Geotech Limited v Prime Explosives Limited

[2024] NZHC 2115

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2024-470-15

[2024] NZHC 2115

BETWEEN

GEOTECH LIMITED

Applicant

AND

PRIME EXPLOSIVES LIMITED

Respondent

Hearing:	19 June 2024
Appearances:	RJ Brown for the Applicant AG Stewart for the Respondent
Judgment:	1 August 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 1 August 2024 at 10 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Tompkins Wake, Rotorua Harris Tate Limited, Tauranga

GEOTECH LTD v PRIME EXPLOSIVES LTD [2024] NZHC 2115 [1 August 2024]

Introduction

[1]        Geotech Limited applies to set aside a statutory demand for $70,752.69 served on it by the respondent, Prime Explosives Limited, on 18 January 2024.

[2]        The statutory demand relates to two invoices issued by Prime Explosives for materials purchased for a project in Niue. Geotech paid part of the invoices with the balance owing being $70,752.69. Geotech submits that the balance owing is the amount it previously paid by mistake to Prime Explosives.

[3]        The alleged mistaken payment was made by Geotech in response to an invoice issued by Prime Explosives. The invoice was issued following an inquiry by Geotech about explosives stored in Niue in containers owned by the Government of Niue. Prime Explosives asked Geotech to provide an inventory of the stock stored which it did. Geotech was then told by a third party that the explosives were the property of the Government of Niue so did not follow up further with Prime Explosives.

[4]        Following receipt of the stock list, Prime Explosives issued an invoice for all of the stock stored in the containers. Geotech paid this allegedly by mistake because Prime Explosives was a trusted supplier. Meanwhile Geotech completed the work for the Niuean Government and did not charge the Government for the stock explosives used at the usual rate on the basis that the Niuean Government already owned the explosives.

[5]        When Geotech realised it had been invoiced by Prime Explosives for the explosives stored in Niue and had paid the invoice, it deducted the amount paid from two recent invoices received from Prime Explosives. It accepts that the two recent invoices cover materials legitimately charged by Prime Explosives.

[6]        Geotech applies to set aside the statutory demand pursuant to s 290(4)(b) of the Companies Act 1993 on the basis that it has an arguable set-off or counterclaim against Prime Explosives.

[7]        Prime Explosives opposes the application on the grounds that there is no proper legal basis for any set-off or counterclaim and even if there were it should not be a

basis for setting aside a statutory demand based on undisputed invoices. Counsel for Prime Explosives says it accepts there is no longer a requirement for a link between any set-off or counterclaim and the amount demanded but submits that the absence of a link should lead to the Court exercising its discretion not to set aside the statutory demand.

Issues

[8]The issues are:

(a)Does Geotech have a reasonably arguable set-off or counterclaim that is at least as much as the amount demanded?

(b)If it does, should the Court exercise its discretion not to set aside the demand in the circumstances?

Supplementary affidavit

[9]        As a preliminary matter, on the Friday prior to the hearing, an updating affidavit was filed on behalf of Geotech. The affidavit had not reached counsel for Prime Explosives or the Court prior to the hearing and so the hearing was briefly adjourned to allow counsel to consider it.

[10]      Following that adjournment, counsel for Prime Explosives advised it did not object to leave being granted to receive the affidavit. It was an updating affidavit and so leave was therefore granted.

Background

[11]      In March or April 2022, Geotech was approached by the Government of Niue to excavate 20,000 bank cubic metres (bcm)1 of rock for an airport runway refurbishment     (Airport     Project).           Geotech was subcontracted by Southern Screenworks Ltd for the Airport Project.

1      “Bank cubic metres” indicates the volume of rock or material in situ prior to excavation.

[12]      Geotech placed an order with Prime Explosives for the explosive material required to complete the Airport Project. Prime Explosives invoiced Geotech for the material on 31 March 2022 in the amount of $40,796.25 and on 4 April 2022 in the amount of $58,169.99. These invoices were paid by Geotech and are not in dispute.

[13]      In early June 2022, the Government of Niue asked Geotech if it could blast a further 6,000 bcm, using explosives that were already in Niue and which Geotech says were stored in two containers owned by Government of Niue. The explosives in question had been shipped to Niue by Prime Explosives for a contract between  Prime Explosives and the Government of Niue entered into in April 2018. Geotech was not a party to that contract. The contract had not been completed and the unused explosives and other materials remained in the Government of Niue’s containers.

