MAYO & CALDER LIMITED AND ATTORNEY GENERAL
[2024] NZHC 2831
•1 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-331
[2024] NZHC 2831
UNDER
AND
the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
MAYO & CALDER LIMITED
Applicant
AND
ATTORNEY GENERAL
Respondent
Hearing: 1 July 2024 Appearances:
J Spring for the Applicant
N Malaro and J Yao for the Respondent
Judgment:
1 October 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 1 October 2024 at 10 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
MinterEllisonRuddWatts, Auckland Meredith Connell, Auckland
MAYO & CALDER LTD v ATTORNEY GENERAL [2024] NZHC 2831 [1 October 2024]
Introduction
[1] The applicant, Mayo & Calder Limited (M&C), applies to set aside a statutory demand served on it by the Attorney General on behalf of the Ministry of Business, Innovation and Employment (MBIE).
[2] M&C is an event management company which was the delivery partner for the Auckland stopover of the international sailing competition known as The Ocean Race. MBIE agreed to provide funding to support the event. As a result of COVID-19 the race was initially postponed but the route was then amended and Auckland was removed as a stopover.
[3] The statutory demand served by MBIE seeks a refund of $100,000 under one of two agreements entered into between MBIE and M&C in respect of MBIE’s funding.
[4]M&C seeks to set aside the statutory demand on the following grounds:
(a)the statutory demand was defective as it failed to contain sufficient details of the alleged dispute and the respondent’s evidence filed to oppose the Application is not admissible;
(b)there is a genuine and substantial dispute between the parties as to whether or not the debt that is the subject of the statutory demand is owing or due including because the Company is entitled to rely on the force majeure clause in the relevant agreement;
(c)M&C has an arguable counterclaim;
(d)M&C has attempted to negotiate and resolve this matter with MBIE;
(e)M&C is a party to separate High Court litigation where it counterclaims for a sum well in excess of the amount of the statutory demand; and
(f)the statutory demand otherwise ought to be set aside due to the extensive and complex background to this matter, which is unsuitable for the statutory demand process.
[5] MBIE opposes the application to set aside on the basis that there is no genuine dispute that $100,000 is owing and none of the remaining grounds are a sufficient basis on which to set it aside.
[6] I set out the background below before addressing preliminary issues as to whether the application was served in time and the admissibility of certain evidence. I then discuss the principles applying to applications to set aside and determine whether the demand ought to be set aside in this case.
Background
[7] M&C entered into a host venue agreement with the Ocean Race 1973 SLU1 (TOR) on 26 November 2019 (Host Venue Agreement) for the delivery of the Auckland stopover of the 2022 edition of the Ocean Race (Event).
[8] In February 2020 M&C entered into an agreement with MBIE for MBIE to provide funding to support the Event (First Agreement). Between February 2020 and March 2021, MBIE paid a total of $500,000 to M&C under the First Agreement.
[9] In July 2020, TOR postponed the Event to 2023. TOR and M&C signed a deed of amendment to the Host Venue Agreement to record the postponement.
[10] In March 2021, MBIE entered into a second agreement with M&C for the rescheduled Event (Second Agreement). The Second Agreement provided that from the date of that Agreement all rights and obligations of both parties arising from the First Agreement terminated but without prejudice to the rights and obligations accrued up to and including the date of termination.
1 SLU means Sociedad Limitada Unipersonal, a type of company in Spain.
[11] In July 2021 MBIE paid $100,000 to M&C under the Second Agreement. The Agreements attach milestone schedules at schedule 2 which record the tasks that are required to be completed prior to payment of the relevant investment instalment. Schedule 2 in the Second Agreement records that the $100,000 is to be paid on completion of tasks 1, 2 and 3. These tasks are further elaborated on in cl 6 of schedule
2. In addition, cl 4 of schedule 3 records MBIE will pay at the rate and on the achievement of the identified task set out in the milestones schedule subject to cl 4.2 being met by the recipient. Clause 4.2 provides MBIE will only be required to make any “scheduled Investment Payment” including if the Recipient has completed any tasks or other obligations to the Ministry's satisfaction.
