Euro Holdings Limited v Renoarts Limited

[2019] NZHC 2008

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-0905

[2019] NZHC 2008

BETWEEN

EURO HOLDINGS LIMITED

Applicant

AND

RENOARTS LIMITED

Respondent

Hearing:

14 August 2019

Appearances:

A Kalinowski for the Applicant

P J Shanahan-Pinker for the Respondent

Judgment:

16 August 2019

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 16 August 2019 at 2.00pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel:

Smith & Partners, Auckland K3 Legal Ltd, Auckland

EURO HOLDINGS LTD v RENOARTS LTD [2019] NZHC 2008 [16 August 2019]

[1]        On 14 May 2019 the applicant (Euro) applied to set aside a statutory demand for the sum of $21,542.98 issued by the respondent (Renoarts). That application is opposed by Renoarts.

[2]        On 3 July 2019, Associate Judge Andrew made an order extending the time for compliance with the statutory demand, pending the determination of Euro's setting aside application.

[3]Three payments have been made since the statutory demand was issued.

$4,000 was paid on 13 May 2019, $8,000.44 on 9 August 2019, and $2,812.47 on  12 August 2019.

[4]        By the time of the hearing, only three aspects of the claims in the statutory demand were disputed:

(i)$754.40 of the invoiced amounts;

(ii)$5,487.00 for legal fees;

(iii)Interest on the disputed amounts.

Background

[5]        Euro carries on business as plumbers, gasfitters, and drainlayers, and Renoarts is a supplier of bathroom equipment and fixtures. In 2018 Euro was a subcontractor for the supply of sanitary fixtures on a residential development at Turehu Road, Papakura, comprising 14 new units.

[6]        In August 2017 Euro obtained a "Quotation Booklet", setting out Renoarts' prices for bathroom products and fixtures for the development.

[7]Euro opened a credit account with Renoarts, on or about 19 December 2017.

[8]        The terms and conditions in the commercial credit account application form provided that payment was to be made by the end of the month following delivery. In

addition to the price for the goods, cl 1.1 of the terms and conditions provided that, subject to any contrary provision in the contract, the buyer would also pay any delivery charges. Default interest was to be paid at a rate equal to 5 per cent above Renoarts' bank's base overdraft lending rate from time to time, calculated on a daily basis from the date payment was due until the date payment was received.

[9]        On 17 July 2018 Euro sent an email to Mr Singleton, a branch manager employed by Renoarts, advising that Euro was about to start the fit out work at the Turehu Road address. Euro ordered certain items from Renoarts, and a number of items were supplied on or about 20 July 2018. Renoarts sent its invoice N6320 dated 20 July 2018 for $20,155.40, for the items said to have been delivered.

[10]      Renoarts subsequently issued a credit note for $2,055.80 concerning some returned items, and there was a further invoice for $314.10 for re-stocking (of returned items) issued on 11 September 2018 (Invoice N6947).

[11]      Euro made a payment of $5,000 in October 2018, but by 29 April 2019 when the statutory demand was issued it had not made any other payments.

The statutory demand

[12]      The amount of $21,542.98 claimed by Renoarts in the statutory demand was made up as follows:

Item	Amount
Invoice # N6320 (less credit note 0815 dated 8 August 2018 and part payment of $5,000.00 on 2 October 2018)	$13,100.40
Invoice # N6947 – re-stocking fee	$314.00
Interest on Invoice #N6320 calculated up to 29 April 2019	$2,600.97
Interest on Invoice #6947 calculated up to 29 April 2019	$435.61
K3 Consulting Invoice # 37839 (legal costs)	$1,522.00
K3 Consulting Invoice # 38187 (legal costs)	$3,960.00
Total sum owed	$21,542.98

[13]      The last two items were amounts charged to Renoarts by its solicitors in connection with Renoarts' attempts to recover the amounts claimed.

[14]      There was no provision for recovery of legal costs in the terms and conditions agreed as part of the credit application accepted by Renoarts on 19 December 2017. Renoarts relies for this part of its claim on certain "descriptive invoices" issued to Euro at or about the time of delivery of the goods in 2018, that contained the following clause:

Bad debts will be handed over to debt collection agency for collections and all related cost will be charged.

