Monocrane (2010) Limited v Cooper & Co Real Estate Limited

[2020] NZHC 441

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001699

[2020] NZHC 441

BETWEEN

MONOCRANE (2010) LIMITED

Applicant

AND

COOPER & CO REAL ESTATE LIMITED

Respondent

Hearing:	11 February 2020
Appearances:	W McCartney for the Applicant J D Turner for the Respondent
Judgment:	9 March 2020
Reissued:	10 March 2020

REISSUED JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 10 March 2020 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

McVeagh Fleming, Auckland Duncan King Law, Auckland

MONOCRANE (2010) LIMITED v COOPER & CO REAL ESTATE LIMITED [2020] NZHC 441

[10 March 2020]

Introduction

[1]    This proceeding is an application to set aside a statutory demand. There is an interim order extending the time for compliance pending the determination of the application.

[2]    The respondent, Cooper & Co Real Estate Ltd, says that it is entitled to commission from the applicant, Monocrane (2010) Ltd, pursuant to an agency agreement. Accordingly, Cooper & Co served a statutory demand on Monocrane for the outstanding commission.

[3]    Monocrane did not comply with the statutory demand. Instead, it has applied for an order setting aside the demand under s 290(4) of the Companies Act 1993. It says there is a substantial dispute as to the existence of a debt and, alternatively, the amount claimed in the statutory demand.

Background

[4]    In December 2018, Angela Fletcher, an agent of Cooper & Co, met with Philip Bayly, a director of Monocrane, to discuss a proposed sale. Mr Bayly owned eight of the ten shares in Monocrane; his wife, Annette Bayly, owned the other two shares; and his daughter, Justine Rowe, managed the company. There is a dispute as to the object of the sale: Ms Fletcher says it was the business (the company’s assets) that was to be sold whereas Mr Bayly says it was the company itself (the company’s shares).

[5]    On 23 January 2019, Ms Fletcher emailed Mr Bayly a draft agency agreement. On 30 January 2019, Ms Fletcher met with Mr Bayly and Ms Rowe, and populated the agreement. The agreement listed the clients as “Monocrane 2010 Ltd” and “Philip Bayly”. The commission payable was 7.95 per cent of the purchase price. The agency agreement recorded an agreed list price of $1.6 million and estimated commission of $127,200, being 7.95 per cent of the listed price, plus GST.

[6]    On 9 March 2019, Hitesh Shah, a prospective purchaser, made enquiries, which Ms Fletcher answered. She then sent him an information memorandum which

Ms Rowe had prepared. On 19 March 2019, Ms Fletcher, Mr Bayly, Ms Rowe met with Mr Shah to discuss his interest. That same day, another prospective purchaser, Sonya Peters, made enquiries. Ms Fletcher answered these and sent Ms Peters a copy of the information memorandum.

[7]    On 24 March 2019, Ms Fletcher, Mr Bayly, Ms Rowe and Mr Shah met again. The next day, Mr Shah asked Ms Fletcher for a draft sale and purchase agreement for him to populate. Ms Fletcher expressed the work in progress (WIP) as a separate item on the front page of Mr Shah’s offer.

[8]    On 27 March 2019, Ms Fletcher met with Mr Bayly and Ms Rowe and presented them with an agreement for sale and purchase. The vendor was named “Monocrane 2010 Ltd” and the purchaser was named “Hitesh Shah”. They discussed the terms of the agreement. Mr Bayly says it was at this point that he first realised Ms Fletcher had not been working on a sale of shares. Ms Fletcher says that, at that point, Mr Bayly did not mention anything about a sale of shares.

[9]    On 20 March 2019, Mr  Bayly  emailed  Ms  Fletcher  with  objections  to  Mr Shah’s offer. He requested a meeting.

[10]   On 2 April 2019, Ms Fletcher, Mr Bayly and Mr Shah met to discuss the offer. Mr Shah offered $1,502,000 plus WIP,  but  subject  to  financing.  Mr  Bayly  and Mr Shah verbally agreed and shook hands. The written offer was changed to reflect this, and WIP was to be dealt with as an additional item in cl 30. The next day, Mr Shah emailed Ms Fletcher confirming that he had conditional approval for financing.

