Graz4u Limited v Combined Vet Services (Gore) Limited
[2015] NZHC 1801
•31 July 2015
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV-2015-425-000044 [2015] NZHC 1801
UNDER the Companies Act 1993 IN THE MATTER
of a statutory demand
BETWEEN
GRAZ4U LIMITED Applicant
AND
COMBINED VET SERVICES (GORE) LIMITED
Respondent
Hearing: 28 July 2015 Appearances:
J R Pullar for Applicant
R B Davis for RespondentJudgment:
31 July 2015
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Graz4u Limited (Graz4u) is a livestock management company. It arranges and manages grazing and agistment contracts and checks the health of stock under its management, administering animal health products as necessary.
[2] Combined Vet Services (Gore) Limited (CVS) is a company providing veterinary services and animal health products. Graz4u sourced animal health products from CVS, and engaged the services of its veterinary practitioners, from late 2010 until the relationship between the two companies broke down in November
2014.
[3] Graz4u operated a trading account with CVS. It had two representatives operating in Southland. As animal health products were required, one or other of
those representatives would obtain them from CVS and charge them to the account.
GRAZ4U LTD v COMBINED VET SERVICES (GORE) LTD [2015] NZHC 1801 [31 July 2015]
Veterinary services were engaged and charged in the same way. CVS sent monthly statements to Graz4u. The statements listed goods sold and services supplied since the previous monthly statement, and debited interest at 18 per cent per annum on unpaid balances. The final statement produced in evidence shows a sum of
$58,163.41, inclusive of interest, owing as at 28 February 2015.
[4] For reasons which I will set out, Graz4u did not make any payments to CVS after 5 August 2014. On 13 April 2015 CVS issued to Graz4u a demand under s 289 of the Companies Act for payment of a debt described in these terms:
The debt is made up of unpaid invoices for goods and/or services supplied (including interest on those unpaid invoices at the rate of 18% per annum pursuant to the creditor’s terms of trade up to August 2014) totalling
$53,225.46, along with interest since August 2014 on those unpaid invoices
at the rate of 18% per annum pursuant to the creditor’s terms of trade of
$5,810.40.
[5] Graz4u did not meet the demand. It applies to set aside the demand under s 290 of the Companies Act 1993. It relies on s 290(4)(a), alleging that there is a substantial dispute on whether or not the debt is owing or is due.
[6] The approach the Court is to take to this application is described in these terms in Industrial Group Ltd v Bakker:1
[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a). No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator’s award and opposition to summary judgment.
[25] The approach required by the “appearance” test in s 290 is a review with a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing
1 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413. (footnotes omitted)
should, in the normal course, be short and to the point, and the judgment likewise.
[7] The case for Graz4u is founded on two principal propositions. First it says that although one of its representatives, Mr Roughan, had authority to act as its agent in contracting with CVS initially, he acted outside his authority in purchasing goods and contracting services from CVS for his own personal business use, and that CVS either knew of this or deliberately turned a blind eye to it. Secondly, Graz4u says that it has not at any point agreed to pay interest on any unpaid current account balances at 18 per cent, though it accepts that the written terms applying to the operation of its trading account entitled CVS to charge interest on overdue balances at a rate to be determined from time to time, up to the date of actual payment. It seems that the position of CVS is that this entitled it to specify a rate which would apply, but Graz4u says that any rate of interest to be applied must be reasonable, a rate of 18 per cent is excessive, and the rate to be applied should not exceed the rate prescribed under the Judicature Act 1908 for inclusion in the sum for which
judgment is given in proceedings for the recovery of debt.2
[8] During the course of argument I raised with counsel an apparent lack of clarity on how the sum claimed in the demand under s 289 was calculated, given that it did not correspond with any of the monthly statements produced in evidence, and did not include a calculation showing the way in which it had been arrived at. This was not a point taken on this application by Graz4u, but is nonetheless a preliminary point requiring consideration.
[9] The issues in this case are, therefore:
(a) Is the notice relied on by CVS a valid notice in terms of s 289?
(b)Has Graz4u demonstrated to the required standard that the unpaid balance relates to goods and services provided to Mr Roughan
personally, and not to Graz4u?
2 Section 87(2) Judicature Act 1908.
(c) Has Graz4u demonstrated to the required standard that CVS is not entitled to charge interest at 18 per cent per annum on unpaid balances due under its trading account?
First issue: Is the notice relied on by CVS a valid notice in terms of s 289?
[10] Section 290(5) of the Companies Act 1993 provides that a demand must not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
[11] As noted, the demand requires payment of $59,035.86. This is said to be made up of unpaid invoices including interest up to August 2014 at 18 per cent per annum, totalling $53,225.46 together with interest from August 2014 at the same interest rate amounting to $5,810.40.
