SHT Holdings Limited v Rowberry
[2015] NZHC 3281
•17 December 2015
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2015-441-58 [2015] NZHC 3281
UNDER Section 290 of the Companies Act 1993 IN THE MATTER OF
an application to set aside a statutory demand
BETWEEN
SHT HOLDINGS LIMITED Applicant
AND
DEBBIE ROWBERRY AND HAURAKI INDEPENDENT TRUSTEE SERVICES LIMITED
Respondents
Hearing: 13 November 2015 Counsel:
M J Wenley for the Applicant
M I S Phillipps for the RespondentsJudgment:
17 December 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The applicant (SHT) applies to set aside a statutory demand for $35,000 issued by the respondents on 16 June 2015. The $35,000 is the amount of a deposit paid to SHT by the respondents (as trustees of the Nutsford Family Trust (the Trust)) on or about 8 January 2014, on the purchase by the Trust of a Lockwood house (the Lockwood) and the relocation of the Lockwood to a block of land owned by the Trust at Clevedon. The Trust says that the agreement for the purchase and relocation of the Lockwood was cancelled on 10 October 2014, and that it is entitled to a refund of the deposit.
[2] SHT accepts that the agreement relating to the purchase and relocation of the
Lockwood has been cancelled. But there is a dispute over how the contract came to an end, and in particular whether SHT is entitled to retain the $35,000 and apply it in
SHT HOLDINGS LIMITED v DEBBIE ROWBERRY AND HAURAKI INDEPENDENT TRUSTEE SERVICES LIMITED [2015] NZHC 3281 [17 December 2015]
reduction of certain sums which are said to be owing under two other contracts entered into between the parties.
[3] The other two contracts entered into between SHT and the Trust were made on 10 May 2014. They provided for the purchase by the Trust (and relocation to the same land) of (i) an old cottage and garage and (ii) two garages. SHT says that it is entitled to set-off against the $35,000 claimed in the statutory demand the sums of
$27,300 and $12,532 which it says are owing by the Trust under the other two contracts.
[4] SHT also says that it is solvent, and that it was not appropriate for the Trust to use the statutory demand procedure to pursue what is a genuinely disputed claim.
Background
[5] The respondent Ms Debbie Rowberry is a child therapist who uses equine therapy in her therapy programmes. She is trustee of the the Trust along with the other respondent, Hauraki Independent Trustee Services Limited.
[6] SHT is a house removal and relocation company based in Napier. Its sole director and shareholder is Mr Shannon Tawhiti.
[7] In January 2014 the Trust purchased a vacant 54 acre property situated at Monument Road, Clevedon (the property). It obtained a mortgage from its bank to complete the purchase. Ms Rowberry intended to use the property for her equine therapy business, but the bank wanted to see some additional income coming in. As a condition of making its loan, it required the Trust to build on the property, or relocate to the property, a house which could be let to tenants and provide some rental income.
[8] In addition to the rental property, Ms Rowberry was also looking for a building which could be moved to the property and used in her therapy business, and a small home which could be relocated to the property for her own use. She began looking on TradeMe for relocatable homes. Her enquiries led her to Mr Tawhiti and SHT.
[9] Ms Rowberry says she explained to Mr Tawhiti that the Trust had recently bought the property, and that her bank had required that a rental home be built or placed on the property, to provide some additional income. She told him that she also intended to add buildings on the property, including a therapy room and a barn.
[10] Mr Tawhiti invited Ms Rowberry to view the (four-bedroom) Lockwood, which was then located in Takanini. He thought it would be suitable as the rental home. The Lockwood was acceptable to the Trust and on 8 January 2014 the Trust entered into a written agreement with SHT to buy the Lockwood (the Lockwood agreement). The purchase price was to be $70,000, with $35,000 to be paid on signing the agreement, $28,000 to be paid when the Lockwood was removed from its Takanini site (or a building consent obtained, whichever came first), and the final
$7,000 to be paid on completion of the relocation of the Lockwood to the property. The relocation was to take place after 20 May 2014, and SHT was to complete the foundation work on the property and provide plans and specifications for the lodging of the building consent application with the Auckland Council.
[11] The Trust paid the deposit of $35,000 to SHT following execution of the
Lockwood agreement.
