Colebrook v Okarahia Downs Limited
[2019] NZHC 241
•22 February 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-759
[2019] NZHC 241
UNDER The Companies Act 1993 and Part 31 of the High Court Rules 2016 IN THE MATTER OF
An application to place Okarahia Downs Limited into liquidation
BETWEEN
STUART JAMES COLEBROOK as Trustee
for the Brookfield Trust Plaintiff
AND
OKARAHIA DOWNS LIMITED as Partner
of the Kowhai Banks Partnership Defendant
Hearing: 19 February 2019 Appearances:
R A Hearn for Plaintiff
S T Cottrell for Defendant
Judgment:
22 February 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
[1]This is an opposed liquidation application.
[2] The plaintiff seeks the liquidation of the defendant following the plaintiff issuing a statutory demand dated 27 August 2018 which claimed from the defendant
$56,359.51, being Milk Payments owing to the plaintiff under a Sharemilking Agreement together with interest. That amount is made up as follows:
(a)payment of $12,333.33 due 20 April 2018;
COLEBROOK v OKARAHIA DOWNS LIMITED [2019] NZHC 241 [22 February 2019].
(b)payment of $31,420.00 due 20 May 2018; and
(c)interest of $12,606.18 on the above sums calculated at the contractual rate.
[3] The defendant did not apply to set aside the statutory demand and a statement of claim seeking the liquidation of the defendant was filed on 30 October 2018. A statement of defence was filed on 20 November 2018.
[4] The relationship between the parties is governed by a Federated Farmers of New Zealand agreement called the New Zealand Herd Owning Sharemilking Agreement (the Agreement), which is dated 1 June 2016 and expressed to apply for two milking seasons. It expired 31 May 2018.
[5] The statement of defence asserts that in fact it is the plaintiff that is indebted to the defendant, with the amounts referred to below being available as a set-off against any amount owed by the defendant to the plaintiff for the plaintiff’s share of the Milk Payment. On this basis, the defendant says the plaintiff is not a creditor.
[6] The statement of defence also asserts the statutory demand and the winding up proceedings are an abuse of process because the Agreement contains a compulsory dispute resolution process which, if an agreement is not reached, requires the parties to go to arbitration. A stay is sought on that basis.
Governing principles
[7] There was no dispute between the parties in relation to the governing principles.
[8] In the plaintiff’s application for liquidation relying on an unability to pay debts it must be shown that:
(a)the plaintiff is a creditor;
(b)the defendant is insolvent; and
(c)the Court should not exercise its residual discretion against liquidation.
[9] The principles summarised by then Associate Judge Faire in South Waikato Precision Engineering Ltd & Ors v Ahu Developments Ltd are as follows:1
a)A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;
b)In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;
c)The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;
d)The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.
[10] The defendant asserts that the plaintiff is not a creditor and also claims the proceeding is an abuse of process because of the presence of an arbitration clause.
The no set-off clause
[11] The plaintiff claims that there are other amounts owed to it by the defendant than those set out in the statutory demand. However, recognising that those amounts are subject to dispute, they were not relied on in the statutory demand or for the purpose of the liquidation proceedings other than to say they must be considered when considering the overall position between the parties.
[12] The plaintiff relies on the following provisions in the Agreement under the heading “No Withholding of Payments or Set Off”:
17.29The Owner will pay the Sharemilker its Agreed Percentage of all Milk Payments in full, without deducting or withholding any amount. The Owner has no right of set off in relation to the Sharemilker’s Agreed Percentage of Milk Payments under this Agreement.
17.30It will be a material breach of this Agreement if the Owner breaches clause 17.29 and withholds money from the Sharemilker.
1 South Waikato Precision Engineering Ltd & Ors v Ahu Developments Ltd HC Auckland CIV-2008-404-000970, 10 December 2008 at [22].
