New Zealand New Oak Property Limited v Eco Earth NZ Limited
[2025] NZHC 865
•10 April 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2191
[2025] NZHC 865
BETWEEN NEW ZEALAND NEW OAK PROPERTY LIMITED
PlaintiffAND
ECO EARTH NZ LIMITED
Defendant
Hearing: 7 April 2025 Counsel:
M F Mabbett/ E Littlejohn for the Plaintiff G Williams, director, for the Defendant
Judgment:
10 April 2025
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 10 April 2025 at 3 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Martelli McKegg Lawyers, Auckland
NEW ZEALAND NEW OAK PROPERTY LTD v ECO EARTH NZ LTD [2025] NZHC 865 [10 April 2025]
Introduction
[1] The plaintiff, New Zealand New Oak Property Ltd (New Oak), owns a property comprising 5,543 m² of bare land at 28 Smales Road, East Tamaki (the property). The defendant, Eco Earth NZ Ltd (Eco Earth), was formerly in business recycling topsoil.
[2] In June 2023, New Oak leased the property to Eco Earth for a two-year term commencing on 8 May 2023 (the lease). Problems soon developed resulting from the state of the property at the commencement of the lease, Eco Earth’s use of the property and unpaid rent.
[3] On 26 June 2024, New Oak served a statutory demand on Eco Earth for unpaid rent of $20,871.61 (the New Oak statutory demand). Eco Earth has not paid the amount demanded and did not apply to set the New Oak statutory demand aside. Eco Earth says that it has the following set-offs:
(a)New Oak engaged it to carry out site improvements on the property that Eco Earth completed at a cost of $278,489.15, which New Oak has wrongly refused to pay; and
(b)New Oak is liable for one third of the cost of work completed on the property by Eco Earth to comply with an order of the Environment Court.
[4] In September 2024, New Oak commenced a proceeding in this Court under the Property Law Act 2007 (PLA), seeking an order cancelling the lease and other relief (the PLA proceeding).1 Eco Earth consented to cancellation of the lease on 11 November 2024. The other issues between the parties remain unresolved.
[5] In this proceeding, New Oak applies for an order putting Eco Earth into liquidation on the ground that Eco Earth did not comply with the New Oak statutory demand. Eco Earth argues that there is a genuine and substantial dispute that the debt demanded is not due.
1 New Zealand New Oak Property Ltd v Eco Earth NZ Ltd, CIV-2024-404-2312.
Preliminary matters
[6] Eco Earth was formerly represented by solicitors and counsel. Eco Earth is no longer able to retain legal representation. Eco Earth’s director, Gareth Williams (Mr Williams), applied informally for leave to represent Eco Earth at the hearing of this proceeding. New Oak did not oppose the application, and I granted leave accordingly at the commencement of the hearing on 7 April 2025. Mr Williams presented Eco Earth’s case.
[7]There are two other proceedings between the parties:
(a)the PLA proceeding; and
(b)an application by New Oak to set aside a statutory demand served on New Oak by Eco Earth, which demanded payment of $539,751.62 (the statutory demand proceeding).2
[8] In this proceeding, New Oak seeks to rely on an affidavit of New Oak’s director, Linyang Li (Mr Li), affirmed on 21 October 2024 and filed in the statutory demand proceeding. Mr Williams did not oppose the affidavit being read. On that basis, I am prepared to read the affidavit.
[9] Mr Williams’ first affidavit in this proceeding is dated 21 November 2024. It produces as an exhibit his affidavit dated 8 November 2024 filed in the PLA proceeding. New Oak agreed that the latter affidavit can be read in this proceeding.
[10] Mr Williams has produced an affidavit of Ziyi (Will) Liu (Mr Liu), the property manager who negotiated the lease on behalf of New Oak, filed in the PLA proceeding. The copy of the affidavit produced includes Mr Williams’ annotated comments on the affidavit, and I decline to read it.
2 New Zealand New Oak Property Ltd v Eco Earth NZ Ltd, CIV-2024-404-2692.
[11] Mr Williams sought to produce an audio recording and two video recordings. This evidence has not been properly adduced and is irrelevant to the issues that I need to determine in this proceeding, and I exclude it.
Background
[12] When Eco Earth took possession of the property, it contained a significant amount of soil and related material deposited on the site by a previous tenant (the original material). Under the lease, Eco Earth was granted a rent holiday for four months and a reduction in the rent for the first year of $45,000 plus GST. New Oak has produced a copy of the lease that includes cls 48.3 and 48.4, which provide that the rent reduction was in consideration for Eco Earth agreeing to remove and clear the original material before 7 May 2025.
