Chatham Hardware Limited v Chatham Islands Management Limited

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA33/2023
[2023] NZCA 433

BETWEEN	CHATHAM HARDWARE LIMITED Appellant
AND	CHATHAM ISLANDS MANAGEMENT LIMITED Respondent

Hearing:	22 August 2023
Court:	Goddard, Whata and Downs JJ
Counsel:	E J Tait for Appellant P R W Chisnall and M R G van Alphen Fyfe for Respondent
Judgment:	8 September 2023 at 11.00 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellant must pay costs to the respondent for a standard appeal on a band A basis, with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Goddard J)

Introduction and summary

Chatham Hardware Limited (Hardware) appeals from a decision of the High Court declining to set aside a statutory demand served on it by Chatham Islands Management Limited (CIML).[1]
[1]Chatham Hardware Ltd v Chatham Island Management Ltd [2022] NZHC 3227 [High Court judgment].
CIML is a wholesaler and retailer of diesel on Chatham Island. Hardware is also a retailer of diesel on Chatham Island. Hardware purchases its diesel from CIML. The statutory demand relates to invoices for diesel supplied by CIML to Hardware between December 2021 and February 2022 totalling $219,885.82 (GST inclusive).
Section 290(4) of the Companies Act 1993 provides that the Court may set aside a statutory demand if satisfied that:
(a)there is a substantial dispute as to whether the debt alleged and the demand is payable; 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 ($1,000); or
(c)the demand ought to be set aside on other grounds.
Before the High Court, Hardware argued that the statutory demand should be set aside because there was a substantial dispute as to whether the debt claimed by CIML was payable and/or it had an arguable counterclaim or set-off exceeding the amount specified in the demand. Hardware submitted it was seriously arguable that there was a collateral agreement about pricing of diesel supplied by CIML to Hardware, which CIML had breached. Alternatively, Hardware submitted that it was seriously arguable that CIML’s conduct breached the Fair Trading Act 1986 and/or the Commerce Act 1986.
Associate Judge Johnston rejected Hardware’s arguments that it had an arguable defence to the debt referred to in CIML’s statutory demand, or an arguable cross-claim.[2] Hardware’s application to set aside the statutory demand was dismissed.
[2]At [43].
We agree with the Judge that there is no substantial dispute about whether the debt claimed in the statutory demand is payable. Nor is it seriously arguable that Hardware has a counterclaim, set-off or cross-demand that calls into question the obligation to pay the debt specified in the demand. There is no other reason why the statutory demand ought to be set aside. The appeal must therefore be dismissed.