[12] Ms Rowberry then arranged for an engineering report to be completed (addressing drainage and waste disposal issues), and she arranged for surveyors to prepare a site plan. She had the report and the site plan by late March 2014, and she sent them on to Mr Tawhiti. She says it that it was then for SHT to complete the plans (which would include a floor plan, foundation plans, drainage and stormwater, and elevations) necessary to obtain Council consent to the relocation of the Lockwood to the property.
[13] In late April 2014 Ms Rowberry contacted Mr Tawhiti to discuss her requirements for a house on the property for her own occupation (she had moved into a caravan on the property when the Trust bought the property), and for what she describes as an American-style barn, which would suit the theme she wanted to create for her equine therapy clients. Mr Tawhiti told Ms Rowberry that he had a cottage located in Katikati which he thought would be suitable, if a garage (which
was available) was attached to the cottage and internal access created between the cottage and the garage. Mr Tawhiti suggested that the desired American-style barn look could be created by adding a lean-to on either side of a garage.
[14] Agreements were reached on both Ms Rowberry’s additional requirements,
and the Trust entered into the second and third agreements with SHT on 10 May
2014.
[15] The second agreement (the Cottage agreement) related to the cottage and garage at Katikati to which Mr Tawhiti had referred. Under the Cottage agreement, SHT was to move the one-bedroom cottage and garage from Katikati to the property. SHT would complete the foundation work at the property, and provide plans and specifications for the lodging of an application for building consent with the Auckland Council. SHT would also re-clad and insulate (where possible) the exterior walls of the cottage and garage, install a set of french doors in the cottage and another set in the garage, and create an internal walkway between the cottage and the garage.
[16] The total purchase price payable under the Cottage agreement was $47,000, payable as follows:
(1) a $15,000 deposit was payable on execution of the Cottage agreement.
(2)$27,300 was to be paid “upon obtaining building consent for the removal of the [cottage] or relocation to the property, whichever happens first”; and
(3)the balance of $4,700 was to be paid on completion of the relocation of the cottage to the property. The relocation would be deemed to have been completed “when the [cottage was] lowered onto but not fixed to the piles [on the property]”.
[17] The Trust paid SHT the deposit of $15,000 on signing the Cottage agreement.
[18] The third contract (the Two Garages agreement) provided that SHT would relocate two garages situated on a property in Kelston, Auckland, to the property. SHT would complete the foundation work at the property, and carry out certain work on the garages. SHT was also to place one of the garages on a concrete pad (to be supplied by the Trust) at the property, and attach a lean-to carport to each side of the raised garage (to create the American barn-style look).
[19] The purchase price payable by the Trust under the Two Garages agreement was $13,925. No deposit was payable, and the first payment ($12,532.50) was to be paid to SHT “upon obtaining building consent for the removal of [the two garages] to the property”. The balance of $1,392.50 was to be paid on completion of the relocation to the property, which would be deemed to have occurred “when the building [was] lowered onto but not fixed to the foundation on such site”.
[20] No buildings have been moved onto the property by SHT, and it is common ground that the Lockwood agreement is now at an end.
[21] It appears that SHT did not own the Lockwood at the time of the Lockwood agreement, although Mr Tawhiti says that SHT had the ability to obtain it. Whatever might be the position on that point, there were delays, and on 26 August 2014
Ms Rowberry emailed Mr Tawhiti asking for the submission to the Council on the relocation of the Lockwood to be made urgently. She indicated that she was under some pressure from the Trust’s bank to get the relocation of the Lockwood moving ahead. She acknowledged that she may have contributed to delays by earlier requesting that the submissions for the relocation of all the buildings should be lodged together, but indicated her expectation that if the Lockwood submission could be lodged immediately it should be possible to have the Lockwood delivered in six weeks’ time.
[22] In addition, Ms Rowberry raised concerns over the condition of the cottage, saying that it did not meet her criteria. She said she would like to explore options for buying another building from SHT, instead of the cottage.
[23] Mr Tawhiti sent some plans for the Lockwood to Ms Rowberry on 28
August 2014. They had been prepared by Albert van Vliet Architectural, on instruction from SHT. Ms Rowberry required some amendments to the plans, and she contacted the draftsmen direct about that. On 29 August 2014, Mr Hodson of Albert van Vliet Architectural confirmed that he had amended the plans, moving the Lockwood further away from a pylon, and rotating it to be more north-facing.
