New Zealand Dairy Processing Limited v Schenker (NZ) Limited HC Auckland Civ-2011-404-5179
[2011] NZHC 2008
•15 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-5179
IN THE MATTER OF the Companies Act 1993
BETWEEN NEW ZEALAND DAIRY PROCESSING LIMITED
Applicant
ANDSCHENKER (NZ) LIMITED Respondent
Hearing: 22 November 2011 (Heard at Auckland)
Counsel: S. Grant and K. Dawson - Counsel for Applicant
J.A. McMillan & Mr Marcetic - Counsel for Respondent
Judgment: 15 December 2011 at 10:00 AM
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment by Associate Judge Gendall is delivered on 15 December 2011 at
10.00 am under r 11.5 of the High Court Rules.
Solicitors: Knight Coldicutt, Solicitors, Private Box 106214, Auckland City
Chapman Tripp, Solicitors, PO Box 2206, Auckland 1140
NEW ZEALAND DAIRY PROCESSING LIMITED V SCHENKER (NZ) LIMITED HC AK CIV-2011-404-
5179 15 December 2011
Introduction
[1] Before me is an application by New Zealand Dairy Processing Limited the applicant to set-aside a statutory demand issued against it by Schenker (NZ) Limited the respondent. The statutory demand in question claims from the applicant the sum of $686,514.87. This is said to be an “amount payable for freight forwarding” carried out by the respondent for the applicant.
[2] The applicant’s grounds for setting-aside the statutory demand are:
(a) A claim to a genuine and substantial dispute as to whether there is a debt owing or due in terms of s 290(4)(a) Companies Act 1993; and
(b)A contention that the applicant has 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 $1,000.00 prescribed amount.
Background Facts
[3] On 30 March 2011 the applicant and the respondent entered into a Logistics
and Warehouse Agreement (“the Agreement”).
[4] Pursuant to this Agreement:
(a) The respondent would provide to the applicant supply chain management services and logistics relating to the local (in New Zealand) transport and storage of the applicant’s product which was milk powder for export packed into containers.
(b)The applicant on receipt of invoices was to pay the respondent for those services.
(c) The term of the Agreement was to be for two years from 10 March
2011 (with a 1 year right of renewal).
(d) At the time the respondent granted to the applicant an initial
$10,000.00 credit limit.
[5] What is apparent from the material before the Court is that the Agreement was an “FOB” contract. The applicant was responsible for paying the respondent to transport containers from the applicant’s factory facility to the Port of Tauranga and it seems for paying any detention charges if those containers needed to be retained in a facility at the Port awaiting shipping dispatch.
[6] It would seem in this case that the consignee of these containers (that is Natural Dairy (HK) Holdings Limited (Natural Dairy)) was responsible for paying the sea freight costs from the Port of Tauranga for each container.
[7] Despite certain initial suggestions to the contrary made by the applicant it does seem that the Agreement was not an “ex-works” contract which would have involved the consignee paying for all transportation costs from the point of collection from the applicant as seller until delivery.
[8] It is useful at this point to note the structuring of the company group used by the applicant for this exporting arrangement.
[9] As to this, the applicant NZ Dairy Processing Limited is a New Zealand company incorporated on 30 July 2010. It is a 100% subsidiary of a Hong Kong company known as UBNZ Funds Management Limited which in turn is 100% owned by a holding company NZ Dairy Trustees Limited.
[10] In the group is a further Hong Kong company known as Natural Dairy (NZ) Holdings Limited which amongst other things imports dried milk powder from New Zealand for sale into the Chinese (and perhaps also the Hong Kong) markets. This company I am told holds 20% of the shares in another company UBNZ Assets Holdings Limited with the remaining 80% of the shares in that company held by NZ Dairy Trustees Limited the holding company.
[11] As I understand the position, the New Zealand milk powder which Natural Dairy imports into China is sourced from New Zealand and supplied by the applicant NZ Dairy Processing Limited. As I have noted, it is the supply chain management services in New Zealand for the transportation and storage of that milk powder product from the applicant’s factory to the Port of Tauranga which has resulted in the present claim by the respondent and the issue of its statutory demand.