Background

The arrangements for supply of diesel by CIML to Hardware have a lengthy history that intersects with broader issues about arrangements for supply of essential services to the Chatham Islands. However the relevant facts for present purposes can be briefly stated.
Hardware was established in 1995. It operates a business on Chatham Island retailing diesel, petrol, fertiliser, garden implements and other hardware items.
CIML is a wholly owned subsidiary of the Chatham Islands Enterprise Trust (the Trust). The Trust is responsible for some significant infrastructure and services provided on the Chatham Islands, including the airport, electricity generating assets, and operation of the ports. The Trust is a registered charity established by the New Zealand Government in 1991. It is required to act in the interests of the community of the present and future inhabitants of the Chatham Islands. It carries on a number of business activities that are consistent with its objectives.
Prior to 2009 there were two diesel retailers on Chatham Island, Hardware and Chatham Fuels Limited. In 2009 the Trust acquired the diesel retail business of Chatham Fuels Limited, and CIML became a diesel retailer.
Prior to 2015 there were two shipping lines providing a service to the Chatham Islands, including supply of diesel: Black Robin Freighters Limited (Black Robin) and a shipping line established by the Trust, Chatham Islands Shipping Limited (CISL). CISL supplied diesel to CIML. Black Robin supplied diesel to Hardware.
In 2015 Black Robin failed. That left CISL as the sole shipping service supplying diesel to the Chatham Islands, and CIML as the sole wholesaler of diesel on Chatham Island.
Hardware began to purchase diesel from CIML. Negotiations took place in 2015 and 2016 about what the arrangements for the long-term wholesale supply of diesel by CIML to Hardware were. Those negotiations resulted in the parties signing a fuel supply agreement (FSA) expressed to apply from 1 January 2016 for a term of seven years. The FSA is undated, but was probably finalised and signed in August 2016.
It was common ground before us that the FSA applied to the diesel supplies to which the statutory demand relates.
The FSA consists of one page of specific terms and conditions, and several pages of general terms and conditions of supply. The specific terms and conditions take precedence, to the extent of any inconsistency.
Specific condition 14 provides as follows:
14.Special Conditions: Diesel Supplies to Hardware will be at full (in to store) ongoing fluctuating costs plus $0.05 per litre CIML margin, subject to periodically reviews by CIET Trustees.
Further provisions relating to the price payable by Hardware for diesel are set out in cl 4 of the general terms:
4.Price
4.1The price payable by the Purchaser for Diesel supplied under this Agreement shall be set from time to time by CIML in its discretion, and shall be notified by CIML to the Purchaser and such price shall take effect from the time set out in the notification. CIML’s intention is that the price payable by the Purchaser for Diesel supplied under this Agreement will be set and notified to the Purchaser at the Price Notification Frequency (which is, as at the Commencement Date, as set out in Item 8 of the Specific Terms of and Conditions, but which may be changed by CIML with immediate effect by CIML giving notice).
4.2The price shall be the price charged or chargeable from time to time by CIML to the Purchaser in effect at the time of each order being confirmed by CIML.
4.3CIML may engage a third party to develop a pricing model. If CIML does this, the model will then be used by CIML to set the price from time to time and will be based on the landed cost of the Diesel to CIML. CIML will provide, on request at reasonable intervals, pricing information to the Purchaser if it asks for it. The Purchaser shall have no ability to have any input into, nor require changes to, any pricing model used from time to time by CIPL.
4.4The Purchaser acknowledges and agrees that:
(a)CIML has structured its initial pricing model on the assumption, amongst others, that the Purchaser will purchase, under this Agreement, not less than the Minimum Annual Volume per each rolling 12 month period from the Commencement Date;
(b)if the Purchaser fails to purchase not less than the Minimum Annual Volume in any such 12 month period, then this may directly cause CIML loss because of its pricing arrangements with its suppliers; and
(c)if CIML (which must act reasonably and transparently) considers that the Purchaser will purchase less than the Minimum Annual Volume during any 12 month period, or the Purchaser does purchase less than the Minimum Annual Volume during a 12 month period, CIML may take this into account into its pricing model for determining the Price of the Diesel for future orders made by the Purchaser, to protect itself against any failure on the part of the Purchaser to purchase the Minimum Annual Volume for that 12 month period, provided that CIML is fully transparent with the Purchaser in advising the Purchaser of any changes to the Price.
4.5CIML shall advise the Purchaser of the price payable from time to time (including any components of the price) and any changes to the price (including any changes to any components of such amended price) for the Diesel payable by the Purchaser to CIML.
Clause 5.2 of the FSA’s general terms is a “no set-off” clause. It provides that “[u]nless agreed otherwise beforehand, the Purchaser must make payments to CIML, in full and without set off or deduction or withholding”.
Similarly, cl 5.12 of the general terms requires Hardware to make payments to CIML under the FSA without deductions:
… The Purchaser acknowledges and agrees that its obligation to pay all sums due to CIML under this Agreement and the rights of CIML in and to such moneys shall be absolute and unconditional and shall not be subject to any reduction, set-off, defence, counter-claim or recoupment whatsoever.
Clause 10 provides for resolution of disputes. Provision is made for negotiation, mediation and, if the dispute is not resolved, reference to arbitration under the Arbitration Act 1996. Clause 10.4 makes specific provision for disputes relating to payments or an invoice:
10.4In the event of a dispute relating to payments or an invoice, the Parties shall first submit to the payment dispute process, as follows:
(a) the Purchaser must notify CIML within 2 Business Days of the receipt of the relevant Diesel of any disputed amount. The Parties shall aim to resolve the payments dispute within 5 Business Days of being notified of the dispute;
(b) if the invoiced payment amount is partially or fully in dispute, the Purchaser must still pay the total amount of the invoice (including GST) to CIML. If after the dispute resolution procedure it turns out that an overpayment has occurred, CIML will refund the amount of any overpayment together with interest at the Default Rate calculated on a daily basis from the time of the overpayment until payment of the refund;
(c) the Parties acknowledge that the purpose of requiring payment in full pending the resolution of a payments dispute, rather than allowing the Purchaser to withhold payment in full or in part, is to avoid CIML suspending further supply of fuel to the Retailer for non-payment while sorting out the disputed amount; and
(d)if the Purchaser fails to pay any invoices in accordance with the terms and conditions of this Agreement, then CIML shall not be obligated to continue to supply Diesel to the Purchaser, and may suspend for such period as it considers appropriate in the circumstances the supply of all Diesel under this Agreement.
Between 2 December 2021 and 10 February 2022 Hardware placed a number of orders for diesel, which CIML supplied. Invoices were rendered for a total amount of $219,885.82 (including GST). It is common ground that no payment has been made in respect of those invoices.
There is no evidence that any notice disputing the amounts invoiced in this period was given by Hardware under cl 10.4. Hardware did not commence any of the dispute resolution processes contemplated by cl 10 of the FSA at the time the invoices were rendered, or subsequently.
On 2 June 2022, CIML served a statutory demand for the amount of those invoices.
On 15 June 2022, Hardware filed and served its application to set aside the statutory demand.