[12] The invoice/statement issued by CVS to Graz4u as at the end of August 2014 is in evidence and shows a sum owing including interest to that date of $32,565.29. At first sight, the description of the sum claimed appears to significantly overstate the amount owing at that date.
[13] However, as counsel for CVS explained, the correct interpretation of the description of the debt is that it is a breakdown only of the interest component of the debt, giving a figure of $53,225.46 owing in total, including interest to the end of August 2014, and then a separate figure for interest from that date to 13 April, being the date at which the final sum of indebtedness is calculated.
[14] The description of the debt in paragraph 2 of the statutory demand is clumsy, but in my opinion its lack of clarity does not invalidate the notice, for the following reasons. First, the sum stated as owing is clearly stated - $59,035.86, and the description does show two sums which add up to that figure, the first being the total with interest only to August and the second being interest from that date.
[15] Secondly, Graz4u received an invoice at the end of February showing a debt of $58,163.41. With interest running, it would have been clear to Graz4u that the
sum owing at 13 April would be more than that figure, representing interest for the subsequent period of nearly six weeks.
[16] In these circumstances I am not satisfied that there would be a substantial injustice to Graz4u if the notice were not set aside.
Second issue: Has Graz4u demonstrated to the required standard that the unpaid balance relates to goods and services provided to Mr Roughan personally, and not to Graz4u?
[17] Evidence on this issue is given by Mr J D Benefield who founded Graz4u, and is involved in its current operations though in an undisclosed capacity. He says that in September 2014 he was telephoned by Mr Andrew Hunter who is the retail business manager of CVS in relation to Graz4u’s account, and Mr Hunter told him that Mr Roughan was grazing cattle in his personal capacity. According to Mr Benefield, Mr Hunter said that he knew this because CVS was supplying Mr Roughan with products and services, which included undertaking farm visits. Although Mr Benefield pressed Mr Hunter for more information, none was forthcoming. A few days later Mr Benefield asked Ms Julie de Groot about Mr Roughan’s operations, but although she confirmed his use of CVS for services he required, she would not divulge any further information either.
[18] Mr Benefield analysed Graz4u’s costs and found that from around April 2014 the amount it had been charged by CVS had increased. He says that this coincides with the time at which Mr Roughan started to conduct his own business. Although there is no evidence apart from that expression of opinion that this occurred at that time, CVS does accept that both Mr Roughan and the other Graz4u representative in the area were purchasing larger quantities of products by April 2014 than had earlier been the case, as this is noted in an email from Mr Hunter on 10 April 2014, to Mr Benefield, asking for a payment of $20,000 to be made towards the account balance of $34,796.
[19] Mr Benefield says that CVS would have knowledge of the size of Mr Roughan’s operation as they were sending vets to his farms. He also says that Mr Roughan told him, when challenged on this issue, that he had purchased some
products and services, but this was for stock of his that were grazing on his mother’s
property.
[20] Mr Benefield undertook an analysis of the monthly invoices/statements produced by CVS from August 2013 to August 2014. He produced a spreadsheet which he prepared in order to establish the value of products supplied by CVS but not received by Graz4u. He says this spreadsheet shows that the value of products supplied, but not received by Graz4u, is $47,524.07 including GSTf.
[21] Mr Benefield does not give any explanation of his spreadsheet in his affidavit. The invoices/statements from which it has been prepared show purchases of goods and services during each month, with each purchase describing the goods bought. Mr Benefield’s spreadsheet sets out a list of the products referred to, and then for each month during the period under review tables the quantities of products purchased and the sums “billed”, followed by a balance column. The balance column as at 31 August 2014 also refers to each category of product on hand, as at
28 July 2013.
[22] A running balance of quantities is kept for each month in the period under review, and there are two final columns as at 28 February 2015. The first is described as “Balance 28.2.15”, and the second as “Less on hand 28/2”. It is not possible from the spreadsheet to ascertain what these figures are intended to mean. Mr Benefield says in his affidavit that the spreadsheet shows products purchased, products sold, and an end of the month balance, for each month through to 28
February 2015, but that is the extent of his explanation. Nonetheless, from this document he derives a conclusion that various quantities of six items are “unaccounted for” but he does not explain what this means.
[23] As far as I can ascertain from the extremely limited information put before the Court in relation to these figures, the spreadsheet is an analysis of goods purchased each month from CVS, billings to clients of Graz4u in respect of those products, thus leading, I assume, to some form of assessment of the products which have been received but not charged to clients – seemingly thereby suggesting that these products were supplied to Mr Roughan and kept by him. However, as will be
clear from this summary, this is to an extent conjecture on my part in an attempt to make sense of the material put before the Court by Mr Benefield. The evidence falls well short of establishing, even to a standard short of proof, that Graz4u has been charged for products which it did not, itself, receive.
