SEO Auckland Limited v ANZ Auto Parts Limited
[2023] NZHC 1534
•20 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1853
[2023] NZHC 1534
IN THE MATTER OF the Companies Act 1993 BETWEEN
SEO AUCKLAND LIMITED
Plaintiff
AND
ANZ AUTO PARTS LIMITED
Defendant
Hearing: 9 June 2023 Counsel:
G Credo for the Plaintiff J Loh for the Defendant
Judgment:
20 June 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 20 June 2023 at 2.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Ebenezer Lawyers, Auckland Inder Lynch Solicitors, Auckland
Samuel Moore, Barrister, Auckland
SEO AUCKLAND LTD v ANZ AUTO PARTS LTD [2023] NZHC 1534 [20 June 2023]
Introduction
[1] The plaintiff, SEO Auckland Limited (SEO), applies for an order under s 241(4)(a) of the Companies Act 1993 (the Act) placing the defendant, ANZ Auto Parts Limited (AAP), into liquidation on the ground that AAP is unable to pay its debts as they fall due.
[2] AAP has failed to comply with a statutory demand issued by SEO and as a result SEO relies on the statutory presumption of insolvency that arises under ss 287 and 289 of the Act.
[3] AAP defends the liquidation proceeding on the basis that the debt demanded in the statutory demand is subject to a genuine and substantial dispute. AAP asserts that it is solvent.
Background
[4] AAP is a supplier of automotive parts. SEO provides digital marketing services linked to the Google search engine.
[5] In February 2021, AAP engaged SEO to provide marketing services to AAP. The engagement was made orally. It appears that services began in about June 2021.
[6] AAP’s director, Stephen Butory, deposed in his affidavit that AAP began making weekly payments to SEO on 8 June 2021 for the services provided. Mr Butory produced a printout from AAP’s bank account which confirms regular weekly payments of $6,178.00 through until 22 April 2022.
[7] In April 2022, the parties’ commercial relationship soured. On 23 April 2022, SEO’s director, Samuel Yessi, sent a text message to an unspecified person at AAP, which appears to be a response to a query from AAP regarding the effectiveness of the advertising.
[8] Mr Yessi deposed in his affidavit that on 27 April 2022, he received a voicemail message on his phone from one of AAP’s employees, requesting that the Google advertisements cease, at least in respect of AAP’s Auckland business.
[9] On 30 April 2022, Messrs Butory and Yessi exchanged text messages. Mr Butory’s texts made it clear that AAP was requesting SEO to cease all advertising.
[10] The various text messages produced by the parties suggest that there were telephone discussions between the parties’ representatives at around this time, although the evidence before the Court does not include any detail regarding those communications.
[11] On 6 May 2022, SEO emailed AAP invoice 120 for the regular weekly charge of $6,178.38. AAP responded with an email requesting “work reports” for all work completed since the commercial relationship began. Mr Yessi responded with an email which said:
I have spoken to Nixon and we decided to end all the drama and we are only owed one invoice …
I have cancel[led] all the other ones and will not send anymore.
If you can please take care of this last invoice [from] last week that we paid from our account that will be the last of it.
[12] SEO did not immediately pay invoice 120. On 13 May 2022, Mr Yessi sent text messages to an employee of SEO, querying why invoice 120 had not been paid, referring to what he thought was “an agreement” that the invoice would be paid by AAP. Mr Yessi says that he spoke to the wife of another director of AAP, and was advised that there was an instruction in place to not pay invoice 120.
[13] On 14 April 2022, SEO had issued invoice 106 to AAP, for $6,178.38. SEO paid that invoice on the day it was received. After Mr Yessi’s conversation with the wife of a director of AAP, Mr Yessi arranged for SEO to issue a second version of invoice 106, which was for $24,714.08. Mr Yessi says that this was the monthly fee. SEO also issued an invoice dated 18 May 2022 for a further $24,713.50, invoice 125.