[24] On 17 September 2014 Ms Rowberry sent an email to Mr Tawhiti calling for the delivery of the Lockwood within 30 days. She referred to an earlier offer she said Mr Tawhiti had made to her that if the Lockwood home was no longer available within the Trust’s required timeframe, the $35,000 paid for it could be refunded. She emphasised that the bank’s requirement for rental income from the property had made the delivery of the Lockwood urgent, and said that if the house could not be delivered within 30 days she would like to take Mr Tawhiti up on his “offer of a full refund”.
[25] Mr Tawhiti replied the following day, saying he was still “chasing for a date” when the Lockwood would be available, and would get back to Ms Rowberry when he had that advice. Ms Rowberry replied immediately, advising that her deadline for written confirmation that the Lockwood would be available was 24 September 2014.
[26] Mr Tawhiti did not provide that confirmation by 24 September 2014. Ms Rowberry followed up with a telephone message and an email on 25 September
2014, asking for Mr Tawhiti to advise his intentions.
[27] Ms Rowberry sent a further email to Mr Tawhiti’s wife, Ms Hayley Tawhiti, on 29 September 2014, giving details of her bank account for the refund of the
$35,000 deposit on the Lockwood “that [Mr Tawhiti] agreed to repay in full today.” Within minutes, Mr Tawhiti sent a reply email denying that he had agreed to make a refund that day. He said he would “do a full breakdown of deposits paid on house sales and what will be outstanding on delivery.”
[28] Mr Tawhiti sent another email on 30 September 2014, advising that the
Lockwood would not be available within the next 30 days. Mr Tawhiti said that,
although the Lockwood agreement had no stipulated delivery date, as a good faith step he would “credit this amount against what’s still outstanding on other agreements as these are still in place and sitting in my yards ready to go and clicking up storage costs at which point I will arrange for delivery of these buildings to complete these agreements”.
[29] Ms Rowberry replied on 3 October 2014. She said:
Thank you for your offer to credit the deposit paid in relation to the Lockwood Purchase Agreement, due to the owners of the building delaying your ability to purchase and supply the building to me in a timely manner. I would like to take you up on that offer. My bank account details are ….
I will be in communication with you next week, however please be advised that no buildings are to be delivered by yourself, or contracted parties, to [the property], as a dispute is in progress with regards to the cottage and garage conversion agreement.
[30] On 10 October 2014, the Trust’s solicitors wrote to SHT purporting to cancel the Cottage agreement and recording their understanding that SHT had notified the Trust that it was unable to perform the Lockwood agreement, as it was not the owner of the Lockwood (despite the Lockwood agreement saying that SHT was the owner). They recorded their understanding that Mr Tawhiti had offered to refund the deposit paid under the Lockwood agreement to the Trust, and that Ms Rowberry had accepted that offer. They advised that the Trust reserved its position in respect of the Two Garages agreement.
[31] On 5 December 2014, SHT’s solicitor, Mr McAra, recorded in an email to Mr Tawhiti that he had spoken to Ms Rowberry, and that “while there is mutual agreement that the agreement for the Lockwood is at an end, [SHT is] not agreeable to cancelling the other two agreements and [SHT is] retaining her deposit on the Lockwood on account of her liability to pay the deposits on the other two agreements.” Mr McAra recorded Ms Rowberry’s advice that that position was causing the Trust difficulty with its bank, which would not release funds for the Cottage agreement or the Two Garages agreement until the deposit on the Lockwood (which the bank had funded) had been repaid. Mr McAra proposed that that difficulty could be met by his firm giving the bank an undertaking that it was holding
the $35,000, and would pay that sum to the bank’s nominated account “as soon as
the deposits on the other two agreements had been paid.”
[32] On 15 December 2014 Mr Tawhiti sent an email to Ms Rowberry advising that he was in a position to deliver both buildings (i.e. the buildings to be relocated under the Cottage agreement and Two Garages agreement). Mr Tawhiti stated that the plans could be ready to lodge with the Council within a week, and that SHT could pile the buildings once the consents had been given. However he said he would need formal confirmation from the Trust’s bank that it would be in a position to release funds immediately for “all the second deposits that are due on an undertaking from my solicitor that he is holding deposit for Lockwood”.
[33] On 29 December 2014, SHT confirmed by email that it considered the balance owing to it by the Trust was $45,925.
