Seven Seas Limited v Baker
[2020] NZHC 616
•24 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001621
[2020] NZHC 616
BETWEEN SEVEN SEAS LIMITED
Applicant
AND
TREVOR BAKER and MARY ANNA
SMITH as trustees of the TREVOR BAKER AND MARY ANNA SMITH FAMILY TRUST
Respondents
Hearing: 5 December 2019 Appearances:
S J Tee for the Applicant
D J G Cox for the Respondent
Judgment:
24 March 2020
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 24 March 2020 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Morton Tee, Auckland Rennie Cox, Auckland
SEVEN SEAS LTD v BAKER [2020] NZHC 616 [24 March 2020]
Introduction
[1]This proceeding concerns an application to set aside a statutory demand.
[2] The respondent, Trevor Baker and Mary Anna Smith as trustees of the Trevor Baker and Mary Anna Smith Family Trust, is the landlord of a commercial premises at 77 Barrys Point Street, Takapuna. The applicant, Seven Seas Ltd, is the tenant of unit B of that property. The landlord issued an invoiced dated 19 July 2019 for rent and outgoings. The tenant paid only part of that invoice. Then, on 31 July 2019, the landlord served a statutory demand on the tenant for the outstanding amount.
[3] The tenant failed to comply with the statutory demand. Instead, it has applied for an order setting aside the demand under s 290(4) of the Companies Act 1993. It says there is a substantial dispute whether the debt is owing and due and, alternatively, that the statutory demand should be set aside on other grounds. The landlord opposes the application.
Background
[4] On 26 June 2017, the parties signed an agreement to lease the property. Clause 4.1 of the agreement to lease provides that the tenant shall enter into a formal lease with the landlord to be prepared by the landlord’s lawyer using the ADLS standard form. However, the parties have been unable to agree on the final terms of the deed of lease. There is, at this point, only a draft deed of lease. The tenant has nevertheless taken possession of and occupied the premises. And, at the hearing, the parties agreed that the standard terms of the draft deed of lease apply.
[5] On 19 July 2019, the landlord invoiced the tenant $16,635.89 (GST inclusive) for monthly rent and specific outgoings for the coming year. The specific outgoings included insurance, Auckland Council rates, water rates, Building Warrant of Fitness and insurance-related valuations. The amount for Auckland Council rates was for the year from 1 July 2019 to 30 June 2020, rather than a monthly instalment. As unit B comprises half the premises, the actual amount invoiced for Auckland Council rates was half of the rates assessed for the period from 1 July 2019 to 30 June 2020 (that is,
$5,865.02 plus GST).1 The amount reflects a discount that was available to the landlord, as the ratepayer, if the annual rates were paid in full on or before 30 August 2019 instead of by the Council’s permitted monthly instalments.
[6]On 29 July 2019, the tenant paid $7,344.96 of the invoiced amount, being
$6,468.75 for monthly rent for August 2019 and $876.21 for usual payments for outgoings which had been paid monthly since the commence of the tenancy. This left
$9,290.93 owing under the 19 July 2019 invoice.
[7]On 31 July 2019, the landlord served a statutory demand of $9,693.43, being
$9,290.93 for the amount still owing under the invoice and $402.50 for the cost of disbursements incidental to the issue and service of the statutory demand.
[8] On 13 August 2019, the tenant paid a further $2,546.16 to the landlord for insurance, water rates, BWOF and insurance-related valuations. However, it has yet to pay the Auckland Council rates and the disbursements incidental to service of the statutory demand — it says there is a substantial dispute as whether both are due and owing. Thus, the landlord says it is still owed $7,147.27 under the statutory demand.2
Legal framework
[9] Pursuant to s 289 of the Companies Act, 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.
[10]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 This amounts to $6,774.77 for Auckland Council rates (GST inclusive).
2 $16,635.89 (19 July 2019 invoice) – $7,344.96 (29 July 2019 payment) + $402.50 (cost of issuing statutory demand) – $2,546.16 (outgoings other than Auckland Council rates) = $7,147.27.
(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.
[11] 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.
[12] 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
Is there a substantial dispute whether the debt is owing or due (s 290(4)(a))?
