Ecolibrium Biologicals Limited v Biotelliga Holdings Limited
[2019] NZHC 2628
•15 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001234
[2019] NZHC 2628
BETWEEN ECOLIBRIUM BIOLOGICALS LIMITED
Plaintiff
AND
BIOTELLIGA HOLDINGS LIMITED
Defendant
Hearing: 7 October 2019 Appearances:
D Hayes for Applicant
W L Porter for Respondent
Judgment:
15 October 2019
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
ECOLIBRIUM BIOLOGICALS LIMITED v BIOTELLIGA HOLDINGS LIMITED [2019] NZHC 2628 [15
October 2019]
Introduction
[1] The parties are in the business of developing agribiotech products. In September 2018, they entered into an agreement for the sale and purchase of business assets (the Agreement) under which the respondent, Biotelliga Holdings Ltd (Biotelliga), sold various pieces of equipment to the applicant, Ecolibrium Biologicals Ltd (Ecolibrium).
[2] Biotelliga served Ecolibrium with a statutory demand for the sum of $187,500 including GST, said to be the amount outstanding pursuant to the Agreement.
[3] Ecolibrium has applied to set aside the statutory demand pursuant to s 290 of the Companies Act 1993. It contends that it has a set-off or counterclaim on the basis of an oral agreement between the parties about remediation costs for premises that they formerly shared. It says that the debt at issue was not payable until remediation costs had crystallised at the end of the lease of the premises.
[4] The critical issue I must determine is whether or not Ecolibrium has established that there is a substantial dispute about whether the debt is owing.
Relevant legal principles
[5] The Court’s jurisdiction to set aside a statutory demand is contained in s 290(4) of the Companies Act 1993. That section reads:
290 Court may set aside 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
(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; or
(c)the demand ought to be set aside on other grounds.
[6] The Court of Appeal has recently confirmed the principles the court should apply in exercising this jurisdiction.1 The principles are:
(a)The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b)The mere assertion the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved other than by means of proceedings in the court’s Companies Act jurisdiction.
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[7]The Court of Appeal also stated:
[22] It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant must explain to the Court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
(footnotes omitted)
Background facts
[8] Ecolibrium and Biotelliga are said to be similar companies. They both previously worked from premises in Pukekohe. Mr Stephen Ford, technical director of Ecolibrium, is a shareholder of both companies.
1 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [19]. See also Carroll Civil Ltd v Texco Drilling and Piling Ltd [2019] NZHC 260 at [19].
[9] In December 2017, Biotelliga Ltd (a Biotelliga subsidiary) entered into a Deed of Cancellation of Lease in respect of the Pukekohe premises. Ecolibrium simultaneously entered into a Deed of Lease in respect of the same premises.
[10] On 29 December 2017, Biotelliga and Ecolibrium’s parent company, Ecolibrium Biologicals Holdings Ltd, entered into an agreement recording a licence for Biotelliga to occupy Ecolibrium’s premises.
[11] Pursuant to the Agreement of 24 September 2018, Biotelliga agreed to supply Ecolibrium with various pieces of commercial equipment (set out in sch 1 of the Agreement). In consideration, Ecolibrium was to pay Biotelliga:
(a)$150,000 plus GST on or before the “completion date”, which was 24 September 2018; and
(b)$100,000 plus GST on or before 10 November 2018.
[12] In accordance with cls 4 and 5 of the Agreement, both amounts were to be paid “without deduction or set-off”.
[13]The Agreement also contained the following relevant clauses:
(a)A “no waiver” clause (cl 7.3) providing that no waiver of any breach or failure to enforce any provision limits or waives the right of a party to enforce and compel strict compliance with the provisions of the Agreement;
(b)An “entire agreement” clause (cl 7.8) providing that the Agreement records the entire Agreement between the parties; and
(c)Clause 7.9 entitled “Amendments” providing that no amendment or variation to the Agreement will be effective unless it is in writing and signed by the parties (a “no oral variation” clause).
[14] Biotelliga says that it performed its obligations in accordance with the terms of the Agreement but that Ecolibrium did not.
[15] To date, Ecolibrium has paid Biotelliga $100,000. The amount owing under the Agreement is said to be $187,500 (including GST).
[16] Biotelliga owes Ecolibrium’s parent company $23,575 pursuant to a related agreement. In accordance with the terms of that agreement, Biotelliga has given Ecolibrium a credit of $23,575. It says that it did not have direct obligation to do so but wanted to act responsibly and in the spirit of the related agreement.
