Arrow Matting Systems Ltd v Impala Equities Ltd
[2015] NZHC 1479
•29 June 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-218 [2015] NZHC 1479
UNDER The Companies Act 1993 BETWEEN
ARROW MATTING SYSTEMS LIMITED
Plaintiff
AND
IMPALA EQUITIES LIMITED Defendant
Hearing: 15 June 2015 Counsel:
G Manktelow for the Plaintiff
C Reid for the DefendantJudgment:
29 June 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Arrow) applies for an order setting aside a statutory demand dated 3 March 2015 served on it by the defendant (Impala).
[2] The statutory demand was for the sum of $30,518.36, said to be owing for the rent of certain premises at Gregory Street, Naenae (the premises).
Background
[3] Arrow’s business involves the importing and distribution within New Zealand of rubber matting products which are brought into New Zealand in shipping containers. The business requires Arrow to hold and maintain a licence from the Ministry of Primary Industries (MPI) for the unloading and storage of sea shipping containers. MPI is entitled to carry out audits of licensees’ premises to ensure that
relevant standards are being maintained.
ARROW MATTING SYSTEMS LIMITED v IMPALA EQUITIES LIMITED [2015] NZHC 1479 [29 June
2015]
[4] In 2007 Arrow needed new premises for its business, where it could unload and store the containers. On 18 May 2007 it entered into an agreement to lease the premises from Impala. The agreement to lease provided for a term of six years from the date of possession, with possession on 1 January 2008 and two rights of renewal for additional terms, each of two years’ duration. The agreed rent was $55,000 per annum plus GST, and the premises were to be used by Arrow for its importing and distribution business. The agreement provided for Impala to carry out certain alterations, additions, and redecoration work, in accordance with a schedule attached to the agreement to lease.
[5] The parties subsequently agreed to extend the area of the premises, to provide warehouse space for Arrow. A written agreement to lease the additional space was completed on 12 March 2008, with a possession date of 1 May 2008, term of six years (with renewal rights), and rent of $28,000 per annum plus GST.
[6] The shipping containers are extremely heavy, and issues arose fairly early in the lease term over the state of repair of a concrete area at the front of the building at the premises, which Arrow used to place and unload the shipping containers. Impala carried out some repairs to the concrete area, but Arrow says that the repair work was substandard. Arrow says that, over time, the concrete started to break up because of the substandard repairs carried out by Impala. That remained a bone of contention between the parties for some years during the terms of the agreements to Lease.
[7] Also from relatively early in Arrow’s occupation of the premises, there was a problem with roof leaks in the area of a toilet on the premises. Although various attempts were made to repair the leaks it appears that they were unsuccessful – the leaky roof remained an issue throughout Arrow’s tenure of the premises.
[8] When the lease terms expired in 2014, Arrow had not exercised its rights of renewal. It eventually vacated the premises in January 2015, having advised Impala by email dated 14 November 2014 that it would do so. There is an argument over the amount of notice Arrow was required to give when it wanted to leave.
[9] The form of deed of lease which was incorporated by reference in the agreements to lease provided for the giving of one month’s notice to terminate on either side if the lessee remained in possession after the expiry of the term.1 But on
25 October 2013, during the lease terms, Mr Hart from Arrow had sent an email to Mr Parbhu of Impala advising that Arrow “would prefer to continue on a monthly basis, with us giving you six months notice of when we want to move out (to enable you time to find another tenant). Similarly, you would give us six months notice if you want us to vacate”.
[10] Mr Hart concluded his email by saying “I trust you are able to confirm that
this is acceptable”.
[11] Mr Parbhu replied by email on 29 October 2013, saying “I confirm acceptance of your agreement below”.
[12] Clearly Arrow’s email dated 14 November 2014 did not provide Impala with six months’ notice that the lease agreements were to terminate in January 2015. Arrow seeks to meet that apparent difficulty by submitting that (i) the apparent agreement in the October 2013 emails to give six months’ notice was not binding on it, or (ii) (if it was bound by the October 2013 emails) it is entitled to rely on an earlier email sent by Arrow to Impala on 1 July 2014, which was sufficient to provide the six months’ notice.