[12] In November 2021, TOR announced that the race route had been updated and that Auckland would no longer be a stopover as a result of COVID-19 issues.
[13] The removal of Auckland as a stopover entitled M&C to terminate the Host Venue Agreement. On 14 September 2022, M&C did so, with TOR and M&C entering into an agreement terminating the Host Venue Agreement (Termination Agreement). Under the Termination Agreement, TOR was to pay €100,000 (the refundable deposit), interest on that sum, and the host city fee of $20,000 to M&C.
[14] The termination of the Host Venue Agreement gave rise to a default under cl 18 of the First and Second Agreements.
[15] As a consequence of this default, by letter dated 21 November 2022 MBIE gave notice requiring M&C to provide a full refund of both the $100,000 paid to M&C under the Second Agreement and the $500,000 paid under the First Agreement. M&C did not respond to this notice.
[16] On 19 May 2023, MBIE through its solicitors, Meredith Connell, sent a letter to Chapman Tripp making demand for both the $100,000 and the $500,000, and advising that MBIE would issue a statutory demand if M&C failed to meaningfully engage with MBIE. Mr Strowger from Chapman Tripp emailed back advising that he did not in fact act for M&C on this but that he would check with Tom as to whether
anyone is. Tom is Thomas Mayo, one of the directors of M&C. The other director, Mr Grant Calder, passed away in January 2023.
[17] On 15 January 2024, the Attorney-General issued the Statutory Demand for payment of $100,000 under the Second Agreement only. The demand records in a footnote that “the Creditor reserves her right to claim $500,000 paid pursuant to an investment agreement dated February 2020 and reserves her right to claim interest and costs”.
Was the application to set aside served in time?
[18] A memorandum was filed by MBIE two days prior to the hearing bringing to the Court’s attention a judgment that had recently been issued by Associate Judge Taylor, Ingenious Limited v AP Chartered Accountants Limited, in which his Honour held that service of an unendorsed copy of an application to set aside was not proper service for the purposes of s 290(2)(b) of the Companies Act 1993.2 MBIE did not oppose the application to set aside on the basis it had not been served in time but counsel considered they were obliged to bring the decision to the Court’s attention as the endorsed copy of the application in this case was not served within 10 working days of service of the demand.
[19] It is settled law that an application to set aside must be filed and served within a 10 working day period3 and that the time period cannot be extended.4
[20] I am grateful to counsel for bringing this case to my attention but in Ingenious v AP Chartered Accountants, there were a number of reasons why Associate Judge Taylor found that the application to set aside had not been served in time, including because it was served by email when this was not the address for service and email service had not been agreed.
2 Ingenious Limited v AP Chartered Accountants Limited [2024] NZHC 1277 at [36].
3 Companies Act 1993, s 290(2).
4 Section 290(3).
[21] Whilst s 290 of the Companies Act requires an application to set aside to be filed and served within the strict 10 working day time period, the section does not impose any further filing or service requirements.
[22] An application to set aside is required by r 19.2 of the High Court Rules 2016 to be brought as an originating application under pt 19 of the High Court Rules.5 Rule
19.10 provides that certain rules relating to interlocutory applications apply to originating applications, including r 7.22, which relates to service.6
[23]Rule 7.22 provides:
7.22 Service of application and supporting affidavit
(1)After filing an application and any affidavit in support of it, the applicant must promptly serve a copy of the application and affidavit on every party.
(2)After the applicant is notified of the hearing date for the application, the applicant must promptly notify every respondent of the hearing date.
…
[24] Rule 7.22(2) makes it clear in my view that service of an unendorsed copy of the application is proper service in accordance with the High Court Rules.
[25] The commentary in McGechan on Procedure supports this interpretation, recording that the absence of a hearing date on an application does not preclude service, referring to GLW Group Ltd v Lepionka & Company Investments Ltd.7 Associate Judge Smith recorded in that case that he did not follow Hyro Australia Pty Limited v Commissioner of Inland Revenue8, a case relied on by Associate Judge Taylor in Ingenious. It does not appear that Associate Judge Taylor was referred to r 7.22 or to GLW Group Ltd v Lepionka.