[34] In an email sent on 19 January 2015, Ms Rowberry referred to a conversation she had had with Mr McAra, in which Mr McAra had been of the opinion that the Trust had cancelled the Lockwood agreement. Ms Rowberry said in her email: “This is not the case; [Mr Tawhiti] was unable to supply the building.” Ms Rowberry advised that the Trust’s bank had indicated that it would require a timeline for the completion of consents, delivery of buildings, and completion of the building works on the property.
[35] On 19 January 2015, Mr Tawhiti replied to Ms Rowberry, advising that SHT could not do anything until it had confirmation from the Trust’s bank that the Trust could complete payments under the remaining agreements. Subject to that, he advised that he could have plans ready within two weeks if Ms Rowberry did not make “continual changes” (as Mr Tawhiti said she previously had). The Trust would then be responsible for the Council submission. Mr Tawhiti pointed out that the Lockwood agreement did not specify any delivery date. He contended that it was Ms Rowberry who wanted to terminate the Lockwood agreement when SHT could not meet her demand that the Lockwood be delivered by the end of October.
[36] On 14 April 2015 Ms Rowberry sent an email to Ms Hayley Tawhiti, advising that she was unable to borrow any further money. Ms Rowberry invited discussion on what SHT would be prepared to complete for the money already paid (the
$35,000 under the Lockwood agreement and the $15,000 under the Cottage agreement).
[37] Mr Tawhiti replied on 6 May 2015, proposing as a way forward that the cottage might be moved onto the property, with the $50,000 paid by the Trust applied wholly to the Trust’s payment obligations under the Cottage agreement.
[38] Further negotiations followed on this possibility. Ms Rowberry sent an email to Mr Tawhiti on 6 May 2015 enquiring if the cottage could be re-clad immediately on delivery. Mr Tawhiti replied advising that the re-cladding could be done reasonably promptly. However further difficulties arose when Ms Rowberry asked if the cottage could be reclad before it was moved from Kati Kati to the property, and Mr Tawhiti was unable or unwilling to do that. In the end, the further negotiations came to nothing.
[39] On 9 June 2015 SHT’s solicitors emailed Ms Rowberry demanding payment of the deposits which it claimed were due on the Cottage agreement and the Two Garages agreement. The letter warned that if this was not done SHT would give seven days’ notice to remedy the Trust’s alleged breaches of contract, and if the breaches were not then remedied, SHT would terminate the agreements and forfeit the deposit paid under the Cottage agreement.
[40] On 16 June 2015, the Trust’s solicitors wrote to SHT’s solicitors formally cancelling the Two Garages contract. They also made demand for repayment of the deposits of $35,000 paid under the Lockwood agreement, contending that they had cancelled the Lockwood agreement (as well as the Cottage agreement) by their letter of 10 October 2014. The statutory demand was subsequently served on SHT.
[41] In his first affidavit sworn in support of SHT’s application to set aside the statutory demand, Mr Tawhiti says that the Lockwood agreement was cancelled by mutual agreement. He says that the reason the $35,000 has not been refunded to the
Trust, is that the Trust is in breach of its obligations under the Cottage agreement and the Two Garages agreement.
[42] Mr Tawhiti says that SHT agreed to cancel the Lockwood agreement in December 2014, on the basis that the other two agreements would remain in place. He says that the buildings were ready to be delivered under the Cottage agreement and the Two Garages agreement. Mr Tawhiti’s evidence is that he notified Ms Rowberry that before the deposit on the Lockwood would be refunded, the Trust would need to simultaneously pay the second payment of $27,000 payable under the Cottage agreement and the $12,532 payable under the Two Garages agreement. The cancellation of the Lockwood agreement would also be on the basis that the Trust would meet the drafting costs.
[43] Mr Tawhiti says it was agreed by SHT’s solicitors that once SHT had confirmation and an undertaking from the Trust’s bank that the further amounts payable under the Cottage agreement and the Two Garages agreement would be paid, SHT would place the $35,000 in its solicitors’ trust account, and the transaction would go through.
[44] Mr Tawhiti says that no confirmation and undertaking was ever provided by the Trust’s bank. He refers to a telephone call from a representative of the Trust’s bank, in which he says that he was told that the bank would not release any funds as Ms Rowberry had not provided enough personal financial information.
[45] He acknowledges that the Trust paid the $15,000 deposit on the Cottage agreement, but contends that Ms Rowberry later said that the Trust did not have the funds to meet any further payments under the Cottage agreement and would not accept delivery. He says that the same situation applies with the Two Garages agreement.