Email correspondence – July 2014 to November 2014
[13] Following an audit of the premises which MPI had carried out in December 2012, Arrow was given until 28 February 2013 to have the concrete storage area repaired. It notified Impala of the need for the repair work, but it says Impala did nothing, notwithstanding reminders from Arrow. A further MPI audit was scheduled for 3 July 2014.
[14] On 1 July 2014 Mr Hart emailed Mr Parbhu noting that the breaking up of the concrete and the leaking roof over the toilets had been the subject of complaints by
1 Auckland District Law Society form of deed of lease, fourth edition, 2002, cl 38.1.
Arrow for two to three years, but nothing had been done to rectify the problems. He advised that he anticipated trouble in persuading MPI to allow Arrow to continue to operate its business on the premises, and concluded that Arrow was “coming to the end of the road in these matters”. With its busy season (which was also the wet season) approaching, Mr Hart stated that Arrow had “no alternative but to declare that if the repairs are not completed by the end of July, we have no alternative but to stop paying rent and use the funds to do the repairs ourselves”.
[15] Mr Parbhu replied immediately, apologising for the delay, and advising that he had requested quotes for the concrete work but had not received them. He said that he would try to sort it out as quickly as he could.
[16] In an email to Arrow dated 22 August 2014, MPI asked if any progress had been made regarding the resealing of the container pad. It sought photographic evidence that the repair work had been done, and it advised Arrow that if it could not solve the problem it might be liable to suspension of its entitlement to receive sea containers.
[17] Despite further correspondence, the necessary repair work was not carried out. On 30 September 2014, MPI suspended Arrow’s entitlement to receive sea containers at the premises.
[18] It appears that Impala had made a claim on its insurers in respect of the broken area of concrete. On 25 August 2014 Mr Parbhu advised Arrow that Impala’s insurers were saying that the broken area of concrete had not been designed for containers, and was limited to carparking only. Also, there was a policy excess of
$10,000.
[19] Mr Hart replied on 26 August 2014, contending that any insurance difficulties were not issues which should concern Arrow. He asserted that Impala was aware when carrying out the repair work that the concrete area would be used for storing containers.
[20] In his email dated 14 November 2014 advising Impala of Arrow’s intention to vacate the premises in January 2015, Mr Hart acknowledged that there had been a “gentleman’s agreement” to give six months’ notice, but contended that Arrow had effectively given that notice in Mr Hart’s email dated 1 July 2014. He contended that it would not be fair to hold Arrow to the “gentleman’s agreement” when Impala had “opted out” by not meeting its (repair) obligations.
[21] On 17 November 2014, Mr Parbhu emailed Mr Hart rejecting the suggestion that Mr Hart’s 1 July 2014 email constituted a valid notice to terminate the lease. He also blamed Arrow for the broken concrete, contending that the damage resulted from Arrow’s own use of the concrete area.
[22] Mr Parbhu evidently regarded Mr Hart’s 14 November 2014 email as
effective to terminate the leases on 14 May 2015 (the date six months after Mr Hart’s
14 November 2014 email). He advised that Impala would charge Arrow rent through to that date.
The mediation/arbitration clause
[23] Clause 45.1 of the deed of lease required that any dispute or difference between the parties relating to the covenant to repair was to be resolved by mediation or other agreement, and failing agreement, to be submitted to arbitration.
The statutory demand
[24] The demand simply stated that the $30,518.36 was “due and owing to the creditor in respect of Rental owed”. It did not refer to the premises for which the rent was said to be payable, nor did it state the period or periods for which the rent was claimed.
[25] However, it was made clear by Mr Reid in his written submissions that the amount claimed was the amount said to be owing for rent of the premises from the end of January 2015 (when Arrow vacated) to 14 May 2015, together with a further sum of $2,000 which Arrow had withheld from rent payable by it in 2014 (notwithstanding a “no deductions” provision which was included at cl 1.1 of the
form of deed of lease). Arrow had paid that $2,000 to some contractors in October
2014 in an attempt to get the MPI suspension lifted.
