Hayman Haulage Limited v Havoc Haulage Limited
[2021] NZHC 282
•25 February 2021
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2020-470-000088
[2021] NZHC 282
UNDER The Companies Act 1993 IN THE MATTER OF
An application to set aside a statutory demand
BETWEEN
HAYMAN HAULAGE LIMITED
Applicant
AND
HAVOC HAULAGE LIMITED
Respondent
Hearing: 9 December 2020 Appearances:
G C McArthur for Applicant M A Keil for Respondent
Judgment:
25 February 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 25 February 2021 at 4.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date…………………………
HAYMAN HAULAGE LTD v HAVOC HAULAGE LTD [2021] NZHC 282 [25 February 2021]
Introduction
[1] This is an application to set aside a statutory demand pursuant to s 290 of the Companies Act 1993. The amount in dispute, as recorded in the statutory demand, is
$18,274, a sum well within the jurisdiction of the Disputes Tribunal.
[2] The applicant, Hayman Haulage Ltd (Hayman), operates a freight haulage business and had a sub-contract with the respondent, Havoc Haulage Ltd (Havoc), for the delivery of freight around the North Island.
[3] Pursuant to the sub-contract, Havoc would deliver goods to the customers and obtain proof of volume, weight delivered and proof of delivery. Hayman would then forward the proof to the client and invoice the client. Upon payment by the client Hayman would pay Havoc what was due to them.
[4]The critical issues I must determine are twofold:
(a)Are the proceedings a nullity, because they were (Havoc contends) filed in the wrong registry of this Court?
(b)Has Hayman established to the required standard that it has a counterclaim that equals or exceeds the amount claimed in the statutory demand?
Factual background
[5] The sub-contract agreement was entered into in November 2019. At that stage, Havoc had purchased truck and trailer units from Harris Transport Group, a company with whom Hayman had previously had a similar sub-contract agreement.
[6] The parties’ relationship appears to be governed by a sub-contractor letter of intent dated 29 November 2019. That letter of intent provides as follows:
Navman
A Navman GPS unit will need to be installed. Navman GPS will be installed by Hayman Haulage. These are leased over a 3 year period, at a total cost of
$2,856.60. Spread out over 36 months, $79.35 including GST per month per truck will be deducted from each month’s revenue to cover this. The Navman unit will remain the property of Navman.
[7]There was no written termination or cancellation clause.
[8] Hayman says that its sub-contractors are required to carry Hayman Haulage colours if they are to carry freight for the “tier 1” customers. Tier 1 customers generally pay a higher rate than other customers.
[9] Hayman alleges that in mid-December 2019, there was a phone call between the parties relating to the issue of signwriting on the curtain of a truck owned by Havoc. Hayman alleges that the parties agreed that Hayman would pay for the signwriting on the truck on the basis that Havoc worked for it on a long-term basis. Havoc denies that contention.
[10] In January 2020, Hayman received an invoice from Marty’s High Performance Signs Ltd for the supply of sign-written curtains in the sum of $6,106.50 (invoice dated 20 January 2020).
[11] In February 2020, Havoc advised Hayman that it was not able to continue to provide linehaul and general freight services to Hayman. The sub-contract then came to an end. Havoc says following that decision it decided it would cease trading.
[12]In February 2020, Hayman received an invoice from Navman in the sum of
$7,511.00 (plus GST) for cancellation of the GPS contract.
[13] By invoice dated 27 February 2020, Hayman billed Havoc for the cancellation of the GPS contract ($7,511.00) and the signwriting of curtains ($5,310.00) in the total sum (including GST) of $14,744.15. It is not in dispute that these two invoices were actually issued in September 2020 but back-dated to 27 February 2020.
[14]On 28 February 2020, Havoc invoiced Hayman (invoice 0023) in the sum of
$5,206.99. On 29 February 2020, Havoc invoiced Hayman (invoice 003) in the sum of $10,434.08 (the total of the two invoices is $15,641.07).
[15] Havoc subsequently instructed a debt collector to pursue the payment of what it says are outstanding invoices owed to it by Hayman. In email correspondence in August 2020, Hayman Haulage disputed the invoices and suggested that the parties should resolve any dispute in the Disputes Tribunal.
