Roading Solution Distributors Limited v TPR Holdings Limited

[2012] NZHC 1298

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-678 [2012] NZHC 1298

IN THE MATTER OF     the Companies Act 1993

BETWEEN  ROADING SOLUTION DISTRIBUTORS LIMITED

Plaintiff

ANDTPR HOLDINGS LIMITED Defendant

Hearing:         11 June 2012

(Heard at Wellington)

Counsel:         G.W.D. Manktelow - Counsel for Plaintiff

J.W. Tizard - Counsel for Defendant

Judgment:      11 June 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           Guy and Toby Manktelow, Solicitors, PO Box 31-265, Lower Hutt

Oakley Moran, Solicitors, PO Box 241, Wellington

ROADING SOLUTION DISTRIBUTORS LIMITED V TPR HOLDINGS LIMITED HC WN CIV-2012-485-

678 [11 June 2012]

Introduction

[1]      Before me is an application by the plaintiff to set-aside a statutory demand issued against it by the defendant.  The statutory demand in question claims from the plaintiff the sum of $643,979.44 which is described as a “refund due for unsold Soiltac and Durasoil products in accordance with clause 17 of the Supply Agreement dated 17 August 2011 (copy invoice attached)”.

[2]      The copy invoice attached was a GST tax invoice dated 23 February 2012 issued under the name of Environmental Stabilisers Limited (Environmental Stabilisers).  This invoice was for the total claimed sum of $643,979.44 including GST of $83,997.32 and was issued it seems under the GST number of Environmental Stabilisers.

[3]      The application before me is brought in terms of s 290(4) Companies Act

1993 on the sole ground set out in s 290(4)(a) that there is a substantial dispute whether or not the debt in question is owing or is due.

[4]      The present application is opposed by the defendant.

Background Facts

[5]      The  dispute  between  the  parties  which  has  resulted  in  the  issue  of  the statutory demand which is before the Court relates essentially to a Supply Agreement dated 17 August 2011 (“the Supply Agreement”) entered into between the parties. Under that agreement the plaintiff company, which held an exclusive distribution agreement for the sale and supply of certain US based roading products, agreed to grant to the defendant the right to purchase those products for their own use or on- sale under an exclusive arrangement throughout New Zealand.

[6]      The Supply Agreement was a reasonably complex document.   It created a detailed relationship between the plaintiff and the defendant.

[7]      In what appears to be a rather curious provision outlined at para [8] of the Supply Agreement, a right of termination of the arrangement was provided for in the event that certain matters had occurred.

[8]      As I understand the position advanced before me by counsel for both parties, there is a reasonable suggestion here that the provisions of that clause have been activated in this case and the Supply Agreement arrangement between the parties has been terminated.

[9]      In the event of that occurring, clause 17 of the Supply Agreement sets out the consequences of such termination.  It is useful to set out that provision in its entirety which I now do:

17        Consequences of Termination

17.1      Immediately this Agreement is terminated by RSDL (the plaintiff)

pursuant to clause 16 of this Agreement:

a.          The Rights shall immediately terminate; and

b.         TPR (the defendant) shall return all unsold Products to RSDL and RSDL shall immediately refund the Purchase Price to TPR; and

c.TPR   shall   immediately   return   all   copies   of   the Specifications, and all other intellectual property, relating to the Products which it holds to RSDL; and

d.         TPR  shall  do  all  such  other  acts  as  are  reasonably required  of  it  by  RSDL to  terminate  the  relationship between RSDL and TPR evidenced by this Agreement; and

e.TPR shall have no clam whatsoever against RSDL in relation to the termination of this Agreement.

[10]     In the present case it does not appear to be seriously disputed that the roading product for which the statutory demand was issued was supplied to the defendant by the plaintiff at the price of $643,979.44.  Indeed, that product which the defendant says remains unsold, is still held by the defendant or at least is under its control.

[11] The plaintiff’s essential argument in response however, is that all this product has been on-sold by the defendant to Environmental Stabilisers and that this is evidenced by the fact that it was Environmental Stabilisers which issued the GST tax invoice noted at [2] above for the value of the product which was to be returned to the plaintiff. More on this aspect later.

[12]     What is also clear in this matter is that in recent months there has been an exchange of correspondence between the parties and their advisors regarding the termination of the Supply Agreement.  As I understand the position, the plaintiffs have said throughout that there needed to be a Termination Agreement entered into between the parties to conclude all matters.   The defendant’s response, apparently has simply been that this is not required and that the “unsold” product is available for re-delivery back to the plaintiff at any time but only when a satisfactory arrangement is in place for payment in cleared funds of the $643,979.44 refund to the defendant.

[13]     Clearly, however, an impasse on all these matters was reached.   This has resulted in the issue by the defendant of the present statutory demand.