[26] The $2,000 has since been paid by Arrow, less the amount of an award of costs made against Impala in this proceeding on 5 May 2015.
The setting aside application
[27] Arrow says that it was always a term of its occupation of the premises that Impala would keep the concrete at the front of the premises, and the roof, in good repair. It refers to cl 11.1 of the form of deed of lease, which provided:
The landlord shall keep and maintain the building, all building surfaces, the
landlord’s fixtures and fittings and the carparks in good order and repair…
[28] Arrow says that that did not occur, and that the roof leaks were in themselves intolerable. It refers by way of example to the collapse of the ceiling in the toilets area. Arrow says that, on account of those matters, there is a substantial dispute over its liability for the amount claimed. It asks for an order under s 290 of the Companies Act 1993 (the Act) setting aside the statutory demand.
Impala’s opposition
[29] Impala failed to file a notice of opposition within the period allowed under the High Court Rules. It has applied for an extension of time to file the notice of opposition and affidavits in opposition. On 5 May 2015, I directed that Arrow’s application would be heard on 15 June 2015, and that Impala’s application for an extension of time to oppose would be heard at the same time.
[30] Impala denies that there is any substantial dispute over the claimed debt. It says that its default in failing to file a notice of opposition on time was not intentional, and that Arrow will suffer no material prejudice if an extension is granted. It submits that the interests of justice support the granting of the extension.
[31] Mr Parbhu provided two affidavits in opposition. He says that at no time before the agreements to lease were negotiated or signed was Impala advised that
Arrow required special hardstanding for shipping containers. Neither agreement mentioned special hardstanding, and the list of required repair work given to Impala by Arrow before the possession dates did not contain any such requirement. Mr Parbhu also says there is vacant space in front of the buildings, as well as behind them, and the containers could have been unloaded in those areas. He acknowledges that on one occasion Impala repaired the concrete area without charge, but says that it did so as a matter of goodwill between the parties, and not because it had an obligation to do so.
[32] As for the leaking roof in the toilets area, Mr Parbhu says that there are several toilets in the building, and Arrow’s staff were able to use any of the other toilets while the leaking problem existed. He says that he asked his staff to repair the leak, and on many occasions they tried to do so. Unfortunately, it was a difficult task and there were delays. However, the cause was eventually found and the leaking stopped. Impala bore the cost of those repairs, and Mr Parbhu says that the leaks did not cause Arrow any inconvenience or quantifiable loss.
[33] Mr Parbhu contends that the reason Arrow moved from the premises was that it required more space, and not because of concerns over the storage area for the containers. He suggests that the loads caused by the heavy containers and the trucks bringing them in were clearly not anticipated by Arrow.
[34] Mr Parbhu makes the point that all of the facts in respect of the concrete area and the leaking roof were known to Arrow in October 2013, when it agreed that six months’ notice to terminate should be given following the expiry of the six year lease terms.
Arrow’s evidence in reply
[35] In a reply affidavit, Mr Hart repeated his contention that Impala had obligations to keep the concrete surrounding the buildings on the premises in good repair, and to keep the buildings watertight, and it failed to discharge those obligations. Keeping the concrete in a good state of repair, without cracks, was important for Arrow to keep its MPI licence to receive and unload containers.
[36] In answer to Mr Parbhu’s contention that Arrow could have used other parts of the premises for storing the containers, Mr Hart says that that would not have met MPI’s requirements because of the nature of the surrounding areas and adjacent drains. His evidence is that MPI wanted a clean area containing no drains, weeds or grass, so that foreign material would not have the chance to escape. For the same reason, MPI required that there should be no cracks in the concrete. Mr Hart says that the issue is the inadequate patching work carried out by Impala, and its failure to carry out any subsequent maintenance.
[37] In respect of the toilets, Mr Hart states that, during bad weather, all three toilets would be flooded, and one toilet ceiling had collapsed and was not replaced. He acknowledges that Impala arranged for two contractors to attend the premises to carry out repairs, but alleges that the problem was that the roof itself needed replacing. He produced emails going back to June 2010 evidencing a number of complaints made to Impala about the leak in the toilets area, none of which were met with a satisfactory response: the “intolerable” toilet conditions continued as before.
