Dargaville Farms Limited v Webster - [2017] NZHC 1790

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2017-488-55 [2017] NZHC 1790

BETWEEN
DARGAVILLE FARMS LIMITED

Applicant

AND

DAVID BASIL WEBSTER AND FRANCIS KIM WEBSTER Respondents

Hearing: 19 July 2017

Appearances:

Suzanne L Robertson QC for the Applicant
S J Davies-Colley for the Respondents

Judgment:

1 August 2017

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 1 August 2017 at 11:30am
pursuant to Rule 11.5 of the High Court Rules

………………………………………………….
Registrar/Deputy Registrar

Solicitors:
Speakman Law (Peter Speakman), Auckland, for the Applicant
Webb Ross McNab Kilpatrick (Simon Davies-Colley), Whangarei, for the Respondents
Copy for:
Suzanne L Robertson QC, Auckland, for the Respondents

DARGAVILLE FARMS LIMITED v DAVID BASIL WEBSTER AND FRANCIS KIM WEBSTER [2017] NZHC 1790 [1 August 2017]

[1] Dargaville Farms Ltd applies under s 290(4)(b) of the Companies Act 1993 to set aside the Websters’ statutory demand for $726,229.00. It says that it has counterclaims against them for more than their debt. The Websters’ debt is based on my judgment of 15 March 2017 in Webster v Li.1 I found for the Websters that Dargaville Farms Ltd was liable to repay their shareholders’ advances of
$699,800.00. There is overlap between the earlier proceeding and this one.

Setting aside under s 290

[2] There is a rebuttable presumption of insolvency under s 287(a) of the Companies Act if a company served with a demand under s 289 does not comply with it within 15 working days of service. That may be used in a liquidation application to prove that a company cannot pay its debts. There are, however, cases where it would be unjust to allow the presumption of insolvency to arise on non- compliance with the demand.

[3] The general purpose of s 290 is to allow the court to set aside statutory demands. Section 290(4) sets out one general and two particular grounds where it would be unjust for the presumption of insolvency to arise. Under s 290(4) the court decides whether the statutory demand ought to stand so that non-compliance with it will give rise to the insolvency presumption. That is a relatively confined discretion. On a liquidation application, the court has a wider discretion. At that stage, the court may have to take into account competing considerations: not only the interests of the creditors seeking the liquidation of the company but also the interests of other stakeholders, including shareholders and other creditors who see benefits in the company not going into liquidation. In an application under s 290, the court is not required to pre-determine how a liquidation application may be decided.

[4] Under s 290(4)(b) a demand may be set aside if the company has a counterclaim, set-off, cross-demand and the amount in the demand less the amount
of the cross-demand is less than $1,000.00. It is helpful to compare this with the

1 Webster v Li [2017] NZHC 479.

application of insolvency set-off under s 310 of the Companies Act. Insolvency set- off…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NZHC 1790
Decision Date: 1 August 2017

CaseChat Overview and Summary

Dargaville Farms Limited applied to set aside a statutory demand for $726,229 made by David Basil Webster and Francis Kim Webster, arguing that it had cross-demands against them that exceeded the amount in the demand. The court considered whether the statutory demand should be set aside under s 290(4)(b) of the Companies Act 1993, which allows for setting aside if the company has a counterclaim, set-off, cross-demand, and the amount in the demand less the amount of the cross-demand is less than $1,000. Dargaville Farms Limited raised several cross-demands against the Websters, including claims for breach of contract, inducing breach of contract, breach of management agreement, and conversion for the sale of livestock. The court examined the validity and enforceability of these claims. It found that Dargaville Farms Limited had an arguable cross-demand for up to $77,000 relating to mismanagement claims. Consequently, the court set aside the statutory demand except for the amount of $649,229. Dargaville Farms Limited was required to pay this balance by a specified date, or the Websters could apply for liquidation. Dargaville Farms Limited also had to pay the Websters’ costs on the application as the demand had been upheld on the whole.

Orders