Anysley Developments Limited v Three60degrees Limited

[2021] NZHC 280

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-498

[2021] NZHC 280

UNDER

Section 290 of the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand

BETWEEN

ANYSLEY DEVELOPMENTS LIMITED

Applicant

AND

THREE60DEGREES LIMITED

Respondent

Hearing:

15 February 2021

Appearances:

R A Hearn for the Applicant

A N Riches for the Respondent

Judgment:

25 February 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 25 February 2021 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 25 February 2021

ANYSLEY DEVELOPMENTS LIMITED v THREE60DEGREES LIMITED [2021] NZHC 280

[25 February 2021]

[1]    This application concerns a statutory demand for $5,748.12. The applicant, Anysley Developments Ltd (Anysley), was incorporated by Christopher Swann to carry out a development at Aynsley Terrace in Christchurch. The land on which the development was to occur had been identified by a Mr Josh Stevenson. Mr Stevenson is the director of the respondent, Three60Degrees Limited (360 Degrees).

[2]    It is necessary to refer to two other companies. The first is First Design and Build Ltd (First Design). This company holds a number of David Reid Homes franchises in the Canterbury area. First Design is another company of Mr Swann’s.

[3]    In 2018, Mr Swann engaged Mr Stevenson as a manager of First Design. The terms of that management agreement are in dispute, but that dispute is not relevant to this application.

[4]    The second company, DRH4 Investments Ltd (DRH4), was a single purpose company that Mr Swann was simultaneously using to carry out a development in Bishop Street, Christchurch. The Bishop Street development was managed by First Design.

[5]    Mr Stevenson, having identified the Aynsley Tce opportunity, entered into an agreement for sale and purchase with the vendor. He assigned that contract to Anysley by an undated Deed of Assignment (the Deed).

[6]    Under the Deed, Anysley was to repay to Mr Stevenson the deposit he had paid on the purchase, together with a success fee of $50,000 plus GST. This success fee was to be paid firstly by $20,000 plus GST over six equal monthly instalments, with the first payment to be made one month after settlement. The balance of the success fee of $30,000 plus GST was to be paid on the completion of the development, that is, when new titles issued.

[7]    Anysley settled the purchase of the properties and Mr Stevenson nominated 360 Degrees to receive the payments under the Deed.

[8]    360 Degrees was not a party to the Deed and it being nominated to receive the payments, would not make it a party to the Deed. Nonetheless, both parties proceeded on the basis that  amounts  payable  under  the  Deed  were  properly  payable  to  360 Degrees. Mr Stevenson, in his affidavit, refers to the incorporation of 360 Degrees and says, after its incorporation Mr Swann consented to an arrangement in which all dealings with Mr Swann were treated as being between 360 Degrees and whatever entity it was dealing with. Mr Swann does not take issue with that.

[9]Anysley paid the first four of the six instalments of $3,833.32 including GST.

[10]   360 Degrees raised invoices for those first four payments. It then raised invoices for the two remaining monthly instalments in May and June 2019. The statutory demand relates to the two last invoices.

[11]The applicant does not dispute that under the Deed it was obliged to pay

$20,000 plus GST in six equal instalments to 360 Degrees. It claims, however, to have in substance paid the remaining two instalments.

[12]   When this claim was first raised, the applicant accepted a further $1,918.52 was due. It paid that amount having reconciled the payments it says it made or the credits to which it says it is entitled.

[13]   The issue in this proceeding is whether it is arguable that the applicant is entitled to a credit for the sum of $5,750 paid by one of Mr Swann’s companies to 360 Degrees. If so, it follows that the statutory demand will be set aside.

General principles for setting aside a statutory demand

[14]   The principles governing a decision to set aside a statutory demand were summarised in Confident Trustee Ltd v Garden and Trees Ltd as follows:1

(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to

1      Confident Trustee Ltd v Garden & Trees Ltd [2017] NZCA 578 at [16], citing Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd HC Auckland CIV-2008-404-4725, 19 January 2009 at [4]; and Risecorp Investment Trustee Ltd v Staywell Hospitality Management Ltd [2005] NZHC 1277 at [12]-[13].

the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.

(b)The mere assertion that a 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 first in ordinary civil proceedings before any statutory demand is issued.

(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.

(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.

Payment $5,750 on 14 May 2019

[15]Much of the following is disputed by 360 Degrees.