[11]   On 8 April 2019, Ms Rowe emailed Ms Fletcher (copying in Mr Bayly) objecting to a number of the  conditions  in  the  agreement  signed  by  Mr  Shah. Ms Fletcher says that, for the first time, Ms Rowe referred to a share sale, saying that “the administration complexity is added with the current approach to purchase the business and not the company”.

[12]   On 9 April 2019, Ms Fletcher forwarded those complaints to Mr Shah.  On  10 April 2019, Ms Fletcher met with Mr Shah to discuss the concerns. Mr Shah agreed to amend the agreement.

[13]   On 15 April 2019, Ms Fletcher, Mr  Bayly,  Ms  Rowe and Mr Shah met.    Mr Bayly and Mr Shah agreed to attempt to reach agreement on a share sale. Mr Bayly forwarded a draft sale and purchase agreement for the sale of shares, prepared by his lawyers, Duncan King Law Ltd, to Ms Fletcher. She then forwarded it to Mr Shah.

[14]   Ms Rowe provided Mr Shah with a copy of the 31 March 2019 balance sheet with actual stock and WIP figures which were substantially higher than expected.

[15]   On 30 April 2019, there was a meeting with Ms Fletcher, Mr Bayly, Ms Rowe, Monocrane’s solicitor, Mr Shah, his wife and his solicitor. Mr Shah could not obtain the financing for the additional stock in trade figures. Mr Bayly, Mr Shah and their respective solicitors agreed a lower purchase price of $1.3 million. Ms Fletcher was late to the meeting and consequently not a party to these discussions.

[16]   At that meeting, it was also suggested that stock in trade and WIP could be dealt with in a separate agreement. Ms Fletcher agreed not to charge commission on stock in trade above $300,000 in such a proposed separate agreement. She says this was on the basis that the agreed purchase price was still $1,502,000 plus WIP. However, such a separate agreement ever eventuated.

[17]   On 11 May 2019, Mr Shah emailed Ms Rowe (copying in Ms Fletcher) an updated sale and purchase agreement for Mr Bayly to sell all his shares for $1,502,000. On 13 May 2019, Mr Shah emailed Ms Rowe (copying in Ms Fletcher) an agreement regarding stock in trade and WIP prepared by his solicitors.  Mr Shah then called  Ms Fletcher telling her that the sale had concluded. Ms Rowe later confirmed this. The details were that Mr Shah was to be a partner and employee of Monocrane.

[18]   On 21 May 2019, the agreement for sale and purchase of Mr Bayly’s shareholding  was  executed  for  a  purchase  price  of  $1  million.  However,  on  30 May 2019, the agreement was varied to record a purchase price of only $600,000

alongside other arrangements, including that Mr Shah agreed to work full-time for Monocrane as part payment for the shares, to deposit $400,000 as a capital investment and $150,000 as working capital.

[19]   On 25 July 2019, Cooper & Co issued an invoice to Monocrane. It did not pay. On 14 August 2019, Cooper & Co issued a statutory demand for $146,280, being commission of $127,200 (7.95 per cent of $1.6 million, the agreed list price) plus GST.

Legal framework

[20]   Pursuant to s 289 of the Companies Act, a creditor may issue a statutory demand in respect of a debt owing by a company. If the company fails to comply with the demand within 15 days of service, it will be presumed to be insolvent.

[21]Section 290(4) contains the Court’s jurisdiction to set aside a statutory demand:

290     Court may set aside statutory demand

…

(4)The court may grant an application to set aside a statutory demand if it is satisfied that—

(a)there is a substantial dispute whether or not the debt is owing or is due; or

(b)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.

[22]   The applicant has the onus under s 290(4)(a) of showing a substantial dispute with a sufficiently arguable basis.1 A mere assertion that a dispute exists is not sufficient to discharge this onus — material short of proof is required.

