BMAC Global Property Limited v Energy Mad Holdings Limited HC Christchurch Civ-2011-409-001279
[2011] NZHC 1655
•2 November 2011
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2011-409-001279
IN THE MATTER OF an application to set aside a statutory demand
BETWEEN BMAC GLOBAL PROPERTY LIMITED Respondent
AND ENERGY MAD HOLDINGS LIMITED Applicant
Hearing: 2 November 2011 (Heard at Christchurch)
Appearances: C P Baldock for Respondent
Mr M Singleton for Applicant
Judgment: 2 November 2011
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to setting aside of statutory demand
The identity of the parties
[1] A preliminary issue arose relating to the renaming of the applicant. I order by consent that the name of the applicant in the proceeding is amended to Energy Mad Limited.
Application to set aside statutory demand
[2] This is Energy Mad’s application for an order setting aside a statutory demand issued to it by BMAC on the 16th of June 2011. The statutory demand requires payment of a balance debt of $62,381.20 claimed to be due and owing under
a deed of settlement dated 16 August 2010. The statutory demand does not expressly
BMAC GLOBAL PROPERTY LIMITED V ENERGY MAD HOLDINGS LIMITED HC CHCH CIV-2011-409-
001279 2 November 2011
identify the claimed sum as being in Australian currency but the contractual documentation makes that clear.
The deed of settlement
[3] The case turns on the obligations created by the deed. The deed settled matters between Energy Mad and BMAC and another party, Totem Properties Pty Limited, which had a similar but smaller claim against Energy Mad to that made by BMAC. The deed defined the indebtedness in terms which BMAC has now made the subject of the statutory demand.
[4] There is a background to the deed of settlement to which I will return. The key provisions of the deed are these:
1.By clause 1, Energy Mad made certain acknowledgements, the key of which are clause 1.1 which reads:
Energy Mad acknowledges that it is indebted to BMAC to the sum of AUD$72,976.50 plus AUD$5,000 for interest (―the BMAC Debt‖).
2. And clause 1.3 reads:
The acknowledgment of debt, contained in 1.1 and 1.2 above, by Energy Mad to BMAC and Totem is in no way voided by any previous agreements with any third parties.
3.By clause 2 Energy Mad undertook the way in which it would make payments of the BMAC debt and cl 2.1 reads:
Energy Mad will pay to BMAC the BMAC Debt in Instalments of AUD$7,797.65 per month for three consecutive months, the balance of the BMAC Debt being due thirty days from the date of the third monthly instalment. These instalments are to start from the payment of the first monthly instalment which was received on the 11th of August 2010.
4. Clause 3 was headed ―Assistance‖ and reads:
BMAC and Totem undertake to use all reasonable endeavours and influence to assist Energy Mad and its
advisors to arrange either conversion or renegotiation of the convertible notes, totalling AUD$754,765.00.
5.The deed went on to set out a range of standard provisions including as to full and final settlement and as to confidentiality. It contains also the unusual clause 6.4 which reads:
This Deed does not constitute an admission of liability by any of the parties in respect of any cause of action that may arise as a result of the subject of this Deed.
The precise meaning of clause 6.4 was the subject of some submission by counsel in response to questions from me. It is not an easy clause to interpret but at the end of the day I am satisfied that nothing in the decision I must reach turns on that particular clause. Clauses 1 and 2 clearly establish a liability to pay the defined debt. Additionally, Energy Mad agreed to bear the cost of the preparation and the execution of the deed which was subsequently the subject of some minor correspondence falls to be dealt with together with the other debt covered by the deed.
The background
[5] Energy Mad was looking to the market for capital in 2009. It approached an Australian company, Winteray Capital Pty Ltd, for assistance in that regard. The evidence establishes that Winteray undertook obligations in relation to capital raising and the obligations gave rise to entitlement to commission. The agreement was set out in a contractual document signed in April 2009. BMAC was subsequently involved in the introduction of parties who could introduce finance by way of convertible notes. Winteray apparently through a combination of its own and others work obtained approximately $754,000 worth of convertible notes for Energy Mad’s benefit. It is common ground that Energy Mad personnel met BMAC personnel through this period and there was some form of introduction. BMAC subsequently took the view that it had a direct contractual relationship with Energy Mad. There was a dispute later raised by Energy Mad but at least initially it received invoices for BMAC’s commission on a direct basis and indicated that it would be paying those.
