) in respect of Mr Bartlett personally as a defendant in the Proceedings;
(e)by reason of the application of ss 60 and 61 of the Contract and Commercial Law Act 2017 (CCLA) in relation to Tompkins Wake’s retainer as counsel in the Proceedings.
Tompkins Wake’s opposition
[9] Tompkins Wake opposes the application on the grounds4 that there is no substantial dispute as to whether the debt is due and owing:
(a)It is not disputed that Tompkins Wake was engaged by Aisleworx to act for it in defending claims against it in the Proceedings and carried out the legal work covered by the outstanding invoices.
3 At [2].
4 Notice of opposition dated 19 June 2024 at [3](a).
(b)Tompkins Wake was entitled to apply for leave to withdraw for non-payment of fees and was granted leave to withdraw. The financial consequences to Aisleworx of Tompkins Wake being granted leave to withdraw were caused by Aisleworx’s own conduct.
(c)There is no proper basis for the vague and unsupported criticisms of Tompkins Wake’s work made in Mr Bartlett’s affidavit.
Legal principles
Section 290 of the Companies Act 1993 provides, relevantly:
290 Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a 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. …
[11]The Court has set out the principles relevant to the application of s 290(4):5
What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
5 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnotes omitted).
[12] As to s 290(4)(a), the Court is to look at whether a genuine substantial dispute exists.6 Mere assertion of a dispute does not suffice, and the applicant has to show a fairly arguable basis for it.7 In practice, it is required that there be some material short of proof that backs up the claim that the amount is in dispute.8
[13] Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.9
[14]Section 4.2.3 of the LCA Rules provides:
4.2.3A lawyer must not terminate a retainer or withdraw from proceedings on the ground that the client has failed to make arrangements satisfactory to the lawyer for payment of the lawyer’s costs, unless the lawyer has –
(a)had due regard to his or her fiduciary duties to the client concerned; and
(b)given the client reasonable notice to enable the client to make alternative arrangements for representation.
[15]Section 29 of the CGA provides:
29 Guarantee as to fitness for particular purpose
Subject to section 41 of this Act, where services are supplied to a consumer there is a guarantee that the service, and any product resulting from the service, will be--
(a)reasonably fit for any particular purpose; and
(b)of such a nature and quality that it can reasonably be expected to achieve any particular result,--
6 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.
7 N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27].
8 Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].
9 N F Global Ltd v Sky Capital Management Ltd, above n 7, at [40], citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97; Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.
that the consumer makes known to the supplier, before or at the time of the making of the contract for the supply of the service, as to the particular purpose for which the service is required or the result that the consumer desires to achieve, as the case may be, except where the circumstances show that--
(c)The consumer does not rely on the supplier’s skill or judgment; or
(d)It is unreasonable for the consumer to rely on the supplier’s skill or judgment.
[16]Sections 60 and 61 of the CCLA respectively provide:
60Application
(1)Sections 61 to 66 apply if—
(a)a contract governed by New Zealand law has become impossible to perform or has been otherwise frustrated; and
(b)the parties to the contract have for that reason been discharged from the further performance of the contract.
(2)Subsection (1) and sections 61 to 66 are subject to sections 67 to 69.
(3)in this subpart, time of discharge means the time at which the parties to the contract were discharged as referred to in subsection (1).
61Money paid may be recovered and money payable ceased to be payable
(1)All money paid to a party (A) under the contract before the time of discharge is recoverable from A as money received by A for the use of the party who paid it.
(2)All money payable to a party under the contract before the time of discharge ceases to be payable.
Analysis
[17] The issue to be determined in this judgment is whether, for the purposes of s 290(4)(a), there is a substantial dispute whether or not the debt is owing or due.
Mr Bartlett’s submissions
[18] Mr Bartlett submits that there is a genuine dispute in respect of Tompkins Wake’s invoices upon which the statutory demand is based because:
(a)Tompkins Wake are in breach of:
(i)s 4.2.3(b) of the LCA Rules; and
(ii)s 29 of the CGA;
(b)by reason of the application of ss 60 and 61 of the CCLA in relation to Tompkins Wake’s retainer as counsel in the Proceedings.
[19]I deal with each of these in turn.
Disputes in respect of Tompkins Wake invoices
[20] Mr Bartlett disputes the Tompkins Wake invoices underlying the statutory demand on the basis that:
(a)the work charged for was not delivered and needed to be duplicated;
(b)the work charged for was only 10 per cent complete;
(c)the work was unusable and duplicated by Aisleworx new solicitors, the law firm Chapman Tripp.
[21] In response to these allegations, Ms Morgan Brady, for Tompkins Wake, submits that there is no cogent evidence to support Mr Bartlett’s contentions and his bare assertions do not raise a genuine dispute on substantial grounds in respect of the invoices.
