Skyhorse Transport Limited v Greenhill Home Limited

[2022] NZHC 1034

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-887

[2022] NZHC 1034

BETWEEN

SKYHORSE TRANSPORT LIMITED

Plaintiff

AND

GREENHILL HOME LIMITED

Defendant

Hearing:	5 May 2022 (By AVL)
Appearances:	H L R McDermott for Plaintiff (by AVL) J A Wickes for Defendant (by AVL)
Judgment:	13 May 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

SKYHORSE TRANSPORT LIMITED v GREENHILL HOME LIMITED [2022] NZHC 1034 [13 May 2022]

Introduction

[1]    The plaintiff seeks an order placing the defendant company into liquidation relying on an unsatisfied statutory demand and evidence filed aimed at establishing the debt, subject to the demand cannot, be subject to dispute. The application is opposed. It is necessary to set out the steps previously taken by the defendant in resisting the application in order to provide the context for this Judgment.

Background

[2]    On 18 March 2021, the plaintiff served a statutory demand claiming the sum of $43,737.79. The plaintiff is a cartage company whose business includes transporting excess soil from building sites.

[3]    The defendant, as its name suggests, is a residential property developer and in 2020 engaged the plaintiff to transport soil excavated by its employees from building sites it was working on.

[4]    The plaintiff invoiced the defendant based on what it says were contemporaneous records of each truck load made by its drivers, that record including details of the date, the licence plate of the truck, time of load and type of material being transported. It is common ground that the plaintiff’s invoices should be based on the number of loads carted.

[5]    The defendant considered there were discrepancies in the plaintiff’s invoices leading to a meeting of the parties on 21 January 2021. In short, the defendant says the quantity of material recorded in the plaintiff’s invoices is overstated. The defendant says the quantity of soil to be removed pursuant to the consented excavation plans for its sites do not reconcile with the volume of material claimed to have been removed by the plaintiff.

[6]    I add here that Ms McDermott, counsel for the plaintiff, suggested the defendant delayed in disputing the invoices issued by the plaintiff. I do not consider that a fair criticism when the first two of the invoices in dispute were issued on Sunday 20 December 2020.

[7]    On 28 April 2021, the defendant proposed that the parties agree a procedure to resolve the dispute in a cost effective manner and suggested a civil engineer be engaged.

[8]This liquidation proceeding was filed on 7 May 2021.

[9]    On 27 May 2021, the defendant filed an application to restrain advertising and stay the proceeding and also filed a statement of defence and supporting affidavit. That application was opposed and was heard on 17 August 2021  by  Associate Judge Andrew.

Decision of Associate Judge P J Andrew dated 17 August 2021

[10]   The following paragraphs from Associate Judge PJ Andrew’s decision, set out the essence of the matters in dispute and his Honour’s conclusions.1

Analysis and decision

[19]      Greenhill’s evidence establishes that a dispute was raised shortly after its receipt of the invoices. Greenhill has produced in evidence the consented excavation plans for the sites form which the earth was carted away by Skyhorse. Both plans, Greenhill says, show a total amount to be excavated as 245 cubic metres, of which Greenhill says it retained 60 cubic metres for landscaping. Greenhill also says that those plans were shown to Skyhorse before the statutory demand was issued and sent to Skyhorse’s solicitors before these proceedings were issued.

[20]      In the evidence for Greenhill, an explanation is provided as to how this amount of earth equates to 31 truckloads. That is based on undisputed evidence that an average truckload contains six cubic metres of material. Greenhill says that 31 truckloads equates to a total charge of somewhere between $4,960 and $6,820 depending on the tip site used. Greenhill says that it is due a credit of $4,749.50, being the amount it was overcharged in the prior invoice it has already paid. By contrast, Skyhorse has invoiced Greenhill for 167 truckloads (so Greenhill says) and in the total sum of $43,737.79.

[21]      Greenhill further points in support of its position to the anomalies between Skyhorse’s copies of the tip documents and the tip operators copies which Greenhill obtained after it became suspicious of the invoiced amounts. Greenhill says that those documents show extra loads on Skyhorse’s copies only.

[22]      Skyhorse’s explanation is that Greenhill brought earth from other sites onto the collection sites. Skyhorse also says that there was never any

1      Skyhorse Transport Ltd v Greenhill Home Ltd [2021] NZHC 2182.

agreement that the invoices would be based on the landfill or tip documents or on engineer’s reports.

[23]      In evaluating all this evidence, I conclude that Greenhill has established that there is a genuine dispute; the requisite standard, namely     a prima facie case of the existence of a genuine dispute on substantial grounds, has been met. Its position is supported by contemporaneous documentation that includes both the landfill dockets and excavation plans, albeit that those are dispute by Skyhorse. There are, as Ms McDermott responsibly acknowledged, significant issues of credibility and I obviously cannot resolve those.