[14]      On 7 June 2022, the managing director of Geotech, Anthony Black, emailed Clarence Beardsmore, the sole director of Prime Explosives, enquiring whether Geotech could purchase enough explosives from the stock stored in the containers from Prime Explosives to complete the additional 6,000 bcm for the Niuean Government. Mr Beardsmore replied on 18 June 2022 asking Mr Black to confirm what stock was in the containers. On 19 June 2022, Mr Black emailed a list of the stock through to Mr Beardsmore.

[15]      There was no further correspondence between Mr Black and Mr Beardsmore in relation to the stock in the containers, or regarding the purchase of the explosives for Geotech to complete the work.

[16]      After sending the stock list through to Mr Beardsmore, Mr Black’s evidence is that he became aware following conversations with the Government of Niue’s engineering representative that the Government considered it owned the explosives. Geotech therefore did not proceed to place an order with Prime Explosives but instead followed the Government of Niue’s instructions to use the explosives in Niue to complete the blasting work.

[17]However, on 28 June 2022, Prime Explosives sent Geotech an invoice for

$70,752.69 being the price for all of the stock held in the containers in Niue (Niue

Stock Invoice).2 The invoice was paid in full by Geotech’s accounting team in two instalments on 3 August 2022 and 11 August 2022. Mr Black says this was in error and was paid without his knowledge or any consultation with him on the basis that Prime Explosives was a trusted supplier.

[18]      On 17 August 2022, Geotech was provided with a letter from the Government of Niue to Southern Screenworks confirming that the Government owned the explosives.

[19]      On or around 31 August 2022, Geotech invoiced Southern Screenworks for the work Geotech had completed for the Government of Niue. This invoice stated that some of the work was carried out using “others” explosives. Mr Black explains in his affidavit that this referred to the explosives Geotech understood were owned by the Government of Niue rather than Prime Explosives, reflected in a discounted rate. On the invoice it shows that the usual rate is $7.35 per bcm but that the rate charged to the Government of Niue on the “others” explosives line is $3.25.

[20]      On 4 May 2023, the Government of Niue asked Geotech to complete another project in Niue blasting a further 20,000 bcm of rock for a road refurbishment. Geotech ordered materials from Prime Explosives on 6 June 2023 for this work.

[21]      Mr Black’s evidence is that it was after this order had been placed that he became aware of the payment of the Niue Stock Invoice for $70,752.69 after a comment by his account manager. Mr Black deposes that on 21 June 2023 Geotech’s account manager remarked that she did not know why Mr Black was going back to Niue when Geotech lost $20,000 on the last contract. Mr Black says he was surprised by this comment, not knowing about the Niue Stock Invoice and its payment. He says that it was only when he was shown the invoice that he realised that Geotech had received the Niue Stock Invoice and had paid it by mistake.

2      I refer to this as the “Niue Stock Invoice” as it relates to the explosives that were already on Niue. Referring to it as the “Disputed Invoice” may lead to confusion as it suggests the application relies on s 290(4)(a) of the Companies Act 1993.

[22]      On 8 August 2023, Geotech received two invoices from Prime Explosives for the further materials ordered on 6 June 2023, one for $84,764.49 and the second for

$15,295.00 for a total of $100,059.50.

[23]      On 21 September 2023, Geotech paid $29,306.80 to Prime Explosives for the August  2023  invoices,  being  the  balance  owing  after  the   amount   of   the  Niue Stock Invoice of $70,752.69 was deducted.

[24]      Between 26 September 2023 and 16 November 2023, the parties exchanged correspondence in regard to the Niue Stock Invoice with Mr Black saying he was disappointed he had been dragged into a dispute between Prime Explosives and the Government of Niue, that he did not order the explosives that are the subject of the Niue Stock Invoice and that the account was paid because Prime Explosives was a trusted supplier without consultation with Mr Black. Geotech’s solicitors then reiterated that the Niue Stock Invoice had been paid inadvertently and provided a copy of the letter from the Government of Niue asserting ownership of the Niue stock. Solicitors for Prime Explosives replied saying Prime Explosives did not accept that the explosives belonged to the Government of Niue and that this claim had never been asserted by the Niuean Government to Prime Explosives.

