Manawatu Greyhound Racing Club Incorporated v New Zealand Greyhound Racing Association Incorporated HC Palmerston North CIV-2011-454-150
[2011] NZHC 727
•24 June 2011
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2011-454-150
BETWEEN MANAWATU GREYHOUND RACING CLUB INCORPORATED
Applicant and Defendant
ANDNEW ZEALAND GREYHOUND RACING ASSOCIATION INCORPORATED
Respondent and Plaintiff
Hearing: 23 June 2011
(Heard at Palmerston North)
Counsel: J. Grant - Counsel for Applicant
A.K. Pandey - Advocate for and Secretary of the Defendant
Judgment: 24 June 2011 at 2:30 PM
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 24 June 2011 at 2.30 pm under r 11.5 of the High Court Rules.
Solicitors: JT Law, Solicitors, PO Box 25443, Wellington
MANAWATU GREYHOUND RACING CLUB INCORPORATED V NEW ZEALAND GREYHOUND RACING ASSOCIATION INCORPORATED HC PMN CIV-2011-454-150 24 June 2011
Introduction
[1] The plaintiff, New Zealand Greyhound Association Incorporated (the plaintiff) , on 21 February 2011 served a statutory demand on the defendant, Manawatu Greyhound Racing Club Incorporated (the defendant), with respect to a total debt claimed including costs and interest of $766,947.61 which was said to be owed pursuant to a written Term Loan Agreement between the parties dated 13
January 2011 (the Loan Agreement).
[2] The statutory demand issued and any liquidation proceeding which was to follow were undertaken by the plaintiff in reliance upon ss 25 and 26 Incorporated Societies Act 1908. This was on the basis that the defendant is an incorporated society registered under that Act, and s 26(3) provides that, on any application to the High Court for the appointment of a liquidator of an incorporated society, the provisions of part 16 and 17 of the Companies Act 1993 are to apply.
[3] Once served with the statutory demand, the defendant filed an application to have the statutory demand set aside together with a supporting affidavit of its secretary, Mr Ashoka Kant Pandey (Mr Pandey). That application is now before the Court. It is opposed by the plaintiff.
[4] Although the defendant’s application to set aside the statutory demand is somewhat confusing on its face, it seems that the defendant’s position with regard to the statutory demand debt here is:
(a) To say that the plaintiff as lender under the Loan Agreement has not fulfilled its obligations to the defendant as borrower in the sense that:
(i) the loan has not been made; and/or
(ii) there is no debt owed by the defendant to the plaintiff; and/or
(b)That the defendant has obtained some form of legal opinion which allegedly advises that the plaintiff has not fulfilled its obligations to
the defendant and that in some way the plaintiff has pressured the defendant into signing the Loan Agreement and that it is therefore somehow a nullity; and/or
(c) That the issue of the statutory demand is an abuse of process and it would be a breach of natural justice for it to stand.
[5] The supporting affidavit of Mr Pandey sworn 7 March 2011 simply deposes and nothing more:
That the information contained in the attached (A) “Interlocutory Application on Notice” is true and correct, and that I possess evidence to support each and every statement made in the aforementioned “Notice”.
This affidavit contains only the one paragraph noted above. There is no other affidavit evidence of any kind before the Court from the defendant.
Background Facts
[6] The plaintiff is an incorporated society and it and its twelve affiliated clubs are a constituent part of the New Zealand racing industry. That industry in New Zealand, as I understand it, is governed by the New Zealand Racing Board in accordance with the Racing Act 2003. The New Zealand Racing Board is required to provide governance and oversight to the racing industry, which includes greyhound operations, and it is also responsible for distribution of annual Gaming Society funding to the three racing codes, thoroughbred and harness horse racing and greyhound racing.
[7] The defendant was one of the twelve affiliated greyhound racing clubs noted above but apparently it ceased to be affiliated from 30 April 2010 in accordance with a resolution passed by the plaintiff.
[8] For some time the defendant occupied and held a lease or licence of certain land from the Manawatu Harness Racing Club at Pioneer Highway, Palmerston North, on which was constructed a greyhound racing track with facilities. It seems that this lease or licence arrangement may be pursuant now to a Licence Agreement dated 1 August 2007, but the other terms of this arrangement are unknown. It is
accepted by all parties, however, that the land at Pioneer Highway, Palmerston North on which the greyhound racing track facility stands is held by the defendant under that lease or licence arrangement.
[9] In 2007, the defendant apparently made a decision to demolish its existing greyhound racing track at the Palmerston North site and to construct a new track and facility. The total costs of that demolition and reconstruction were about
$660,000.00.
