Fitzcarraldo Investments Limited v Buller Electricity Limited
[2012] NZHC 2707
•16 October 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2012-409-000683 [2012] NZHC 2707
UNDER Section 290 of the Companies Act 1993
BETWEEN FITZCARRALDO INVESTMENTS LIMITED
Applicant
ANDBULLER ELECTRICITY LIMITED Respondent
Hearing: 3 October 2012
Appearances: P S J Withnall for Applicant
W J Palmer and F K Hook for Respondent
Judgment: 16 October 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] In 2010 Buller Electricity Limited (Buller Electricity) contracted with Fitzcarraldo Investments Limited (FIL) to install electricity and telecommunication reticulation in a subdivision under development by FIL. Buller Electricity claims that it is owed $61,745.43, the unpaid part of the contract price. After requests for payment it issued a demand under s 289 of the Companies Act 1993 on 19 March
2012 and served it the following day.
[2] FIL has applied to set aside the demand on the ground that it has a substantial dispute as to whether the sum demanded is owing or due and that it has an arguable counterclaim and set-off, or cross-demand, in a sum exceeding the amount demanded. In argument Mr Withnall informed me that for the purposes of this application, FIL does not contend that the sum claimed is not properly calculated in
accordance with the contract.
FITZCARRALDO INVESTMENTS LIMITED V BULLER ELECTRICITY LIMITED HC CHCH CIV 2012-
409-000683 [16 October 2012]
[3] Section 290(4)(b) of the Companies Act 1993 provides:
The Court may grant an application to set aside a statutory demand if it is satisfied that –
.....
(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;
[4] FIL contends that it has a cross claim for at least $82,637.85 which exceeds the amount claimed. Therefore the issue in this case is whether I am satisfied that FIL appears to have a counterclaim set-off or cross-demand against Buller Electricity.
Legal principles
[5] The applicable legal principles are well-established. In short the applicant must establish that any counterclaim or cross-demand is reasonably arguable in all the circumstances. It is not the function of the Court on this application to determine the actual claim. Further, it will not usually be possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise. These principles are summarised and discussed in North Harbour Equine Hospital
Ltd v Little,[1] and in Carpet Plus 2003 Ltd v A Team Flooring Specialists Ltd.[2]
[1] North Harbour Equine Hospital Ltd v Little HC Auckland CIV-2006-404-7585 19/2/07, Associate Judge Abbott.
[2] Carpet Plus 2003 Ltd v A Team Flooring Specialists Ltd HC Auckland CIV-2008-404-4725
19/1/09, Associate Judge Sargisson.
[6] The Court has a wide discretion. It is established that only in rare cases will that discretion be exercised against setting aside the demand where the grounds for doing so are established: Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd [3] and Primary Health Remuera Ltd v Avoca Residential Construction Ltd.[4] In the latter case O’Regan J stated:
[3] Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd (2001) 16 PRNZ 963.
[4] Primary Health Remuera Ltd v Avoca Residential Construction Ltd (2004) 9 NZCLC 263,647.
[42] We agree that in general terms the discretion not to set aside a statutory demand when the necessary jurisdiction to do so is established under
s 290(4)(a) or (b) will be exercised only in rare cases when there are strong grounds for doing so.
[7] Finally, in Freemont Design and Construction Ltd v W Stephenson and Sons
Ltd,[5] the Court held:
[5] Freemont Design and Construction Ltd v W Stephenson and Sons Ltd HC Auckland
CIV-2005-404-4807 20/4/06, Associate Judge Faire.
[8] A Court is not required to accept uncritically any or every disputed fact
... However the Court will not reject even dubious affidavit evidence, even although there must be suspicion of good faith of the deponent if there is an
essential core of complaint that supports a defence. In essence the inquiry is
whether or not the assertion made passes the threshold of credibility.