[38] As a result of the combination of Impala’s failings, Mr Hart says that Arrow
was eventually left with no choice but to vacate the property.
Applications to set aside statutory demands – legal principles
[39] Section 290(4) of the Companies Act provides as follows:
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 that the prescribed amount; or
(c) the demand ought to be set aside on other grounds.
[40] The principles applicable to such applications are well established: 2
2 Companies and Securities Law, (looseleaf ed, Brookers) at [CA 290.02(1)], referred to in Greys
Avenue Investments Ltd v Harbour Construction Ltd, HC Auckland CIV-2009-404-002026, 12
(1)The applicant must show there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(2)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.
(3)If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(4)An applicant must establish that any counterclaim or cross-demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim.
(5)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[41] However, a conflict in the evidence on its own does not necessarily mean that a setting aside application cannot succeed. A court is not required to accept uncritically any or every disputed fact.3
Issues
[42] The following issues fall to be determined:
(1)Should an extension of time be granted for Impala to file its notice of opposition?
(2) Was Impala entitled to include in its statutory demand dated 3 March
2015 a claim for rent in respect of any period after that date?
June 2009 at [8].
3 Eng Mee Yong v Letchuman [1980] AC 331 at 341, applied in the context of a setting aside application in Freemont Design & Construction Ltd v W Stevenson & Sons Ltd, HC Auckland CIV-2005-404-4807, 20 April 2006 at [8].
(3) Was a binding agreement completed on 29 October 2013 under which
Arrow was required to give six months’ notice of termination?
(4)Was Impala in breach of any obligation to keep the premises in a good state of repair?
(5) If the answer to (4) is yes:
(i)Did Impala’s breaches entitle Arrow to give notice of termination as at 31 January 2015; or
(ii)Provide Arrow with a set-off or counterclaim which would justify the making of an order setting aside the statutory demand?
[43] The question in each case is whether Arrow has shown that it has a fairly arguable case, such that it can be said that there exists a genuine and substantial dispute as to the existence of the claimed debt. I consider each of the issues in turn.
Issue 1 - Should an extension of time be granted for Impala to file its notice of opposition?
[44] I am satisfied that an extension of time should be granted. There has been no material prejudice to Arrow, and it appears that Impala did promptly take steps when the proceedings were served on it: Mr Parbhu says that he consulted with his solicitors on the next business day, and confirmed that the proceeding should be defended. That advice was in turn communicated to Arrow’s solicitor.
[45] Impala’s notice of opposition was due (in accordance with r 7.24) by
7 April 2015, being the first working day after the Easter break. It appears that Mr Parbhu did not appreciate that requirement. He says that he travelled to India after the Easter break, and did not realise that he would be unable to receive email, telephone, or text messages from his solicitor. Unfortunately that proved to be the case, and he was unable to finalise the content of a draft affidavit until he returned to
New Zealand on 30 April 2015. His affidavit in opposition was sworn on the following day, 1 May 2015, and the case was first called in Court on 5 May 2015.
[46] While the notice of opposition has been filed very late, Impala has complied with the Court’s directions made on 5 May 2015, and it has also paid costs which I awarded against it on that day. As there is no prejudice to Arrow, I consider that Impala’s lateness has been sufficiently addressed by the costs award made against it. In those circumstances, I make an order extending the time for Impala to file its notice of opposition and affidavits in opposition to the dates on which those documents were filed.
Issue 2 - Was Impala entitled to include in its statutory demand dated 3 March
2015 a claim for rent in respect of any period after that date?
[47] According to a schedule produced by Mr Reid with his submissions, the balance owing for rent for the two premises as at 1 March 2015 was $18,483.30. That is the total amount Impala says was owing to it on the date it issued its statutory demand on 3 March 2015. The balance of Impala’s claim comprises rent which it says fell due for payment on 1 April 2015 and 1 May 2015.
