Hanging Around Limited v PST Images Limited HC Wellington CIV-2005-485-198

[2005] NZHC 1292

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2005-485-198

UNDER  The Companies Act 1993

BETWEEN  HANGING AROUND LIMITED

Plaintiff

AND  PST IMAGES LIMITED

Defendant

Hearing:         28 February 2005 Appearances: M. Leggat for Plaintiff

D. Jenkins for Defendant Judgment:    28 February 2005

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Introduction

[1]    The defendant applies for an order restraining advertising of an application to this Court to wind it up and for an order staying the proceeding. The application is made pursuant to Rule 700K High Court Rules.

[2]The application is opposed by the plaintiff.

Background facts

[3]    The plaintiff’s claim against the defendant is with respect to the balance of the defendant’s installation contract account which originally comprised charges incurred between April and July 2004 (giving a balance then of $11,395.64),

Hanging Around Limited V PST Images Limited HC WN CIV-2005-485-198 [28 February 2005]

subsequently reduced to $5,395.04 by payments of $3,000.00 on 13 August 2004  and $3,000.00 on 4 October 2004.

[4]    The plaintiff and the defendant carry out business as installers of large billboard signage in the lower North Island, including Wellington. As I understand  it, they comprise the only two companies engaged in this work in this area.

[5]    The debt in question relates to a balance owing to the plaintiff for the performance of installation contracts carried out by the plaintiff on behalf of and at the request of the defendant. These contracts required, as I understand it, the use of a larger cherry picker type machine which the plaintiff had which enabled it to undertake this work at higher levels than could be accommodated by the gear operated by the defendant.

[6]    The debt in question, being $5,395.64, was the subject of a statutory demand served on the defendant company on 13 January 2005.

[7]    Significantly, no application to set aside that statutory demand appears to have been made.

[8]    In his affidavit in support of this application, Mr Sale for the defendant stated at paragraph 6:

6.Both the plaintiff and defendant were concerned to ensure that the party did not encroach upon its billboard supply clients. The discussions culminated in an agreement whereby:

(a)    the defendant subcontracted the plaintiff to install signs where the defendant’s 14m cherry picker was insufficient; and

(b)    the both the plaintiff and defendant agreed not to access billboards under the control of the other party’s supply company clients.

7.In addition to our verbal agreement, clause 6(b) is accepted throughout the industry and I believe it would be implied into any agreement as a matter of course. I refer to paragraph 14(c) below.

8.The defendant has honoured the agreement.

9.The plaintiff has breached the agreement, which we discovered in June 2004. In breach of the agreement, the defendant had installed

signs on billboards under the control of the plaintiff’s supply companies. In many cases this was without the knowledge of the supply companies and constituted a trespass against those companies. We therefore withheld payment while we assessed our loss and re-built our relationships with the supply companies.

…

[9]    The essence of the defendant’s opposition to the statutory demand in these liquidation proceedings is therefore that it has a counterclaim against the plaintiff based upon this alleged breach of an “exclusivity agreement”.

[10]   This so-called agreement was not committed to writing, nor does it seem there was evidence at the time that the plaintiff was aware of its terms.

Counsel’s Arguments and My Decision

[11]   This application is made in terms of Rule 700K High Court Rules. The principles upon which this rule is to be applied were summarised in the judgment of Wallace J. in Nemisis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 at 385. His summary of these principles concluded that:

(a)    There was an inherent jurisdiction to stay winding up proceedings where the debt upon which proceedings  are founded is the subject of a genuine dispute. In those circumstances, the plaintiff cannot show it has the status of the creditor or that there has been neglect by the company to pay.

(b)    The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.

(c)    The governing consideration is whether the proceedings suggest unfairness or undue pressure.

(d)    It is a serious matter to stay winding up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and persuasive grounds for a stay.

[12]   The leading decision upon claims to a set off or counterclaim is Covington Railways Limited v Uni Accommodation Limited (2001) 1 NZLR 272. In that case Blanchard J. said at paragraph 11:

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. In the words of Buckley LJ in Bryanston Finance Limited v de Vries (No. 2) [1976] Ch 63 at p78., it must be shown that there are “clear and persuasive grounds for the set-off claim”.

[13]A genuine and substantial dispute is therefore required – see also

Commissioner of Inland Revenue v Ron West Motors Otahuhu Limited.

[14]   Here the plaintiff contends that the defendant’s “dispute” is neither genuine nor more crucially “substantial”. Mr Leggat for the defendant argued forcefully to the effect that the dispute was merely a bare assertion on the part of the defendant without a scintilla of corroboration, documentary or otherwise.

[15]   Whilst these are strong claims, I tend to agree with Mr Leggat that the defendant’s assertion that it had an “exclusive agreement” or even a “preferred supplier” agreement with certain billboard supply companies, which translated to an agreement between the defendant and the plaintiff not to access (that is perform  work on) billboards under the control of the other party’s billboards supply company clients, was unlikely to be enforceable even if such an agreement did exist.

