Parua Bay Farms Limited v Wilson
[2016] NZHC 2795
•22 November 2016
IN THE HIGH COURT OF NEW ZEALAND
ROTORUA REGISTRY
CIV 2016-463-000097
[2016] NZHC 2795
UNDER The Companies Act 1993 IN THE MATTER OF
An application to set aside a Statutory Demand
BETWEEN
PARUA BAY FARMS LIMITED
Applicant
AND
ALLAN ANDREW WILSON AND JOAN CECILIA WILSON
Respondents
Hearing: 10 November 2016 Appearances:
S Carey for the Applicant
J Easton for the Respondents
Judgment:
22 November 2016
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
22.11.16 at 3:00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
PARUA BAY FARMS LIMITED v ALLAN ANDREW WILSON AND JOAN CECILIA WILSON [2016] NZHC 2795 [22 November 2016]
[1] The applicant, Parua Bay Farms Limited (Parua) applies to set aside the respondents, Mr and Mrs Wilson’s (the Wilsons) statutory demand issued to recover unpaid stock lease payments of $2,000 per month for four months since April 2016.
[2] Parua claims it has a set off and counterclaim that exceeds the amount sought by the demand. Also it says the parties’ other claims are subject to proceedings which are due for hearing in 2017 and therefore the demand is an attempt to circumvent the proper and scheduled determination of those matters.
[3] In effect the Wilsons claim that Parua is estopped from raising issues concerning stock health by way of set off to its demand because those issues were apparent before the stock lease obligations were agreed and therefore Parua has waived any ability to argue those issues when it has since agreed to lease the Wilsons’ stock.
[4] It is in that context the Wilsons assert that the matter of its claim for unpaid stock lease payments will not be a matter to be addressed in the other proceeding.
[5]By their opposition the Wilsons assert:
(a)The circumstances relied upon by Parua to set aside the statutory demand existed at the time it incurred the liability to which the statutory demand relates and on this basis Parua is estopped from bringing those circumstances into account in opposition to the statutory demand.
(b)The statutory demand is not an attempt to circumvent the proper and scheduled determination of the hearing in 2017 on the proceeding CIV 2015-488-106 (the other proceeding).
(c)The issues that relate to the statutory demand are not to be determined at the hearing of the other proceeding.
The other proceeding
[6] On 10 August 2015 the Wilsons filed a statement of claim in the Whangarei High Court.
[7] That claim concerns the Wilsons’ lease of farmland comprising 47.2849 hectares from Parua (the farmland lease). The Wilsons’ purpose was to operate a dairy farming enterprise utilising a herd of about 200 cows they owned. The farmland lease was for three years commencing 1 June 2011 and expiring on 31 May 2014. About two days prior to the farmland lease end the parties met to discuss matters post- expiration of the lease. Mr and Mrs Wilson say an agreement was reached whereby Parua would:
(a)Purchase 40 of the Wilsons’ Friesian vetted–in-calf cows at a price of
$1,500 plus GST per cow;
(b)Lease 160 cows for three years commencing 1 June 2014 at a price of
$150.00 plus GST per cow per year;
(c)Have the option to purchase any of the remaining 160 cows within the three year period at a value determined by the average of two independent stock agents/valuers.
(the stock agreement).
[8] On around 31 May 2014 and in accordance with the stock agreement the Wilsons vacated the leased area and kept their stock (including Friesian, Friesian Cross, Jersey and Jersey Cross vetted-in-calf cows) on Parua’s lease land.
[9] In response to an invoice sent by the Wilson in October 2014 for stock lease fees for the previous four months, Parua responded by raising issues regarding the Wilsons fulfilment of their obligations under the farmland lease.
[10] After further correspondence, including from the Wilsons’ solicitors Parua wrote in April 2015 suggesting that in the absence of recent communication Parua assumed the Wilsons had decided to offset the monies they owed under the farmland lease against monies the Wilsons believed to be owed to them under the stock
agreement. At that time Parua detailed its concerns about the health of the Wilsons’ stock being retained on Parua’s property.
