Crummer v Winston Home Staging Limited

[2016] NZHC 2211

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-711 [2016] NZHC 2211

UNDER	the Companies Act 1993, section 241
IN THE MATTER OF	an application for the liquidation of WINSTON HOME STAGING LIMITED
BETWEEN	LESLIE ROSS CRUMMER Plaintiff
AND	WINSTON HOME STAGING LIMITED Defendant

Hearing:	19 September 2016
Appearances:	P F Chambers for the Plaintiff D J Clark and S Fletcher for the Defendant
Judgment:	19 September 2016

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Henley-Smith Law, Glen Eden, Auckland, for the Plaintiff

Wilson McKay (D Clark) Auckland, for the Defendant

Copy for:

Paul F Chambers, Auckland, for the Plaintiff

CRUMMER v WINSTON HOME STAGING LIMITED [2016] NZHC 2211 [19 September 2016]

[1]      Mr Crummer applies under s 241 of the Companies Act 1993 for an order that Winston Home Staging Ltd be put into liquidation.  He says that he is a creditor of the company for $6,576.82 for an unpaid invoice for moving furniture, and also for other fees and expenses arising from that.  A statutory demand for that amount was served on the registered office of Winston Home Staging Ltd on 10 February

2016.   The company did not comply with the demand within 15 working days of service and did not apply to set aside the statutory demand under s 290 of the Companies Act.  Mr Crummer began the liquidation application on 11 April 2016. He relies on the presumption of insolvency under s 287(a) of the Companies Act.

[2]      On creditors’ applications for liquidation relying on inability to pay debts, three questions usually come up:

(a)       Is the plaintiff a creditor? (b)     Is the defendant insolvent?

(c)       How should the court exercise its residual discretion?

[3]      There  are  two  main  questions  in  this  case.    First,  whether  the  statutory demand was served in accordance with s 387 of the Companies Act and, second, is there a genuine and substantial dispute as to the debt claimed by Mr Crummer? Winston Home Staging Ltd also contests insolvency.  It does that by contesting the service of the statutory demand but says that in any event it is solvent.

[4]      As its name suggests, the company carries on a home staging business.  For that it requires its furniture to be moved from its warehouse to houses where the furniture is used to assist in selling properties.   Ms Liang Huang, the company’s director, says that Mr Crummer quoted her $750.00 to move furniture from six houses to the company’s warehouse.  Mr Crummer then charged her more than he had quoted, after he had moved furniture from only five of the houses.  The sixth delivery was never completed.   When the dispute erupted, Mr Crummer took the

furniture he had moved and, according to Ms Huang, other furniture which he had not moved, from her warehouse.   He has put them into alternative storage.   She alleges that Mr Crummer is holding furniture in storage to a value of some estimated

$50,000.  Mr Clark says that her business has come to a standstill with the removal of the furniture.

[5]      Ms  Huang  has  attached  to  her  affidavit  texts  that  between  her  and

Mr Crummer about this matter.  One of Ms Huang’s texts says:

The original agreement was $750.00.  You not even finished the whole job. In the middle of the day you stolen my furniture and ask for money when I was not at my warehouse.  In front of the police you ask for $2,250.  Now youre asking for $5,000. You are criminal.

[6]      One of Mr Crummer’s replies says this:

very good.  but you have 30 days in which to come up with the full amount otherwise the furniture is legally mine to do whatever I want with it.   It’s called workers lean [sic]. luv u.

[7]      The debt that Mr Crummer has claimed includes a charge of $4,617.82 for moving the furniture.  He has also included charges for storing the furniture.  On top of that he has included a bill from his lawyer for $1,750.00 including GST.  I was advised that Mr Crummer had instructed his lawyer when Ms Huang complained to the Police about him taking the company’s furniture.   I can understand Ms Huang making that complaint, if she is correct that Mr Crummer took not only the furniture he had moved but also other furniture.   Mr Crummer may have a lien over the furniture he has moved for the amount of unpaid freight but he does not have any right to take other belongings of Winston Home Staging Ltd.

[8]      Winston Home Staging Ltd brought a claim in the Disputes Tribunal to try to get the matter resolved.   The Disputes Tribunal declined jurisdiction because the value  of  the  furniture  held  by  Mr  Crummer  was  more  than  the  Tribunal’s jurisdiction.  Winston Home Staging Ltd has now started a proceeding in the District Court seeking recovery of the furniture.

[9]      I am satisfied that Mr Crummer has proved service of the statutory demand. The person who served  the statutory demand has deposed that she went to the

registered office of Winston Home Staging Ltd, apparently a residential address. After knocking at the door and receiving no response, she left the statutory demand in a courier box inside the front door alcove.   There is no dispute that the place where she served the statutory demand is the registered office of the company.  By leaving the statutory demand at the registered office of the company she served it in accordance with s 387(1)(c) of the Companies Act.  Ms Huang says that she did not become aware of the statutory demand until she saw it attached to a counterclaim document which Mr Crummer filed in the Disputes Tribunal.  Her evidence does not go any further than that.   Her evidence does not show that the document was not validly served.    I accordingly find  that  the  statutory demand  has  been  properly served.

[10]     The effect of non-compliance with a statutory demand and the absence of any application to set aside the statutory demand is that there is a presumption that the company is unable to pay its debts.   It does no more than that.   In a liquidation application the company is entitled to adduce evidence to rebut the presumption of insolvency, and it may resist the application for liquidation on all other grounds, including disputing the debt.