Objection to the reading of affidavit evidence
[8] The originating application for an order setting aside the statutory demand is dated 3 April 2012. It was not accompanied by an affidavit when filed. A notice of opposition was filed on 19 April supported by an affidavit of E J Craddock. On
24 May FIL filed an affidavit in support of its application by Z J Barbalich. On
30 May it filed a further affidavit, by A D Grenfell. These affidavits were the initial affidavits in support of the application.
[9] On 27 June Buller Electricity filed an affidavit in opposition by C A Hope, and on 13 August FIL filed an affidavit in reply by Z J Barbalich. In the ordinary course of events this completed the exchange of evidence sequence. On 14 August I issued a Minute vacating a fixture scheduled for the next day on the basis of a joint memorandum of counsel. Buller Electricity advised that in its view the evidence in reply raised new matters to which it should have an opportunity to respond, particularly survey evidence, and evidence in relation to instructions given to Buller Electricity, both relating to the location of the installation of a portion of the reticulation. FIL took issue with these allegations and contested the right of Buller Electricity to file further evidence or have further evidence read, but nonetheless concurred that these were issues to be resolved at the eventual hearing and it was necessary for the fixture to be vacated. There is no reference in the Minute I issued
on 14 August to further evidence being filed, or read.
[10] On 3 September Buller Electricity filed a further affidavit by C A Hope and an affidavit by M R G Christensen. On 27 September FIL filed a further affidavit of Z J Barbalich and the same day Buller Electricity filed a further affidavit of C A Hope.
[11] Mr Withnall argues that the second affidavit by Mr Barbalich was a proper affidavit in reply, and it should have marked the end of the evidence exchange sequence. He points out that in his second affidavit Mr Barbalich stated that whilst there were other matters with which he could take issue, in the evidence for Buller Electricity, he will address the single issue which he believed to be the most important at that time. In the succeeding eight paragraphs of the affidavit he took issue with a contention by Mr Hope in his first affidavit that an allegation made by Mr Barbalich in a letter sent the previous December that the cabling did not follow an agreed course, was incorrect and contradicted instructions given by FIL at a site meeting in May 2010 and in subsequent correspondence. Mr Hope had denied receiving this letter. In his affidavit in reply Mr Barbalich said that he raised this issue with Mr Hope in at least one telephone call and was, as he put it, incensed that Buller Electricity had represented to him in plans submitted as “as built” plans that the cables were in a location which has turned out to be incorrect, critically so because of their location in relation to a proposed building site on a lot which they traverse. He produced a plan from a firm of surveyors instructed by FIL to plot the actual location of the cables, showing that they do not follow the path shown on the “as built” plan, and run through a proposed house site which he had described in his first affidavit. He took issue with an assertion by Mr Hope that the first he knew of this part of the development land being intended as a building site was when he received FIL’s evidence in this proceeding; he said he made it very clear to Buller Electricity that FIL wanted to preserve the ability to develop a building site in that area.
[12] This affidavit was met with 81 pages of evidence (including exhibits) from Mr Hope and Mr Christensen on the issue of the location of the cables, the terms of the resource consent for the subdivision, the cost of moving the cable (deposed to by Mr Grenfell in the first round of evidence for FIL) and the likelihood of it being
possible for FIL to obtain resource consent to use the land over which the cable runs as a building site, in the future.
[13] Mr Palmer says that the evidence responds to assertions made by Mr Barbalich about the agreement of the parties in relation to where the cables should run over this portion of the land. He says the additional evidence in relation to the cost of moving the cable, if necessary, is linked to that, because the documents show that whether or not the cable is in an agreed location, it was certainly agreed that it could run across the land rather than on the roadway (as initially intended): thus the claim should be confined to the cost of moving it to another part of the land rather than to the roadway. This would be a much cheaper exercise. And he says that the evidence about the resource consent is justified, as it shows that FIL does not have the right to create an allotment for this portion of the land, nor therefore build on it.