Counsels’ Submissions and My Decision

[14]     As  noted  above  the  plaintiff  brings  the  present  application  pursuant  to s  290(4)(a)  Companies Act  1993.    This  provides  that  the  Court  may  grant  an application to set-aside a statutory demand if it is satisfied that there is a substantial dispute whether or not the debt in question is owing or is due.

[15]     The principles relating to s 290(4) Companies Act 1993 are well settled. The authors  of  Brookers  Insolvency  Law  & Practice  provide  the  following  succinct summary at para CA 290.02:

CA 290.02        General Principles

The  general  principles applicable to  applications under  s  290(4)  are  now well established. These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; (2001) 9 NZCLC 262,605 (Court of Appeal); Fletcher Homes Ltd v Ellis 23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd

3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; (1989) 1 PRNZ 390 (Court of Appeal), are as follows:

(a)      The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co- Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,935 (HC).

(b)       The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.

(c)       If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.

(d)       An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application.

(e)       It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[16]     Effectively, as I have noted above, the sole ground advanced by the plaintiff for setting-aside this statutory demand is that there is a substantial dispute as to whether or not the debt is due.

[17]     For the purposes of the present application I am prepared to proceed on the basis that there is no serious dispute between the parties that the Supply Agreement between them has been  terminated.   Certainly the statutory demand was issued specifically in terms of clause 17 of the Supply Agreement, which provides for the processes to be followed on termination.

[18]     On this  aspect,  Mr Tizard for the defendant,  contended  there can  be  no question the debt claimed here is due in light of the mutual obligation under clause

17.1(b) of the Supply Agreement.  This clause required immediate payment of the purchase price for the product to be made to the defendant in return for the exchange by redelivery of the unsold product to the plaintiff.

[19]     What is clear, however in this case, is that the product in question has not as yet been redelivered to the plaintiff.  This is no doubt due to the fact that once the product is returned, the defendant has a concern as to whether the payment due for it will be made by the plaintiff.

[20]     I leave these aspects on one side at this time, however.

[21]     Before me, Mr Manktelow for the plaintiff raised a matter which in his view provides what can proverbially be described as a “king hit”.

[22]     This involved the contention from Mr Manktelow that the evidence before the Court must be seen as providing a strong indication that the roading product in issue had in fact been on-sold in this case by the defendant.  Mr Manktelow argued that even on the defendant’s own evidence, there is at the very least a strong presumption that the product had been on sold by the defendant TPR Holdings Limited to Environmental Stabilisers, (and thus could not be returned under clause

17.1(b)) as it was that latter company which purported to issue the GST tax invoice for the product attached by the defendant to the statutory demand itself.

[23] Further, Mr Manktelow pointed to another document issued by Environmental Stabilisers on 31 March 2012 headed “Tax Credit Note” which was annexed to the affidavit of Lynette Faye Edhouse dated 4 May 2012 filed in this proceeding. On its face, this Tax Credit Note addressed to the plaintiff purported to give a credit for the $83,997.32 GST previously claimed in the earlier Environmental Stabilisers GST tax invoice dated 23 February 2012 noted at [2] above and issued to the plaintiff.

[24]     And, what is clear is that, despite the defendant’s contention that there has been no on-sale of the roading product here to any party, no GST invoice from the defendant itself has been provided to the plaintiff for any product proposed to be returned in this case.  In response to a question from the bench on this aspect, Mr Tizard for the defendant endeavoured to suggest that the defendant was awaiting its return of the product and the refund of the purchase price by the plaintiff, at which time an appropriate tax invoice would be issued.  This however does not seem in any

respect to be in accordance with normal commercial practice in cases of this type. It is clear to me that the plaintiff would be entitled to a valid GST tax invoice in the normal course at the appropriate time and at this point it seems still that none has been issued other than the invoice from Environmental Stabilisers noted at [2] above.

[25]     I turn now to the question as to whether the defendant had indeed on-sold the product in this case to Environmental Stabilisers.  On this aspect, Mr Tizard before me pointed to certain email correspondence between the parties and other evidence to indicate that Environmental Stabilisers is a company related to the defendant and thus he claimed it was clear to all parties throughout that the defendant had not on- sold the product to any genuine third party here.  None of this is conclusive however.

[26]     I must remind myself that the application before me is one to set-aside a statutory demand.  On this the plaintiff needs to show there is arguably a genuine and substantial dispute as to the existence of the debt.  My task here is not to resolve this dispute but in fact to determine whether there is a substantial dispute over the debt in question.

[27]     The facts before the Court in this matter are confused to say the least.

[28]     What is clear to me is that if indeed the roading product in question had not in a legal sense been “on-sold” by the defendant and the Supply Agreement had been terminated, then clause 17 of that agreement would apply.

