Belle Mer Properties Limited v Eco-Smart Group Limited
[2022] NZHC 84
•3 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000803
[2022] NZHC 84
BETWEEN BELLE MER PROPERTIES LIMITED
Applicant
AND
ECO-SMART GROUP LIMITED
Respondent
Hearing: 2 November 2021 Appearances:
J Delaney for the Applicant S Moore for the Respondent
Judgment:
3 February 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 3 February 2022 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Harris Tate, Tauranga
The Legal Team, Silverdale
J Delaney, Tauranga S Moore, Auckland
BELLE MER PROPERTIES LTD v ECO-SMART GROUP LTD [2022] NZHC 84 [3 February 2022]
Introduction
[1] Belle Mer Properties Limited (Belle Mer) applies to set aside a statutory demand served by Eco-Smart Group Limited (ESG) on 20 April 2021, which seeks payment of the sum of $117,337.55.
[2] Belle Mer and ESG are property development companies. Alistair Austin is the sole director and shareholder of Belle Mer. Ritesh Mani is the sole director and shareholder of ESG. There is also a third property development company involved, Eco-Smart Homes Auckland Limited (ESH). When it was incorporated, Mr Austin was the sole director and shareholder of ESH. In January 2020, Mr Austin was removed and replaced by Mr Mani as the sole director and shareholder.
[3] Belle Mer, ESG and ESH worked together to develop properties for many years. Belle Mer’s usual role was to provide funding for the deposits for land sections which ESG/ESH would subsequently develop.
[4] The statutory demand arises out of a development at 201 Walters Road, Takanini, Auckland (the development). The development comprised five lots that were to be developed and sold to the public. As usual, Belle Mer funded the initial purchase of the sites. Between December 2018 and June 2019, Belle Mer entered into agreements to sell each property, with settlement to occur once houses were built on the sites.
[5] The development was different to previous projects undertaken by Belle Mer and ESG/ESH in that it was a “turn-key” project. Rather than construction of the dwellings being funded by the purchasers, it required up front funding.
[6] Around 10 June 2019, Belle Mer entered into a funding agreement with Pearlfisher Capital Limited (Pearlfisher) to fund construction of five houses on the development sites. Other funding for the development was provided by Mr Austin and his son, Aaron.
[7] Denis & Leo Brady Construction Limited (Brady Construction) was engaged to construct the five houses. The houses were built between approximately July 2019 and March 2020.
[8]The sums sought in the statutory demand consist of:
(a)fees for building consents totalling $25,683.91 which ESG says it paid Auckland Council on behalf of Belle Mer;
(b)an amount of $17,978.641 ESG says it paid Tilsley Engineering Limited on behalf of Belle Mer for engineering design work and reports;
(c)marketing costs of $25,000 ESG says it paid for Belle Mer and a commission of $40,000 ESG says it is owed.
[9]Belle Mer seeks an order to set aside the statutory demand on the grounds that:
(a)there is a genuine and substantial dispute regarding whether the sums are due and owing;
(b)Belle Mer has a set-off or counterclaim that exceeds the amount demanded;
(c)the demand is defective.
Legal principles – applications to set aside statutory demands
[10] Under the Companies Act 1993, the Court may set aside a statutory demand if it is satisfied that:2
(a)there is a substantial dispute about whether or not the debt is owing or is due;
1 ESG acknowledges it double-counted building consent costs of $21,075 in the statutory demand; this total corrects that double-counting. The correct total demanded is $96,162.55.
2 Companies Act 1993, s 290(4).
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand is less than the amount of the counterclaim, set-off, or cross-demand;
(c)the statutory demand ought to be set aside on other grounds.
[11] The general principles that apply to applications to set aside statutory demands are well-settled and agreed by the parties: 3
(a)The applicant must show there is a genuine and substantial dispute as to the existence of the debt. The task of the Court is not to resolve the dispute, but to determine whether there is a substantial dispute as to whether or not the debt is due. The assertion of a dispute is insufficient. Material short of proof is required. If there is material proof, the dispute should normally be resolved by means other than in the Companies Court.
(b)An applicant must establish that any counterclaim or set-off is reasonably arguable in all the circumstances. It does not need to prove the actual claim.
