IAG New Zealand Limited v Lichfield Ventures Limited (in liq)
[2018] NZHC 1092
•17 May 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2017-409-000971 [2018] NZHC 1092
BETWEEN IAG NEW ZEALAND LIMITED
Applicant
AND
LICHFIELD VENTURES LIMITED (in liq)
Respondent
Hearing: 14 May 2018 Appearances:
H A Evans and K Welsford for Applicant P Michalik for Respondent
Judgment:
17 May 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on setting aside application
The application to set aside Lichfield’s statutory demand
[1] IAG New Zealand Ltd (IAG) applies for an order setting aside a statutory demand issued under s 289 Companies Act 1993.
The demand
[2] The demand for $1,441,568.38 was issued by 100 Investments Ltd (100) on behalf of Lichfield Ventures Ltd (in liq) (Lichfield) on 4 December 2017. It is common ground between counsel that the demand is that of Lichfield, and that Lichfield is accordingly the correct respondent. The demand flows from a residual insurance claim in relation to earthquake damage to a property at 110 Lichfield Street, Christchurch. In the demand, 100 identifies itself as the party entitled to sue in its own right as mortgagee of the property and as assignee of the previous first mortgagee’s rights to
IAG NEW ZEALAND LIMITED v LICHFIELD VENTURES LIMITED (in liq) [2018] NZHC 1092 [17 May 2018]
the proceeds of the insurance policy. 100 asserts also that it has the right to take action in the name of Lichfield, being the insured named in the subject insurance policy.
The existing proceeding
[3] There has been, since September 2016, a proceeding in this Court in which 100 seeks judgment in relation to the same insurance claims (and others). In that existing proceeding, the parties recognise that IAG in 2015 made a payment on account of repair damage to the then first mortgagee of the property in the sum of $704,508.30. The payment was not accepted as being in full and final settlement of the insured’s rights under its policy.
[4] IAG defends the claims in the existing proceeding. It asserts that the amount previously paid represented the indemnity value and that the insured (or its assignee) is not entitled to further payment. Beyond matters of calculation of the insured’s payment entitlement, IAG pleads four alternative (additional) defences. In particular it asserts: that 100 has no right to sue as it is not the named insured; 100 has not taken a valid assignment of the insurance policy in question; the mortgage security (pursuant to which 100 claims rights) was in fact extinguished when the property was transferred to 100 in 2015; and 100 is not entitled to receive any payment under the rights acquired by 100 when taking an assignment in respect of the mortgagee’s General Security Agreement.
The Court’s decision
[5] I am satisfied that there is a substantial dispute as to whether or not the debt claimed by Lichfield is owing. There is a real dispute as to whether the quantum of insured damage exceeded the amount of IAG’s 2015 payment to the then first mortgagee. Examination of IAG’s alternative defences is unnecessary.
The test applied
[6] The Court’s jurisdiction to set aside a statutory demand is contained in s 290 Companies Act 1993. IAG invokes s 290(4), the relevant parts of which 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)…
(c)the demand ought to be set aside on other grounds.
[7] I adopt, in the exercise of this jurisdiction under s 290(4)(a) of the Act, these principles:
(a)The applicant must show that there is an arguably a genuine and substantial dispute as to the existence of the debt. Put another way, the applicant must show that there is a real and not a fanciful or insubstantial dispute.1
(b)The mere assertion that 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.2
[8] The Court of Appeal has emphasised that the correct approach to the threshold under s 290(4) is dictated by the requirement that what is intended to be a summary
1 Re A Company [1991] BCLC 737 (Ch) at 740 per Harman J, adopted in AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [22].
2 For this formulation of the applicable principles, I acknowledge the editors of Company and Securities Law (looseleaf ed, Brookers) at [CA290.02(1)].
hearing should not be converted into a full-blown trial.3 In Industrial Group Limited v Bakker, the Court of Appeal said:4
... the statutory scheme ... for applications to set aside statutory demands [is] a summary proceeding ... The section calls for a prompt judgement as to whether or not there is a substantial dispute … The test may be compared with the principles in cognate fields such as applications to remove caveats, [and] leave to appeal an arbitrator’s award ... 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 should, in the normal course, be short and to the point. And the judgment likewise.
[9] There are, in the existing proceeding, some reasonably complex issues of insurance law which, in themselves, may have been found to render the statutory demand inappropriate. But the glaring difficulty with the statutory demand arises from the real dispute which has existed between the parties as to the quantum of the insured’s payment entitlement – those issues have been pleaded from 2016 in the existing proceeding and continue to be real issues as I now identify.
