Camsing Trading Limited v Parkers Beverage Company Limited
[2018] NZHC 2289
•31 August 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-441-000036
[2018] NZHC 2289
UNDER the Companies Act 1993 BETWEEN
CAMSING TRADING LIMITED
Applicant
AND
PARKERS BEVERAGE COMPANY LIMITED
Respondent
Hearing: 23 August 2018 Appearances:
D Bennington for Applicant N Gray for Respondent
Judgment:
31 August 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
(application to set aside statutory demand)
Introduction
[1] The applicant, Camsing Trading Ltd (Camsing), exports water to China. The respondent, Parkers Beverage Company Ltd (Parkers) bottles and boxes water from a manufacturing and packing facility in Hawkes Bay.
[2] As a result of trading between the two, Parkers asserts that by 31 March 2018, Camsing owed it $89,865.38.
[3] In this proceeding, Camsing applies for an order setting aside a statutory demand issued by Parkers in relation to the claimed debt.
CAMSING TRADING LTD v PARKERS BEVERAGE COMPANY LTD [2018] NZHC 2289 [31 August 2018]
The statutory demand
[4] On 23 April 2018, Parkers issued a statutory demand for the claimed debt ($89,865.38) under s 289 Companies Act 1993 (the Act) on Camsing.
The setting aside application and opposition
[5]Camsing applied to set the demand aside.
[6]Camsing disputed the amounts claimed on three grounds:
(a)Sale transactions were not validly completed by Parkers because Parkers refused to provide the product documentation as required by the terms of a strategic relationship and manufacturing agreement (the Agreement) entered into between the parties on 16 June 2017;
(b)The charges included the costs of testing by third parties which Parkers was required by the agreement to undertake at no cost to Camsing;
(c)Parkers had incorrectly purported to revoke a credit note earlier issued by Parkers in relation to an October 2017 shipment of bottled water.
[7] Additionally, Camsing asserted by its notice of application that it has a set-off in the sum of $217,262.07 for the costs Camsing has incurred through the rejection of defective products supplied by Parkers.
[8] Subsequently, Camsing’s sales and marketing manager, Lei Ding, filed an affidavit. She has given evidence of further issues with product supplied by Parkers. Ms Ding deposes that (without taking into account losses associated with what is described as the “contaminated November 2017 shipment”) the costs which Camsing has incurred to date or is likely to incur through defective product amount to
$242,871.84.
[9]Parkers opposes the setting aside application. It asserts that:
(a)Camsing has failed to make payment by due date for the goods and services (including monthly charges) provided by Parkers; and
(b)Camsing’s defence or cross claim relies entirely on unsubstantiated assertions relating to quality issues;
(c)Camsing’s cross claim is precluded through Camsing having failed to comply with the requirements of the agreement in relation to the rejection of defective products.
The trading relationship
[10] The contractual relationship between the parties is central. It has had two components.
[11] First, beginning in September 2016, there was trading between the parties based on Parkers’ usual terms of trade which require payment of 50 per cent of the total invoice before production and the remaining 50 per cent on release of customs and testing documentation. Between September 2016 and March 2017, Camsing purchased through five separate orders, water products costing approximately
$134,694.
[12] In mid-2017, the parties negotiated what became the strategic relationship and manufacturing agreement executed in August 2017. Camsing was thereby to obtain a significantly larger volume of bag-in-box water products under its own brand. For this purpose, Parkers was to install additional plant in its factory. The pricing terms of the agreement included:
(a)Under Schedule One, Camsing was to pay $25,000 per month (plus GST) for the exclusive use of Parkers’ bag-in-box production lines (the “monthly charge”);
(b)Under Schedule One, Camsing would pay additional charges per unit produced, together with the cost of box labels, pallets, adhesive and pallet wrap (“the packaging costs”);
(c)By clause 9.2, Camsing was required to pay the total price of the products packed on the 20th day of the month following the date of packers’ invoice in respect of the relevant completed purchase order.
The fate of the agreement
[13] The agreement contains provisions as to how it may be terminated. Its term is for a period of 18 months. Clause 18 deals with earlier termination. Either party may terminate the agreement for any reason by giving the other party six months’ notice in writing. Camsing has a number of rights of termination including where Parkers commits a material breach of the agreement and does not remedy it to Camsing’s satisfaction within 14 days of receipt of a notice to remedy.