17.31If the Owner withholds money from the Sharemilker in breach of clause 17.29, the Sharemilker will be entitled to the immediate payment of the amount withheld plus penalty interest in accordance with clause 17.33, without prejudice to any other rights or remedies available to the Sharemilker under this Agreement.
[13] In support of its interest claim, the plaintiff relies on cl 17.33 of the Agreement which provides:
17.33 In the event of any money (including payment of the Sharemilker’s portion of the Milk Payment) being due to the Sharemilker by the Owner under this Agreement and that are not subject to any dispute, the Sharemilker will present an itemised and costed account to the Owner. The Owner must pay this account within one calendar month of receipt. If the Owner fails to pay this account within one calendar month of receipt, the Owner will be liable for penalty interest of 8% per month (with interest to be compounded monthly) on the unpaid amount owing to the Sharemilker until such time as payment is made.
[14] Also relevant to the argument developed by the plaintiff are cls 17.35 and 17.36 of the Agreement which provide:
Time Limits on Claims
17.35Subject to clauses 17.3 and 17.36, no claim will be recognised or made by either party in respect of any breach of this Agreement unless the claiming party gives the other party a Notice of Dispute in accordance with clause 17.4 within 28 days of becoming aware of the alleged breach but, in any event, no later than 28 days from the last day of the Season in which the alleged breach arose.
17.36The time limits on claims set out in clause 17.35 will not prevent either party from making a claim against the other in respect of any sums due and owing to that party, or by way of indemnity arising from or through actions by third parties.
[15] The defendant points to a detailed dispute resolution section in the Agreement under cl 17 headed “Dispute Resolution”. Clause 17.1 of the Agreement provides:
17.1 The parties must use the procedures set out below to resolve any dispute concerning this Agreement, its subject matter and the rights or liabilities of the parties under this Agreement, unless clause 17.3 applies.
[16] Clause 17.3 of the Agreement is not relevant for present purposes, providing that if the matter is within the jurisdiction of the Disputes Tribunal then the matter may be taken directly to that Tribunal.
[17]Clause 17.4 under the heading “Initiating Dispute Resolution” provides:
17.4If a dispute of the type referred to in clause 17.1 arises, either party may at any time within the time limits set out in clause 17.35 give written notice to the other party specifying the nature of the dispute (Notice of Dispute). The party receiving the Notice of Dispute must within 14 days give notice to the other party outlining its position in respect of the dispute (Notice of Reply).
[18] There is then an obligation to negotiate in good faith. Clause 17.5 of the Agreement provides:
Negotiation in Good Faith
17.5The parties must meet, within 21 days of the Notice of Dispute being given to the other party and, in good faith and acting reasonably, do their best to resolve the dispute quickly through negotiation.
[19] If resolution is not reached there are detailed provisions in relation to conciliation and in the event that conciliation fails, cl 17.7 of the Agreement applies, which provides:
17.7 The conciliation must be conducted by a conciliator agreed by the parties, or if the parties are unable to agree on a conciliator within 7 days of proceeding to conciliation under clause 17.6, the conciliator will be selected by the Chairperson of the National Panel of Conciliators, which can be contacted by phoning 0800 426 469.
[20] It is not in dispute that the defendant directed Fonterra to direct the plaintiff’s share of the monthly Milk Payment to the defendant. The amounts that would otherwise have been paid to the plaintiff by Fonterra and which are the subject of the statutory demand but which were received by the defendant are not in dispute.
[21] Accordingly, it is not in dispute that the plaintiff was, but for the matters the defendant now relies on, entitled to receive its share of Milk Payments. Clause 8.2 of the Agreement requires:
Payment from Dairy Company to Sharemilker
8.2In respect of any payments in this clause 8, the Owner [defendant] will:
8.2.1 Instruct the Dairy Company to pay the Sharemilker’s percentage of the Milk Payment direct to the Sharemilker at the same
time payment is made to the Owner unless otherwise agreed in writing.
