Epsom Woods Limited v Waitakere Farms Limited

[2020] NZHC 2283

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-522

[2020] NZHC 2283

IN THE MATTER

of the Companies Act 1993, s 290, and setting aside a statutory demand

BETWEEN

EPSOM WOODS LIMITED

Applicant

AND

WAITAKERE FARMS LIMITED

Respondent

Hearing:	1 September 2020
Appearances:	D Hayes (via VMR) for the Applicant AAH Low for the Respondent
Judgment:	3 September 2020

JUDGMENT OF GAULT J

This judgment was delivered by me on 3 September 2020 at 10:30 am pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors:

Mr D Hayes, Barrister, New Zealand Commercial Law Corp Ltd, Hamilton

Mr M Hunwick (applicant’s instructing solicitor), Hunwick Law Ltd, Hamilton Ms AAH Low, Alexandra Low & Associates, Auckland

EPSOM WOODS LTD v WAITAKERE FARMS LTD [2020] NZHC 2283 [3 September 2020]

[1]                 Epsom Woods Ltd (EWL) applies to set aside a statutory demand issued by the respondent, Waitakere Farms Ltd (WFL), on 16 March 2020 for payment of

$22,323.40. The statutory demand relates to payment of a costs order of this Court in earlier proceedings,1 in which Associate Judge Bell, on 17 June 2019, granted WFL as defendant summary judgment against EWL.

Factual background

[2]                 There is some overlap between the facts relevant in the earlier proceeding and this proceeding.

[3]                 An agreement dated 15 December 2009 to lease a 51 hectare forestry lot at 131-149 Anzac Valley Road, Waitakere (Lot 1) provided for a lease in the form attached to the agreement – a deed of lease. The agreement was between Richard Gregory Vesey (as trustee of the Doug Vesey Trust) as lessor and North Kaipara Nominees Ltd (as trustee of the Anzac Valley Forestry Trust). Schedule C of the proposed deed provided that the lessee was to own trees on Lot 1.

[4]                 On or about 27 August 2010, Nags Head Horse Hotel Ltd (Nags Head) loaned the owner of Lot 1 $420,000, secured by a registered first ranking mortgage.

[5]                 In September 2010, a forestry right (8601968.3) was granted over part of a lot at 199-201 Anzac Valley Road, Waitakere (Lot 323) and registered on the title in the name of Peter William Mawhinney and Sixty-Six Auckland Ltd.2

[6]                 On 21 July 2011, Mr Vesey, as landlord, and Anthony Mawhinney entered into a residential tenancy agreement.

[7]                 In 2013, following default in relation to the Nags Head loan, Nags Head sought to exercise the rights under its mortgage. It faced obstruction by Peter Mawhinney, brother of Anthony Mawhinney. Court proceedings followed, and this Court held that Nags Head was entitled to sell Lot 1.3 It entered into an agreement to sell Lot 1 to

1      Epsom Woods Ltd v Waitakere Farms Ltd [2019] NZHC 1374 at [53].

2      Lot 323 DP 210991, NA139A/726.

3      Nags Head Horse Hotel Ltd v Mawhinney [2016] NZHC 1740.

Adam Buttling. Further obstruction from Peter Mawhinney and court proceedings followed.4  Lot 1 was eventually transferred to WFL as Mr Buttling’s nominee on   14 March 2017.

[8]                 On 29 October 2018 EWL took an assignment of the 2009 agreement to lease from the “Trustee in the Anzac Valley Forestry Trust” for $1.

[9]                 A document dated 27 November 2018 records an agreement for sale and purchase of standing timber between Sixty-Six Auckland Ltd (as trustee) as vendor (signed by Anthony Mawhinney) and EWL as purchaser. The relevant standing timber was the subject of two forestry rights, one of which was the registered forestry right 8601968.3 over part of Lot 323.