[14] In 2018, Camsing has given two notices of cancellation. First, on 12 February 2018 it gave, as of right, six months’ notice of termination (that is, to have expired on 12 August 2018). Secondly, by letter dated 27 March 2018, Camsing gave Parkers notice that unless specified breaches of the Agreement (including Parkers’ non- provision of documents) were remedied by 10 April 2018, the agreement would terminate with immediate effect. It is common ground that Parkers did not provide the requested documents by 10 April 2018. Camsing says that the agreement was therefore cancelled with effect from 10 April 2018.
Parkers’ claim
Break-down
[15]The break-down of Parkers’ claim is set out in Table 1:
Table 1 Parkers’ Invoices
Number Subject “Due date” Amount 1 Monthly Jan charge* 31 Dec 2017 $24,105.79* 2 Monthly Mar charge 28 Feb 2018 $28,750.00 3 Packaging costs 20 Mar 2018 $2,627.06 4 Packaging costs 20 Mar 2018 $2,455.05 5 Packaging costs 20 Mar 2018 $2,512.55 6 Water testing costs 20 Mar 2018 $664.93
7 Monthly Apr charge 31 Mar 2018 $28,750.00 Total $89,865.38
($24,105.79 being the subject of a credit note issued by Parkers on 1 February 2018, “reversed” on 23 March 2018).
What Camsing accepts
[16] Camsing accepts that of the $89,865.38 claimed by Parkers, $57,500 (representing the March and April 2018 monthly charges) is owing. The basis upon which Camsing has not paid that undisputed sum is Camsing’s assertion of a set-off.
What Camsing disputes
[17]Camsing’s dispute of Charges claimed by Parkers falls into three categories.
(a)Reversed credit note
[18] Parkers had issued in the usual course, on 1 December 2017, an invoice for the December 2017 monthly charge. Camsing did not pay the charge by the due date (31 December 2017). Through October 2017 to January 2018, Camsing raised issues as to an allegedly rejected shipment of bottled water provided under the standard terms of trade (not the agreement). Camsing delayed payments under the agreement. A point was reached where Camsing owed Parkers on unpaid invoices approximately
$86,500. By February 2018, there had been a discussion between the parties as to the obtaining of test results but no results had been produced. In order to obtain payment of everything other than the costs relating to the “rejected shipment”, Douglas Speedy (the managing director of Parkers) agreed to issue a credit note. He emailed the credit note (for $24,105.79) on 2 February 2018 to Wei Xhong, a director of Camsing. Mr Speedy recorded:
I am sending this to you in good faith to keep everything going. As you know we have not seen any tests results etc. We are 100% trusting you in this instance.
[19] The email did not record any conditions attaching to the issuing of the credit note.
[20] Differences between the parties were coming to a head in late-March 2018, with further money withheld by Camsing. Mr Speedy notified Camsing’s solicitors that Parkers was revoking the credit note because Camsing had not produced the required evidence to support their claim (as to the October “rejected shipment”). Mr Speedy has deposed that he revoked the credit note because:
I considered that the basis on which the credit note had been issued was not met.
[21] For Camsing, Ms Bennington notes correctly that there is no evidence of Mr Speedy pursuing test results from Camsing between the time he issued the credit note and the time he purported to revoke it. At the time of revocation, Parkers was trying to extract further delayed payments from Camsing. The appearance of Mr Speedy’s notice of revocation was that it was a reaction to the withholding of funds rather than the non-production of expected test results.
[22]Given both the simple wording of the email by which the credit note was sent
– “in good faith”, without reference to any conditions – and the lack of subsequent requests by Parkers for test results, it is arguable that Parkers was not entitled to revoke the credit note in the way it did. It is therefore arguable that the balance of the monthly January charge ($24,105.79) did not become once again due and owing.
(b)Packaging costs
[23] The agreement entitled Parkers to invoice Camsing for packaging costs. The third, fourth and fifth items claimed by Parkers (above at [15]) related to such packaging costs for a February 2018 shipment. The agreement stipulated that Parkers was to provide for each purchase order, upon the transfer of risk,1 five particular documents. During the period of differences between the parties in March 2018, Mr Speedy refused to provide the product documentation pending resolution of outstanding charges.
1 The agreement provided that risk passed to (Camsing) when the goods were made available to Camsing’s (shipping) agents at Parkers’ premises.