Energy Mad made no payment. That led to negotiation and to the execution of the deed of settlement. The deed, as Mr Baldock submitted, appears in some ways to be a codification of a range of points agreed between parties leading up to the 16th of August 2010. In any event, as at 16 August 2010 those obligations are incorporated into the deed and it is the deed which thereafter settles the legal relationship between these parties.
[6] The deed called for payments initially by three monthly instalments and then with the balance to be cleared up in the fourth month. Energy Mad made the first (August) payment contemporaneously with the execution of the deed. Energy Mad did not make the second payment on time and that became the subject of chasing correspondence by BMAC which led to the September payment approximately one week late. The third payment was never made. The balance payment was never made. The solicitor’s costs were not paid. Some further attempts at chasing the debt were made directly by BMAC, met with indications from Energy Mad that time was needed for payment. The indication was that payment would be made. No indication was given by Energy Mad during this period to the effect that it had issues as to whether BMAC had performed its part of the deed of settlement. Eventually, BMAC put the matter in the hands of its solicitors around May 2011 and a statutory demand was issued. The initial statutory demand was incorrectly addressed by reason of some confusion as to the correct name of the debtor. A fresh demand was issued on 16 June 2011. In the meantime Energy Mad had raised by way of dispute the matters I will come to shortly. I will return to those.
[7] The statutory demand (that is the fresh demand) was met by Energy Mad with an originating application to set aside the statutory demand. The grounds of the application were that there was a substantial dispute as to whether or not the debt was owing or due. That was particularised in four points:
(a) The parties were parties to the deed of settlement;
(b)Pursuant to the deed BMAC had an obligation to assist Energy Mad and its advisors to arrange either conversion or renegotiation of the convertible notes issued by the applicant;
(c) In breach of the deed BMAC failed to provide such assistance;
(d)Based on BMAC’s breach, Energy Mad contended that there was no debt owing or due.
[8] In his evidence in support of the application, Thomas MacKenzie, a director of Energy Mad, also asserted that Energy Mad, because of BMAC’s breach, had had to devote considerable time and resources to contacting convertible note holders and either converting or renegotiating their convertible notes.
The principles for setting aside
[9] The Court’s jurisdiction to set aside a statutory demand is contained in s 290:
290 Court may set aside statutory demand
(1) The Court may, on the application of the company, set aside a statutory demand. (2) The application must be—
(a) Made within 10 working days of the date of service of the demand;
and
(b) Served on the creditor within 10 working days of the date of service of the demand.
(3) No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the 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.
(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.
(6) In subsection (5) of this section, ―defect‖ includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7) An order under this section may be made subject to conditions.
[10] For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction these five principles -
•The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
• The mere assertion that the dispute exists is not sufficient.
Material short of proof is required to support the claim that the debt is disputed.
•If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
•An applicant must establish that any counterclaim, cross demand or set-off is reasonably, or fairly arguable in all the circumstances.
•It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[11] Finally, the Court has a discretion whether to grant a setting aside application even if satisfied of the existence of one of the s 294(4) grounds. The exercise of that residual discretion will be rare: Alfex Doors and Windows Ltd v Alutech Windows and Doors Ltd[1] at [14].
[1] Alfex Doors and Windows Ltd v Alutech Windows and Doors Ltd (2001) 16 PRNZ 963.
The applicant submissions
[12] Mr Singleton confirmed, as Energy Mad’s notice of application and evidence implied, that Energy Mad is invoking both s 290(4)(a) and s 290(4)(b) of the Act.
Section 290(4)(a): substantial dispute as to whether a debt is owing or is due?
[13] The deed unambiguously contains an acknowledgment of debt and obligations of payment on specified dates. It is the later two payments and the legal
costs which were not met by Energy Mad in 2010. Energy Mad says that it has an
arguable case that BMAC has breached its obligations under the deed by failing to provide required assistance.