[17]The net amount owing by Ecolibrium is thus $163,925 (including GST).
[18] Biotelliga says it made repeated requests for the outstanding amount to be paid but Ecolibrium has failed to engage.
[19] On 30 April 2019, Ecolibrium raised the issue of remediation costs of the Pukekohe premises.
[20] Having failed to resolve matters privately, on 11 June 2019, Biotelliga served Ecolibrium with the statutory demand.
[21] In response, Ecolibrium’s position has been that there was an understanding that Biotelliga would meet remediation costs.
Analysis and decision
[22] The Court of Appeal in Browns Real Estate Ltd v Grand Lakes Properties Ltd held that the efficacy of a no set-off provision in a contract would be undermined if statutory demands could be set aside on the basis of a counterclaim, and there was no reason in principle why statutory demands should not be available in the same way as other enforcement measures.2 The Court further held that a contractual provision of
2 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425.
this type would normally result in the Court’s discretion being exercised against an applicant if a counterclaim or set-off was the sole ground relied on.
[23] In a more recent decision, Manchester Securities Ltd v Body Corporate 172108, the Court of Appeal held that “clear and persuasive” grounds had to be shown for a set-off and that a mere assertion was not sufficient.3 There had to be a real evidential basis for the claim, and the claim had to be arguable as a matter of law.4 It further held that in the case of contingent and unquantified set-offs, the Court had to be able to determine from the material provided that the amount of the set-off was more than the amount claimed in the statutory demand.5
[24] Against the background of the no set-off, no oral variation and entire agreement clauses, the critical issue is whether Ecolibrium has met the threshold of “clear and persuasive” grounds such that the normal approach of exercising the discretion under s 290 against the applicant should not be applied.
[25] I find that the evidence of Ecolibrium falls well short of the “clear and persuasive” threshold. This is not one of those rare and exceptional cases where, despite a no set-off clause and a no oral variation clause in the contract, the Court should nevertheless exercise its discretion to set aside the statutory demand. There is simply no sufficient evidentiary basis for the alleged variation to the Agreement and, on the evidence before me, the claim is not arguable as a matter of law. Further, there is no evidentiary basis to establish that the alleged remediation costs might be more than the amount claimed in the statutory demand. Indeed, there is no evidence at all to make any informed assessment as to what the quantum of those costs might be.
[26] I accept the submission of Mr Porter, for Biotelliga, that Ecolibrium’s evidence is inconsistent, its theory of the case not clear and that, in the context of the no set-off and the no oral variation clauses, Ecolibrium has not established that there is a substantial dispute for the purposes of s 290.
3 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455.
4 At [27].
5 At [28].
[27] It is not clear on Ecolibrium’s evidence whether it says the alleged understanding between the parties about the remediation costs itself constitutes a legally enforceable agreement. References to understandings and agreements are used interchangeably, even in the same sentence, as evident in Mr Ford’s reply affidavit:6
Our understanding was that we would come to an agreement about that issue once we knew what the costs were. Unfortunately Biotelliga now seems to be reneging on the agreement.
[28] Ecolibrium has offered no evidence of precisely when this understanding was reached or what its exact nature was. There is no clear documentation to support the existence of any agreement and the email correspondence provided, including that from Mr Perry to Mr Ford dated 29 April 2019, suggests that there was no such agreement. In that email, Mr Perry refers to outstanding payments and reassurances from Mr Ford that the invoices were not at all a problem and would be paid in the next few days. Ecolibrium has provided no documentation establishing that the issue of remediation was raised by them prior to 30 April 2019 as it contended, or to contradict assertions to the contrary by Mr Perry (and supported by documentation).
[29] Furthermore, any assertion that there was an enforceable agreement about remediation costs is inconsistent with:
(a)The parties’ history of documenting agreements between them.
(b)The timing of the written agreement. Ecolibrium alleges that the understanding was reached as part of its taking over the lease of the premises in December 2017. If there was such an understanding, it must have existed prior to June 2018 when Ms Kumar (who says that there was such an understanding) ceased her employment. However, despite this, the understanding has not been recorded in the “licence to occupy” agreement entered into at the time Ecolibrium took over the lease and was not provided for in the Agreement of September 2018 (despite the existence of an entire agreement clause).