Plaintiff’s submissions
[22] The plaintiff’s submissions boil down to the proposition that the no set-off clause in the Agreement applies. The plaintiff says the defendant committed to pay the Milk Payment to the plaintiff in full without deducting or withholding any amount and that it expressly agreed not to claim a right of set-off.
[23] The plaintiff says that against cls 17.29 – 17.31 of the Agreement, it is not open to the defendant to assert that it is not indebted to the plaintiff on the basis that it has a set-off or counterclaim.
Defendant’s position
[24] The defendant has outlined a number of claims that it has against the plaintiff, each of which have been recorded in an invoice that the defendant raised. There are some 14 invoices dated between 30 July 2017 - 30 June 2018.
[25] The plaintiff has set out its position in respect of each of the invoices. Some are not accepted because they are excessive, some are said to be out of time pursuant to cl 17.35 of the Agreement, some are said not to be the responsibility of the plaintiff because they relate to work which was the responsibility of the defendant under the Agreement, and in respect of others the plaintiff simply disputes liability for the amounts claimed. While the matters have been put in the form of invoices, many are in reality claims for damages arising from alleged breaches of the Agreement by the plaintiff.
Legal principles – no set-off
[26] The Court of Appeal discussed no set-off clauses in Browns Real Estate Ltd v Grant Lakes Properties Ltd.2 That case concerned an application by Browns Real Estate Ltd (“Browns”) to set aside a statutory demand on the basis that
2 Browns Real Estate Ltd v Grand Lakes Properties Ltd HC Invercargill CIV-2009-425-670, 10 March 2010.
it had a counterclaim which exceeded the sum demanded. The counterclaim arose from alleged misrepresentations about the quality and characteristics of a retail precinct occupied by the applicant and for which rent had accrued.
[27] Associate Judge Osborne, as he then was, accepted that Browns had an arguable case that the respondent’s predecessor in title as the original lessor had misrepresented the qualities and characteristics of the retail precinct. His Honour also accepted that the misrepresentation arguably resulted in damage to Browns in excess of the statutory demand.
[28] However, the Judge held that cl 3.1 of the lease precluded Browns from raising a set-off counterclaim or cross demand as an excuse for not paying rent.
[29] The then Associate Judge Osborne held that Browns had no arguable case on the wording of the contract to raise a set-off or counterclaim as an excuse for not paying rent. It was therefore held that Browns had to pay the rent and then separately pursue any available remedies elsewhere.
[30]On appeal, the Court of Appeal said at [14]:3
In our view, 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 cl 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.
[31] Her Honour Justice Glazebrook, delivering the decision of the Court of Appeal, noted at [15] “…statutory demands and bankruptcy notices are, in a practical sense, important debt enforcement mechanisms”.
[32] Her Honour drew a parallel with s 79 of the Construction Contracts Act 2002 (“CCA”) and its prohibition on a debtor from relying on the existence of a counterclaim set-off or cross demand in the circumstances described in s 79. Her Honour said at [16]:
3 Browns Real Estate Ltd v Grant Lakes Properties Ltd [2010] NZCA 425, (2010) 13 NZCPR 349.
Just as in the CCA context, the efficacy of a no set-off contractual provision would be undermined if statutory demands could be set aside on the basis of a set-off, counterclaim or cross-demand a commercial party had by contract expressly agreed could not be raised. In such a situation, there seems no reason in principle why statutory demands and bankruptcy notices should not be available as debt enforcement measures when, as was conceded by Browns, other enforcement measures would be (including summary judgment).
[33] The Court accepted Browns’ submission that a specific reference excluding the statutory demand procedure was required in the contract.
[34]The Court said at [17]:
We consider that commercial parties should be required to honour the bargain they have made, absent other grounds that tell against the recognition of a statutory demand.