Hardware’s challenge to the statutory demand

Hardware’s primary argument before the High Court was that at or around the time the FSA was entered into, CIML and Hardware entered into a collateral agreement to adopt a “Fair Pricing Model”. Hardware says that Fair Pricing Model provided for CIML to set prices on a basis that would ensure a 19.3 per cent margin between the price at which CIML would supply diesel to Hardware wholesale and the retail price that CIML would charge to its retail customers. Hardware says that in recent years the margin has been substantially below that level, making it difficult for Hardware to compete with CIML at retail. That is why Hardware has encountered significant financial difficulties and has been unable to pay CIML’s invoices. Hardware disputes the amounts invoiced on the basis that they are not consistent with the Fair Pricing Model, so are not properly payable.
Before the High Court, Hardware’s second argument was based on the Fair Trading Act. Hardware argued that CIML had made representations about the Fair Pricing Model which were false or misleading, in breach of ss 9 and 13 of the Fair Trading Act.
Hardware’s third argument before the High Court was based on the Commerce Act. It is common ground that at the relevant time the Trust and its subsidiaries were the sole shipper and wholesaler of diesel to the Chatham Islands. CIML, a subsidiary of the Trust, was one of two retailers of diesel on Chatham Island. Hardware argued that the Trust and CIML had taken advantage of a substantial degree of power in the Chatham Island market to eliminate Hardware from that market, in breach of s 36 of the Commerce Act. Alternatively the arrangements entered into between CIML and Hardware had the purpose or effect of substantially lessening competition in a market, contrary to s 27 of the Commerce Act.

