Glaister Farms Limited v Rowe Farming Systems Limited

[2021] NZHC 1587

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2021-412-17

[2021] NZHC 1587

UNDER

the Companies Act 1993

IN THE MATTER

of an application to set aside a statutory demand

BETWEEN

GLAISTER FARMS LIMITED

Applicant

AND

ROWE FARMING SYSTEMS LIMITED

Respondent

Hearing:

25 June 2021

Appearances:

K J Logan for Applicant

K L Rusher for Respondent

Judgment:

30 June 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 30 June 2021 at 4.00 pm Pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 30 June 2021

GLAISTER FARMS LIMITED v ROWE FARMING SYSTEMS LIMITED [2021] NZHC 1587 [30 June 2021]

[1]                 Glaister Farms Limited (Glaister) applies to set aside a statutory demand issued by Rowe Farming Systems Limited (Rowe).

[2]                 Rowe entered into a contract milking agreement with Glaister pursuant to     a Federated Farmers New Zealand Contract Milking Agreement dated 2 April 2020 (the Milk Agreement). Rowe took over the management of the farm and the herd on

1  June   2020.   Unfortunately,   the   relationship   was   not   a   success   and   on 18 November 2020 the parties signed a document called a “Termination of Contract Milking Agreement” (the Termination Agreement).

[3]                 The Termination Agreement provided that Rowe would finish up on-site after the morning milking on 25 November 2020. Mr Rowe and his wife agreed to vacate the house provided on-site on 30 November 2020. The relevant clause in the Termination Agreement stated:

The house vacation date will be 30th November 2020 and all monies owed by the farm owners will be paid to the contract milker on that day. Once the property is inspected and left clean and tidy with all rubbish removed, the farm owner will electronically pay the funds and email the bank receipt immediately to the CM [contract milker] for their assurance before they leave.

[4]The Termination Agreement further provided:

Houses and accommodation to be inspected for damage and for any damage an arrangement for the amount to be determined and offset on the final payment. Gene Marsh (Farm Consultant) will resolve and rule on any damage to accommodation and his decision will be final.

[5]                 The Termination Agreement recorded, with a view to achieving a smooth handover, that the parties would act in good faith and:

No party should behave in a way that is not in the spirit of good faith and they must honour all their duties according to this termination agreement.

[6]                 The Termination Agreement then set out the basis of the amount to be paid by Glaister to Rowe for the milk solids produced to the date of termination as required by the Milk Agreement. The Termination Agreement contained a calculation of the estimated milk revenue and recorded that figure would change slightly depending on

production until the termination date, with the amount to be “precisely determined on that day”. The statutory demand however does not relate to the milk revenue - such has been paid – but to expenses Glaister agreed to pay as part of the Termination Agreement. Mr Glaister, the sole director and shareholder of Glaister, says while he did not agree with many of the claimed expenses, he agreed they would be paid “in order to get the Contract terminated”.

[7]                 The difference between the amount payable under the Termination Agreement ($21,487) and the amount claimed in the statutory demand ($25,605.94) arises because the final milk payment was slightly less than expected, such being a credit against the agreed expense claim and the addition of GST. Whether GST should be added became an issue at the hearing but given the conclusion I have reached; it is not a matter I have to determine.

[8]                 The amount due to Rowe under the Termination Agreement was not paid by Glaister. In early March 2021 Rowe called for payment but Glaister replied saying the debt was disputed. Rowe did not accept there was a genuine dispute and issued its statutory demand which Glaister now applies to set aside.

Pre-condition for payment

[9] One of the matters touched on above is that the Termination Agreement provided that the sum payable would be paid by Glaister to Rowe once the house was inspected. From the context of the Termination Agreement as a whole and the circumstances, I am satisfied the obligation to arrange the inspection was on Glaister. As set out at [3] above, the Termination Agreement contemplated that the funds would be paid before the contract milker left the site.

