Capital Produce Limited v Brooklyn Bar and Bistro Limited
[2018] NZHC 2735
•23 October 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-332
[2018] NZHC 2735
UNDER The Companies Act 1993 BETWEEN
CAPITAL PRODUCE LIMITED
Plaintiff
AND
BROOKLYN BAR AND BISTRO LIMITED
Defendant
Hearing: 8 October 2018 Appearances:
Mr Andrew Swan for the plaintiff
Mr Matthew Freeman for the defendant
Judgment:
23 October 2018
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] This is an application by the defendant applicant in the context of winding up proceedings commenced against it by the plaintiff respondent, for an order permanently prohibiting advertising of and staying the proceeding.
[2]The background against which the application is made is as follows:
(a)The applicant owns and operates a restaurant in Wellington;
(b)From late 2014 the respondent supplied the applicant with fruit and vegetables;
(c)The contractual arrangements between the parties were contained in a written contract dated 9 September 2014. These included credit
CAPITAL PRODUCE LIMITED v BROOKLYN BAR AND BISTRO LIMITED [2018] NZHC 2735
[23 October 2018]
facilities, an obligation on the applicant’s part to pay all invoices rendered on a monthly basis, a provision entitling the respondent to charge interest on late payments and an entitlement on the respondent’s part to on-charge costs incurred in relation to the enforcement of debts;
(d)In July 2017, the respondent apparently stopped the applicant’s credit, placing it on cash-on-delivery terms. The applicant’s manager, Mr Mark Kisby, asked for an explanation. The respondent’s managing director, Mr Alastair Lang, said that there were outstanding debts. Mr Kisby asked how much the respondent believed it was owed. Mr Lang said “something like $9,000”. Mr Kisby questioned this and sought details. The respondent sent the applicant a statement indicating that the amount due was $3,921.20;
(e)It would appear that by this stage the respondent had already put the matter in the hands of a debt collection agency by the name of Law Debt Collection Ltd because, almost straight away, Mr Kisby received a telephone call from Mr John Campbell of that company during which Mr Campbell asserted that the applicant owed the respondent approximately $15,000;
(f)Mr Kisby’s evidence is that he has never accepted that the applicant owed as much as that, and that he tried to challenge this but had difficulty because when he attempted to deal directly with Mr Lang or one of his colleagues, he was referred to Law Debt Collection and, he deposes, the discussions were unsatisfactory;
(g)Law Debt Collection provided the applicant with a statement dated 9 February 2018, indicating that the amount of the respondent’s claim was $15,757.91;
(h)On 21 February 2018, a statutory demand was served. This asserted that the amount owed — including “collection costs” of $3,309.16, a
“service fee” of $70.00 and $447.50 for the cost of preparing and issuing the demand — was $19,584.57;
(i)The applicant took no steps in relation to the statutory demand;
(j)The respondent commenced these winding up proceedings on 27 April 2018;
(k)There is a curiosity about the originating documentation. The plaintiff is of course Capital Produce Ltd. But the supporting affidavit is sworn by Mr Matthew Campbell. In his affidavit he described himself as “of Auckland, Accounts Director” without indicating where he worked. It turns out that he is a director or employee not of the respondent but of Law Debt Collection. Mr Campbell deposes as to the accuracy of the statement of claim and the amount claimed of $19,584.57. It is common ground that that figure includes an amount of $5,394.21 for debt collection costs and interest and accordingly that there is a degree of double counting in the additional $3,816.66 of costs specified in the demand. Normally, one would not be inclined to read a great deal into that. Inadvertent errors occur. However, the affidavit evidence in this case demonstrates that, prior to the proceeding being commenced, Law Debt Collection had posted a blog on a social media website describing this double counting issue and how it occurs. The blog refers to a case involving a “Wellington restaurant”, and the circumstances of the case cited in the blog and the circumstances of this case are so similar that it would be a remarkable coincidence if the blog did not refer to this case. The point is that there is some evidence that Law Debt Collection knew or ought to have known that the calculation of the amount claimed in this proceeding was erroneous and yet one of its directors or employees swore an affidavit deposing to its accuracy. I simply record that curiosity without taking it any further at this stage;
(l)On 28 May 2018 the applicant filed an ex parte application for an interim order suppressing advertising of this proceeding pending further order of the Court. An interim order was made on 30 May 2018;
(m)Also on 28 May 2018 the applicant filed the present application.
[3] This application is made pursuant to r 31.11 of the High Court Rules 2016 which provides that the Court may stay liquidation proceedings. Of course the Court has an inherent jurisdiction to stay proceedings in any event. Rule 31.11(3) expressly indicates that the rule is not intended to affect the Court’s inherent jurisdiction.
[4] The circumstances in which the Court may stay a proceeding are not constrained by the rule. But the most common circumstances in which orders are made are where there has been some material defect in the process; where it can be demonstrated that the company that is the subject of the proceeding is solvent; and where there is a demonstrable abuse of process of one sort or another.
[5] Here, the applicant submits that the case falls into the last two of those categories.
[6] Insofar as solvency is concerned, the test is set out in s 4 of the Companies Act 1993, which provides that a company is solvent if its assets exceed its liabilities (balance sheet solvency) and it is able to meet its obligations as they fall due (liquidity or profit and loss solvency).