[14] Mr Withnall says that the only evidence within these affidavits which could possibly be regarded as responding to an issue raised by FIL in reply is that relating to the location of the cables. The issue of the ability to create a building site on the land under the existing resource consent could have been raised in Mr Hope’s first affidavit because it was squarely raised in Mr Barbalich’s first affidavit (paragraphs
25 to 28) and evidence in relation to costs had been given by Mr Grenfell at the outset and could also have been responded to when affidavits in opposition were filed.
[15] Rule 9.76 of the High Court Rules provides that the Court may refuse to read an affidavit that, being in reply, introduces new matter. This rule, and the rules relating to the filing of affidavits in support and in opposition to both interlocutory and originating applications, are there for a purpose: to ensure that evidence presented to the Court on such applications is relevant and focused into a sequential exchange of opposing positions, rather than forming a series of volleys from one side of the case to the other. It is recognised that the giving of evidence is not an empirical exercise, and that evidence in reply is not necessarily confined merely to
acceptance or rejection of evidence given in opposition.[6]
[6] See the discussion of this issue in Fisk v Nicholls [2012] NZHC 2507 at [6] – [8].
[16] In my opinion the evidence given by Mr Hope in his affidavit of 29 August concerning the location of the cable can fairly be categorised as an acceptable response to the evidence of Mr Barbalich in reply. His evidence, and that of Mr Christensen, in relation to the resource consent, cannot be thus categorised. Mr Barbalich’s concerns about the location of the cable, given his intention to create an allotment with a building platform on it on the land over which the cable runs, were squarely raised in his first affidavit. The same applies to the evidence relating to the cost of remedial work – this was raised by Mr Grenfell in an affidavit filed originally in support of this application.
[17] This would be sufficient reason to decline to read these affidavits. In the end, however, I have decided to read them. First, Mr Barbalich has filed an affidavit in reply to these affidavits, to be read only if they are admitted. He is not, therefore, prejudiced by this evidence having been filed; nor has an adjournment been sought. Mr Withnall was well able to deal with the evidence in its totality in presentation of FIL’s case. Secondly, and perhaps paradoxically, the material produced serves to underscore the extent to which there is a dispute about liability for the sum claimed based on a cross-demand for the cost of moving the cable.
The case for FIL
[18] Mr Barbalich for FIL says, first, that at a site meeting prior to the start of work he and Mr Hope walked over the area where the work was to be done, traced where the trench for the cables was to be dug and reached an understanding, reflecting instructions he gave, that the trench was to run alongside the roadway and not through any house sites or proposed house sites on the lots. In fact, the cable has been laid some distance from this line and runs across an area of the land where a house site could be established if resource consent is obtained in due course to subdivide this lot onto a separate title and establish a building platform on it. On the question of resource consent he points to a consent order of the Environment Court resulting from a mediated outcome to an appeal in relation to the subdivision, showing that applications for resource consent to subdivide further can be made after a period of five years from issue of a completion certificate for this subdivision. He says that the cables, located where they are, severely adversely affect the value of
any future residential lot and they must be moved. He says the cost of moving them to the roadway is some $81,000, based on the evidence of Mr Grenfell. He says Buller Electricity is in breach of its contract by locating the cables where they are.
[19] Further, FIL says that the “as built” plans produced by Buller Electricity do not in fact accurately state the location of the cables. A survey has shown that the cables are located in a position which supports its view that they are beneath a future house site.
[20] FIL maintains there are, therefore, two disputes – first, in relation to where the cable was to be laid (as Buller Electricity says that it was not a term of the contract that the cable be laid clear of any building platform, the location required for the cable was only vaguely indicated by FIL, and the position of a possible future building platform was not known to Buller Electricity) and secondly, in relation to where it is in fact laid, and the consequences of that (as FIL says that it needs to be moved to the edge of the roadway and requires new cable, but Buller Electricity says it needs only be moved to elsewhere on the land, not on the roadway, and that the cable can be reused). Mr Withnall says that there are different versions from Mr Barbalich and Mr Hope of the discussions leading up to the work being undertaken. He says there is a clear dispute over the contractual obligations of Buller Electricity in this respect, and that FIL has shown at least an arguable basis for a claim against FIL for the cost of relocating the cable, amounting to some $81,000. As Buller Electricity contests the cost of moving the cable, this is another defined area of dispute, but the independent assessment by Mr Grenfell establishes an arguable claim to the sum stated.