[24] To look at the same point from a different perspective, I record once more that the invoices/statements refer to each purchase of goods and services made during the periods to which they relate. Examination of these documents, which comprise nearly 90 pages, shows that initially a significant number of the entries did not refer to an order number within Graz4u’s system. Considerable criticism of CVS’s system for recording purchases of goods by Graz4u’s representatives was made in evidence, and witnesses for CVS went to considerable lengths to demonstrate that they had complied with Graz4u’s requirements in terms of providing information about each purchase which was sufficient to enable Graz4u to identify the purchaser and, in particular, the name of its customer so that it could charge the goods or services to that customer. The impression I have from the evidence is that whilst there were administrative difficulties with this identification, which was plainly of considerable importance to Graz4u, in the early stages of the trading arrangements between the two companies, these difficulties were largely ironed out when Graz4u insisted on its representatives providing an order number to CVS and on CVS not supplying without such an order number. CVS placed a prominent notation on its computer system to that effect. Notwithstanding this system, a relatively small number of supplies continued to be made without order numbers, but on the documents produced to the Court handwritten notations of the farm details are made and it seems clear that when invoices/statements were provided without order numbers which could be traced to Graz4u’s customers, enquiries were made and the relevant customer identified.
[25] Given that position, the way in which a representative of Graz4u in the position of Mr Roughan might go about obtaining goods for his own personal use, yet charging them to Graz4u’s account, is not immediately clear. First, he was required to produce an order number, and secondly, if he did not do so, an enquiry by the administrative staff of Graz4u to the administrative staff of CVS seems to have resulted in sufficient identification for the products or services to be charged back to
Graz4u’s customers. If that was not the position, one would have expected evidence from Mr Benefield specifically identifying which supplies of products and services he maintains were not supplied for Graz4u’s own customers, and must by inference, therefore, have been supplied to Mr Roughan for his own personal use. In fact, almost without exception, each purchase in the 12 month period analysed by Mr Benefield in the way I have described is either accompanied by an order number, or by a description of a property or a farmer, or by a reference to the second Graz4u representative in the area whose conduct is not under suspicion. Given this, it is difficult to see which purchases Graz4u maintains were made by Mr Roughan for his personal use.
[26] Use of order numbers did not become a virtually invariable practice until around the second week of October 2013, but the thrust of Mr Benefield’s evidence appears to be that Mr Roughan must have started obtaining goods for his own use when purchases from CVS increased markedly from around April 2014 onwards, some six months later. The evidence also shows that it was not until September 2014 at the earliest that Graz4u knew of Mr Roughan’s secondary operation. By then the use of order numbers was well-established, and where order numbers are not shown, the names of farmers or farms are given.
[27] It follows from this analysis that Graz4u has not demonstrated sufficiently that the unpaid balance of the account claimed by CVS relates to goods and services provided to Mr Roughan, and not to Graz4u.
Third issue: Interest
[28] The clause in the terms applying to the trading account which Graz4u operated with CVS provide for interest to be charged “at a rate as determined from time up to date of actual payment”. This clause is far from clear. Even assuming that the starting-point for the imposition of interest is the date when an invoice
becomes overdue, which is on the 20th day of the month immediately following the
date of the invoice concerned, it is not clear who is to determine the rate of interest to apply, or how it is to be determined. There is no reference, for example, to a specified trading bank rate which might be applied, or used as a starting-point, as is
frequently the case in commercial contracts requiring regular payments. Given this ambiguity, it would be necessary to lead evidence in order to determine the correct meaning of this clause, in accordance with the principles of law relating to interpretation of ambiguous contractual terms.
[29] The rate provided for pursuant to the Judicature Act is of no application, as it is not provided for in the contract as a fallback position, nor is this a claim for judgment on a proceeding for the recovery of a debt.3
[30] For the purposes of an application to set aside a statutory demand, Graz4u has sufficiently established that CVS is not entitled to interest at 18 per cent per annum on unpaid current account balances. I record that Mr Davis responsibly accepted that the claim for all interest could be deducted. He referred to the invoice/statement for November 2014 which shows a total owing of $55,622.65, and informed me that interest included in that sum was $4,048.34, leaving a net sum without any interest component of $51,574.31.
Outcome
[31] The application to set aside the statutory demand is dismissed.
[32] Graz4u is to pay the sum of $51,574.31 to CVS within 15 working days. In default CVS may apply to put Graz4u into liquidation.
[33] Graz4u will pay to CVS costs on a 2B basis plus disbursements fixed by the
Registrar.
J G Matthews
Associate Judge
Solicitors:
Taylor Shaw, Christchurch. AWS Legal, Invercargill.
3 Section 87(2) Judicature Act 1908.
0