[25]      On 18 January 2024, Geotech was served with a  statutory  demand  by  Prime Explosives in the amount of $70,752.69, being the balance outstanding from the August 2023 invoices.

[26]      Mr Black attaches correspondence to his reply affidavit obtained from Southern Screenworks showing that Mr Beardsmore was aware in 2021 that the Government of Niue considered they owned the explosives as “they paid for them following their import.”

[27]      In the supplementary affidavit filed just prior to the hearing, Mr Black records that all of the explosives stored in the containers owned by the Government of Niue have now been used in jobs undertaken by Geotech for the Government of Niue. Geotech has not charged the usual rate for those explosives on the same basis as in respect of the earlier contract, that the Government of Niue owns them.

Relevant legal principles

[28]      The Court may set aside a statutory demand pursuant to s 290(4)(b) of the Companies Act if it is satisfied that the company appears to have a counterclaim, set-off or cross-demand in the amount specified in the demand. The Court of Appeal set out the approach to the application of s 290(4)(b) in Covington Railways Ltd v Uni-

Accommodation Ltd as follows:3

[11]  Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance owing to the creditor or even offsets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant’s side, there is an indisputable liquidated sum, but the other party’s claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s 287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for the claimed set-off and that accordingly the applicant’s claim to be a creditor is, to the extent of the set-off, seriously in doubt.

[29]      Set-off is recognised as a valid defence against a statutory demand. As outlined by the Court of Appeal in Grant v NZMC Ltd a debtor company may set-off a cross‑claim against the creditor’s claim in circumstances where it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim into account.4 Equitable set-off does not require that the claim and cross-claim arise out of the same contract.

[30]      A debtor company alternatively can rely on a counterclaim to challenge a statutory demand where it can demonstrate that the counterclaim is reasonably or fairly arguable. A mere assertion that a counterclaim exists is not sufficient for the Court to set aside a statutory demand. For the purposes of s 290(4)(b), it is not necessary for an applicant to prove the counterclaim; it is sufficient to present evidence of a reasonably arguable case.5

3      Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA).

4      Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12–13.

5      DNS Forest Products 2009 Ltd v Logic Forest Solutions Ltd [2018] NZHC 1214 at [17].

[31]      In Phoenix Organics Ltd v RD2 International Ltd the Court held that an applicant seeking to rely on s 290(4)(b) is not required to establish any link between the amount claimed in the statutory demand and the subject matter of the cross-claim or counterclaim relied upon.6 Furthermore, a failure to have filed proceedings in relation to a counterclaim does not prevent the counterclaim from being taken into account in an application challenging a statutory demand.7

[32]      In terms of the discretion not to set aside a statutory demand where the grounds in s 290(4) have been made out, the Court of Appeal held in Primary Health Remuera Ltd v Avoca Residential Construction Ltd:8

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.

Does Geotech have a reasonably arguable set-off or counterclaim for at least as much as the amount that is the subject of the statutory demand?

[33]      Prime Explosives submits that Geotech has not explained exactly what counterclaim, set-off or cross-demand it has against Prime Explosives or the legal basis for whatever is asserted and no proceedings have been commenced by Geotech to explain or establish its case.

[34]      Geotech says in response that it has a claim in respect of the Niue Stock Invoice for a mistaken payment.

[35]      A claim for money had and received will lie where a plaintiff has voluntarily paid money to the defendant in circumstances where the money would not have been paid had there not been a mistake by the plaintiff as to a material fact.9 The onus is on the plaintiff to show that it would not have made the payment, but for the mistake.10

6      Phoenix Organics Ltd v RD2 International Ltd HC Auckland CIV-2003-404-4698, 29 October 2003 at [26].

7      Glaister Farms Ltd v Rowe Farming Systems Ltd [2021] NZHC 1587 at [28].

8      Primary Health Remuera Ltd v Avoca Residential Construction Ltd [2004] 9 NZCLC 263, 647(CA).

9      Thomas v Houston Corbett & Co [1969] NZLR 151 (CA) at 167.

10     University of Canterbury v Attorney-General [1995] 1 NZLR 78 (HC) at 81.

The plaintiff need only prove that the mistake of fact caused it to pay the money. As set out by the Court of Appeal in Thomas v Houston Corbett & Co:11

All that appears to be laid down as necessary in this exposition of the cause of action is (1) the payment of money by A. to B.; (2) proof that the money would not have been paid, but for a mistake of fact which A made.