[15]      There is a dispute between the parties as to whether the "descriptive invoices" containing this provision formed part of the contracts between the parties. The "descriptive" invoices were not produced by Renoarts with its affidavit in opposition to the setting aside application, and Euro says that it never saw the "descriptive invoices" until a copy of one was provided with a letter from Renoarts' solicitors on 14 May 2019. Renoarts produced tax invoices in support of its opposition that did not contain the cost recovery clause, and it was only on 7 June 2019, when Renoarts filed a supplementary affidavit, that the "descriptive invoices" were produced. Renoarts contends that both the tax invoices and the "descriptive invoices" were sent to Euro, and that signatures on the "descriptive" version of invoice N6320 show that Euro agreed to new terms and conditions, including the cost recovery clause.

Communications between the parties

[16]      Mr Singleton produced copies of a number of text messages exchanged between Ms Marshall of Euro and himself, in September 2018. On 20 September 2018 Ms Marshall advised that she had been recovering from surgery, but would go in to the office the following day to meet with her managing director handling payments. She said she would get back to Mr Singleton in the morning. On 21 September 2018 Ms Marshall referred in  a text message to a voice mail message she had left for     Mr Singleton, and a telephone conversation she had had with him on 14 September 2018. She referred to her advice in both the voice message and the telephone conversation that Euro would pay a "smaller amount" in the week of 17 September, with "the balance at the end of the month". Ms Marshall said in the message that Euro had not gone back on its word, and would be paying as soon as funds received at the end of the month had cleared.

[17]      When payment was not made by the end of September 2018, there were further text messages from Mr Singleton, but he apparently did not receive any reply from Ms Marshall. However, in her reply affidavit sworn in this proceeding, Ms Marshall produced a copy of an email dated 18 September 2018 from Mr Ben Keach of Euro to Mr Singleton. Mr Keach said in that email that he had been asked to request that Renoarts send all invoices to a particular email address at Euro for processing, "as we have not been receiving any or you sent them to me and I don't deal with accounts. Please do not send them to me. I have passed on some concerns around wrong or no supply which you have invoiced. You will have to get in touch with [Ms Marshall] to get this sorted please." Ms Marshall said in her reply affidavit that, at the time of her communications with Mr Singleton in September 2018 she had not been aware of the concerns raised in Mr Keach's email of 18 September 2018.

[18]      On or about 1 February 2019 Renoarts' solicitors wrote to Euro demanding payment. Euro replied on 4 February 2019, setting out some grounds on which the claim was said to be disputed, and requesting copies of the invoices, signed delivery dockets and quotations relied upon.

[19]      There was further correspondence between Renoarts' solicitors and Euro on  9 April 2019: the solicitors demanded payment, and Euro repeated the contention that the claim was disputed. Euro again requested signed delivery dockets.

[20]      On 7 May 2019, after the statutory demand had been served, Euro's solicitor wrote to Renoarts' solicitor acknowledging that $4,000 of the amount demanded was no longer disputed. The $4,000 was paid to Renoarts on 13 May 2019.

[21]      On 22 May 2019 Euro's solicitors wrote to Renoarts' solicitors again, challenging the claims for legal fees and interest.

[22]      Euro set out some details of the claimed dispute in emails dated 4 February 2019 and 9 April 2019. Many of the disputes have since fallen away, and only $754.40 of the invoiced amounts (other than the claims for legal fees and interest on disputed sums) was in issue when the hearing commenced.

Applications to set aside statutory demands — legal principles

[23]      A statutory demand is a demand, made in accordance with s 289 of the Act, by a creditor in respect of a debt owing by a company to the creditor.1 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secure payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.2 If a company fails to comply with a statutory demand, that failure provides prima facie proof that the company is unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.3

[24]Section 290 of the Act materially provides:

290Court 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.

(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.

(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.

1      Companies Act 1993, s 289(1).

2      Section 289(2).

3      Sections 287(a) and 241(4)(a).

(7)An order under this section may be made subject to conditions.

[25]Section 291 of the Act materially provides:

291Additional powers of court on application to set aside statutory demand

(1)If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—

(a)order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or

(b)dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,—

on the ground that the company is unable to pay its debts.

(2)For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.

[26]      Where an applicant relies on s 290(4)(a), the onus is on the applicant to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient.