[14] On 28 July 2022, SEO served a statutory demand on AAP for $51,697.69, being the total of the reissued invoice 106 and invoice 125, together with a penalty charge of five per cent, which SEO asserts it is entitled to under its terms of trade. The statutory demand was signed by Mr Yessi. The statutory demand did not include invoice 120.
[15] AAP did not respond to the statutory demand. Mr Butory claims that he thought that the demand was not genuine and that it was not followed up due to the absence of AAP’s accountant. In any event, it is common ground that there was no response to the statutory demand before SEO issued the liquidation proceeding on 15 September 2022.
[16]AAP paid invoice 120, for $6,178.38, on 14 November 2022.
[17]AAP contends that it owes no debt to SEO on three grounds:
(a)The contract had no fixed term and was terminable at will.
(b)Alternatively, AAP and SEO reached a compromise agreement in May 2022 which required AAP to pay one final invoice to SEO, invoice 120 for $6,178.13, which was paid on 14 November 2022.
(c)Alternatively, even if AAP was required to give notice of termination and there is no binding compromise, there is no evidence of a debt due.
Legal principles
[18] The Court has a discretion to stay or dismiss a liquidation proceeding founded on a debt that is the subject of a genuine and substantial dispute. Enforcing a genuinely disputed debt by liquidation may constitute an abuse of process.1
1 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20] citing Re Bayoil SA [1999] 1 WLR 147 (CA) at 156. See also Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [61].
[19] A defendant company may raise a dispute in a liquidation proceeding even though the company did not apply to set aside the statutory demand on the basis that the debt was disputed.2
[20] The failure to apply to set aside a statutory demand is a factor that may be taken into account when the Court considers whether a dispute raised later by the defendant is genuine.3
[21] The primary issue in this case is whether AAP has discharged the onus upon it to raise a substantial and genuine dispute in respect of the debt that was the subject of the statutory demand.
Discussion
Termination of the contract
[22] SEO relies on its standard form terms of trade, which run to some 35 pages. SEO argues that these standard terms are incorporated into the contract because its invoices state that:
By paying this invoice you accept all our T&C please view our full terms and conditions on (any cancel[l]ation or pause of campaign requires a written notice via email 60 day notice needs to be provided as per T&C[)]
Late Payment fee of 5% applies after 7 working days if invoice is not paid.
[23]The terms of trade produced by SEO include five separate sets of terms:
(a)Waze (SEO Auckland Limited) Communications Terms & Conditions of Service;
(b)Waze (SEO Auckland Limited) Website Terms & Conditions;
2 Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23], [25] and [27].
3 See National Finance 2000 Ltd v All Star Cars Ltd HC Auckland M703-IM02, 10 September 2002 at [37].
(c)Waze (SEO Auckland Limited) PPC Campaign General Terms & Conditions;
(d)Waze (SEO Auckland Limited) Search Engine Optimisation General Terms & Conditions; and
(e)Waze (SEO Auckland Limited) Designer Graphics / Website Services General Terms & Conditions.
[24] Mr Yessi does not explain which set or sets of terms he considers to be applicable to the contract with AAP. Each set of terms includes a provision dealing with termination on notice:
(a)Clause 7.4 in the first set provides that either party may terminate the agreement with 60 days’ advance notice in writing. There is no stated consequence or prescribed remedy for SEO in the event a client cancels by providing less than 60 days’ notice.
(b)Clause 13.5 in the second set provides that SEO requires 60 days’ written notice via email:
… prior to expiry of the contract to discontinue Waze (SEO Auckland Limited) services. If there is no written cancellation of service 60 days before the Contract’s expires (sic), the Contract will restart on exactly the same package, pricing plan, payment method and terms and conditions as originally signed up for.
(c)The third, fourth and fifth sets include a provision that is identical to, or near identical to, cl 13.5.
[25] It is arguable that cls 7.4 and 13.5 (and the other similar provisions) must be read together. Clause 13.5 contemplates a fixed term contract which would be automatically renewed for a further fixed term, unless notice of termination was provided by AAP 60 days before expiration of the first fixed term. It is arguable that cls 7.4 and 13.5 are not applicable in the present case because there is no evidence of an agreed fixed term of the contract.