Auckland Council rates
[13] The tenant says that the landlord was not entitled to claim for Auckland Council rates in the 19 July 2019 invoice and, by extension, the statutory demand.
[14] First, the tenant says that, in the 19 July 2019 invoice, the landlord, without warning, purported to depart from the existing arrangement of monthly instalments of
$876.21 for all outgoings and instead invoiced a claim for monthly rent together with certain outgoings for a full year in advance. Clause 3.5 of the draft deed of lease provides that “the outgoings shall be payable on demand or if required by the Landlord by monthly instalments”.7 The tenant says that the landlord had elected to receive
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].
7 Clause 4.3 of the agreement to lease provides that, “Notwithstanding that the Lease may not have been executed, the parties shall be bound by the terms, covenants and provisions contained in this Agreement and in the Lease as if the Lease had been duly executed.” Accordingly, although the deed of lease has not been executed, its terms still apply as between the parties.
outgoings by monthly instalments rather than being on demand. And the two options in cl 3.5 are mutually exclusive by reference to the lack of the words “and or”.
[15] However, I consider that the clause is clear that outgoings are payable either on demand or in monthly instalments. The options are mutually exclusive only in the sense that once outgoings for a certain period are paid, they are no longer owing. In other words, outgoings for one period may be paid in monthly instalments and outgoings for another period may be paid on the landlord’s demand. Furthermore, the clause is silent as to the requirement of prior notice in departing from the option of outgoings by monthly instalments. Accordingly, I am not satisfied that there is a genuine dispute that the landlord was not entitled to payment of outgoings on demand.
[16] Secondly, the tenant says that the Auckland Council rates had not been incurred by the landlord either at the date of the 19 July 2019 invoice or the statutory demand. Clause 3.1 of the draft deed of lease provides that “the tenant shall pay the outgoings properly and reasonably incurred in respect of the property”. The tenant says that the Auckland Council rates had not yet been incurred by the landlord and therefore could not have been owing as between the tenant and landlord. In particular, the tenant says the landlord had not received a rates invoice from Auckland Council at the date of either the 19 July 2019 invoice or the statutory demand, had not paid any amount on account of rates at those dates, and that the first monthly instalment was not payable until 30 August 2019. It says that future rates are not a debt “due or owing”.
[17] In reply, the landlord says rates are incurred when the service provider notifies the landlord of the cost of the service, and these charges are final (as opposed to an estimate) and not contested. The landlord’s evidence is that, prior to 19 July 2019, rates for the premises from 1 July 2019 to 30 June 2020 were available on the Auckland Council website. A screenshot of the webpage was attached to an email sent to the tenant’s solicitors on 14 August 2019. A copy of the rates breakdown taken from the Auckland Council website was annexed to the invoice. The landlord says that exactly the same procedure was following for the invoicing of Auckland Council rates to the tenant during the previous rating year without objection.
[18] Pursuant to s 290(4), the debt must be owing and have fallen due for payment at the date of the statutory demand.8 A contingent or prospective debt is not a “debt due”.9 The statutory demand is based on the tenant’s failure to pay the full amount under the 19 July 2019 invoice. However, the tenant says that there is a genuine dispute as to whether part of that invoice was due and owing in the first place. In particular, the tenant says that the landlord had not yet incurred liability for the Auckland Council rates at the time of the invoice and statutory demand.
[19] I am satisfied that there is substance in the tenant’s argument and that it cannot be readily dismissed out of hand. At the time of the landlord issued the invoice and statutory demand on the tenant, there was no invoice from the Auckland Council to the landlord. The landlord accepted this at the hearing. It is plainly arguable that a liability is incurred by the landlord only after it receives a rates assessment and invoice from the Auckland Council. That position is supported by the Local Government (Rating) Act 2002, at least on its face. Section 44(2) states, “A ratepayer is liable for rates on a rating unit when the local authority delivers the rates assessment for that unit to the ratepayer.” Section 136 addresses the “notification of a matter and the delivery of a notice, including a rates assessment or rates invoice”. There are unanswered questions as to whether the screenshot was a rates assessment pursuant to s 45 and, if so, whether there was notification and delivery of that assessment pursuant to ss 48 and 136.