[27]      It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, especially when issues of credibility arise.4

[28]      Where an applicant relies on s 290(4)(b), the applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.5

4      AAI Ltd v 92 Lichfield Street Ltd (in receivership and in liquidation) [2015] NZCA 559 at [17].

5      Howes & Ors Brookers Company and Securities Law (looseleaf ed, Brookers), at CA 290.02, citing North Harbour Equine Hospital  Limited  v  Little  HC  Auckland  CIV-2006-404-7585, 19 February 2007.

[29]      If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.6

The disputed invoiced items — $754.40

[30]      There were initially five separate items in dispute, but one of them (which accounted for only $14.00 of the total  of  the  disputed  items)  was  conceded  by Mr Shanahan-Pinker in the course of the hearing. I need not refer further to that item. In respect of the remaining four disputed items, Euro does not contend that the goods were not ordered — its case is that ordered goods were not delivered by Renoarts.

[31]      The first item in issue was a charge of $210.00 made for the supply of 14 CST15C Cistern Taps valued at $15.00 each, which Renoarts billed in its invoice N6320 dated 20 July 2018. Euro says that the taps were never delivered.

[32]      Renoarts says that the Cistern Taps were delivered. It relies on the "descriptive" version of invoice N6320 provided with Mr Singleton's supplementary affidavit, which bears an unidentified signature (said to be someone from Euro, possibly Mr Keach) and on which someone else (probably someone from Renoarts) has handwritten the word "Delivered" beside "CST15C Cistern Tap 14 @ $15.00". Mr Shanahan-Pinker submitted that Euro never said after the 20 July 2018 invoice had been sent that the items had not been delivered. Renoarts also relies on the text messages exchanged between Mr Singleton and Ms Marshall in September 2018, in which advice was given that payment of the balance would be made at the end of that month.

[33]      In  reply,   Ms Kalinowski  referred  to  the  email  from  Mr Keach  dated    18 September 2018, in which Mr Keach had contended that certain (unidentified) items had not been delivered.

[34]      The second claim by Euro that items invoiced to it were not delivered, was in respect of an item described as "Englefield 32mm Popup Waste with overflow

6      AMC Construction Limited v Frews Contracting Limited [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].

99326A-CP". 14 of the popup wastes were billed at $16.10 each (total $225.40) in Renoarts' invoice N6320. The third disputed item was a charge for "14 FH15/600 Toilet Flexible Hose 600mm", billed at $140.00 in invoice N6320. Euro says that neither the popup wastes nor the flexible hoses were supplied. The complaint of non-delivery over these two items was raised by Euro in an email to Renoarts' solicitors dated 9 April 2019, in which Euro stated:

We never received any flexihoses (provide signed delivery dockets). We never received any popup wastes (provide signed delivery dockets).

[35]      Renoarts again relies on its "descriptive" version of invoice N6320, bearing the unidentified signature that might or might not be the signature of Mr Keach. The word "Delivered" is also handwritten beside the charge for the flexible hoses item.

[36]      The last of the disputed items relates to the credit note for $2,055 issued by Renoarts on 8 August 2018. The credit note included a credit for three items that had been charged at $165.00 each (described as "SL9T Liner 885*885*1900"). Four of these items had been supplied, and Euro says that four of them were returned. It contends that there should have been an additional credit of $165.00 for the fourth SL9T Liner.

[37]      Renoarts contends  that  only  three  of  the  SL9T  Liners  were  returned.  Mr Shanahan-Pinker submitted that Euro did not bring this up until Ms Marshall filed her reply affidavit on 4 June 2019, when the item was included in a schedule attached to the affidavit.

Decision on the four disputed items

[38]      I am not satisfied that Euro has raised a genuine and substantial dispute on any of the four disputed items.

[39]      First, Ms Marshall's text messages to Mr Singleton in September 2018 did not raise any red flags on the subject of non-delivery. On the contrary, they indicated that outstanding invoices, including invoice N6320, would  be  paid.  The  email  from Mr Keach dated 18 September 2018 was vague and non-specific in terms of products

that were said not to have been supplied, and if items which had been ordered were not in fact supplied, it must have been possible for Euro to provide evidence of where it obtained substitute products, and for how much. For example, if Renoarts did not supply 14 CST15C Cistern Taps, presumably Euro had to obtain them from somewhere else, and there would at very least have been a record of the purchase.

