New Zealand Dairy Processing Limited v Schenker (NZ) Limited

[2013] NZHC 314

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-4992 [2013] NZHC 314

UNDER  the Companies Act 1993

IN THE MATTER OF     an application to set aside a statutory demand

BETWEEN  NEW ZEALAND DAIRY PROCESSING LIMITED

Applicant

ANDSCHENKER (NZ) LIMITED Respondent

Hearing:         25 February 2013

Appearances: P Sills for Applicant

J A McMillan and J Marcetic for Respondent

Judgment:      25 February 2013

JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Hornabrook Macdonald (Mark Hornabrook) P O Box 91 845 Auckland, for Applicant

Email:    [email protected]

Chapman Tripp (J A McMillan/J Marcetic) P O Box 2206 Auckland 1140, for Respondent

Email:    [email protected]  /   [email protected]

Copy for:

Paul D Sills, P O Box 1990 Auckland 1140, for Applicant

Email:    [email protected]

NEW ZEALAND DAIRY PROCESSING LIMITED V SCHENKER (NZ) LIMITED HC AK CIV-2012-404-

4992 [25 February 2013]

[1]      This is an application to set aside a statutory demand by New Zealand Dairy

Processing Ltd. The application is made on two grounds:

(a)      That there is a substantial dispute whether the debt is owing or due, under s 290(4)(a) of the Companies Act; and

(b)that the company appears to have a counterclaim, set-off or cross demand in the amount specified in the statutory demand, unless the amount of the counterclaim is less than the prescribed amount, the ground under s 290(4)(b) of the Companies Act.

[2]      The statutory demand is for the sum of $582,473.91.   It was issued on 6

August 2012.   New Zealand Dairy Processing Ltd filed its application within 10 working days of being served.  It is common ground the document was served on 10

August 2012.  The sum in the statutory demand is made up of: invoices for services of July, August and September 2011; charges for interest on invoices from April

2011 to September 2011; and the amount of an order for costs made in an earlier statutory demand case in the High Court on 15 December 2011.

[3]      New Zealand Dairy Processing Ltd is a New Zealand subsidiary of a Hong Kong company.   It operates a dairy processing factory in Tauranga, which began production in January 2011.   Dairy products from the factory are exported from Tauranga to China.   Schenker (NZ) Ltd is the New Zealand subsidiary of an international logistics operation.

[4]      In March 2011 Schenker (NZ) Ltd and New Zealand Dairy Processing Ltd entered into a logistics and warehouse agreement under which Schenker (NZ) Ltd provided logistics services to New Zealand Dairy Processing Ltd.   The services provided are set out in a schedule to the agreement entitled “Scope of Work”:

Cartage of Packaged Product from Maleme Street to storage

Containers on skeletal trailers with moveable decks would be backed into loading  docks  where  packaged  product  would  be  loaded  directly  into

containers.  Loaded Containers would be carted to a storage facility awaiting final clearance before shipping.   Empty Containers would be returned to Maleme Street.

Interim Storage and Management

Containers  would  be  stored  in  a  secured  yard,  meeting  Food  Safety

Regulations, and using a tracking system to monitor placement of containers.

Price includes lease of storage site, cost of container forklift and operating costs of this vehicle, supervision and management of container movements.

Cartage of Containers from Storage Site to Port of Tauranga

Containers will be stored until clearance is given by New Zealand Dairy Processors.   Once  cleared containers  will  be transported to the Port for export.

[5]      Of  particular  importance  was  clause  5  relating  to  payment  for  services. Clause 5.1 provides for Schenker (NZ) Ltd to issue invoices for its services rendered. Clause 5.2 deals with payment:

5.2      CLIENT shall pay SCHENKER’s invoices without deduction or set- off within Thirty (30) days of the date of the invoice. All invoices will be in New Zealand dollars.   Payments shall be made by direct bank transfer to SCHENKER’s nominated bank account or by such other means as may be agreed between the parties from time to time.  All amounts not paid in full within seven (7) days of the due date will without need for warning, incur interest at an annual rate of eight per cent (8%) from the due date of the payment to the date of actual payment.

Of special note is the provision for payment without deduction or set-off within 30 days of the date of the invoice.

[6]      In April 2011, directors of New Zealand Dairy Processing Ltd signed a credit application form which provided for a credit limit.  It also contained the following:

... I/We are also aware that non-payment of any outstanding invoices can incur legal and collection costs and that our credit terms will revert to a “Cash On Delivery” (COD) basis if payment terms are not adhered to.

[7]      The credit limit written in on the form is $10,000.  It appears that Schenker (NZ) Ltd wrote in that credit limit figure after the form had been filled in by the directors of New Zealand Dairy Processing Ltd.  Later in April Schenker (NZ) Ltd wrote to New Zealand Dairy Processing Ltd recording the credit limit.

