Honey New Zealand (International) Limited v Whitehead HC Auckland CIV 2008-488-396
[2008] NZHC 2588
•22 September 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-488-396
BETWEEN HONEY NEW ZEALAND (INTERNATIONAL) LIMITED Applicant
ANDDAVID VERNON WHITEHEAD, YVETTE MARIE WHITEHEAD AND EDWARD IVAN WHITEHEAD AS TRUSTEES OF GOLDENFLOW TRUST, TRADING AS KAURI COAST HONEY AND NATURE'S BUZZ
Respondents
Hearing: 11 August 2008
Appearances: Z G Kennedy for Applicant
M C Black for Respondents
Judgment: 22 September 2008 at 2 pm
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me on 22 September 2008 at pm, Pursuant to Rule 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date……
Solicitors: Minter Ellison Rudd Watts, PO Box 3798. Auckland
Hammonds Solicitors, Hokianga Road, Dargaville
HONEY NEW ZEALAND (INTERNATIONAL) LIMITED V DAVID VERNON WHITEHEAD, YVETTE MARIE WHITEHEAD AND EDWARD IVAN WHITEHEAD AS TRUSTEES OF GOLDENFLOW TRUST, TRADING AS KAURI COAST HONEY AND NATURE'S BUZZ HC AK CIV 2008-488-396 22 September
2008
[1] On 29 May 2008 the respondents served a statutory demand issued under s
289 the Companies Act 1993 on the applicant claiming the sum of $37,482.11 from the applicant and giving notice that, if the demand was not complied with, application would be made putting the applicant into liquidation. Within the time required by s 289 the applicant applied for an order setting aside the statutory demand. That application is opposed by the respondents.
Background Facts
[2] In August 2007 the applicant agreed to purchase honey from the respondents. The applicant claims that included in the agreement was a requirement that the honey purchased include a mix of higher value unique Manuka factor (UMF) honey along with lower value native bush and pasture honeys. The applicant claims that UMF is an anti bacterial factor found in some strains of Manuka honey. Currently there is a relatively high demand in overseas markets for Manuka honey with a high UMF factor. The applicant also claims that a term of the agreement was that honey supplied by the respondents was eligible for the European Union as the honey being supplied under the agreement was destined for export.
[3] In terms of the agreement honey which the applicants purchased from the respondents was supplied in six consignments. The first four consisted of the lower grade honeys and the UFM Manuka honey was supplied in the last two consignments.
[4] To facilitate the entry of New Zealand honey and bee products into overseas markets, the New Zealand Food Safety Authority (NZFSA) has established regulatory requirements for the processing of bee products and for the provision of export certificates for those products. The NZFSA has for the purpose of export overseas imposed quality insurance controls and mechanisms which include:
a) Overseas market access requirements (OMAR).
b) General requirements for export. c) Official assurance programmes
[5] In terms of the OMAR for the EU the NZFSA requires:
Honey and other apiculture products must be derived from apiaries with known animal health status and from hives which have not been treated with dangerous substances.
[6] The authority for the NZFSA to provide the certificates and monitor the export of bee products is derived from the Animal Products Act 1999. The NZFSA requires bee product processors to operate a risk management program (RMP) in order to process export eligible honey that requires an official assurance. The RMP requires the processor to nominate a verifier of the programme. There are only two accredited verifiers in New Zealand:
a) AsureQuality; and
b) NZSA Verification Agency (NZ)
[7] Where an operator provides declarations by the bee products processors in support of an eligibility document application, the accredited verifier, prior to approving the eligibility document, must check the compliance status of the relevant premises, product restrictions and other relevant information on the compliance data. The verifier will not issue an eligibility document if the information provided by the operator is incomplete, inaccurate, or otherwise not in accordance with any requirement of the Animal Products Act 1999. To establish the animal health status of hives, AsureQuality requires annual disease returns (ADR) pursuant to r 27 of the Biosecurity (National American Foulbrood Pest Management Strategy) Order
1998/260. The ADR includes a statutory declaration by the bee keeper which provides a summary of the disease status of his or her hives for the previous twelve month period. If the beekeeper fails to submit the ADR for his or her hives the animal health status of those hives is not known. Accordingly, there is no compliance with the OMAR regulations for the European Union and AsureQuality
cannot issue an eligibility document for the European Union for honey extracted from those hives. Consequently, that honey is not eligible for the European Union.
