Prosec Group Limited v Rentmax Limited
[2023] NZHC 3612
•11 December 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001368
[2023] NZHC 3612
BETWEEN PROSEC GROUP LIMITED
Plaintiff
AND
RENTMAX LIMITED
Defendant
Hearing: 16 November 2023 Appearances:
R Latton for the Plaintiff
J R Duckworth for the Defendant
Judgment:
11 December 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 11 December 2023 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Jennifer G Connell And Associates, Auckland NZ Property Law, Auckland
R Latton, Auckland
PROSEC GROUP LTD v RENTMAX LTD [2023] NZHC 3612 [11 December 2023]
Introduction
[1] The plaintiff, Prosec Group Ltd (Prosec) applies to have the defendant, Rentmax Limited (Rentmax) placed into liquidation, based on its failure to comply with a statutory demand served on it. Rentmax applied to set aside the statutory demand but did not properly serve the application within the statutory timeframe. It subsequently withdrew its application.
[2] Prosec claims that Rentmax owes it $200,039.52 (the Debt), being amounts due and owing under four invoices issued pursuant to a Heads of Agreement dated 29 September 2021 (the Heads of Agreement). Under the Heads of Agreement, Rentmax and H & M Remuera Limited (H & M) agreed that H & M would refer rental properties to Rentmax for it to manage. In return, Rentmax would pay H & M a referral fee.
[3] Rentmax opposes the application. In its statement of defence, it set out three grounds: that the Heads of Agreement was with H & M, not the plaintiff, Prosec; that it is solvent and able to pay its debts as they fall due; and that it has a set-off or counterclaim for a sum that exceeds the Debt.
[4] Rentmax’s submissions and evidence focus on the first ground only — that Prosec is unable to bring liquidation proceedings as it is not party to the Heads of Agreement. Consequently, it says, there is a genuine and substantial dispute over whether the Debt is owing and due.
[5] Prosec responds that the Heads of Agreement was novated to it by H & M, it is the correct creditor, and there is no genuine or substantial dispute over the Debt.
[6] The issue can be framed in two potential ways. Either Prosec is not the contracting party and is therefore not a creditor and the Court has no jurisdiction to appoint a liquidator to Rentmax under s 241 of the Companies Act 1993 (the Act); or there is a genuine and substantial dispute about whether Rentmax owes the Debt to Prosec.
[7] Whichever way the issue is framed, the liquidation application turns on whether Rentmax owes the Debt to Prosec, as Prosec claims.
Facts
[8] The facts are set out in affidavits sworn by Martin Talbot for Prosec and Joel Thompson for Rentmax. Mr Talbot and his wife Hang Thi Thu Nguyen (also known as Hannah Talbot) were the directors and shareholders of H & M. Mr Talbot is also the director of Prosec. Mr Thompson and his wife, Tara Thompson, are the directors of Rentmax.
[9] Mr Talbot deposes that the purpose of the arrangement with Rentmax was for Ms Talbot to liaise with her network of Vietnamese investment property owners to source rental properties for Rentmax to manage. Mr Talbot drafted the Heads of Agreement. These facts are not disputed by Rentmax.
[10] Mr Talbot deposes that shortly after signing the Heads of Agreement he and Ms Talbot realised that H & M was no longer registered for GST. Mr Talbot says that this issue was brought to the attention of Mrs Thompson who told him that Rentmax had no issue with H & M using another company to provide services under the Heads of Agreement and to invoice Rentmax. Rentmax denies this.
[11] Discussions about how referrals and payments would be structured occurred throughout April and May 2022. Options included Ms Talbot joining Rentmax’s payroll or becoming an independent contractor. In April 2022, Rentmax sent Ms Talbot a contractor agreement.
[12] In an email to Mrs Thompson on 15 May 2022 Ms Talbot rejected the contractor agreement and confirmed that the referrals would continue to be made under the Heads of Agreement, with two changes. These were that the company identified would change to Prosec and the property list for the first year would be updated. In this email, Ms Talbot proposed to send an Addendum to the Heads of Agreement confirming the two changes. She also attached the first invoice for services under the arrangement through April 2022. The invoice is issued under the name Prosec Group Limited to Rentmax (t/a Property Scouts Metro).
