Mid West Realty Limited v Monsoon New Zealand Limited
[2024] NZHC 1454
•31 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002051
[2024] NZHC 1401
UNDER the Companies Act 1993 IN THE MATTER
of a proceeding to put Monsoon New Zealand Limited into liquidation
BETWEEN
MID WEST REALTY LIMITED
Respondent / Plaintiff
AND
MONSOON NEW ZEALAND LIMITED
Applicant / Defendant
Hearing: 29 April 2024 Appearances:
D Sheppard for the Respondent / Plaintiff
S Russell / K Naidu for the Applicant / Defendant
Judgment:
31 May 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 31 May 2024 at 2.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Cooper Rapley Lawyers, Palmerston North Russell Legal, Auckland
MID WEST REALTY LTD v MONSOON NEW ZEALAND LTD [2024] NZHC 1401 [31 May 2024]
Introduction
[1] Mid West Realty Ltd, trading as Bayleys Mid West (Bayleys), brings these liquidation proceedings against Monsoon New Zealand Ltd (Monsoon) after Monsoon failed to comply with a statutory demand.
[2] The statutory demand was for an unpaid real estate commission. Bayleys claims the commission under an agency contract for putting a tenant into a large commercial property Monsoon owned in Palmerston North. Monsoon refuses to pay the commission.
[3] Monsoon now applies for orders staying the liquidation proceeding and restraining advertising of the application on the basis that there is a genuine and substantial dispute that the debt is owed, and Monsoon is solvent; and therefore, that the liquidation proceeding is an abuse of process.
[4] Bayleys opposes the application, saying that there is no genuine dispute that the commission is owed, and solvency is not a basis for staying a liquidation proceeding.
Further background
[5] On 22 June 2022, Monsoon appointed Bayleys as an agent to sell or lease the Palmerston North property. A Bayleys licenced salesperson, Angus Findlay, signed a written Agency Contract with Monsoon’s director, David Stiassny. Mr Findlay shared the listing with his Auckland colleague, Andrew Bishop. Bayleys did not have the sole agency to let the property; Mr Stiassny engaged other realtors as well.
[6] Mr Bishop introduced “The Otter Group” (described as Silky Otter by the parties), a cinema group looking to open premises in Palmerston North. Silky Otter was interested in leasing the property.
[7] However, Silky Otter did not need the whole 2,340 m2 of the property. It only needed around 1,500 m2. Further, Silky Otter would only commit to a long-term lease of the building if Monsoon contributed to the fit-out of the premises.1
[8] Bayleys introduced Anytime NZ Ltd (Anytime Fitness), a gym operator, to the property to lease the remaining area of approximately 700 m2.
[9] In December 2022, Monsoon entered into a Heads of Agreement with Silky Otter2 for 1,660 m2 of the property, and a separate Heads of Agreement with Anytime Fitness for 650 m2 of the property.
[10]The Silky Otter Heads of Agreement provided:
The Lessee wishes to lease premises and the parties have reached agreement on the key elements of a lease agreement as outlined below. The parties also agree to each use their reasonable endeavours to work towards entering into a formal Agreement to Lease to replace this Heads of Agreement in its entirety.
Each party will negotiate the Agreement to Lease in good faith. This Heads of Agreement does not create a legally binding agreement on the part of the Lessor and Lessee until the Agreement to Lease is concluded and conditions satisfied.
…
Premises: Area 1: 1450 sqm (subject to final measurement); and
Area 2: 210 sqm.
Lease Term: 15 years Rights of Renewal: 2 x 10 years
Lease Commencement: The date that is the earlier of the following:
(a) the date on which the Lessee commences trading from the Premises; and
(b) 1st July 2023.
Net Rental: Area 1: 1450 sqm (subject to final measurement) @
$400 / m2 being $580,000 plus gst per annum; and
Area 2: 210 sqm (subject to final measurement) @ 214 / m2, being $44,940 plus GST per annum
1 Email from Mr Bishop to Mr Stiassny (30 August 2022).
2 Referred to as "The Otter Limited" in this Heads of Agreement.
…
Development Works: The Lessee fit out to the Building and Premises shall
be approved by the Lessor (acting reasonably) prior to the Lessee undertaking the work.