[26] In my view, service of an unendorsed copy of an application to set aside is effective service for the purposes of s 290.
5 High Court Rules 2016, r 19.2.
6 Rule 19.10(1)(d).
7 GLW Group Ltd v Lepionka & Company Investments Ltd [2015] NZHC 3339 at [29] and [38].
8 Hyro Australia Pty Limited v Commissioner of Inland Revenue [2011] 25 NZTC 20-102 (HC).
[27] Furthermore, the statutory demand in this case provided that the address for service of the respondent was by email to the lawyers at Meredith Connell. Service was effected by this means and so the case is distinguishable from Ingenious on that basis.
[28] The Registry took some time to confirm the hearing date but there was no suggestion that the applicant did not notify the respondent promptly once it was advised. M&C’s application to set aside was therefore served in time.
Admissibility issues
MBIE’s evidence
[29] M&C submits there are admissibility issues in respect of the one affidavit filed in support of MBIE’s opposition. The deponent of MBIE’s affidavit is Wenrui Zhang, a client manager for Meredith Connell, solicitors for MBIE. Ms Zhang’s evidence is that she has knowledge of the matters relating to this proceeding “through Meredith Connell’s records”. Ms Zhang’s affidavit is one page and annexes a single letter and its enclosures, a letter from Meredith Connell to MinterEllisonRuddWatts, the solicitors for M&C on this application, dated 5 February 2024.
[30] M&C submits this evidence “is entirely inadmissible hearsay” as Ms Zhang is not the author of the Meredith Connell letter, nor is it clear how she has any relevant knowledge about matters relevant to the proceeding. M&C further submits that no details are given of what records Meredith Connell holds that Ms Zhang is alleged to have reviewed in order to be able to swear the affidavit.
[31] M&C adds that none of the evidence presented is direct evidence from MBIE and instead takes the form of a letter prepared by the law firm acting and is produced by a deponent with no obvious connection to the subject matter of the proceeding. By contrast, they say Mr Mayo has given direct evidence of the reasons why he considers that there is a genuine and substantial dispute about the alleged debt recorded in the statutory demand.
[32] M&C says therefore there is no admissible evidence presented by MBIE for M&C to respond to in a reply affidavit, or which supports the opposition to its application.
[33] Rather than treating the evidence as inadmissible, however, I consider in the context of an application to set aside, it is more appropriate to admit the evidence but assess its sufficiency when considering the grounds put forward for setting aside the statutory demand.
[34] In some cases, evidence filed by the solicitors for a party will be sufficient if, for example, there is a clear right to payment under an agreement and that agreement is either annexed or already in evidence. In this case, the letter annexed to Ms Zhang’s affidavits asserts that the force majeure clause in the 2021 investment agreement is not applicable and that there was an agreement between the company and MBIE that the payment for “Leverage and Legacy” would be on hold as the company intended to return MBIE’s investments. No further details or evidence are provided in respect of the force majeure clause or the agreement reached but this can be considered when assessing whether the applicant has established that there is a genuine and substantial dispute. MBIE’s evidence is therefore admissible.
Late affidavit of Mr Mayo
[35] The second challenge to admissibility was from MBIE and relates to the late affidavit of Mr Mayo dated 26 June 2024. This was filed after and in response to the Attorney-General’s memorandum dated 27 June 2024 regarding Ingenious as discussed above. Mr Mayo was overseas in Virginia so it is dated the day prior.
[36] There are technical issues with the swearing of the affidavit but these were tidied up following the hearing with a compliant affidavit filed on 1 July 2024.
[37] Mr Mayo’s affidavit begins by attaching copies of the correspondence between the parties and the Court in respect of the endorsed copy of the application. This is no longer an issue and in any event, MBIE has no issue with this evidence. The evidence that MBIE did object to was Mr Mayo’s evidence about the force majeure clause and
the process followed. MBIE submits that this ought to have been filed in reply and asked that it not be read.