Breach of r 4.2.3(b) of LCA Rules
[22] Mr Bartlett alleges that Tompkins Wake are in breach of this rule as Tompkins Wake did not give reasonable notice of termination of the retainer with Aisleworx. He submits that a warning related to termination is not a notice of termination, and that actual notice of termination was first sent to him on 11 May 2023 at 11:00am; the application to the Court for leave for Tompkins Wake to withdraw was filed on the
same date; and notice of hearing was sent on 12 May 2023 at 5:20pm for a hearing at 10:00am on 15 May 2023.
[23] Mr Bartlett submits he effectively had no notice at all to have anyone other than himself represent Aisleworx at the hearing on 15 May 2023, and at the hearing the Court allowed Tompkins Wake to withdraw from acting as counsel for Aisleworx. He submits that this was a breach of the reasonable notice requirements and was extremely prejudicial to him and Aisleworx.
[24] Mr Bartlett submits that if Tompkins Wake had given him reasonable notice, the required affidavits of defence could have been completed and filed by Tompkins Wake and a reasonable handover period to Chapman Tripp could have been put in place, which would have made work done by Tompkins Wake of value and would have removed the cost and effort by Chapman Tripp that were required to duplicate the work of Tompkins Wake.
[25] Ms Brady submits that Tompkins Wake was entitled to terminate its retainer with Aisleworx. She submits that Aisleworx failed to pay the fees (including fees in advance) giving Tompkins Wake good grounds to terminate the retainer from the first time Aisleworx failed to pay Tompkins Wake’s first invoice on agreed terms in mid- 2022 and at all times thereafter.
[26] Ms Brady submits that Aisleworx was put on notice that Tompkins Wake would terminate the retainer and seek leave to withdraw from the proceedings if agreement as to fees were not honoured from as early as 22 February 2023, and further warnings were given on 21 March 2023 and 25 April 2023.
[27] In relation to events leading up to the termination of the retainer with Aisleworx, Ms Brady notes the following:
(a)on 2 May 2023 the parties agreed, as part of a final fee arrangement (replacing earlier arrangements breached by Aisleworx) that if Aisleworx did not pay the first tranche of $80,000 by 5 May 2023,
Tompkins Wake would terminate the retainer and seek leave to withdraw;
(b)when no funds were paid by 5 May 2023, Aisleworx was granted a further indulgence on 9 May 2023 that if the agreed payment did not arrive by 10 May 2023, then the application to withdraw would be made without further discussion or notice. On 10 May 2023 Aisleworx was given notice of termination of the retainer;
(c)Aisleworx had notice from 2 May 2023 of the immediate consequences of not making the first agreed payment by 5 May 2023, and expressly agreed that the retainer could be terminated immediately on 5 May 2023 if that did not happen;10
(d)on 10 May 2023 Tompkins Wake acted on notice already given on 2 May 2023 what action it would take if payment was not made.
[28] Ms Brady submits that it was reasonable for Tompkins Wake to then bring on the application for leave to withdraw urgently, given the impending trial date under the Proceedings.
[29] Ms Brady submits that Mr Bartlett’s assertions that Aisleworx had funds available to pay Tompkins Wake’s fees or that payment was imminent are irrelevant as Aisleworx did not pay what it promised to pay under any of the arrangements between the parties.
[30] Ms Brady submits that in answer to Mr Bartlett’s assertion (without providing any supporting detail) that Aisleworx incurred a greater level of legal fees having to arrange new counsel at short notice than it would have incurred had Tompkins Wake remained its legal representative, may well be true, but it was brought about by Aisleworx breaching the fee arrangements, causing the retainer to be terminated.
10 MacGillivray affidavit sworn 19 June 2024 at Exhibit JM017-018.
Consumer Guarantees Act 1993
[31] Mr Bartlett submits that Tompkins Wake was acting for him on a personal basis as well as for Aisleworx, as the Proceedings were issued against both Aisleworx and Mr Bartlett personally, and invoices were addressed to him on a personal basis as well as to Aisleworx. He therefore submits that the CGA applies to legal services provided to him personally by Tompkins Wake.
[32] Mr Bartlett submits that due to the work only being partly completed, with Tompkins Wake having no intention to complete the work that was required to make the services “fit for purpose”, the uncompleted work should not have been charged for and this is a breach of s 29 of the CGA. He submits that this is a legitimate dispute relating to the validity of invoices submitted after the notice of termination given by Tompkins Wake as the work was not fit for purpose under the CGA.
[33] Ms Brady submits that it appears doubtful that Mr Bartlett can be said to have been receiving legal services for personal use as a consumer, as opposed to for a commercial use, as the action against him related to his actions as a director of a commercial entity, Aisleworx.