[8]      On 15 June 2011, Schenker (NZ) Ltd wrote to New Zealand Dairy Processing

Ltd advising that the credit limit had been increased to $401,000.

[9]      During  the  period  from April  until  September  2011,  Schenker  (NZ)  Ltd supplied logistics  and  warehousing services  stipulated  under the agreement.    In addition, one of Schenker (NZ) Ltd’s managers, Mr Ogden, went to work in the offices of New Zealand Dairy Processing Ltd to co-ordinate their logistics services for  an  agreed  monthly  payment.    The  total  value  of  the  services  provided  by Schenker  (NZ)  Ltd  to  New  Zealand  Dairy  Processing  Ltd  came  to  a  sum  of

$954,168.47, inclusive of interest.

The earlier statutory demand

[10]     Schenker (NZ) Ltd pressed for payment.  There was, in my view, a degree of “shilly-shallying”  by  New  Zealand  Dairy  Processing  Ltd  in  dealing  with  the demands for payment.  Payments of about $89,000 were made but there was what I regard  an  undesirable  tactic  of  stalling  when  Schenker  (NZ)  Ltd  pressed  for payment.  Ultimately Schenker (NZ) Ltd issued a statutory demand for $686,514.87. New Zealand Dairy Processing Ltd applied to set aside that statutory demand (CIV.2011-404-5179).   New Zealand Dairy Processing Ltd alleged both a genuine substantial  dispute  under  s  290(4)(a)  and  also  a  counterclaim,  set-off  or  cross demand under s 290(4)(b).

[11]     Associate Judge Gendall heard the application and gave his decision on 15

December 2011.  He dismissed the application and made an order for payment of the entire sum under the statutory demand within five working days.

[12]     New  Zealand  Dairy  Processing  Ltd  appealed  against  the  decision  of

Associate Judge Gendall.  The Court of Appeal gave its decision on 2 August 2012.[1]

On appeal, Schenker (NZ) Ltd accepted that only $377,946.86 could be the subject of a statutory demand, because a number of invoices had not fallen due at the time

the statutory demand was issued.  In all other respects, the Court of Appeal upheld the decision of Associate Judge Gendall.

[1] New Zealand Dairy Processing Ltd v Schenker (NZ) Ltd [2012] NZCA 343; [2012] NZCCLR 28.

[13]     The issues before Associate Judge Gendall as to a genuine and substantial dispute are set out in paragraphs [19]–[41] of his decision.   In particular, New Zealand Dairy Processing Ltd alleged that it was only to be charged on an “ex works” basis, with the costs of transport, from factory to China, to be the responsibility of the purchaser, Natural Dairy Hong Kong Ltd, a related company, but Associate Judge Gendall did not accept that.  Associate Judge Gendall rejected arguments that this agreement was intended to operate only on a temporary basis. He also made findings that rejected a claim that New Zealand Dairy Processing Ltd’s liability would be limited to $50,000.   He recorded that Schenker (NZ) Ltd had warned New Zealand Dairy Processing Ltd on a number of occasions that the way it had chosen to conduct its logistics operations would expose it to additional detention costs which could be avoided if it arranged to have its own warehouse.  He upheld all the claims for the invoices.

[14]     New Zealand Dairy Processing Ltd also alleged counterclaims.  Clause 5.2 is a contractual no set-off provision.  Associate Judge Gendall followed the decision of the Court of Appeal in Browns Real Estate Ltd v Grand Lakes Properties Ltd[2]that claims for set-off, cross demand or counterclaim should not be allowed to set aside a statutory demand when there is a contractual no set-off provision in the parties’ contract:[3]

In our view a contractual no set-off provision of the type at issue in this case would normally result in the Court’s discretion being exercised against an applicant  if  the  sole  grounds  for  an  application  to  set  aside  a  statutory demand was the existence of a set-off, counterclaim or cross-demand which a party had expressly agreed could not be raised.   We consider that commercial parties should be required to honour the bargain they have made, absent other grounds that tell against the recognition of a statutory demand.

[2] Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425; (2010) 20 PRNZ 141.

[3] At 145.

[15]     The Court of Appeal generally upheld Associate Judge Gendall’s decision

apart from the amounts that were conceded as not yet due and payable.  In particular,

there were findings of fact as to the delivery of invoices by Schenker (NZ) Ltd to

New Zealand Dairy Processing Ltd’s address in Tauranga.

[16]     The present statutory demand is for invoices which could not be the subject of the earlier statutory demand, and also includes a demand for interest on earlier invoices plus the costs ordered by Associate Judge Gendall.  I am advised that the costs have since been paid.

Is there a genuine substantial dispute as to the debt?