[10]              EWL brought proceedings against WFL claiming that EWL was entitled to the trees grown on Lot 1, through the 29 October 2018 assignment. The first cause of action relied on a constructive trust. EWL relied on a caveat lodged in 2013 and correspondence in 2017 which EWL said was notice to WFL. The second cause of action sought a declaration in relation to Anthony Mawhinney’s occupation rights under the residential tenancy agreement. In effect, EWL claimed that WFL’s interest in Lot 1 was subject to interests not registered against the title – as neither the 2009 agreement to lease nor the residential tenancy agreement had been registered. Only the caveat had been registered but that caveat had been removed by this Court in 2017. There was no evidence the residential tenancy agreement had been assigned to EWL and in any event the Tenancy Tribunal had held it was a prohibited transaction.

[11]              Associate Judge Bell concluded that WFL had an indefeasible title, that EWL’s causes of action could not succeed and granted WFL summary judgment, and costs.5 An appeal by EWL was dismissed by the Court of Appeal on 10 June 2020.6 EWL has filed an application for leave to appeal to the Supreme Court.7

4      Nags Head Horse Hotel Ltd v Mawhinney [2017] NZHC 401.

5      Epsom Woods Ltd v Waitakere Farms Ltd [2019] NZHC 1374 at [46] and [53].

6      Epsom Woods Ltd v Waitakere Farms Ltd [2020] NZCA 226.

7      Epsom Woods Ltd v Waitakere Farms Ltd SC 51/2020.

Current set-off / counterclaim

[12]              In support of its application to set aside the statutory demand, EWL claims there is an arguable set-off or counterclaim. An affidavit of Paul Alexander, a director of EWL, asserts that EWL is owed compensation for trees harvested on Lot  323.  Mr Alexander attaches a letter from EWL’s lawyer (Mr Hayes) dated 12 September 2019 explaining the issue. That letter claims that WFL perhaps inadvertently extracted 45 of EWL’s trees when it was harvesting (across the boundary on Lot 1) and also removed 50 trees when it cleared a track. The letter asserts a value for the trees of

$23,000 plus GST (230 tons at $100 per ton).

[13]              Mr Alexander’s affidavit also seeks $18,071 which is said to be the cost of obtaining permission to remove the trees from the lots. He attaches an invoice from “Trustees of Forest Trust” for services obtaining a declaration from the Environment Court.

[14]              Mr Alexander’s affidavit attaches the 27 November 2018 agreement for sale and purchase of standing timber, which EWL relies on as evidence of its ownership of the trees on Lot 323.

The test to be applied

[15]Section 290 of the Companies Act 1993 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

(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.

…

[16]              Mr Hayes submits the threshold in relation to a set-off or counterclaim is low, emphasising the words “appears to have a counterclaim, set-off, or cross-demand” in s 290(4)(b) and citing RD2 International Ltd v NDP 2010 Ltd,8 where Associate Judge Osborne (as he then was) referred to the Court of Appeal’s statement in Industrial Group Ltd v Bakker:9

[24]      We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a).  No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator's award and opposition to summary judgment.10

[25]      The approach required by the “appearance” test in s 290 is a review with a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator's award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.

[17]              As the Court of Appeal said more recently in Manchester Securities Ltd v Body Corporate 172108:11

[27]      In relation to set-off, s 290(4)(b) provides that the court may grant an application to set aside the statutory demand if the company “appears to have a counterclaim, set-off, or cross-demand” and the amount specified in the demand less the amount specified in the counterclaim is less than $1,000.12 Just as any defence must be shown to be reasonably arguable, so must any set-off, counterclaim or cross-demand. However, the obligation is not to prove the actual claim. It is not expected that the dispute itself is to be tried in the course of hearing the application. It has been said that “clear and persuasive” grounds must be shown for a set-off, rather than a mere assertion.13

8      RD2 International Ltd v NDP 2010 Ltd [2013] NZHC 1892 at [3]-[5].

9      Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413.

10     See United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at [34].

11     Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455.

12     Companies Act 1993 Liquidation Regulations 1994 , reg 5.

13     Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11], citing

Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63 (CA) at 78.

There must be a real evidential basis for the claim, and the claim must be arguable as a matter of law.14

[28]      In relation to contingent and unquantified counterclaims or set-offs, it has been held that the court must be able to determine from the material provided whether the amount of the set-off or counterclaim is more than the amount claimed in the statutory demand. Thus in Sunglass Hut New Zealand Ltd v Amtrust Pacific Properties Ltd, the High Court held that, while the applicant had shown an arguable counterclaim for damages or compensation, the unquantified nature of the counterclaim meant that it had not shown to the required standard that the counterclaim would have equalled or exceeded the amount claimed in the statutory demand.15 That is not an issue here, where Manchester has given general evidence claiming a set-off of $604,942.

