Modern Engravers Limited v Allfrey HC Auckland CIV 2010-409-402
[2010] NZHC 920
•9 June 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-000402
BETWEEN MODERN ENGRAVERS LIMITED Applicant
ANDPHILIP JOHN ALLFREY Respondent
Hearing: 4 June 2010
Appearances: E J Tait for Applicant
G P Tyrrell for Respondent
Judgment: 9 June 2010
JUDGMENT OF ASSOCIATE JUDGE DOHERTY
on Application to Set Aside Statutory Demand
Preliminary matters
[1] I grant leave to the respondent to appear in opposition to the application because:
i)I accept the respondent gave instructions to its solicitors to oppose the application in plenty of time.
ii) The solicitors were responsible for not doing so.
iii)There is no prejudice to the applicant (any extra step has been reimbursed by an award of costs).
iv)Whilst it fails for want of form, the memorandum of counsel seeking leave to file out of time which was filed on 25 March
MODERN ENGRAVERS LIMITED V ALLFREY HC CHCH CIV-2010-409-000402 9 June 2010
2010 gives notice of the grounds of opposition and fairly informs the applicant.
v) This Court contemplated that there was an application made on
15 March 2010 (at first call) by the issue of timetabling as per the minute of 29 March 2010.
vi)It is in the interests of justice that the matter be determined on the merits, otherwise the likelihood is duplicated costs after a
new demand is issued.
Facts
[2] By notice of statutory demand dated 12 February 2010 the respondent required payment of $6281.05 alleged to be owing under a contract for provision of computer hardware and/or services. As part of its business operation the respondent factored its debts to a factoring company called Working Capital Solutions Limited (WCS). At some stage prior to the demand the respondent advised the applicant thus:
We have taken advantage of a funding facility from Working Capital Solutions Limited. As part of this factoring facility, all of our invoices are assigned to Working Capital Solutions Limited. Cheques must now be made payable to Working Capital Solutions Limited and direct credits should be sent to their bank account…
[3] In a statement dated 8 January 2010 WCS detailed amounts owing under this factoring arrangement totalling $3401.98. They related to six of the respondent’s invoices issued between 2 November 2009 and 20 December 2009, and a credit labelled “payment” on 16 December 2009.
[4] The factoring facility provided:
i) WCS could reject any debt assigned under the arrangement.
ii)WCS reserved the right to take any steps to enforce the payments and to commence proceedings in both its name and that of the respondent.
iii) Appointed the respondent as WCS’s agent to collect debts.
iv)The respondent was required to undertake “all action as may be necessary or advisable” to collect debts.
[5] The only amount outstanding through the factoring arrangement with WCS
as at 12 February 2010 was the $3401.98 sum. By invoice number 2304 issued on
18 January 2010 (with a due date of 1 February 2010) the respondent invoiced the applicant $3277.89. This was not part of the WCS agreement.
[6] On 3 February 2010, through his solicitors, the respondent made demand of the applicant for all amounts then outstanding, which included both factored and unfactored indebtedness. At that time, absent interest fees and costs, the total amount outstanding was $5061.39.
[7] Of the amount set out in the statutory demand, WCS rejected invoices totalling $4339.59.
Is the respondent a creditor for the purposes of s 289 Companies Act 1993
[8] The applicant claims that because of a factoring agreement between the respondent and WCS the respondent has assigned its debt, and as the demand was issued in the name of the respondent and not WCS, the demand is defective as it is WCS and not the respondent who is the creditor.
[9] The applicant claims an analysis of ss 289, 240 and 303 makes it clear that a person serving a statutory demand under s 289 must be a creditor at the time that demand is made and the respondent wasn’t as WCS “owned” the debt.
[10] I reject that argument for the following reasons:
a) The factoring agreement appointed the respondent as the agent of the assignee for the collection of all debts.
b)Notwithstanding that the notice to the applicant was that the respondent had assigned all debts to WCS, in reality that had not happened.
c) The invoice from WCS to the applicant related only to part of the indebtedness referred to in the statutory demand.
d)The amounts in both the invoice from WCS and the respondent were due and payable as at the date of the demand.
e) Even if there is some irregularity in the proper description either of the creditor or the precise amount of the debt, there would not be a substantial injustice if this demand were not set aside (s 290(5) and (6) Companies Act 1993: see also Bateman Television Limited v Coleridge Finance Co Limited [1969] NZLR 795 and Markham 2000
Ltd v Max & Co Ltd HC Auckland CIV-2004-404-002376, 23
December 2004, Associate Judge Sargison).
f) The amount owed to either the respondent or WCS is more than the prescribed amount.
g) In view of the relationship between the applicant and the respondent, the applicant was well aware of the amounts it owed in respect of goods and services rendered by the respondent, notwithstanding that payments for some bills in relation to that work were to be made to WCS.