[38] Mr Spring for M&C accepts that evidence in relation to the force majeure process is new but says the evidence is in response to MBIE’s written submission that there is no evidence from M&C that it followed the process required in the force majeure clause. Counsel for M&C submits that this is a change in MBIE’s position and that the only evidence which MBIE has filed in support of its opposition records that MBIE’s position is that the force majeure clause does not apply because the company’s failure to repay does not arise from a force majeure event. Instead, M&C says MBIE’s written submissions include the submission that M&C did not comply with the process required in the force majeure clause.
[39] The notice of opposition filed on behalf of MBIE does not refer to the force majeure clause in the grounds, simply recording:
(a)an agreement material to the event underlying the investment agreement between the parties was terminated thereby resulting in a default under the investment agreement;
(b)in accordance with the terms of the investment agreement, MBIE gave notice requiring M&C to refund all payments made by MBIE to M&C, including the sum claimed in the statutory demand of $100,000;
(c)a further letter was written on 19 May 2023 seeking refund of the
$100,000 and giving reasons for the amount owing;
(d)M&C has failed to repay the $100,000;
(e)there is no requirement and no agreement between the parties to mediate and/or arbitrate the dispute; and
(f)there is no substantial dispute as to whether or not the debt claimed in the statutory demand is due and owing.
[40] The notice of opposition further records that MBIE relies on s 290 of the Companies Act and the authorities and the affidavit of Wenrui Zhang filed in support. That affidavit, as discussed already, attached the 5 February 2024 Meredith Connell letter. This letter records that the force majeure clause does not apply—not because the process has not been complied with, but because the failure to repay does not arise from a force majeure event.
[41] I agree with M&C’s submission that the approach taken by MBIE in submissions is therefore different from the grounds set out in the notice of opposition and the evidence filed.
[42] Applications to set aside statutory demands do not determine final rights so where evidence appears relevant to the decision whether to set aside the statutory demand, it may be appropriate for it to be admitted even where filed late.
[43] In this case, the original affidavit filed by M&C in support of the application annexed a letter from its lawyers saying that the process in cl 51 had been followed. MBIE did not address this issue in its opposition but then did in submissions filed in advance of the hearing. I consider that MBIE has had an opportunity to dispute that the cl 51 process was followed but did not do so. Where MBIE has then relied on a failure to follow the cl 51 process in its submissions, I am prepared to admit the evidence on that process included in Mr Mayo’s late affidavit. I discuss this evidence further below.
Setting aside statutory demands — legal principles
[44] Section 290(4) of the Companies Act set outs three grounds on which the Court may grant an application to set aside a statuary demand:
(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.
[45] The general principles are well settled and were summarised by the Court of Appeal in Confident Trustee Ltd v Garden and Trees Ltd as follows:9
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a 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 first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
Is there a genuine and substantial dispute?
[46] M&C relies on the force majeure clause in the investment agreement (cl 21) to submit there is a genuine and substantial dispute.
[47] MBIE submits in response that the force majeure clause does not remove the obligation to pay for two reasons:
(a)the failure to refund by M&C needs to arise from the force majeure event; and
(b)there is no evidence that M&C has complied with the requirements of the force majeure clause.
9 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
[48] Working through the circumstances and relevant clauses, the Host Venue Agreement was terminated on 14 September 2022. It is not in dispute that a default therefore occurred under cl 18.1(h) of the Second Agreement.
[49] In the event of a default, cl 18.2 provides that MBIE may give notice requiring M&C to pay MBIE a partial or full refund. “Full refund” is defined as meaning repayment to MBIE of the full amount of the Investment already paid by MBIE as provided for in cl 18.3. If notice is given, cl 18.3 requires M&C to immediately pay the refund to MBIE.
[50] MBIE says it gave notice by its letter dated 21 November 2022, requiring M&C to provide MBIE with a full refund of the $100,000. MBIE says M&C was required to pay the debt immediately, but it has not.
