Q & K Proctor Limited v The Agri Company Limited
[2020] NZHC 73
•5 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000913
[2020] NZHC 73
BETWEEN Q & K PROCTOR LIMITED
Plaintiff
AND
THE AGRI COMPANY LIMITED
Defendant
Hearing: 2 September 2019 Appearances:
P Hall and K Sabine for the Applicant
A G Rowe and R Williamson for the Respondent
Judgment:
5 February 2020
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 5 February 2020 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Simpson Western (Peter Hall), Takapuna, for the Applicant
Wells & Co (Rita Williamson), Howick, Auckland, for the Respondent
Q & K PROCTOR LTD v THE AGRI COMPANY LTD [2020] NZHC 73 [5 February 2020]
Introduction
[1]This proceeding concerns an application to set aside a statutory demand.
[2] The respondent, Agri Company Ltd, is a producer of eggs. Between 8–12 and 15–20 April, Agri supplied eggs to the applicant, Q & K Proctor Ltd, which trades as Pak’nSave Wairau Road. Agri sent several invoices to Pak’nSave for the eggs supplied. Pak’nSave has paid some of the invoices, but Agri says two remain unpaid: invoice numbers 553 and 554, dated 14 and 20 April 2019.
[3] Agri served a statutory demand, dated 1 May 2019, on Q & K for the unpaid invoices. Q & K seeks an order setting aside the statutory demand under s 290(4)(a) of the Companies Act 1993. It says there is a substantial and genuine dispute as to whether it has any liability directly to Agri to meet the invoices on the grounds that:
(a)First, its contract for the supply of eggs was not with Agri but with its distributor company, Fresh Direct Ltd, which introduced Agri to Q & K;
(b)Secondly, on 8 April 2019, Agri specifically acknowledged that all supplies of eggs should and would be invoiced to Pak’nSave by Fresh Direct and not by Agri; and
(c)Thirdly, consistent with that agreement, Q & K paid Fresh Direct for the supply of eggs covered by invoices 553 and 554, and any dispute about those invoices are now a matter between Fresh Direct and Agri.
Background
The parties
[4] For 10 years, Q & K has been purchasing fresh fruit and vegetables from Fresh Direct, one of its distributors. Fresh Direct is involved in the sourcing, pre-packing, distribution and marketing of fresh produce. It is owned by the J & P Turner Group.
[5] Fresh Retail Solutions Ltd is also owned by J & P Turner Group. Fresh Retail Solutions provides retail support and business development to Fresh Direct customers on behalf of Fresh Direct. It is managed by Rochelle Cowie. In late 2018, Ms Cowie contacted Q & K regarding potentially expanding the range of products it purchased from Fresh Direct to include both cage and free-range eggs.
[6] Agri is a supplier of eggs to Fresh Direct. It supplies eggs to Fresh Direct for Fresh Direct to then on-sell to Q & K. In late January to early February, a meeting was convened between Ms Cowie, Quintin Proctor (a director of Q & K), Wayne Bevin (Q & K’s store manager) and Jonathan Denize (sole director of Agri). The purpose of the meeting was to discuss arrangements for the supply of eggs by Fresh Direct to Q & K, and so that Q & K could understand whether Fresh Direct had the capacity to meet the high egg demands of a large supermarket such as Pak’nSave.
The payment arrangement
[7] An arrangement was made whereby Agri would supply eggs to Fresh Direct, who would then on-sell the eggs to Q & K, Fresh Direct would invoice Q & K and Q & K would pay directly to Fresh Direct, and Agri would receive a commission.
[8] On 31 March 2019, Mr Denize informed Mr Bevin that the relations between Agri and Fresh Direct had become strained. Mr Denize then stated that, until the issues between Agri and Fresh Direct were resolved, Agri would be invoicing Q & K directly. On 2 April 2019, Agri informed Fresh Direct of the new arrangements. Invoice numbers 550 and 552 were sent directly to Q & K. These were paid directly to Agri.
[9] On 8 April 2019, Fresh Direct convened a meeting with Mr Denize, informing him that the purported changes to the payment arrangements were not acceptable. At this meeting, Mr Denize agreed that the original payment arrangements were to be reinstated, with Fresh Direct invoicing Q & K.
[10] On 16 April 2019, however, Mr Denize again invoiced Q & K, informing Mr Bevin by email that the issues between Agri and Fresh Direct had not been fully resolved. Accordingly, Mr Denize sought direct payment of the invoice to Agri. After checking with Fresh Direct, Q & K declined to pay the invoice.