[11] The Wilsons responded and disputed owing Parua any money, suggesting instead Parua owed “a great deal” to the Wilsons. The Wilsons also disputed claims concerning the health of the cows. Correspondence then followed and in which the Wilsons suggested arrangements would be made to recover the stock. The Wilsons say Parua failed or refused to allow their stock to be removed from the leased area, and continued to retain that stock.
[12] By their statement of claim the Wilsons raise issues with the farmland lease and regarding the obligations of the Wilsons to maintain the farmed area including all buildings, plant, fixtures and fittings to a high standard. The Wilsons complain that tracks on the leased area were in “extremely bad condition” when the Wilsons assumed occupation. This was drawn to Parua’s attention but no repairs were undertaken until the Wilsons themselves spent $2,207.71 on repairs.
[13] Likewise the Wilsons claimed the fences were in a poor state and Parua was advised of this. The Wilsons say they spent $3,506.04 on repairs.
[14] Further, and concerning Parua’s obligation to pay all rates, utility, consent charges and other outgoings in respect of the leased area the Wilsons had to pay
$27,337.37 in that regard and for which recovery is also sought.
[15] The Wilsons also seek to recover $650 paid for gates that they say Parua promised to repay them.
[16] Regarding the livestock agreement by which Parua retained purchase/lease options at the conclusion of the farmland lease, the Wilsons assert Parua has not paid for that stock it agreed to purchase, nor has it met lease payment obligations concerning the herd that was not purchased.
[17] By the Wilsons’ first cause of action they claim a breach of the stock agreement and seek the sum of $101,200 being:
(a)$69,000 - for the purchase of 40 Friesian vetted-in-calf cows at $1,500 per cow plus GST;
(b)$27,600 – for the lease of 160 cows at $150.00 per cow plus GST for one year from 1 June 2014 to 31 May 2015.
[18] Also and under that heading of claim the Wilsons sought an injunction requiring Parua to deliver up the stock.
[19] By their second cause of action the Wilsons alleged a breach of the farmland lease and sought to recover the sum of $33,091.12 in relation to repair costs and the reimbursement costs previously detailed herein.
[20] By its counterclaim filed on 22 December 2015 in that other proceeding Parua claimed the Wilsons were required to pay rental, and to maintain the farmland lease area including all buildings and to apply a certain amount of fertiliser each year, and to insure all buildings. Of the total rental of $414,000 due Parua claims the Wilsons only paid $398,255.
[21] Regarding the Wilsons’ livestock and the option available to lease or purchase that stock, Parua asserts the Wilsons represented that no stock was over eight years of age, all cows had been vetted-in-calf, all cows were of sound quality and free from disease or illness, and they were worth at least $1,500 each. By the parties’ livestock agreement Parua says it agreed to lease 160 Friesian and Friesian Cross dairy cows at
$150 per cow per annum.
[22] After the Wilsons vacated the property Parua raised issues regarding the Wilsons’ agreement to provide records relating to the herd and to fertiliser application. Subsequently Parua claims to have received information from Livestock Improvement Corporation confirming that cows in the leased herd had recorded historically high [health] issues requiring 50 of the worst cows to have been isolated from the herd.
[23] Issues remain regarding Parua’s request for further information regarding stock and fertiliser application.
[24]Parua says it has to date paid the Wilsons $17,300 under the stock agreement.
[25]The counterclaim includes claims for, inter alia:
(a)Lease arrears of $15,745;
(b)Repairs to plant, and for anticipated costs to replace the existing milk pump, in a total sum of $7,856.89;
(c)For race repairs, fence repairs and coarse spraying, a total sum of
$124,800.70;
(d)Damage repair amounting to $6,305.72; and
(e) Fertiliser replacement in the sum of $18,000. (farmland lease issues).
[26] Regarding claims for breach of the stock agreement, Parua has made claims for reimbursement of veterinary bills, to recover Fonterra penalties, and for reimbursement for the cost of grazing the isolated cows offsite.
Statutory demand issues
[27] For our present purposes in dealing with the statutory demand it is the position on behalf of the Wilsons that issues raised by the other proceeding do not include matters which are the subject of the Wilsons claim for unpaid stock lease obligations. That position is disputed on behalf of Parua who claims that those matters are the subject of its counterclaim in the other proceeding to which the Wilsons have not filed any response. Parua’s position therefore is that those issues are awaiting determination at the other proceeding hearing scheduled in the new year.