[48] A statutory demand under s 289 of the Act can only be issued in respect of a “debt owing by a company”.4 The debt must be due and presently payable as at the date on which the statutory demand is served, in the sense of the creditor being entitled to immediate payment.5
[49] Regardless of the position in respect of Impala’s entitlement or otherwise to rent for the full period through to 14 May 2015, I am satisfied that it is fairly arguable for Arrow that the full amount claimed in the statutory demand was not immediately payable as at the date the demand was issued. The claim has been formulated as a simple claim for rent due under the lease agreements, and it seems to
me that any claim for the period after 3 March 2015 would either be a claim for an
4 Companies Act 1993, s 289(1).
5 Re Bryant Investment Co Ltd [1974] 1 WLR 826, [1974] 2 All ER 683; Keene v Okere Holdings
Ltd (1996) 7 NZCLC 261,034 (HC); and Sports Services Ltd v AGC (NZ) Ltd (1995) 8 PRNZ
653 (HC).
amount which was not “due and presently payable”, or would be a claim for an
unliquidated sum which should not have been the subject of a statutory demand.6
[50] Mr Manktelow submits that the rent payments said to have fallen due on
1 March 2015 should not have been included either. He submits that there was nothing in the agreements to lease, or in the form of deed of lease, that stipulated that rent for a particular month was due on the first day of that month.
[51] I agree that that is so, although Mr Reid’s schedule shows that, as a matter of fact, most of the rent payments were made by Arrow on the first or the third of the month. But at least two payments in the schedule produced by Mr Reid are shown as having been made on the fifth of the month. Schedules have not been produced showing the dates on which payments were made prior to January 2014.
[52] In the absence of any clear contractual obligation to pay monthly rent instalments on the first day of the month, I accept Mr Manktelow’s submission that Arrow has established genuine and substantial grounds for dispute on this point.
[53] If payments claimed for any period after February 2015 should not have been included in the statutory demand, the total amount claimed in the demand should not have been more than $10,241.65, being the total of the $5,558.33 owing for rent of the Arrow office premises to the end of February 2015 and the $4,683.32 owing for rent of the warehouse space to that date. (I do not consider it reasonably arguable for Arrow that it was entitled to deduct the $2,000 it had paid in October 2014 in an attempt to rectify the concrete area. Clause 1.1 of the deed of lease prohibited Arrow from making that deduction.)
[54] The demand will accordingly be set aside, at least to the extent that it claimed an amount in excess of the $10,241.65 which Impala says was due and owing to the
end of February 2015.
6 Section 289 is under p 16 of the Companies Act 1993, relating to liquidations and a company not able to pay its debts. The scheme does not contemplate demands for sums not yet owing.
Issue 3 - Was a binding agreement completed on 29 October 2013 under which
Arrow was required to give six months’ notice of termination?
[55] In my view, there was a valid agreement completed on 29 October 2013
under which either side had to give six months’ notice of termination.
[56] While Mr Hart’s email of 25 October 2013 might have been more elegantly drafted (the sentence commencing “We would prefer to continue on a monthly basis…” is arguably inconsistent with an arrangement under which either side had to give six months’ notice to terminate), I think the intention was clear enough. Arrow did not want to renew the lease for a fixed term; it wanted to continue in the premises on the basis of a periodic tenancy, under which either party could terminate on giving an agreed period of notice. I think that Mr Hart probably used the expression “monthly basis” in his email to describe the kind of tenancy he wanted after the lease expiry dates – periodic rather than fixed term. He then proceeded to deal directly with the period of notice, proposing unequivocally a six months’ period. He then asked Mr Parbhu to “confirm that this is acceptable”.
[57] Mr Parbhu confirmed Impala’s acceptance on 29 October 2013.
[58] While Mr Hart has since seen fit to refer to this correspondence as a “gentleman’s agreement”, there is nothing in the emails which suggests to me that anything other than a binding agreement was intended.