[10]             It would be normal practice for the farm owner, being in the position of landlord, to organise the inspection. In any event, it is not suggested that beyond one small accepted deduction there is any damage to the house that is material. The Termination Agreement contemplates a Mr Marsh, a farm consultant engaged by Glaister, would carry out the inspection and rule on any damage to the accommodation. Both parties appear to have had faith in Mr Marsh to carry out that exercise, but given Mr Marsh is a consultant to Glaister, and it was accepted by

Glaister’s counsel that Glaister would be paying Mr Marsh’s fee, I would expect it is Glaister who would have engaged Mr Marsh to carry out that role.

[11]             That conclusion is also consistent with the following clause of the Termination Agreement:

Once the property is inspected and left clean and tidy with all rubbish removed, the farm owner will electronically pay the funds and email the bank receipt immediately to the CM for their assurance before they leave.

[12]             I see the above clause as consistent with the obligation to arrange the inspection being on the farm owner. However, again, I do not consider that a failure to organise an inspection when it is not suggested the inspection would have revealed any damage would justify withholding payment, particularly given the good faith obligations on each party. There is no suggestion Glaister called upon Rowe to have the inspection carried out.

[13]             It is also said by Glaister that Mr Rowe, the sole director of Rowe, left the farm earlier than permitted by the Termination Agreement. No loss is claimed to arise for that. Mr Glaister says Mrs Rowe was left to tidy up the property. Mr Glaister says that on 25 November 2020 he agreed Rowe could leave the property even though all the rubbish had not been cleaned up. Given Mr Glaister knew Mr and Mrs Rowe had left the farm Mr Glaister would have known it would be impractical for them to organise the house inspection.

Applicant’s grounds for setting aside

[14]             The first ground relied on by Glaister to set aside the statutory demand is that there is a dispute as to whether the amount demanded is due and owing, which  is     a reference to the house inspection condition. As I have set out, I do not accept that this issue is material.

[15]             The second ground relied on is that Glaister has counterclaims that exceed the amount demanded. Rowe disputes the quality of the evidence both as to specifics and quantum in respect of the asserted counterclaims.

[16]             In Mr Glaister’s affidavit he outlines the counterclaims his company wishes to pursue against Rowe. He divides those into two categories: those which arose prior to entry of the Termination Agreement and those which arose after the Termination Agreement was signed. In terms of quantum, the former category is by far the largest, relating to an allegation that Rowe’s management of the farm resulted in a significant loss of milk production.

[17]             Another pre-Termination Agreement complaint is that Rowe’s stock control was inadequate, with stock getting out onto the road and damaging fencing.

[18]             In relation to the parties’ entry into the Termination Agreement, Mr Glaister deposes:

I was mindful of the amount Rowe had cost Glaister and I wanted to reserve the ability to claim this from Rowe. We did not talk about the claim Glaister had against Rowe when we negotiated the Termination Agreement. Nothing in the Termination Agreement stated that Glaister was giving up the ability to claim against Rowe, and I did not believe that Glaister was foregoing any claim.

[19]             Mr Glaister obtained Rowe’s agreement to terminate the Milk Agreement by agreeing to pay the expenses claimed by Rowe. In relation to implementation of the Termination Agreement, Glaister accepted an obligation to act in good faith. Glaister negotiated the Termination Agreement with a good faith obligation in order to obtain the desired early termination of the Agreement. I consider it would be a wholly unmeritorious position for Glaister to adopt, for it to do so with the intention of not making the payment it expressly agreed to make as it would then rely on the counterclaims about which it was silent when it negotiated the Termination Agreement.

[20]             The Termination Agreement confirmed Rowe’s entitlement to the negotiated payment. Glaister recognised Rowe was entitled to that sum immediately on termination and committed to pay it. Why Glaister did not pay the sum immediately is not explained other than perhaps by the reference to the house inspection not taking place.