[17]     For the argument as to substantial dispute, New Zealand Dairy Processing Ltd relies on the unilateral increase in the credit limit by Schenker (NZ) Ltd.   It alleges that this was a breach of the terms agreed between the parties.  Its argument is that if Schenker (NZ) Ltd had adhered strictly to the $10,000 limit then, at the higher management level, New Zealand Dairy Processing  Ltd would  have been aware of the true costs it was running up in using Schenker (NZ) Ltd’s logistics services, and it would then have looked to re-arrange matters so as to conduct its logistics operations more efficiently.

[18]     Its argument as to counterclaim alleges that because containers containing its product were kept in storage which was not under cover, its product was exposed to high temperatures and damaged.  A bald claim for losses of $2m is alleged for that. It is also alleged that a container was dropped and that meant the entire contents were unsaleable.  There is a complaint about the quality of the management services provided by Mr Ogden.

[19]     At this hearing Mr Sills for New Zealand Dairy Processing Ltd accepts that in light of the earlier decisions of Associate Judge Gendall and of the Court of Appeal, it is not open to New Zealand Dairy Processing Ltd now to contend that it can raise set-offs, counterclaims or cross demands in reduction of its liability under any statutory demand because of the contractual no set-off provisions of clause 5.2 of the logistics and warehouse agreement.  The argument today has focused on the question of the unilateral increase in the credit limit.

[20]     It is helpful to consider the role of this credit limit provision.  No doubt the credit limit was applied as a result of New Zealand Dairy Processing Ltd filling in the credit application form, Schenker (NZ) Ltd then writing in the credit figure, and then Schenker (NZ) Ltd sending a letter to New Zealand Dairy Processing Ltd setting out the credit limit, with New Zealand Dairy Processing Ltd then continuing to require its services to be provided following receipt of that letter advising of the limit.  When the matter is considered contractually, it is clear that under the initial logistics and warehouse agreement New Zealand Dairy Processing Ltd had an obligation to pay for services provided under the contract, once an invoice had been supplied and the time for payment under the invoice had expired.

[21]     The  question  now  is:    how  does  the  credit  limit  provision  affect  that obligation to pay?

[22]     A credit limit simply sets a limit on credit.   It does not set a limit on the services to be provided.  A credit limit confers a power on the supplier as to how much credit it will extend to the customer.  It can refuse to supply services if it is being required to give credit beyond the limit that has been agreed.  It can insist on cash on delivery    as in fact the credit application form made clear.  But it is also entitled to waive the credit limit.  It is a standard occurrence when credit limits are imposed that the person supplying the credit may extend credit beyond agreed limits. We only need to think of the overdrafts extended by bank managers.  In this case the credit limit was extended unilaterally.  But it was within the power of Schenker (NZ) Ltd to extend credit limits beyond the initial limit if it saw fit.  It appears from the amount of business being transacted that the initial limit of $10,000 was commercially unrealistic anyway.   No doubt Schenker (NZ) Ltd now regrets the extent of credit it extended, but the point is that it gave the credit.

[23]     The complaint by New Zealand Dairy Processing Ltd is that it really had no real appreciation of the amount of costs it was running up.  That argument does not wash  on  the  facts.    Firstly,  it  has  already  been  found  in  earlier  decisions  that Schenker (NZ) Ltd warned New Zealand Dairy Processing Ltd as to the potentially high costs in the particular operations which New Zealand Dairy Processing Ltd required - they insisted on loading pallets of product into containers directly.  That

resulted in high detention costs while the product awaited inspection by officialdom. Moreover, Mr Ogden had told one of the directors of New Zealand Dairy Processing Ltd what his monthly charges would be, and New Zealand Dairy Processing Ltd received invoices at its Tauranga factory on a regular basis.  Any problems that New Zealand Dairy Processing Ltd had in understanding what its costs were are really a matter of internal management for it.  Its argument as to credit limits does not entitle it to shift those costs on to Schenker (NZ) Ltd.

[24]     I am unable to find that the arrangements the parties made for credit limits imposed any contractual duty on Schenker (NZ) Ltd not to extend credit beyond the initial limit of $10,000.   Accordingly, I can see no basis on which New Zealand Dairy Processing Ltd  can raise  any argument  that the credit limit arrangements entitle it to refuse to pay for the services it ordered, has had the benefit of and agreed to pay for in its logistics agreement.

[25]     New Zealand Dairy Processing Ltd says that it had incurred losses as a result of Schenker (NZ) Ltd not insisting on compliance with the credit limit.  In its reply affidavit it has attached a schedule.   That schedule simply sets out what it was invoiced by Schenker (NZ) Ltd.  It does not show actual losses incurred as a result of there being any alleged breach of contract by Schenker (NZ) Ltd.  It is hard to see how it could have incurred any losses.  It had decided on the logistics operation it wanted to conduct.  It requested services.  It was supplied with services which were charged at agreed contractual rates.  It incurred the liabilities.