[24] Camsing’s termination of the agreement for alleged cause then occurred with effect from 10 April 2018. The product documentation for the February shipment was finally provided by Parkers’ solicitors to Camsing’s solicitors on 18 April 2018.
[25] Camsing relies on clause 19.1 of the agreement for the proposition that it is not required to pay the packaging costs. Clause 19.1 provides:
19.1 Payment for completed Products: In the event this Agreement is terminated, Camsing shall pay the Price in respect of all Products that the Packer has validly completed as at the date of termination and the Price for such Products will automatically become due and payable.
[26] Counsel made differing submissions as to what constituted “valid completion” for the purposes of clause 19.1. Ms Bennington submitted that “valid” has a primary meaning of “taking legal effect”. Chambers Dictionary offers similarly “legally adequate” and “fulfilling all the necessary conditions”.2
[27] On this basis, Ms Bennington submitted that, as at 10 April 2018, Parkers had not “validly completed” the products comprising the February shipment because the product documentation required in relation to them had not been provided. Ms Bennington noted parallel use of “validly” in the succeeding clause (19.2) of the agreement. Clause 19.2 required Camsing to also pay the price for all products “validly commenced” as at the date of termination. As the agreement contains detailed provisions as to how Camsing was to submit purchase orders and the point at which Camsing could cancel purchase orders, Ms Bennington submitted that the concept of “valid commencement” of products necessarily incorporated reference to the required documentation. In her submission the concept of “valid completion” under clause
19.1 is to be similarly interpreted as importing compliance with documentation requirements.
[28] For Parkers, Mr Gray focussed his submissions on this point entirely upon clause 19.1. As the term “products” was defined in the agreement by reference to the physical water products which Parkers was to produce, Mr Gray submitted that such products were “validly completed” when they were physically completed in
2 Vivian Marr (ed) The Chambers Dictionary (11th ed, Chambers Harrap Publishers Ltd Edinburgh, 2008) at 1728.
accordance with the agreement specifications, whether or not their relevant product documentation had also been completed and provided.
[29] In the present context it is unnecessary that the Court determine which is the correct interpretation. The interpretation submitted by Ms Bennington is at least arguable, which is sufficient for the purposes of setting aside the statutory demand in that regard.
Water testing
[30]The sixth item claimed by Parkers relates to water testing costs of $664.93.
[31] Mr Speedy exhibited the relevant invoice and explained that that charge was for water testing conducted “as requested”. He further explained, in relation to the Certificate of Analysis which Parkers was to provide in relation to supplied goods, that Parkers itself undertakes testing of water at its site itself, with further testing completed by an outside party. Mr Speedy deposed that some customers ask for additional testing which is done at the customer’s cost. He exhibited a September 2017 request from “Ellyn” of Camsing in which she confirmed the request for identified tests, and not the total analysis which had previously been requested. She commented that “[t]his expense is not in our budget”.
[32]Camsing’s witnesses did not contradict this evidence.
[33] I am satisfied that it is beyond argument that Parkers was requested by Camsing to obtain the additional testing for which Camsing was charged.
Indebtedness of $58,164.93 established beyond argument
[34] Parkers has established beyond argument that at the date of the statutory demand Camsing owed it $58,164.93. The balance of the statutory demand ($31,700.45) is the subject of a genuine and substantial dispute.
Defect in a statutory demand
[35] Section 290(5) of the Act requires that a demand not be set aside by reason of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
[36] In compliance with this requirement, the courts have consistently allowed demands to stand in reduced figures which represent items not open to dispute.3. The statutory demand is then set aside except as to the indisputable sum.4
[37] In this case, unless Camsing can establish to the required standard the arguability of its set-off claim, Parkers will be entitled to have its demand stand to the extent of $58,164.93. Ms Bennington responsibly did not submit that substantial injustice would result through curing the defect under s 290(5).
Camsing’s set-off claim
Camsing’s total set-off claim
[38] By the amended figures provided by Camsing’s Ms Ding, Camsing asserts that the costs which it has occurred to date or is likely to incur through defective product amount to at least $242,871.84.