[40]      Next, I note that the "descriptive" version of invoice N6320 appears to have been emailed to Mr Keach at his Euro email address, on 20 July 2018. Presumably the items Euro had ordered were required for installation within a reasonable period after 20 July 2018, but it was not until two months later that Mr Keach sent his email referring to unspecified non-deliveries. There is an obvious, unanswered, question as to whether Mr Keach received the "descriptive" version of invoice N6320.

[41]      Euro now say that it never saw the descriptive form of the invoice until 14 May 2019, but the copy produced with Mr Singleton's supplementary affidavit shows that it was addressed to "ben" at europlumbing.co.nz, and it appears that Mr Keach had been receiving invoices from Renoarts (one of the matters he had complained about in his email of 18 September 2018 was that invoices previously sent to him should have been sent to Euro's "accounts" email address for processing). Mr Keach said in his 18 September 2018 email to Renoarts that he had passed on "some concerns around wrong or no supply which you have invoiced", and he invited Mr Singleton to get in touch with Ms Marshall to sort those matters out. Presumably the person to whom he would have passed on any concerns would have been Ms Marshall, but it is clear from her text message exchanges with Mr Singleton on 21 September 2018 that no concerns had been passed on to her.

[42]      Next, there is the unidentified signature on the first page of the "descriptive" version of N6320. The signature certainly looks as if it might include the word "Keach", and of course the document is said to have been emailed to Mr Keach.

[43]      Mr Keach's email of 18 September 2018 shows that Mr Keach was "Project & Technical Manager" for Euro. On the face of it, he would have had a clear interest in the detail of any items ordered by Euro that had not been supplied.

[44]      In view of all of those matters I think it was clearly incumbent on Euro to provide evidence from Mr Keach on the allegedly undelivered items. It was not in my view enough for Ms Marshall to say in her second reply affidavit that she had made enquiries with Euro's staff, and that none had been able to identify the signatures on the "descriptive" invoices as being theirs. The statement begs the questions of (i) whether Mr Keach is still employed by Euro, and (ii) whether any current Euro staff member was able to identify the signatures as belonging to anyone else who might have been acting on Euro's behalf.

[45]On the dispute relating to whether Euro should have been credited with

$165.00 for an additional SL9T Liner returned to Renoarts, Euro's delay in raising the matter again counts against it. The credit note was issued on 8 August 2018, and it appears that the complaint was not made until June of 2019, when the item was included in a schedule attached to Ms Marshall's first reply affidavit. Nor does there appear to be any proof (of the kind Euro apparently expected Renoarts to provide) of the re-delivery of four SL9T Liners to Renoarts, rather than the three allowed for in the credit note.

[46]      Having regard to all of those considerations, I am not satisfied that Euro has raised disputes on the balance of $740.40 which is now in issue under this heading, that can be regarded as both substantial and genuine. A credit of $14.00 will be allowed to Euro in respect of these claims, but otherwise the statutory demand will stand in respect of them.

The argument over the legal fees

[47]      The statutory demand claimed a total of $5,582 for legal fees charged to Renoarts by its solicitors.

[48]      I am satisfied that Euro has demonstrated that there is a genuine and substantial dispute over this part of the amount demanded.

[49]      The terms and conditions agreed to by the parties in the credit application form on 19 December 2017 did not contain any provision for Renoarts to claim its legal

costs of recovery, and there is in my view a genuine and substantial dispute over whether Euro subsequently agreed to accept liability for legal fees.

[50]      Ms Kalinowski relied on the judgment of Associate Judge Bell in Security Systems Ltd v Smart Controls Ltd, where the respondent had charged fees relating to debt collection when no such term had been included in the parties' agreement.

Subsequent invoices had stated that debt collection costs would apply.7

[51]The Associate Judge said:8

… I can see no basis for Smart Controls Ltd to claim those additional sums. There is nothing in the evidence to show any term under which Smart Controls Ltd could recover debt-collecting costs. Its invoices do have words referring to recovery of costs and default interest charges. Words on invoices issued after a contract has been entered into are ineffective as contractual terms. Smart Controls Ltd has not shown that there was any contractual term under which it could recover its collection costs.