[23]   It is not usually possible to resolve disputed questions of fact on the affidavit evidence alone, particularly where issues of credibility arise. The Court must bear in mind that it is operating in the summary jurisdiction and not convert the matter into a

1      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [19].

full-blown trial.2 Accordingly, the Court is to promptly determine whether there is a genuine and substantial dispute; it is not the task of the Court to resolve the dispute.3 The standard of proof is, therefore, not particularly high.4

Discussion

Is there a substantial dispute whether or not the debt is owing?

[24]   Monocrane’s primary submission is that the statutory demand should be set aside as there is a substantial and genuine dispute as to whether it owes a debt.

[25]   First, Monocrane says it was not a party to the agency agreement and is therefore not liable to pay commission under that agreement. Monocrane, the company, was the thing being sold. A company cannot sell itself.

[26]   Under the agency agreement, however, the Client is listed as “Monocrane 2010 Ltd, Philip Bayly”. Mr Bayly signed his name in the Signature of Client(s) section. He did so in his capacity as Director, having struck-out the other options under the Position section.5 I consider that there is a distinction to be drawn between the agency agreement and the sale and purchase agreement. Whether or not a company can sell itself (that is, its shares) is beside the point. Being a Client under the agency agreement does not mean that it is contracting to sell itself. It simply means that, should such a sale be concluded following the introduction and instrumentality of the agent, the Client will pay a percentage of the purchase price as commission to the agent.

[27]   Secondly, Monocrane says that if it was a party to the agency agreement, it entered into the agreement as a result of a mistake as to what was being sold. Accordingly, it says it is entitled to relief under s 24 of the Contract and Commercial Law Act 2017. Mr Bayly says he instructed the shares of the company to be sold from the outset. By contrast, Ms Fletcher says there is no cogent evidential basis to support Mr Bayly’s position. She says that Mr Bayly did not mention a share sale until

2 At [22].

3      Industrial Group Ltd v Bakker [2011] NZCA 142 at [24].

4 At [25].

5      Mr Bayly says that he first marked Owner/Director in the Positions section, however, the agreement was since altered to remove Owner. I do not consider that anything turns on this point.

8 April 2019, after the initial offer made by Mr Shah. Significantly, Ms Fletcher further says that it does not matter whether it was the shares or the assets that were to be sold as cl 9 of the agency agreement provides for both. Clause 9 provides, in part:

If shares in the Business are sold, the commission payable will be as if the Business had no liabilities (i.e. the commission will be calculated on the value of the Business’s gross assets).

[28]   Mr McCartney, for Monocrane, says cl 9 makes no sense as there can be no “shares in a business” only in a company. Whilst “Business” is not defined in the agency agreement, it refers to “the Business situated at the address and as otherwise described in the Executive Summary”. The Executive Summary lists the company name as “Monocrane 2010 Ltd” and the business address as 16 Tavern Road, Silverdale. In the context of referring to shares in the Business, the “Business” should be understood as referring to the company. So, regardless of whether Mr Bayly instructed Ms Fletcher to sell the shares or the assets, Monocrane is liable to pay commission under the agency agreement either way.

[29]   In any event, even if there was a mistake, it would relate to the interpretation of a contract, namely cl 9 of the agency agreement, so Monocrane would not be entitled to relief per s 25 of the Contract and Commercial Law Act. Section 25(1) states that, “[f]or the purposes of relief under section 28 in respect of a contract, a mistake, in relation to that contract, does not include a mistake in its interpretation.” Accordingly, I am not satisfied that this is a ground for setting aside the statutory demand.

[30]   Thirdly, Monocrane says it did not sell anything, so there is no purchase price on which a commission could be payable. Rather, it says the vendor was Mr Bayly. Relatedly, it further says that, in any event, Cooper & Co was not capable of selling the shares in Monocrane and therefore failed to perform what Mr Bayly instructed it.