(c)It is not usually possible to resolve questions of fact based on affidavit evidence, especially when issues of credibility arise.
(d)The Court’s discretion as to whether to set aside a statutory demand is wide, but it will be a rare occasion where an application is refused if one of the grounds in s 290(4) are made out.
[12] I will now consider each of Belle Mer’s grounds for asking the Court to set aside the statutory demand, starting with there being a genuine and substantial dispute as to the existence of the debt.
3 See for example Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
Is there a genuine and substantial dispute?
[13] As described, the sums claimed by ESG fall into three categories. First, Auckland Council building consent fees ESG claims to have paid for Belle Mer. These are set out in the first column of Annexure B to the statutory demand (Annexure B). Second, payments ESG made to Tilsley Engineering Limited for engineering design work and reports. These are set out in the second column of Annexure B. Third, marketing costs paid to Facebook and other third parties; and commission payments ESG says Belle Mer agreed to pay it. These are set out in the third column.
[14] The building consent fees, engineer fees and marketing costs are “out of pocket” expenses that ESG claims it incurred for the development. Mr Mani deposes that Mr Austin agreed that ESG would be reimbursed for any out of pocket expenses. I will first consider whether Belle Mer has established a genuine dispute about these out of pocket costs before considering the commissions.
Building consent and subcontractor fees
[15] Belle Mer accepts that ESG paid $21,075 to lodge building consent applications for the development.4 Mr Mani has provided redacted bank statements said to be bank statements of ESG, which record a payment of $21,075 to Milton Going Architects (Going) on 8 August 2019 described as “Pay Going Architectural Lodge 2, 8, 10, 12, 20 BC”.5
[16]Belle Mer also accepts that ESG paid additional building consent fees totalling
$4,608.91 that make up the balance of the first column in Annexure B.
[17] Similarly, Belle Mer does not deny that ESG paid Tilsley Engineering the invoices identified in the middle column of Annexure B.
[18] However, Belle Mer denies that it owes ESG for these payments. Belle Mer says that ESG made these payments without its agreement and contrary to the
4 Affidavit in reply of Alistair Campbell Austin sworn 21 June 2021 at [9] and [11].
5 At [8]. Note ESG concedes that this payment has been double-counted in the invoice that forms the basis of the statutory demand.
arrangement it had with Going, Brady Construction and Pearlfisher. These arrangements are discussed further later. Mr Austin says that this development differed from previous developments because he and his son provided all the funding for the purchase of the land and the construction of the houses.6
[19] ESG denies Belle Mer’s explanation of the arrangements between the parties. Mr Mani maintains that ESG was responsible for project managing the development and paying all payment claims from contractors.7 He says that it had always been ESG who paid the upfront costs like building consents, and it was the same for the development.8
[20] ESG submits that the onus is on Belle Mer to establish there is a genuine and substantial dispute regarding the existence of the debt. It is not enough for Belle Mer to simply “muddy the waters”. It cannot say that there was no agreement for ESG to pay the costs in question and assert an alternative arrangement without providing specific detail of what that arrangement was. ESG submits that Mr Austin’s evidence is vague and unspecific.
[21] Furthermore, ESG submits that clearly it was involved in the development, as it was there to market the properties. It maintains that there was a contractual relationship between ESG, ESH and Belle Mer, and an agreement that Belle Mer would reimburse it for any out of pocket expenses associated with the development. As such, the sums are repayable on demand. Alternatively, even if there was no agreement to that effect, ESG has a claim in money had and received, or unjust enrichment against Belle Mer, who benefited from the payments. It relies on OPC Managed Rehab Ltd v Accident Compensation Corporation for the proposition that an action for money had and received can support a statutory demand.9
[22] I accept that the onus is on Belle Mer to establish a genuine and substantial dispute as to whether the sum demanded is due and owing. But ESG must have some legal basis for demanding the sum as a “debt that is due” under s 289(2)(a) of the