[51] M&C relies on the force majeure clause, clause 21, to assert that there is a genuine and substantial dispute that the amount demanded is payable. Clause 21 provides as follows:
21.Force Majeure
21.1Neither Party will be liable to the other for any failure to comply with its obligations under this Agreement if the failure or delay arises directly from a Force Majeure Event and the affected Party:
a.promptly notifies the other Party in writing on becoming aware of the Force Majeure Event and provides full information concerning the Force Majeure Event including an estimate of the likely duration of the Force Majeure Event, the obligations affected by the Force Majeure Event and the steps being taken by that Party to mitigate or remedy the Force Majeure Event;
b.uses its best endeavours to overcome the Force Majeure Event and to mitigate the effects of the Force Majeure Event on its obligations under the Agreement;
c.continues to perform its obligations which are not affected by the Force Majeure Event; and
d.resumes performance of any obligation affected by the Force Majeure Event as soon as practicable after the end of the Force Majeure Event.
[52] Force majeure event is defined in cl 1 as meaning “an event the occurrence of which is beyond the reasonable control of either [p]arty” and includes at (c) an “epidemic”. The COVID-19 Pandemic therefore falls within this definition.
[53] MBIE relies on Chitty on Contracts to submit that it is always necessary to pay careful attention to the words used in any particular force majeure clause and that the learned authors make the point that the force majeure event must be the cause of the failure to perform and the party relying on the force majeure evidence bears the burden of proof.10
[54] MBIE submits that in order to rely on cl 21, its requirements need to be complied with and yet, at the time MBIE filed its written submissions, M&C had not adduced any evidence to show it followed the required process, all it had done was rely on a paragraph in its lawyer’s letter dated 26 January 2024 which states the same.
[55] The letter referred to was annexed to Mr Mayo’s first affidavit filed in support of the application to set aside. The statement is included under the heading “the amount of the statutory demand is subject to a genuine dispute” and includes the following paragraphs:
(b)the Force Majeure clause in the Agreements applies (clause 21). The effect of clause 21 is the Company is not liable for any failure to comply with its obligations under the Agreements if the failure or delay arises directly from a Force Majeure Event, which is defined as “an event the occurrence of which is beyond the reasonable control of either Party and includes… an epidemic”;
(c)the Company followed the relevant process required under clause 21 and was in regular contact with senior officials at MBIE. In agreement with MBIE, the Company sought an alternative solution to the Event, including to seek the interest of other international rights holders. The Company at all times remained willing to perform its obligations under the Agreements towards the Event but was unable to do so because of factors beyond its reasonable control;
[56] As noted above, MBIE’s notice of opposition did not refer to the force majeure clause and the evidence filed in support of the notice of opposition did not dispute whether the relevant process was followed, only annexing the Meredith Connell letter
10 Hugh Beale (ed) Chitty on Contracts (34th ed, Thomson Reuters, London, 2018) vol 1 at 27- 060–27-086.
of 5 February 2024 and its enclosures. The Meredith Connell letter simply records that the force majeure clause is not applicable in this situation because the company’s failure to comply with cl 18.3 to repay does not arise from a force majeure event. There is therefore no evidence filed on behalf of MBIE disputing the assertion in the letter from MinterEllisonRuddWatts that M&C followed the relevant process.
[57] Mr Mayo in his late affidavit included brief evidence addressing the steps taken in relation to the force majeure event, including promptly notifying MBIE and putting together a team of named experts who spent ten weeks working through as many solutions and options as possible with all stakeholders, including four recorded phone calls with TOR. Mr Mayo further deposes that between 30 August 2021 and 4 November 2021 M&C kept its business in a full state of readiness in order to perform its obligations for the event and from 4 November 2021 to 14 September 2021 undertook a list of activities, including seeking advice, proposing alternative events, keeping business operations on call and managing sponsors and the media.
[58] MBIE submits that to the extent there was any communication from M&C regarding any force majeure event, it was related to TOR’s removal of Auckland as a stopover, apparently due to Covid-19. MBIE says that this is a matter between TOR and M&C as dealt with by them under the Termination Agreement, and it does not affect M&C’s obligation under cl 18.3 to pay the debt.