[31]   However, the agency agreement is clear that commission becomes payable for the agent’s introduction and instrumentality. It is the Client under the agency agreement that is liable to pay the commission, not the vendor under the sale and purchase agreement. Monocrane is named as a client under the agency agreement.

[32]Clause 2.3 of the agency agreement provides:

2.3      Terms applicable to Sole Agency and General Agency

If the Business or part of it is sold by or through the instrumentality of any agent hereby appointed or to anyone introduced through the agency of such agent, the Client agrees to pay the Agent the fee set out in clause 9, whether such sale is on the terms set out herein or on any other terms acceptable to the Client. …

[33]Clause 8.1(a) is also instructive:

8Payment of Commission

8.1The Client must pay the Agent the commission, on the terms set out in this Agreement, if:

(a)in the case of a sole agency, the Client enters into an agreement to sell the Business (or part of it) at any time during the term of the agency and the agreement is or becomes unconditional (whether during or after the term of the agency)

…

[34]   Furthermore, Ms Fletcher denies that Cooper & Co said it was incapable of selling shares. However, that issue is irrelevant to the present application. Cooper & Co did not contract to sell shares, or anything or that matter — its role was introduction of prospective purchasers to its Client and instrumentality. The key points are that Ms Fletcher introduced the purchaser to her Client, a sale was concluded between those parties and she remained involved in the negotiations throughout. Ms Fletcher, as the agent, therefore satisfies the introduction and instrumentality requirements. Consequently, commission is payable under the terms of the agency agreement.

[35]   Fourthly, Monocrane says it and/or Mr Bayly have a counterclaim against Cooper & Co of up to $1 million for the sabotage of a likely sale to Ms Peters for

$1.6 million. Ms Peters was a prospective buyer who made enquiries to Ms Fletcher on 19 March 2019. In his affidavit, Mr Bayly describes Ms Peters as “a keen buyer” who “did not need finance”. He says that at a meeting, he told Ms Peters that he was wanting to sell the company for $1.6 million. He also says that Ms Fletcher was vehemently opposed to a sale of the company in front of Ms Peters. He says that while Ms Peters later said her accountant advised against the purchase, he believes it was Ms Fletcher’s attitude that put Ms Peters off the purchase. Mr McCartney submits,

“Monocrane’s position is that it is reasonable to infer that Ms Fletcher’s statements sabotaged that sale.” In reply, Ms Fletcher denies making such comments at the meeting. She says she was in contact with Ms Peters throughout, attaching evidence of her communications with Ms Peters from 19 March to 16 May 2019.

[36]   I am not satisfied that Monocrane has a counterclaim against Cooper & Co. Mr Bayly has not filed any documentary evidence in support of his claims; by contrast, Ms Fletcher has. Mr Bayly’s claims are entirely speculative. Indeed, Mr Bayly says that Ms Peters told him that her reason for not proceeding was because her accountants advised against the purchase. Even assuming that Ms Fletcher did vehemently oppose sale of the company in front of Ms Peters, there is no guarantee that an agreement would have been finalised. And even if a sale were likely to be finalised, there is insufficient evidence that the purchase price would have been $1.6 million.

[37]   Relatedly, Monocrane further alleges that Ms Fletcher breached her fiduciary duty to it and/or Mr Bayly. It complains about Ms Fletcher adding a WIP figure into the draft offer from Mr Shah as a separate item despite it being included in the definition of “stock in trade”. Mr Bayly says Ms Fletcher did so in order to get the price up. Ms Fletcher denies this. She accepts that ordinarily WIP is to be included  in the value of stock in trade, however, in this case, the value of stock in trade did not appear to be high enough. Accordingly, she included WIP as a separate item on the front of Mr Shah’s offer, so the parties were aware of the possible value of WIP. In the circumstances, there is no evidence supporting Mr Bayly’s allegations.

[38]   As to Mr Bayly’s final allegation, it is that Ms Fletcher’s proposal of a separate agreement at a meeting on 30 April 2019 was an effort to commit fraud against Westpac. However, that separate agreement never eventuated. And, again, there is no evidence, apart from a bare assertion to support Mr Bayly’s allegations.