Defendant’s submissions
[35] To meet this argument, Mr Cottrell placed significant weight on Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd.4 The Supreme Court in Zurich had to consider the effect of art 8 of sch 1 of the Arbitration Act 1996, which provides:
8 Arbitration agreement and substantive claim before court
(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
(2)Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. (emphasis as per original in Zurich)
[36] The decision concerns what the Court referred to as the “added words”, which the Court italicised in its judgment as set out above.
4 Zurich Australian Insurance Ltd t/a Zurich New Zealand v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383.
[37] In short, the issue was whether a stay of proceedings should be ordered by the Court where the defendant only has an arguable defence, that is a case sufficient to withstand a summary judgment (the “broad test”), or where it was not immediately demonstrable that either the defendant was not acting bona fide in asserting that there was a dispute, or that there is in reality no dispute, which is described the “narrow test”.
[38] Mr Cottrell relied on the weight given to party autonomy to agree how the disputes should be resolved.
[39]The Court set out the argument for Zurich at [12] as follows:
Party autonomy requires that, where parties have chosen arbitration as the mechanism by which their contractual disputes will be resolved, they should be held to that choice. On the other hand, the court is entitled to prevent an abuse of its process, as would occur, for example, where a defendant facing court proceedings for the enforcement of a liquidated debt deploys delaying tactics by raising a plainly meritless defence and seeking a stay under art 8(1) to enforce an arbitration clause. Permitting the court to refuse a stay in circumstances of this type would resolve the tension in a way that was principled and consistent with the prevailing international approach.
[40]Ultimately, the appellant’s contention was accepted. The Court concluded:5
Under art 8(1), a stay must be granted unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed or it is immediately demonstrable either that the defendant is not acting bona fide in asserting that there is a dispute or that there is, in reality, no dispute.
[41] Mr Cottrell expanded on his submissions by saying that through getting involved in a liquidation proceeding, the parties have “moved a long way from what they had agreed” in the dispute resolution mechanism set out in cl 17 of the Agreement. He emphasised that the arbitration provision required the arbitrator to have relevant dairy experience.
Clause 16.4 of the Agreement
[42] Mr Cottrell agreed that cl 16.4 lessened the effect of the no set-off clause. Clause 16.4 of the Agreement provides:
5 Above n 4 at [52].
Payments After Termination, Dissolution or Death
16.4 Following termination, each party will be entitled to all payments and deferred payments actually due to that party as at the date of termination, including the Sharemilker’s Agreed Percentage of any unpaid Milk Payment due to the Sharemilker without deduction or withholding in accordance with clause 17.29, but subject to any adjustments in respect of any other matters of income or outgoings or both arising under the terms of this Agreement.
[43] I do not consider this clause has any application. It is found in the part of the Agreement dealing with early termination. In any event, the words “but subject to any adjustments in respect of any other matters of income or outgoings or both arising under the terms of this Agreement.”
in my view, show that the available adjustments are only in respect of “other matters of income or outgoings”. If anything, the clause emphasises the significance of the no set-off clause in relation to Milk Payments as even on early termination, unpaid Milk Payments due to the Sharemilker are to be paid “without deduction or withholding” in accordance with the no set-off clause. Again, the words above restrict the adjustments to other matters of income or outgoings, or both, arising under the Agreement.
[44] The present Agreement was not terminated early, but ran its full two-year term. The clause has no application to the present situation.
Discussion
[45] In my opinion, the defendant cannot both “approbate and reprobate” when it comes to the terms of the Agreement. It cannot on the one hand seek to rely on the contractual requirement to have disputes resolved through the dispute resolution process and at the same time not comply with its obligation to pay the plaintiff’s share of the Milk Payments without set-off or deduction.
[46] The parties have agreed what matters can be subject to dispute and which cannot be. The defendant is contractually barred from disputing the plaintiff’s entitlement to its share of the Milk Payment on the grounds that it wishes to raise
a set-off. In my view, this fits directly within the penultimate paragraph in the Supreme Court decision in Zurich:6
Under art 8(1) a stay must be granted unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed or it is immediately demonstrable either that the defendant is not acting bona fide in asserting that there is a dispute or that there is, in reality, no dispute.