The statutory test
[39] Under s 290(4)(b) Companies Act the Court may set aside a statutory demand if satisfied that 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. The prescribed amount is $1,000. The correct approach to considering a claim of set-off was identified by the Court of Appeal in Covington Railways Ltd v Uni-Accommodation Ltd:5
[11] Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance
3 United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [46].
4 United Homes (1998) Ltd v Workman, above n 3, at [49].
5 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA).
owing to the creditor or even offsets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant’s side, there is an indisputable liquidated sum, but the other party’s claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s 287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for the claimed set-off and that accordingly the applicant’s claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63 at p 78, it must show that there are “clear and persuasive grounds” for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation procedures improperly because there is a “genuine and substantial dispute” about the net amount of the company’s indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 at p 299). The dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.
[40] The Court of Appeal, in Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd,6 established that an unquantified claim of liquidated damages which is contingent on the outcome of an unresolved dispute between the applicant company and a third party may not be the subject of a set-off or claim asserted under s 290 of the Act. In Alfex, the applicant company was seeking to set off a sum on account of an unresolved claim for damages made against it by the third party. The applicant company was asserting that it need not pay under the statutory demand until it was established that it was not liable to the third party for the damages claimed (which would, if proved, have been able to be passed on to the respondent).7 The Court of Appeal therefore held there was no sufficient basis for Alfex to continue to retain part of the purchase price against the unquantified contingent claims.
[41] Associate Judge Sargisson discussed Alfex and earlier authorities in Beckett Books Ltd v Moving Out 2012 Ltd.8 Her Honour, having first recognised that an unquantified set-off may be recognised in appropriate circumstances under s 290, went on to consider the separate question of a cross-claim based on a contingent claim, where the very existence of the cross-claim and not just the value of it is an issue. She stated:
6 Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd (2001) 16 PRNZ 963 (CA) at [15].
7 Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd, above n 6, at [9].
8 Beckett Books Ltd v Moving Out 2012 Ltd [2015] NZHC 669.
[13] The question of a contingent claim may be more serious, but again, the central question appears to be whether the claim has a substantial enough basis to place the debt in doubt. In Datasouth Holdings, Master Venning found that contingent and unquantified counter-claims or set-offs could not assist an applicant to set aside a statutory demand in this situation, because the counterclaim or set-off must be quantified so that the Court could determine whether the amount specified in the demand less the amount of the counterclaim or set-off was less than the prescribed amount. But in that case, it was unclear whether the applicant would actually be able to identify any quantifiable sum at all, because no claim could exist unless and until its customers decided to make claims. The applicant was not in charge of that process. So the existence of the counterclaim, not just the value of it, was in issue. It was not clear that the counterclaim was worth anything at all.
[14] Likewise, in Alfex Doors and Windows it was unclear whether the counterclaim was worth anything at all, because there was insufficient evidence to show that it had any merit, let alone whether it was worth enough to place the debt in doubt. It was the contingent nature of the claim, not the fact that it was unquantified, that was decisive. It was contingent in that it was dependent on the outcome of litigation between the applicant and a third party. …
…
[17] The claim in the present case is unquantified, but it is not contingent in the sense contemplated by the above cases. Those cases are contingent in the sense that the very existence of a counterclaim or debt to set off against the statutory demand depends on the outcome of an external event over which the applicant party has no control. In this case, the existence of a counterclaim is not dependent on such an external event. It is indeed unquantified, but it is capable of quantification and, as pleaded by the applicant, appears to be of a substantial size. So long as there is some evidential foundation establishing that there is a real possibility of a successful counterclaim, and the counterclaim is not excluded by the contract, Beckett Books will have established what it needs to establish in order for s 290(4) to apply.
[42] In United Homes (1988) Ltd v Workman, decided shortly after Covington Railways, the Court of Appeal returned to the requirements of proof of an applicant’s assertions of circumstances said to cut across an entitlement to payment:9
[24] Mr Grant amplified by two further affidavits. The first (24 January 2001) stated the directors had not authorised a distribution; and had not signed a certificate of solvency under s52(2) in relation to those accounts. The documents on which the Workmans were relying were, Mr Grant deposed, no more than a “proposal” by two others (Mathers and Johnson) for payment of dividends, reflected in the “draft” accounts.
9 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447.
…
[35] Mr Grant’s simple assertion of a “clear express agreement” without substantiating background is bare to the point of being unconvincing. If an agreement is clear and express, there should be no difficulty in identifying the date and place of its making, the persons involved in its making, and the manner of its statement and/or recording. No such details are given. If it is clear and express, corroboration might be expected from the other two shareholding interests involved. There is none. The only word is that of Mr Grant. In a matter of such importance, effectively amounting to a freeze upon the payment of indebtedness and enjoyment of profits, documentation would be expected. There is none produced.
