Pure Pac Sales Limited v Matangi Berry Farm Limited
[2024] NZHC 2114
•31 July 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-353
[2024] NZHC 2114
BETWEEN PURE PAC SALES LIMITED
Plaintiff
AND
MATANGI BERRY FARM LIMITED
Defendant
Hearing: 19 June 2024 Appearances:
PK Noorland for the Plaintiff M Si for the Defendant
Judgment:
31 July 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 31 July 2024 at 3.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Todd & Walker Law, Queenstown MY Legal, Hamilton
PURE PAC SALES LTD v MATANGI BERRY FARM LTD [2024] NZHC 2114 [31 July 2024]
Introduction
[1] Pure Pac Sales Limited operates a cherry sales business from Cromwell. It sells cherries to exporters who sell them on to overseas markets. Pure Pac entered into an agreement with Matangi Berry Farm Limited in 2022 for Matangi to export its cherries to China.
[2] Pure Pac has applied to appoint liquidators to Matangi following Matangi’s failure to comply with a statutory demand issued in respect of 10 overdue invoices.
[3] Pure Pac submits that the grounds for an order for liquidation have been made out as Matangi has failed to comply with the statutory demand so is presumed to be unable to pay its debts.
[4] Matangi opposes the application on the basis that there is a genuine and substantial dispute as to the debt claimed by Pure Pac. Matangi says this is because the basis on which Pure Pac was to be paid was varied by agreement between the parties.
[5] Scott Dickie, the director of Pure Pac, acknowledged in his affidavit in reply that the correspondence between Michael Jiang of Matangi and Darren Hughes of Pure Pac, attached to Mr Jiang’s affidavit, shows a possible dispute as to whether cherry shipments sent from 28 January 2023 onwards would be on a consignment basis. Mr Dickie says that he was not previously aware of those messages and acknowledges that they relate to six of the invoices on which the statutory demand was based. Mr Dickie’s evidence is that he does not accept that those invoices were on a consignment basis but Pure Pac no longer relies on those invoices for the purposes of the application.
[6] However Mr Dickie says there does not seem to be any reason why the invoices sent prior to 28 January 2023 could be said to be on consignment and lists four invoices in this category. Two of those invoices have now been paid but two remain outstanding, both dated 17 January 2023. The total debt in issue in this application has therefore reduced from the amount demanded of $557,375.85 to $134,220.00.
[7] Matangi submits that the correspondence between Mr Jiang and Mr Hughes makes it clear that the consignment model was to apply to the two 17 January 2023 invoices as well. Furthermore, Matangi says Pure Pac has been paid on a consignment basis so there is no longer a debt owing.
[8] The question to be determined is whether the documents support Matangi’s position in respect of the 17 January 2023 invoices and, if so, whether the liquidation application should be declined or stayed to allow the dispute to be resolved. I set out the factual background and the legal principles that apply before considering these issues below.
Factual background
[9] On 17 October 2022 Pure Pac and Matangi entered into an agreement for Matangi to purchase and export Pure Pac’s cherries. The agreement was in the form of a signed account application form. The account application form included several payment options and recorded that Matangi would “be offered one of the following terms”. The possible terms included letters of credit, T/T payment, payment seven days after expected time of arrival (ETA) or until your agreed allocated credit limit is reached (whichever occurs first), or customised terms agreed by Pure Pac in writing before dispatch.
[10] The agreement further recorded that the customer (Matangi) may request customised payment terms but that Pure Pac at its discretion would confirm in writing the agreed terms before shipping commences and that Pure Pac may decline the request for customised payment terms without explanation. Default payment terms of payment due seven calendar days after ETA were said to be applicable if no other terms had been specifically agreed in writing.
[11] The original account application form, under the heading “tick your preferred payment terms” has a mark beside “[c]ustomised terms agreed by Pure Pac in writing before dispatch.” However, Mr Dickie’s evidence for Pure Pac is that the payment term which Matangi agreed to prior to the first shipment on 26 December 2022 was that payment would be “7 days after ETA, or until your allocated credit limit is reached, whichever occurs first.” (The document attached to Mr Dickie’s reply
evidence recording this is not signed by Matangi and there is no evidence that this was sent to Matangi.)