[36]      If money is paid under the impression that a certain state of circumstances is true when in reality the facts are otherwise, it may generally be recovered, however careless the payer may have been in omitting to use due diligence in making inquiries.12

[37]      Mere negligence on the payer’s part does not itself create an estoppel preventing the recovery of the money paid, and an alteration of the defendant’s position on the faith of the payment does not bar recovery, unless there has been some misrepresentation on behalf of the plaintiff that misled the defendant and caused the defendant to alter its position in reliance on the plaintiff’s conduct.13

[38]      I accept that Geotech has a reasonably arguable claim for mistaken payment. There is no evidence that an order was made by Geotech for the stock stored in the containers in Niue. Although an initial inquiry was made by Geotech and a stock list sent following a request by Prime Explosives, there is no evidence that Geotech confirmed it wished to purchase any of the stock. Geotech was sent a letter confirming that the stock belonged to the Niuean Government and clearly treated the stock in this way as Geotech’s invoices do not charge for the stock at the usual rate.

[39]      Counsel for Prime Explosives further submits however that it has produced evidence that it owned the explosives in Niue and that Prime Explosives had control of the contents of the containers. Furthermore, Prime Explosives’ evidence is that the Government of Niue has not at any time communicated with it about any claim to ownership of the explosives and there is no evidence to contradict this assertion.

11     Thomas v Houston Corbett & Co, above n 9, at 167.

12     Southland Savings Bank v Anderson [1974] 1 NZLR 118 (SC) at 121.

13     Lloyd’s v Dominion Film Co Ltd [1922] NZLR 600 (SC) at 604 and 605.

[40]      Geotech submits in response that Prime Explosives had knowledge that there was a dispute in relation to ownership, as correspondence in November 2021 with Mr Beardsmore shows as referred to above.

[41]      Geotech submits that it may well be true that Prime Explosives has not received any notification from the Government of Niue in recent times as to its assertion of ownership but that is likely to be because of the Government of Niue’s view that it owned the explosives remaining in the containers. Furthermore, there has been no direct challenge to the Government of Niue’s position by Prime Explosives. Geotech says this is probably as a result of being paid by Geotech by mistake for the remaining explosives and because Geotech did not charge the Niuean Government for the explosives when it invoiced for work completed. Geotech submits it has been dragged into the middle of an ownership dispute in which it should not be involved.

[42]      Geotech emphasises that it did not place an order with Prime Explosives to purchase the explosives once it was told that the Government of Niue owned them.

[43]      Counsel for Prime Explosives submits in response that even if there is correspondence suggesting there was an issue about ownership, Geotech was obviously determined to use the explosives regardless of what it knew to be Prime Explosive’s claims to ownership.

[44]      Furthermore, Prime Explosives submits that even if there was a mistaken payment any relief would be determined by the Contract and Commercial Law Act 2017 (CCLA) and would be discretionary; or if not a contractual mistake, any relief would be governed by ss 74A and 74B of the Property Law Act 2007 (PLA).

Discussion

[45]      An application to set aside is not an appropriate forum to determine ownership disputes. All Geotech must establish is that its counterclaim or set-off in respect of the mistaken payment is fairly arguable. It would be different if Geotech had charged the Niuean Government for the Niue stock on the basis that it had been supplied by Prime Explosives yet was saying it had paid the Niue Stock Invoice by mistake but

that is not the case. Geotech has charged the Government of Niue on the basis the Government owns those explosives.

[46]      Furthermore, the Niue Stock Invoice was for the entire contents of the stock in the containers and not for the quantity of explosives required for 6,000 bcm and there is no evidence of any order for those explosives by Geotech.

[47]      The provisions in the two Acts referred to by Prime Explosives, the CCLA and the PLA, do not assist in establishing there is no fairly arguable claim to a mistaken payment. Instead, if those provisions apply, the Court will be required to consider all of the circumstances in determining relief. I do not therefore accept that these provisions can be relied on to resist the submission that Geotech has a fairly arguable set-off or counterclaim.