Development Works
Contribution: It is intended that the Lessee shall undertake all the
works and costs associated with the development works to the Building and the Lessee’s Premises Fitout which shall include (but not be limited to):
1. Creating two independent tenancies with all services; and
2. Applying for all relevant consents
The Lessor shall contribute $3.5 Million plus GST
[11] An agreement to lease between Monsoon and Anytime Fitness was executed on 23 January 2023. This agreement was conditional upon Anytime Fitness obtaining finance to proceed.
[12] Monsoon then entered into an “Agreement to Develop and Lease” (ADL) with Silky Otter (acting through AHI Collective Ltd) on 9 February 2023. This agreement to lease was unconditional, and consistent with the Heads of Agreement contained these terms:
1. Definitions and Interpretation
Commencement Date means the earlier of:
(a) the Target Completion Date; and
(b) the date the Tenant commences the Business Use from the Premises.
…
Rent Commencement Date means 1 October 2023; Target Completion Date means 1 July 2023;
…
3. Landlord's contribution
3.1 It is agreed and acknowledged between the parties that an essential term of this agreement, in consideration of the Tenant entering the Lease and carrying out the Works, the Landlord will pay to the Tenant (without set-off or
deduction) the following amounts (Landlord's Contribution) on the following dates:
(a) Upon the date of signing this agreement: $1,000,000 plus GST (the Initial Payment);
(b) 2 March 2023: $600,00 plus GST;
(c) 2 April 2023: $600,00 plus GST;
(d) 2 May 2023: $600,00 plus GST; and
(e) 2 June 2023: $700,00 plus GST
Schedule 1 /Reference Schedule:
…
Initial Term: Fifteen (15) years
Renewal Terms: Two (2) further terms of ten (10) years each
Annual Rent: Estimated to be $624,940 plus GST (subject to final measurement of the Premises)
…
[13] On 23 February 2023, Anytime Fitness advised that it could not satisfy the finance condition of its agreement to lease and brought the agreement to an end. Bayleys says that it continued (and continues) to seek a tenant for that part of the property, and its Agency Contract with Monsoon remains on foot for that purpose.
[14] On 28 February 2023, after Bayleys was sent a copy of the signed ADL between Monsoon and Silky Otter, Bayleys issued an invoice to Monsoon in the sum of $269,221.49 (including GST) for its commission fee.
[15] Mr Stiassny refused to pay the commission. In an email he sent Bayleys on 14 March 2023 he said:
I am struggling to see where and when a commission is due.
Do you have a signed unconditional contract for lease of 539 Main St? If so can you please forward it to me.
I do not see any mention of a fee being due before the premises are fully leased with an unconditional contract
[16]In response, Mr Findlay emailed Mr Stiassny on 15 March 2023 and stated:
In regards to our commission, our agency agreement states the fees for a Lease are payable by the Owner to Bayleys immediately upon a lease agreement or arrangement becoming unconditional, furthermore, this applies across the property or any part thereof.
(Please refer to our schedule of fees, points 6 & 8).
[17]Mr Stiassny did not respond any further in relation to the commission fee.
[18] The owner of Bayleys, Mr Grieve, emailed Mr Stiassny on 30 March 2023, and invited Mr Stiassny to provide any agreement that he relied upon that showed a fee-deferment agreement, failing provision of which payment needed to be made by 5 April 2023.
[19] Mr Stiassny did not respond. Mr Grieve emailed him again on 9 May 2023 following up and seeking payment within seven days. Mr Stiassny did not respond.
[20] On 23 June 2023 Mr Grieve sent a formal letter of demand to Monsoon demanding immediate payment of the commission. Again, Mr Stiassny did not respond.
[21] Bayleys referred the matter to its solicitors, who sent a further letter of demand on 30 June 2023, this time giving Monsoon until 7 July 2023 to pay the commission. Again, Monsoon did not respond.