[39]   For the above reasons, I am not satisfied that there is a substantial dispute as to whether Monocrane owes a debt to Cooper & Co.

Alternatively, is there a substantial dispute as to quantum?

[40]   Monocrane’s alternative submission is that the actual amount it  owes  Cooper & Co is less than that claimed in the statutory demand. The amount in the demand is $146,280, being commission of $127,200 (7.95 per cent of $1.6 million, the agreed list price) plus GST. Monocrane says that:

(a)There was no sale at $1.6 million — that was merely the agreed list price. (And, even if commission were payable on the $1.6 million list price — which is not conceded — only 80 per cent of the shares were sold. So, Cooper & Co would, at most, only be entitled to $101,760 (GST exclusive), being 7.95 per cent of 80 per cent of $1.6 million).

(b)Additionally, the actual purchase price was $600,000 (under the second/amended agreement for sale and purchase) and therefore the most commission payable would be $47,700 plus GST.

[41]   Ms Fletcher, on the other hand, says the purchase price of $600,000 was for stock and goodwill only. She says it may not account for WIP. She further says that the price does not take into account other arrangements, including that Mr Shah was to work full-time for Monocrane as part payment, as well as depositing $400,000 as capital investment and $150,000 as working capital.

[42]   I consider that there is a substantial dispute as to part of the quantum claimed in the statutory demand. My reasons are twofold. In relation to Monocrane’s first argument, summarised at [40](a)] above, cl 9 of the agency agreement provides:

9.        Calculation of Commission

Sales commission is calculated based on the purchase price shown on the sale and purchase agreement as follows (all amounts are exclusive goods and services tax (GST)) …

[43]   That clause then records $127,200 as commission, being 7.95 per cent of the agreed list price of $1.6 million. However, that is clearly an example (“as follows”). The actual commission payable is to “be calculated” on the “purchase price shown on the sale and purchase agreement”.

[44]   In relation to Monocrane’s second argument, summarised at [40](b)], above, there are two agreements for sale and purchase:

(a)The first, dated 21 May 2019, was for a purchase price of $1 million. Mr Bayly says this was conditional on Mr Shah obtaining financing.

(b)The second, dated 30 May 2019, was a variation of the first. Mr Bayly says that Mr Shah failed to obtain financing, so they amended the purchase price to $600,000 and Mr Shah was to work for Monocrane full-time in part payment. He says this agreement was unconditional.

[45]   Clause 8.1(a) provides that the Client must pay commission if it enters into an unconditional sale and purchase agreement. However, Mr Bayly has not adduced any evidence, beyond a bare assertion, in support of his claim that the first agreement was conditional on financing. Indeed, the second agreement simply states that the parties “wish to amend the financial terms of the agreement”. Nowhere in either agreement is it stated or implied that the first agreement was conditional. In my view, it is clear beyond argument that the commission became payable once the first agreement for sale and purchase was signed. It was ultimately a matter between the parties that they chose to vary what was a binding agreement.

[46]   Accordingly, I am satisfied that commission under the agency agreement of not less than $79,500 (GST exclusive), being 7.95 per cent of $1 million, is payable. But I am also satisfied that there is a substantial dispute as to the claimed balance.

Result

[47]   The application to set aside the statutory demand is allowed in part, namely in relation to quantum.6 The statutory demand is upheld in the amount of $79,500 exclusive of GST.

[48]   Pursuant to s 291(1)(a) of the Companies Act 1993, I order Monocrane to pay the debt ($79,500 plus GST) within 10 working days. Additionally, in default of

6      See 21st Century Investments Ltd v ANZ National Bank Ltd [2011] NZCA 548 at [39]; and United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA).

payment, the creditor, Cooper & Co, may make an application to put Monocrane into liquidation.

[49]   Costs are reserved. My preliminary view is that as each side has succeeded in part, there should be no order for costs. However, if a party takes a contrary view, any memorandum seeking costs should be filed within five working days of the date of this judgment.

Associate Judge Sargisson