[12] Pursuant to the Agreement it would seem that from about 1 April 2011 the respondent began providing services to the applicant under its specific terms. This continued for a period until around 10 August 2011. During this time, the respondent issued over 60 invoices to the applicant for the services provided.
[13] It seems that, despite many demands, the applicant has failed to pay any of these invoices and accordingly on 10 August 2011 the respondent served on the applicant the statutory demand in question claiming the sum of $686,514.87.
[14] What does appear clear is that, prior to the issue of the statutory demand, the applicant did pay to the respondent an amount of some $89,000.00, but this represented only GST and duty on certain consignments. This amount has not been included in the statutory demand.
[15] According to the respondent, since the service of the statutory demand, additional invoices have been sent to the applicant for further services carried out on later consignments. There is now a total sum owing to the respondent of more than
$879,000.00.
Counsels’ Arguments and My Decision
[16] The applicant brings the present application pursuant to s 290(4)(a) and (b) Companies Act 1993. These provide that the Court may grant an application to set- aside a statutory demand if it is satisfied first, that there is a substantial dispute whether or not the debt in question is owing or is due or secondly, the company appears to have a counterclaim, set-off or cross-demand that exceeds the debt. At the
outset I note that questions as to the solvency of the respondent do not seem to be in issue here. Solvency does not appear to be seriously disputed.
[17] The principles relating to s 290(4) Companies Act 1993 are well settled. The authors of Brookers Insolvency Law & Practice provide the following succinct summary at para CA290.02:1
CA290.02 The general principles applicable to applications under s 290(4) are now well established. These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; (2001) 9 NZCLC 262,605 (CA); Fletcher Homes Ltd v Ellis 23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd 3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR
297; (1989) 1 PRNZ 390 (CA), are as follows:
(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).
(b)The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application.
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[18] The grounds advanced by the applicant for setting-aside the statutory demand are first, that there is a substantial dispute as to whether or not the alleged debt is due
1 Insolvency Law and Practice (online looseleaf ed, Brookers) at [CA290.02]; adopted in North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007 at [17]; Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd HC Auckland CIV-2008-404-4725, 19
January 2009 at [4] and Trinity Hills Retreat Ltd v Kroehl HC Nelson CIV-2010-442-101, 12 August
2010 at [5].
and owing and secondly, that the applicant has a counterclaim, cross-claim or set-off which exceeds or substantially reduces any amount claimed by the respondent.
Genuine and Substantial Dispute
[19] The applicant submits that there is a genuine and substantial dispute under section 290(4)(a) of the Companies Act (“the Act”) because it was intended that it would only be liable for around $50,000.00 of the local costs of the respondent’s services.
[20] The applicant therefore disputes that it is liable for all but a small portion of the amount claimed by the respondent in the statutory demand. The applicant maintains it had never anticipated, nor agreed to, incur expenses of over $680,000, or anything approaching that scale of costs.
[21] The applicant initially contended that it entered into the Agreement on the basis that sales of its product to Natural Dairy would be on an “ex works” basis, meaning that the cost of transporting the product from the applicant’s factory to China was the sole responsibility of the purchaser, Natural Dairy.
[22] I reject this contention. There is no ambiguity in the Agreement in respect of the applicant’s obligation to pay the respondent. The Agreement expressly states that the applicant is to be responsible for local transport and storage costs of its product, including any detention charges. Natural Dairy (or some other party) would pay the seafreight costs. The Agreement therefore accurately records the stated intention of the parties that the applicant pay the respondent local transport and storage costs. Other evidence by way of correspondence and discussions between the parties at the time confirms this. Also at this point I note that there is an “entire agreement” provision in the Agreement. While such a clause is not absolute or conclusive, there is a judicial reluctance to go behind such clauses in commercial transactions without a finding of fraud (see PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611), and no such suggestion has been made in this case.
[23] The applicant’s initial $10,000.00 credit limit is consistent with its obligation to pay the local transport and storage costs. I am satisfied on the evidence before the Court that the respondent was in continued contact with the applicant during the provision of services under the Agreement, and gave it substantial leeway beyond the
$10,000.00 credit limit presumably to assist it with cash flow. Invoices it seems were issued as soon as transportation of a shipment was complete, so the applicant was aware of the ongoing costs.