[59] Mr Manktelow has not taken any point about the agreement evidenced by the emails of 25 and 29 October 2013 not being signed by the parties, and in those circumstances I do not think it would be fair to Impala to consider whether the six months’ notice agreement might have been unenforceable on the basis that it was a variation of the deed of lease which should have been signed by the parties. Impala may have been able to mount contrary arguments if it had had prior notice of any such issue, including an argument that the arrangements reached in October 2013 created new periodic tenancies for periods of less than one year commencing after the lease expiry dates, which qualified as “short-term leases” under s 207 of the Property Law Act 2007. No signature is required by the party against whom a short-
term lease is sought to be enforced.7 Alternatively, Impala might conceivably have argued that the agreement comprised in the October 2013 emails was part- performed, or that circumstances existed which estopped Arrow from contending that it was not bound by the October 2013 emails.
[60] It was for Arrow to make any argument it might have had over the absence of signatures on the October 2013 emails. It has elected not to do that, and in those circumstances I infer that it accepts that no such argument was reasonably open to it.
[61] Accordingly I conclude that Arrow has failed to show that it is fairly arguable that it was not bound by the October 2013 emails, or that the required notice of termination period was only one month.
Issue 4 - Was Impala in breach of any obligation to keep the premises in a good state of repair?
[62] Arrow does not rely on the list which was attached to the May 2007 agreement to lease, which listed repair items Impala would carry out at its own cost. Instead, it relies on the landlord’s repair clause in the deed of lease, under which Impala agreed to “keep and maintain the building, and the landlord’s fixtures and fittings and the carparks in good order and repair”.
[63] While there might be room for debate over whether the concrete area where Arrow kept the heavy containers was a “carpark”, or otherwise formed part of the “landlord’s fixtures and fittings”, it appears that over the term of the lease Impala did assume responsibility for keeping the concrete area in a reasonable state of repair. There is evidence that it carried out some repair work fairly early in the piece, and it does not appear to have rejected Mr Hart’s claims that Impala was responsible for the upkeep of this area until after its insurance claim had been rejected.
[64] Mr Hart has provided unchallenged evidence that Arrow’s licence to unload and store the shipping containers was suspended by MPI on account of the bad state of repair of the storage area. And I accept Mr Hart’s evidence that it would not have
been acceptable to MPI for Arrow to have stored the containers on some other part of
7 Property Law Act 2007, s 24.
the site. On the evidence, I am satisfied that there is a genuine and substantial dispute on the issue of whether Impala was in breach of an obligation to keep the concrete area in a good state of repair.
[65] I think the same can be said in respect of the leaking roof in the toilets area. There is a fairly long history of complaints made by Arrow on this issue, going back to 2010. The complaints do not appear to have been satisfactorily addressed, and the issue appears to have been one of substantial frustration for Arrow over a fairly long part of its tenure of the office. I do not understand there to be any dispute that the repair of the leaks in the toilets area was the responsibility of Impala as landlord.
[66] I conclude that Arrow has raised a fairly arguable case on this issue.
Issue 5 - If the answer to Issue (4) is yes: did Impala’s breaches entitle Arrow to give notice of termination as at 31 January 2015, or provide Arrow with a set- off or counterclaim which would justify the making of an order setting aside the statutory demand?
[67] While there was a “no deductions” provision in the form of deed of lease, that clause does not prevent Arrow from making a counterclaim for damages in respect of the claimed breaches. Under s 290(4) of the Act, the Court may grant an application to set aside a statutory demand if it is satisfied that the company appears to have a counterclaim or cross-demand which exceeds the amount claimed, less the
“prescribed amount” (currently $1,000).8
[68] There is no requirement that the debtor’s counterclaim should have any link with the claim made by the party who has issued the statutory demand,9 although in this case there is substantial linkage between the amount claimed by Impala for rent, and the counterclaims made by Arrow.
[69] The principle difficulty I have in dealing with Arrow’s counterclaims relating
to the concrete area and the leaks in the toilets area is that they are unquantified.
8 Companies Act 1993 Liquidation Regulations 1994, r 5.
9 Phoenix Organics Ltd v RD2 International Ltd (2003) 9 NZCLC 263,380.
[70] In my view, Arrow has failed to raise a substantial dispute on the grounds that it was entitled to terminate the lease (without giving the agreed six months’ notice) on the basis of breach by Impala of its obligations to keep the concrete area in a good state of repair, and/or repair the leaks in the toilets area.