[10] The defendant did not have sufficient funds to carry out this work and it seems the original expectation was that the New Zealand Racing Board would make a loan advance directly to the defendant to enable it to meet the costs, this loan advance being guaranteed by the plaintiff. The plaintiff contends, however, that after further discussions between the parties, it was agreed that the plaintiff would itself obtain funding from the New Zealand Racing Board and would on-lend that amount to the defendant to enable it to meet the costs of the demolition and reconstruction work.
[11] Work on the demolition and reconstruction commenced and continued through 2007. It is clear from the only affidavit evidence which is before the Court here, that being an affidavit sworn 13 April 2011 of Mr James Patrick Leach (Mr Leach) the General Manager of the plaintiff that the work in question was undertaken for the defendant. Tax invoices from various contractors and suppliers (Higgins Contractors Palmerston North, Greyhound Track Spares, Kevin O’Connor
& Associates Limited & Others) and the contracts for the work undertaken were clearly addressed to and in the name of the defendant as lessee and occupier of the site. Payment of these accounts, however, in each case was made by the plaintiff. This seems to be undisputed between the parties.
[12] Mr Leach goes on to depose at para 11 of his affidavit that these payments were made by the plaintiff to the various contractors on behalf of the defendant from the loan agreed with the defendant and drawn down by way of various progress payments. Certainly it does seem that substantial payments were made by the plaintiff to the various contractors throughout 2007.
[13] Mr Leach at para 12 of his affidavit deposes that there were some delays in formalising the loan documentation between the plaintiff and the defendant. He says it was not until 20 May 2008 that the plaintiff wrote to the defendant attaching loan documentation for the loan which was to total $660,000.00. This loan was to be repayable by ten equal annual instalments with interest at what seemed to be only
5% per annum payable six monthly. Interest it seems was to run only from 1
October 2008, so presumably the defendant was to get the benefit of an interest free period up to that time.
[14] From Mr Leach’s affidavit, the next event that occurred seems to be a letter from the defendant to the plaintiff dated 9 July 2008 which referred to three outstanding accounts for the track construction from Higgins Contractors, Kevin O’Connor & Associates Limited and Greyhound Track Spares. These totalled in all about $43,000.00 and although they were each addressed to the defendant, it requested that they all be paid by the plaintiff. This occurred as I undertand it.
[15] Then, it seems that on 31 October 2008 Mr Pandey as secretary of the defendant club wrote to the plaintiff acknowledging receipt of the earlier loan documentation and requesting a meeting to discuss the terms of the loan.
[16] As I understand the position, that meeting did take place and finally on or about 19 December 2008 the Loan Agreement originally forwarded to the defendant was signed and returned to the plaintiff. It was then signed by the plaintiff on or about 13 January 2009. As I have noted, that Loan Agreement provided for the principal sum advanced of $660,000.00 to be repaid over ten years by annual instalments in arrears each of $66,000.00 with interest in the meantime payable at
5% per annum every six months.
[17] Then, on 29 April 2009, Mr Pandey as secretary and on behalf of the defendant wrote to the plaintiff to:
... raise a number of issues in relation to the Loan Agreement over the costs associated with the construction of the new greyhound track at Manawatu Raceway.
In acknowledging the loan, the letter also went on to request a renegotiation of the five per cent per annum interest rate and further, it sought certain assurances regarding the clubs’ benefit from Charitable Trust funding.
[18] On 26 May 2009 the defendant made the first six monthly interest payment under the loan of $16,500.00. Mr Leach in his affidavit at para 15 deposes that this interest payment was made by direct credit to the plaintiff’s bank account. Before me, however, Mr Pandey for the defendant in his submissions contended that the
$16,500.00 had been paid by cheque with an accompanying letter claiming that it was a payment made “without prejudice”. No verified evidence of this is before the Court however.
[19] Subsequently, it seems that the defendant encountered financial difficulties and, as I understand it, no further payments of interest nor any principal repayments under the loan have been made. The loan being in arrears, demand was made for repayment and, this not being met, the statutory demand in question was issued.
Parties’ Arguments and My Decision
[20] The present application to set aside the statutory demand is brought by the defendant it seems pursuant to s 290 Companies Act 1993 which sets out the basis on which a statutory demand issued against a company or an Incorporated Society may be set aside as follows:
290 Court may set aside statutory demand
(1) The Court may, on the application of the company, set aside a 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.
[21] The present application seems to be brought principally in reliance on s
290(4)(a) Companies Act 1993. Section 290(4)(a) requires an applicant to show a fairly arguable basis upon which it is not liable for the amount claimed in the statutory demand: Queen City Residential Limited v Patterson Co Partners Architects (No 2) [1995] 3 NZLR 307, United Homes (1988) Limited v Workman [2001] 3 NZLR 447 at 451-452. It must show that there is a genuine and substantial dispute as to the existence of the debt: Taxi Trucks Limited v Nicholson [1989] 2
NZLR 297. Whether there is a ―substantial dispute is a question of fact to be determined in light of all the relevant circumstances: Lockwood Buildings Ltd v Hunter Douglas Coilcoaters Ltd (1988) 4 NZCLC 64,295. What an applicant does not have to show, however, is that it is impossible for the respondent to succeed in its claim against the applicant: NZ Factors Ltd v Farmers Trading Co Ltd [1992] 3
NZLR 703 at 708. Rather, the application must show a fairly arguable basis on which it is not liable for the amount claimed. Possibly also here the defendant as applicant might also be relying on s 290(4(c) as a just and equitable ground.
