Redoubt Hill Vineyard Limited v Torrent Bay Vintners Limited

[2014] NZHC 675

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2013-442-000324 [2014] NZHC 675

BETWEEN

REDOUBT HILL VINEYARD LIMITED

Applicant

AND

TORRENT BAY VINTNERS LIMITED Respondent

Hearing:	3 April 2014
Appearances:	D P Gavin for Applicant G C Engelbrecht for Respondent
Judgment:	4 April 2014

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      Redoubt Hill Vineyard Limited (Redoubt Hill) applies to set aside a notice issued against it by Torrent Bay Vintners Limited (Torrent Bay) under s 289 of the Companies Act.

[2]      Section 289 provides:

289    Statutory demand

(1)     A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.

(2)     A statutory demand must—

(a)     Be in respect of a debt that is due and is not less than the prescribed amount; and

(b)     Be in writing; and

(c)     Be served on the company; and

(d)     Require  the  company  to  pay  the  debt,   or  enter  into  a compromise under Part 14 of this Act, or otherwise compound with the creditor, or give a charge over its property to secure payment  of  the  debt,  to  the  reasonable  satisfaction  of  the

REDOUBT HILL VINEYARD LTD v TORRENT BAY VINTNERS LTD [2014] NZHC 675 [4 April 2014]

creditor, within 15 working days of the date of service, or such longer period as the Court may order.

[3]      The sum demanded by Torrent Bay is $1,885.66.  Torrent Bay is described as the creditor and Redoubt Hill as the debtor.   Payment to the creditor is required under the notice.

[4]      Redoubt Hill applies to set aside the notice.  It says that there is a substantial dispute over whether any part of the sum claimed is owing.  Torrent Bay opposes the application.  Substantial affidavits have been filed by both sides.  Exhibited to one of the affidavits are two invoices which, on the evidence, make up the sum demanded in the notice under s 289.

[5]      The first invoice is number 19650 issued by Anchorage Wines New Zealand

Limited for $1,214.06. The second is issued by Torrent Bay for $671.60.

[6]      It  is  common  ground  that Torrent  Bay is  a  wholly owned  subsidiary  of

Anchorage Wines New Zealand Limited.

[7]      Section 289 is a mechanism by which a demand may be made against a company for payment of a debt which is not in dispute.  Failure to meet the terms of the demand, which are prescribed by s 289, has the effect that the company against whom the demand is issued is presumed to be unable to pay its debts.   Once that position is established, an application may be made to the Court for an order liquidating the company.

[8]      Section 290 provides that the Court may set aside a statutory demand on certain bases, and s 290(5) provides that a demand must not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.

[9]     Section 290(6) provides that a defect, in subs (5) includes a material misstatement of the amount due to the creditor and a material mis-description of the debt referred in the demand.

[10]     The Court has adopted a robust approach to defects in statutory demands, concentrating on the question of whether substantial injustice would be caused if a demand, containing a defect or irregularity, were not set aside.

[11]     This was the approach taken by the learned Judge in Markham 2000 Ltd v Max & Co Ltd.1    In that case the demand was issued by “Max & Co Limited” but that company did not exist.  The demands sought payment of invoices issued by Max and Company Services Limited which were described in the demand.   The Court found that on the facts of that case the applicant, Markham, was well aware that the sum sought in the demands was made up of the invoices said to be owed to Max and Company Services Limited.  The Court held there was no injustice or prejudice if the name of the respondent were corrected to the name of the company which issued the

invoices.

[12]     The situation before the Court in the present case is materially different.  In this case, Torrent Bay, which issued the demand, is an existing company, and has demanded payment of a sum of money to which it is not, on the evidence, entitled. The invoice on which it is based plainly shows that the sum that is said to be owing is to another separate company (and I note that the invoice recorded a separate bank account number to which payment could be made, from the bank account number shown on the invoice issued by Torrent Bay and a different GST number).

[13]     The invoice issued by Anchorage Wines New Zealand Limited (Anchorage

Wines) relates to a quantity of wine said to have been made for Redoubt Hill in the

2011 vintage year.  Three other invoices were produced in evidence for that year, all in the name of Anchorage Wines.  Although the invoice for which payment is now claimed is dated 13 February 2013, it is said to be for the 2011 year.  Three invoices to  Redoubt  Hill  for the  2010  year  are also  in  evidence,  and  were rendered  by Anchorage Wines.  There is sufficient in the material before the Court to show that for the 2011 vintage, and for the 2010 vintage the company claiming payment was

Anchorage Wines.

1      Markham 2000 Ltd v Max & Co Ltd (2005) 9 NZCLC 263,735 (HC).

[14]     Further, the other invoice for which payment is claimed by Torrent Bay was issued four months after the Anchorage Wines’ invoice but by Torrent Bay.  Plainly Anchorage Wines and Torrent Bay arranged which company would charge for the services rendered.

[15]     Redoubt Hill paid all the invoices for the 2010 and 2011 vintages which were rendered by Anchorage Wines, and only the later invoice for the 2011 vintage, also issued by Anchorage Wines, remains in issue.