[46] On 22 June 2015, SHT’s solicitors denied that any undertaking to refund the
$35,000 had been given. They acknowledged that a proposal for refunding the deposit had been discussed with Ms Rowberry in December 2014, but they said the
proposal had not been agreed to by SHT. They said the proposal was never acted on by the parties.
Applications to set-aside statutory demand – legal principles
[47] Under s 289(2)(a) of the Companies Act 1993 (the Act), a statutory demand must be in respect of a “debt that is due”. It must also be for an amount which is not less than the “prescribed amount”.1
[48] Section 290(4) of the Act provides:
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
(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.
[49] In Arrow Matting Systems Ltd v Impala Equities Ltd, I summarised the principles applicable under s 290(4) as follows:2
[40] …
(1) The applicant must show 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.
(2) 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.
1 Presently $1,000, under regulation 5 of the Companies Act 1993 Liquidation Regulations 1994.
2 Arrow Matting Systems Ltd v Impala Equities Ltd [2015] NZHC 1479 at [40]-[41], citing Companies and Securities Law (looseleaf ed, Brookers) at [CA 290.02(1)], citing Greys Avenue Investments Ltd v Harbour Construction Ltd HC Auckland CIV-2009-404-2026, 12 June 2009 at [8], Eng Mee Young v Letchuman [1980] AC 331 at 341, and Freemont Design & Construction Ltd v W Stevenson & Sons Ltd HC Auckland CIV-2005-404-4807, 20 April 2006 at [8].
(3) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(4) 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.
(5) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[41] However, a conflict in the evidence on its own does not necessarily mean that a setting aside application cannot succeed. A Court is not required to accept uncritically any or every disputed fact.
[50] In its recent decision in AAI Ltd v 92 Lichfield Street Ltd (in receivership and liquidation) the Court of Appeal held that an applicant for an order setting aside a statutory demand must show that the dispute it raises has substance; it must explain to the Court what the dispute is, and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction with the accompanying disadvantage that brings for any applicant. The Court must also keep in mind the requirement that what is intended to
be a summary judgment hearing should not be converted into a full-blown trial.3
The issues to be decided
[51] The following issues fall to be decided:
(1)Was there an agreement between the parties, under which the Lockwood agreement would be cancelled and the $35,000 deposit refunded to the Trust?
(2)If there was no agreement for the cancellation of the Lockwood agreement, did any unilateral cancellation by the Trust make SHT liable to refund the $35,000 as a debt due to the Trust?
(3) If the answer to issue (2) is “yes”:
3 AAI Ltd v 92 Lichfield Street Ltd (in receivership and liquidation) [2015] NZCA 559 at [22].
(a) is SHT nevertheless entitled to set off any claims it may have under the Cottage agreement and/or the Two Garages agreement against the $35,000?
(b) does SHT have a good counterclaim (or counterclaims) under those two agreements which exceeds the sum of $34,000 (the $35,000 claimed by the Trust minus the minimum sum of $1,000 for which a statutory demand may be issued)?
Issue 1: Was there an agreement between the parties, under which the Lockwood agreement would be cancelled and the $35,000 deposit refunded to the Trust?
[52] Both parties say that the Lockwood agreement was cancelled. In their letter of 10 October 2014, the Trust’s solicitors recorded their understanding that Mr Tawhiti had offered to refund the deposit paid under the Lockwood agreement to the Trust, and that Ms Rowberry had accepted that offer. They later contended (in their letter of 16 June 2015) that their letter of 10 October 2014 had been effective to cancel the Lockwood agreement.
[53] SHT says that there was an agreement to cancel the Lockwood agreement made in December 2014, under which the deposit would be refunded but on the basis that the Trust would simultaneously pay the second payment of $27,000 payable under the Cottage agreement and the $12,532 payable under the Two Garages agreement. SHT also contends that the cancellation agreed in December 2014 included a term that the Trust would meet the drafting costs. I note that the latter claim was not referred to in SHT’s notice of application.