[24] For the same reasons, in my view, the applicant cannot claim that it was unaware of the respondent increasing the credit limit to $401,000.00 in June 2011. The credit limit increase was to the benefit of the applicant and merely reflected the level of invoices issued to that point. Moreover, I accept that notice of the credit limit increase was given to the applicant at the time. In addition, it seems clear that the applicant did not protest the credit limit increase at the time, an increase which was for the applicant’s benefit in any event.
[25] In addition, the applicant has adduced no evidence to support its broad claim before me that the parties intended for the Agreement to operate only a temporary basis. The Agreement stated it was to be operative for two years, from 10 March
2011, in accordance with its other terms. And clearly, despite some tentative suggestions before me by counsel for the applicant that it was another company in the NZ Dairy group (i.e. Natural Dairy) that the applicant was contracting with here, there is simply no evidence before the Court of this. What documentation that has been provided to the Court shows simply that the concluded contract being the Agreement is with the applicant alone.
[26] The applicant also claims that there may have been a mistake regarding the term of the Agreement that requires rectification. I reject this claim however. As I see it, there has been no unilateral or mutual mistake in this case. The material before the Court shows the applicant was well aware of the term of the Agreement. It was signed by both of the applicant’s then directors. They initialled every page of the Agreement, including the page which indicated the Agreement would remain effective for two years. Furthermore, the Court of Appeal has held that rectification
is not available for unilateral mistake: Tri-Star Customs and Forwarding Ltd v
Denning [1999] 1 NZLR 33.
[27] And, in any event, rectification of the Agreement would not assist the applicant in this case. Even if the term of the Agreement was “rectified” from two years to one, the applicant would still be liable for the four months of invoices that make up the amount claimed in the respondent’s statutory demand.
[28] Also, the applicant’s liability under the Agreement is not capped by what I
see as its erroneous claim here that the respondent’s costs would be limited to
$50,000.00. The $50,000.00 figure was at best the applicant’s own estimate, based on budget calculations by Mr Murray Hunter the internal finance manager of the applicant which were never disclosed to the respondent. The respondent never indicated that its charges would be limited to $50,000.00.
[29] I find therefore that the applicant is liable for all local transport, detention and storage costs under the Agreement. As I understand the position, a significant part of the charges incurred by the applicant here have related to detention and storage costs of the applicant’s containers at the Port of Tauranga. All the evidence before the Court clearly shows that these costs were incurred because of the applicant’s choice to have the milk powder product loaded at its premises directly into containers and have them stored off site, presumably at the port facilities until they were cleared for export.
[30] On the evidence before the Court it seems the applicant on a number of occasions was clearly warned by the respondent that this would incur additional detention costs and throughout, as the invoices were provided to the applicant on a progressive basis, the true cost of all this became apparent. For the applicant to endeavour to dispute its liability for these charges now is quite improper.
[31] Next, I remind myself that the authorities are clear that a mere assertion by the applicant that a dispute exists is not sufficient to set-aside a statutory demand. Material short of proof is required to support the claim that the debt in question is
disputed – North Harbour Equine Hospital Limited v DK Little Corporate Trustee
Limited HC, Auckland, 19 February 2007, CIV-2006-404-7585, Abbott AJ.
[32] The assessment of whether a genuine and substantial dispute exists here must be made on the material presently before me and not on any hypothesis from the applicant that some material which has not been produced might nonetheless be available – Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297 (CA).
[33] In my view the assertion by the applicant in this case that a genuine and substantial dispute as to the debt claimed does exist is no more than that - a bare assertion. There is no material before the Court to support this claim to a dispute.
[34] Finally, the applicant appears to claim here that there is a dispute as to the quantum claimed by the respondent in its statutory demand in that a number of invoices provided are “incorrect or not properly attributable to local transport and logistics costs.” The applicant however has not adduced any evidence in support of this assertion. It is clearly insufficient in my view to show that a dispute exists.