[11] On 18 April 2019, Mr Denize terminated Agri’s relationship with Fresh Direct. Q & K paid Fresh Direct for all eggs delivered up to and including 17 April 2019. From 18 April 2019, Q & K continued to purchase caged eggs from Fresh Direct and, between 18 to 24 April 2019, purchased free range eggs directly from Agri.
The statutory demand
[12] Agri requested Q & K to pay its invoices 553 and 554, dated 14 and 20 April respectively, for the supply of eggs prior to 18 April 2019. Invoice 553 relates to deliveries for the period from and including 8 to 12 April 2019. Invoice 554 relates to deliveries for the period from and including 15 to 20 April 2019.1 Q & K refused to pay Agri, saying it had already paid Fresh Direct for the deliveries for the dates stated in the invoices, in accordance with the original payment arrangements.
[13] On 1 May 2019, Agri issued a statutory demand on Q & K for $78,113.15 for invoices 553 and 554.2 On 8 May 2019, Q & K, through its solicitors, requested Agri to withdraw the demand. Agri refused. Q & K now applies to set aside the demand.
Legal framework
[14] Pursuant to s 289 of the Companies Act 1993, a creditor may issue a statutory demand in respect of a debt owing by a company. If the company fails to comply with the demand within 15 days of service, it will be presumed to be insolvent.
[15]Section 290(4) contains the Court’s jurisdiction to set aside a statutory demand:
290 Court may set aside statutory demand
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
1 Q & K accepts that it needs to pay Agri for deliveries made after 18 April 2019, that is, after Agri terminated its relationship with Fresh Direct. It is willing to pay for the 20 April 2019 delivery included in invoice 554. However, Mr Bevin says the amount invoiced for the 20 April 2019 delivery is incorrect and that the invoice needs to be reissued with the correct amount.
2 Being Invoice 553 ($42,391.59) + Invoice 554 ($33,721.56) + Recovery costs ($2,000).
(b)the company appears to have 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 prescribed amount; or
(c)the demand ought to be set aside on other grounds.
[16] The applicant has the onus under s 290(4)(a) of showing a substantial dispute with a sufficiently arguable basis.3 A mere assertion that a dispute exists is not sufficient to discharge this onus — material short of proof is required.
[17] It is not usually possible to resolve disputed questions of fact on the affidavit evidence alone, particularly where issues of credibility arise. The Court must bear in mind that it is operating in the summary jurisdiction and not convert the matter into a full-blown trial.4 Accordingly, the Court is to promptly determine whether there is a genuine and substantial dispute; it is not the task of the Court to resolve the dispute.5 The standard of proof is, therefore, not particularly high.6
Discussion
[18] In my view, there is a substantial and genuine dispute as to whether Q & K has any liability directly to Agri to meet invoices 553 and 554.
[19] First, there is a substantial and genuine dispute as to whether Q & K and Agri were in a contractual relationship. Q & K says it has been in a commercial relationship with Fresh Direct for 10 years for the purchase of fresh and vegetables and that it simply sought to extend the scope of its purchasing arrangements to include eggs. In response, Agri says Fresh Retail Solutions was merely its sales representative and that Fresh Direct’s role was simply to invoice Q & K on Agri’s behalf.
[20]Q & K’s account is supported by evidence currently before the Court:
(a)In the reply affidavits of Mr Bevin and Ms Cowie, it is stated that, at the meeting in late January to early February involving representatives
3 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [19].
4 At [22].
5 Industrial Group Ltd v Bakker [2011] NZCA 142 at [24].
6 At [25].
from Fresh Direct, Q & K and Agri, Ms Cowie made it clear that Q & K would be purchasing the eggs (supplied by Agri) from Fresh Direct and charged by Fresh Direct. Ms Cowie explains that she clarified this arrangement to address potential concerns Q & K may have regarding the involvement of Mr Denize, given his involvement with a previously failed supermarket and previous bankruptcies.
(b)This arrangement was followed for the first three months from February 2019 to early April 2019 without any issues. Mr Bevin and Ms Cowie depose that Fresh Direct remained centrally involved with Q & K throughout, as expected of parties in a commercial relationship. Ms Cowie met with Q & K two to three times a week and corresponded with Q & K over email regarding delivery arrangements.
(c)On 8 April 2019, following Agri’s unilateral changes to the arrangement, a meeting was convened between Fresh Direct and Agri in which Mr Denize agreed that the original invoicing arrangements would be reinstated, that is, that Fresh Direct would invoice Q & K.