[54] I do not think the question of whether an unqualified agreement for the refund of the $35,000 was reached between Mr Tawhiti and Ms Rowberry in September/October 2014 is something which can be determined on a summary basis. Certainly Ms Rowberry referred in her 17 September 2014 email to an earlier offer she said Mr Tawhiti had made to refund the deposit if the Lockwood was not available within the Trust’s required timeframe. Mr Tawhiti did not expressly deny that he had made such a statement in his email sent on 18 September 2014, but the
focus of that email was on Mr Tawhiti following up with the owners of the Lockwood (or perhaps the tenants who were occupying it) to find out when the Lockwood would be available. When Ms Rowberry pressed the matter with a further email to Mrs Tawhiti on 29 September 2014, in which she provided details of the Trust’s bank account for the refund, Mr Tawhiti replied promptly, denying that he had agreed to make a refund immediately, and referred to him completing a breakdown of deposits paid on house sales and what would be outstanding on delivery. Mr Tawhiti confirmed on 30 September 2014 that the Lockwood would not be available within the next 30 days, but that he would credit the Lockwood deposit “against what’s still outstanding on other agreements…”.
[55] Ms Rowberry’s reply dated 3 October 2014 appears to have ignored Mr Tawhiti’s statement about crediting the $35,000 against what was “still outstanding” on the other two agreements: she simply thanked him for his offer to credit the deposit, and said she would like to take him up on the offer. In the same email, she said that no buildings were to be delivered to the property, as a dispute was in progress with regard to the Cottage agreement and the Two Garages agreement.
[56] Ms Rowberry’s email dated 3 October 2014 purports to be an acceptance of SHT’s offer made in Mr Tawhiti’s email of 30 September 2014, but as I read it that email did not offer an unqualified refund of the deposit paid under the Lockwood agreement: the 30 September 2014 offer contemplated the parties proceeding with the Cottage agreement and the Two Garages agreement, on the basis that the $35,000 would be credited to the balances owing on those two agreements. I do not think it was open to the Trust to accept the 30 September 2014 offer of a refund of the
$35,000 deposit while at the same time instructing SHT not to proceed with the
Cottage agreement and the Two Garages agreement.
[57] The letter from the Trust’s solicitors dated 10 October 2014 does not advance matters on this issue – it records the solicitors’ understanding that SHT had agreed to refund the deposit, but makes no reference to Mr Tawhiti’s 30 September 2014 email.
[58] It may be that the Trust will be able to establish that an oral agreement for cancellation and refund of the deposit paid on the Lockwood agreement had already been reached between Ms Rowberry and Mr Tawhiti before the correspondence of
30 September 2014 and 3 October 2014, but I do not think that is something I can decide solely on the basis of the affidavit evidence. Precisely what may have been agreed between Ms Rowberry and Mr Tawhiti in the period leading up to Mr Tawhiti’s 30 September 2014 email is something which can only be properly determined after the parties have given oral evidence and been cross-examined. That is not the function of a proceeding such as this, which is concerned only with the threshold question of whether the applicant for an order setting aside a statutory demand has shown that there is a genuine, substantial dispute over the claimed debt.
[59] I conclude that there is a genuine and substantial dispute over the Trust’s contention that the parties reached agreement for the cancellation of the Lockwood agreement on terms which required SHT to refund the deposit.
[60] Turning to SHT’s allegation that a cancellation agreement was reached in December 2014 (under which its agreement to refund the deposit is said to have been linked to obligations by the Trust to make further payments under the Cottage agreement and the Two Garages agreement), I do not consider that this contention raises a substantial dispute. The communications between the parties do not appear to have proceeded beyond the stage of SHT putting a proposal to Ms Rowberry under which the $35,000 would be repaid as soon as the “deposits” on the other two agreements had been paid (in the meantime, SHT’s solicitors would provide an undertaking to the bank that they were holding the $35,000 in their trust account).
There is nothing to suggest that that proposal was ever accepted by the Trust.4
4 Ms Rowberry did attempt to initiate a discussion with Mr Tawhiti on what SHT would be prepared to provide under the three agreements on the basis that SHT would retain the total
$50,000 paid to it by the Trust and no further payments would be made (see for example Ms Rowberry’s email to Ms Tawhiti of 14 April 2015). But Ms Rowberry’s overture came to nothing, and would not in any event have involved SHT refunding the $35,000.
If there was no agreement for the cancellation of the Lockwood agreement, did any unilateral cancellation by the Trust make SHT liable to refund the $35,000 as a debt due to the Trust?
[61] In the absence of any consensual cancellation of the Lockwood agreement, any cancellation could only have been a unilateral cancellation effected by Ms Rowberry or the Trust’s solicitors.