[26] This is consistent with Mr Yessi’s evidence for SEO. Mr Yessi deposes that when he became aware that AAP was not going to pay any further invoices, he was “forced to pull the pin [on] the campaign with Google”, and that he took this action to prevent SEO incurring further costs. SEO did not proceed on the basis that the contract had been renewed. It is arguable that the contract was able to be terminated at will and that AAP’s text messages on 30 April 2022 were effective to cancel the contract.
The compromise agreement
[27] Alternatively, AAP has a strong argument that SEO’s rights were compromised by an agreement made in May 2022, including terms that SEO would immediately cease providing services to AAP; SEO would issue a final invoice being invoice 120; and AAP would pay that invoice.
[28] SEO’s counterargument appears to be that any compromise agreement was repudiated by AAP when AAP indicated that it would not pay invoice 120, and that any compromise agreement was cancelled by SEO by its conduct in issuing a statutory demand for the re-issued invoice 106 and invoice 125.
[29] However, it is arguable that there was a binding compromise agreement in May 2022 which was not validly cancelled by SEO before AAP performed its obligations under that agreement by paying invoice 120 on 14 November 2022. There was accord and satisfaction.
[30] The affidavits of Messrs Butory and Yessi, and the text messages that they each produced, are strongly suggestive of other telephone discussions and communications between the parties which are not yet in evidence, and which will be relevant to the ultimate determination of the issue of accord and satisfaction.
Insufficient evidence of a debt due
[31] Even if SEO was entitled to cancel the compromise agreement, and did so by its conduct in issuing the statutory demand, it is not clear that SEO is entitled to any further payment from AAP. AAP paid invoice 106 in its original form. SEO ceased providing services in early May 2022.
[32] Mr Yessi says that the services which were the subject of invoices 106 and 125 had already been provided, and that invoice 125 represented the cost of the campaign for May 2022. SEO has not produced copies of the reissued invoice 106 or invoice 125. If invoice 106 was re-issued for the month of April 2022, then it fails to account for the three payments of $6,178.38 that AAP had made to SEO in April. Mr Yessi’s averment that services had already been completed for May is not supported by any documentary evidence.
[33] I find that the debt claimed by SEO is the subject of a genuine and substantial dispute. It is an abuse of process for SEO to attempt to recover a disputed debt by this liquidation proceeding.
Solvency
[34] I do not need to determine solvency, given my finding that it is an abuse of process for SEO to enforce a genuinely disputed debt by this liquidation proceeding.
[35] Other than SEO’s reliance on the statutory demand, there is no other evidence before the Court to support a finding that AAP is unable to pay its debts as they fall due, or is otherwise insolvent.
[36] Mr Yessi deposed that the trading relationship commenced with AAP paying monthly amounts to SEO, and that this was changed to weekly amounts because AAP advised that it could not afford to pay the costs for the services monthly. No documentary evidence was produced to support that assertion, and I place no weight on it.
[37] I note that the payment history produced by AAP shows regular weekly payments from 22 April 2022, with no indication of any default.
Costs
[38] SEO was justified in filing the liquidation proceeding, given AAP’s failure to respond in any way to the statutory demand. However, once AAP filed its defence and Mr Butory’s affidavit, SEO had the option to discontinue the proceeding. Its failure
to do so constituted an abuse of process. AAP is entitled to costs on a 2B basis, but subject to a deduction of one day, to reflect the unnecessary costs that SEO incurred in filing the liquidation proceeding and the first call (steps 49 and 50 in sch 3 to the High Court Rules 2016).
Result
[39]The liquidation proceeding is dismissed.
[40] The plaintiff shall pay costs to the defendant on a 2B basis and in accordance with the direction above in para [38], together with disbursements as fixed by the Registrar.
Associate Judge Brittain
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