[29] In that provision, as noted at [2] above, clause 17.1(d) required that the defendant is to do all “such other acts as are reasonably required of it by the plaintiff to terminate the relationship between the plaintiff and the defendant evidenced by this agreement” as part of the termination arrangement.

[30]     On  this,  I  would  have  thought  as  I  outlined  above  that  a  minimum requirement  from  the  plaintiff,  if  indeed  the  defendant  was  entitled  to  return “unsold” product, would be the issue of a proper GST tax invoice.   I repeat that before me Mr Tizard for the defendant urged that this was simply a machinery matter

of form and would certainly be complied with at the time supply occurred when the product was returned to the plaintiff. That is not, however, clear to me.

[31]     What does appear from the evidence before the Court is that the plaintiff for whatever reason did suggest that a “Termination Agreement” should be entered into between the parties to sever their relationship on final termination of the Supply Agreement.    On  the  basis  of  the  provision  in  clause  17.1(d)  of  the  Supply Agreement, it seems to me there is a reasonable argument the plaintiff can advance that such a course of action required by it here was not unreasonable in all the circumstances.

[32]     Notwithstanding this, it seems that there is no dispute in this case that the defendant has refused to enter into such a “Termination Agreement”.

[33]    In passing, I should also note the provisions of para 20 of the Supply Agreement.   These relate to “any dispute between the parties arising out of this Agreement”.   On this, para 20.3 provides that “neither party may require any arbitration, or issue any legal proceedings (other than for urgent interlocutory relief) in respect of any such dispute, unless that party has first taken all reasonable steps to comply with clause 20.1 and 20.2”.

[34]     Those clauses 20.1 and 20.2 contain an obligation on the parties to meet and discuss in good faith any dispute and, in the absence of agreement within two weeks, there  is  an  entitlement  for  either  party to  refer  the  matter  to  mediation.   As  I understand it, none of that has occurred here.  For present purposes, however, I leave these aspects on one side.

[35]     Returning  for  a  moment  to  the  principal  argument  advanced  by  Mr Manktelow for the plaintiff here, although before me Mr Tizard endeavoured to suggest that the only inference which the Court can draw in this case is that the plaintiff is “dodging payment” of the refund due for the unsold product which the defendant wishes to return, there seems to me to be some possible substance in the suggestion from Mr Manktelow that the product here may have been on-sold to a third party.   There can be no doubt that Environmental Stabilisers is a separate

company and legal entity and, as such it is a separate party from the defendant.  Even though it may be part of the same group, there is an argument open to the plaintiff in this case that no debt by way of refund is due as the product in question has been on- sold and cannot be returned pursuant to clause 17.1(b) of the Supply Agreement.

[36]     Although this argument may in time be discounted by additional evidence that might be advanced for the defendant, at this point there is nothing definitive before me to show that the product for which the defendant is now seeking payment was in fact owned by it (and not on-sold) in a legal sense.

[37]     For all these reasons it will be apparent that I am satisfied here the plaintiff has done sufficient to show there is arguably a genuine and substantial dispute as to the existence of the $643,979.44 debt claimed against it by the defendant.  At the very least, the product in question has not been returned as  yet, and there is a possible argument in terms of clause 17 of the Supply Agreement that this must occur before the plaintiff is required to “immediately refund the purchase price”. The plaintiff in normal circumstances would clearly need to check that the entire unsold product had been returned before it was required to refund the purchase price.

[38]     This also leaves aside the argument noted above, which I think may turn out to be arguable here, that indeed the product itself has been on-sold and therefore the defendant has no right to return it.

Orders

[39]     The application before me is to succeed therefore.

[40]     An order is now made that the statutory demand in question served by the defendant on the plaintiff and dated 14 March 2012 is now set aside.

[41]     As to costs, I see no reason why the plaintiff should not be entitled to costs here in the normal way as the successful party.

[42]     Costs are therefore awarded to the plaintiff against the defendant on this application on a category 2B basis together with disbursements as fixed by the Registrar.

Postscript

[43]     In my view it is appropriate in this case to add a brief postscript to this judgment which I now do. This is to the following effect.

[44]     Before me it was suggested for the defendant that throughout it has taken the position that the product in question would be returned once the plaintiff had established unequivocally that it had cleared funds available to pay the refund purchase price and there was an acknowledgement that this would be paid without deduction at the time of such redelivery.

[45]     Leaving on one side the argument advanced by the plaintiff here that the product cannot be returned as it has been on-sold, if in time it is accepted that this is not the case and the product can be returned, then it would seem to me that some arrangement between the parties for its return should easily be achievable.   This might take the form, for example of the refund amount in question being held in cleared funds by an independent third party to be paid over without deduction on satisfactory redelivery of the product.  As I see it this would be an appropriate way forward here for all parties.

‘Associate Judge D.I. Gendall’