[59] The process set out in cl 21 of the investment agreement is not very detailed, and simply requires M&C first to promptly notify MBIE on becoming aware of the force majeure event and to provide information—including regarding the obligations affected by the force majeure event. Even if M&C’s communication with MBIE related to TOR’s removal of Auckland as a stopover it would still arguably comply with the requirement to promptly notify MBIE of the force majeure event and to provide information, including the obligations affected by the force majeure event.
[60] The next requirement in cl 21.1(b) is for M&C to use its best endeavours to overcome the force majeure event and to mitigate the effects of the force majeure event on its obligations. Then at cl 21.1(c), to perform its obligations which are not affected by the force majeure event. Finally, at cl 21.1(d), M&C were required to resume
performance of any obligation affected by a force majeure event as soon as practicable after its end.
[61] As the force majeure event in this case resulted in the cancellation of the stopover in Auckland, the steps necessary to comply with the remainder of the process at 21.1(b) to (d) may not have been significant. The MinterEllisonRuddWatts letter recorded that the company had complied with this process and there is no evidence on behalf of MBIE disputing this. Mr Mayo then confirmed the steps that had been taken in his affidavit, albeit briefly.
[62] In the circumstances of this case, the evidence of Mr Mayo is sufficient to establish that there is a genuine and substantial dispute as to whether the process set out in cl 21 has been complied with.
[63] If that is the case, the second question is whether, even if the process has been complied with, any failure to comply with M&C’s obligations under the Second Agreement “arise directly” from the force majeure event.
[64] The force majeure clause in this case is a relatively broad clause as it does not require the force majeure event to have “prevented”, “hindered” or “delayed” M&C’s compliance with its obligations but instead that failure to comply “arises directly” from the force majeure event. How “arises directly” is to be interpreted is therefore a key issue.
[65] As the extract from Chitty on Contracts relied on by MBIE records, the general principles applicable to the interpretation of contract terms also apply to force majeure clauses.11 The key principles applying to interpretation of contracts are as follows:
(a)The court’s approach is objective. It must determine what the contract would mean “to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.12
11 Chitty on Contracts, above n 10.
12 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffman.
(b)If the language at issue has an ordinary and natural meaning, construed in the context of the contract as a whole, that will be a powerful, but not a conclusive, indicator of what the parties meant.13
(c)If there remains an ambiguity after the interpretive exercise, the court will generally prefer an interpretation that does not flout business sense.14
[66] As these principles make clear, and as the Courts have held in other summary contexts, interpretation of contracts is not generally a matter that is amenable to summary jurisdiction, such as the Companies Court.
[67] MBIE points to the fact that it was M&C that sought the termination of the Host Venue Agreement as recorded in the Termination Agreement between TOR and M&C and submits that the reasons why it decided to terminate the Host Venue Agreement do not negate its obligation to pay the refund.
[68] However, if the reason the Host Venue Agreement was terminated was because of a force majeure event, then the reason why M&C terminated the Host Venue Agreement is relevant to its obligation to pay the refund, the question being whether the failure to comply with the refund obligation arises directly as a result of the force majeure event.
[69] MBIE further submits that the Termination Agreement between TOR and M&C provided that TOR was to pay M&C the refundable deposit of €100,000, accrued interest on that sum, and the host city fee of $20,000 and that the payment received by M&C from TOR would have been more than sufficient to pay the
$100,000 to MBIE. MBIE submits it appears M&C’s failure to pay is the result of a deliberate decision not to allocate recovered funds towards satisfaction of the debt, rather than an inability due to the occurrence of a force majeure event.
13 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [63].
14 At [77] to [79]; see also Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85 at [41].
[70] However, it is not as straightforward as saying “well they received money from TOR so they should repay that money to us” as MBIE appears to submit. It is not clear what other obligations M&C had in respect of the money received from TOR and how “arises directly” is to be interpreted.