6 Reply Affidavit of Stephen Ford (sworn 19 July 2019) at [4].
[30] Mr Hayes, for Ecolibrium, placed significant reliance on the fact that the Agreement that Biotelliga seeks to enforce was not complied with from day one and, in particular, the deposit was substantially underpaid ($100,000 instead of $172,000). This supports, so it is submitted, the clear inference that there was an oral agreement that further payment would depend upon remediation costs. Mr Hayes contended that Biotelliga has provided no explanation for this and these factors are to be considered in the context of a then, very trusting relationship between the parties. It is thus unsurprising that there is little documentation to support the alleged oral agreement.
[31] I accept those factors might provide some possible support for the contention that there was an oral agreement of the kind contended for, but on their own, and in the context of the clear terms of the Agreement, they are clearly insufficient to establish the threshold of “clear and persuasive grounds”. Importantly, and in any event, it is difficult to see how Ecolibrium could overcome the no waiver provision at cl 7.3 of the Agreement. Furthermore, as Mr Porter submitted, evidence on this issue, when viewed in the context of the evidence as a whole, is lacking in credibility. The finding of Master Venning (as he then was) in Fitzgerald Construction Ltd v Forests Road Developments Ltd is apt:7
[21] It is commercially unrealistic and inherently improbable that the plaintiff would have agreed to waive its strict contractual rights to payment, with the associated rights to claim penalties and interest if payment was not made within time, on the very general and undefined basis that it would be paid at some date in the future …
[32] Biotelliga also submitted that the no oral variation clause in the Agreement (cl 7.9) was fatal to Ecolibrium’s application. In support of that contention, Mr Porter relied on the recent UK Supreme Court decision of MWB Business Exchange Centres Ltd v Rock Advertising Ltd.8 The UK Supreme Court, overturning the Court of Appeal, held that no oral variation clauses were effective to prevent a later oral variation. Lord Sumption, delivering the judgment for the majority, explained the rationale for such clauses:
[12] … There are at least three reasons for including such clauses. The first is that it prevents attempts to undermine written agreements by informal
7 Fitzgerald Construction Ltd v Forests Road Developments Ltd HC Nelson CP14/01, 5 March 2002.
8 MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24, [2019] AC 119.
means, a possibility which is open to abuse, for example in raising defences to summary judgment. Secondly, in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms. Thirdly, a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them. …
[33] The Supreme Court’s decision in Rock Advertising Ltd has not yet received judicial attention in New Zealand.9 Until now, the position in New Zealand has been more equivocal. While such clauses have been enforced in a number of cases, the approach has generally been based on evidential grounds — in the face of a no oral variation clause, strong evidence will be required to prove the parties intended to enter into a legally binding variation.10
[34] It is not necessary for me to decide whether the Rock Advertising Ltd decision also represents the legal position in New Zealand. In the face of the no oral variation clause in this case, Ecolibrium has failed to provide cogent evidence of the oral variation contended for. Lord Sumption’s reference to one of the purposes of a no oral variation clause being to prevent abuse in the summary judgment context reinforces the need to look critically at the evidence relied upon.
[35] For all these reasons, I conclude that the applicant, Ecolibrium, has failed to establish that there is arguably a genuine and substantial dispute as to the existence of the debt. Furthermore, there is no basis for setting aside the statutory demand on the “other grounds” in s 290(4)(c) of the Companies Act. Accordingly, Ecolibrium’s application to set aside the statutory demand is dismissed.
Result
[36] The application by the applicant, Ecolibrium Biologicals Ltd, dated 24 June 2019 to set aside a statutory demand dated 11 June 2019 is dismissed.
[37] I order, pursuant to s 291 of the Companies Act 1993, that the applicant, Ecolibrium Biologicals Ltd, is to pay to the respondent, Biotelliga Holdings Ltd, the
9 Save for a passing reference in L&M Cole Holdings Ltd v Bathurst Resources Ltd [2018] NZHC 2127 at [182].
10 See, for example, Pendarves Packing Ltd v Baitworx Ltd [2014] NZHC 3327 at [80]–[81]; and
Savvy Vineyards 3552 Ltd v Karaka Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [41].
sum of $163,925 (including GST) within five days and that if it fails to do so Biotelliga Holdings Ltd may make an application to put Ecolibrium Biologicals Ltd into liquidation.
[38] As to costs, I find and order that the applicant should pay costs to the respondent (together with disbursements) on a 2B basis and in the total sum of $10,148 as set out in sch 2 to Biotelliga’s submissions dated 3 October 2019.
Associate Judge P J Andrew
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