[16]     In the circumstances of this case I find that the demand by Torrent Bay for payment of a sum owed to Anchorage Wines, when both were existing companies which as a matter of course separately invoiced Redoubt Hill, is not a defect or irregularity in terms of s 290(5), for these reasons.  The effect of a statutory demand not being met is to raise a presumption of insolvency, which itself is a ground for a company to be placed in liquidation.  The Act provides for a demand to be issued by a creditor in respect of a debt owing by a company and although s 289 does not expressly state that the debt must be owed to that creditor, this is implicit in subs (1) and is reinforced by subs (2)(d).

[17]     In addition, “creditor” is defined2  to mean a person who, in a liquidation, would be entitled to claim in accordance with s 3033 of the Act that a debt is owing to that person by the company.

[18]     It follows that to the extent that a notice purports to demand payment of a debt owed to a company other than the company which issued it, it is not a valid statutory demand within the definition in s 289(1).

[19]     In my view this is not a defect or irregularity in terms of s 290(5).  Whilst I accept that this subsection is not to be confined to a rigorous or narrow reading,4 in my view the defect or irregularity to be scrutinised must be within a demand issued by a creditor, as provided for by s 289(1), not a demand by a person who is not a

creditor.

2      Companies Act 1993, s 240.

3      Section 303 provides for admission of claims in a liquidation.

4      Topfelt Pty Ltd v State Bank of New South Wales (1993) 47 FCR 226 (FCA).

[20]     Markham 2000 Ltd v Max & Co Ltd is distinguishable.  Here Torrent Bay, an existing company which traded with Redoubt Hill, sought to demand payment of a sum said to be owed to Anchorage Wines which is also an existing company which traded with Redoubt Hill and a separate creditor.  In Markham there was simply an error in the name of the creditor, not in the substance of the debtor/creditor relationship, such as to put the demand outside the terms of s 289(1).

[21]     A statutory demand may be set aside in part, but once the debt invoiced by Anchorage Wines is subtracted from the sum claimed, the balance claimed is below the amount prescribed as the minimum to which the statutory demand procedure is available,  by  reg  5  of  the  Companies Act  1993  Liquidation  Regulations  1994, ($1,000).

[22]     Accordingly I set aside the statutory demand dated 29 November 2013.

[23]     Beyond noting that there is a substantial volume of evidence before the Court for consideration of the issue raised by the applicant, namely that the two debts are disputed, and enjoining counsel to consider with care the principle that in its Companies  Act  jurisdiction  this  Court  does  not  determine  disputes,  it  only determines whether a substantial basis for a dispute has been established, I prefer to leave aside further consideration of the applicant’s case, apart from one point.  There is affidavit evidence before the Court from Redoubt Hill’s accountant that the company is solvent under both tests set out in the Companies Act.  Even if a notice under  s  289  is  validly  issued  and  is  not  complied  with,  that  only  creates  a presumption that a company is insolvent.  The rebuttal evidence presently before the Court in relation to the company’s solvency is undisputed.  This is a further reason for counsel to consider whether it is appropriate to use the procedure under s 289 on behalf of Anchorage Wines, should that be in prospect, because although solvency

will only rarely be a stand-alone ground for setting aside a demand,5  it would be

highly relevant were a demand not met and an application for liquidation were then brought.

5      AMC Construction Ltd v Frews Contracting Ltd (2009) 10 NZCLC 264,450 (CA).

Costs

[24]     Although the applicant has succeeded, it has done so on a ground which it did not itself identify in its application.  It seeks costs nonetheless; Mr Gavin says that there is plainly a dispute about whether any debt is owing at all, and on many occasions requests have been made to the respondent to withdraw the notice and refer the issue to arbitration in accordance with the dispute resolution mechanisms provided for in the contract between Redoubt Hill and Torrent Bay. Torrent Bay says costs should not be awarded.  Mr Engelbrecht says a mediation was suggested, also in accordance with the dispute resolution process set out in the contract, but this proposal was not accepted.   He also notes a clause in the contract which he says provides that time-based records are taken to be correct, so there is no room for dispute on the invoices.

[25]     As already noted I am not prepared to comment further in relation to whether there is or there is not a dispute.   I confine my decision on costs to the basis on which the application has succeeded.

[26]     I have found that the notice should not have been issued by one company for the debt of another.   The applicant is entitled to costs.   However,  I consider a discount from scale costs is appropriate given that the applicant did not itself recognise the issue which led to the notice being withdrawn, and had it done so in its notice of opposition there is at least some prospect that the respondent may have withdrawn the demand.  That point is in some doubt, because Mr Engelbrecht was of the view that the defect could be remedied now by the issuing of an invoice by Torrent Bay in place of the invoice issued by Anchorage Wines, and the filing of an affidavit identifying the document.  I do not consider that the procedure set out in s 289 can be retrospectively engaged by a party which was not a creditor at the time the notice was issued becoming a creditor later.  Be that as it may, some element of responsibility for this case going as far as it has lies, in my view, at the feet of the applicant.

[27]     The respondent will pay costs to the applicant on a 2B basis less 25 per cent,

together with disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Knapps Lawyers, Nelson.
McFadden McMeeken Phillips, Nelson.