[28] By submissions on behalf of the Wilsons Ms Easton notes that in September 2015 the Wilsons and Parua entered into an agreement (the settlement agreement) which resulted in the Wilsons withdrawing their other proceeding application for an
interim injunction by which Parua agreed to pay monthly payments of $2,000 for the stock pending the determination of the substantive proceedings. Further it is Ms Wilsons’ evidence that Parua made lease payments of $2,000 per month from August 2015 to March 2016, but has not paid any lease payments since.
[29] Ms Easton notes that after the settlement agreement was entered into Parua filed its other proceeding counterclaim which raised arguments about the stock agreement and the farmland lease agreement and claiming they were entitled to compensation for losses and expenses in this regard.
[30] Parua’s position is the settlement agreement included assurances the stock was in sufficient health for farming and, agreement was reached on that basis but was subject to promises by the Wilsons to provide evidence verifying their assertions of good health. That evidence was not available when the settlement agreement was entered into, and when received was a factor in Parua’s action to discontinue payments.
Principles
[31] Section 290 of the Companies Act 1993 (the Act) provides the Court may set aside a statutory demand if satisfied that:
(a)There is a substantial dispute whether or not the debt is owing or due;
(b)The company appears to have a counterclaim, set off or cross demand in an amount at least equal to that claimed by the statutory demand;
(c)There are other reasons why the demand should be set aside.
[32] Parua says its counterclaim for $200,586.52 plus interest plus costs is of a sufficient amount to show the counterclaim would reduce the amount of demand below the prescribed amount.
[33] Where a valid counterclaim is established it is available to the issuer of the statutory demand to show that the debt underlying the demand excludes the possibility of a set off, or to show that the Court should exercise its discretion not to set aside the
statutory demand. In this regard consideration will need to be given to what was intended by the settlement agreement.
Pleadings overview
[34] Parua does not deny that it agreed on or about 1 September 2015 to lease the cows at $2,000 per month, nor that it has not made monthly lease payments since March 2016. However its says its counterclaim/set off/cross demand exceeds the Wilsons’ statutory demand and that it is the existence of that counterclaim/set off/cross demand upon which it principally relies upon by its setting aside application. Parua also argues there are other grounds for doing so. It says it has a reasonably arguable case for the existence of its counterclaim, cross demand, or set off and therefore for present dispute regarding the Wilsons’ issue of a statutory demand should be resolved by other means.
[35] Typically, upon such setting aside applications the High Court will not usually engage in a detailed analysis of the merits of any counterclaim, set off or cross demand1. In this case, Parua has pleaded a set off and counterclaim in the other proceeding. Parua’s Mr Blackley attests to these claims in respect of the health of the livestock, with supporting evidence, and in respect of claims of failures by the Wilsons concerning their farmland lease. No challenge to those claims was proffered by the evidence of Mrs Wilson in opposition to the setting aside application. She does not refer to the substance of Parua’s counterclaim at all.
[36] Largely, and for present purposes, the evidence of Mr Blackley is unchallenged. Had Parua’s counterclaim/set off been filed after the issue of the Wilsons’ statutory demand then a court might, for present purposes, view that proceeding somewhat sceptically. In fact, the counterclaim/set off was filed before the issue of the statutory demand because for four months after the settlement agreement Parua honoured the monthly lease payments as they became due. Further, since the counterclaim/set off was filed no evidence has been proffered in response to the claims offered by that document. Implicitly it is claimed the Wilsons do not deny the genuineness of Parua’s counterclaim. Rather they plead Parua is estopped from
1 Industrial Group Limited v Bakker [2011] NZCA 142.
raising that counterclaim in this application on grounds that the circumstances giving rise to the counterclaim existed at the time Parua incurred the liability to which the statutory demand relates.
[37] Parua challenges that assessment. It says the 1 September settlement agreement could not prevent the availability of the statutory remedy provided by s 290(4) of the Act for that provision conveys a statutory right on any company that appears to have a counterclaim. Mr Carey for the applicant submits that even if considerations of estoppel apply by virtue of the separate 1 September agreement provisions, that any ouster or waiver would have to have been expressed and unequivocal.