[22] Bayleys issued a statutory demand on Monsoon pursuant to s 289 of the Companies Act 1993 and served it on Monsoon on 10 July 2023.
[23] Monsoon took no steps to set aside the statutory demand. However, it instructed solicitors, who wrote to the solicitors for Bayleys on 22 August 2023, disputing that any commission was payable, and disputing the amount of commission claimed. That letter includes arguments made for the present stay: that the commission was not payable because the Agency Contract was varied by oral agreement to provide that the commission was not payable until Bayleys had leased the entire property, no
unconditional deed of lease had been agreed, and the commission was wrongly calculated.
[24] Bayleys’ solicitors responded on 31 August 2023 rejecting that any of the matters raised constituted a genuine dispute, and pointing out that Monsoon and AHI Collective Ltd had entered into the ADL on 9 February 2023 and that AHI Collective Ltd opened its cinemas for business on 1 July 2023.
[25] Monsoon’s solicitors wrote a further letter maintaining that, leaving aside the issue of the oral variation, at the time the February invoice was issued, no lease had been entered into. Further, they argued that even if the invoice was issued correctly, it was based on rental estimates in the ADL and accordingly had been miscalculated. They also attached a letter from Monsoon’s auditors confirming that Monsoon was solvent.
[26] Bayleys rejected this dispute and on 8 September 2023 filed the present liquidation proceeding.
Legal principles
[27] Rule 31.11 of the High Court Rules 2016 supplements the Court's inherent jurisdiction and empowers the Court to stay any liquidation proceeding and restrain advertisements of liquidation proceedings:
31.11 Power to stay liquidation proceedings
(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company… may … apply to the court–
(a) for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b) for an order staying any further proceedings in relation to the liquidation.
(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3) The inherent jurisdiction of the court is not limited by this rule.
[28]The Court in Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd3
set out a summary of the relevant principles as follows:
(a)The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.
(b)The jurisdiction to stay is an inherent one to prevent abuse of process. There is no inflexible rule.
(c)The governing consideration is whether the proceedings suggest unfairness or undue pressure.
(d)It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate "something more" than the balance of convenience considerations which are usually considered on an application for an interim injunction. If the defendant company has had an opportunity to file appropriate affidavits they are required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds or show that there are clear and persuasive grounds for a stay.
A genuine and substantial dispute?
[29] I reject Monsoon’s case that there is a genuine and substantial dispute about whether the commission was payable before the entire property was leased. However, I accept that there is a genuine dispute about whether Monsoon was obliged to pay the commission when Monsoon and Silky Otter entered into the ADL (and therefore when Bayleys issued its invoice). But I find that the commission was plainly due and owing by the time the statutory demand was served and when these proceedings were filed.
3 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
[30] To expand, I find that Monsoon’s argument that the terms of the Agency Contract were varied, or that there was a collateral agreement, or an estoppel with the effect that the commission was not payable until the entire property was let, does not meet the threshold of a genuine dispute.
[31] Mr Stiassny’s evidence is that Monsoon is one of New Zealand’s major commercial property providers, with a current portfolio valued at over $56 million. Mr Stiassny is an experienced director of that company.
[32] Mr Stiassny signed the Agency Contract with Bayleys which states that Monsoon must pay Bayleys the commission (and any other monies payable under the contract) when the property or any part of the property was sold and/or leased. The Agency Contract states this at cl 5.1 in the “Commission” section. Further, the definition of “Lease” in the “All Transactions” section of the Schedule of Fees includes “a lease… of the Property or any part thereof”. Mr Stiassny initialled these sections of the contract.
[33] There is no question of contractual interpretation raised. The meaning of the words is plain. The commission is payable when the property “or any part of” the property is sold or leased.
[34] Mr Stiassny’s evidence relied on to suggest that there was a collateral contract, an agreed variation to the Agency Contract, or an estoppel, falls well short of establishing a credible basis for such a claim.