Camsing’s three heads of set-off
[43] Camsing’s total set-off claim of at least $242,871.84 comprises alleged costs and losses through three events:
(a)October 2017 – alleged defective bottled water - $46,196.41
(b)November 2017 – alleged defective boxing - $111,406.93
(c)February 2018 – alleged rejected shipment - $85,268.50
First set-off: October 2017 bottled water
[44]Mr Zhong deposes:
Camsing’s first issue with Parkers arose in October 2017, when a shipment of bottled Pure Artesian Water produced by Parkers for Camsing, under Parkers’ standard terms and conditions, was rejected by Camsing’s Chinese distributors due to unidentified foreign particles floating in the bottled water.
[45] Mr Zhong exhibits four (photocopy) photographs stated to have been taken from a video of a sample of the defective bottled water and said to be showing “foreign matter found within those bottles”.
[46] Following a discussion on 2 October 2017, Mr Zhong emailed Mr Speedy concerning the bottled water in question. He stated that Camsing had been notified that afternoon by Camsing’s distributors that they would be lodging a claim in relation to the products.
[47] Correspondence followed between Camsing and Parkers, Mr Speedy noting that Parkers would obtain tests but that it would be unlikely that they would show anything as the shelf samples looked perfect. Mr Speedy requested that Camsing check all bottles and then advise costs, good stock and waste stock, whereupon once Parkers had a monetary figure, it would replace the waste stock at no cost.
[48] There is no evidence that Camsing responded to the request for a check of all bottles and for details of cost, good stock and waste stock. However, the unresolved issue over the October shipment together with Camsing’s delayed payments in relation to subsequent shipments led to Parkers’ issuing the credit note of $24,105.79 (which Parkers subsequently purported to revoke).
[49] Against that background Mr Zhong deposes that Parkers owes Camsing in relation to the October bottled water $24,105.79 and RMB¥100,000. He explains the RMB¥100,000 claim in this way:
Camsing had also paid marketing costs of RMB¥100,000 to its Chinese distributors, who had installed booths in tourist attractions to sell the bottled water. However, in order to maintain its business relationship with Parkers, Camsing made the decision at that time not to seek reimbursement of the Marketing Costs.
[50] Once the Court determined to set aside the statutory demand to the extent of the $24,105.79 (representing the revoked credit note), there is no longer a basis to include that figure in any set-off claim.
[51] That leaves the alleged marketing costs of RMB¥100,000. Mr Gray submits that the evidence of Camsing in relation to the marketing costs amount to mere assertion and should be disregarded on that basis if no other. It is clear that Camsing is referring to its own marketing costs for which it must have records. Yet it has produced no records to substantiate any figures, let alone a loss. Its evidence is devoid of any analysis of the extent to which its marketing costs had a benefit in relation to the numerous shipments over which Camsing has made no complaint.
[52] The evidence as to this head of set-off also fails at a more fundamental level in that there is inadequate evidence as to the defects alleged and their extent. Parkers reasonably requested that Camsing check all bottles and advise details of cost, good
stock and waste stock. Camsing does not suggest that it provided such information to Parkers. Nor has it given evidence of the details requested. Equally, it has failed to provide any documentary evidence of any notification by distributors of defect or of the lodging of claims by those distributors. Any liability of Camsing to such distributors is by its nature contingent. Finally, the quality of the four photographs produced is such that they carry no evidential weight, particularly in relation to the proposition that Parkers supplied defective product.
[53] Camsing does not have a set-off in relation to the October bottled water which qualifies in terms of s 290(4)(b) of the Act.
Second set-off – November 2017: defective packaging
[54] Camsing asserts a set-off of $111,406.93 for what it described as “defective boxed water costs”.
[55] The issue over allegedly defective packaging appears to have been first raised during the March 2018 period when Camsing was pursuing third party test reports from Parkers. Mr Zhong has deposed that Camsing rejected the February shipment for two reasons. First because Parkers was refusing to provide Camsing with the third party test reports. He then explains that the second reason was:
… because a shipment of the Products supplied by Parkers were defective, both in respect of the packaging, which became unglued and therefore could not be used, and in the water quality, which appeared cloudy and to have unidentified particles in it.
It is apparent from Mr Zhong’s evidence that the shipment he refers to in this evidence is an earlier shipment, which can be identified as the November shipment.