[38] Mr Carey notes that Parua’s counterclaim is not a counterclaim to the statutory demand but rather concerns the other proceeding and cannot be relied upon to set aside a statutory demand. Parua’s claims against the Wilsons have not, Mr Carey submits, disappeared as a result of the 1 September agreement.
[39] Further, Mr Carey submits the estoppel claim cannot be legally made out because if it is to apply there would have to of been an unequivocal representation by Parua and for Parua’s reliance on its counterclaim to be unconscionable. Neither aspect is, Mr Carey submits present in this case. Parua has never said it would not rely on its counterclaim or waive its statutory rights.
[40] Also it is Parua’s case that it was not sufficiently aware of the issues relating to the cows health as at 1 September and that it was not until October and November 2015 did it receive the requested documentation from the Wilsons, and additional information from third parties relating to the cows health. Parua did not have these documents/this information at 1 September 2015. A suspicion of health issues was all that existed as at 1 September 2015.
[41] Parua also argues that the statutory demand could be set aside on “other grounds” under s 290(4) on the basis that its counterclaim is extant and is for hearing by this court in early 2017 and that the Wilsons’ statutory demand is an attempt to, or will have the effect of, circumventing a proper determination of that counterclaim.
[42] It is submitted on behalf of the Wilsons that the issues relating to the statutory demand are not for determination in the other proceeding. Parua disagrees. It says those issues are fundamental to the setting aside application and that Parua’s counterclaim will unquestionably be determined in the other proceeding.
[43] Mr Carey submits the only way Parua’s counterclaim could fail to sustain an application under the s 290(4) setting aside provision is if the counterclaim was found not to exist at all, or not to be genuine. That has not, submits Mr Carey been submitted in this case and nor has any evidence been adduced to support such an argument.
[44] Mr Carey submits the Wilsons’ purpose by its opposition to the setting aside application is to bypass a proper examination of Parua’s counterclaim in the other proceeding. Such, counsel submits, is an inappropriate use of a statutory demand.
[45] Mr Carey submits the Wilsons should either have challenged the genuineness of the counterclaim in this application or waited for the counterclaim to be assessed at the substantive hearing. As counsel notes the Wilsons own claims remain to be addressed at the other proceeding hearing early next year and those claims relate to lease payments for the same cows to which the statutory demand relates. Mr Carey submits there can be no doubt that the issues relating to payment in respect of the cows will be dealt with at the substantive hearing.
[46] The day before this hearing Ms Easton filed a memorandum with the Court. By it counsel noted that her submissions had referred to two emails which had not been included in affidavits filed in this proceeding. Both of those emails had been sent by Parua’s Mr Blackley and were dated 19 November 2014 and 29 April 2015. By counsel’s memorandum of yesterday leave was sought to rely on these emails. Counsel submitted her request should not be contentious as the emails had been exchanged during the discovery process and originated from Mr Blackley.
[47] Immediately following delivery of that memorandum to the Court Mr Carey emailed the Court requesting that I not read the attachments to Ms Easton’s memorandum because they contained documents not in evidence but which the Wilsons sought to rely on at the hearing. Mr Carey wished to object to their
admissibility. He advised “it would prejudge the Court’s consideration of that issue if the documents were considered before the parties were heard…”.
Considerations
[48] On 19 November 2014 Parua through Mr Blackley emailed the Wilsons alleging they had breached a number of the terms of the farmland lease which had been in place until 31 May 2014 and that the breaches should be offset against the monies owed under the livestock agreement. As Ms Easton submits otherwise Parua agreed to the terms of the livestock agreement in the email but then continued to withhold stock payments.
[49] Ms Easton submits and it appears from the evidence that on 29 April 2015 Parua wrote to the Wilsons raising issues about the health of the stock for the first time. Mr Blackley stated that there were a number of issues with the stock including high somatic cell counts and staph aureus.
[50] It was as a result of Parua’s failure to make stock payments or to return the stock that the Wilsons filed their other proceeding on 10 August 2015.
[51] It is not in dispute that on or about 1 September 2015 the parties entered into an agreement which resulted in the Wilsons withdrawing their interim injunction application. By that agreement Parua agreed to monthly payments of $2,000 for the stock pending determination of the other proceeding.