[22] Turning first to consider the defendant’s arguments over the Loan Agreement and the loan itself, there can be no doubt here that, when reconstruction of the Greyhound track was being undertaken, it was the defendant that had entered into the various construction contracts and was being invoiced for the construction costs but that these costs were met by the plaintiff. Even in the absence of a written Loan Agreement at the time, there seems no doubt to my mind from all the material before the Court that these payments represented a loan and at worst, the defendant had an obligation to repay this loan within a reasonable time after demand was made.
[23] There can also be no doubt, as I see it, that the Loan Agreement itself was signed by the defendant on or about 19 December 2008 and returned to the plaintiff who signed it in January 2009 and returned the defendant’s copy. Although in his submissions Mr Pandey for the defendant at one point raised a tentative suggestion
that the Loan Agreement was “signed under some duress” he did not pursue this
aspect before me, and certainly there is no evidence of this before the Court.
[24] Further matters are of some relevance here. As I have noted above, on 29
April 2009 the defendant forwarded a letter to the plaintiff acknowledging the loan but seeking to renegotiate the interest rate. Then, on 26 May 2009 the first six monthly interest payment of $16,500.00 was made under the loan. Again before me Mr Pandey endeavoured to suggest in his submissions that this interest payment was made “without prejudice” but there is no formal evidence of this of any kind before me.
[25] Finally, it seems that around July 2009 the defendant endeavoured to refinance the loan through its bank, the ANZ Bank, Palmerston North but its application to do so was declined in a letter dated 28 April 2009, a copy of which is attached to Mr Leach’s affidavit as Exhibit “K”.
[26] It is also clear that the defendant was experiencing significant financial difficulties around this time and on 28 December 2009 at a meeting of its Board the defendant passed a resolution that “the defendant may not be able to pay its debts as they fall due in the normal cause of business” and it sought assistance from Greyhound Racing New Zealand.
[27] Under all these circumstances I am satisfied that the loan in question was made, the Loan Agreement is valid and it properly records the loan advances made by the plaintiff for the defendant’s benefit which are now in default.
[28] Next, I turn to the argument advanced for the defendant that it has obtained some form of legal opinion which alleges that the plaintiff has not fulfilled its obligations to the defendant in some way.
[29] Before me, Mr Grant, for the plaintiff confirmed that the plaintiff had not received a copy of any opinion at any time, despite claims to the contrary made by the defendant. Mr Pandey for the defendant at the hearing of this application, with the agreement of Mr Grant then passed up to the Court and provided to Mr Grant a
copy of this “opinion”. It is dated 23 July 2010 and is a letter from Palmerston North solicitors, Loughnans to the defendant. As I see it, the “opinion” letter relates to a range of unrelated matters concerning the defendant and as to the “track loan” simply states:
I am assured by your secretary/treasurer that no such advance actually took place and no amount of $660,000.00 was deposited to the bank account for Manawatu Greyhound Racing Club. It was my opinion therefore that the loan documents, while validly prepared and executed did not reflect the loan as no loan has been made.
[30] As this conclusion is based upon what I can only consider are false and misleading assumptions, the worth of this “opinion” must be discounted here.
[31] I conclude that none of this in any way would support the suggestion that the signed Loan Agreement is a nullity or not in some way binding upon the defendant. There is no evidence of any kind that the defendant was the subject of undue pressure or duress to sign the Loan Agreement which I note that it did after having the documentation and no doubt reflecting upon it after many month’s consideration.
[32] What is clear to me is that payment of the track construction monies on the defendant’s behalf is clearly made out and the Loan Agreement records in writing the clear terms of the defendant’s obligation to repay. It is trite law that money advanced on behalf of a party at their instruction and for their benefit constitutes a debt payable by that party.
[33] No other grounds for setting aside the statutory demand were properly advanced by the defendant before me and I conclude that it is just and equitable that the application before me must fail.
Conclusion
[34] For all these reasons the present application to set aside the statutory demand is dismissed.
[35] An order is now made that the defendant is to have a period of 5 working days from the date of this judgment to comply with the terms of the statutory demand in question.
[36] As to costs, the plaintiff having succeeded in this application is entitled to an order for costs in the usual way. Costs on this application are therefore awarded to the plaintiff on a Category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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