[56] Mr Zhong exhibited photos of a number of cartons showing defects which “rendered the [bag-and-box] products unusable” and photos showing “the foreign particles in the bag-and-box water”. Mr Zhong did not exhibit the contemporary email correspondence concerning the allegation of defective packaging.
[57] Towards the conclusion of his affidavit, Mr Zhong quantified the set-off claim for the February shipment with a table:
64 Camsing will also incur further costs in relation to the rejection of the 7560 cartons of 10L Pacific Natural BIB water, which were rejected due to issues with the packaging.
NZD RMB
Cost of goods
$32,886.00
Sea freight (AKL-SHA)
+ (SHA-AKL)
(conservative estimate)
$6,600.00
VAT (China)
31,808.70
Clear Custom/Freight (SHA-WUXI)
18,000.00
China inland goods return freight (conservative estimate)
15,120.00
Inspection fee
6,048.00
Storage fee
74,520.00
Distribution fee
150,000.00
Admin fee
30,000.00
$39,486.00
325,496.70
FX
4.76
$68,401.78
$68,401.78
Total costs incurred
$107,887.78
Mr Zhong attached invoices from which the freight and other costs were derived. By the time of this hearing, the foreign exchange rate had altered. This led Ms Bennington to update the set-off claim under this head from $107,888.78 to $111,406.93.
[58] Mr Speedy responded in detail in his opposition evidence to the allegations of defective packaging. He exhibited a chain of email correspondence commencing 19 March 2018 with an email from Regina Ding of Camsing. The email states “Credit note” as the subject-matter and states:
dear Doug
For the del date Aug/10/2018 : total del qty is 9600 boxes
Bcz of the broken bottom part of the box, we got a lot of complain from our customer
We checked the bulk and found 60% of the bulk have such problem We are repairing those qty .unit repairing charge is $0.3/box
Here is the credit qty, 9600*60%*0.3$=$1728
pls send us the credit note and we will pay balance part.
Then for the next step :
1. You must type the batch number on the box
2. how can you avoid such problem again in the next order – pls list out yr improve plan, before we place the new orders
3. another quality complain photo is attached, the black “unknown item” from the bag, pls check out
[59] Ms Ding attached, as she indicated, a (photocopy) photograph of what she had referred to as the black “unknown item”. As with other photographs produced by Camsing in this proceeding, the image is poor.
[60] Mr Speedy deposes that he understood (clearly correctly) that Ms Ding was referring to goods delivered in August 2017 (with August 2018 still months away). Mr Speedy in his evidence refers to clause 81 of the agreement which required Camsing to give written notice to Parkers of any failure of any products within 45 days after Camsing took risk in the product. Camsing had not done so.
[61] Mr Speedy replied to Ms Ding by email on 19 March 2018, stating that Parkers could not accept the claim on so little evidence, noting also that the goods had been delivered six months previously.
[62] In his email, Mr Speedy also referred to the fact that under the agreement it was Camsing’s responsibility to provide both the boxing and the glue. He indicated it would be good to know if the glue was separating or the box was separating from the
glue. He observed, however, that Parkers had given their staff further training on quality control to ensure boxes were glued well.
[63] Mr Speedy concluded his email with the observation that it was very hard to tell from the photo what the “black item” was, stating – “it could be anything from anywhere”. He requested that Camsing courier it to Parkers.
[64] It does not appear that Ms Ding (or anyone else at Camsing) responded directly to Mr Speedy’s email.
[65] Ms Ding, in Camsing’s reply evidence, rejected any suggestion implicit in Mr Speedy’s email correspondence to the effect that any problem with the boxing may have arisen from the quality of the components provided by Camsing. Ms Ding notes that only some of the boxes were broken which she suggests would indicate that there was nothing wrong with the glue or the boxes provided. She states that it is Camsing’s belief that the issue arose through a failure of Parkers’ staff to use sufficient glue.
[66] There is sufficient evidence provided by Camsing to indicate that there was an arguable defect with the boxes received in the August 2017 shipment. But, as submitted by Mr Gray, the best evidence of the likely cost of repair lies in the contemporary email sent by Ms Ding. Given Ms Ding’s statement that Camsing was repairing the defective quantity at a cost of $1,728, that represents the maximum set- off established by Camsing as arguable,
[67] To overcome this evidence, Ms Bennington in her submissions provided a further explanation of Camsing’s alleged loss occasioned by the August 2017 shipment. Ms Bennington’s synopsis records:
… because Parkers refused to provide the Verifying Third-Party Test Results, Camsing is not able to sell any of its defective products from China. Therefore, it contend (sic) that it is entitled to seek reimbursement of all wasted costs it has incurred in respect of all the defective products produced and supplied by Parkers.