[35]The extent of his evidence is:4
One of the realtors involved in finding a tenant was Bayleys in Palmerston North. Like others, I made clear to Bayleys that I was seeking out tenants who could rent the entire Property. I had no intention of splitting the Property up into minor tenancies. I did not intend to pay commission until the entire property was rented out. Monsoon retained Bayleys as one of its agents under the “Bayleys Agency Contract” dated 22 June 2022…
4 Affidavit of David George Stiassny in Support of the Defendant’s Interlocutory Application for Orders Restraining Publication of an Advertisement Required by CHR 31.9 and Staying any Further Proceedings in Relation to the Liquidation, affirmed 27 October 2023, at [7].
[36]And further:5
I made clear to Bayleys that they must continue to look for a tenant for the remaining portion of the Property. As I explained to all my agents, including Mr Findlay, Monsoon engaged Bayleys to find a tenant for the entire Property and commission would only be paid once the entire Property was leased.
[37] Notably, Mr Stiassny does not allege that any of the Bayleys agents agreed that the commission would only be paid once the entire property was leased. Mr Stiassny’s subjective intention as to when he would pay the commission is irrelevant. He signed a contract that said the commission would be paid when the property or any part of it was leased or sold.
[38] There is consequently no evidence from Monsoon, or even an allegation, suggesting that any of Bayleys’ agents agreed that the commission would not be paid until the entire property was rented. Without acceptance of such a term, no collateral contract or variation of contract can ever have formed; nor can there have been any clear and unequivocal representation necessary for an estoppel to operate.
[39] However, I accept that there is a genuine dispute about whether Monsoon’s obligation to pay the commission was triggered when Monsoon and Silky Otter entered into the ADL.
[40] Under the ADL Monsoon agreed to grant, and Silky Otter agreed to accept, a lease of the premises to Silky Otter “on the terms and conditions contained in [the ADL]”6 and “in the Lease”.7 “Lease” is defined as “the latest form of Auckland District Law Society Deed of Lease completed by reference to this agreement’s provisions and incorporating the terms included in Schedule 1”.8
[41] Monsoon and Silky Otter agreed, as an essential term, that in consideration for Silky Otter entering into the lease and carrying out the works, Monsoon would pay Silky Otter the stated contribution to the works.9
5 Affidavit David George Stiassny, above n 4, at [14].
6 Agreement to do Works and to Lease, dated 9 February 2023, “Introduction”
7 Clause 8.1
8 Clause 1.1 “Definitions and Interpretation”.
9 Clause 3.1, “Landlord’s contribution”.
[42] Monsoon agreed to provide Silky Otter unfettered access to the building from the Access Date of 1 January 2023 until the Commencement Date to complete the works.10
[43]The ADL contained these relevant terms under the cl 8 heading “Lease”:
8.1The Landlord will grant to the Tenant and the Tenant will take a lease of the Premises on the terms and conditions contained in this agreement and in the Lease.
8.2In consideration of the Landlord entering into this agreement at the request of the Guarantors (which request the Guarantors admit) the Guarantors jointly and severally:
a.guarantee the performance of the Tenant’s obligations both at the time and in the manner required;
b.indemnify the Tenant against any loss the Landlord might suffer should the agreement be lawfully disclaimed by any liquidator or receiver on behalf of the Tenant;
c.covenants to enter the Lease as guarantors to guarantee the obligations of the Tenant in accordance with the Fourth Schedule of the Lease.
8.3The term of the Lease, and the Tenant’s obligation to pay the Outgoings, will commence on and from the Commencement Date. The tenant will pay the Annual Rent from the Rent Commencement Date.
8.4The lease will be prepared by the Tenant’s solicitor and submitted to the Landlord for approval as soon as possible after the completion of the Works and measurement of the rentable floor area of the Premises in accordance with clause 7.3 so the Annual Rent can be calculated.
8.5Upon the Landlord’s approval, the Tenant and Guarantors will sign and return the Lease to the Landlord within a reasonable time thereafter. The Landlord will then sign the Lease and return a copy to the Tenant within a reasonable time.
8.6From the Commencement Date, until all parties have signed and delivered the Lease, the parties will be bound by the terms and conditions contained in the Lease as if they had already signed the Lease.
