Gills Road Village Limited v Muller

[2013] NZHC 2122

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3110 [2013] NZHC 2122

BETWEEN  GILLS ROAD VILLAGE LIMITED Applicant

ANDALAN MULLER Respondent

Hearing:                   14 August 2013

Appearances:           J M Foley for Applicant

P Spring and C Peter for Respodent

Judgment:                21 August 2013

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on Wednesday 21 August 2013 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Solicitors/Counsel:

J M Foley, Foley & Hughes, Auckland

P Spring and C Peter, Keegan Alexander, Auckland

GILLS ROAD VILLAGE LIMITED v MULLER [2013] NZHC 2122 [15 August 2013]

[1]      The applicant, Gills Road Village Limited, applies for an order under s 290 of the Companies Act 1993, setting aside a statutory demand. The demand, served on Gills Road on 29 May 2013, is made by the respondent, Mr Alan Muller and seeks payment of four invoices totalling $121,328.14 for professional services undertaken between May and October 2012, plus $500 for preparing and serving the demand, and contractual interest on the unpaid invoices of $15,465.63. This last part of the demand was abandoned at the hearing. It is the balance of $105,862.51 that Mr Muller now claims.

[2]      Gills Road filed and served the application within the statutory time limit prescribed by s 290.  It relies on the ground that there is a substantial dispute about its liability for the professional services claimed for.  The application is opposed.  At issue is whether, as Gills Road contends, there is a genuine and substantial dispute about its liability for the invoices, all of which were issued in connection with a proposed property development at 125 Gills Road, Albany. That development was initiated by another company called Hunter Gills Road Limited, which is now in liquidation and unable to pay for Mr Muller’s professional services.

[3]      Mr Muller’s position is that Gills Road agreed it would pay his invoices of May, June, and July 2012 and meet the cost of his future services which he has charged for in a fourth invoice issued in October 2012.

[4]      It is common ground that if Gills Road’s liability for the invoices is the subject of a genuine dispute, it would be inappropriate to allow the statutory demand to stand importing as it would a presumption of insolvency.  The appropriate course would be to set aside the demand and for the parties to resolve the dispute by civil proceedings in the normal way.

[5]      It seems no order was made extending the time for compliance with the demand when the application was first before the Court on 27 June 2013. However agreement  to  such  an  order  is  implicit  in  the  way the  parties  have  proceeded. Plainly, such an order would have been made but for the parties’ oversight, and should now be made.  I proceed on that basis.

Background

[6]      It is not in dispute that Hunter Gills Road Limited was at material times the registered proprietor of a property at 125 Gills Road,1  which it planned to develop. In May or June 2012 its sole director, Mr Cook, retained Mr Muller to provide consultancy services on behalf of the company in connection with the proposed development. However by July 2012 the company had fallen into financial difficulty and could not pay Mr Muller on his invoices.

[7]      In his evidence Mr Muller recounts that by 31 July he had sent three invoices dated 30 May, 30 June and 31 July, each on the date of the invoice.  He says that when it became apparent that the company was experiencing financial difficulties he was instructed by Mr Babington, the director of Gills Road, to send the invoices to that company, and that he readdressed the three invoices and sent them to Gills Road as instructed. This instruction, he contends, was made pursuant to a new and binding agreement with Gills Road that it would cover his past and future services for the proposed development. Mr Muller is vague as to when he sent the invoices to Gills Road and when the agreement was made. He says that the agreement was made “in July”, though somewhat curiously, the last invoice is dated 31 July.

[8]      Whether or not Mr Babington gave the instruction and Mr Muller acted on it, and whether there was any binding agreement, are matters of material dispute.  The evidence   for   Hunter   Gills   and   Gills   Road   recounts   a   materially   different arrangement. Both Mr Cook and Mr Babington contend that the tenor of the discussions with Mr Muller was phrased in a conditional manner, that if Gills Road could obtain funding to purchase the property, then Gills Road might agree to pay Mr Muller the balance of the invoices, and may agree to engage Mr Muller for further consultancy work.

[9]      There is some documentary evidence.  It includes an email of 10 July 2012 and a document dated 30 July 2012, which Mr Cook sent to Mr Muller.

[10]     The email states:

Please see the last two columns for the proposed sign on to the new development company.

The plan is that they get 10c on draw of the development finance from Hunter  Gills  Road  under  the  scheme  and  40c  from  Gills  Road  Village Limited (New Development Co).

Further payment of 10c every 2 months thereafter.

[11]     The email is suggestive of an arrangement between Hunter Gills and Gills Road to share liability for the invoices of contractors who “sign on” to the new development company when there is a “draw of the development finance”.   The reference to the “two columns” as the basis for “the proposed sign on” is however left unexplained.  It is coupled with a reference to content in an attachment to the email but the attachment appears not to be included in the material provided by Mr Cook in his evidence.