[68] I first observe that Camsing provided no evidence to support the implied assertions of causation contained in Ms Bennington’s submission. There is no basis on the evidence to accept the theory of causation advanced by Ms Bennington. The
products in question had been delivered in 2017. As stated by Ms Ding, repairs were being attended to, meaning that the product was already in Camsing’s hands. Camsing has not produced documentary evidence to support a proposition that it is unable to sell products which are already in its control (as against products which a governmental authority may be refusing to release). Finally, I note that Camsing has produced no evidence as to what must have been (on Ms Ding’s account of it) 40 per cent of product which had been received in August in sound packaging and able to be sold.
Third set-off – February 2018 shipment costs
[69] Mr Zhong in his affidavit referred to the deterioration of the Camsing/Parkers’ relationship from February 2018. He explained that in that month:
… following repeated issues with the quality of the Products being supplied by Parkers, and complaints by Camsing’s Chinese customers to its distributors and to the Chinese Government authorities, Camsing made the decision to terminate the Agreement. Hence, the first notice of cancellation on 12 February 2018.
[70] That month Parkers produced and shipped to China six further containers of box-and-bag products (the February shipment). The issues ensued between the parties as to payments held back by Camsing and documents held back by Parkers. Mr Zhong deposed as to what happened then:
Camsing had explained to Parkers that it had been experiencing a high rate of return of the Parkers-packaged Products, and that a number of Camsing’s Chinese-based customers had laid complaints with the relevant Chinese Government authorities regarding the water quality. Camsing also explained to Parkers that, as a result of these complaints, the Chinese Government was requiring Camsing to provide proof of third-party testing in relation to the Certificate of Analysis that were provided with each shipment of the Products (“Third-Party Test Reports”). Camsing refused to pay the March Payment because Parkers refused to provide the Third-Party Test Reports, which the Chinese Government was seeking as a pre-condition to it releasing the February shipment.
[71] Emails were exchanged through this period, but the stand-off continued through to Camsing’s purported termination of the agreement on 10 April 2018.
[72] Parkers in that period maintained that under the agreement it was required to provide its Certificate of Analysis, but was not required to provide Third Party Test Reports (which sit behind the Certificate of Analysis).
[73] Mr Zhong in his affidavit explains the claim for costs incurred due to the rejection of the February shipment:
Camsing cannot address the issues raised by the Chinese Government, or provide the Chinese Government with the evidence it requires, because Parkers refuses to provide the Third-Party Test Reports to confirm its reports of “not detected” in respect of the ND Contaminants in the water produced by Parkers. Therefore, the Chinese Government is rejecting the Products. As a result of that rejection Camsing will incur the following costs:
NZD Cost of goods
$58,508.50
Sea freight (Napier-China)
$7,800.00
Sea freight (China-Napier) conservative estimate)
$7,800.00
Storage in port fee
$11,160.00
Total
$85,268.50
[74]Mr Zhong did not provide a breakdown of the alleged cost of goods of
$58,508.50. He exhibited four documents of which two were in Chinese and untranslated. Each of the documents bore someone’s handwriting with calculations which were not explained by Mr Zhong.
[75] Ms Bennington, in her written submissions, did not explain how the cost items claimed by Mr Zhong were justified by the documents exhibited. In her oral submissions (in reply), Ms Bennington accepted that the $58,508.50 figure for “cost of goods” could not be justified on the documents. She suggested that she could establish that a figure of $37,132.41 was justified for cost of goods and proceeded to seek to demonstrate that by reference particularly to handwritten notations on the
exhibited documents. Her explanation in oral submissions did not flow naturally from what is in evidence.
[76] Equally for the other costs items claimed (freight and port fees) I have been unable to determine by reference to the documentary evidence that any of the figures claimed are reliable.