High Court judgment

The Judge began by considering Hardware’s primary argument that at or around the time that they executed the FSA, the parties also entered into a collateral agreement guaranteeing Hardware a margin of 19.3 per cent between the price CIML charged for diesel supplied to Hardware, and CIML’s retail price. The Judge accepted that in recent times CIML had not priced on that basis. Hardware argued that this constituted a breach of the overall contractual arrangements, giving rise to a genuine dispute as to whether the alleged debt is payable.[3]
[3]At [19].
The Judge considered this argument faced significant difficulties. The FSA dealt with pricing comprehensively, in terms that were inconsistent with the suggested collateral agreement. It seemed unlikely to the Judge that these two commercial entities, both of which were advised by solicitors, would have elected to enter into the FSA in circumstances where they had an additional arrangement relating to a critical matter such as pricing without including that arrangement in the FSA itself.[4]
[4]At [21].
The Judge noted that the FSA provides in effect that CIML is entitled to determine the price at which it sells diesel. Hardware was attempting to rely on a collateral agreement which contradicted core aspects of the parties’ written agreement.[5]
[5]At [23].
The key document that Hardware pointed to as evidencing the collateral agreement was a spreadsheet headed “Chatham Islands Bulk Fuels Pricing” which had been exchanged between the parties in the lead up to the execution of the FSA. The Judge considered that on its face this was nothing more than a recitation of the prices that CIML was charging various entities, including Hardware. There was nothing in this document guaranteeing that Hardware would achieve any particular margin.[6]
[6]At [24].
Hardware’s accountant had calculated that the pricing set out in the spreadsheet effectively allowed for a margin of 19.3 per cent. On that basis, Hardware argued that the parties had agreed that the pricing then in place gave rise to a particular margin, and that that margin was to apply for the duration of the agreement. The Judge considered this argument ignored important terms of the agreement, and was an artificial analysis on which it would be dangerous to place any reliance.[7]
[7]At [26]–[27].
The Judge also noted that on Hardware’s case, from the end of 2016 onwards CIML had breached the alleged collateral agreement by charging for diesel at a level which did not guarantee a 19.3 per cent margin. Despite this alleged breach continuing for close to seven years, the correspondence between the parties before the Court was devoid of any reference to this topic. On the contrary, throughout that time, Hardware had continued to order and take delivery of diesel at the prices charged without complaint, as far as the Judge could see. Hardware’s account with CIML had been in arrears frequently. There was correspondence before the Court in which CIML remonstrated about this, and numerous promises were made by Hardware about bringing its account into order provided they can continue to receive diesel to on-sell. But, the Judge observed, the argument now advanced only surfaced following CIML’s service of its statutory demand.[8]
[8]At [28].
The Judge acknowledged that Hardware’s case received some support from affidavits sworn by Mr Smith, who was the chair of the Trust at the time when the FSA was entered into, and from Mr Pellikaan, who was the Chief Executive Officer of both the Trust and CIML at that time.[9] The FSA was negotiated by Mr Pellikaan on behalf of CIML and Ms Monique Croon on behalf of Hardware.
[9]At [29].
The Judge recorded that both Mr Smith and Mr Pellikaan said in their evidence that it was their view that the parties had an understanding as to the pricing of fuel which was designed effectively to ensure Hardware’s viability.[10]
[10]At [29].
The Judge did not doubt that both held that view. However they were talking about their impression of arrangements made between the parties more than seven years ago, against the backdrop of an application in which they were no doubt conscious of the position taken by Hardware and the analysis carried out by Hardware’s accountant. The Judge considered that their impressions were not reliable when viewed against the contemporaneous material and the objective considerations to which he had referred.[11]
[11]At [29].
The Judge therefore rejected Hardware’s argument founded on the existence of a collateral contract or arrangement.[12]
[12]At [30].
The Judge then considered Hardware’s second argument based on the Fair Trading Act. The Judge considered it was predicated on the same contention as the contractual claim, and he had already concluded that there was no such collateral agreement or arrangement.[13] (The Fair Trading Act argument was not pursued on appeal to this Court, so need not be described in detail.)
[13]At [36].
The Judge then went on to deal with Hardware’s third argument based on the Commerce Act. The Judge said:
[42] Accordingly, the thrust of the argument is that [CIML] induced [Hardware] to enter into the same agreement or arrangement as is relied on in the first and second arguments, and then failed to abide by it. Again, this adds nothing. It is a third iteration of the argument for the existence of the agreement or arrangement that I have already rejected. To the extent that there is scope for an additional argument based on a more straightforward assertion that [CIML] deployed market dominance for one or more of the proscribed purposes identified in s 36 of the Commerce Act, I am not persuaded that there is any evidence which would support that contention.
Hardware’s application was dismissed. Costs were reserved.[14]

Submissions of Hardware on appeal

[14]At [44]–[45].

Before us, as before the High Court, Hardware’s primary argument was that it is seriously arguable that a collateral agreement was entered into between Hardware and CIML in 2016 which provided for a 19.3 per cent margin between CIML’s wholesale price to Hardware and CIML’s retail pricing, for the term of the FSA.
Mr Tait, who appeared for Hardware, emphasised that there was evidence supporting the existence of a collateral agreement to this effect from Ms Croon, who undertook the negotiations on behalf of Hardware, and from Mr Pellikaan, who undertook the negotiations on behalf of the Trust and CIML. Mr Smith, the chair of the Trust, gave evidence to similar effect. He submitted that in light of this evidence, it was seriously arguable that a collateral agreement had been entered into, and that CIML had breached that agreement over an extended period.