[8] Accompanying each of the six assignments of honey which the respondents supplied to the applicant in terms of their agreement were statements completed by Mr David Vernon Whitehead on behalf of the respondents confirming that each of the six consignments was eligible for the European Union.
[9] Because the applicant claimed that the consignments it received in terms of its agreement did not include the Manuka UMF honey at the agreed ratio, the applicant withheld payment in respect of a number of invoices, proposed that all unsold honey be returned to the respondents, and money paid by the applicant be refunded. The respondents refused to accept this proposal and on 31 January 2008 served a statutory demand on the applicant for payment of $1,357,908.78 being the unpaid balance for the honey. The applicant applied for orders setting aside that statutory demand.
[10] The parties entered into an agreement resolving their dispute which included the following terms:
a) The applicant would retain an agreed number of drums of honey supplied by the respondents.
b) The applicant would pay the respondents $169,356.98 including GST
for the retained drums.
c) The honey in drums returned to the respondents was to be tested.
There was an agreed formula as to any additional amount to be paid by the applicant if the tests indicated that the drums had a non- peroxide level of less than that listed in the relevant invoice.
[11] The settlement required the respondents to immediately withdraw their statutory demand the applicant to discontinue its application to set aside that demand and the following provision:
This settlement is in full and final settlement of the claim in the statutory demand.
After the honey in the returned drums had been tested, the respondent demanded payment of $36,715.98 which it claimed was due and payable in terms of the formula. This is the amount claimed in the statutory demand which the applicant now seeks to set aside.
Case for Applicant
[12] The applicant in seeking to set aside the statutory demand relies on s 290(4)
which, provides as follows:
(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.
[13] The applicant claims there is a genuine and substantial dispute as to the existence of the debt. This arises out of the applicant’s claim that there was an express term in its agreement with the respondents that honey supplied by the respondents was eligible for the European Union. It is also claimed that the respondents are in breach of this requirement.
[14] Because of the applicant’s claim that the respondents are in breach of the agreement for the supply of honey, in that the honey supplied was not eligible for the European Union, the applicants have commenced proceedings in this Court for
damages arising out of that breach. In particular, they claim that they have lost
$1,840,224 including an estimated loss of net profit of $1,223,154.
[15] The applicant also claims not to be insolvent and will pay $37,482.11 into its solicitors trust account pending the resolution of these proceedings.
Case for Respondents
[16] The respondents point out that the amount in the statutory demand represents the balance due in terms of a settlement negotiated between the parties. That settlement it is claimed was in full and final settlement of all disputes relating to the respondents’ supply of honey to the applicant and must be binding on the applicant.
[17] It is also submitted on behalf of the respondents that evidence as to solvency on its own may not be enough to have the demand set aside.
Whether the Applicant has established evidence of a substantial dispute or a counter-claim, set-off or cross-demand that exceeds the amount claimed in the statutory demand.