[20] Keeping in mind that the Court’s role, at this point, is not to resolve the dispute, as well as the fact that the standard of proof for setting aside is not particularly high, I am satisfied that there is a genuine dispute as to whether the Auckland Council rates were due and owing at the time the landlord issued the invoice and served the statutory demand. Accordingly, that portion of the statutory demand should be set aside.
[21] Despite this finding, for the sake of completeness, I address the remaining matters put in issue by the parties.
8 Re Bryant Investments Co Ltd [1974] 1 WLR 826 (Ch D) as cited in Morrison’s Company Law (NZ) (online ed, Lexis Nexis) at [53.3].
9 Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC).
Landlord’s alleged failure to provide reconciliation and tenant’s alleged overpayment
[22] The tenant says that the landlord failed to provide a reconciliation of outgoings as required by cl 3.6 of the draft deed of lease. Clause 3.6 provides:
After 31st March in each year of the term or other date in each year as the Landlord may specify and after the end of the term, the Landlord shall supply to the tenant reasonable details of the actual outgoings for the year or period then ended. Any overpayment shall be credited or refunded to the tenant and any deficiency shall be payable to the Landlord on demand.
[23] Additionally, the tenant says that the 19 July 2019 invoice did not make any allowance for the monthly outgoings already paid. It says that it had overpaid and therefore there is a genuine dispute as to whether the debt is owing or due. And, to avoid any doubt, it paid the $9,969.43 allegedly owed into its solicitor’s trust account.
[24] As to the first point, the landlord provided a reconciliation on 25 April 2019 in fulfilment of its obligations under cl 3.6 of the draft deed of lease. The landlord attached the reconciliation to an email dated 25 April 2019, which read:
Please find a copy of the invoice for the above period [28 April to 27 May 2019] attached together with copies of outgoing related invoices for the past year.
Seven Seas is currently in credit $336.31. As per the attached reconciliation of outgoing payments Seven Seas owes the Trust $108.97. …
[25] Furthermore, the landlord referred the tenant back to this email when the latter requested a reconciliation in subsequent emails. Indeed, on 28 April 2019, the tenant replied to the landlord requesting a tax invoice for OPEX (water rates) adjustments of
$108.97. I accept the landlord’s submission that the tenant’s requesting an invoice for the amount underpaid indicates an acceptance of the reconciliation of outgoings.
[26] As to the second point, the tenant has not produced sufficient evidence of any quantified amount of its alleged overpayment that could constitute a valid set-off or dispute in relation to the 19 July 2019 invoice. This was despite several enquiries from the landlord to the tenant as to the details of the alleged dispute. There is also merit to the landlord’s submission that, even if the tenant had overpaid outgoings in the year 2019 to 2020, that would be an issue addressed in the 2020 reconciliation, under which any overpayment shall be credited or refunded to the tenant per cl 3.6.
Costs incidental to service of the statutory demand
[27] The tenant says there is a genuine dispute as to whether it is liable for the costs incidental to the issue and service of the statutory demand as the demand should not have been issued in the first place.
[28] I am not satisfied that such a dispute exists. The tenant failed to pay the outgoings under the 19 July 2019 invoice. The outgoings included not only the Auckland Council rates (which were properly disputed), but also insurance, water rates, BWOF and insurance-related valuations. The tenant later paid these outgoings on 13 August 2019, but that was not until after the statutory demand was served. The statutory demand was therefore properly served, at least in relation to these outgoings. And had the tenant paid earlier, it might have had a valid complaint about the costs incurred. It only has itself to blame for the costs that were incurred.
Should the statutory demand be set aside on other grounds (s 290(4)(c))?
[29] The tenant says that the statutory demand should be set aside on other grounds, which include that it is in fact solvent and that the landlord has used the statutory demand process for an ulterior purpose.
[30] First, the tenant says that it is solvent and able to pay its debts. It says that, as proof of its solvency, it has paid $9,969.43 (the amount claimed under the statutory demand) into its solicitor’s trust account. The Court of Appeal has previously stated that proof of solvency alone is not sufficient to set aside a statutory demand under s 290(4)(c) where neither s 290(4)(a) or (b) apply.10 Section 290(4)(b) relates to whether there is some arguable counterclaim, set-off or cross-demand in the debtor’s favour. Presently, none is argued. However, I have concluded above that there is a genuine dispute under s 290(4)(a) as to whether part of the statutory demand (the part relating to Auckland Council rates) was properly due and owing to the landlord at the time the statutory demand was issued. Against that background, I am satisfied that this is another ground on which the Court may set aside the statutory demand.