10 Clause 4.1, “Construction”.
[44] Relevantly, the obligations and warranties in the ADL were stated to remain fully effective after the Lease was executed.11 Furthermore, the ADL contained an extensive dispute resolution clause.12
[45] The terms of the ADL can be contrasted with the Heads of Agreement, which stated that the Heads of Agreement did not create a legally binding agreement until the Agreement to Lease was concluded and the conditions satisfied.
[46] I do not consider there to be any doubt that the parties intended the ADL to be an immediate and legally binding agreement.
[47] But that does not determine the dispute raised by Monsoon. The question is whether the term of the Agency Contract that required Monsoon to pay a commission was triggered when Monsoon and Silky Otter signed the ADL in February 2023. That requires interpretation of the relevant terms of the Agency Contract.
[48]Turning to the Agency Contract, the section headed “Commission” states:
5.1 If the Property or any part of it is Sold and/or Leased, directly or indirectly:
(a)by Bayleys; or
(b)through the instrumentality of Bayleys; or
(c)to any person introduced to the Property by Bayleys; or
…
the Owner must pay Bayleys the Commission, and any other monies payable under this contract.
5.2 The Owner will pay the Commission to Bayleys on the date set out in the Schedule of Fees.
(emphasis added)
[49] Clause 19.1 (“Interpretation”) states that the terms “Lease”, “Property”, and “Sale” will have the meanings ascribed to those terms set out in the Schedule of Fees.
[50] Under the heading “All Transactions” in the Schedule of Fees, the term “Lease” is defined at cl 6 to mean:
11 Clause 9.4 “General”.
12 Clause 10 “Dispute Resolution”
A lease, sub-lease, licence, profit à prendre, naming rights, occupation, assignment, surrender, renewal, or any other form of lease; by agreement, deed, memorandum, lender, auction or any other form of the Property or any part thereof. “Leased” has a corresponding meaning.
(emphasis added)
[51]Clause 8 states:
The fees for a Lease are payable by the Owner to Bayleys immediately upon the earlier of:
(i) a lease agreement or arrangement becoming unconditional; or
(ii) entry by the lessee into the possession of the leased property; or
(iii) commencement of rental payments by the lessee. (emphasis added)
[52] Under the heading “Lease transactions” in the Schedule of Fees, the contract provides:
11. The rental on which the fee is calculated is the average total annual gross rental for the first term of the Lease which includes net rental, carparks, naming rights, and all outgoings payable by the lessee. For new buildings, the outgoings are those budgeted for the first year of the building’s operation.
…
The fee payable is:
An administration charge of $600,
(a) 2 months gross rental for a lease term of under 3 years.
(b) Where the Lease term is 3 years or over – 17% of the annual gross rental, plus a further 1% of annual gross rental for each additional year or part thereof.
(c) A minimum fee of $2,500 plus the administration charge will apply, and on any consideration (see 3 above) an additional fee of 4%.
[53] Thus, Monsoon was obliged to pay Bayleys the commission when the property (or any part of it) was “Leased”. That definition is circular, but the transaction must be some “form of lease”, either by agreement or deed. On its face, an agreement to lease is not a “form of lease”. It is an agreement to enter into a lease.
[54] In my view the reference at cl 8 to the commission being payable on a “lease agreement or arrangement” becoming unconditional does not clarify matters, as the agreement or arrangement must still be for “a lease”.
[55] Furthermore, the rental on which the commission is calculated is based on the annual gross rental for the first term of the “Lease”.
[56] Monsoon argues that there was (and is) no “Lease” as defined in the Agency Contract. It says that there will be no “Lease” until Monsoon and Silky Otter execute a “Lease” as defined in the ADL, namely an ADLS Deed of Lease completed by reference to the ADL’s provisions and incorporating the terms at Schedule 1. It says further that it is an essential element of a lease that the lessee is given the right of exclusive possession of the premises, and the ADL does not give Silky Otter that right; it only gives it a right to access the premises.