Discussion

[18]              The question is whether EWL has a reasonably arguable claim – in the sense set out by the Court of Appeal above – for damages against WFL in relation to the trees on Lot 323.

[19]              Mr Hayes, for EWL, submits there is a reasonably arguable claim against WFL for damages. He clarified orally that the basis for EWL’s claim is in conversion. However, given his reference in submissions to EWL’s application for leave to appeal to the Supreme Court in the earlier proceeding, I note that if EWL’s claim were against WFL as a successor in title (of Lot 1 or Lot 323) through a mortgagee sale, the claim would not be reasonably arguable. The only conceivable basis for such a claim would be an exception to indefeasibility of title – which this Court and the Court of Appeal have already determined cannot succeed. The application for leave to appeal to the Supreme Court does not affect the Court of Appeal decision. No stay of execution has been granted pending appeal. Such a claim would not be arguable as a matter of law.

[20]              The claim now asserted relating to Lot 323 is that WFL itself, since it acquired Lot 323, has converted EWL’s property. Such a claim is not defeated by indefeasibility of title.

14     Provida Foods Ltd v Foodfirst Ltd [2012] NZCA 326, (2012) 21 PRNZ 546 at [32].

15     Sunglass Hut New Zealand Ltd v Amtrust Pacific Properties Ltd HC Auckland M1710/02, 24 June 2003 at [41].

[21]              EWL claims it owns the trees that are subject to the registered forestry right, relying on the 27 November 2018 agreement for sale and purchase of standing timber. WFL disputes the genuineness of that agreement, which was only provided to it in September 2019 as a result of correspondence following the issue of an earlier statutory demand, and not in response to WFL’s earlier request for evidence in March 2019.

[22]              Ms Low, for WFL, also questions the effect of the agreement as it was only signed by one of the two registered owners of the forestry right, Sixty-Six Auckland Ltd, and not by Peter Mawhinney. She acknowledges that Mr Mawhinney might have held the forestry right on trust but submits it is possible that at least part of his interest belongs to the Official Assignee given his bankruptcy.

[23]              The genuineness of the 27 November 2018 agreement is not an issue for determination on an application to set aside a statutory demand. I accept there is an evidential basis for the agreement albeit one raising questions. However, as Ms Low submits, there is a real question as to what was transferred and by whom. The evidence only indicates the agreement was signed by one of the two registered owners of the forestry right. In the absence of explanation as to the nature of their ownership, it is unclear whether Sixty-Six Auckland Ltd was transferring only its interest or whether the agreement was ineffective, as would be the case if the two registered owners held as trustees and both needed to sign. This may at least affect the quantum of EWL’s claim as there may have been a transfer of only part of the forestry right. After the agreement was produced, on 15 October 2019 WFL sought further explanation from EWL, including an affidavit from  Mr Mawhinney,  but  none  was  forthcoming.  The issue was evident again in this proceeding following Mr Duncan’s affidavit for WFL. EWL was given an opportunity to file further evidence in support of its application but did not do so. As indicated, the threshold test is relatively low but there is still an onus on an applicant to set aside a statutory demand.

[24]              As Ms Low submits, the new claim is not sufficiently related to the statutory demand judgment debt to give rise to a set-off. Legal set-off requires “mutual debts which are due and payable and either liquidated or in sums capable of ascertainment without valuation or estimation”, and equitable set-off requires the transactions to be

sufficiently connected.16 But s 290(4)(b) applies equally to counterclaims. The same reasonably arguable test applies.