[12] Pure Pac accepts that the agreement itself did not provide for a price and that accordingly, a term must be implied that a reasonable price would be charged.1
[13] It is not disputed that throughout Matangi’s trading period with Pure Pac, Mr Jiang, the manager of Matangi, primarily dealt with Mr Hughes, the sales manager of Pure Pac.
[14] Pure Pac arranged for 10 shipments of cherries for Matangi between 26 December 2022 and 6 February 2023. Pure Pac issued an invoice for each shipment with the invoices totalling $743,989.45, as follows:
No.
Date
Invoice #
Invoice amount
1
26 December 2022
221222330
$73,855.05
2
14 January 2023
230112448
$113,112.00
3
17 January 2023
230113454
$104,382.00
4
17 January 2023
230118485
$29,838.00
5
31 January 2023
230124494
$85,134.00
6
31 January 2023
230127507
$79,344.00
7
31 January 2023
230129509
$85,118.40
8
1 February 2023
230201523
$69,540.00
9
4 February 2023
230202529
$61,186.00
10
1 February 2023
INV0678
$42,480.00
Total
$743,989.45
[15] Nine out of 10 of the invoices above set out the prices for each cherry variety on a per kilogram basis and the total quantity of each variety on the back of the invoice. Invoice 7, the third 31 January 2023 invoice, does not appear to include this information.
1 Contract and Commercial Law Act 2017, s 129.
[16] Between January and October 2023, Matangi paid $112,758.55 towards these invoices.
[17] Pure Pac issued a statutory demand on 25 October 2023 for $557,375.85, being the amount it asserted was the undisputed portion of the unpaid invoices. No direct response was received to the statutory demand.
[18] In November 2023, Matangi paid a further $74,208.50 of the amount outstanding, leaving $483,167.35 owing.
[19] Pure Pac then filed liquidation proceedings on 22 December 2023 based on the failure to comply with the statutory demand alleging that $483,167.35 remained due and owing.
[20] In April 2024, Matangi paid a further $60,593.63 and filed a statement of defence to the liquidation proceedings. The defence raised a dispute in respect to the balance owing of $422,573.72 on the basis a consignment model had been agreed.
[21] As set out above, Mr Dickie acknowledged in his affidavit in reply that, given the correspondence between Mr Jiang and Mr Hughes as attached to Mr Jiang’s affidavit, he accepts there is a possible dispute as to whether the cherry shipments sent from 28 January 2023 onwards would be on a consignment model and that he was not previously aware of these messages. The shipments to which this relates are the six invoices listed above at numbers 5 to 10.
[22] Mr Dickie does not accept those invoices were on a consignment basis but he accepts that there is a sufficient dispute for those not to be taken into consideration in respect of the liquidation application.
[23] Mr Dickie continues however that there is no possible dispute in respect of the invoices listed at 1 to 4. Only two have now been paid, the invoices listed at 1 and 2, with the two invoices dated 17 January 2023 listed at 3 and 4 and together totalling
$134,220.00 remaining unpaid.
Relevant legal principles
[24] Pursuant to s 241(4)(a) of the Companies Act 1993, a creditor may apply for the Court to appoint a liquidator if a company is unable to pay its debts. Section 287(a) provides that a company is presumed unable to pay its debts if it has failed to comply with a statutory demand. In those circumstances the company must rebut the presumption of insolvency by proving its ability to pay its debts. Alternatively, it must show a genuine and substantial dispute as to whether the debt that is the subject of the statutory demand is due.2
[25] The Court of Appeal in Yan v Mainzeal Property and Construction Ltd (in rec and liq) held:3
[61] It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently summarised by Associate Judge Faire (now Faire J) in South Waikato Precision Engineering Ltd v Ahu Developments Ltd in these terms:
(a)A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;
(b)In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;
(c)The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available.
(d)The governing consideration is whether proceeding with an application savour of unfairness or undue pressure.
