Cressida Eversleigh Ltd v Belmont Lifestyle Village Ltd
[2012] NZHC 538
•26 March 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-8263 [2012] NZHC 538
BETWEEN CRESSIDA EVERSLEIGH LTD Plaintiff
ANDBELMONT LIFESTYLE VILLAGE LTD Defendant
Hearing: 15 March 2012
Appearances: L A Andersen for plaintiff
J Strauss for defendant
Judgment: 26 March 2012
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4 pm on Monday 26 March 2012
Solicitors/Counsel
Rodgers Law, Dunedin
L A Andersen, Dunedin, [email protected]
Geoff Curry Lawyers, Christchurch,[email protected]J. Strauss, Auckland [email protected] :
CRESSIDA EVERSLEIGH LTD V BELMONT LIFESTYLE VILLAGE LTD HC AK CIV 2011-404-8263 [26
March 2012]
[1] This is an application to set aside a statutory demand made pursuant to s 290(4)(a) of the Companies Act 1993. Section 290 relevantly provides:
290 Court may set aside statutory demand
(1) The Court may, on the application of the company, set aside a statutory demand.
…
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or is due; or
[2] The relevant principles are not in dispute. The task for the Court is not to resolve the actual dispute, but to determine whether there is a substantial dispute as to whether or not the debt is due.[1] The Court will not ordinarily endeavour to
resolve conflicts in the evidence as to important factual matters.[2]
[1] Link Electrosystems Ltd v GPC Electronics (NZ) Ltd [2007] NZCA 501 at [17].
[2] Androcles Investments Ltd v Highway Publications Ltd HC Christchurch M455/00, 14 February 2001 at [14].
[3] The jurisdiction under s 290 has to be exercised promptly. The Court should simply determine whether there is a genuine and substantial dispute, the threshold being relatively low.[3]
[3] Industrial Group Ltd v Bakker [2011] NZCA 142 at [24].
[4] The plaintiff bears the onus of establishing that there is a fairly arguable case that it is not liable for the amount claimed.[4]
Factual background
[4] Forge Holding Ltd v Kearney Finance (NZ) Ltd HC Christchurch M149/95, 20 June 1995
[5] The defendant owns a development known as the Belmont Lifestyle Village, a retirement village registered under the Retirement Village Act 2003 (the Act). The village consists of a number of retirement units and a care facility, which is a private
hospital. The plaintiff leases and operates the hospital.
[6] Mr and Mrs Kirkland are the shareholders and directors of the plaintiff. They are also the shareholders and directors of a number of other companies which are engaged in the operation of care facilities, similar to that in the Belmont Lifestyle Village, so they have extensive experience in the field.
[7] There are important differences between retirement unit accommodation on the one hand and hospital accommodation on the other. The residents of the retirement units conclude occupation right agreements under which they pay a substantial capital sum to the defendant. The terms of those agreements are largely regulated by the Act. Such residents also pay fees for the maintenance of the units and common areas, as well as for additional rest home services.
[8] The residents in the hospital, on the other hand, do not conclude occupation right agreements, and do not pay for the right to occupy a hospital room. Most of the residents cared for in the hospital setting do so pursuant to agreements between the operator of the hospital (in this case the plaintiff), and the local Health Board. The majority of hospital residents receive residential care benefits paid by WINZ. Such subsidies are paid directly to the care provider. In a few instances, private patients who can afford to do so, pay for their own care and do not qualify for a subsidy.
[9] The present dispute concerns three units known as units 26, 27 and 28. They were constructed as something of an experiment. They are somewhat more spacious than the other rest home units, and carry an entitlement to full hospital care if it is required. But they are similar to the retirement units in that the defendant sells the occupational entitlement to residents pursuant to an occupation rights agreement.
[10] The plaintiff took over the running of the hospital from a former operator in October 2010. At that time, units 26-28 were unoccupied. The parties agreed that to improve the attraction of the apartments to potential occupiers, it was desirable that the prospect of hospital care, or its equivalent, be available to residents. Such care, if needed, would be supplied by the plaintiff.
[11] Mr Wallace, a director of the defendant, says that he negotiated an arrangement with Mrs Kirkland, under which units 26-28 would be administered as
part of the hospital, and that through Mrs Kirkland, the plaintiff agreed to pay rent for the three units, on the same basis as the rent for the hospital. Mr Wallace’s contention is that there was an agreement that rent would be calculated at the same rate as was paid in respect of a hospital bed. He further says that, in terms of the agreement, the defendant would sell occupation rights to occupiers in the usual way, but the plaintiff would be free to conclude care arrangements for occupiers with the local Health Board (for occupants who qualified), or with occupants personally (or their families) in the case of private patients. According to Mr Wallace, the plaintiff would not be expected to pay rent unless and until any individual unit was actually occupied. Mr Wallace also says that the defendant agreed to maintain the units, but expected that the cost of doing so would be absorbed by the rent paid by the plaintiff.