[47] The defendant committed to make the Milk Payments to the plaintiff without dispute, that is without asserting a set-off, counterclaim or deduction. That is the very thing that it wishes to do in this context. The no set-off clause restricts the type of dispute that can be referred to arbitration. Having agreed to make the Milk Payments without set-off or deduction, the defendant cannot say there is an arguable dispute capable of being arbitrated about its right to assert a set-off or deduction. The defendant has contractually agreed not to raise a specific type of dispute to avoid its obligation to pay the plaintiff its share of the Milk Payments. The “particular overrules the general”, by which I mean that the no set-off clause defines what issues are capable of being raised/disputed. A set-off or deduction asserted in relation to a Milk Payment is not covered by the generality of cl 17 because the defendant is prohibited from asserting such disputes in the context governed by the no set-off clause.
[48] This approach is considered with that adopted by Venning J in Drake City Ltd v Tasman-Jones.7
Interest
[49] The statutory demand included a claim for interest at the contractual rate. Mr Cottrell points out that the no set-off clause does not extend to interest payable under cl 17.33 of the Agreement. He also advised that the interest rate at eight per cent per month compounding amounted to an annual interest rate of 150 per cent. Mr Hearn, for the plaintiff, did not dispute the general accuracy of that calculation.
[50]Thus, Mr Cottrell attacked the interest claim on three grounds:
(i)the interest component was not protected by the no set-off clause;
6 Above n 4 at [52].
7 Drake City Ltd v Tasman-Jones [2016] NZHC 899 at [24].
(ii)it was at least arguably a penalty; and
(iii)the precondition for interest under cl 17.34 of the Agreement, that is that the Sharemilker would present an itemised and costed account, had not been satisfied.
[51] I am satisfied that there is a reasonably arguable basis for saying there is a genuine dispute in respect of the interest claim and that the dispute is outside the no set-off clause. While Mr Hearn attempted to say that the rate was intended to incentivise payment, he could not take his defence of an effective rate of 150 per cent much further. It is in my opinion at least arguable that the rate of around 150 per cent per annum is not a genuine pre-estimate of loss that would be suffered by the plaintiff if a Milk Payment was not made and is therefore a penalty.
[52] I also accept Mr Cottrell’s point that the no set-off clause is not expressed to apply to interest payable on the Milk Payment. The interest provision is part of a different sub-part of cl 17 headed “Recovery of amounts due”. The no set-off clause applies to the “Agreed Percentage of Milk Payment”. “Milk Payment” is a defined term and the definition does not include interest.
[53] The question is whether the claim for set-off in relation to interest has been excluded expressly or by clear implication by the no set-off clauses.8
[54]Mr Hearn relied on cl 17.31, with its reference to the Sharemilker being:
… entitled to the immediate payment of the amount withheld plus penalty interest in accordance with clause 17.33 … (emphasis added)
[55] The argument was that the reference to immediate payment meant that by necessary implication the no set-off clause applied to interest as well.
[56] Given the effective rate of 150 per cent, would the parties have intended that payment of interest was a matter that could not be challenged? In my opinion, commercial parties would not have considered the payment of interest at such a rate
8 Grant v NZMC [1989] 1 NZLR 8 at [13].
to be beyond challenge and thus it would not be considered that by necessary implication the no set-off provision extends to interest. This conclusion is supported by the structure of the Agreement, with the no set-off clause in a separate subsection to the interest clause.
Section 310 Companies Act 1993
[57] Mr Cottrell advanced an alternative argument for the company based on s 310 of the Companies Act 1993 (“the Act”). Section 310 of the Act requires that a liquidator must set-off mutual credits, mutual debts or other mutual dealings between the company and a person who seeks to have a claim admitted in the liquidation.
[58]The set-off is obligatory and automatic and may not be contracted out of.