Dispute/counterclaim
[11] The Court may set aside the statutory demand if there is a substantial dispute, whether or not the debt is owing or is due (s 290(4)) or the respondent has a
counterclaim, set-off or cross-demand (wherein the difference between the two is less than the prescribed amount) (s290(4)(b)).
[12] The applicant has filed a claim for $7000 with the Disputes Tribunal which is to be heard later this month. The applicant alleges against both WCS and the respondent that in the process of configuring a computer system and installing new software, the applicant has lost important data and this is the fault of the respondent. Second, that the rates of some invoiced charges were not in accordance with agreement between the applicant and respondent. It is unclear exactly when the claim was lodged, but correspondence introduced in the evidence of the applicant (Jones affidavit sworn 15 April 2010) seems to raise the dispute for the first time on
24 March 2010 – that is after the statutory demand was made and also after this proceeding was filed.
[13] The respondent is cynical as to the bona fides of this dispute given that the affidavit filed in support of the application (Jones affidavit sworn 26 February 2010) raises a dispute only in relation to one of the invoices ($959.63) and deposes, “Other than that dispute, I am up to date with payments…”. That is, at the time of this application the wider dispute had not emerged.
[14] The test is that set out by the Court of Appeal in Covington Railways Ltd v
Uni-Accommodation Ltd [2001] 1 NZLR 272 at [11]:
Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able to show that it has a claim against the applicant which reduces the net balance owing to the creditor or even off-sets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant's side, there is an indisputable liquidated sum, but the other party's claim is for an unliquidated sum with liability and/or quantum in dispute. Then, in order to impeach the statutory demand and overcome the presumption in s287(a) that the company is unable to pay its debts when it has failed to comply with the demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for the claimed setoff and that accordingly the applicant's claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ in Bryanston Finance Ltd v De Vries (No.2) [1976] Ch 63, 78, it must show that there are "clear and persuasive grounds" for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand and liquidation
procedures improperly because there is a "genuine and substantial dispute" about the net amount of the company's indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297, 299). The dispute should then be resolved in the ordinary way — except as to any undisputed balance — rather than upon the hearing of a liquidation application.
[15] In Covington the Court was dealing with appeals from applications for orders restraining the advertising of a liquidation proceeding and stay, and an application for an order that another statutory demand be set aside.
[16] In these situations the onus must be on the applicant to persuade the Court that there are clear and persuasive grounds.
[17] The respondent submits that in the context of the work undertaken by the respondent, the computers were not working and therefore data could not go missing. Also, if there was missing data, the respondent contributed to that by failing to back up his data. There is a dearth of evidence as to value of the loss, let alone whether it was caused by any action of the respondent.
[18] Whilst the fact that the alleged dispute or counterclaim was raised late might cause one to be cynical, the determination must be whether or not the applicant has persuaded me there is a genuine dispute that currently exists. The fact that there has been a claim filed in the Disputes Tribunal is significant. It is also significant that that forum does not require full pleadings or the provision of supporting evidence. But the onus is on the applicant in this application and he ought to have been able to file sufficient information in support of his application to satisfy that onus.
[19] In the consideration of the merits in an application such as this I consider the application of principles enunciated in Eng Mee Yong v Letchumanan [1980] AC
331, 341 relating to applications for summary judgment is appropriate:
Although in the normal way it is not appropriate for a Judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however unequivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.
[20] Similarly, in Bilbie Dymock Corporation Limited v Patel (1987) 1 PRNZ 84 the Court of Appeal endorsed “the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case”. If easily attainable evidence and documentation exist (eg in the hands of a deponent) then the fact this has not been put in evidence could well lead to an inference that the particular deponent’s case is not strong.
[21] The applicant has merely asserted he has a claim which extinguishes the amount of the statutory demand. It provides no detail as to the specific customer data allegedly lost or how the respondent caused this loss, nor any evidence so as to assess the alleged losses of $7,000. I share the cynicism of the respondent as to the bona fides of the claim. The applicant has not persuaded me that there are clear and substantial grounds for its counterclaim.
Residual discretion
[22] Whilst the applicant has filed a statement of financial position as at 31 March
2009 purporting to show a surplus of assets over liabilities of $34,378, solvency is not one of its grounds for the application. In any event, that position is not only more than 12 months old, but discloses a major asset as goodwill of $40,412. There are no other factors (s290(4)(c))which would persuade me to set the demand aside.
Outcome
[23] The application is dismissed.
Costs
[24] Because of pre-hearing exchanges between them, the parties wish to be heard on costs. If they cannot agree (on the usual presumption that costs would follow the event and counsels’ agreement that schedule 2B is appropriate) I will deal with the matter on memoranda from each filed within five working days from the date of delivery of this judgment.
Associate Judge Doherty
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