[71] The situation might be different if the $100,000 had been paid as a straightforward investment rather than on completion of certain milestone tasks. I agree with MBIE’s submission that this is a contractual dispute but the terms of the Second Agreement, including the detailed milestones schedule, make it clear that by the time the $100,000 was paid, the Ministry must have been satisfied that the tasks at 1, 2 and 3 had been completed. These included providing an updated budget and a detailed project plan, a report on the COVID-19 impacts on the Ocean Race Auckland Stopover and the wider Ocean Race Series, as well as submitting the event governance plan for approval by MBIE, a risk management plan, and a media issue escalation framework as required by cl 6.7 of the schedule. Completing these tasks will have required moneys to have been expended so it is not necessarily a simple question of repayment of an investment sum as MBIE appears to submit.
[72] Furthermore, the statutory demand only refers to the further $500,000 that had been demanded under the First Agreement in a footnote and there is no explanation from MBIE as to why this amount was not the subject of the statutory demand as well. This creates some uncertainty as the relevant clauses in the two agreements are the same. If there is a right to claim $100,000, there would appear to be a right to claim
$500,000.
[73] Because of the emphasis MBIE placed on the refund received from TOR, one explanation might be that the €100,000 received from TOR was not sufficient to cover both the $100,000 and the $500,000 so MBIE does not consider it can claim both. But this suggests that where a sufficient refund is received, the failure to comply does not “arise directly” from the force majeure event. There is no reference to refunds or similar requirements in the force majeure clause and the amount paid by MBIE under the First Agreement and Second Agreement was only paid after MBIE was satisfied certain tasks were completed. Such an interpretation does not therefore appear to be the only interpretation.
[74] On balance, therefore, I consider that M&C has established that it is arguable that its failure to comply “arises directly” from the force majeure event. There is therefore a genuine and arguable dispute as to whether the debt is owing.
[75] I do not need to go on to consider the other grounds but do so briefly for completeness.
Is the statutory demand defective for insufficient details?
[76] M&C submits that the statutory demand is very unusual in its brevity because it fails to contain sufficient details of the debt purported to be owed. M&C says there is no reference to the relevant clause in the Agreement under which the money is owed and nor is it annexed. In addition, they submit the footnote reference to a further
$500,000 being owed pursuant to another agreement is unusual.
[77] MBIE responds that the statutory demand refers to the investment agreement dated March 2021, and that the same $100,000, and how the obligation for M&C to pay this debt arose, were referred to in MBIE’s letters dated 21 November 2022 sent directly to M&C and 19 May 2023 to Chapman Tripp.
[78] An issue arises as the 19 May 2023 letter was sent to John Strowger at Chapman Tripp who replied that he was not acting for M&C on this. Mr Strowger did however indicate that he would check with Mr Mayo as to whether anyone is.
[79]In Wildlife Pictures Ltd v Busch, Associate Judge Bell stated:15
It is important that creditors adequately identify the debt [that is] the subject of the statutory demand. Unless the debt is properly identified, the company receiving the demand will not know what the demand relates to, and therefore will not know how to respond to it, either by paying it, if it is undisputed, or by applying to set aside if there are grounds under s 290.
[80] In FAF Holdings Ltd (In Liq) v The Town Ball Ltd, Associate Judge Osborne found there was no basis to treat the statutory demand in that case to be insufficiently particularised because Mr Bethune (director of the defendant company) had earlier
15 Wildlife Pictures Ltd v Busch HC Whangarei CIV-2011-488-574, 18 October 2011 at [9].
received a letter of demand for the same sum, identifying it as representing the reimbursement of the IRD debt:16
… When the statutory demand was received for precisely that amount, Mr Bethune could have been under no misunderstanding as to what the debt represented. This is a very different case from that dealt with by Associate Judge Bell in Wildlife Pictures Ltd v Busch where Mrs Busch, as the director of the company involved, believed the demand had something to do with filming and edit suite equipment but Mr Busch, as the person making the demand, meant it to refer to an after-tax bonus and wages …
(Footnotes omitted).