[25]              Ms Low accepts that Mr Duncan’s affidavit acknowledges some impingement on Lot 323 but she submits the claim is unquantified or at least that the quantum is based on mere assertion. She relies on WFL’s responsible approach in correspondence well before the current statutory demand was issued, which gave EWL ample opportunity to make out its claim. The 15 October 2019 letter referred to above also disputed the boundary line, the number of trees affected and the track clearing claim. It said WFL’s forestry manager confirmed 25 stumps had been removed and there might be 10 more. As indicated, EWL did not respond. Mr Duncan’s affidavit referred to what his forestry manager had confirmed and also said that his forestry consultant confirmed that the value of the trees possibly affected is between $1,540 (if 35 trees) and $4,180 (if 95 trees).  Mr Hayes submits this evidence is hearsay,  but the real question is whether there is an evidential basis for EWL’s quantification of the value of the trees ($23,000 plus GST).

[26]As indicated, Mr Alexander’s affidavit claims WFL has harvested trees worth

$23,000 plus GST and refers to counsel’s letter of 12 September 2019 which refers to 95 trees and claims 230 tons at $100 per ton.   Mr Hayes submits that in effect      Mr Alexander has provided that calculation by reference to counsel’s letter. I accept that at this stage the Court is not determining the value and, given the reasonably arguable threshold, EWL need not adduce a formal valuation. But there is no evidence to support the calculation. Indeed, as Ms Low submits, Mr Alexander does not give any direct evidence about the count of 95 trees, the calculation of 230 tons or the $100 per ton price. The calculation in counsel’s letter is therefore even more susceptible to the hearsay criticism. As indicated, EWL was given an opportunity to file further evidence in support of its application but did not do so. In the circumstances, I accept Ms Low’s submission that the $23,000 plus GST quantified by EWL is based on mere assertion. It also assumes that the forestry right was transferred to EWL in full without further explanation as to the effect of the 27 November 2018 agreement, as indicated.

16     Edge Computers Ltd v Colonial Enterprises Ltd (1996) 9 PRNZ 621 (CA) at 624.

[27]              In relation to the $18,071, there is some limited evidence. Mr Alexander’s affidavit says this is the cost  of  obtaining permission  to remove  trees,  although  Mr Hayes’ 12 September 2019 letter attached to the affidavit refers to clearing done to create a track. Mr Alexander also attaches an invoice from “Trustees of Forest Trust” to EWL for services obtaining a declaration from the Environment Court, but its connection or relevance is unclear. In particular, the need to obtain a declaration from the Environment Court relating to the current issue is not explained. Mr Hayes acknowledged that the “Trustees of Forest Trust” relates to Mr Mawhinney, and the Environment Court issue related to Lot 1. I do not consider the $18,071 invoice evidences a cost that could form part of the damages for the current conversion claim, even assuming it was paid by EWL.

[28]              Accordingly, I do not consider there is a real evidential basis giving rise to a reasonably arguable counterclaim for more than the $22,323.40 statutory demand or within $1,000 of it (the prescribed amount).

[29]              It is therefore unnecessary to address Ms Low’s alternative submission that this is one of those rare cases, like Manchester Securities and Luxe One Ltd v Body Corporate 68792,17 where I should exercise my discretion not to set aside the statutory demand because of EWL’s conduct. I merely record that the conduct relied on was essentially EWL’s failure to evidence its counterclaim, which is relevant to my conclusion that there is not a real evidential basis giving rise to a reasonably arguable counterclaim, rather than conduct relevant to withholding relief in the exercise of the Court’s discretion.

[30]              Ms Low seeks an immediate liquidation order under s 241 of the Companies Act 1993, but I consider the process should not be short-cut in that way. EWL is a party to an application for leave in the Supreme Court, and this is not a case justifying such a short-cut.18

17 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [45]-[49] and [62]; and Luxe One Ltd v Body Corporate 68792 [2017] NZHC 2672 at [169] and [172].

18 239 Queen Street Developments Ltd v Watts & Hughes Construction Ltd [2012] NZHC 1791.

Result

[31]EWL’s application to set aside the statutory demand is dismissed.

[32]I order EWL to pay the judgment debt within 15 working days.

[33]If EWL defaults, WFL may make an application to put EWL into liquidation.

[34]              WFL is entitled to costs. If costs cannot be agreed, I will receive memoranda (not exceeding three pages) on behalf of WFL within 15 working days and on behalf of EWL within a further 10 working days. I will then determine costs on the papers.

Gault J