[13] Mrs Thompson responded to Ms Talbot’s email on 17 May 2022. She did not mention the two changes. She said that she would arrange payment of the April 2022 invoice as soon as possible.
[14] Rentmax paid the April 2022 invoice. Prosec issued invoices to Rentmax on 31 May 2022 and 30 June 2022. Rentmax paid these invoices. Mr Thompson deposes that Rentmax paid the invoices issued by Prosec as a goodwill gesture even though he thought “this was odd given the contract was between Rentmax and H & M”.
[15] Prosec issued further invoices on 31 July 2022 and 31 August 2022. Rentmax did not pay these invoices, and on 7 September 2022 Mrs Thompson sent an email to Ms Talbot raising problems with the arrangement between the companies.
[16] Discussions followed, concluding with Prosec giving Rentmax five working days to pay the outstanding invoices. On 30 September 2022 Prosec issued a further invoice, for services throughout September.
[17] On 26 October 2022, Prosec issued an invoice for “damages (for losses sustained)” due to Rentmax’s breach and repudiation of the contract being $95,099.94 plus GST for fees for existing properties for the remaining 18 months of the agreement; and $62,997.48 plus GST for new properties not yet invoiced for the full 24 months, a total of $181,812.03.
[18] On 3 November 2022, Prosec served a statutory demand for the total amount owing under the four invoices.
[19] H & M was removed from the Companies Register on 14 September 2022. Mr Talbot says that this was because the company had been dormant for several years.
Legal principles
[20] The Court has jurisdiction to appoint a liquidator to a company on the application of certain persons listed in s 241(c) of the Act, including a director, a shareholder, a creditor, or the company itself.
[21] The Court may exercise its discretion to place a company in liquidation if satisfied that:1
(a)the company is unable to pay its debts;
(b)the company or the board of the company have persistently or seriously failed to comply with the Act;
(c)the company, or one or more of its directors or shareholders have intentionally provided the Registrar of Companies with inaccurate information;
(d)the company, or one or more of its directors or shareholders has persistently or seriously failed to comply with duties under the Act or the Financial Reporting Act 1993;
(e)the company does not comply with the essential requirements in s 10 of the Act; or
(f)it is just and equitable that the company is put into liquidation.
[22] The Court has a residual discretion as to whether to place a company that meets one of the criteria in s 241(4) into liquidation. However, companies that are clearly insolvent should not be allowed to continue to trade.2
Does Rentmax owe the Debt to Prosec?
The competing positions
[23] Rentmax acknowledges that it is liable to H & M for sums due under the Heads of Agreement up until when H & M was removed from the Companies Register. It says that at that point the Debt vested in the Crown under s 324(1) of the Act.
1 Companies Act 1993, s 241(4).
2 Bank of New Zealand Ltd v Rada Corporation Ltd [1989] 1 NZLR 750 (CA) at 757.
[24] Rentmax says it is not liable to Prosec who was never a contractual party. It says there was no variation to the Heads of Agreement to make Prosec the contracting party. Nor did H & M assign its rights or obligations in writing to Prosec. The Heads of Agreement states:
Neither Party shall assign or transfer any of its rights or obligations under this agreement without the prior written consent of the other Party.
[25] Therefore, Rentmax submits, Prosec has no status to bring liquidation proceedings and, in terms of s 241(4) of the Act, there is a genuine and substantial dispute over whether the Debt is owing and due.
[26] In response, Prosec submits that what in fact occurred was a novation of the Heads of Agreement, with Prosec replacing H & M as the contracting party. It says that this case is factually like the case of Savvy Vineyards 3552 Ltd v Karaka Estate Ltd,3 where the Supreme Court held that a purported assignment of rights and obligations in two grower contracts was in reality a novation, and the growers consented to the novation through their conduct of dealing with the novated Savvy companies.