The case for Buller Electricity
[21] Mr Palmer accepts that FIL has raised a dispute in relation to whether the cables are located where they should be, but directs his client’s case at the reliability of the evidence supporting FIL’s position. He relies on Eng Mee Yong v Letchumanan[7] as authority for the proposition that a court is not required to accept
uncritically evidence given by affidavit as raising a dispute of fact calling for further
investigation, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or inherently improbable in itself it may be.
[7] Eng Mee Yong v Letchumanan [1980] AC 331.
[22] Mr Palmer describes Mr Barbalich’s evidence as unreliable and draws attention to a number of factors. First, he says that in Mr Barbalich’s first affidavit he described the intended location of the cable as running along the edge of the roadway, but in his second affidavit agreed that it would run across the land in question, though away from a potential building platform. Secondly, Mr Palmer says that Mr Barbalich did not mention the lack of a resource consent to create a separate allotment from the land in question, with a building platform, in his first affidavit when he clearly should have done. Thirdly, Mr Palmer notes a number of evidential
mistakes:
a reference to the contract price being inclusive of GST when it was exclusive (I note that Buller Electricity made the same error on one of its
invoices)
theproduction of an email said to have been sent to Mr Hope, which was in fact a draft email sent by Mr Grenfell to Mr Barbalich, of an email that might
be sent to Mr Hope
reliance on a letter from FIL to Buller Electricity dated 23 December 2010
which Buller Electricity says it has never received
thatletter is in any event inconsistent with Mr Barbalich’s position in his first affidavit to the effect that the trench was to run alongside the roadway, because the letter makes no mention of this, referring only to the fact that it is
under a proposed house site.
[23] Mr Palmer draws attention to the fact that the location of the cable was not referred to in all the correspondence which has passed between the parties, including correspondence requiring payment of the outstanding account, and the required location was not specified with precision in any event, at the time the location was under discussion.
[24] Thus Mr Palmer says that the evidence for FIL in support of its position is unreliable and should not be accepted as laying the foundation for a genuine dispute.
Discussion
[25] FIL has squarely raised the foundation for a cross-claim against Buller Electricity for $81,000, provided that its evidence cannot be seen as sufficiently unreliable that I should reject it. I have referred earlier (at [7]) to the test described in Freemont Design & Construction Ltd v W Stephenson & Sons Ltd.[8] So, is there an essential core of complaint that suggests a defence? Or, put another way, is the evidence for FIL credible?
[8] Freemont Design & Construction Ltd v W Stephenson & Sons Ltd HC Auckland
CIV-2005-404-4807, 20 April 2006, Associate Judge Faire.
[26] First, the terms of the mediated outcome of the resource consent appeal show that there is a prospect of a further resource consent application in due course. It is quite credible that the developer will wish to maximise the returns from the subdivision by opting for that course at a later date, even accepting Mr Christensen’s view that the chances of success are relatively low. Protection of a potential building platform within the land in question from a manifest impediment to its use for that purpose is entirely consistent with that position.
[27] Secondly, whilst I accept that there are grounds for finding that FIL’s specification of the line the cable trenching should take was vague, that is not necessarily inconsistent with it being made clear that whilst there were various locations in which it could be placed, there was one area on the site where it could not be placed. Precisely what was said and agreed on this point are plainly matters for determination on oral testimony with cross-examination. During that process there is ample opportunity for counsel to explore any discrepancy that might be identified between statements about the required locations for the cable in the affidavits sworn by Mr Barbalich.