[57] Bayleys argues that an agreement to lease will be treated as a lease. It relies on s 4 of the Property Law Act 2007 which provides that “lease means a lease of property, whether registered or unregistered, and includes a short-term lease and an agreement to lease”. Further, Bayleys says that the ADL does give Silky Otter the right of exclusive possession of the premises. Bayleys also refers to authorities where courts have made orders for specific performance of agreements to lease: Upper Hutt Arcade Ltd v Burrell and Burrell Properties Ltd13 and Inglis v Clarence Holdings Ltd.14
[58] In my view it is arguable that there was no “Lease” in terms of the Agency Contract in February 2023 when Monsoon and Silky Otter executed the ADL and Bayleys issued its invoice.
[59]The learned authors of New Zealand Land Law explain:15
There are four essentials for the creation of a valid lease:
(1)a fixed or periodic term;
13 Upper Hutt Arcade Ltd v Burrell and Burrell Properties Ltd [1973] 2 NZLR 699 (CA).
14 Inglis v Clarence Holdings Ltd [1997] 1 NZLR 268 (CA).
15 Elizabeth Toomey (ed) New Zealand Land Law (3rd ed, Thomson Reuters, Wellington, 2017) at [8.2.01].
(2)certain premises;
(3)the grant to the lessee of the legal right of exclusive possession; and
(4) proper creation. (emphasis added)
[60] I do not see anything in the ADL giving Silky Otter the legal right on execution to exclusive possession of the property. Rather, it gave Silky Otter the right to access the property to carry out the works from the Access Date of 1 January 2023; and anticipated Silky Otter taking possession by 1 July 2023.
[61] The authorities relied on by Bayleys are distinguishable because the tenant had taken possession of the site as if a lease had been executed. In Upper Hutt Arcade the landlord sought specific performance of an agreement to lease which provided for a formal lease document to be prepared and signed. The tenant, who had entered into possession of the premises, signed the lease document, but the guarantor did not. The court cited authority to the effect that where an agreement has been partly executed by possession being taken under it, the Court will order specific performance unless there are compelling reasons to the contrary.16
[62] Similarly, in Inglis v Clarence Holdings Ltd an agreement to lease required the landlord and tenant and guarantor to execute an ADLS standard form lease including a guarantee. No lease was executed, but the tenant took possession and paid rent until it vacated the premises and repudiated the lease. The landlord pursued the tenant and guarantor, who argued that as the lease was not executed the guarantee of the obligations of the tenant was not effected. The court recorded that it had not heard argument that specific performance of the obligations between lessor and tenant should not be ordered. On that basis, it held that “it would be untenable to suggest that [the lessor] would be ordered to execute the lease as lessor without the guarantee of the tenant’s obligations also being executed”.17
[63] These cases merely confirm that, absent any disqualifying conduct, a party to an agreement to lease may be able to obtain specific performance of the agreement
16 At 703–704.
17 At 272.
compelling the other party to execute a lease; especially if the tenant has entered into possession and/or the agreement has been partly performed. But Silky Otter did not take exclusive possession of the site on the ADL being signed, and the terms of the ADL are inconsistent with it having a right to exclusive possession before 1 July 2023.
[64] However, in my view this dispute is immaterial because there can be no dispute that by 1 July 2023, before the statutory demand was served on 10 July 2023, there was a Lease and consequently the commission was due and payable.
[65] Clause 8.3 of the ADL states that the term of the Lease, and the tenant’s obligation to pay the outgoings, will commence on and from the Commencement Date.
[66] “Commencement Date” is defined as the earlier of the Target Completion Date and the date the Tenant commences the Business Use from the premises.18
[67] The “Target Completion Date” means 1 July 2023. “Business Use” is defined to mean cinema, audio-visual presentations, public presentations or performances, and the sale of food and beverages (alcoholic and non-alcoholic) and any other associated items and merchandise.19
[68] It is not disputed that on the weekend of 1 July 2023, Silky Otter opened the cinema in the premises for business. Therefore, on 1 July 2023 both limbs of the “Commencement Date” definition were met.