[52]      Mr Shanahan-Pinker endeavoured to argue that the signatures appearing on the "descriptive" versions of Renoarts' invoices can be read as acceptance by Euro of the additional provisions included in the descriptive invoices, including the provision purporting to make Euro liable for any costs of recovery action. But it is not at all clear that the signatures, if they are signatures of someone at Euro, were intended to do anything more than acknowledge receipt of the items referred to in the descriptive invoices. It is in my view clearly arguable for Euro that the signature (or signatures

— it may be that there are two different signatures) were not intended to communicate Euro's consent to additional terms being added to the contract.

[53]For those reasons, the statutory demand will be set aside to the extent of the

$5,482 claimed in respect of legal fees.

The claim for interest

[54]      Initially, there was some dispute over the rate at which Renoarts was entitled to claim late payment interest. In the end, however, counsel agreed that the correct

7      Security Systems Ltd v Smart Controls Ltd [2017] NZHC 2465.

8 At [25].

rate for default interest is 16.75 per cent per annum, being 5 per cent above the ANZ base overdraft rate for the period.

[55]      I am only concerned in this judgment with the validity of the statutory demand, and the statutory demand did not purport to cover interest running on after 29 April 2019, when the demand was issued. To the extent that in its very recent payments Euro has made payments of interest in respect of the period after 29 April 2019, I will therefore leave those interest payments out of account: Euro might be liable for them, but they do not affect the amount claimed for interest in the statutory demand.

[56]      By my reckoning the correct amount of interest on invoice N6320, calculated to 29 April 2019 at the rate of 16.75 per cent, is $1,877.82, calculated as follows:

Amount	Balance Outstanding	Interest Start Date	Interest End Date	No. Days	Interest
$20,141.40	$20,141.40	20/07/18	08/08/18	19	$175.62
Cr $2,055.00	$18,086.40	09/08/18	02/10/18	54	$448.20
$5,000.00	$13,086.40	03/10/18	29/04/19	209	$1,254.00
Total of interest on invoice N6320 to 29 April 2019					$1,877.82

[57]      Turning  to  invoice  6947,  the  amount  was  $314.10  and  the  start  date   11 September 2018. The number of days from 11 September 2018 to 29 April 2019 is 230. At the rate of 16.75 per cent per annum, I calculate interest to 29 April 2019 on the $314.10 at $33.15.

[58]The total claim for interest on the two invoices, then, should have been

$1,910.97. The amount claimed in the statutory demand for interest was $2,646.58, so the interest has been overclaimed by $735.61. The statutory demand will be set aside to the extent of that $735.61.

Result

(1)The statutory demand is set aside in respect of the following amounts:

(i)$5,482 claimed for costs;

(ii)$735.61 in respect of the claim for interest;

(iii)$14.00, being the amount conceded by Mr Shanahan-Pinker on Euro's disputed invoice items.

Total $6,231.61

(2)The statutory demand was validly issued for the sum of $15,311.37.

(3)Euro has paid a total of $14,812.91 since the demand was served, comprising payments made on 13 May 2019  ($4,000), 9 August 2019 ($8,000.44) and  12 August 2019 ($2,812.47). In a letter to Renoarts' solicitors dated 12 August 2019, counsel for Euro advised that the payments made on 9 and 12 August were comprised of $8,495 towards the principal sum claimed, plus $2,317.91 for interest at 16.75 per cent calculated to 12 August 2019.

(4)That $2,317.91 paid by Euro for interest to 12 August 2019, is to be applied first to the interest properly demanded in the statutory demand ($1,910.97), with the balance ($406.94) applied in respect of interest for the period after 29 April 2019. On that basis, the payments made by Euro in reduction of the sums properly demanded under the statutory demand, come to $14,405.97. The shortfall between that sum and the amount for which the statutory demand is to stand, is $905.40. As the date for Euro to comply with the statutory demand was extended by order of the Court to the date of this judgment, Euro has failed to comply with the statutory demand by failing to pay $905.40 of the sum validly demanded by Renoarts.

(5)The statutory demand having been upheld to the extent of approximately 75 per cent, Renoarts is entitled to costs on the setting aside application. I award those costs on a 1B basis, reduced by 20 per cent to reflect the fact that the statutory demand was set aside in respect of the claims for legal costs, part of the claim for interest, and the $14.00 conceded by Renoarts at the hearing. Renoarts is also to have its reasonable disbursements, as fixed by the Registrar.

Associate Judge Smith