[62] Assuming in the Trust’s favour that it validly cancelled the Lockwood agreement, whether on 10 October 2014 or at some later date, neither party was obliged or entitled to perform the Lockwood agreement any further, and SHT was not divested of the money paid by the Trust under the contract “by reason only of the
cancellation”.5 Under the Contractual Remedies Act 1979, the Trust was left to
make a claim against SHT, whether for relief under s 9 of that Act or for damages under s 10.6
[63] The question arises as to the nature of that claim. Is it a claim for a “debt that
is due”, as required by s 289(2)(a) of the Act?
[64] It has been held that a claim for damages for breach of contract not converted into a judgment debt cannot be a “debt due” for the purposes of the statutory demand procedure.7 Is the Trust’s claim in this case a claim for damages for breach of contract, or is it more properly regarded as a claim based in the law of restitution, which might perhaps give rise to an obligation to refund the deposit?
[65] In OPC Managed Rehab Ltd v Accident Compensation Corporation, the Court of Appeal considered a number of definitions of the word “debt” which have been stated in decided cases and in law dictionaries. Their Honours stated that:8
Overall, a common theme of the above definitions, and that given by
Hammond J in the Colonial Mutual case … is that a “debt” arises where
5 Contractual Remedies Act 1979, s 8(3).
6 Under s 9(2), the Court is empowered to make various orders on the cancellation of a contract, including an order directing one party to the contract to pay to the other such sum of money as
the Court thinks just.
7 See for example Re Prime Link Removals Ltd [1987] 1 NZLR 510 at 512 and Northern Crest
Investments Ltd v Robert Jones Holdings (2009) 19 PRNZ 258 at [20].
8 OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 at [38]- [39].
there is money owing from one person to another, and there is an obligation to pay that money. The definitions disclose that the common use of the term is where there is money owing pursuant to a judgment, contract or statute. However, the definitions do not discount that a “debt” may arise in some other way; for example the Oxford Companion to Law says “also from and by reason of any other ground of obligation”, while Black’s Law Dictionary refers to “a specific sum of money due by agreement or otherwise” (emphasis added).
Hammond J in Colonial Mutual referred to a “prior obligation”, whether under contract or statute. In this case, the issue is whether a claim in restitution can be said to be a prior obligation in the same way as a contract or a statute … in many cases the existence or extent of the obligation to pay must be determined judicially: [counsel’s] argument is that this is the case with a prospective claim in money had and received.
[66] Their Honours concluded that if a payment is received in circumstances where the recipient is obliged to repay it, whether because of a contractual or statutory provision to that effect or because the circumstances give rise to an obligation to repay on the basis of money had and received, the amount can be treated as a “debt due” for the purposes of s 289(2)(a). 9
[67] In Air Tahiti Nui Saeml v Pounamu International Ltd,10 Associate Judge Bell had before him an application by the airline to set aside a statutory demand issued by Pounamu, which had provided certain consulting services to the airline. Under the agreement, the airline was entitled to retain the first US$21,000 earned by Pounamu under the agreement, as pre-payment for air travel to be utilised by Pounamu on the airline’s network. Air Tahiti Nui refused to provide part of the air travel under the agreement, and Pounamu issued a statutory demand for the equivalent value of the air travel promised but not provided.
[68] Air Tahiti Nui argued that Pounamu’s claim was an unliquidated claim for damages, and not a claim for a “debt due”. The Associate Judge noted that if that were so, the Court would have to enquire what position Pounamu would have been in if both sides had carried out the bargain. The measure of damages would turn on
the relative pricing of airlines operating on Air Tahiti Nui’s routes in the Pacific, and
9 OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 at [38], [39] and [54].
10 Air Tahiti Nui Saeml v Pounamu International Ltd HC Auckland CIV-2010-404-4881,
18 January 2011.
the claim would indeed be a claim for unliquidated damages (and as such, not a
“debt due” for the purposes of s 289(2)(a)).