[28] Thirdly, while Mr Barbalich maintains that he sent a letter dated
23 December 2010 to Buller Electricity, Mr Hope maintains he did not get it. Its
principal relevance to the present dispute is in the final paragraph, where Mr Barbalich states that Buller Electricity did not follow the agreed power cable path, resulting in loss of a potential building site, and damages amounting to
$110,000. Mr Barbalich says that even if this letter was not received, nonetheless he raised this with Mr Hope on the phone. Mr Hope says that did not occur. These disputes on the evidence speak for themselves; this is not a matter that can be resolved on affidavit evidence. Nor is Mr Barbalich’s version so inherently unlikely that I should reject it. Quite the opposite – in my opinion it is likely that an aggrieved developer would phone the party responsible for the work and complain about it. I observe that the change of FIL’s position to a claim for the cost of remedial work, rather than a loss derived from being unable to build on the land, reflects appropriate mitigation of the loss FIL maintains it is entitled to recover.
[29] There is a clear dispute about the cost of moving the cable to another location. Only if FIL’s evidence on this cost is accepted does the amount of the potential cross-claim exceed the amount of the demand, but for present purposes there is no reason why I should reject that evidence. I note that it refers to moving the cable up to the edge of the roadway, whereas there is evidence that FIL agreed that the cable could cross the land, though not under the building site. That throws an element of doubt on the applicability of Mr Grenfell’s estimate, not because his calculations can be shown in this proceeding to be in error but because in the end the Court might find that the cost of moving the cable to that location is not the remedy to which FIL is entitled, if indeed it establishes a breach of contract. However, it is not the function of this Court in its present capacity to delve into this. Too little is known. For example, depending on the terrain, which is known to be steep, it might be more expensive to move the cable to another location on the same site; I can only speculate. Nor can I resolve a dispute between Mr Grenfell and Mr Hope on whether the cable can be reutilised. For present purposes I accept Mr Grenfell’s cost estimate.
Outcome
[30] The evidence for FIL is sufficiently credible, and establishes an arguable case of a cross-claim exceeding the sum claimed by Buller Electricity. The statutory demand is set aside.
[31] Counsel agreed that costs should be awarded on a 2B basis. Accordingly, Buller Electricity will pay to FIL costs on a 2B basis plus disbursements which, unless agreed, will be fixed by the Registrar.
[32] There is a feature to this case on which a final comment should be made. Buller Electricity proceeded with its opposition to the application to set aside its statutory demand in the face of clear evidence of a dispute about liability to pay the sum claimed, based on a cross-claim for damages. It did so on the basis that the foundation for that dispute was, as Mr Palmer put it, unreliable. Indeed, in approaching the presentation of its evidence to bolster its case it went to great lengths, persistently endeavouring to rebut the position advanced by FIL and show it to be doubtful. Whilst it is clear on established authority that it is open to a party to submit that evidence by affidavit should not be accepted uncritically, it is also clear that this Court in its insolvency jurisdiction is charged solely with determining whether there is a dispute which should go to trial, not which side is correct in that dispute. Care needs to be taken to distinguish between the level of doubt that may be sufficient to show a case cannot be proved on a balance of probabilities, at trial, on one hand, and the greater level of doubt that must be generated to establish that the case is so hopeless it should not even go to trial. Mr Withnall characterised Mr Palmer’s analysis of the evidence given by Mr Barbalich as a phantom cross- examination, without the witness being present. This vividly exposes the fragility of a case founded entirely on an endeavour to persuade the Court that evidence given by way of affidavit fails to pass the threshold of credibility. Whilst Buller Electricity is entitled to hold a firm view on whether FIL will ultimately succeed in its claim at trial, its election to continue to justify its statutory demand well after the point when disputes on the evidence were identified, and a cross-claim was squarely mounted,
was taking its view well more than a step too far.
J G Matthews
Associate Judge
Solicitors:
Counsel – P S J Withnall. Email: [email protected]
Buddle Findlay, PO Box 322, Christchurch. Email: [email protected]
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