Fenton Projects Limited v Carlton Gore Holdings Limited

[2013] NZHC 2872

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3604 [2013] NZHC 2872

BETWEEN  FENTON PROJECTS LIMITED Applicant

ANDCARLTON GORE HOLDINGS LIMITED

Respondent

Hearing:                   22 October 2013

Counsel:                  M Lenihan for Applicant

GJ Luen for Respondent

Judgment:                31 October 2013

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 31 October 2013 at 2.00 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Burton & Co, Auckland

Hesketh Henry, Auckland

FENTON PROJECTS LTD v CARLTON GORE HOLDINGS LTD [2013] NZHC 2872 [31 October 2013]

[1]      The  applicant,  Fenton  Projects  Limited,  seeks  an  order  setting  aside  a statutory demand.   The respondent, Carlton Gore Holdings Limited, served the demand,  which  is  dated  17  July  2013,  on  the  applicant  seeking  payment  of

$63,579.62 for outstanding rent and other sums due under a lease.

[2]      The application is in reliance on s 290(4)(a) of the Companies Act 1993 which relevantly states:

(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

[3]      There is no dispute that the application has been made and served in the time allowed under s 290.  At issue is whether there is a substantial dispute as to whether or not the debt is due and owing by Fenton to the Carlton.

[4]      Carlton opposes the application.

Background

[5]      Fenton  leases  premises  at  77  Carlton  Gore  Road  from  the  lessor,  the Melanesian Mission Trust Board, pursuant to an assignment of lease.  Fenton took the assignment from Carlton in August 2007 and became liable to pay the rent and observe the covenants of the lease.

[6]      Notwithstanding the assignment of the lease, Carlton also remains liable to the Trust Board for sums due under the lease and pursuant to s 98 of the Land Transfer Act 1952 and s 367(5) of the Property Law Act 2007, it has the benefit of implied covenants in the assignment of lease that Fenton will pay the rent and pay all of the lessee’s covenants in the lease expressed or implied.   Under the same provisions, Carlton has the benefit of Fenton’s implied covenant to indemnify it in respect of unpaid rent or breach of the covenants of the lease and to keep Fenton

harmless against all associated actions and expenses.1

1      It is common ground that Carlton is entitled to claim against Fenton in respect of its liability to the landlord pursuant to s 98 Land Transfer Act 1952 (which continues to apply to this lease

[7]      Under the lease rent is payable quarterly on the first day of the months of March, June, September and December in each year during the term.  Each quarterly payment is $63,250 inclusive of GST.

[8]      During the period 1 September 2011 to 31 May 2013, Carlton says there was a shortfall between the amount Fenton paid to the Trust Board and the amount actually due under the lease.  On 5 July 2013, Carlton’s solicitors, Hesketh Henry, wrote to Fenton demanding payment of $63,579.62 for the alleged shortfall, pursuant to its right of indemnity.  Hesketh Henry included in the letter a schedule in which it listed the payments for which Fenton was invoiced by the Trust Board2 and a list of the payments Fenton was said to have made to the Trust Board during that period.

[9]      There is no dispute that the schedule correctly lists the rent and other items that Fenton was liable for under the lease which total $451,313.44.  Nor is there any serious dispute that Fenton made the payments totalling $387,733.82 as set out in the schedule.  Fenton’s real argument centres on Fenton’s liability to indemnify Carlton for the difference.

[10]     On 17 July 2013, Carlton served Fenton with a statutory demand under s 289 seeking payment of $63,579.62 for Fenton’s failure to pay rent and other sums due under the lease.  Fenton has again declined to pay this amount.  Counsel for Fenton submits it is right not to do so as it has not received any communication in writing from the Trust Board stating that this amount is due and owing under the lease and therefore that the Trust Board has not and does not claim any shortfall from Fenton. Additionally, he submits that Carlton has failed to provide any evidence that it has paid the shortfall to the Trust Board and, accordingly, that there is no debt due under the lease that Carlton may sue Fenton for.  Fenton’s concern, counsel submits, is that Carlton will receive a windfall of the amount of the demand.

[11]     Carlton’s position as set out in its affidavit evidence is essentially that it was

and still is liable to pay sums due under the lease which Fenton has not paid and that

Fenton must indemnify it for this shortfall. The evidence of Mr Keane, an accountant

dated 17 September 2004, pursuant to s 367(5) Property Law Act 2007).

2      That is, the quarterly payments of rent plus penalty interest, legal fees for rent arrears recovery and outstanding water charge for the period 1 September 2011 to 8 March 2013.

at the firm of Moore Stephens Marcums, which provides professional services to Carlton, explains that total payments required under the lease by Fenton for the relevant period amounted to $451,313.44 and that the total amount of the payments Fenton  made for that  period  was  $387,734.49.   Therefore,  Mr Keane  says,  the shortfall Fenton has failed to pay is $63,578.95.  This is consistent with the Hesketh Henry schedule.   Materially, Mr Keane also deposes that Carlton paid the Trust Board the shortfall as follows:

(a)      On 19 October 2011, Carlton paid $42,494.95 being the shortfall in the quarterly payment of rent due on 1 September 2011 plus penalty interest of $328.28 claimed by the Trust Board in accordance with the terms of the lease.

(b)On 9  May 2012,  Carlton  paid  the shortfall  of $21,083.33  for the quarterly rent payment due on 1 March 2012.