[69] Pounamu relied on OPC Managed Rehab Ltd, contending that its claim was in fact a claim for money had and received. It relied on the old case of Hill v Smith, where a firm had paid funds to a bank for a specific purpose but the bank applied the funds against the debt the firm owed to the bank. Parke B said:11
When the defendants refused to perform their contract, they ought to have returned the money to the bankrupts; and, if they did not, the bankrupts might have treated it as money had and received to their use…
[70] Associate Judge Bell accepted that when Air Tahiti Nui retained the US$21,000, it was obliged under the contract to apply those funds for Pounamu’s air travel, and not for any other purpose. It did not do so, because it refused to allow Pounamu to use its air travel entitlement. On the authority of Hill v Smith and other
cases in which Hill v Smith has been cited,12 his Honour was satisfied that the airline
was liable, in a claim for money had and received, to repay the money to Pounamu. On the authority of OPC Managed Rehab Ltd, his Honour concluded that the claim was a claim for a “debt” which was due, and that the airline had no substantial defence to the demand.
[71] In this case, there is no provision in the Lockwood agreement giving the Trust the right to demand repayment of the deposit in the event of cancellation. Nor was SHT under any statutory obligation to refund the deposit. Indeed, if there was an available market in which the Trust could have acquired the same house, the prima facie measure of the Trust’s loss would appear to be the difference between the price payable under the Lockwood agreement and the market price of the
substitute house, as at the date the Lockwood should have been delivered.13
[72] Certainly any such calculation of the Trust’s loss would be likely to produce a higher figure than the $35,000 now claimed, but the point is that the claim would
11 Hill v Smith (1844) 12 M & W 618.
12 Including Martin v Pont [1993] 3 NZLR 25 (CA).
13 Sale of Goods Act 1908, s 52(2).
clearly be a claim for an unliquidated sum, and as such not a claim for a “debt due”
within the meaning of s 289(2)(a).
[73] This is not a case like Air Tahiti Nui, where there was an obligation to apply the money for a particular purpose for the benefit of the payer: in this case, SHT was free to apply the deposit as it saw fit. I do not think Air Tahiti Nui provides any basis on which the claim for the refund of the deposit could be treated as a claim for money had and received.
[74] It is true that a claim for money had and received may lie where there has been a total failure of consideration provided by the defendant in return for a payment made by a plaintiff. In Ehrensperger v Anderson, Parke B said of the action for money had received:14
In order to constitute a title to recover for money had and received the contract on the one side must not only not be performed or neglected to be performed, but there must have been something equivalent to saying, ‘I rescind this contract,’ — a total refusal to perform it, or something equivalent to that which would enable the plaintiff on his side to say, ‘if you rescind the contract on your part, I will rescind it on mine’.
[75] Ehrensperger was referred to by the Court of Appeal in Martin v Pont,15 a case which was concerned with money paid to the defendant for investment purposes which was misappropriated by one of the defendant’s employees. The Court of Appeal held that there was a total failure of consideration because there was “nothing to show for the plaintiff’s payment”.16
[76] But Martin was concerned with the situation where a plaintiff gives money to a defendant which the defendant is required to apply to a particular purpose. There is nothing of that sort here, where SHT was entitled to use the deposit money as it pleased. Nor do I think I can safely conclude on the evidence in this case that SHT rescinded the Lockwood agreement, or that the Trust has clearly received no consideration for the money it paid SHT. SHT did supply plans for the Building
Consent application, and it may be that the work done by Albert van Vliet
14 Ehrensperger v Anderson (1848) 3 Exch 148 at 158.
15 Martin v Pont above n 12.
16 At 30.
Architectural in providing those plans will have some value if the Trust elects to place another house on the land which is of similar dimensions to the Lockwood. There is insufficient evidence to reach any firm conclusion on whether there was a total failure of consideration.
[77] I conclude that even if the Trust did validly cancel the Lockwood agreement (something on which it is unnecessary for me to make any finding), its claim for the refund of the deposit paid would probably be a claim for unliquidated damages, and not a claim for a “debt due” under s 289(2)(a) of the Act.
[78] The result of that finding, in conjunction with the finding I have made on Issue (1), is that SHT has sufficiently shown that there is a genuine and substantial dispute over whether there is a debt due to the Trust. The statutory demand must therefore be set aside.
[79] In those circumstances there is no need to consider Issue (3).
Result
[80] I make an order setting aside the statutory demand.
[81] The Trust is to pay SHT costs on a 2B basis, plus SHT’s disbursements as
fixed by the registrar.
Associate Judge Smith
Solicitors:
Willis Toomey Robinson Scannell Hardy Lawyers, Napier for the Applicant
Carson Fox Bradley Limited, Auckland for the Respondents
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