[12] Mrs Kirkland, on the other hand, denies that any such agreement was ever reached. She accepts that there were tentative discussions over a period of some months about the possibility of the plaintiff taking over the whole of the complex, including the rest home, and that discussions about possible rental would have taken place in that context. But these negotiations never reached fruition.
[13] The units were ultimately occupied by persons who entered into occupation licences with the defendant. In June 2011, the defendant began to send invoices to the plaintiff for rent of the units, and also for the cost of care supplied by the defendant to one occupier at a time when the plaintiff was unable to do so for licensing reasons. The defendant agrees that a sufficient dispute exists over the invoices for care, which are accordingly irrelevant for present purposes.
[14] None of the invoices for rent has ever been paid. The defendant says that something over $20,000 is owing for rent as claimed in invoices dated 16 June, 16
September, 10 November and 6 December 2011 respectively. A statutory demand was served on the plaintiff in December 2011. The plaintiff denies liability for any of the sums claimed in the invoices for rent. It argues that there is a genuine dispute between the parties, and that the statutory demand should be set aside. Indeed, Mr Andersen contends that, because the plaintiff ’s position was set out at length in correspondence between solicitors and counsel, the service of the statutory demand
amounts to an abuse of process. In consequence, he argues, the plaintiff, if successful, ought to have indemnity costs against the defendant.
Discussion
[15] I have reached the clear view that there is a genuine dispute between the parties and that the statutory demand ought to be set aside. Despite a somewhat complicated factual background, I will endeavour to state my reasons shortly.
[16] First, and somewhat remarkably, there is not a shred of documentary material to support the defendant’s claim that it is entitled to rental payments from the plaintiff. Mr Wallace says that the arrangements are entirely oral and they were made with Mrs Kirkland. He does not say when and where they were made, or in what circumstances. He does not say whether any other person was involved in the negotiations, or whether agreement was reached on a single occasion or discussions took place over a period.
[17] Mrs Kirkland simply denies that any discussions ever took place on the topic of rental payments, although she accepts that much more general negotiations took place over a period at a time when it was thought that the plaintiff might take over operation of the whole of the complex, including the retirement units.
[18] The absence of any documentary support, and Mrs Kirkland’s flat rejection of the alleged rent arrangements, would ordinarily lead of itself to a conclusion that this was a dispute that ought to be tried in the usual way. But Mr Strauss places at the forefront of his argument the evidence of three supporting witnesses.
[19] Mr Brown, the plaintiff ’s operations manager between November 2010 and May 2011, says he was told by the Kirklands that units 26, 27 and 28 were leased from the defendant. Both Mr and Mrs Kirkland deny that. Mr Brown’s evidence seems to conflict with Mr Wallace’s evidence to the effect that the defendant entered into occupation licences with the occupiers, not with the plaintiff. It is difficult to understand how or why the Kirklands would have told Mr Brown that they had
leased the units from the defendant, when they were well aware that the defendant had entered into occupation agreements direct with the occupiers.
[20] Mr Brown says also that he was involved in negotiations in respect of four other units, but that is only marginally relevant to the present dispute. No concluded arrangement was reached in respect of those other units.
[21] The second witness, Ms Cole, was a former employee of the plaintiff. She was manager of the hospital from January 2009 (under a former employer) to February 2011. She says that Mrs Kirkland told her that the plaintiff had agreed to rent the three units from the defendant, and to run them as part of the hospital. Mrs Kirkland denies that. It seems plain enough that the apartments were not in fact at any time operated as part of the hospital. They had separate owner-occupiers.
[22] The third witness, Ms Watson, was a former employee of the plaintiff who took over management of the hospital from Ms Cole and worked between February and July 2011. She says that Mrs Kirkland told her that units 26-28 were being rented from the defendant on the same basis as hospital beds. But again, this evidence conflicts with the undisputed evidence that the plaintiff never rented any of the units from the defendant, and could not have done so, having regard to the occupation licences sold by the defendant to the owner-occupiers.
[23] Mr Strauss suggests that the term “rent” is something of a misnomer, because it is ordinarily tied to rights of exclusive occupation. He argues that it is better to consider the claim payments as representing a commission payable by the plaintiff to the defendant for the opportunity of providing hospital care services to occupiers of the three units, in circumstances where the defendant might otherwise have gained additional revenue simply by providing rest home services to the occupiers of the three units. There is evidence that, in respect of these three units alone, the defendant does not charge service or amenity fees.
[24] There may be something in Mr Strauss’s point, but for present purposes his suggestion simply adds a degree of uncertainty that does not sit happily with a statutory demand.