[14] This is not a case in which there has been allegation of repudiatory conduct by BMAC. Indeed, prior to the issuing of the first statutory demand it had not even been put to BMAC by Energy Mad that BMAC was in breach of its obligations let alone acting in repudiation of the deed. The allegation of breach was raised for the first time following the issue of a statutory demand. In the evidence it is clear that there is a difference between the parties as to what level of endeavours was required by BMAC under cl 3.1 of the deed. For BMAC it is clear that Mr Beechey, against a background of the failure by Energy Mad to pay the commission invoices, had taken the view that the purpose of cl 3.1 was largely related to protecting Energy Mad from adverse comments arising from such default. On the other hand, Mr MacKenzie who gave the evidence for the applicant viewed the obligation as far more extensive. Reference has been made by both counsel to the concept of there being a ―positive‖ obligation.
[15] The correct construction of the deed and, in particular the ―all reasonable endeavours‖ obligation, in cl 3.1 is open to argument. It cannot be resolved other than in a trial Court against the relevant background. That background would establish the context in which ―all reasonable endeavours‖ had to be measured. That said, the applicant’s case lacks any allegation that BMAC acted in a repudiatory way in the sense of indicating that it would no longer consider itself bound by the obligations it undertook in the deed.
[16] In the absence of repudiatory conduct it was not for Energy Mad to fail to carry out its obligations under the deed so long as the deed remained in full force and effect. If Energy Mad had taken the view that there were indeed substantial defaults of performance by BMAC it could have taken steps towards cancellation of the deed. By cancellation it would have freed itself from the obligations which it had undertaken, namely, to make any of the remaining payments set out in cl 2. It did not do so.
[17] In these circumstances, I find that Energy Mad does not have an arguable case that there is a substantial dispute as to whether or not the debt acknowledged in the deed is owing and due. In my judgment it clearly is.
Section 290(4)(b): cross-claim?
[18] I then turn to consider the second possibility, namely the proposition that Energy Mad was put to cost by BMAC’s alleged breach of the deed and therefore has a cross-claim which entitles it to resist the statutory demand.
[19] I first review issues of fact on which I conclude Energy Mad has fair arguments.
[20] First, was there a contract between BMAC and Energy Mad whereby BMAC became entitled to commission on capital raising services? Although the obligations of the parties are to be found in the deed of settlement, the parties have provided evidence as to the background to the deed. In the context of the construction of the deed they would be entitled at the trial to suggest that matters of background must inform the Court’s construction of the contract. I am not in a position on the evidence before the Court to determine whether BMAC had a contract with Energy Mad in relation to the raising of finance. The strongest evidence to which Mr Baldock pointed was the fact that when BMAC issued its commission invoices there was no suggestion by Energy Mad that the invoices were inappropriately issued. On the other hand, the evidence of Mr Beechey for BMAC is at most sketchy as to how a contractual relationship would have come about between BMAC and Energy Mad given the contract between Winteray and Energy Mad. Whether or not a contract existed between BMAC and Energy Mad I find arguable.
[21] Secondly, there is clearly dispute as to the purpose of clause 3.1. Mr Beechey refers to his understanding of what cl 3.1 may have intended. Some of that evidence may be inadmissible. However, as a matter of background to construction of the deed, evidence of the background circumstances which led to Mr Beechey’s view may assist the Court in construing the all reasonable endeavours clause. For its part, Energy Mad has a different construction. Background circumstances may more fully
inform the correct construction of cl 3.1. Again, I cannot resolve the correct construction of cl 3.1 in the absence of full evidence.