[27] Prosec submits that, similarly, Rentmax consented to the novation through its conduct. Mr Talbot deposes that he informed Mrs Thompson of the change verbally and Ms Talbot confirmed the change in her email of 15 May 2022. Prosec submits that Mrs Thompson did not raise any issues with the change and Rentmax then paid three invoices raised by Prosec without objection.
[28] Furthermore, when problems arose, Rentmax dealt with Prosec, sending, and receiving long emails to and from Prosec. At no stage did Rentmax raise any issue with the fact that it was dealing with Prosec and not H & M. The issue only arose when Rentmax instructed lawyers.
3 Savvy Vineyards 3552 Ltd v Karaka Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281.
Assessment
[29] I consider that this is an appropriate case to exercise my residual discretion to refuse to appoint a liquidator to Rentmax. In my assessment, there is a genuine and substantial dispute over whether Rentmax owes the Debt to Prosec. That dispute should be resolved in ordinary proceedings before an application is made for Rentmax’s liquidation based on non-payment of the Debt.
[30] This case is slightly unusual because Rentmax applied to set aside the statutory demand on the basis that H & M, not Prosec, was the contracting party to whom it owed a debt. However, it did not serve the application according to the provisions of the Act and therefore was required to withdraw the application.
[31] Had the application to set aside been properly served, and proceeded to a defended hearing, the Court would have determined the application according to well‑settled principles, including that:4
(a)The applicant must show there is a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion of a dispute is insufficient. Material short of proof is required to support a claim that a debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before a statutory demand is issued.
(d)Applicants must establish that any suggested counterclaim, cross‑demand or set-off is reasonably arguable in all circumstances.
(e)It is not usually possible to resolve disputed questions of fact based on affidavit evidence, especially when issues of credibility arise, unless
4 See Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
such evidence is contrary to the available documents or earlier statements made by the parties.
[32] The Court's discretion as to whether to set aside a statutory demand is wide, but it will be a rare occasion where an application is refused if one of the grounds in s 290(4) are made out.5
[33] If a company fails to respond to a statutory demand, and the creditor makes an application for its liquidation under s 241, the company is presumed to be insolvent. But the debtor is not precluded from disputing its liability to pay the debt.6 It may still seek to dispute the debt, although its failure to respond to the statutory demand may raise a question as to its genuineness in contesting liability.7
[34] Here, it is common ground that the relevant invoices were issued pursuant to the Heads of Agreement. It is common ground that Rentmax and H & M, not Prosec, signed the Heads of Agreement. It is also common ground that the contract was not varied in writing and nor was there (or could there be) an assignment of H & M’s rights or obligations in writing to Prosec.
[35] Prosec’s case rests on the Heads of Agreement having been the subject of a novation, which Rentmax consented to by conduct, like in Savvy. I consider that to be a disputable position.
[36] The facts of Savvy are distinguishable. In Savvy, the assignor drew up a formal document which provided:
The Assignee shall be substituted for the Assignor under the Agreement as if the Assignee had originally been a party to the Agreement instead of the Assignor, and all references in the Agreement to the Assignor shall be read and construed as if they were references to the Assignee …
5 Melbourne Ltd v Bartlett Concrete Placing Ltd [2022] NZHC 1786 at [20].
6 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424; Cable Price (NZ) Ltd v Taimona Haulage Ltd [2016] NZHC 828 at [17]; and Yan v Mainzeal Property Construction Ltd (in rec and liq) [2014] NZCA 190 at [61].
7 Cable Price (NZ) Ltd v Taimona Haulage Ltd [2016] NZHC 828 at [17]. See also WestCity NZ Pty Ltd v Fox Ears Ltd [2023] NZHC 1720 at [34].