[25] Another remarkable feature of the case is that, although an invoice was sent in June and remained unpaid (and was then supplemented by a further invoice in September), the parties did not discuss the unpaid invoices until 30 September 2011 when there was a meeting between Mr Wallace, Mr and Mrs Kirkland, and Ms Stairmand, who is the current manager of the plaintiff. She took minutes of the meeting, which lasted 45 minutes. The minutes are not a verbatim record of what occurred, but they cover two and a half pages of single spaced typing. There is nothing to suggest they are not accurate.
[26] The meeting took place in the context of a quite separate issue. In about May
2011, the plaintiff discovered that, by reason of the metering arrangements at the combined site, the plaintiff had been paying for electricity supplied not only to the hospital, but also to the whole of the rest home complex. So for a period of some months, the plaintiff considered itself to have been a creditor of the defendant for the overpayment. That topic was addressed during the early stages of the meeting. The question of rent arose part way through the conference. Mr Wallace contended that he was owed rent for the three units. Mr Kirkland responded to the effect that that had never previously been discussed, and moreover, that the occupiers had paid the defendant for an occupation licence. The Kirklands pointed out to Mr Wallace that the defendant had already been paid for the units, and that it was getting, in addition, regular payments from the occupiers for utility charges and so forth.
[27] Mr Wallace said that he had had a conversation with Mr Brown about rent. On the face of it, that seems to conflict with Mr Wallace’s evidence that his arrangements had been made direct with Mrs Kirkland. Moreover, the Kirklands say that Mr Brown had no authority to reach a concluded arrangement about rental payments.
[28] In my view, had Mr Wallace concluded a firm arrangement with Mrs Kirkland about rental for the three units, it is likely that he would have said something to that effect on 30 September. There is no record that he did so. Mr and Mrs Kirkland deny that any such reference was made.
[29] Not only do the Kirklands deny the existence of any rental agreement with the defendant, they say that an agreement of the sort described by Mr Wallace would be commercially disastrous for the plaintiff. Mr Wallace’s evidence is that rental was to be calculated on the same basis as the plaintiff was paying in respect of hospital beds. But Mrs Kirkland says that the plaintiff is providing rest home care (and not hospital care) for the residents of apartments 26-28, and that accordingly, the plaintiff is receiving a rest home subsidy from the government for two of the residents. The third occupier is able to pay for her own care because her financial position is better.
[30] Mrs Kirkland explains that it would have been wholly uneconomic for the plaintiff to enter into the rental obligations outlined by Mr Wallace, because hospital fees or subsidies are much greater than rest home fees. The latter are approximately
60% only of hospital fees. It will therefore be completely uneconomic, she says, to pay hospital bed rates by way of rental for rest home clients.
[31] There is merit also, I consider, in Mr Andersen’s submission, that there appears to be an element of double dipping in the defendant’s approach. It has already received a substantial sum under the occupation rights agreements. It also received a contribution to the cost of utilities and other outgoings. Accordingly, it is already in receipt of substantial payments relevant to the occupation of the units.
[32] Mr Andersen submits that there seems to be no proper commercial basis for a charge to be made to the plaintiff. There is nothing in the evidence to suggest that the occupiers must deal with the plaintiff. To the contrary, the occupiers could avail themselves of rest home services supplied by the defendant, albeit that would entail a fresh financial arrangement between the occupier and the defendant.
[33] In effect, the rental claimed by the defendant from the plaintiff appears to amount to nothing more than a commission charged to the plaintiff for placing business with the plaintiff. But on Mrs Kirkland’s evidence, the commission is so high it could not be contemplated by the plaintiff.
[34] In short, this is a somewhat complicated dispute which turns almost entirely on oral evidence, and which in my view, is unsuitable for the statutory demand procedure. Much will turn on the credibility and accuracy of the principal witnesses, including the three independent deponents upon whom Mr Strauss places considerable reliance. It is a dispute which ought to be resolved by trial in the ordinary manner.
Result
[35] For the foregoing reasons, I find that the plaintiff has established its entitlement to the relief sought. There will accordingly be an order setting aside the statutory demand dated 16 December 2011 and served by the defendant on the plaintiff.
[36] Mr Andersen seeks indemnity costs on the grounds that the service of the statutory demand amounted to an abuse of process. He points out that the statutory demand was issued after an exchange of correspondence between legal advisers, and that the defendant ought to have realised that its statutory demand would be the subject of a successful challenge.
[37] I consider that submission to be responsibly made. The plaintiff has succeeded by a comfortable margin. But the defendant was entitled to test the strength of its position by the issue of a statutory demand. In other words, the notice did not amount to an abuse of process. In those circumstances, the plaintiff is entitled in the usual way to scale costs which I award under category 2B, along with reasonable disbursements.
C J Allan J
0