[16] Havoc issued its statutory demand against Hayman on 9 September 2020. The relevant part of the demand reads as follows:
Havoc Haulage Ltd … hereby demands from you payment of the sum of … ($18,274.00) being money due and owing for outstanding invoices 0023 and 003, being $15,641.07 and unapproved rates to be invoiced being $4,650.00, a total of $20,291.00 (less payment paid of $2,534.57) plus costs …
[17] The reference to “unapproved rates” means that Havoc is claiming for jobs that it says it has done but for which it has not yet provided proof of delivery, volume or weight delivered, from the receiver (ie, customer) of the goods. Whether proof of delivery has since been provided is at issue.
Relevant legal principles
[18] The Court’s jurisdiction to set aside a statutory demand is contained in s 290(4) of the Companies Act 1993. That section reads:
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; or
(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
[19] The Court of Appeal has recently confirmed the principles the Court should apply in exercising this jurisdiction.1 The principles are:
(a)The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.
(b)The mere assertion the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[20]The Court also stated:2
[22] It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant must explain to the Court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
(footnotes omitted)
[21] In Covington Railways Ltd v Uni-Accommodation Ltd,3 the Court of Appeal gave guidance as to what an applicant seeking to set aside a statutory demand must prove in dealing with a set-off or counterclaim:
[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 off-sets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult
1 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [17]. See also Carroll Civil Ltd v Texco Drilling and Piling Ltd [2019] NZHC 260 at [19].
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq), above n 1, at [22].
3 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA).
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 the extent of the sett-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. In the words of Buckley LJ in Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63, at p78, it must show that there are “clear and persuasive grounds” for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation procedures improperly because there is a “genuine substantial dispute” about the net amount of the company’s indebtedness … The dispute should then be resolved in the ordinary way – except as to any undisputed balance – rather than upon the hearing of a liquidation application.
Analysis and decision
[22]In its Notice of Opposition, Havoc contends:
(a)The proper registry of the Court for this proceeding is Auckland. The application has not been filed in the proper registry (it was filed in Tauranga). Therefore, the application is out of time and a nullity under s 290 of the Companies Act 1993.
(b)Hayman has no valid counterclaim, set-off or cross-demand.
(a) Proper registry of the High Court
[23] Rule 5.1(1)(a) of the High Court Rules 2016 (Rules) provides as a starting point that the proper registry of the Court is the one nearest to the residence or principal place of business of the defendant (or respondent). In this case there is no dispute that Havoc’s principal place of business is Auckland.
[24] Hayman, as the applicant, relies upon r 5.1(2) and contends that the cause of action sued on or at least some material parts of it, arose nearer to Tauranga (where Hayman carries on business) than to Auckland. Hayman filed an affidavit, together with a statement of claim, as contemplated by r 5.1(3), when it filed these proceedings in this, the Tauranga Registry of the High Court.
[25] I accept that there is no clear and obvious connection between the cause of action sued on and Tauranga. However, and albeit that this is a somewhat marginal case, I find that there is a sufficient degree of materiality (i.e. a material part of the cause of action) to establish jurisdiction under r 5.1(2) and thus to conclude that the proceedings were correctly filed in the Tauranga registry. The contract at issue was created in Tauranga4 with the letter of intent (containing the alleged contractual terms) given to Havoc in Tauranga. Mr Hill, in his affidavit, says at paragraph 12 that the sub-contract agreement was finalised at the meeting (which I understand to have taken place in Tauranga) on 29 November 2019. I note also that the signwriting, a critical part of the alleged counterclaim, was carried out at Mount Maunganui.