[7] In his affidavit dated 28 May 2018, Mr Kisby exhibits a copy of the defendant’s most recent financial statements. This, as he says, is marked draft. However, his unchallenged evidence is that those are the most recent financial statements and that they have been approved and adopted. They are the financial statements for the year ending 31 March 2017. They show that the company’s assets are exceeded by its liabilities to the tune of approximately $211,000. But the principal liability is the balance of the shareholder current account held for the company’s shareholder and therefore readily transferable into capital. From a profit and loss perspective, the company effectively broke even in the financial year, though I note that that was on
the basis of what appears to me to be very modest salary and wages costs of approximately $126,000.
[8] For the respondent, Mr Swan emphasises that these are draft financial statements but otherwise does not challenge them.
[9] On the strength of those financial figures, which are of course now out of date, I do not think that it would be open to the applicant to claim that it meets the solvency test in s 4 of the Act, but, by the same token, nor do they reveal a financial position that would require a winding up order to protect creditors.
[10] Turning to the issue of abuse of process, two particular aspects of this proceeding concern me.
[11] First, there is an obvious question as to the amount of the claim. The respondent and its agents have, on my count, put forward at least five different calculations of the amount allegedly owed.
[12] In relation to this Mr Swan pointed to a letter sent to him by Mr Freeman, which appears, as he submitted, to reflect a common acceptance by both parties that, as at 21 September 2018, an amount of $3,033.85 remained outstanding. The applicant has now paid this amount to the respondent. From that starting point, Mr Swan addressed the various areas of dispute raised by the applicant:
(a)The applicant’s contention that in calculating the amount due the respondent had not brought to account payments totalling $6,247.85, which could be demonstrated to have been paid by reference to the applicant’s banking records. As to these, Mr Swan directed me to a credit entry in the respondent’s records of $4,658.52, which he said I could conclude was an amalgamation of the payments highlighted by the applicant. The respondent has also now accepted that $300 of that amount had not been credited;
(b)The applicant disputes the respondent’s interest calculations. For the respondent, Mr Swan said that there was nothing to suggest that interest had not been calculated accurately;
(c)Finally, the applicant disputes the respondent’s entitlement to on-charge Law Debt Collection’s costs in relation to the collection of the debt because it says it was not provided a reasonable opportunity to investigate the debt before the debt collectors became involved. As to this, Mr Swan’s submission was that the contract clearly entitles the respondent to do so. However, he acknowledged that there was a degree of double counting so that the claim for costs would be reduced by $3,826.66.
[13] Mr Swan submitted that the upshot of all of this is that a total of $11,828.04 — a figure which hitherto has not featured — is currently due and owing. I also note that the applicant’s solicitors are holding more than that in their trust account for the purpose of paying any debt proven to be owing.
[14] I make two observations about this analysis. First, the sum of the payments that the applicant has demonstrated that it made, and which it says have not been accounted for, is not the same as the figure identified by Mr Swan. Second, it seems remarkable that, if the calculation of the amount said to be due to the respondent to the applicant is as straight forward as Mr Swan suggests, the respondent, its debt collectors and its legal advisers have been unable to arrive at a consistent figure prior to the hearing, and that the figures they have hitherto put forward have varied so wildly.
[15] In the end, I am left with a residual concern about the reliability of the figure being claimed here. I reach no final conclusions on this score. But, as I say, I am not satisfied that any of the figures advanced are reliable.
[16] Second, there is the issue concerning Mr Matthew Campbell’s affidavit, whether he swore it knowing it to be inaccurate, and whether there has been an abuse of process.
[17] When I put this to Mr Swan he accepted that he could not take the point very far. He did say that there was no categorical evidence that the respondent’s blog was referring to the applicant company. I think there is little doubt about that. He also confirmed that there are two Mr Campbells connected with Law Debt Collection, the managing director and the Mr Campbell who deals with day-to-day collection affairs. I infer that I am to take it from that that the Mr Campbell who wrote the blog (Mr John Campbell) was not the same Mr Campbell who swore the affidavit (Mr Matthew Campbell) and that the latter may not have had personal knowledge that he was deposing to the truth of something that was incorrect.
[18] I take this point no further except to reiterate that I am left with a residual concern as to the integrity of the process involved here.
[19] Taking the solvency issue, the concern I have about the reliability of the figures and the aspect of the process that I have referred to together, I am satisfied that there are real issues in this case as to the respondent’s entitlement to claim the amount it now says is due in this winding up proceeding, and that this is not a case that should be disposed of in insolvency litigation, but rather by means of ordinary proceedings where all of the matters that I have identified can be the subject of proper analysis.
[20] For those reasons, I am satisfied that it is appropriate to make a permanent order prohibiting the advertising of this proceeding and staying it.
[21] On any view, the amount involved in this case is modest. It is far too small for litigation in the District Court, let alone the High Court. It is within the wider jurisdiction of the Disputes Tribunal. I would have thought that with a little careful attention from the parties’ legal advisers the matter could be settled. If it is necessary to involve a third party, then it appears to me that the Disputes Tribunal is probably the preferable venue. Ultimately, those are matters for the parties, but I am not prepared to allow the issues which arise to be sidestepped in winding up proceedings.
[22] I record that the applicant’s solicitors are holding sufficient funds to pay the amount now said to be outstanding. I am told that this has been placed with them by the applicant on irrevocable instructions to hold it to meet its liability whatever that is
or to pay away only on further order of this or any other court or tribunal with relevant jurisdiction. I record also the applicant’s undertaking offered to the Court through counsel not to alter those instructions. This means that the respondent’s position will be protected while the issues between the parties are settled or litigated.
[23] I have not heard the parties as to costs. I reserve them. I would expect counsel to be able to sort out whatever costs issues exist. However, if they are unable to do so then they may bring the matter back to me by memorandum and I will deal with costs on the papers.
Associate Judge Johnston
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for defendant
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