[21]             The Court should not be seen as condoning such actions in a commercial context where the parties agreed to act in good faith particularly as Glaister committed to make the payment aware of the pre-Termination Agreement claims.1

[22]             Accordingly, if I had only to consider the counterclaims or set-offs said to have arisen prior to entry into the Termination Agreement then the statutory demand would have been maintained. Glaister would not be acting in good faith in seeking to avoid the payment it agreed to make to procure Rowe’s agreement to early termination.

[23]             The more problematic issue relates to the second set of claims identified by Mr Glaister arising after entry into the Termination Agreement. In Mr Glaister’s affidavit he identifies further matters relied on as counterclaims, which he says he was not aware of at the time of the Termination Agreement. Rowe did not suggest that these items could or should have been discovered by Mr Glaister earlier. Is Glaister obliged by the Termination Agreement and its obligations of good faith to make the payment required by the Termination Agreement notwithstanding the fact it became aware of its counterclaims after entering into the Termination Agreement?

[24]             Mr Rowe says his understanding was that signing the Termination Agreement “would put an end to all matters” of concern to Glaister. However, the Termination Agreement does not contain a full and final settlement clause. While Mr Rowe refers to one aspect of the claims Mr Glaister says were only discovered after the Termination Agreement (that is, the damage to the tractor door), Mr Rowe does not refer specifically to the other matters, although he does provide a general denial of liability.

[25]             Mr Rowe does not give the basis of his understanding that he thought signing the Termination Agreement would be an end to all claims. I am not in a position to find that the Termination Agreement was intended to be a full and final settlement of all matters between the parties. Practically, in this context that means the Termination Agreement is not a barrier to Glaister raising the claims it says it only became aware of after the Termination Agreement was signed.

1      Auravale Industries Ltd v Shalimar Knitwear Ltd (1999) 8 NZCLC 262,074 (HC) at [20].

[26]             It is one thing for Glaister to represent to Rowe that it would pay the amount in the Termination Agreement whilst secretly intending to rely on claims only Glaister was aware of and another for Glaister to seek to rely on different claims it only became aware of after the Termination Agreement. The post-Termination Agreement claims are different in character from the pre-Termination Agreement claims.

[27]             While counsel for Rowe were critical of the extent of evidence provided by Mr Glaister in respect of the post-termination claims, I consider Mr Glaister’s description of his claims at paras [34.1] and [34.2] of his affidavit raise a reasonably arguable counterclaim, particularly when Mr Rowe has not referred specifically to those claims.

[28]             While the Milk Agreement contains a comprehensive dispute resolution procedure, it is not a pre-condition of a party raising a set-off or counterclaim that they have first commenced such a dispute resolution process.   A party seeking to resist    a demand on the ground they have a counterclaim will more often than not, not have filed proceedings in relation to that counterclaim. Such does not prevent the counterclaim being taken into account in an application challenging a statutory demand.

[29]             The quantum of the post-termination counterclaims relied on by Glaister is only a few hundred dollars less than the amount in the statutory demand. Even if GST is included in the amount Rowe can claim, the statutory demand has to be set aside. This is because I have concluded the post-Termination Agreement counterclaim is reasonably arguable, that is, Glaister has available arguments it can raise against the amount in the demand. For the statutory demand to be maintained it would have to be for an amount greater than $1,000 after the post-Termination Agreement counterclaims were factored in.

[30]Accordingly, the application to set aside the statutory demand is granted.

Costs

[31]             Both counsel requested that costs be reserved. Accordingly, costs are reserved. To assist the parties, I see no reason why costs should not follow the event on a 2B

basis, but if counsel wish to make submissions on costs then they may do so within 10 working days, those submissions to be not more than five pages. If no costs memoranda are filed then the costs order shall be that Glaister is entitled to costs on a 2B basis along with disbursements as fixed by the Registrar.

Associate Judge Lester

Solicitors:

Ross Dowling Marquet Griffin, Dunedin AWS Legal, Invercargill