[77] Mr Zhong’s affidavit was sworn on 7 May 2018, appreciably after Camsing had raised issues as to complaints made to Chinese Government authorities, and some three months before the hearing of this application. The failure of Camsing to properly quantify and verify its alleged losses is unexplained. This is not a case where the Court can nevertheless infer that there must be a substantial set-off claim available, regardless of its uncertain amount. It would be inappropriate for the Court to treat Mr Zhong’s figures of alleged loss as having any reliability. That is sufficient to preclude Camsing’s reliance, under s 290(4)(b) of the Act, upon its alleged loss in relation to the February shipment.
[78] Had that not been the case (by reason of Camsing’s failure to adequately quantify its set-off), the same outcome would have occurred by reason of Camsing’s failure to adequately document its alleged inability to take delivery of the February 2018 shipment in China. In Mr Zhong’s evidence (above at [70]), he states that the Chinese Government was “rejecting the February shipment”. It is not disputed that Parkers successfully shipped the product that month, with risk therefore passing to Camsing. Camsing in this proceeding carries the burden of establishing that the various components of a cause of action are made out. Just as Camsing provided inadequate evidence of quantification, it is also provided inadequate evidence of the circumstances which it asserts prevented it from taking delivery of the goods in China. Camsing has not produced a single document from relevant third parties (whether governmental or otherwise) which corroborate Mr Zhong’s allegations that there has been a blocking intervention by the Chinese Government.
[79] As in United Homes the Court is left with Mr Zhong’s evidence as “the only word”.10 Corroboration is lacking. Camsing’s deponents do not explain the lack of supporting documentation or evidence from a third party.
Conclusion on three heads of set-off
[80] Camsing has established that it appears to have an arguable set-off of $1,728 arising from the allegedly defective packaging. That will be taken into account in the order to be made in relation to Parkers’ statutory demand. Camsing has failed to establish to the required standard the arguability of any of its remaining set-off claims.
November 2017 shipment
[81] I will briefly address Camsing’s reply evidence in relation to a November 2017 shipment although it does not make up any of the sums claimed by Camsing as constituting set-offs.
[82] In her reply affidavit, Ms Ding deposed that there had been “discovery of a serious contamination issue with the water supplied by Parkers in November 2017”. She deposes that in July 2018 Camsing was informed by one of its customers that contaminated November water products had failed a basic food safety test, with the result that the products could not be sold in China. Ms Ding stated that the financial claims to be made by Camsing against Parkers are likely to increase significantly. She refers to significant claims from affected customers and the risk of civil fines. She refers to Camsing being “currently in negotiation with its affected customers”.
[83] Ms Ding attaches to her 30 July 2018 affidavit Chinese certificates, from what appears to be a Shanghai testing agency (with certified translations attached). The certificates refer to the product sampled as having been produced by Parkers in November 2017. Ms Ding has not exhibited any of the correspondence which one would have expected to have taken place between customers and Camsing in relation to alleged defects in the products and the outcome of testing. No evidence has been provided from the customer or customers said to have been involved.
10 United Homes (1988) Ltd v Workman, above n 9, at [33].
[84] In the event, Camsing has not asserted in this proceeding a set-off in relation to this recently-emerged evidence. Camsing did not seek an adjournment of this hearing in order to provide better evidence.
[85] The evidence, such as it is, takes Camsing’s response to the statutory demand no further. Even had Camsing proffered a suggested amount of loss flowing from issues relating to the November 2017 shipment, Camsing would not have established any sufficient basis for the Court to find arguable an entitlement to claim damages.
Outcome
[86] The statutory demand will be set aside except as to the sum of $56,436.93. That sum represents the invoices indisputably owing to Parkers in the sum of
$58,164.93 less Camsing’s arguable set-off of $1,728. I will be reserving costs. The parties might consider that costs should lie where they fall having regard to the part- success of each party. In the event the parties do not so agree, costs will be determined on memoranda filed, with Camsing’s memorandum to be filed within five working days and Parkers’ within five working days thereafter (four page limit in each case). In the event no application for costs is made within five working days the Court’s order (without further minute issuing) will be that there is no order as to costs.
Orders
[87]I order:
(a)The statutory demand issued by Parkers Beverage Company Ltd on 23 April 2018 is set aside except as to $56,436.93.
(b)The time for Camsing Trading Ltd’s payment pursuant to the demand is extended to 10 working days from the date of this judgment, and failing payment by that date, Parkers Beverage Company Ltd will be entitled to file an application for liquidation.
(c)Costs are reserved.
Associate Judge Osborne
Solicitors:
Duncan Cotterill, Auckland Sainsbury Logan & Williams, Napier