[22] Thirdly, Mr Beechey gave evidence as to steps he took which may relate to performance of the obligation under cl 3.1. There is reference to emails involving BMAC’s involvement with one particular bond holder – BMAC had some form of follow up correspondence by email with that party. The evidence of performance is, however, extremely thin. It may well be that that follows largely from the view Mr Beechey took of the obligation. He stated that he was left not feeling the need to discuss conversion of convertible notes with note holders in a pro-active manner but instead a need to tackle any renegotiation of convertible notes as and when an investor moved to recall his or her investment. Again, in this area, there is room for the applicant’s argument that all reasonable endeavours were not used by BMAC. Mr Baldock was entitled as he stressed in his submissions to note that there would be some serious credibility issues for any deponents from Energy Mad given their wholesale failure to raise any issues of performance prior to receipt of the statutory demand. Energy Mad’s position consistently to that point was that payment would be made as finances allowed.
[23] There are therefore a number of areas of dispute which in terms of the tests applicable in this jurisdiction are available to Energy Mad.
Quantification of claim
[24] Energy Mad has not provided any quantification of a cross-claim. What it suggests is that it has suffered some form of loss through ―devotion of considerable time and resources‖ through contacting note holders itself and possibly through having to have others undertake all steps in relation to refinancing arrangements and a subsequent IPO which it has recently undertaken. Mr Singleton responsibly in the light of the evidence did not seek to suggest that there was anything in the form of quantification. The main focus of his submissions was on the s 290(4)(a) argument that there was no debt due and owing. To the extent his submissions relied on the possibility of a cross-claim he noted a practical difficulty which met Energy Mad had it sought to quantify a loss for a cross-claim. The Court recognises that in the
relatively fluid situation that Energy Mad faced in raising finance and the replacing of the convertible notes, there may well be significant difficulty in separating out and identifying all costs which flow from a default by BMAC. But if Energy Mad wishes to assert a cross-claim which arguably equals or exceeds the statutory demand, it was obliged to provide a foundation for that finding.
[25] A Court on the s 290(4)(b) jurisdiction will generally not entertain an unquantified claim as such will not establish that the respondent’s demand is less than the cross-claim of the applicant: Kahurangi Estate Ltd v Buysrogge[2]. This jurisdiction depends on the Court having a proper foundation as to the value of a cross-claim before denying a party who has established a debt due and owing the opportunity to enforce at least that part which is beyond dispute.
[2] Kahurangi Estate Ltd v Buysrogge High Court Nelson CIV 2009-442-369 at [27].
[26] In these circumstances, although I find Energy Mad may have an arguable case as to breach by BMAC it has not done sufficient in the context of this proceeding to give the Court a basis for interfering with entitlement to enforce the debt acknowledged by the deed. This, of course, simply recognises the nature of this jurisdiction. It is open to Energy Mad to quantify a claim properly and to pursue that in another jurisdiction if it considers there is merit and value in that.
Solvency
[27] This judgment does not turn on any issues as to the applicant’s solvency. I record that it is common ground that the applicant now meets the solvency tests. That, again, is not something which cuts across BMAC’s entitlement to enforce the debt established by the deed.
Costs
[28] Costs must follow the event. They should be on a 2B basis with a certificate
for the respondent’s counsel’s costs of travel.
Order
[29] I order –
1.The application for an order setting aside the statutory demand is dismissed;
2.There is an order that unless the respondent makes payment required in terms of the statutory demand within ten working days from today the applicant will be entitled to present an application for winding up upon the basis of the expired statutory demand.
3.The applicant is to pay the defendant’s costs on a 2B basis, together with disbursements including a certificate of the respondent’s counsel’s reasonable costs of travel.
[30] Counsel addressed me at the conclusion of this judgment on an ambiguity in the statutory demand as issued. It is not expressed to be in Australian dollars although when the sum demanded is considered in the light of the obligations created under the deed it is clearly intended to be in Australian dollars. I record as a matter of clarification that the Court views the statutory demand as containing a self-evident typographical error in that reference to Australian dollars has been omitted. For the avoidance of doubt the parties are required to proceed on the basis that the statutory demand is for the balance of the dollar sum calculated under the deed of settlement, that being in Australian dollars.
[31] I am obliged to Mr Singleton for raising this matter at the conclusion of my judgment.
Associate Judge Osborne
Solicitors:
Goodman Tavendale Reid, PO Box 442, Christchurch 8140
Anthony Harper Lawyers, PO Box 2646, Auckland
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