(footnotes omitted)
2 Yan v Mainzeal Property and Construction Ltd (in rec and liq) [2014] NZCA 190 at [63] and [82].
3 At [61].
[26] A genuine and substantial dispute is one that is “real and not fanciful or insubstantial”. The grounds of the dispute must be “clear and persuasive”.4 Material, short of proof, is required to support the claim that the debt is disputed.5
[27] A genuine and substantial dispute as to part of a debt does not prevent a plaintiff from proceeding with a liquidation claim.6
[28] Each case is to be considered on its own particular facts but where a company fails to apply to set aside a statutory demand on the ground that the debt is disputed the defendant needs to show some exceptional factor to justify its failure to apply to set aside the statutory demand, with this being a factor likely to reflect the existence of a genuine dispute.7
Has Matangi sufficiently demonstrated a genuine and substantial dispute?
[29] Matangi submits that a verbal consignment sale arrangement was initially proposed by Mr Hughes, acting under apparent authority as sales manager for Pure Pac. This arrangement was agreed upon by Matangi and subsequently confirmed through follow-up communications via WhatsApp and email.
[30] Matangi says that under this consignment sales model, Matangi would remit payments based on actual sales revenue from cherries less associated costs, rather than paying the invoiced amounts. In support of this position, Matangi relies on the affidavit of Mr Jiang which annexes correspondence between him and Mr Hughes providing evidence of the consignment arrangement.
[31] Mr Jiang’s evidence is that a consignment basis was raised following his indication to Mr Hughes that due to the proximity to the Chinese New Year on 23 January 2023, it was challenging to sell the cherries in the Chinese Market and that Matangi did not intend to ship more cherries to China after 17 January 2023. Mr Jiang’s evidence is that Mr Hughes approached him suggesting that the parties shift to
4 Waikato Motors Ltd v West End Property Developments Ltd [2019] NZHC 865 at [5].
5 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
6 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
7 Waikato Motors Ltd v West End Property Developments Ltd, above n 4, at [6].
a consignment sales model starting from 17 January 2023. Mr Jiang’s evidence is that he did not ask Mr Hughes to put that in writing but that WhatsApp messages and emails annexed to Mr Jiang’s affidavit record that they agreed. The relevant messages and emails are as follows:
28 January 2023 (WhatsApp)
Mr Hughes: Ok thanks mate good idea
SH [being Sweetheart, a cherry variety] flexi price ok
29 January 2023 (WhatsApp)
Mr Hughes: the 29th/30th CAN [being Guangzhou Baiyun International Airport] are both flying today as they can’t get any space till Wednesday/ Thursday
Remember the SH are consignment ok
…
Thnks Michael.
Remember SH totally flexible on your pricing mate
30 January 2023 (Email)
Mr Hughes: Both fly today mate
One was cancelled from the 29th due to the weather issues I’m sending no more to CAN as your [sic] getting a double shipment
Remember all SH are consignment I’ll also assist on the staccato too mate Ok
31 January 2023 (Email)
Mr Hughes: Thnks Michael
Grrrrr
So disappointing
I have urgently asked to arrange a survey
Please tell your good people to hold or keep back some cartons from each pallet so the inspector can inspect.
So, we can recover their losses and ours
Can they please try and find the temp recorders for this shipment
All shipment now on consignment
I’ll be at airport tomorrow morning ok Friday move to CAN -Again on consignment
5 February 2023 (WhatsApp)
Mr Hughes: Right mate
New box 1 x 30s
Old box 2 x 30s
New box 1/2 x pallet 28s 5 kilo The old box 30s are ok
It's all consignment
I’ll send you at my cost only
…
Mr Jiang: I can take the fruit, the price I can return won’t be good at all Mr Hughes: …
Hey mate we understand It’s pretty quiet out there
So we’ll note it’s all consignment ok
Mr Hughes:[in answer to message above re price can return won’t be good]
Thanks Michael We’ll noted
Been a difficult season
but thank you for your support.