Mr Tait submitted that on a taking of accounts, on a basis consistent with the Fair Pricing Model, nothing was owed by Hardware to CIML and a significant sum was due from CIML to Hardware. Thus, Mr Tait submitted, no debt was owed by Hardware to CIML, or at the least there is a substantial dispute as to whether the debt is owing or due, so the demand ought to be set aside.
Alternatively, if the Court did not accept that argument, and in particular if the Court were minded to give effect to the clauses of the FSA precluding set-off, this was a case in which the demand ought to be set aside on other grounds. The conduct of CIML and the Trust raised issues as to whether they are in equity precluded from relying on the no set-off clauses, as it would be unconscionable for CIML to depart from the assurances given at the time the FSA was signed by Hardware.
Mr Tait also made brief submissions on Hardware’s Commerce Act arguments. He argued that the Chatham Islands are a remote but distinct market for diesel. The Trust controls the shipping and wholesale of diesel. CIML was a retailer of diesel which, Mr Tait submitted, priced the retail of diesel on a loss-making basis. The terms of the FSA permitted CIML at any time without restriction to increase its supply price, and compress its margins. If these powers were exercised that would lead to Hardware’s elimination from the market, and would substantially lessen competition in the Chatham Islands diesel retail market. Thus, Mr Tait said, the Trust and CIML had breached ss 27 and 36 of the Commerce Act. The relevant contractual provisions were therefore unenforceable against Hardware, pursuant to s 27.

Submissions of CIML on appeal

Counsel for CIML relied on the Judge’s analysis in the High Court judgment.
Ms van Alphen Fyfe took us through the background to the FSA and the contemporaneous correspondence in some detail. She emphasised that there was no reference in any of that correspondence to a collateral agreement of the kind now asserted by Hardware. To the contrary, the email correspondence reflected a unilateral approach to pricing by CIML, consistent with the provisions of the FSA. Hardware did not explicitly refer to any agreement to a fixed margin at that time, or in any subsequent correspondence.
Mr Chisnall emphasised that only part of the debt claimed in the statutory demand is subject to the purported dispute. What Hardware was alleging was, essentially, overcharging. There was no dispute about the portion of the debt that was not purportedly overcharged. Mr Chisnall submitted that there is an established practice of setting aside a statutory demand only to the extent that it is defective.[15] There is no injustice to a company in requiring it to pay the uncontested part of a statutory demand.[16]
[15]HSK Trading Limited v Carter Building Supplies Limited [2021] NZHC 1897 at [15], citing United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA).
[16]At [15].
To the extent that Hardware raises allegations in relation to overcharging on other invoices, or under the Commerce Act, Mr Chisnall submitted that these are counterclaims that do not relate to the debts claimed in the statutory demand. He submitted that these claims lack merit, but that even if they were arguable the effect of the “no set-off” clauses in the FSA (cls 5.2, 5.12 and 10.4) was that reliance on these counterclaims was precluded. Mr Chisnall referred to the decision of this Court in Browns Real Estate Limited v Grand Lakes Properties Limited, which said:[17]
… by raising the counterclaim in response to the statutory demand, Browns is seeking to justify the non-payment of the rent. In so doing, Browns are in breach of clause 3.1 which prohibits withholding of rent (and any other payments due under the lease) on any account. Associate Judge Osborne was correct to conclude that the clause at issue in this case precludes this.
[17]Browns Real Estate Limited v Grand Lakes Properties Limited [2010] NZCA 425, (2010) 20 PRNZ 141 at [14].
As this Court explained in Browns Real Estate, the efficacy of a no set-off provision would be undermined if statutory demands could be set aside under s 290(4) on grounds a commercial party had by contract expressly agreed could not be raised.[18] A no set-off clause would normally result in the court’s discretion being exercised against an applicant in those circumstances.[19]

Discussion

Collateral agreement?

[18]At [16].

[19]At [17].