[13] Mr Williams says that cls 48.3 and 48.4 were added after he executed the lease. He has produced a copy of the lease that does not include the clauses. However, Mr Williams accepts that the rent holiday and the rent reduction were “in recognition” of the work required to remove the original material. He disputes the time frame for completing the work.
[14] On 19 October 2023, Auckland Council issued an abatement notice to Eco Earth, requiring Eco Earth to install and maintain appropriate sediment and erosion controls on the property. Eco Earth prepared a proposal to New Oak dated 27 October 2023 for the construction of sediment and erosion control measures on the property. Mr Williams describes the work as “a temporary fix to the drainage problems”. The proposal concluded:
Am more than happy to do the above at my cost but I won’t be if am expected to cover the above and rent and rates so what I am prepared to do is leave this in your hands and let you come back to me with what you suggest as reasonable for both parties the weather is causing us issues we can’t start works until it dries up either way the lace is a sitting duck regards to anyone trading from it as it stands now it’s a construction site until this is complete
[15] Mr Williams says that Mr Liu instructed Eco Earth to carry out the work set out in the proposal, and that Eco Earth did so. New Oak denies that it authorised any of the work in the proposal, and that the work was carried out.
[16] After the lease commenced, Eco Earth deposited further soil and other related material on the property (the new material). There is a dispute between the parties regarding the extent of the new material.
[17] On 14 March 2024, Auckland Council issued an abatement notice to Eco Earth, relating to Eco Earth’s onsite activities.
[18] On 12 April 2024, Eco Earth issued an invoice to New Oak for $278,489 inclusive of GST for the work that it says it carried out in accordance with the instruction given by Mr Liu. Mr Li says that New Oak received that invoice on 27 May 2024.
[19] On 13 June 2024, New Oak’s solicitors, Martelli McKegg, emailed Eco Earth a notice under the PLA requiring Eco Earth to remedy various alleged breaches of the lease, including a failure to pay rent and outgoings.
[20] Martelli McKegg’s covering letter dated 13 June 2024 stated that New Oak was prepared to provide a further rent reduction if the parties agreed an acceptable plan for remediation of the property, inviting negotiations. There is no evidence that terms were ever agreed.
[21] Eco Earth issued a statutory demand to New Oak dated 15 June 2024, demanding $278,489.10 allegedly due on its invoice dated 12 April 2024. That statutory demand was later withdrawn.
[22] On 4 July 2024, Auckland Council obtained an enforcement order under the Resource Management Act 1991 (RMA) in a proceeding in the Environment Court.3 The enforcement order required Eco Earth, Mr Williams and New Oak (as the property owner) to cease earthworks, urgently stabilise the site and then install appropriate erosion and sediment controls.4
[23]Eco Earth issued a second invoice to New Oak dated 30 July 2024 for
$261,262.52, for further work that Eco Earth says it carried out on site to comply with
3 Auckland Council v Eco Earth NZ Ltd [2024] NZEnvC 158.
4 At [1]–[18].
the enforcement order dated 4 July 2024. New Oak denies that it is liable for any such work.
[24] Eco Earth served a second statutory demand on New Oak on 8 October 2024, demanding payment of $539,751.62, which is the total of Eco Earth’s two invoices. The demand was withdrawn after New Oak commenced the statutory demand proceeding.
[25] On 11 November 2024, Moore J granted an order by consent in the PLA proceeding, cancelling the lease.5 The order was made without any admission of liability by Eco Earth and without prejudice to the parties’ respective positions on the other issues between them. New Oak’s application for ancillary orders, including for payment of outstanding rent and for the cost of removing the original and new material, remains extant.
[26] On 19 September 2024, counsel acting for Eco Earth in the Environment Court proceeding filed a memorandum in the Environment Court, confirming that:
(a)Eco Earth was not in a position to engage the experts required to provide affidavit evidence to attempt to persuade the Environment Court that Eco Earth should be allowed to process material on the property;
(b)Eco Earth was not in a position to afford the remediation action plan required by the enforcement orders sought by Auckland Council; and
(c)counsel was ceasing to act.
[27] On 1 November 2024, the Environment Court made enforcement orders under the RMA requiring Eco Earth, Mr Williams and New Oak to submit a Remediation Action Plan.6
5 New Zealand New Oak Property Ltd v Eco Earth NZ Ltd HC Auckland CIV-2024-403-2312, 11 November 2024 (Minute of Moore J).