[59]Accordingly, Mr Cottrell presented two alternative arguments:
(i)the effect of s 310 of the Act means that the plaintiff is not in fact a creditor; or
(ii)the Court should exercise its discretion to not liquidate the defendant company because on liquidation the no set-off clause in the contract will not apply, and it is submitted that it is at least arguable that the amount owed by the plaintiff to the defendant will exceed the amount of the plaintiff’s claim.
The first argument – status as creditor
[60] I have already said that in my opinion, the defendant is obliged to pay the plaintiff its share of the Milk Payment as required by the contract. In my view, the plaintiff is a creditor of the defendant as there is no argument that the plaintiff was entitled to its share of the Milk Payment as the parties agreed that there would be no deduction from the Milk Payments.
[61] That the contract between the parties, given the plaintiff’s status as a creditor of the defendant, is not altered by what the Act provides a liquidator must do under s 310 of the Act.
[62] In my view, the Act does not, in a practical sense, retrospectively deprive the plaintiff of the benefit of the no set-off clause. Even post liquidation the liquidator will have to comply with s 310.
[63] On this issue, I respectfully agree with the decision of Justice Dobson in GCA Legal Trustee (2004) Ltd v Consultant Management Services Ltd, where his Honour said:9
[28] Messrs Toebes’ and Gordon’s submissions for the receivers argued that Mr Carr’s standing must have regard to the inevitability of set-off being applied against Mr Carr in terms of s 310 of the Act. That section provides that in the administration of a liquidation, the liquidator must set off amounts owed by a creditor of the company to the company, from amounts that the creditor claims from the company. Section 310 is sensibly applied in the conduct of a liquidation once ordered, but I do not accept that its terms should extend to the prior stage of assessing the status of those who qualify as “creditors” for the purpose of mounting an application for liquidation to occur in the first place. It would be inconsistent with the breadth of the definition of creditor for this purpose, to then limit the scope by excluding those whose claims are prospectively recognised as likely to be less than a counterclaim against the creditor. Varying degrees of speculation on the outcome of claim and counterclaim would be needed that are inconsistent with the scope of s 303.
[64] Mr Hearn properly raised the fact that his Honour Associate Judge Bell, in CIR v The Fishing Company Ltd, took a different view and concluded that s 310 set-offs should be taken into account in determining whether the Commissioner of Inland Revenue was a creditor.10
[65] The Associate Judge was not referred to what Dobson J said in GCA Legal Trustee (2004) Ltd at para [28], as set out above. Rather, Associate Judge Bell’s focus was on the s 310 set-off factor being a relevant factor in the exercise of discretion in whether to order liquidation of the company.
9 GCE Legal Trustee (2004) Ltd v Consultant Management Services Ltd, HC Dunedin CIV-2007-412-56, 26 May 2009.
10 Commissioner of Inland Revenue v The Fishing Company Ltd (2011) 25 NZTC, 20-016 (HC).
[66]His Honour concluded at [49]:
… The Fishing Company Ltd has not satisfied me to the required standard that it has a GST input refund that should be taken into account in exercising the discretion whether to put the company into liquidation.
[67] Accordingly, arguably his Honour’s comments in respect of s 310 at [28] of the judgment were obiter, as the decisive point in the case was that the Judge did not consider the claim raised by the company to have sufficient merit.
Alternative argument – relevant to the discretion
[68] I agree with Associate Judge Bell that the availability to the liquidator of a compelling s 310 set-off which would otherwise be barred by a no set-off clause is a matter relevant to the exercise of the Court’s discretion. As his Honour said at [27]:
If the insolvency set-off under s 310 results in there being no net indebtedness to the Commissioner, then putting the company into liquidation may be futile. The company would stop operating, the staff would be thrown out of work and assets would be realised to meet the costs of the liquidation.
[69] The weight to be given to the s 310 set-off factor when exercising the Court’s discretion not to liquidate depends on the merits of the set-off which the defendant says would be available to the liquidator.