We agree with the Judge that it is not seriously arguable that Hardware and CIML entered into a collateral agreement along the lines now claimed by Hardware.
As the Judge explained, the collateral agreement contended for is inconsistent with the terms of the FSA. Specific condition 14 provides for diesel supplies to Hardware at landed cost plus a fixed margin of 5 cents per litre, subject to periodic reviews by the Trust. This clause provides for unilateral reviews by the Trust and CIML of the price charged. It does not identify any limits on the freedom of CIML to set the price for diesel at those reviews.
The specific conditions are tailored provisions entered into between commercial parties, recorded concisely on a single page. If there was an agreement that a particular margin would be maintained between the price charged by CIML to Hardware and CIML’s retail price, one would expect to see it recorded here.
The claimed collateral agreement is also inconsistent with cl 4 of the general terms. Clause 4.1 confirms that CIML is free to set the price for diesel from time to time in its discretion. There is no reference to any guaranteed margin for Hardware.
Hardware placed considerable emphasis on cl 4.3. But that clause contemplates a pricing model being developed by a third party: there is no suggestion that was done in the present case. And it is quite clear from cl 4.3 that any model adopted by CIML could subsequently be modified; hence the reference to “any pricing model used from time to time”. Hardware agreed it was not entitled to have any input into, or to require any changes to, any model used by CIML.
Thus even if the spreadsheet exchanged in 2016 was an in-house substitute for a third party model — and there is no correspondence to suggest it was — the parties had not agreed that CIML would be required to continue to apply any such model for the duration of the FSA.
The second difficulty with Hardware’s collateral agreement argument is that none of the contemporaneous email correspondence before the Court makes any reference to a guaranteed margin for Hardware. The parties exchanged email correspondence about pricing in 2015 and 2016, over the time at which the FSA was entered into. It is in our view wholly implausible that a binding agreement to this effect could have been entered into between Hardware and CIML without any reference to such an agreement appearing in the parties’ correspondence.
To the contrary, there is email correspondence in August 2016, the month in which it appears the FSA was signed, that is inconsistent with a collateral agreement of the kind now asserted. An email from Mr Pellikaan to Ms Croon sent on 17 August 2016 records that he “will be trying to discuss a policy for price setting for Hardware next week during our Board Meeting, but have no idea how that will fall”. Ms Croon responded the same day, saying:
Pending Trustee’s short term decision until the end of December, is there a clear way for future price setting for the Hardware by way of a policy, as there are possibly going to be Trustee changes and eventually CEO changes and this could leave Hardware in a vulnerable position.
Let me know if this will work.
On 26 August 2016 Mr Pellikaan sent an email to Ms Croon recording that the Trust Board had discussed the diesel pricing strategy earlier that day during its meeting. He said:
Today it was today resolved that, as of 1 September 2016, CIML is to charge Hardware at a margin of $0,05 per litre on top of the total landed cost to [CIML] based on the attached cost schedule from our accountants, which that was sent to at time of our negotiations for Hardware to become a wholesale customer of the CIML/Trust. … This policy is officially set by the Trustees and will remain until such a time when Trustees see the need to review it again.
Obviously the pricing will still fluctuate at different intervals as diesel cost prices vary on an almost a two daily basis, but the margin of $0,05 will be consistently applied.
These exchanges are consistent with the FSA. They reflect a freedom on the part of CIML to set price unilaterally. There is no suggestion of any agreement governing pricing, let alone an agreement to maintain an agreed margin between CIML’s wholesale and retail prices.
The spreadsheet that Mr Pellikaan sent to Ms Croon in the course of their negotiations in 2016 (which appears to be the “cost schedule” referred to in Mr Pellikaan’s 26 August 2016 email) refers nowhere to a guaranteed margin of 19.3 per cent for Hardware. Hardware’s accountant has calculated that that is the margin that was reflected in the pricing shown in that spreadsheet at that time. But this margin has been derived from the figures shown in the spreadsheet: there is no suggestion that it was built into the spreadsheet. To the contrary, the spreadsheet appears to proceed on the basis of allocation of relevant costs to different categories of customer, with margins of a specified amount (in cents per litre) applied to those customers. The margin of 19.3 per cent that is contended for appears to be an artefact of the pricing structure at a particular moment in time, which was not hard-wired into the pricing structure, and which would inevitably vary as the cost of diesel or other inputs changed.
Another factor that points strongly against the existence of any contractually agreed margin is the absence of any reference to such an agreement over the following six years. Hardware says that a 19.3 per cent margin was maintained for all or most of 2016, but eroded after that. If there was a commitment along those lines, designed to ensure that the Trust could not reduce the margin available to Hardware, it is wholly implausible that this would not have been invoked on multiple occasions from 2017 onwards.
Nor — a related point — was there any challenge to the invoices that are the subject of the statutory demand at the time they were rendered, as required by cl 10 of the FSA.
The high point of Hardware’s case is the evidence from Mr Pellikaan and Mr Smith, referring to a fair pricing model adopted in 2016. But Mr Pellikaan’s evidence does not go so far as to say that there was a contractual commitment to a continuing margin for Hardware for the duration of the FSA. Mr Pellikaan refers to being aware of a clause in the agreement that was eventually signed that envisaged that a fair pricing model would be developed. That is presumably a reference to cl 4.3. He says he had authority from the Trust to develop such a model. He told Ms Croon that he would develop a fair pricing model and told her that it would be put in place and would apply during the existence of the FSA. He exhibited, as a copy of the fair pricing model, the spreadsheet of prices charged at that time.
That evidence does not suggest that there was a binding contractual commitment to apply the approach set out in the spreadsheet for the duration of the FSA. Even if the spreadsheet was a model of the kind contemplated by cl 4.3 — which seems problematic, as it was not developed by a third party — it was quite clear from that clause that CIML was free to modify any such model. And, as already mentioned, there is no evidence to suggest that this spreadsheet was constructed on the basis of a hard-wired margin between the wholesale price to Hardware and the retail price charged by CIML. If there was a commitment to the approach shown in the spreadsheet, that approach would have required a cost allocation coupled with a fixed cents per litre margin for Hardware, not a guaranteed percentage margin.
Similarly, the evidence of Mr Smith is expressed in general terms. He refers to a fair pricing model negotiated between Ms Croon and Mr Pellikaan which he says “was to continue throughout the existence of the [FSA]”. But he does not suggest that there was any contractual commitment to the application of that model, as distinct from an indication by CIML that it intended to adopt the approach reflected in the spreadsheet. And he does not suggest that there was a commitment to a fixed percentage margin for Hardware for the life of the FSA.
Mr Pellikaan and Mr Smith are doing their best to recollect events that occurred some six years before they swore their affidavits, without (it appears) reference to any contemporaneous files or correspondence. Their evidence is expressed in general terms. Bearing in mind the fallibility of human memory, we consider that a safer guide to what was actually agreed by the parties is found in the written agreement that they signed, and their contemporaneous correspondence. Nothing in that contemporaneous material provides any support at all for an agreement along the lines for which Hardware now contends.