[11]     It is well established that when a debt is subject to a bona fide dispute then the  court  may not  make  a  liquidation  order.    In  Yan  v  Mainzeal  Property  and Construction Ltd the Court of Appeal said:1

[61]      It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed.  To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process:  Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd.  In such cases, the court has an inherent jurisdiction to prevent such an abuse of process.   But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings.  The relevant principles were recently summarised  by  Associate  Judge  Faire  (now  Faire J)  in  South  Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:

(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;

1      Yan v Mainzeal Property and Construction Ltd (In Rec and In Liq) [2014] NZCA 190 at [61] (footnotes omitted).

(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.

[12]     An exception to that is under s 288(5) of the Companies Act.   A creditor, whose debt is disputed, may bring a proceeding within that section if they can show that they are a prospective or contingent creditor, and that there is a prima facie case for the company being insolvent.  That, of course, cannot be proved by service of a statutory demand. The court needs to give leave.  Mr Crummer has not tried to bring himself within s 288(5).   Accordingly, the question is whether the debts in the application are subject to a genuine dispute.

[13]     I am satisfied that there are arguable grounds for dispute in this case.  I bear in mind that the amounts in issue are small.  The parties have, understandably, been economic in their evidence.   It is obviously sensible for both sides not to go to inordinate efforts in their evidence.

[14]     Now for the arguable grounds for dispute.

[15]     Ms Huang maintains that she was quoted $750.00 for moving the furniture. Mr Crummer has not contested that.  As I understand his case, he says that he is entitled to charge more than the quoted price.   His argument seems to involve the proposition that, if he has not been paid the price in full, then he is no longer to be held to his original quote and may charge at his ordinary charge-out rate. That seems to  me  to  be  an  unusual  proposition.    Ordinarily,  the  quoted  price  fixes  the contractor’s expectation interest and the contractor cannot demand more than his expectation interest in any claim, even if there has been a breach of contract by the other side.

[16]     The other basis for Mr Crummer’s increased charges seems to be that he had

to do extra work beyond what he had quoted on.   Seen in that light, this matter

becomes an argument by a contractor claiming extras.  Such disputes often arise in construction contracts.   Invariably such matters are unsuitable for a merits determination in a liquidation  application.   Similarly,  given the court’s standard approach of not trying to resolve actual conflicts between the parties, I am unable to determine the reasonableness or otherwise of the charges of Mr Crummer.   It is inappropriate that I should begin any such enquiry.

[17]     Ms  Huang  says  that  Mr  Crummer  did  not  complete  the  job  because  he removed furniture from only five houses. That is an arguable breach of contract.

[18]     Ms Huang says that Mr Crummer took not only the furniture he removed but other furniture out of the company’s warehouse.   Under s 23 of the Carriage of Goods Act 1979, carriers have liens for freight due for moving goods.  But that lien does  not  extend  to  goods  that  the  carrier  has  not  moved.    To  the  extent  that Mr Crummer has taken property which is not subject to the lien, there is an arguable claim against him for conversion and detinue.

[19]     Ms Huang says that the furniture Mr Crummer has taken is worth many thousands of dollars.   It seems likely that the value of the furniture exceeds the amount claimed by Mr Crummer.  In that event, insolvency set-off under s 310 of the Companies Act may apply.  On liquidation the indebtedness of the company will be set off against any liability of Mr Crummer to the company for his conversion of the goods.  When those matters are set off against each other so as to form a single debt, it is likely that Mr Crummer may owe the company more than the company owes him.  That position would mean that there was no net indebtedness.  When a creditor applying for liquidation turns out not to be owed any money on an insolvency set-off basis, there is no real reason for putting the company put into liquidation.

[20]     Another matter for dispute is Mr Crummer’s claim for his legal costs.   In some  contracts,  creditors  specify  that  their  customer  must  pay  any  legal  costs incurred in collecting a debt.  There is no written contract here and there is no basis for  implying  a  contractual  term  that  Winston  Home  Staging  Ltd  should  pay Mr Crummer any legal costs he incurs in collecting the debt.  It may happen that if a liquidation application is successful the court will order costs.   That liability only

arises when the court pronounces the order.  It does not arise earlier.  The claim for legal fees here is for giving legal advice to deal with a complaint by Winston Home Staging Ltd to the Police.   That does not create any liability on Winston Home Staging Ltd to pay Mr Crummer’s legal costs when dealing with enquiries made by the Police. That part of the debt is also subject to a genuine dispute.

[21]     Overall, I am satisfied that because the indebtedness claimed by Mr Crummer is subject to a genuine dispute, in terms of the principles reaffirmed by the Court of Appeal in Yan v Mainzeal,2 Winston Home Staging Ltd has a sound defence to this liquidation application.

[22]     I do not need to deal with the insolvency defence.  Winston Home Staging Ltd has started proceedings in the District Court.  That is the appropriate court in which to determine the differences between the parties.  I am in no position to judge the merits of the dispute between them.

[23]     I dismiss the liquidation application and order Mr Crummer to pay costs to Winston Home Staging Ltd.  The costs will be on a category 2B basis.  If the parties cannot agree costs, memoranda may be filed.

………………………............

Associate Judge R M Bell

2      Yan v Mainzeal, above n 1.