The calculation of the demanded sum
[10] 100’s solicitors, before issuing the demand, wrote to IAG’s solicitors setting out the calculation of $1,441,568.38, (the 16 November letter). The letter is Schedule 1 to this judgment. As the letter indicates:
(a)Lichfield pursues payment from IAG of the indemnity value for the loss to the insured occasioned through earthquake damage to the property at 110 Lichfield Street, Christchurch;
(b)An expert appointed by the parties jointly, (Bryan Graham, a quantity surveyor) had assessed the repair cost for such damage to 22 February 2011 at $1,874,000 plus GST;
(c)Lichfield’s solicitors calculate the amount correctly payable by IAG to be at least $2,231,498.30 (calculated by reference to figures set out in
3 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [22].
4 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) PRNZ 413 at [24] – [25].
the letter). After then allowing credit for $789,929.92 previously paid by IAG, the balance claimed was $1,441,568.38.
The identification of the quantum issue
[11] From the time of the first joint memorandum filed by counsel the parties recognised that the issues in the litigation included the quantum of the insured’s entitlement.
[12] That this has remained an issue between the parties in the existing proceeding, as pleaded, was reflected in Mr Michalik’s synopsis, where (having referred to the pleadings) he recorded:
Based on these pleadings, 100 says that, for its indemnity sum claim, the issue is whether or not NZI’s initial assessment of the correct indemnity sum was correct. If there was more to pay, then 100 says that NZI must pay it to 100.
[13] In the latter half of 2017, the Earthquake List Judges were case managing the existing proceeding to readiness for trial. There was a delay in the exchange of expert reporting as to quantum because of difficulties encountered by 100 in obtaining expert evidence on the cost of repairs. At the urging of the Court, the parties reached agreement on a joint instruction to Mr Graham (who had previously been retained by IAG alone). The Court recorded on 10 August 2017:
… today counsel advised that they had reached agreement in principle that Mr Graham would be jointly instructed by both parties on the issue of repair costs but on the basis that neither would be bound to accept Mr Graham’s opinion …
[14] Mr Graham was then instructed on that basis. He provided his report to counsel on 4 September 2017. In the report he revised his estimate of repair costs substantially upwards. The figure claimed by Lichfield in the statutory demand is based directly on Mr Graham’s revised figure. 100 filed an amended statement of claim (in the existing proceeding) adopting Mr Graham’s revised estimate.
[15] After the filing of 100’s amended statement of claim, counsel jointly notified the Court that IAG would be reviewing and considering Mr Graham’s report and might
obtain further expert advice with a view to determining whether any issues in the proceeding could be refined as a result of Mr Graham’s report.
[16] In mid-November 2017 counsel asked the Court to set the existing proceeding down for hearing. They referred to the fact that IAG was obtaining expert advice on matters of quantum which it expected to receive in two weeks’ time, at which point it anticipated filing any amended statement of defence.
[17] The Court, on 30 November 2017, directed trial of the existing proceeding on the first available date after 12 August 2018. The timetable directions (which remain in place) require 100 to serve its evidence this month (by 28 May 2018) and the defendant to serve its evidence by 9 July 2018. Mr Michalik informed me during the course of submissions that 100 is not on track to comply with the timetable direction for its evidence – no request has been made for an extension of time. The Court’s expectation remains that 100’s evidence will be served on time.
100’s reliance on Mr Graham’s revised quantum
[18] Mr Michalik summarised the basis upon which 100 issued the statutory demand in his synopsis, stating:
Given Mr Graham’s status as the sole expert NZI would trust with their quantum calculations, on whose first revised figures they relied when they paid what they stood by as the correct indemnity sum, it is hard for 100 to understand NZI’s rejection of his further revised figures, especially as NZI had no expert foundation for that rejection.
[19] I find, to the contrary, that IAG’s position is understandable in the context of the existing proceeding, having regard to the basis upon which Mr Graham was asked to provide his further report and the further evidence of dispute which NZI has filed.
[20] Mr Graham’s opinion is that of one expert. It has not been tested in evidence. While supported by a seven page budget estimate, the narrative explanation of what is included is relatively brief (two-and-a-half pages). It contains significantly less explanatory information than would occur in a full brief of evidence which a Court at trial would hear.