[12]     Mr Keane also referred in support to a letter dated 9 August 2013 that Trust Management, a firm that manages the property at 77 Carlton Gore Road for the Trust Board, addressed to Carlton acknowledging that Carlton met these payments following default in payment by Fenton.   The affidavit evidence of Mr Fisher, a director of Carlton, confirms Mr Keane’s account of Fenton’s defaults and Carlton’s payments to remedy the defaults.  He states:

Fenton defaulted on payments due under the Lease on 1 September 2011 and

1 March 2012.  In respect of those defaults [the Trust Board] drew down on the funds which Carlton Gore had provided to rectify those defaults to a sum of $63,578.95.

[13]     Mr Fisher explains by way of background that in 2007, before the Trust Board would consent to the assignment of the lease to Fenton, the Trust Board required Carlton to deposit funds into an account which the Trust Board and its authorised agents had control over.  Those funds were to be held by the Trust Board in support of Fenton’s obligations under the lease and the Trust Board was entitled to draw down on those funds in the event of Fenton’s default.

[14]     Mr Fisher’s affidavit was filed the day before the hearing.   Counsel  for Fenton initially objected to the receipt of the affidavit but that objection was withdrawn on my indication that Fenton could seek leave to file an affidavit in response.

[15]     Fenton did not file any affidavit evidence challenging Mr Keane’s affidavit.

Issues

[16]     Two essential issues arise for determination.   They are whether there is a substantial dispute that:

(a)      Fenton has paid the Trust Board $63,578.95 less than the amount it is obliged to pay under the lease – in which case it was in breach of its obligations under the lease and its obligations under the assignment of the lease.

(b)The Trust Board has looked to Carlton for payment to rectify the breach – on which turns the liability to Fenton for a debt that is owing and due.

[17]     It is common ground that for a dispute to be substantial: (a)    The dispute must be genuine;

(b)Whether  there  is   a  dispute  is   a  question  of  fact   in   all   the circumstances;

(c)       There must be a proper foundation for the dispute; and

(d)The applicant must show a fairly arguable basis that it is not liable for the amount claimed.

[18]     The burden of proof lies on the applicant debtor to produce some sort of material, short of proof, which backs up the claim must be provided.   It is not sufficient to simply claim the debt is disputed.

Is Fenton in breach of the lease and the assignment?

[19]     The short answer is “yes”.  It is plain on the evidence that Fenton raises no challenge to the scheduled payments it was obliged to pay under the lease as set out in the schedule Hesketh Henry sent.  Nor does Fenton raise any serious challenge in respect of the payments it actually made as set out in the schedule.  It would have been simple enough for Fenton to set out in evidence the payments it made over the relevant period if it seriously contested Carlton’s statement of the shortfall.  Instead its director, Mr Gapes, gives evidence to the effect that “if there is a shortfall” Carlton has not demonstrated that it has paid for the shortfall.  The words “if there is a shortfall” are telling.   In my finding, Fenton has not seriously raised a dispute about the extent to which it failed to meet its payment obligations under the lease or its obligations under the assignment.  I am satisfied that Fenton was in breach of its obligations under both.

Is there a substantial dispute as to whether the Trust Board has looked to Carlton for the shortfall?

[20]     The short answer is “no”.   It is not disputed that Carlton was liable for Fenton’s breach and that it was obliged to pay the shortfall.  Mr Gape’s scepticism about whether Carlton did pay the shortfall in fact is fully answered by the evidence of Mr Keane and Mr Fisher and that evidence stands uncontroverted.

[21]     On that basis, Fenton is not entitled to a finding that it has raised a substantial dispute as to whether the Trust Board has in fact looked to Carlton for the shortfall. If Fenton had seriously doubted that Carlton had been forced to step in and meet Fenton’s  obligations,  it  would  have  had  little  difficulty  confirming  its  own outstanding liability and Carlton’s by reference to the Trust Board.  Mr Gapes says it is highly unusual that the Trust Board did not make demand on Fenton for money allegedly outstanding.  The obvious and inevitable inference is that it had looked to Carlton for the shortfall.

Result

[22]     For the above reasons, I am satisfied that there is no genuine dispute as to the debt that Carlton claims in the statutory demand.  The only qualification is that the actual amount of the debt is $63,578.95 as opposed to the slightly larger amount of

$63,579.62 set out in the demand.3

[23]     The  result  is  that  the  application  to  set  aside  the  statutory  demand  is dismissed. Additionally, I make further orders as follows:

(a)      Fenton is to pay the debt of $63,578.95 within 10 working days of the date of this judgment.

(b)In default of payment within the time allowed, Carlton may make an application to put Fenton into liquidation on the ground that Fenton is unable to pay its debts.

(c)      Costs  are  reserved  as  counsel  have  requested.     Carlton  seeks indemnity costs in terms of the assignment of lease.  For that purpose, Carlton has five working days to file a memorandum and Fenton a further five working days to file any memorandum in opposition.

[24]     In addition to the orders I have made, counsel for Carlton made an oral application for interest on the amount of the debt set out in the statutory demand, pursuant to s 87 of the Judicature Act 1987.  The claim for statutory interest is not a debt that is owing and due and is not the subject matter of the debt claimed in the demand.  Accordingly, I decline to make such an order.  If there is an entitlement to interest under the contractual arrangements between the parties, then Carlton is free

to take appropriate steps to seek payment of that interest.

3      Mr Keane explains that there is a small difference (67 cents) between the shortfall amount set out in his affidavit and the amount in the statutory demand.  The minor difference has arisen because in November 2011 and October 2012 Fenton paid amounts that did not correlate directly to invoiced amounts, leaving a  net difference of 67 cents and that the correct shortfall is

$63,578.95.   Counsel for both sides agree, quite properly, that nothing turns on this minor discrepancy.

Associate Judge H Sargisson