[16]   Mr Leggat for the plaintiff contended that any such agreement would almost certainly be void and unenforceable as a restriction on competition, and therefore contrary to public policy. Although this is not the forum to accurately determine that issue, again I tend to the view that in the circumstances here, such a conclusion is more likely than not.

[17]   Further, I need to say that the defendant’s affidavit evidence and the letters exhibited to those affidavits tend to use language such as “preferred supplier” rather than “exclusive supplier”. The evidence as to these matters was somewhat scant,  and again I would have difficulty, in any event, in finding that a concluded agreement to substantiate the plaintiff’s counterclaim was made out.

[18]   Finally, Mr Leggat for the plaintiff contended that the defendant’s “dispute” over the debt was raised only very latterly. The evidence from Mr Sale on behalf of the defendant clearly states that the defendants discovered the plaintiff’s alleged breach of the exclusivity agreement in June 2004. Yet it seems no objection was raised at that time. On the contrary, the defendant continued to engage the plaintiff’s services through June and July 2004, and made payments in reduction of the plaintiff’s accounts totalling $6,000.00 ($3,000.00 on 13 August 2004 and $3,000.00 on 4 October 2004). This begs the obvious question that there was little in dispute between the parties at that point and the “dispute” was raised only later first, when the plaintiff pressed for payment of the outstanding balance, and secondly, perhaps also when the defendant no longer needed the plaintiff’s services.

[19]   For these reasons, I am satisfied that the defendant has been unable to show that it has a real basis for the counterclaim or set-off it makes. Certainly in terms of the test outlined in both Nemesis Holdings Limited and Covington Railways Limited, the defendant has not done sufficient here to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds to justify the stay sought.

[20]   That said, however, there is one other matter to which I now refer. This is the fact that the defendant on 21 February 2005 paid into the Trust Account of its solicitors, Becker & Co, Wellington, $5,395.64, which Mr Sale in his affidavit of 28 February 2005 refers to in this way:

12.The Defendant is fully solvent and able to pay its debts when they  occur. The Defendant has paid the disputed sum of $5,395.04 (into) [sic] its solicitor’s Trust account to hold until this matter ahs [sp] been resolved. …

[21]   There is no other evidence of the defendant’s solvency before this Court. Indeed, the defendant through Mr Sale has stated that it:

…has not provided documentary evidence as to the solvency of the defendant, as the information is commercially sensitive.

[22]   The issue arises therefore as to whether this payment into the defendant’s solicitor’s Trust Account should alter the position which might otherwise prevail, given that in my view, the debt here to the plaintiff is unchallengeable.

[23]   In the section on “Proof of Solvency” paragraph HR700K.04 McGechan on Civil Procedure notes:

If money is made available to pay the plaintiff, the Court may terminate an application for liquidation, even though the company is insolvent: Robertson v Coe Farm Co Limited (HC Christchurch, 5 November 1996, M327/96, Master Venning).

[24]   Here the amount in dispute currently rests in the defendant’s solicitor’s Trust Account. Although this does not prove solvency of the defendant, it certainly goes some way to suggesting that monies are available from the company’s own resources to meet the debt which the plaintiff is pursuing.

[25]   In asking myself whether this should be sufficient to justify making the orders sought in the defendant’s application, I am mindful that the $5,395.64 debt, which the defendant does not dispute other than through its counterclaim, has been outstanding now since between April and July 2004.

[26]   No proceedings have been issued by the defendant to pursue its counterclaim against the plaintiff. As I have noted above, in any event I have severe doubts as to the likely success of those proceedings.

[27]   Should the plaintiff be required to wait for a longer period to recover its acknowledged outstanding account from the defendant? I have come to the conclusion the answer to this question should be “No”.

[28]   The plaintiff and defendant are competitors, but notwithstanding this, the  debt outstanding, as I have noted above, is not truly disputed in any real way.

[29]   That said, I come to the conclusion that the defendant’s present application for an order for stay and to restrain publication of the advertisement in these proceedings must fail.

[30]That said, funds seem to be available to settle the outstanding debt.

Conclusion

[31]   For the reasons I have outlined above, I dismiss the defendant’s application for stay and for restraint of advertising.

[32]   I order, however, that the plaintiff’s application and proceeding not be advertised for five working days from the date of this judgment to give the defendant time to pay the plaintiff’s debt. If that debt is not settled in full within that five working day period, then advertising can proceed.

[33]   As to costs, the defendant’s application has been unsuccessful and the plaintiff is therefore entitled to costs on a category 2B basis, together with disbursements, as fixed by the Registrar.

[34]   This matter is to be listed for call in the Bankruptcy and Liquidation List on Monday 28 March 2005.

Associate Judge D.I. Gendall

Solicitors:

M. Leggat, Barrister & Solicitor, Wellington for Plaintiff Becker & Co, Wellington for Defendant