[21]In support of its own position, Agri says:
(a)Pak’nSave routinely sent its purchase orders directly to Agri as the supplier of the eggs. Agri says these purchase orders form part of the contract between Agri and Q & K.
However, Ms Bevin, in his reply affidavit, explains: “I typically emailed purchase orders through to both Fresh Direct and Agri Company because I knew Agri Company was involved in supplying the free range eggs to Fresh Direct, and I thought it was useful to provide Q & K’s order advice to both entities.”
As to the purchase orders sent to Mr Denize only, and not Fresh Direct, Mr Bevin explains: “In February 2019, I did not email purchase orders to Ms Cowie due to her husband’s hospitalisation. However, after
Ms Cowie’s husband’s health had improved, I emailed the purchase orders to both Mr Denize and Ms Cowie.”
(b)The purchase orders generated by Pak’nSave recorded the vendor as the “The Agri Company Limited” rather than Fresh Direct.
However, Mr Bevin explains that “[t]here is a simple explanation … [that] relates to Q & K’s stock management software.” Foodstuffs owns the Pak’nSave brand. It uses a stock management system called “eXchange”. There are two ways in which a vendor can be paid under this system: Foodstuffs paying the vendors and then collecting that money from the individual Pak’nSave owners such as Q & K (“charge-through vendors) or the supermarket owners paying the vendors directly (“direct vendor”). Fresh Direct is set up as a charge-through vendor for its fresh fruit and vegetables.
Due to Ms Cowie’s husband’s hospitalisation, Mr Bevin discussed logistics arrangements with Mr Denize, who asked Q & K to set up the egg purchases as a direct vendor. This created an administrative issue in that eXchange does not allow a single vendor (here, Fresh Direct) to be set up as both a charge-through vendor and direct vendor. Therefore, Agri was set up as the listed vendor for administrative purposes only.
(c)Q & K’s payment of Agri’s invoices 550 and 552 confirms that Q & K understood the contractual relationship was with Agri directly.
However, Mr Bevin explains that Q & K only paid these two invoices in reliance on misleading advice from Mr Denize that Fresh Direct and Agri had agreed that Agri would invoice Q & K directly. After these payments were made, Q & K learned from Fresh Direct that there was no such alternative interim arrangement in place.
[22] Secondly, on 8 April 2019, in a meeting between Fresh Direct and Agri, Mr Denize acknowledged that the original payment arrangement, whereby Fresh
Direct would invoice Q & K, would be reinstated. Furthermore, on 10 April 2019, Ms Cowie emailed Mr Denize to confirm that the original payment arrangements were to be reinstated. Mr Denize does not challenge either evidence. The email stated:
I just want to put in writing, and reiterate the phone conversation we had on Tuesday afternoon, that from week commencing Monday April 08th, the deliveries to PnS Wairau Rd will be invoiced by FDL [that is, Fresh Direct].
[23] Thirdly, there is a substantial and genuine dispute that Q & K, consistent with that agreement, paid Fresh Direct for the deliveries covered by invoices 553 and 554:
(a)The eggs supplied from 8 to 12 April 2019, covered under Agri invoice 553, was paid to Fresh Direct under invoice SK1624674; and
(b)The eggs supplied from 15 to 20 April 2019, covered under Agri invoice 554, was paid to Fresh Direct under invoice SK1631986.
[24] Accordingly, Q & K says that any dispute about those invoices are now a matter between Agri and Fresh Direct, not Q & K. In my view, there is a substantial and genuine dispute here. But it is not for this Court, at this stage, to resolve this dispute.
[25] For the above reasons, I am satisfied that there is a substantive dispute as to whether the statutory demand is owing. This applies not only to the $2,000 collection costs, which counsel for Agri acknowledged was not sustainable, but to the entire debt.
Result
[26]The application to set aside the statutory demand is granted.7
[27] The dispute is one that should be dealt with through the normal litigation process or by alternative dispute resolution. It is not one that is suitable for determination in what are essentially proceedings designed to test the liquidity of a company. Without wishing to make any determinative statement about the substantive
7 With the exception of payment for the supply and delivery of eggs on 20 April 2019 under invoice 554, which Q & K accepts it should pay to Agri: see n 1 above.
dispute, given the relatively modest amount involved, the three parties should give serious consideration to attending some form of dispute resolution.
[28] As costs follow the event under the statutory costs regime, I make an order that Agri Company Ltd must pay costs on a 2B basis and disbursements, as fixed by the Registrar, to Q & K Proctor Ltd.
Associate Judge Sargisson
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