6 At [5].
7 Affidavit of Ritesh Mani sworn 4 June 2021 at [11](f) and [18](a).
8 At [18](a).
9 OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 (CA).
Companies Act. A debt arises where there is a sum of money owing from one person to another and there is an obligation to pay that money.10 Typically, the statutory demand process is invoked to recover a debt arising out of a contract, statute or a judgment. But in OPC Managed Rehab Ltd v Accident Compensation Corporation, the Court of Appeal held that an action for money had and received is similar enough to an action for recovery of a debt that an obligation to repay money received in circumstances where there was no entitlement to receive or retain it can be treated the same way as a claim for repayment based on contract or statute.11 However, the claim for money had and received must be clearly available on the facts to entitle the party demanding repayment to have recourse to the statutory demand procedure.12 In that case, ACC mistakenly overpaid money to OPC pursuant to two service agreements.
[23] With these considerations in mind, I consider whether there is evidence of an agreement that ESG would be reimbursed by Belle Mer for any out of pocket costs, or of Belle Mer “receiving” the money from ESG in circumstances where it is not entitled to receive or retain the money.
[24] There is no written contract or record of the intended arrangement between Belle Mer, ESG, ESH or Brady Construction and Going concerning the development. Specifically, there is no written contract between Belle Mer and ESG recording that Belle Mer will reimburse ESG for any out of pocket expenses. Mr Austin and Mr Mani give contradictory accounts of the role of ESG and whether and how it was to be paid. It is not possible to assess their credibility without hearing from them in Court. I conclude that there is a genuine and substantial dispute about whether the sums claimed are a debt that Belle Mer owes ESG under a contract.
[25] In terms of whether the sums are repayable under an action for money had and received, it is unclear whether Belle Mer has “received” the sums. Belle Mer has adduced evidence suggesting that it paid for at least some of these costs via payments from Pearlfisher to Brady Construction. Mr Austin has produced a sample of invoices from Going to Brady Construction and corresponding payments from Pearlfisher to
10 At [38].
11 At [49], [51] and [54]-[55].
12 At [51] and [55].
Brady Construction that include charges for building consent fees and engineering work.13
[26] This is corroborated by an email chain between Mr Mani and Pearlfisher on 18/19 September 2019 concerning payment of the building consent application fees.14 The email chain records Mr Mani requesting that payment for the building consent fees be made directly to ESG, with the balance to Brady Construction. Pearlfisher responds that the funds have already been paid to Brady Construction. What is unclear is why Brady Construction did not then reimburse ESG for the building consent fees. Mr Brady initially filed an affidavit in but later withdrew it. Accordingly, I have disregarded references to that evidence in the reply affidavit of Mr Austin.
[27] Similarly, Mr Austin points to a drawdown on 7 August 2019 by Belle Mer on the Pearlfisher account of $162,176. He states that part of this payment from Pearlfisher to Brady Construction was for the engineering costs paid by ESG and claimed in the middle column of Annexure B.15 Again, it is unknown why the portion of this advance intended to cover these costs was not forwarded to ESG.
[28] I conclude that there is evidence to suggest Belle Mer has already paid for the building consent fees and engineering costs via a payment from Pearlfisher to Brady Construction. There is evidence to suggest that these payments were not passed on to ESG. It is unknown why, but the answer is relevant to whether ESG is entitled to demand reimbursement from Belle Mer for the payments it made.
[29] There is a further factor that gives me pause. ESG has not formally claimed these alleged debts from Belle Mer until now, some 18 months after they are said to have arisen. ESG first sent Belle Mer an invoice for the sums on 6 April 2021 and
13 For example, an invoice from Going to Brady Construction dated 29 July 2019 for $16,445 for architectural plans, engineering reports, structural design work and Auckland Council building consent application fees. Then, six invoices issued by Brady Construction to Belle Mer between August and September 2019 for architects and engineers’ plans ($10,500) and building consent fees ($6,000). Belle Mer’s loan statement shows a drawdown on 20 August 2019 for $32,000 which corresponds with the invoice dated 9 August 2019 from Brady Construction to Belle Mer; and a drawdown on 18 September 2019 of $106,136.48 which corresponds to the total of the other five invoices from Brady Construction to Belle Mer. An invoice dated 15 September 2019 was issued by Going to Brady Construction for building consent plans and documentation.