[34] Ms Brady submits that in the event, Mr Bartlett has not provided any cogent evidence on a proper basis to support the contention that Tompkins Wake’s services breached any of the service guarantees set out in ss 28 to 29 of the CGA, and Mr Bartlett’s mere assertions do not give rise to a genuine dispute on substantial grounds.
Contract and Commercial Law Act 2017
[35] Mr Bartlett submits that the parties agreed a contract to complete a body of work relating to Tompkins Wake acting for Aisleworx in respect of the Proceedings and that there was a breach of that contract by Tompkins Wake in failing to complete the work, and on that basis there is no obligation for Aisleworx to pay for uncompleted and unusable work. He refers to ss 60 and 61 of the CCLA and submits that the contract between Aisleworx and Tompkins Wake had become impossible to perform
or had otherwise been frustrated and the parties were discharged from further performance under the contract. He submits that under s 61 of the CCLA, Aisleworx was discharged from its obligations to make payment under the contract by the unnecessary and unwarranted decision by Tompkins Wake to terminate the retainer. On this basis he submits there is a genuine dispute as to the invoices underlying the statutory demand.
[36] Ms Brady submits that ss 60 and 61 of the CCLA relied on by Aisleworx apply where a contract has been discharged through impossibility of performance or has otherwise been frustrated. She submits the contract of retainer by Aisleworx with Tompkins Wake was not frustrated nor impossible to perform, but was terminated for breach of the fee arrangement by Aisleworx. She submits that termination or cancellation of a breach of contract for services does not discharge a party from the obligation to pay for those services provided before termination.
Result
[37] I am of the view that Aisleworx’s application to set aside the statutory demand should be dismissed. The reasons for this view are:
Breach of r 4.2.3(v) of the LCA Rules
(a)Aisleworx/Mr Bartlett was given adequate notice of Tompkins Wake’s intention to terminate the retainer. While Mr Bartlett asserts that warnings of potential termination were not actual notice of termination, the practical reality was there was a series of breaches by Aisleworx of the agreed fee arrangements, with clear indication from Tompkins Wake on a number of occasions that breach of these arrangements would be result ion termination of Tompkins Wake’s retainer. Mr Bartlett expressly agreed to this position in the exchange of emails on 2 May 2023;
(b)Gordon J granted Tompkins Wake the right to withdraw as counsel, having considered the grounds put forward by Tompkins Wake. Clearly
Gordon J was satisfied that granting Tompkins Wake leave to withdraw as counsel was appropriate in the circumstances.
(c)The conclusion I have reached therefore is that there is no breach by Tompkins Wake of r 4.2.3(b) of the LCA Rules;
Consumer Guarantees Act
(d)as to the Consumer Guarantees Act 1993, there was no argument presented by either party as to whether the legal services provided to Mr Bartlett in his capacity as a director of Aisleworx and a defendant in the Proceedings, were provided for his personal use as a consumer. I agree with Ms Brady’s submissions that this seems doubtful, although I have reached no decision on this point. However, I do not believe this creates any genuine dispute of the Tompkins Wake invoices as there is no evidence the legal services were not fit for purpose other than Mr Bartlett’s assertions. For example, there was no evidence from Chapman Tripp of Tompkins Wake’s work being unusable or having to be duplicated. Consequently, I am of the view that this ground as a basis for a substantial dispute must fail;
Contract and Commercial Law Act
(e)as to the Contract and Commercial Law Act issue, s 60 does not apply as the retainer was not terminated through impossibility of performance or frustration, but was terminated by Tompkins Wake for breach of the fee arrangements under the retainer by Aisleworx. Sections 60 and 61 of the CCLA do not apply in this situation to relieve Aisleworx of paying for work up to the point of termination, and that is not a ground for a substantial dispute in respect of the invoices underlying the statutory demand.
[38] As will be apparent from the conclusions I have reached at [37], there are no substantial grounds established by Aisleworx/Mr Bartlett for a dispute of the invoices
underlying the statutory demand and accordingly there are no grounds to set aside the statutory demand.
Orders
[39]I make the following orders:
(a)Aisleworx’s application to set aside the statutory demand is dismissed.
(b)Aisleworx has 15 working days from the date of this judgment to pay the amount claimed in the statutory demand or otherwise deal with it in accordance with s 289(2)(d) of the Companies Act 1993, failing which Tompkins Wake will be entitled to commence liquidation proceedings against Aisleworx.
(c)As Tompkins Wake are the successful party, costs should follow the event. Tompkins Wake are entitled to 2B costs plus disbursements on opposing Aisleworx’s application.
…………………………….. Associate Judge Taylor
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