[71] Mr Manktelow submits that the “gentleman’s agreement” under which each side would give six months’ prior notice of termination was made in the context of Impala having agreed to repair the concrete and so enable Arrow to retain its MPI licence to unload containers at the premises. He refers to Mr Parbhu’s email dated
1 July 2014, and underlines the fact that Impala has acknowledged carrying out repairs on the concrete area previously. He also submits that Impala’s failure to comply with its repair obligation in respect of the leaking roof and toilets area provides a further ground which entitled Arrow to terminate the tenancy.
[72] In my view Arrow has not shown that it has suffered any significant loss as a result of the leaks in the toilets area. Certainly the leaking problems appeared to have continued unremedied for a lengthy period of time, and must have been frustrating for Arrow, but there is no evidence of any financial damage suffered by Arrow as a result. On the evidence, the matter appears to have been one which could have been referred to mediation and (if necessary) arbitration under cl 45.1 of the deed of lease.
[73] Arrow’s inability to use the concrete area on the premises for unloading containers is in a different category, however. The ability to store and unload containers on the premises appears to have been a matter going to the heart of Arrow’s use of the premises, and the evidence shows that Arrow’s MPI licence to unload containers on the premises was suspended because of the poor state of repair of the concrete area.
[74] In my view, it may be fairly arguable for Arrow that it had a right to terminate the lease for failure by Impala to comply with its obligations in respect of the concrete area, but it is unnecessary for me to decide the point. That is because Arrow did not in fact cancel the lease on that ground. Mr Hart’s email of
1 July 2014 certainly did not amount to a cancellation of the lease agreements, and
nor did it constitute the giving of six months’ notice under the agreement reached in
October 2013 (or indeed the giving of any notice to terminate). Nor did Mr Hart’s
14 November 2014 email constitute a valid cancellation for cause. If Arrow did have an entitlement to terminate on the grounds of breach by Impala, it was in my view required to elect whether it would terminate or whether it would treat the lease as still being on foot and sue Impala for damages. It had to do one or the other, and in advising that it would stay on until January 2015 (and keep paying the rent until then) it elected to treat the lease as still being on foot. In so doing, it affirmed the
agreements to lease and lost any right it might have had to terminate.10
[75] Mr Manktelow sought to meet the affirmation point by submitting that Impala is estopped (by Mr Parbhu’s 1 July 2014 email and its subsequent failure to carry out repairs) from contending that Arrow was bound by any obligation to give six months’ notice of termination. He submitted that Arrow relied on Mr Parbhu’s statement that he had requested quotes for the concrete work (which he had not received), and that he would try to sort it out as quickly as he could, in refraining from giving a termination notice in July 2014. In so doing, it acted to its detriment.
[76] In my view there is no sufficient basis for this submission on the evidence. Although Mr Hart stated in his 1 July 2014 email that Arrow was “getting to the end of the road” on the question of Impala’s failure to effect the repairs, there is nothing to suggest that Arrow would have given Impala six months’ notice in July 2014 if it had not been for Mr Parbhu’s 1 July 2014 response: what Mr Hart was threatening to do was to stop paying rent and use the rent money to effect the repairs itself. Secondly, any equitable relief would necessarily have been limited to such relief as would have responded most appropriately to Arrow’s unmet expectations arising from Mr Parbhu’s advice, and I do not consider it reasonably arguable for Arrow that equity would have responded by reducing the period of notice Arrow was obliged to give if it wanted to bring the lease to an end by using the (no fault) notice procedure.
[77] I accordingly answer issue 5(i) by saying that Arrow has not raised a genuine and substantial argument that Impala’s breaches entitled it to give notice of
termination as at 31 January 2015.
10 Contractual Remedies Act, s 7(5).
[78] Turning to issue 5(ii), the question is whether Arrow’s unquantified
counterclaims provide a sufficient basis for it to have the statutory demand set aside.