[18] The applicant claims to have first become aware that honey supplied by the respondent was not eligible for the European Union in June 2008 when it attempted to export some of the consignment of honey to Checkoslovakia via Switzerland. On
3 June 2008 the applicant was advised by AsureQuality that the honey contained in that assignment was not European Union compliant and consequently an export certificate could not be issued for Checkoslovakia and Switzerland. Furthermore, the applicant was advised that a pending Japanese export certificate would be rejected on the same basis. Consequently, the applicant claims that as the honey it received from the respondent is not eligible for the European Union it has suffered a loss arising from the respondents breach of the agreement to provide honey eligible for the European Union. It calculates its loss as follows:
a) Purchase price of honey $614,370
b) Operating costs $141,817 c) Loss of Profit $1,223,154 d) Total: $1,979,341
[19] In support of its claim that the honey supplied did not qualify for export to the European Union, the applicant relies on the evidence of Mr Byron Taylor an Apicultural officer employed by AsureQuality Limited. According to Mr Taylor’s evidence, if a beekeeper fails to submit the ADR for his or her hives, the animal health status of those hives is unknown. Accordingly, there is no compliance with the OMAR requirements for the EU and AsureQuality is unable to issue an eligibility document for the export of that honey to the European Union.
[20] Mr Byron Taylor says that the respondents have not submitted an ADR to AsureQuality since 2003. In the absence of the ADRs AsureQuality cannot be satisfied that the respondents’ honey was from hives with known animal health status. Consequently, for that reason, AsureQuality has declined to issue the eligibility certificate for the applicant’s export of honey to Checkoslovakia.
[21] Mr David Whitehead in his affidavit claims that a number of drums of honey supplied to the applicant were extracted in 2004 and early 2005. He claims that ADRs were available in respect of those drums of honey and, consequently, those consignments did comply with the requirements for export to the European Union. He has exhibited a copy of the first page of an ADR which he claims to have been completed on 18 July 2003. However, the documents he has produced are not signed or executed and are incomplete. In this respect he states:
The front page only of that ADR is exhibited as the remaining material is considered to be confidential but if necessary could be provided upon appropriate directions/undertakings being given.
He also claims that the ADRs apply a year in advance.
[22] That evidence however is contradicted by Mr Byron Taylor who states:
The ADR includes a statutory declaration by the beekeeper which provides a summary of the disease status of his or her hives for the previous twelve month period.
[23] Although the respondent disputes the applicant’s contention that it was a condition of the agreement for the consignments of honey to be eligible for export to the European Union, there is clear evidence that such a representation was made by the respondents. That evidence includes the completion by Mr Whitehead of statements to that effect in respect of each of the six consignments.
[24] If as the applicant contends, the ADRs are for the previous years, then there is strong evidence to support a conclusion that the statements provided by Mr David Whitehead to the effect that the consignments were eligible for the European Union were not only wrong but were in fact known to be wrong by Mr Whitehead. He acknowledges that no ADRs were provided after 2003. Consequently, the applicant has a strong case to support the conclusion that Mr Whitehead knowingly mislead the applicant by completing the statements accompanying each of the consignments as to eligibility to the European Union when he must have been aware that none of the ADRs for the year in question had been completed by the respondent.
[25] The terms of the settlement cannot prevent the applicant from seeking damages for misrepresentation. There is an arguable case that when the parties entered into the settlement that the applicant was induced to enter into the settlement on the respondents’ representation that the consignments of honey would be eligible for export to the European Union when in fact that representation was not correct.
[26] It follows therefore that the applicant does have an arguable defence together with a counter-claim or cross-demand for an amount that exceeds the amount being claimed by the respondents in their statutory demand. Consequently, for that reason the statutory demand must be set aside.
Solvency of Applicant
[27] The purpose of the serving of a statutory demand is to establish prima facie evidence of insolvency to support an application for liquidation of the company.
Where the company is clearly not insolvent, there are good grounds for setting aside the statutory demand. In the present case the evidence of the applicant as to its solvency is not contested by the respondents. Furthermore, the applicant has agreed to pay the amount claimed in the statutory demand into its solicitors trust account. Consequently, even if the applicant had not established a substantial dispute together with a counter-claim or set-off that exceeded the amount claimed in the statutory demand, the applicant would still be entitled to an order setting aside the statutory demand on the ground that it is solvent.
Costs
[28] As the applicant has been successful, the applicant is entitled to its costs on a
2B basis with disbursements as fixed by the registrar.
Associate Judge Robinson
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