[69] Furthermore, cl 8.6 states that from the Commencement Date, until all the parties have signed and delivered the Lease, the parties will be bound by the terms and conditions in the Lease as if they had already signed it.
[70] Therefore, in my view, irrespective of whether an ADLS Deed of Lease is signed or not, the Lease anticipated by the ADL commenced on 1 July 2023. Alternatively, Silky Otter had an equitable right to exclusive possession of the premises enforceable by way of an order for specific performance against Monsoon.
18 Clause 1.1, “Definitions and Interpretation”.
19 Clause 1.1, “Definitions and Interpretation”.
[71] Therefore, on 1 July 2023 there was a “Lease” for the purposes of the Agency Contract, and the commission was payable.
[72] Even if I am wrong on that point, by 1 July 2023 the commission was payable under cl 8(ii) of the Schedule of Fees within the Agency Contract, as Silky Otter entered into possession of the property on that date.
[73] Therefore, in my view there can be no genuine dispute that the commission was payable by 10 July 2023 when the statutory demand was served.
Commission miscalculated?
[74] Monsoon contends that Bayleys has miscalculated the commission in two ways. First, that it has calculated its commission based on the estimated annual rental contained in the ADL, when this is an estimate only. Second, that Bayleys is not entitled to charge commission on the component of the rental Silky Otter is paying that is attributable to the repayment of Monsoon’s $3.5 million capital contribution.
[75] A dispute as to only part of the debt that is the subject of the liquidation proceedings is insufficient to justify a stay.20 A plaintiff is entitled to proceed so long as there a debt qualifying them as a creditor and providing a basis for the proceedings. Bayleys is a creditor for more than $1,000 and has standing to bring the application under s 241 of the Companies Act 1993.
[76] I note that the first issue raised by Monsoon is not persuasive in any event. An example invoice from Monsoon to Silky Otter (referred to in that invoice as “Otter Palmerston Limited”) dated 1 December 2023 confirms that the amount of rent Monsoon is charging Silky Otter corresponds with the estimated rent in the ADL. I have limited information on the second issue raised but note that there is no mention of a loan or loan repayments in the Heads of Agreement or the ADL. The ADL does not distinguish between rent attributable to repayment of the capital contribution and other rent, simply stating at Sch 1 that the annual rent is estimated to be $624,940 plus GST (the amount that Monsoon appears to be charging Silky Otter).
20 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
[77] In any case, as noted, a dispute over part of the debt underpinning the liquidation proceeding is not in itself grounds for a stay.
The Court’s discretion
[78] I have found that there is no genuine or substantial dispute that the commission was due and owing on 10 July 2023 when the statutory demand was served. It does not matter that there was a dispute when the invoice was issued in February 2023. By the time the statutory demand was served on Monsoon, events had overtaken and the commission was plainly due and payable.
[79] Monsoon asks the Court to exercise its discretion to stay the proceeding and restrain advertising because it is solvent.
[80] Monsoon’s Chief Financial Officer, Stuart Reeves, has filed an affidavit stating that Monsoon owns commercial property valued at approximately $64.35 million. He has provided a redacted copy of Monsoon’s balance sheet as at 30 June 2023 showing net assets of $8,090,636, and its Profit and Loss Report for the year ending June 2023 showing a net profit of $1,015,050.32.
[81] Furthermore, Monsoon has deposited the entire commission claimed by Bayleys into its solicitors’ trust account.
[82] There has been a difference of view in this Court as to whether the solvency of the debtor in itself provides grounds for a stay of liquidation proceedings in respect of an undisputed debt.21 However, in AMC Construction Ltd v Frews Contracting Ltd, the Court of Appeal held that it would be “extremely rare” for a debtor’s solvency to suffice as a standalone ground for granting an application to set aside a statutory demand, stating that:22
[7]…If there is no dispute as to the company's liability… it is difficult to imagine circumstances in which the company should be able to avoid paying
21 United Pacific Corp Ltd v Gate (1992) 6 PRNZ 69 (HC); Airborne Freight Ltd v Fastway Express Parcels (NZ) Ltd (1994) 7 PRNZ 372 (HC); McCallum Petterson & Co v Unity Mutual Financial Services Ltd HC Wellington M39/95, 30 May 1995; Chateau Raphael Ltd v Meridian Energy Ltd HC Blenheim M4/02, 9 December 2002; Spencer v Jed Rice Building Contractors Ltd HC Auckland CIV-2007-404-7539, 21 February 2008.