[26]     Accordingly, I find that there is no basis for a genuine substantial dispute.

Issue Estoppel

[27]     Schenker (NZ) Ltd also raised an additional argument as to issue estoppel.  It contended that the question that has been raised today was also determined in the earlier proceedings before Associate Judge Gendall and the Court of Appeal.  I note that this is not an argument for cause of action estoppel.   The debts that are the subject of the present statutory demand are different from the debts that were upheld in the Court of Appeal.

[28]     In support of the issue estoppel argument, Schenker (NZ) Ltd says that there were significant findings of fact which went against New Zealand Dairy Processing Ltd and those findings of fact make it impossible for New Zealand Dairy Processing Ltd to run its argument today.

[29]     However, the decision of the Court of Appeal and the decision of Associate Judge Gendall do not show that the particular argument raised by Mr Sills today was in fact raised on the earlier application to set aside the statutory demand.

[30]     In Joseph Lynch Land Co Ltd v Lynch,[4]  Tipping J said in relation to issue estoppel:

It is of fundamental importance that before an issue estoppel can arise the issue must have been both clearly identified and clearly resolved against the party said to be estopped.

[4] Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 44.

[31]     I am not confident that the issue raised today was clearly identified in the earlier application and clearly resolved against New Zealand Dairy Processing Ltd.  I bear in mind that in the context of statutory demands it is important not to take too wide a view of the question of issue estoppel.  When a statutory demand is served, the company has only a limited time in which to prepare a response.  It has only 10 working days in which to file an application and to serve it.  While the company is required to muster what arguments it can in response to the statutory demand, it must comply with the demand if it is unsuccessful in its arguments.  Care must be taken with saying that any new arguments it might want to raise cannot be raised in response to a second statutory demand on the basis they were disposed of in the first statutory demand.  It can happen that with further consideration, and with the benefit of further legal advice, a company may see that there are further arguments available even though there may be no dispute as to the facts.

[32]     In this case New Zealand Dairy Processing Ltd has wished to raise a fresh argument, admittedly on facts which are not disputed, but a legal argument it did not

run before.  It would be harsh on New Zealand Dairy Processing Ltd not to give it

the opportunity to run the legal argument in this proceeding when it had not raised that argument before, even though it does not dispute any of the facts.

[33]     Accordingly, I reject the issue estoppel argument.

Outcome

[34]     For the reasons given above, I have found that there is no substantial dispute. I also follow the Court of Appeal in rejecting any arguments as to counterclaim as not being available under the contractual no set-off provision. Accordingly I dismiss the application to set aside the statutory demand.

[35]     Under  s  291  of  the  Companies  Act  1993  I  order  New  Zealand  Dairy Processing Ltd to pay the sum of $576,221.61 to Schenker (NZ) Ltd within 10 working days of today.  If payment is not made, Schenker (NZ) Ltd will be at liberty to apply to the court for an order that New Zealand Dairy Processing Ltd be put into liquidation.

Costs

[36]     Schenker (NZ) Ltd is entitled to costs.   In the hearing it sought increased costs, but did not rely on any contractual provision for indemnity costs.  After the hearing it filed a memorandum seeking indemnity costs, relying on a provision of the logistics and warehousing agreement.   In the circumstances I invite the parties to confer to see if they can reach agreement on costs.  If they cannot agree, either party may ask for this matter to be called in the companies’ list on 6 March 2013 at 11.45 am for costs to be fixed.

[37]     I also record that in the hearing I indicated that I would award increased costs with a 50% uplift, even without any contractual provision for indemnity costs. I regard the argument by New Zealand Dairy Processing Ltd as an argument that was doomed to fail.  It should have been apparent from the outset that it was doomed to fail.  I am unimpressed by the conduct of New Zealand Dairy Processing Ltd when Schenker (NZ) Ltd pressed it for payment.  The affidavit of Mr Bohm shows what

seems to have been a deliberate tactic by New Zealand Dairy Processing Ltd of stringing Schenker (NZ) Ltd along, holding out the prospect of payment but never actually coming up with the payment.

[38]     For some reason, New Zealand Dairy Processing Ltd seems to be intent on resisting payment.  After it had already gone through the exercise of contesting the first statutory demand – not only in this court but in the Court of Appeal – it would have known that its chances of being able to resist any second statutory demand would  be  thin.    The  argument  it  raised  was  one  that  had  never  been  raised successfully before.    It  was  an  argument  which  was  uncommercial.    It  was  an argument which appears to have been run largely for the purpose of buying time. When an application is made to set aside a statutory demand simply for the purpose of buying time, that is a misuse of procedure which has caused unnecessary costs to the creditor, and the creditor ought to be compensated by increased costs.

............................................

Associate Judge R M Bell