[70] New Zealand Company Law and Practice notes that “A claim said to qualify as a s 310 set off need not exist in the form of a debt at the time of the commencement of the liquidation. What is required is that the rights and liabilities must be in existence at that time and they must be capable of ultimately maturing into a pecuniary demand susceptible of set off.”11
[71] The set-offs that the defendant says would be available to the liquidator are not clear cut. The plaintiff in respect of the claims it faces variously raised the following issues:
(i)limitation issues under cl 17.35 of the Agreement;
11 Andrew Beck and others New Zealand Company Law and Practice (loose-leaf ed, CCH New Zealand) vol 1 at [66-615].
(ii)whether work for which the defendant has issued an invoice was in fact the defendant’s responsibility under the Agreement;
(iii)whether in respect of one claim it has already been subject to a separate compromise; and
(iv)in respect of other claims, issues as to quantum.
[72] While the plaintiff has tentatively accepted some of the defendant’s claims in whole or in part, such acceptance was in the context of there being an overall resolution of issues. The limitation defence has merit on the dates contained in the invoices and the claim that one of the alleged debts was subject to a compromise is supported by the evidence from Mr James Watherston. The merits of the defendant’s claims are not clear cut.
Conclusion on the s 310 argument
[73] In my view, the availability of s 310 of the Act to the liquidator does not alter the plaintiff’s standing as creditor. Whether the plaintiff is a creditor is a matter to be determined according to the Agreement between the plaintiff and the defendant. In respect of the Milk Payments, the defendant agreed that a set-off or deduction was not able to impact on the plaintiff’s status as a creditor.
[74] Nonetheless, if the nature and merits of a set-off barred by a no set-off clause were “clear and persuasive”, to adopt the approach from CIR v The Fishing Company Ltd, the Court can look forward to the liquidation and see whether the liquidation would be futile because of the impact of s 310.12 If so, then such is a matter will be relevant to the Court’s discretion whether to grant the application.
[75] In this case, I do not consider the disputed claims raised by the defendant to be sufficiently “clear and persuasive” so as to say they would inevitably extinguish the plaintiff’s claim. There were other claims by the plaintiff not subject to the statutory demand which would also form part of the assessment.
12 Above n 10.
Solvency
[76] The final argument for the defendant was that in any event, it had established solvency. The defendant’s director deposed as to the assets, liabilities and equity of the partnership of which the defendant is a partner. Mr Hearn pointed out that there was a gap in the evidence as to solvency, and Mr Cottrell essentially acknowledged the existence of the gap, namely that it was not clear whether the defendant company was involved in activities other than the partnership. Thus, Mr Hearn argued it was not clear that there were other factors that would bear on the company’s solvency. The defendant was, due to its latest accounts not being completed, unable to place those before the Court.
Practical solution
[77] I discussed with counsel what should occur if the defence to the winding up application was dismissed. Given the question marks over solvency, and given the ultimate proof of solvency would be the payment of the amount in the statutory demand less the interest, I suggested that the proceeding be adjourned to a list to enable the defendant to establish solvency through payment of the indisputable amount due for the Milk Payments. Counsel agreed that this pragmatic course should be adopted.
[78] Accordingly, the proceeding is adjourned to the list on Thursday 7 March 2019. If the sum of $43,753.33, being the statutory demand amount less interest, is paid that will be a practical confirmation of the defendant’s solvency.
Costs
[79] These can be addressed at the call on Thursday 7 March 2019. My initial view is that costs should follow the event. While the defendant has succeeded in part in respect of the argument as to interest, at the end of the day in substance the plaintiff has succeeded and my initial view is that the plaintiff is entitled to costs on a 2B basis
with the usual order as to disbursements. Again, counsel can address that on
7 March 2019.
Associate Judge Lester
Solicitors:
Corcoran French, Christchurch Shaun Cottrell Law, Christchurch
Copy to counsel: M Corlett QC, Auckland
1
3
0