[48]      In these circumstances I consider that Geotech has a reasonably arguable set-off or counterclaim.

Should the Court exercise its discretion not to set aside the statutory demand?

[49]      Prime Explosives submits that even if the Court finds that Geotech does have a fairly arguable basis for a set-off or counterclaim, the Court ought to exercise its discretion not to set aside the statutory demand. This is because Geotech first became aware of the mistaken payment in June 2023 yet ordered further explosives from Prime Explosives in July 2023 which it has not since paid for. Prime Explosives submits that at no time between Mr Black becoming aware of the issue in June and taking delivery of the further explosives ordered, or receiving the invoices on which the statutory demand is based, did Geotech raise any issues about having paid the Niue Stock Invoice by mistake. In those circumstances, Prime Explosives submits that the conduct of the applicant should lead to the Court exercising its discretion not to set aside the statutory demand in any event, relying on Manchester Securities Ltd v  Body Corporate 172108.14

14     Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [49]–[61].

[50]      Geotech  submits  in  response  that  there  is  no  reasonable  basis   for  Prime Explosives to suggest that Geotech deliberately placed the order in June 2023 for the explosives for the further work in Niue as a means of recovering the amount of the Niue Stock Invoice. Mr Black’s evidence is that he only became aware that the Niue Stock Invoice had been paid by mistake on 21 June 2023 after he placed the order with Prime Explosives for further explosives on 6 June 2023. Furthermore, as noted above, Geotech did not charge the Government of Niue for the explosives as one would have expected it to do if it was aware that it had paid Prime Explosives for them.

[51]      I accept that there is a proper basis in the evidence for Mr Black’s claim that the order for additional explosives was made prior to his discovery of the mistaken payment. There is no evidence disputing that the first time Mr Black became aware of the mistaken payment was on 21 June 2023 and that was after the further explosives had been ordered on 6 June 2023.

[52]      I do not consider therefore that there is any basis for an exercise of the discretion not to set aside the statutory demand in this case.

Should orders be made requiring Geotech to commence proceedings?

[53]      Where a party successfully relies on a set-off or counterclaim in its application to set aside a statutory demand the Court can require that party to commence proceedings within a certain time (if it has not done so already) and to progress those proceedings diligently.

[54]      In this case Prime Explosives was aware in October 2023 that Geotech considered that it had paid the Niue Stock Invoice by mistake and of the dispute in ownership  between  the  Government  of  Niue  and   Prime   Explosives.   Yet  Prime Explosives went ahead and served a statutory demand. I accept that Geotech initially relied on there being both a substantial dispute in respect of the invoices owing and was asserting a set-off or counterclaim but there does not appear to have been any purchase order in the usual way or even request by Geotech to purchase the Niue stock yet Prime Explosives issued an invoice for the whole of the stock. In circumstances where there was a clear basis for a set-off or counterclaim, Prime Explosives ought to

have filed proceedings in the usual way rather than issuing the demand. To set aside the demand on condition that Geotech file proceedings may reward Prime Explosives for serving the statutory demand in the first place. In these circumstances, I do not consider that a condition to file proceedings ought to be imposed.

[55]      In these circumstances it is not appropriate for an order to be made that Geotech pay the amount of the Niue Stock Invoice to its solicitors to be held on trust while the dispute is resolved.

Result

[56]      The application by Geotech to set aside a statutory  demand  served  by  Prime Explosives on 18 January 2024 is granted.

Costs

Geotech Ltd has succeeded and is therefore entitled to costs. I ask the parties to confer and only if costs cannot be agreed to file memoranda of no more than three pages (excluding schedules) on behalf of Geotech by 30 August 2024 and Prime Explosives by 13 September 2024. I record my preliminary view that increased costs may be payable as prior to issuing the statutory demand, Prime Explosives was aware that Geotech considered it had paid the Niue Stock Invoice by mistake and had been provided with a copy of the letter from the Government of Niue asserting ownership of the Niue stock. Further, it appears Prime Explosives had been aware of the Niuean Government’s position since 2021.

Associate Judge Sussock