22 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 398, (2008) 19 PRNZ 13.
a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed. If it is not met, and an application for liquidation is filed, in reliance on the presumption in s 287(a) that the company is unable to pay its debts, then the company will have an opportunity on the liquidation application to rebut the statutory presumption, which applies “unless the contrary is proved”. There might be circumstances in which it is appropriate to advance the inquiry as to solvency to the s 290 stage, but that would require some particular circumstance not present in this case.
[83] In Gill Construction Co Ltd v Butler, Mallon J referred to these principles from AMC Construction Ltd v Frews Contracting Ltd in considering whether a company’s solvency can, on its own, justify staying a liquidation proceeding issued based on an unsatisfied statutory demand.23 Her Honour made the following comments:
[25] I consider that if the solvency of a company is not a basis for setting aside a statutory demand, then it is also not a basis for staying the liquidation proceeding that has been issued on the basis of an unsatisfied statutory demand. Gill has two choices. It can decide not to pay the statutory demand, suffer whatever embarrassment or financial harm attaches to the advertised proceeding and then successfully defend the application to appoint a liquidator on the basis of its solvency. Mr Butler will then need to proceed to have the adjudication entered as a judgment and pursue alternative enforcement mechanisms. Alternatively Gill can pay the sum it presently owes Mr Butler and avoid the advertisement and the liquidation hearing altogether…
[26] If Gill chooses the former of the two alternatives, the advertisement is not unfair or improper because Gill has chosen not to pay a debt which is presently payable under the CCA. If putting Gill in this position were viewed as unfair or improper, then solvent companies could avoid what is an effective statutory mechanism for paying amounts that are established as due.
[84] In a subsequent case, Associate Judge Abbott referred to the conclusion reached in Gill Construction and said:24
[25] I do not see that the Court is restricted to the criteria for setting aside a statutory demand when determining an application for stay of a liquidation proceeding. It is able to take into account any matter which bears on the ultimate enquiry as to whether the liquidation proceeding has elements of unfairness or undue pressure. For that reason, it must be open to the Court in principle to have regard to evidence of solvency. However, applying the reasoning of the Court of Appeal in Laywood v Holmes Construction, it is
23 Gill Construction Co Ltd v Butler [2010] 2 NZLR 229 (HC) at [13].
24 Yun Corp Ltd v YQT Ltd HC Auckland CIV-2009-404-7656, 26 February 2010 at [25]. See also Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Whangārei CIV-2010-488-613, 19 November 2010 at [32]–[33].
difficult to imagine circumstances where solvency by itself would make it unfair to permit a liquidation proceeding to be pursued.
[85] Ultimately, the question is whether the liquidation proceeding is an abuse of process in that it has elements of unfairness or undue pressure. Each case must turn on its own facts, but I do not consider it an abuse of process for Bayleys to have initiated these proceedings. Bayleys has standing to file the proceedings as a creditor of Monsoon for an amount greater than $1,000. There is no genuine dispute about a material portion of the claimed debt. The fact that Monsoon is apparently able to pay its debts does not make it unfair or oppressive of Bayleys to invoke the insolvency procedure to seek to recover a debt Monsoon owes to it.
Result
[86] Monsoon’s application to stay this proceeding and restrain publication of any advertisements of the proceeding is dismissed.
[87] This order is to lie in Court for five working days to give Monsoon the opportunity to pay the commission. Bayleys is restrained from advertising the proceeding until the expiry of five working days.
[88] As the losing party, Monsoon will pay Bayleys’ costs on a 2B basis and reasonable disbursements, to be fixed by the Registrar.
Associate Judge Gardiner
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