[26] In any case, I do not accept a failure to file an application to set aside a statutory demand in the correct registry renders the proceedings a nullity. Rather, in accordance with r 1.5, must be treated as an irregularity and one that does not nullify the proceedings, or any step taken in them. A failure to file in the proper registry is, in my view, quite different from the circumstances of Moonlight Farms Trust Ltd v Powell Land Holdings, a decision relied upon by Havoc.5 In that case, Lester AJ held that the application to set aside the statutory demand was not validly served within the 10 working day period. His Honour reasoned that the requirement of service within that time period is compulsory under s 290 of the Act and on that basis the application was a nullity. Here, however, what is at issue is not whether service was carried out in accordance with the mandatory statutory requirements, but whether there was compliance with the Rules. Rule 1.5 provides a definitive answer: the proceedings are not a nullity.
[27] I accept r 19.7 provides a proceeding that may be commenced by originating application is commenced when the originating application is filed in the proper registry of the Court, as determined in accordance with r 5.1. However, and as expressly stated and contemplated by r 1.5, a failure to comply with r 19.7 does not render the proceedings a nullity.
4 See J A Redpath & Sons Ltd v Melville Ford & Co Ltd [1950] NZLR 362 and Axiom Engineering Ltd v JB Sails International Ltd HC Whanganui CIV-2009-483-349, 14 May 2010, per Gendall AJ.
5 Moonlight Farms Trust Ltd v Powell Land Holdings [2019] NZHC 861.
[28] In any event, and as held by Cooke J in Lynx Trustees Ltd v Body Corporate 68792,6 as a matter of general principle, alleged defects and processes or challenges to administrative decisions and acts are not addressed by reference to “nullities” or any such related concepts. This means that the original commencement of the proceedings and the acceptance of the proceedings by the Registrar, are to be treated as valid and effective until set aside.
[29] In Lynx Trustees, the Court considered whether an application to set aside a statutory demand was deficient or invalid because it had not been signed by a solicitor. It was not in dispute that the initial application was not properly commenced. It did not comply with r 5.36 and the rule in Re G J Mannix Ltd7 that it must be signed by a solicitor. Applying r 1.5(2) and general principles of administrative law, Cooke J held the case before him was one in which it was appropriate to exercise the Court’s discretion to regularise the deficiencies. The proceedings were not a nullity.
(b)Has Hayman established to the required standard that it has a counterclaim that equals or exceeds the amount claimed in the statutory demand?
[30] It is not in dispute that contingent and unquantified counterclaims or set-offs cannot assist an applicant to set aside a statutory demand.8 That is because under s 290(4)(b) the counterclaim or set-off must be quantified, so that the Court can determine whether the amount specified in the demand less the amount of counterclaim or set-off, is less than the prescribed amount.
[31] There is a helpful summary of the relevant cases in Arrow Matting Systems Ltd v Impala Equities Ltd.9 In that case, Smith AJ held that although the applicant had not directly quantified its losses arising from alleged breaches of repair obligations under a lease, there was enough in the evidence to show that there was a genuine dispute about whether the cross-claim exceeded the sum in the statutory demand. There was an arguable case that Arrow had suffered loss for the respondent’s breach of its lease;
6 Lynx Trustees Ltd v Body Corporate 68792 [2019] NZHC 945.
7 Re G J Mannix Ltd [1984] 1 NZLR 309 (CA) at 311 per Cooke J.
8 Datasouth Holdings Ltd v Melco Sales Ltd HC Christchurch M41/96,17 May 1996, Master Venning; see also Alfex Doors & Windows Ltd v Aultech Windows & Doors Ltd (2001) 16 PRNZ 693 (CA).
9 Arrow Matting Systems Ltd v Impala Equities Ltd [2015] NZHC 1479.
the loss may have been the diminished value of the premises to Arrow, as the applicant, for the period when it was unable to use them for its main business activity of storing and unloading containers.
[32] As Ms Keil submitted for Havoc, Hayman’s counterclaim relies on its allegation that the parties entered into a long-term contract in consideration for Hayman paying for signwriting on a truck owned by Havoc. Ms Keil responsibly acknowledged that such a claim (albeit not recorded in writing or supported by any written documentation) is an arguable one.
[33] Hayman contends there is a genuine and substantial dispute as to the existence of the alleged debt contained in the statutory demand. It says that it has a real basis for a counterclaim.