Michael
Have I misread your messageYou’ll take but the pricing is not flash Correct
Mr Hughes: We know prices not flash mate
Cheers
Check the docs are correct Don’t worry about pricing
13 February 2023 (WhatsApp)
Mr Hughes: Hi mate
Understand those 2 invoices fell right on CNY so yes we’re flexible mate
Don’t kill me ok
Let me know potential returns so I can arrange sales amendments
Thnks Darren
Mr Jiang:okay should be reasonable for those two, will get you more details very soon
[32] Pure Pac submits that the two invoices dated 17 January 2023 are owed in full. It does not accept Matangi’s position that a consignment model was agreed in respect of the 17 January 2023 invoices as Pure Pac says there is no evidence of any discussions prior to 28 January 2024. In Pure Pac’s submission, Mr Hughes’ comments with respect to pricing being flexible (initially for a specific cherry variety
only) and/or on consignment can only reasonably be said to be in relation to the shipments subsequent to 28 January 2023, which began on 31 January 2023.
[33] However, Mr Hughes confirms a number of times in his messages that he is flexible on pricing for Sweetheart Cherries or that they are on consignment. The details on the back of the two 17 January 2023 invoices show that the invoices relate to Sweetheart Cherries except for two out of 291 cartons on the first invoice (invoice 3 above) which are for Staccato Cherries.
[34] In addition, Mr Jiang attaches correspondence between him and Mr Hughes on 13 February 2023 which says “those invoices fell right on CNY [Chinese New Year] so yes we’re flexible”. Matangi says the two invoices being discussed must be the two 17 January 2023 invoices as Chinese New Year fell on 22 January 2023 and the next invoice is not until 31 January 2023, well after Chinese New Year.
[35] Mr Jiang also annexes correspondence between him and Mr Dickie between November and December 2023 in which Mr Jiang refers to the consignment arrangements and yet Mr Dickie does not dispute that in his replies. Matangi submits that it was only when the consignment arrangements resulted in a payment of only NZD 61,186 that Mr Dickie then said “[w]e don’t sell on consignment” and asked Mr Jiang to send through any documentation referring to this. Mr Jiang replied on 21 December 2023 saying:
This is a lie, what the heck? I mentioned long time about the consignment sale. You guys knew for sure, if you want to play ugly, I am here for you.
Mr Jiang then shared the email from Mr Hughes dated 31 January 2023 referred to above saying: “[a]ll shipment now on consignment”.
[36] The liquidation proceedings were filed on 22 December 2023, one day after Mr Jiang’s message above.
[37] Mr Jiang’s evidence is that the amount owed based on the consignment arrangement for the eight shipments between 17 January 2023 and 6 February 2023 (invoices 3 to 10 in the schedule above) is RMB 264,794.16 (NZD $60,593.63). This is calculated as being the total sales Matangi was able to achieve for those shipments
(RMB 509,639.59) less the total amount of associated customs taxes, clearance fees and duties (RMB 244,854.34).
[38] Finally I note Matangi raises a further dispute in relation to invoice 7, dated 31 January 2023, for $85,118.40. This does not need to be discussed further in the context of this application given Mr Dickie has accepted that there is a sufficient dispute in respect of all but the 17 January 2023 invoices.
Conclusion
[39] In the circumstances I consider Matangi has sufficiently established a genuine and substantial dispute in relation to the two 17 January 2023 invoices, the only invoices on which Matangi now relies. I do not therefore consider it appropriate to exercise my discretion to appoint liquidators.
[40] Furthermore, I consider it is appropriate to decline rather than stay the liquidation proceedings and require Matangi to bring proceedings to determine the dispute.
[41] I accept that there was delay between the shipping of the cherries and payment by consignment and that there was no application to set aside the statutory demand. However, the correspondence shows that Matangi paid the 14 January 2023 invoice following the issue of the statutory demand and was discussing payment of the remainder on a consignment basis. Pure Pac only appears to have raised an issue in relation to the consignment basis when the amount obtained on consignment was finalised. At that stage the appropriate response would have been to consider bringing ordinary rather than liquidation proceedings given Mr Jiang had referred to payment being on consignment without dispute and had provided a copy of an email from Mr Hughes recording that “[a]ll shipment now on consignment”. I therefore decline Pure Pac’s liquidation application with no further directions.
Result
[42]The application for liquidation is declined.
Costs
[43] Matangi has succeeded in opposing the application for liquidation and so in the usual course would be entitled to costs. I ask the parties to confer and try to agree costs. If agreement is not reached, memoranda may be filed on behalf of the defendant by 30 August 2024 and the plaintiff by 13 September 2024.
Associate Judge Sussock
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