6 Auckland Council v Eco Earth NZ Ltd [2024] NZEnvC 272.
[28] There is no evidence of the current state of the property or any compliance with the enforcement orders. Counsel for New Oak advised that it is agreed that interim works will start shortly, and New Oak faces significant cost to comply with the Environment Court’s orders.
[29] Eco Earth has commenced an arbitration process under the lease, to recover its alleged losses.
Legal principles
[30] The Court has a discretion to stay or dismiss a liquidation proceeding founded on a debt that is the subject of a genuine and substantial dispute. Enforcing a genuinely disputed debt by liquidation may constitute an abuse of process.7
[31] A defendant company may raise a dispute in a liquidation proceeding even though the company did not apply to set aside the statutory demand on the basis that the debt was disputed. Cogent evidence, short of actual proof that the debt is not payable, is required.8
[32] The failure to apply to set aside a statutory demand is a factor that may be taken into account when the Court considers whether a dispute raised later by the defendant is genuine.9
Analysis
[33] Eco Earth has not adduced any evidence of its financial position. The memorandum dated 19 September 2024 filed in the Environment Court suggests that Eco Earth is insolvent.
[34] New Oak relies on the statutory presumption of insolvency arising under ss 287 to 289 of the Companies Act 1993. Eco Earth’s sole ground of defence is that
7 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20], citing Re Bayoil SA [1999] 1 WLR 147 (CA) at 156. See also Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [61].
8 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23], [25] and [27].
9 See National Finance 2000 Ltd v All Star Cars Ltd HC Auckland M703-IM02, 10 September 2002 at [37].
it says it could pay the amount demanded in the New Oak statutory demand if New Oak paid the invoices rendered by Eco Earth to New Oak.
[35] The evidence of the work allegedly completed on the property by Eco Earth, on the instructions of New Oak and to comply with the Environment Court’s orders, is unsatisfactory and incomplete. Mr Liu has not given affidavit evidence denying Mr William’s allegations.
[36] However, I do not need to determine whether there is a genuine and substantial dispute that Eco Earth has a set-off that exceeds its liability to New Oak under the lease.
[37] It is not disputed that the rent of $20,871.61 that is the subject of the New Oak statutory demand is due and unpaid. Clause 1.1 of the lease relevantly provides:
All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.
[38] It is well established that the Court will enforce a clause in a lease that precludes a tenant from raising a set-off to a claim for unpaid rent.10
[39] Mr Williams submitted that the lease is invalid because Mr Liu altered the lease after it was executed by the parties, by adding cls 48.3 and 48.4. Mr Williams argued that liquidation should be deferred until the Real Estate Authority investigates Eco Earth’s complaint about Mr Liu’s conduct in relation to the lease.
[40] Mr Williams does not deny that Eco Earth signed an agreement to lease and a deed of lease, and that rent is due. There was a binding lease. The only issue is whether it included a clause requiring Eco Earth to remove the original material by a certain date. The obligation to pay rent is not in dispute.
[41] Eco Earth is indebted to New Oak for outstanding rent of $20,871.61. Eco Earth is precluded by cl 1.1 of the lease from raising a set-off for the cost of work allegedly completed by Eco Earth on the instructions of New Oak. Eco Earth is
10 Browns Real Estate Ltd v Grant Lakes Properties Ltd [2010] NZCA 425, (2010) 13 NZCPR 349.
presumed to be insolvent because it has failed to rebut the statutory presumption of insolvency that follows from an unanswered statutory demand.
[42] New Oak accepted that this is an appropriate case for the Court to permit Eco Earth a final opportunity to pay the demanded sum of $20,871.61. There is no evidence to establish any further indebtedness of Eco Earth to New Oak for outstanding rent or for breaches of the tenant’s obligations under the lease.
[43] If Eco Earth cannot demonstrate that it is solvent by paying $20,871.61, then it is appropriate that Eco Earth be put into liquidation. If that occurs, then a liquidator will be able to pursue any claim that Eco Earth may have against New Oak.
[44] If Eco Earth pays the sum of $20,871.61, then the application for liquidation will be declined, leaving only the question of costs to be determined. In either case, my preliminary view is that New Oak is entitled to costs on this proceeding on a 2B basis.
Orders
[45] The liquidation proceeding is adjourned to the Liquidation List on 2 May 2025 at 10 am for review. If the defendant has not paid the amount of $20,871.61 due under the statutory demand dated 26 June 2024, then the defendant will be put into liquidation when the matter is called in the Liquidation List.
[46]Costs are reserved to be determined when the matter is next called.
Associate Judge Brittain
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