[34] Hayman’s position is as follows. Hayman accepts the sum of $15,641.07 is an amount which Havoc has “validly billed us and which we have not paid”. Hayman says that the reason for this is that Havoc cancelled the sub-contract agreement in early February 2020. As a result of that cancellation it is claimed that Havoc owes Hayman
$8,637.65 (GST included) in relation to the GPS units and $6,106.50 (GST included) in respect of the signwriting. That comes to a total of $14,744.00.
[35] Hayman further says that it made a payment to Havoc of $2,534.57, being the payment referred to in the statutory demand. Deducting the sum of $2,534.57 from the sum of $15,641.07 comes to $13,106.50. Hayman says that because Havoc owes it $14,744 because of the cancellation of the sub-contract, Havoc’s net debt to Hayman comes to $1,637.50.
[36] In relation to what is referred to in the statutory demand as “unapproved rates” namely the sum of $4,650, Hayman says that in relation to that sum Havoc is entitled to $1,003.06 of that sum.
[37]Hayman then claims that taking the net amount Havoc owes it in the sum of
$1,637.50 and deducting from that sum the sum of $1,003.06 leaves a net debt owed by Havoc to Hayman of $634.44.
[38] I find, as Mr McArthur submitted for Hayman, that there are arguably real and crystallised debt obligations that can legitimately be advanced as part of the counterclaim. The counterclaims are quantified and are not contingent. Havoc disputes Hayman’s calculations but that is not a matter I can determine.
[39] I reject Ms Keil’s principal submission that upon cancellation of the contract, Havoc was under no obligation to perform it further (as provided in s 42(1) of the Contract and Commercial Law Act 2017 (CCLA)) and unless and until Havoc is ordered to pay relief to the applicant under s 43(3) and pursuant to separate proceedings, then no debt can be owed by Havoc to Hayman. It is arguable that Hayman had outstanding contractual obligations because of early and unlawful termination of the contract.
[40] This is a different case from that of Design Electronics Ltd v Lookman,10 where Lester AJ held that the applicant was not under an obligation to repay the debt – that is to perform the contract (cancelled) further by virtue of s 42(1) of the CCLA. At that point, unless and until the applicant in that case had been ordered to pay either damages or repayment under s 43(3), his Honour held that no debt was owed by the applicant to the respondent. Here, Hayman contends for a contractual right to the counterclaim quantum.
[41] I do not accept that in this case that the best that Hayman can hope for is relief under s 43 of the CCLA. Hayman contends that Havoc breached a term of the contract (they agreed it was an arguable long-term contract) and a breach of contract, no matter what form it may take, always entitles the innocent party to maintain an action for damages.11 Section 42(3) of the CCLA expressly provides that nothing in the section affects the right to recover damages for repudiation or breach of contract.
[42] I accept there is no express term of the contract accelerating the due date for the Navman payments and similarly no express term requiring Havoc to pay the cost of the signwriting if the contract was cancelled before the expiry of the long-term
10 Design Electronics Ltd v Lookman [2019] NZHC 2400.
11 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2015) at [18.2].
arrangement. However, in my view, it is arguable (and the amounts are quantified) that these are damages that Hayman is entitled to as part of a claim for breach of contract.
[43] I also find that there is a genuine dispute as to the sum of $4,650, being the unapproved rates sum. There is clear evidence from Claire Hill, the administrator for Hayman, that she has been through all the documentation. The claim by Hayman is arguable and I cannot resolve that on the papers before me.
[44] In my view, the matters at issue here should have been the subject of proceedings in the Disputes Tribunal, as proposed by Hayman in August 2020. Disputed and relatively modest amounts (as here) – and particularly where there is conflicting oral evidence – are not suitable for summary determination in this Court’s Companies Act jurisdiction.
[45] Having concluded that Hayman has established to the requisite standard (clear and persuasive grounds) that it has a counterclaim, it follows that the application to set aside must be granted.
Result
[46] The application by Hayman Haulage Ltd to set aside the statutory demand is granted. The statutory demand is set aside.
[47] As to costs, I am of the preliminary view, that having succeeded, Hayman is entitled to costs on a 2B basis (plus disbursements). If the parties cannot reach agreement on costs, then submissions (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
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