[35] And, in response on these aspects the respondent has put before the Court a significant volume of evidence to show first, that all container storage dates to justify these payment claims were provided to the applicant by reliable third parties, secondly, that the invoices themselves are clear and do not include any port charges for Hong Kong as alleged by the applicant, thirdly, that interest has been properly charged on the overdue invoices at the rate provided for in the Agreement and finally, that all invoices were properly calculated and sent to the applicant before the payment due date.
[36] In addition it is significant in my view that the applicant has not contested any of this evidence in any real way by way of reply evidence.
[37] Finally, the applicant alleges that on 17 August 2011 Natural Dairy its related Hong Kong company paid to the respondent NZ$200,000.00 towards the applicant’s outstanding account which has not been factored in here. This claim however in my view is nothing short of mischievous. From the evidence before the Court it is clear
that no such payment was made in reduction of the applicant’s account. It does seem that on 29 July 2011 Natural Dairy did pay $200,000.00 to the respondent’s Hong Kong subsidiary company but it directly instructed that company that the funds paid were not to be applied to the applicant’s account. Natural Dairy instead directed that the funds were to be applied towards amounts due in the accounts from Natural Dairy Hong Kong Limited and its subsidiary National Yield Limited to Schenker Hong Kong Limited.
[38] It is clear therefore that no payments have been made in reduction of the outstanding invoices whether by the applicant or on its behalf. For the applicant to cloud the issue with the false claim it now makes outlined at para [37] above is quite improper.
[39] Lastly, and again appearing from the evidence before the Court, I am satisfied that on at least four occasions between June and July 2011 the applicant tacitly approved the respondent’s invoices and promised that they would be paid. No issues were raised about any of the invoices it appears until around 5 August 2011 more than four months after the applicant had received the respondent’s first invoice. It is entirely disingenuous for the applicant to claim now that it disputes these amounts owing to the respondent.
[40] For all these reasons I dismiss the applicant’s first ground in this application, that is its claim that it had a genuine and substantial dispute as to the existence of the applicant’s claimed debt.
[41] I turn now to consider the second ground advanced in support of the present application.
Counterclaim, Set-Off or Cross-Demand
[42] Under s 290(4)(b) Companies Act 1993 a company such as the applicant may be able to set-aside a statutory demand if it can show that it has a counterclaim, set-off or cross-demand against a respondent creditor which reduces the net balance owing to that creditor to a sum being less than the prescribed amount of $1,000.00.
[43] The applicant makes such a claim here but in my view this claim is quickly disposed of. In the Agreement between the parties at clause 5.2 there is a no deduction and set-off clause. This clause states specifically:
5.2 CLIENT (the applicant) shall pay SCHENKER’s (the respondent) invoices without deduction or set-off within thirty (30) days of the date of the invoice. ...
[44] Because of the existence of this no deduction and set-off clause, I am satisfied that the applicant is unable to raise a counterclaim, set-off or cross-demand as a ground for its present application – Browns Real Estate Limited v Grand Lakes Properties Limited (2010) 20PRNZ 141. As the Court of Appeal noted in Browns Real Estate Limited the efficacy of a no set-off provision in a contract would be undermined if statutory demands could be set aside on the basis of an alleged counterclaim.
[45] Because of this Court of Appeal decision in Browns Real Estate Limited, it is therefore unnecessary here to dwell on the merits of the applicant’s alleged set-off, counterclaim or cross-demand. I am bound by that Court of Appeal decision and follow it here. But, for the sake of completeness, I will briefly consider these aspects advanced by the applicant.
[46] A first alleged counterclaim by the applicant here relates to what it describes as “product damage”. The applicant appears to allege that at times packages of its product suffered damage during transit to China. It claims this was due to issues with “container handling”. The respondent maintains however that any damage (which seems to have occurred only on about two occasions) was likely to have occurred when the containers were loaded by the applicant itself at its own premises or during the time of shipping transit to China which is not the respondent’s responsibility. I agree that there is likely to be little in this claim by the applicant and it is certainly not in any way substantiated in material before the Court.