[12]     The 30 July document is produced by Mr Cook as an attachment to the email of 10 July, apparently in error, given its later date.  It sets out a proposal by Hunter Gills Road to its creditors. It lists list the creditors by name and the sums owed to them. Against Mr Muller’s name is a debt of $54,450.09.  The proposal states that Hunter Gills Road shall pay unsecured creditors 50 cents in each dollar owed on the following basis:

[a]       One cent for each dollar owed within five working days of the date that this proposal is approved by creditors.

[b]      Nine cents of each dollar owed no later than 1 October 2012.

[c]       And the balance of forty cents in each dollar owed within twenty four months from the date that this proposal is adopted.

[13]     The proposal does not mention Gills Road.2

[14]     It is not in dispute that on the 8 August 2012 Mr Muller signed and approved the proposal subject to the amount owed to him being $89,401.65 not $54,450.10. Nor is it disputed that:

[a]      From August to October Mr Muller continued to provide consultancy services in connection with the proposed development for which he sent the fourth of the contentious invoices to Gills Road. There is no evidence as to what specific instructions were given or by whom.

[b]      In August, in accordance with the proposal Hunter Gills paid Mr Muller  $894,  being  one  cent  in  the  dollar  but  defaulted  on  the payment due under the proposal on 1 October 2012, and made no further payments.

[15]     Also in evidence are some emails exchanged in October 2012.  The first is an email sent on the morning of 29 October 2012 by Mr Essop to Mr Muller, apparently on behalf of Gills Road.  It appears to respond to an email of 23 October from Mr Muller to Mr Essop, which neither side has produced.  Mr Essop’s email asks if “the invoice sent is in addition to the 31 July invoice or a carried forward balance”.

[16]     The second is an email was sent later on 29 October by Paul Bublitz, another director of Gills Road, to Mr Muller.  The email states “we are working towards a funding drawdown” and it requests copies of all invoices.  Mr Muller replied to this email on 30 October 2012 summarising the amounts owed to him for his consultancy services as at 30 April 2012 as $89,451 and refers to the fourth invoice which outlines the amount owed for services to 23 October 2012 as $37,443.37.

[17]     Mr Muller sent an email in reply to Mr Essop’s email on 31 October saying that the “invoice is a new one for work carried out since April 2012 see the summary yesterday.”

[18]     Little came of this October exchange. Gills Road’s position is that as events

turned out, it had no obligation to pay the invoices. It did not obtain funding and thus

did not purchase the property.  In December 2012 the property was sold to a third party. On 27 March 2013 Hunter Gills was placed into liquidation.

[19]     Mr Muller remained of the view that he was entitled to payment.  On the 17

May 2013 he emailed Mr Babington a copy of the 10 July email to remind him of what he considered was an offer of payment. His email says:

You, as directors of Gills Road Village Limited at the time, did not query this offer, or withdraw it. I therefore believe that this offer was made on behalf of the company and must be honoured.

[20]     On 29 May 2013 Mr Muller served the statutory demand on Gills Road. On

11 June 2013 Gills Road filed and served its application to set aside the statutory demand.

Legal principles – setting aside statutory demands

[21]     The  application  to  set  aside  the  statutory  demand  relies  on  s 290(4)(a) Companies Act 1993.  Relevantly, it provides:

290      Court may set aside 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; ...

[22]     In Fletcher Homes Ltd v Ellis, Master Faire (as he then was) confirmed that an applicant must demonstrate there is a substantial dispute as to whether or not the debt claimed in the statutory demand is due or owing.3    In that case, the principles applicable to the applications of the present kind are stated as follows:

a)   The onus is on the applicant to establish a fairly arguable case for its claim that it is not liable for the amount claimed;

b)   A mere assertion that a dispute exists is insufficient. The applicant must put forward material which, although short of actual proof, nevertheless supports the claim that the amount is in dispute: and;

3      Fletcher Homes Ltd v Ellis HC Auckland M471/99, 23 July 1999 at [31].

c)   If such material is available, the dispute should be tried elsewhere and not on application to set aside the statutory demand.

[23]     In order to succeed, the applicant must demonstrate that the dispute which it raises is genuine. See Taxi Trucks Limited v Nicholson where the Court stated:4

The  applicant  must  show  a  genuine  and  substantial  dispute  as  to  the existence of the debt, and that it would be unfair- as it usually would be- to allow that dispute to be resolved by the Companies Court rather than by action commenced in the usual way.

Discussion

[24]     I  agree  with  counsel  for  Gills  Road’s  submission  that  Gills  Road  has established that there is a genuine and substantial dispute as to whether or not the entire amount now claimed of $105,862.51 is due or owing for several reasons.

[25]     First, though it is plain that there were discussions between Mr Muller and Mr Cook in July 2012 and that Mr Babington knew about and appears to have been party to them, there is no accord as to exactly what was agreed.

[26]     Secondly the documentary evidence, such as it is, raises real questions about Mr Muller’s contention that he and Gills Road entered into a new and binding agreement.    Taking  the  email  of  10  July  as  an  example,  it  refers  to  the  two companies sharing responsibility for the costs of those who “sign on to the new development company” but it also states “that the plan” is to be implemented “on draw of the development finance”.  This is suggestive of the very condition that Mr Babington and Mr Cook claim.