14 Annexure 2A to supplementary affirmation of Ritesh Mani sworn 16 September 2021.
15 Affidavit of Alistair Campbell Austin sworn 4 May 2021 at [21].
served the statutory demand shortly thereafter on 16 April 2021. On its own, this is not enough to justify setting aside the statutory demand, but it suggests that the position between the parties is more complicated than that depicted in the evidence before me. Indeed, Mr Delaney advises that ESG and Mr Mani have commenced ordinary proceedings against Belle Mer in this Court, part of which concerns this alleged debt.
[30] For all these reasons, I conclude that Belle Mer has established a genuine and substantial dispute as to whether the building consent fees and contractor costs are a debt due and owing from Belle Mer to ESG.
Sales and marketing fees
[31] Belle Mer denies that it agreed for ESG to market the properties and incur the costs of $25,000 claimed in the statutory demand. It submits that at the time Belle Mer agreed to fund the development in June 2019, buyers had already been found for the properties. Furthermore, the bank statements in evidence from ESG showing payments to Facebook and others for marketing are insufficiently particularised and the dates do not align with the dates of sale of the properties.
[32] In his affidavit, Mr Mani annexes bank statements which show ESG making payments for marketing totalling $10,945.74. The payments are made between 9 August 2019 and 2 October 2019 to Facebook, Andrew G and John French.
[33] I am satisfied that Belle Mer has raised a genuine and substantial dispute about whether the marketing costs claimed in the statutory demand are a debt due. This is because these amounts were paid after the agreements for sale and purchase were entered into with purchasers between December 2018 and June 2019. As such, Belle Mer has established a dispute as to whether the marketing costs claimed and recorded in the bank statements related to the development. Furthermore, ESG has not substantiated the full $25,000 of marketing costs claimed from Belle Mer.
Commissions
[34] In respect of the commissions on sales, ESG has claimed an $8,000 commission for each lot. Mr Mani contends that it was agreed that ESG would receive a sales commission, as it had with previous developments.16
[35] Mr Austin denies that he agreed to pay ESG a sales commission.17 Mr Austin says that he agreed that Belle Mer would pay third party agents a commission. Mr Austin points to various payments in Belle Mer’s bank statements recording payments for commissions which he says were to be paid to third party agents. These total $20,500.
[36] This point is more marginal, but I conclude that Belle Mer has raised a genuine dispute about whether it owes ESG a debt of $40,000 for commission, and that this should be tested at trial. I have three reasons. First, there is no contemporaneous evidence of Belle Mer agreeing to pay ESG a commission. Mr Mani and Mr Austin’s evidence is in direct conflict and it is not possible to assess their credibility in this summary procedure. Second, Mr Mani annexes to his first affidavit a “project cashflow schedule”. This schedule makes no reference to commission payments to ESG. Third, it seems doubtful that Belle Mer would agree to pay sales commissions to both external agents and to ESG. This requires further explanation from ESG at trial.
Conclusion
[37] I am satisfied that there is a genuine and actual dispute as to whether the amounts claimed in the statutory demand are due and owing by Belle Mer to ESG. Accordingly, there is no need for me to consider the further grounds advanced by Belle Mer — that it has a set-off or counterclaim and that the statutory demand is defective.
16 Affidavit of Ritesh Mani, above n 7, at [9] and [11](b).
17 Affidavit in reply of Alistair Campbell Austin, above n 4, at [6](b) and [16].
Result
[38] I order that the statutory demand from ESG to Belle Mer dated 16 April 2021 is set aside.
[39] As the unsuccessful party, Belle Mer is entitled to its costs. Mr Delaney made oral submissions on costs at the hearing. He sought an uplift from scale costs, arguing that the statutory demand was made for an ulterior purpose, is an abuse of process, and there is no evidentiary basis for 46% of the amount demanded. Mr Moore sought the opportunity to make written submissions on costs.
[40] I invite Belle Mer to make any further submissions on costs, of no longer than three pages, within ten working days. It would be helpful to see the letter sent to ESG asking for the statutory demand to be withdrawn. ESG may file its submissions on costs, of no longer than three pages, ten working days after Belle Mer.
Associate Judge Gardiner
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