[52] After that agreement was reached Parua filed its counterclaim in the other proceeding raising arguments concerning the stock agreement and the farmland lease.
[53] The counterclaim asserted, inter alia, that from May 2014 the Wilsons cows were not of the description referred to in the stock agreement and that a number had been infected, some were older than eight years, and that the Wilsons had failed to provide vetted-in-calf records or health and stock records.
[54] By its application to set aside it is Parua’s case that its other proceeding counterclaim is for a sum more than sufficient to reduce the amount demanded by the
Wilsons below the prescribed amount. The Wilsons position is that the debt underlying Parua’s counterclaim demand excludes the possibility of set off. Otherwise the Court is also able to exercise its discretion not to set aside the statutory demand.
[55] Of primary focus presently is whether the settlement agreement contains an implied term that no set off or counterclaim can be raised to avoid payment of the
$2,000 monthly agreed to.
[56] Ms Easton submits the purpose of the settlement agreement was clearly designed to create an interim position whereby the Wilsons received payment for the stock while substantive proceedings were on foot but were without prejudice to the right of Parua to recover those amounts in the ultimate hearing; that the settlement agreement clearly anticipates the payment of the amounts due under the settlement agreement will be made notwithstanding the counterclaim which exists.
[57] Mr Carey submits the Wilsons statutory demand should not prevail over Parua’s counterclaim. Further the settlement agreement does not contain any “no set off” clause.
[58] In the course of the hearing before counsel it became a matter of concern for the Court that there had been no provision for an opportunity by Parua to reply to the evidence offered by the Wilsons. It was clear from the submissions of counsel that issues arose regarding Parua’s knowledge of the full extent of health issues affecting the Wilsons’ livestock. As submissions developed so too did it become apparent that elements of Parua’s knowledge of livestock issues could have significance.
[59] Therefore at the conclusions of submissions and upon the application of Mr Carey for Parua, the Court agreed an opportunity be provided to file a reply affidavit. Issues concerning knowledge of livestock health were likely to be significant in the determination of the present application.
[60] Therefore consideration of this application was adjourned to permit further evidence to be provided on behalf of the applicant. That evidence was intended to provide information about the extent of Parua’s knowledge of livestock health issues
at the time the parties entered into the settlement agreement. The further affidavit sworn by Mr Blackley on behalf of Parua sufficiently suggests for present purposes that Parua had inadequate knowledge of the extent of livestock health notwithstanding what appears to have been their best efforts to obtain that relevant information from the Wilsons; and that the settlement agreement was reached and was premised upon a misunderstanding regarding the extent of livestock health.
[61] It was Parua’s evidence that post-settlement agreement and due to the additional information received concerning stock health Parua requested the Wilsons to take back the livestock or alternatively to allow unhealthy stock to be culled.
[62] Therefore and regarding Parua’s counterclaim in the other proceeding that had not been filed until after the settlement agreement and had not been intended for filing by then. Instead Parua claims that due to its lack of knowledge regarding true livestock health it accepted the settlement agreement terms. It was only later that it says it received true information regarding stock health; information it had long earlier requested but not received.
[63] Further it was also clear from the reply affidavit received that the settlement agreement related solely to the livestock and was a settlement only of the injunction application concerning the return of the stock. Parua and the Wilsons did not attempt to resolve their issues over the land lease and the settlement agreement because that agreement was a direct and specific reaction to the injunction application which only sought the return of stock.
Summary
[64] The issues between the parties concern the settlement agreement arrangement that the Wilsons rely on to support their statutory demand.
[65] The case is also about issues raised by Parua’s counterclaim in the other proceeding – wherein stock health issues among others are pleaded against the Wilsons.
[66] If Parua succeeds with those claims then likely they will recover damages in an amount greater than the sum of $8,000 sought by the statutory demand.
[67] The other proceeding [CIV 2015-488-106] has a trial date scheduled for early in 2017.
[68] It seems commonsense to defer issues of offset or counterclaim until the other proceeding is disposed of.
Judgment
[69]The setting aside application is granted.
[70] The Wilsons shall pay Parua’s costs on a 2B basis. If these cannot be agreed then counsel are to file memoranda and the Court will make a determination upon the papers.
Associate Judge Christiansen
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