[16]   On 13 May 2019, 360 Degrees issued an invoice for $10,000 plus GST to DRH4. Mr Swann says Mr Stevenson issued this invoice as he believed he was entitled to management fees for work DRH4’s Bishop Street project. Mr Swann says he explained to Mr Stevenson that  the  management  work  for  DRH4’s  project  was being provided by First Design. Mr Swann’s position is that Mr Stevenson was working for First Design and that entity was undertaking the management of the work at Bishop Street, not 360 Degrees or Mr Stevenson personally.

[17]   Mr Swann says the invoice was issued without consultation to him. DRH4 then made a part payment from its bank account, of the 13 May 2019 invoice of

$5,750.

[18]   Anysley submits that DRH4 paid the $5,750 by mistake and was entitled to have that sum refunded by 360 Degrees. Mr Swann, in his first affidavit, says that whilst 360 Degrees was not owed any money by DRH4, it was owed money by Anysley pursuant to the monthly instalments of the $20,000 success fee payable under the Deed. In his first affidavit, Mr Swann said he and Mr Stevenson agreed that the money said to have been incorrectly paid by DHR4 would be credited to Anysley’s outstanding debt.

[19]   Mr Swann said, in his first affidavit, that he could not exactly remember when that discussion occurred, but it was likely to have been in June 2019.

[20]   Mr Stevenson, in his second affidavit, denies that any such arrangement was made.

[21]In the face of that denial, Mr Swann replied frankly with the following:

14.In my first affidavit I said we agreed that the payment made in relation to the DRH4 invoice would be treated as being paid to ADL for the amounts owed to it. On reflection, saying it was “agreed” is too strong. He did agree that DRH4 was not owed anything, but I can’t recall specifically discussing how the payment already made would be treated. I can’t recall when the discussion occurred, but it was at FDB’s offices, and I pointed out he should not be invoicing for the Bishop Street project. He said something to the effect of “surely we’re taking some management fees out of DRH4”. I explained that we were not, because DRH4 was using FDB to undertake the project and paying FDB, and the profit would sit in FDB. I said he was working for FDB and there was no fees (for either of us) out of DRH4. He was happy with my explanation and stopped invoicing.

15.As I’ve noted, the disputed payment which was already made wasn’t expressly discussed. Although he had previously credited it to DRH4, I assumed he would treat it as being paid by ADL because there was nothing else owing to 360 at that point (by any of my companies), and in any case at my end it had been paid by ADL (via DRH4). He didn’t issue any more invoices or statements from DRH4 and did not issue any more statements from ADL until earlier this year when he had left FDB and the other disputes between us started to materialise.

[22]   The above evidence from Mr Swann paints quite a different picture from that in his first affidavit.

[23]   The above amounts to an acceptance by Mr Swann that Mr Stevenson did not agree to credit to Anysley the $5,750, which Mr Swann says was incorrectly invoiced by 360 Degrees and repayable to DRH4. Mr Swann says he assumed Mr Stevenson would treat it as a credit to Anysley.

What is reasonably arguable on the evidence?

[24]   While Mr Swann’s evidence that 360 Degrees was not entitled to charge fees in relation to the Bishop Street project is disputed, I am not in a position to dismiss his sworn evidence in that regard.

[25]   Mr Swann’s evidence is supported by the fact that, after June 2019 (when he says he spoke to Mr Stevenson about 360 Degrees mistakenly invoicing for the Bishop Street project), 360 Degrees did not pursue payment of a second invoice it issued for Bishop Street on 2 June 2019 for $10,000 plus GST. Nor did 360 Degrees issue any further invoices  for the Bishop  Street  project  to  DRH4  (albeit  there is  a confusing invoice issued by 360 Degrees to First Design on 20 June 2019 said to also be for Bishop Street – but in any event this further invoice was not pursued by 360 Degrees).

[26]   Nor were the  invoices  subject  to  the  statutory  demand  chased  up  by  360 Degrees until 7 May 2020 and then it seems only in response to a company of Mr Swann’s sending Mr Stevenson an invoice for labour on a build of Mr Stevenson’s. The failure to  chase up the invoices for the unpaid instalments is consistent with   Mr Swann’s assertion that the mistaken payment had been credited against those invoices.

[27]   Mr Stevenson’s email of 7 May 2020 said the updated statements attached set out the amounts he considered were outstanding from his end. While the invoices subject to the statutory demand are mentioned, the unpaid invoices issued to DRH4 in June 2019 were not. This is consistent with Mr Swann’s evidence that Mr Stevenson had accepted such invoices should not have been raised.