[21] In the way the report was commissioned, it was intended to assist the parties to seek to narrow or overcome real issues which were recognised to exist. On the basis it was commissioned, it was to be informative, not binding. Its availability would see the exchange of expert reporting completed and allow the proceeding, if not resolved, to be set down for trial on the pleaded issues (as occurred).
[22] IAG elected to take further expert advice. It instructed Craig Weston, who undertook a costing estimate in a similar format to Mr Graham’s. His estimate schedule is exhibited to an affidavit of Mr Weston dated 8 February 2018. In the affidavit he qualifies himself as an expert. He then speaks to his conclusions. Mr Graham estimated the cost to reinstate the property at $1,874,000 (excluding GST and professional fees), Mr Weston opines that a more realistic figure is $815,000 plus GST, as calculated in his attached schedule. Mr Weston’s and Mr Graham’s allowances differ in relation to some items, in some cases very substantially. There are also differences between the two as to whether to include items at all. Mr Weston explains what he perceives to be the main differences. Most significantly he has excluded the cost of reinstating tenants’ fit-outs which were included by Mr Graham. A further difference is that Mr Weston excludes repair to floor cracking allowed by Mr Graham, Mr Weston finding that the extent of floor cracking was not identified in the damage documentation.
[23] The analysis of each expert’s opinion and the consideration of arguments as to included costs items appropriately occurs at trial. The Court, in exercising this summary jurisdiction, is not in a position to embark on that trial exercise. Nor is it in a position to prefer the conclusions of one expert over another on the basis of affidavit evidence, untested in examination and in the absence of all the documentation which records or relates to the underlying damage.
[24] For 100, Mr Michalik placed emphasis of the courts’ frequent observations that, in the statutory demand context, mere assertions are insufficient to establish that a claimed dispute has substance.
[25] This case is well removed from those involving mere assertion. At the time the demand was issued the parties had been in litigation for two years. The identified
issues included the very issue of quantum. The parties were at the point of having all pleaded issues in the proceeding set down for trial. With the jointly commissioned report shortly to be received, the parties had reached the point that their future gathering of evidence would be to enable them to have briefs completed. There was no expectation of a further exchange of experts’ reports. 100’s briefs, including that of Mr Graham if 100 elects to call him as a witness, are due within the next fortnight. IAG then has a normal period within which to finalise and serve its briefs.
[26] IAG has been constrained by the issuing of a statutory demand to effectively advance a significant part of the briefing of its new expert, Mr Weston. IAG has completed that exercise under the constraints of a summary process. Its application for an order setting aside the demand is supported by evidence which is beyond mere assertion.
[27] The identification of issues in the existing proceeding pointed clearly to the existence of a genuine and substantial dispute as to the existence of the claimed debt. I am satisfied that the revised estimate of Mr Graham, particularly when put alongside that of Mr Weston, still leaves in place a genuine and substantial dispute as to the existence of the debt.
[28] The usual means of resolution of such a dispute, through trial (directed to take place on the first available date after 12 August 2018), remains appropriate in this case.
Costs
[29]Costs must follow the event.
[30] Counsel signalled that there will be a dispute as to the quantum of costs which are sought by NZI upon an indemnity basis.
Orders
[31]I order:
(a)The statutory demand issued by 100 Investments Limited on behalf of Lichfield Ventures Limited (in liq) and dated 29 November 2017 is set aside.
(b)100 Investments Limited is to pay the costs of IAG New Zealand Limited together with its disbursements to be fixed by the Registrar.
(c)The quantum of costs is reserved, to be determined on written submissions (five page limit). The applicant is to file its submissions within five working days and the respondent within five working days thereafter.
Associate Judge Osborne
Solicitors:
Young Hunter, Christchurch Canterbury Legal, Christchurch
Counsel: Paul Michalik, Barrister, Christchurch
Schedule 1
paymeot Of a stlitably reduced sum and Win pursue the balance through the current proceeding. If no such payment is made a demand for that lesser amount will be iasued,
Wc can cönbrm in relation to the sum demanded that our client is happy to give a warrants and indemnité in termr of clauses i and a of the deed OU ind T °* 7 December apiy given to your client by Propertyfinance Securities Ltd(EPS”). We note that at that Ôme PAS was mortgagee in possession and our client non occupées the same position
The above is without prejudice to our client's total claim as n0ted in its statement of claim including as to interest.
We await your advice.
Yours faitbfully
T'œaîfi graot@canterbur)rïegaIxzo.ez
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