[27]     Turning to Hunter Gills’ 30 July proposal, in contrast to the email, it makes no  mention  of  Gills  Road’s  taking  responsibility  for  any  payment.     Despite

disavowing his acceptance of the proposal,5    Mr Muller signed and was paid $894

4      Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297 at 300.

5      Mr Muller deposes that in August Mr Cook made a second proposal for 50% of the outstanding amount in apparent reference to the document of 30 July. Despite signing the proposal and noting his conditional approval to it, Mr Muller says he did not accept this proposal as he had already accepted the first.

being 1% of the increased amount of $89,401.65 that he had stipulated in his conditional approval.

[28]     To complicate matters Mr Muller’s evidence leaves much unexplained.  He does not explain why he insisted that the amount recorded as the debt owed to him in the proposal should be $89,401.65 and not $54,450.10 and the only explanation he gives for the sum of $54,450.10 is a statement on one of the invoices in which he notes it is for a salary and is no longer claimed.  He leaves unexplained how each amount relates to the three unpaid invoices for May, June and July which amount to

$59,779.89.  He also does not explain in his evidence why, despite having signed the

30 July proposal he says, somewhat inconsistently, that he did not accept it and that the proposal (apparently the 30 July proposal) was abandoned because of Hunter Gill’s default.  This evidence creates a trail of confusion.

[29]     Mr Muller is not alone in providing evidence that appears incomplete and lacking in coherence and consistency.  The evidence that both sides give of the email exchange that took place in October 2012 appears incomplete.  Mr Essop’s inquiry of Mr Muller serves only to add to the uncertainty as to when the invoices of May, June and July were sent.   Counsel for Mr Muller submits that Mr Essop’s inquiry shows that Mr Muller sent these invoices to Gills Road before Mr Essop made his inquiry.  He submits the inquiry shows therefore that the invoices were sent in July. However,  it  is  conceivable  on  the  evidence  that  the  invoices  were  sent  on  23

October.   Mr Essop’s reference to an email of 23 October is suggestive of that possibility.   What can be said with some confidence is that the evidence of the October email exchange does not prove that there must have been a binding agreement in July.  But nor does it prove Mr Babington and Mr Cook’s contention that there was nothing more than a loose conditional arrangement at that time.

[30]     Exactly what the nature of the arrangement made in July between Gills Road and Mr Muller was remains unclear.  Neither party has put forward an explanation that appears wholly convincing on the evidence before me.  Overall, more questions are raised than answered.  Each side submits that the other does not explain why it would risk committing itself to the project or payment (as the case may be).  Gills Road says it must be obvious that it would not take responsibility for future and past

invoices when it did not have funding.  Mr Muller says it is obvious he would not continue to work on the development project if there was no agreement for the payment for his services.   Counsel for both sides acknowledged, at the hearing, however, that neither scenario is implausible.   It is more a question of which side elected to take a commercial risk.

[31]     Additionally while Mr Muller fails to put forward a cohesive explanation as to why he signed the July proposal if, as he claims, Gills Road had taken responsibility for his  invoices,  Gills  Road  is  strangely unforthcoming  about  the details of the discussions Mr Babington had with Mr Cook in July.  Gills Road likely had considerable interest in retaining the benefit of the input of Hunter Gills’ consultants, and in discussing a plan to pay them.

[32]     Similar inconsistencies “afflict” the October email exchange.  For instance:

[a]      Mr  Muller  claims  the  fourth  invoice  is  an  additional  invoice  for services carried out since April 2012. This is inconsistent firstly because he claims he started work in May-June, and secondly spans a significant period for which he has already produced invoices.

[b]      Gills Road appeared to accept the invoice sent by Mr Muller, which seems inconsistent with its argument that it did not take responsibility for payment of Mr Muller’s services.

[33]     In these circumstances I am unable to accept the submission counsel for Mr Muller makes that I should take a robust view of Mr Bulitz and Mr Babington’s evidence that they never agreed to assume or otherwise underwrite that company’s obligations to Mr Muller for his consultancy services.  Whether they agreed on Gills Road’s behalf to pay Mr Muller for consultancy services on the terms he contends or they made clear payment for past and future work was conditional upon Gills Road’s acquiring the necessary funding for the development is not something I can safely determine in the context of the present application.

[34]     In the final analysis I cannot determine whether this is a case of a consultant with a misplaced confidence in vague discussions as to payment for his services, or a case of developers who sought the benefit of a consultant’s work and now seek to shirk their obligations. On the evidence I cannot safely determine which of these possibilities is correct.

[35]     Thus despite the inconsistencies in Gills Road’s own evidence I am satisfied that it has established that there is a genuine and substantial dispute as to whether or not the debt claimed in the statutory demand is owing.

Result

[36]     The application to set aside the statutory demand is granted.

[37]     Costs must follow the event.  The applicant is entitled to costs on a 2B basis and disbursements as found by the Registrar.

H Sargisson

Associate Judge