10 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389 at [10]. See also Redcliffe Forestry Venture v Accent Management Ltd [2014] NZCA 349 at [70]; and Beach Road Commercial Ltd v Commissioner of Inland Revenue [2015] NZHC 2205.
[31] Secondly, the tenant says that the landlord has used the statutory demand process for an ulterior purpose, namely, to circumvent the dispute resolution clause contained in the agreement to lease. Given my above findings, this point is essentially a moot point. However, again, for the sake of completeness, I discuss it below.
[32]Clause 5 of the agreement to lease provides:
DISPUTE RESOLUTION
5.1Unless otherwise provided in this Agreement, if a party considers that there is a dispute in respect of any matters arising out of, or in connection with this Agreement, then that party shall immediately give notice to the other party setting out details of the dispute. The parties will endeavour in good faith to resolve the dispute between themselves within five (5) working days of the receipt of the notice, failing which the parties will endeavour in good faith within a further ten (10) working days to appoint a mediator and resolve the dispute, time being of the essence.
5.2Neither party will commence legal proceedings against the other except for injunctive relief before following the procedure set out in subclause 5.1.
[33] Notably, all that the dispute resolution clause requires is that the parties “endeavour in good faith” to appoint a mediator and resolve the dispute. It does not require an actual mediation. The tenant has not adduced any evidence as to whether and what endeavours were made in appointing a mediator — it does not make any submissions on that point at all. However, I note that what little evidence there is actually weighs in favour of the landlord. For example, in the 19 July 2019 invoice, the landlord noted that:
With reference to [the tenant’s] letter of 11 June 2019 we understand that Seven Seas is in dispute with the Trust. We have yet to learn your nominee as mediator. We are keen to find resolution and note that in earlier circumstances you entertained considering Mr Robert Fisher QC as a possible mediator.
[34] Evidently, the landlord appears to have made efforts to coordinate the appointment of a mediator. However, no mediator was ultimately appointed. On 31 July 2019, more than 10 days after the invoice the landlord served the statutory demand on the tenant.
[35] Furthermore, cl 5.2 provides, “Neither party will commence legal proceedings against the other … before following the procedure set out in subclause 5.1” — however, service of a statutory demand itself is not commencement of a legal proceeding. In fact, technically, the tenant’s application to set aside the statutory demand amounted to commencement of a legal proceeding — such an application is by way of originating application and is therefore the first step in the proceeding.
[36] In the circumstances, noting also the tenant’s failure to provide details of its alleged dispute to the landlord despite multiple requests, I am not satisfied, on the balance of probabilities, that the landlord issued the statutory demand with the ulterior purpose of circumventing the dispute resolution clause.
Result
[37]I make the following orders:
(a)The statutory demand is set aside in part, namely in relation to:
(i)The Auckland Council rates ($5,865.02 plus GST). There is a genuine dispute as to whether those rates had been incurred at the time the 19 July 2019 invoice and statutory demand were issued.
(ii)The amounts paid following service of the demand, namely the sum of $2,546.16.
(b)The demand stands for the outstanding amount of $402.50 for disbursements incidental to the statutory demand. Pursuant to s 291 of the Companies Act, the tenant is to pay $402.50 to the landlord by 13 April 2020. In default of such payment, the landlord may make an application to put the tenant into liquidation.
[38] As the parties were in effect each successful in part, costs should lie where they fall.
[39] I add a postscript. The statutory demand in relation to the Auckland Council rates has been set aside solely on the basis of what is essentially a technical point: that, at the time of the demand, the Council had not issued any invoice to the landlord for the rates. However, since then, those rates will have become owing and due. In light of my finding that the landlord was entitled, under the draft deed of lease, to demand payment of the full annual amount rather than in monthly instalments, it would be prudent for the tenant to now pay the Auckland Council rates to the landlord to avoid any further and unnecessary disputes.
Associate Judge Sargisson
0
5
0