[37] The majority of the Supreme Court held that, while the document used the language of assignment, the assignor clearly contemplated novation. Even though the counterparties had not signed the documents, they had assented to the novation by their conduct, which included paying invoices issued by the novated Savvy companies and when disputes rose, dealing with them explicitly on the basis that they were the parties to the agreement and the original party was not.8
[38] Here, there is not the same objective evidence to indicate that H & M intended to novate the Heads of Agreement to Prosec; or that Rentax assented to a novation. Relevantly, Prosec did not plead novation in its statement of claim and raised the novation for the first time in its submissions.
[39] Prosec’s novation and consent argument relies on three pieces of evidence. First, Mr Talbot’s evidence that he verbally informed Mrs Thompson of the change to Prosec. Second, Ms Talbot’s 15 May 2022 email in which she stated that the company would be changed to Prosec; and Mrs Thompson’s lack of objection in her response and her indication that she would arrange payment. Third, Rentmax’s apparent non‑objection to being invoiced by Prosec; and communication with Prosec later when issues arose.
[40] In my view, it is arguable whether these facts indicate, objectively, an intention by H & M to novate the Heads of Agreement to Prosec; and Rentmax’s consent to such a novation. In contrast to Savvy, H & M did not draw up a formal agreement and send it to Rentmax which provided for Prosec to be substituted for H & M. Prosec issued the invoices, but that does not necessarily indicate that it had become the contracting party. Prosec could have been issuing the invoices as agent for H & M.
[41] As to Rentmax’s consent, Mr Talbot’s evidence is disputed. Furthermore, Ms Talbot always communicated with Mrs Thompson from a Prosec email address, even prior to the Heads of Agreement. Therefore, it does not necessarily follow that by corresponding with Ms Talbot at a Prosec email address after the purported novation, Rentmax consented to novation of the agreement from H & M to Prosec.
8 Savvy Vineyards 3552 Ltd v Karaka Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [109].
[42] Curiously, there is no evidence from either Ms Talbot or Mrs Thompson, the two individuals who appear to have had almost all the direct contact between the two companies.
[43] To my mind, had the application to set aside the statutory demand proceeded to a hearing, Rentmax would have met the threshold of establishing that there is a genuine and substantial dispute over whether the Debt is owing and due. Consequently, the Court would have set aside the statutory demand and directed the parties to resolve the dispute through ordinary proceedings.
[44]There is a further issue. The Debt claimed in the statutory demand is
$200,039.52. Of this, $181,812.03 is a claim to damages for breach and repudiation of the Heads of Agreement. A claim to unliquidated damages is not a debt that is due and owing at the date of the statutory demand.9 A statutory demand cannot create a debt.10 If this damages claim is removed, only $18,227.49 (the sum of the July, August, and September 2022 invoices), was arguably legitimately included in the statutory demand.
[45] In these circumstances, where there is clearly a genuine and substantial dispute as to whether the Debt is owing and due, it would not be appropriate for the Court to place Rentmax in liquidation. The correct course is for the disputed Debt, including the damages claim, to be resolved through ordinary proceedings.
[46] In that respect, I note that Rentmax does not dispute that it is liable for the referral fees up until H & M was removed from the Companies Register on 22 September 2022 (i.e. the July and August 2022 invoices, and most of the September 2022 invoice). On that basis, one would hope that the parties might be able to resolve at least that part of the dispute without further litigation.
9 Companies Act 1993, s 289; and Keene v Okere Holidays Ltd (1996) 7 NZCLC 261,034 (HC) as cited in LSF Trustees Ltd v Footsteps Trustee Company Ltd (in liq) [2017] NZHC 2619 at [11] and Elementary Solutions Ltd v Commissioner of Inland Revenue [2017] NZHC 32 at [40].
10 Keene v Okere Holidays Ltd (1996) 7 NZCLC 261,034 (HC).
Result
[47] Prosec’s application for an order appointing a liquidator to Rentmax is dismissed.
[48] As to costs, I am of the preliminary view that, having succeeded, Rentmax is entitled to costs, and on a 2B basis. I expect the parties to be able to agree costs. If costs cannot be agreed, then the parties are to file written submissions of not more than three pages within 14 days.
Associate Judge Gardiner
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