[81] In this case, if I had found above that there was no genuine and substantial dispute, I doubt that the lack of details in the statutory demand would be a sufficient basis to set aside the demand on its own, as the reference to the $100,000 amount owing under the Second Agreement was the whole of the amount that had been paid under the Second Agreement so it ought to have been clear what it was related to. It was also explained more fully in MBIE’s letter dated 21 November 2022 which was sent to M&C directly.
Does M&C have an arguable counterclaim?
[82] The counterclaim relied on by M&C is a claim for $50,000 plus GST that was the subject of an invoice from M&C in relation to a completed milestone—Task 5 of the Milestone Schedule referred to as the “leverage and legacy” task.
[83] M&C submits in reliance on the agreement referred to in the 5 February 2024 Meredith Connell letter relied on by MBIE in evidence that the sum of $50,000 ought to be offset against the amount alleged in the statutory demand.
[84] MBIE says in response that M&C does not rely on this ground in its application to set aside but that even if that is put to one side, M&C’s invoice for the work was prematurely issued to MBIE on 6 October 2021. MBIE says that following TOR’s announcement on 4 November 2021 that Auckland would no longer be a stopover, M&C and MBIE agreed to put the $50,000 payment on hold rather than for it to offset the $100,000 payment.
16 FAF Holdings Ltd (In Liq) v The Town Ball Ltd [2015] NZHC 3189 at [19].
[85] There is no direct evidence before the Court of the agreement reached between the parties other than the reference in the Meredith Connell 5 February letter. However, more importantly and as also submitted on behalf of MBIE, the Court may only set aside a statutory demand where the counterclaim would result in a net sum due which is less than the prescribed amount, being $1000.17 The debt in this case of
$100,000 less the amount of the alleged counterclaim of $50,000 is not less than the prescribed amount.
[86] Any such counterclaim does not therefore provide a basis for setting aside the demand as counsel for M&C acknowledged at the hearing.
Are the parties required to attempt mediation or arbitration before the issue of the statutory demand?
[87] Whilst this was a ground relied on by M&C in its application to set aside, by the time of filing its written submissions M&C’s position was that rather than being required, mediation or arbitration were preferable to litigation. M&C submits that it has financially suffered due to the loss of events and the impact of COVID-19 and no longer operates as an event management company. In addition, the other director of M&C, Mr Calder, died in early 2023. M&C says it filed no evidence of its ability to pay the amount of the statutory demand because it simply is unable to do so but that its liquidation would serve no useful purpose.
[88] M&C says the only ability for MBIE to seek to recover any funds is through offers of settlement by its sole director, Mr Mayo, and that he has attempted to resolve matters with MBIE, but those attempts have been rejected.
[89] As MBIE submits, these submissions are relevant to the question of whether M&C ought to be liquidated rather than to an application to set aside a statutory demand. They do not therefore provide a further basis for setting aside the demand.
17 Companies Act 1993, s 290(4)(b).
Is the separate litigation that M&C is involved in relevant?
[90] M&C further submits that it is currently engaged in a longstanding legal proceeding against America’s Cup Event Limited and Team New Zealand Limited and that its counterclaims in that proceeding are for a sum well in excess of the amount of the statutory demand. M&C says that the liquidation proceedings against it will prevent the company from pursuing its counterclaim in that proceeding.
[91] Again, these submissions are relevant to any application to liquidate M&C rather than an application to set aside a demand in the first place. Again, they do not provide a basis for setting aside the demand.
Result
[92] The application by Mayo & Calder Limited to set aside the statutory demand served on it by the Attorney-General dated 15 January 2024 is granted on the basis that there is a genuine and substantial dispute that the debt is due or owing.
Costs
[93] The applicant has succeeded and so in the usual course is entitled to costs. My preliminary view is that there does not appear to be any basis why costs ought not to be awarded on a 2B basis. I ask the parties to confer and only if costs are unable to be agreed to file memoranda, on behalf of the applicant by 8 November 2024 and the respondent by 22 November 2024.
Associate Judge Sussock
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