Arguable Commerce Act case?

Hardware’s arguments based on the Commerce Act were not developed in any detail. The s 27 argument did not identify specific provisions of the FSA that were said to breach s 27: the provisions of the FSA all seem inoffensive on their face. At the risk of stating the obvious, terms providing that CIML has the ability to review price unilaterally do not harm competition. There was no identification of the relevant counterfactual: in particular, there was no evidence about what price CIML would have charged to Hardware, and to its retail customers, in the absence of the relevant provisions. There was no evidence to suggest that CIML could have economically supplied Hardware at a price materially below the retail price it charged from time to time. An argument that CIML should have charged more to its retail customers, to ensure Hardware enjoyed a larger margin to fund its business activities, would face obvious difficulties from a competition perspective. There was no expert evidence to support any of these arguments. We do not consider that the s 27 argument sketched by Mr Tait is seriously arguable.
We readily accept that CIML has a substantial degree of market power in one or more relevant markets on Chatham Island. But the argument that CIML breached s 36 was not supported by any of the fact evidence and expert evidence, or legal analysis, that would be required to show there is a seriously arguable case that CIML had used that market power for a proscribed purpose under s 36. In particular, there was no evidence to support the assertion that CIML systematically set retail prices below cost. Nor was there any evidence that CIML had set out to compress the margin available to Hardware in order to eliminate Hardware from the market. It is difficult to understand why CIML and the Trust would seek to act in such a manner, having regard to the Trust’s community-oriented purposes and its governance and accountability arrangements. There was no direct or indirect evidence to suggest that it did in fact do so.

Conclusion

It follows that we do not consider that it is seriously arguable that the debt claimed in the statutory demand is not payable. Nor is it seriously arguable that there is a counterclaim or set-off or cross-demand of some kind under the Commerce Act.
There is considerable force in CIML’s argument that the statutory demand should not be set aside by reference to any counterclaim in respect of amounts invoiced outside the period to which the statutory demand relates, or by reference to any claim under the Commerce Act, in light of the no set-off provisions in the FSA. But we need not address that argument in any detail, in the absence of any seriously arguable counterclaim.
Finally, we are not persuaded that the statutory demand ought to be set aside on other grounds. In the absence of any serious argument that there was a collateral agreement of the kind contended for, or that there have been breaches of the Commerce Act by CIML, there are no “other grounds” that could justify setting aside the statutory demand.
The appeal must therefore be dismissed.

Result

The appeal is dismissed.
The appellant must pay costs to the respondent for a standard appeal on a band A basis, with usual disbursements.

Solicitors:
Macalister Mazengarb, Wellington for Respondent

[2023] NZCA 433

8 September 2023 at 11.00 am