[47] The second area of a possible counterclaim by the applicant appears to relate to what are said to be “shipping delays”. On this, the applicant alleges that shipments of its product often arrived days and sometimes weeks later than the
respondent’s estimated date of arrival. As a result of those delays, it is claimed that
Natural Dairy in Hong Kong allegedly incurred higher shipping costs.
[48] In response, the respondent notes that any slower transit times than would have been expected did not create any additional costs, as the respondent’s outstanding invoices relate only to local transport and storage services. The respondent contends that even if delays in transit did cause higher shipping costs (which it does not accept) any such delay was not caused by it. The respondent notes that it could not control when containers were transhipped or indeed transit times. Further, and in any event, it is presumed that any such shipping delay loss would presumably be suffered by Natural Dairy and not the applicant here. And, as I see it again there is no evidence to substantiate this claim before the Court and I reject it.
[49] The next issue appears to relate to the cost of services provided by the respondent through its employee Mr Ogden as an in-house logistics manager to provide assistance to the applicant with management of containers, booking shipping and maximising efficiency of its freight operations. The applicant appears to claim that Mr Ogden failed to effectively provide these services and that it therefore should not be liable for their cost.
[50] On this issue again there is no evidence of any kind before the Court to substantiate this broad claim. The mere assertion of the claim cannot be sufficient. I must therefore reject it.
[51] Next, the applicant appears to raise certain issues concerning the use of the containers. On this the applicant complains that the respondent allegedly did not explain to it that the applicant should pack the various shipping containers according to the shipping schedule and not according to the date of delivery of empty containers to the applicant. As a result the applicant seems to allege that storage costs charged by the respondent were inflated.
[52] On this, the respondent notes that the loading order of containers here was entirely irrelevant. It says that due to quality issues it took a significant time for the
applicant’s product to be approved for export and that it was not being approved in date order. As soon as that approval was given by the authorities the respondent says it arranged shipment of the containers within a few days of approval. It maintains that it was therefore irrelevant in what order containers were loaded.
[53] In my view there appears to be substance in this explanation on the part of the respondent. Certainly, there is no evidence before the Court from the applicant to justify its contention to the contrary. Again I must reject this claim advanced for the applicant.
[54] Finally, the applicant appears to allege that on a number of occasions shipping documents were lost which meant that it says it had to procure new shipping documents.
[55] On this the respondent replies that the only documents which the applicant claims were lost relate in fact to an export airfreight shipment for another company NZ Natural Dairy Limited and these were lost by Singapore Airlines. Again there is no evidence before the Court of any independent kind to substantiate the claim that the respondent or any shipping company lost shipping documents for the applicant which caused it delay in having product released.
[56] Finally, the respondent notes that even if shipping documents might have been lost (which is rejected) the loss of those documents did not in any way affect any of the invoices issued by the respondent. I accept this position.
[57] Finally, and quite telling in my view is the fact that, even if the applicant was able to establish that it had a viable counterclaim against the respondent, it is clear that this counterclaim would not reduce the respondent’s statutory demand claim below $1,000.00.
[58] I am satisfied that the respondent has established it is owed $686,514.87 by the applicant before any counterclaim might be taken into account.
[59] As I understand the position, the applicant alleges that it has a counterclaim for about $50,000.00. This counterclaim is insufficient to reduce the respondent’s claim below the $1,000.00 level. And, in any event, any quantification of the applicant’s suggested counterclaim is entirely absent here. It is quite inappropriate as I see it to set-aside the statutory demand in the absence of any evidence to challenge this earlier undisputed level quantum.
Conclusion
[60] For all the reasons outlined above, the applicant’s application to set-aside the statutory demand is dismissed.
[61] The applicant New Zealand Dairy Processing Limited is to have a period of five working days from the date of this judgment to pay to the respondent Schenker (NZ) Limited the sum of $686,514.87 outlined in the statutory demand failing which the respondent can proceed with an application to have the applicant placed into liquidation. An order to this effect is now made.
[62] As to costs, I see no reason why costs should not follow the event in the normal way. Costs are therefore awarded to the respondent on this application against the applicant on a category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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