[79] In Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd,11 the Court of Appeal held that an unquantified claim for liquidated damages will not meet the generally accepted threshold of a “fairly arguable” basis. In that case, a principal had withheld payment of funds on the basis of a claim for liquidated damages that was contingent on the outcome of an unresolved dispute. The Court of Appeal held that there were no sufficient grounds for the principal to continue to retain part of the purchase price against unquantified contingent claims of the kind in question.
[80] I think Alfex can be distinguished on the basis that the debtor’s claim there was contingent – in this case, I have held that it is fairly arguable for Arrow that Impala acted in breach of its repair obligations, and I think it more likely than not that there has probably been some resulting damage to Arrow. But that still leaves the question of whether an unquantified counterclaim of the kind Arrow has outlined can justify the making of a setting aside order.
[81] In Datasouth Holdings Ltd v Melco Sails (NZ) Ltd,12 Master Venning (as he then was) held that contingent and unquantified counterclaims or set-offs cannot assist an applicant to set aside a statutory demand, because under s 290(4)(b) the counterclaim or set-off must be quantified, so that the Court can determine whether the amount specified in the demand less the amount of the counterclaim or set-off, is less than the prescribed amount.
[82] In Sunglass Hut New Zealand Ltd v Amtrust Pacific Properties Ltd,13 the Court accepted that the applicant had an arguable claim for damages or compensation against the respondent, but held that the applicant had not demonstrated to the required standard that the claim would have equalled or exceeded the amount claimed in the statutory demand. On that basis, the Court
declined to set aside the statutory demand.
11 Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd (2001) 16 PRNZ 963 (CA).
12 Datasouth Holdings Ltd v Melco Sails (NZ) Ltd, HC Christchurch M41/96, 17 May 1996.
13 Sunglass Hut New Zealand Ltd v Amtrust Pacific Properties Ltd, HC Auckland M1710/02, 24
June 2003.
[83] In this case Arrow has not directly quantified its losses arising from the alleged breaches by Impala of its repair obligations. However, I am satisfied that it has an arguable case that it suffered some loss, and that the loss may have been the diminished value of the premises to Arrow for the period when it was unable to use them for its main business activity of storing and unloading containers. The evidence is that MPI suspended Arrow’s licence on 30 September 2014, and that Arrow has paid rent for the four month period after that date at the full rate, notwithstanding that the value of the premises to it during this period would have been significantly reduced. The total rent paid for that four month period was in exces of $18,000, and Arrow is likely to have had some other costs arising from the need to move its business elsewhere.
[84] Given that the statutory demand should not have been issued for any sum in excesss of the $10,241.65 referred to in para [54] above, I am satisfied that there is enough in the evidence to show that there is a genuine dispute over whether at the time the demand was issued Arrow had a cross-claim which exceeded the sum of
$9,241.65 ($10,241.65 minus the prescribed amount of $1,000). On that basis the application must succeed, and there will be an order setting aside the statutory demand.
Other issues
[85] For completeness, I mention that Mr Manktelow pointed out that there were defects in the manner in which Mr Parbhu’s affidavits were sworn. Correctly sworn affidavits were re-submitted by Mr Reid at the hearing, and in the absence of any prejudice to Arrow they were accepted by the Court.
[86] Mr Manktelow also submitted that the statutory demand was deficient in not adequately describing the amount claimed. I would not have set the statutory demand aside on that basis. Arrow could not have been under any misapprehension about the premises for which the rent was being claimed, and it was a relatively simple matter for it to work out how the claim was calculated (particularly given Mr Parbhu’s 17 November 2014 advice that Impala would charge for rent through to 14
May 2015).
[87] Section 290(5) of the Act provides:
290 Court may set aside statutory demand
…
(5) A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
[88] If there was a defect or irregularity of this kind in the statutory demand, I would have accepted Mr Reid’s submission that it was not of such magnitude that there would be a substantial injustice to Arrow if the statutory demand were not set aside.
Result
[89] I make the following orders:
(1) The statutory demand is set aside.
(2)Arrow is entitled to costs, which are fixed on a 2B basis, and to disbursements, which are to be fixed by the Registrar.
Solicitors:
Guy Manktelow, Lower Hutt for plaintiff
Rutherford Legal Limited, Auckland for defendant
Associate Judge Smith
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