[28]   Having received an invoice from Mr Swann, Mr Stevenson appeared to be identifying sources of credits he could raise against that invoice for labour charges. Had Mr Stevenson considered there were invoices payable from DRH4, it is likely he would have raised them at that time, as his email referred to amounts said to be owed by both Anysley and First Design.

[29]   Also consistent with Mr Swann’s sworn evidence is that DRH4 recorded it had made an advance to Anysley of $5,750 in its Xero accounting software. DRH4’s inter-company ledger with Anysley shows an advance to Anysley of $5,750 which was repaid by Anysley in due course. Mr Swann further notes that all other agreements between his entities and 360 Degrees were in writing and there is no written agreement entitling 360 Degrees to charge for Bishop Street. Mr Stevenson does not dispute this.

[30]   Accordingly, I proceed on the basis it is reasonably arguable DRH4’s payment of $5,750 to 360 Degrees was an overpayment or a payment by mistake.

[31]   The real issue is which entity is entitled to a credit for that amount or, perhaps more correctly, which entity has a reasonably arguable claim to seek the reimbursement of that payment.

[32]Mr Hearn, counsel for the applicant, submitted:

That the amount was paid out of DRH4’s bank account does not mean it must be credited with the payment. It was paid on behalf of Anysley. That one group company makes a payment for another is … unexceptional. Payment by a third party of a debtor’s debt, with the debtor’s consent, discharges the debtor’s liability to the creditor to the extent of the payment. The creditor’s consent to such an arrangement is not require.

[33]   As a general statement of principle, I do not disagree with Mr Hearn. However, Mr Swann’s evidence does not support the proposition that the payment now relied on as a credit was made on behalf of Anysley. Mr Swann’s evidence is the issuing of the mistaken invoice “was done without consultation or agreement with me”. In his first affidavit, Mr Swann said the invoice was paid by First Design as DRH4 did not have funds at the time. In his reply evidence, Mr Swann corrected this, saying the payment in fact came from DRH4’s bank account not First Design’s. The tenor of Mr Swann’s first affidavit (as corrected) is DRH4 paid an invoice made out to it from its own funds, mistakenly believing the invoice was payable. This is not consistent with the applicant’s claim that DRH4 paid it on behalf of another company of Mr Swann’s, namely Anysley.

[34]In his affidavit in reply, Mr Swann said:

The funds came from DRH4’s bank account, not [First Design’s] although as I noted in my first affidavit we treated the payment as being made by Anysley. Rather than doing two payments – one from DRH4 to Anysley, and then one from Anysley to 360 – we just made the payment direct from DRH4 to 360 and recorded a debt owing by Anysley for that amount.

[35]   Of course this is contrary to Mr Swann’s first affidavit evidence that he agreed with Mr Stevenson that 360 Degrees would apply the credit due to DRH4 to Anysley’s liability.

[36] I do not see how paras 14 and 15 of Mr Swann’s reply affidavit, set out at [21] above, can be reconciled with counsel’s submission that the $5,570 payment was made on behalf of Anysley. That was not the intention at the time, it being a mistaken payment by DRH4. Mr Swann’s assumption that Mr Stevenson would treat the payment as being paid by Anysley shows it was not paid on behalf of Anysley. Rather, it was paid by DRH4 on its own behalf. The fact Mr Swann may have assumed 360 Degrees would give Anysley a credit for this amount does not mean the payment was made on behalf of Anysley.

Set Off, Mutuality and Equitable Assignment

[37]   Mr Riches, counsel for  360  Degrees,  said  the  application  to  set  aside  360 Degrees’  statutory  demand  was  flawed.     Whether  seen  as  a  set  off  or     a counterclaim, Mr Riches submitted Anysley could not set off an indebtedness arguably owed by 360 Degrees to DRH4. He said this absence of mutuality was fatal, relying on NF Global Ltd v Sky Capital  Management  Ltd2  and  Hamilton  Ice  Arena Ltd v Perry Developments Ltd.3 Mutuality requires the cross demands to be between the same parties and held in the same capacity, or right, or interest.4

[38]   Mr Hearn did not dispute the correctness of that proposition but met the mutuality point by saying the circumstances showed there had been an equitable assignment by DRH4 to Anysley of the benefit of the mistaken payment. Mr Hearn relied on Hela Pharma AB v Hela Pharma Australasia Ltd, where the Court of Appeal said in respect of an equitable assignment of a legal chose in action:5

This would not require any particular form. What is critical is an intention to assign, although that may have been established by conduct. Notice is not an essential requirement. An assignment of this character may be perfectly valid in equity without any notice to the third party – although notice is usually said to be “desirable”, since, as with statutory assignments, until he or she receives it the third party is entitled to treat the assignor as his or her creditor and to discharge his or her debt by payment to that party. The giving of notice may prevent further equities attaching to a debt. It may also affect priorities.

2      NF Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [51] - [55].

3      Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA) at [8] – [9].

4      Rory Derham Derham on the Law of Set-Off (4th ed, Oxford University Press, New York, 2010) at [11.01].

5      Hela Pharma AB v Hela Pharma Australasia Ltd CA165/03, 17 February 2005 at [60].

[39]   Mr Hearn submitted there had been a reasonably arguable equitable assignment because the creation of the inter-company indebtedness recorded in the Xero ledger between Anysley and DRH4 showed an intention by DRH4 to transfer the benefit of the overpayment to Anysley. Anysley accepted that transfer by recognising and accepting that indebtedness through repaying the debt.    Hence,    Mr Hearn says DRH4 did not pursue recovery of the overpayment as Anysley had accepted the benefit of the overpayment as a credit against the amount it owed to  360 Degrees under the Deed.

[40]   The applicant’s submission is the creation of the inter-company indebtedness, recorded as having been made at the same time as the mistaken payment, is only referable to it being intended that DRH4 treated the benefit of the overpayment as belonging to, that is assigned to, Anysley.

[41]   Mr Riches argued Anysley could not establish mutuality, that is, commonality of parties, by DRH4 assigning to Anysley its claim against 360 Degrees. However, Mr Riches was not able to point to any authority in support of that proposition. Derham on the Law of Set-Off says: “The form of the arrangements by which the cross-demands came into existence does not affect mutuality.”6

[42]   The authors note the suggestion that mutuality requires there to have been direct dealings between the parties fails to explain the right of set-off:7

… in any case in which one of the parties to the proposed set-off gained a right to sue the other only as a result of an assignment to him or her of the other’s indebtedness.

[43]   I do not accept Mr Riches’ submission that mutuality cannot be achieved by assignment. Where a debtor seeking to establish a set-off has to show a connection between the cross-claims as required by Grant v NZMC Ltd, reliance on an assigned debt may prove problematic.8 But in this context, the applicant need only show

6      Derham, above n 4 at [11.02].

7      At [11.02].

8      Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).

a cross-claim and is not required to establish any link between the amount claimed in the statutory demand and the subject matter of the cross-claim relied on.9

[44]   Mr Riches approached the issue on the basis that 360 Degrees was entitled to raise invoices for Bishop Street and thus his submission was that the alleged set-off did not get off the ground, that is, there was no mistaken payment as DRH4 in fact owed the invoiced sum to 360 Degrees. However, I have concluded it is reasonably arguable there was a mistaken payment by DRH4. The claim to recover that amount would be for a liquidated sum, albeit subject to the normal defences available in relation to the recovery of a mistaken payment.

[45]   I have not overlooked Mr Riches’ submission that the claimed mistaken payment could not have been for the unpaid  instalment  invoices  for  May  and  June 2019 as those invoices had not been issued at the time of the mistaken payment. However, Mr Swann’s evidence is that it was not until sometime in June that he became aware of the mistaken payment. He says Anysley’s argument does not depend on the instalment invoices having been issued at the time the mistaken payment was made. While we do not have an exact date when it is said Mr Stevenson accepted the Bishop Street invoice had been issued in error, if it was in June as Mr Swann claims, then it was after the invoice for the May instalment and with the June instalment invoice being dated 2 June 2019 – a Sunday – it seems likely any discussions would be later in the month.

[46]   At the end of the day, I consider Anysley does have a reasonably arguable counterclaim in respect of the mistaken payment. It is able to raise the counterclaim as a defence to the statutory demand because it is reasonably arguable that the benefit of the mistaken payment was assigned in equity by DRH4 to Anysley.

[47]It follows that the statutory demand will be set aside.

9      Phoenix Organics Ltd v RD2 International Ltd (2003) 9NZCLC 263,380 (HC) at [26]–[36].

Costs

[48]Costs are reserved.

[49]   It is noteworthy that the equitable assignment argument came late in the piece in Anysley’s submissions. Mr Riches responsibly did not take issue with the point being argued even though it was not in the original application. Such will need to be taken into account in respect of costs. Memoranda of not more than three pages may be filed. If none are filed within five working days of the date of this judgment, then costs will lie where they fall.

Associate Judge Lester

Solicitors:

Corcoran French, Christchurch Saunders & Co, Christchurch