[11]   Associate Judge Andrew recorded the disputed amount had been paid by the defendant into its solicitor’s trust account. An order was made restraining advertising and staying the proceeding on the condition that the amount paid into the defendant’s solicitor’s trust account remain there pending resolution of the dispute and: “… also on the condition that the parties take prompt steps to have the dispute resolved”.     A costs award in favour of the defendant was made on a 2B basis.

[12]   On 17 September 2021, the plaintiff was served with a sealed order reflecting the orders made by Associate Judge Andrew. The plaintiff paid the costs awarded against it arising from the stay application.

Plaintiff seeks to pursue proceeding

[13]   On 25 February 2022, plaintiff’s counsel filed a memorandum with the Court along with two updating affidavits. Paragraph 14 of that memorandum stated:

Counsel for the plaintiff submits that this matter cannot be resolved through mediation as the parties are just too far apart and accordingly this matter should be set down for a hearing.

[14]   No response to that memorandum was filed by the defendant and in a brief Minute the application to liquidate the defendant was set down for a hearing.

[15]   No application has been made by the plaintiff to lift the stay. An application should have been made as it would have focused attention on whether the conditions attaching to the stay have been satisfied or not, in particular on the fact  the  condition relating to resolving the dispute applies to both parties.

[16]Accordingly, the two issues for me to address are:

(i)Should the stay ordered by Associate Judge Andrew be lifted, essentially on the basis that lifting the stay is necessary to permit the plaintiff to proceed with its liquidation proceeding.

(ii)If the stay is lifted, whether liquidation is appropriate given the findings already made by Associate Judge Andrew, in particular, his finding at

[23] of his Judgment set out above at [10] above.

Lifting the stay

[17]   The stay was granted on the condition that the parties take steps to have the dispute resolved. As noted at [13] the plaintiff considers the dispute is not capable of being settled by mediation.

[18]   The condition imposed by Associate Judge Andrew is not limited to the dispute being resolved by mediation. The Judge had earlier commented that the proposal by the defendant that an engineer resolve the dispute seemed a sensible one, however, he noted the plaintiff was opposed to that approach. The Judge noted that another expert may be a more appropriate candidate but “in any event, this is a relatively uncomplicated matter that the parties ought to be able to reach agreement on”.

[19]   While agreeing an appropriate dispute resolution process should have been relatively straightforward, the dispute between the parties is not without its difficulties. The contract between the parties was oral or discussed over text. Just how much material was transported will require investigation and findings of fact. A process akin to an arbitration may well be required but again, the parties could have designed      a truncated or pared back form of arbitration to make that process cost effective. An arbitrator would have the power to award costs to the successful party.

[20]   The unchallenged evidence is that in September 2021, the defendant’s solicitor suggested to the plaintiff’s solicitor that the present dispute did not warrant being before the High Court and suggested the matter be referred to the Disputes Tribunal. There was no response.

[21]   At the Chinese New Year, the defendant’s director sent a Happy New Year WeChat  message  to  the   plaintiff’s   director   and   received   no  response.    On  2 March 2022, after the defendant received the plaintiff’s memorandum asking for the matter  to  be  set  down,  the  defendant’s  solicitor  invited  the  plaintiff  to  adopt   a pragmatic attitude to resolution and make a reasonable settlement offer. Shortly after, the defendant’s solicitors again proposed the parties engage a quantity surveyor to calculate the amount of soil that could be claimed for, and that if the plaintiff did not agree with that proposal, requested the plaintiff advise its proposal for resolving the dispute. Again, the undisputed evidence is that no response was received. When the defendant sent a follow-up, the response was that the plaintiff’s instructions were for this matter to proceed to a hearing.

[22]   I am not satisfied there has been a breach of the condition by the defendant let alone one that warrants the stay being lifted. I accept that the matter being referred to the Disputes Tribunal would require the plaintiff to abandon that part of its claim over

$30,000.2 However, in order to achieve a cost effective resolution of the dispute, such

may be a sensible concession.

[23]   Absent the matter being determined by the Disputes Tribunal, the defendant had, prior to the matter being considered by Associate Judge Andrew,  suggested     a determination by an engineer. Again,  the Judge noted that another expert may be  a more appropriate candidate, but essentially the Judge was suggesting it would be sensible for there to be a ruling on the merits by some independent suitably qualified expert. Whether this is called an arbitration, an expert determination, or the like, does not matter, but what was required was the parties to agree to be bound by the outcome. While the parties were free to attend mediation, if the plaintiff considered such was not likely to result in settlement, a  process  that  resulted  in  a  binding  outcome was required.

2      Disputes Tribunal Act 1988, ss 10(1A)(b) and 14. Ms Wickes, counsel for the defendant, suggested that the dollar limit in the Tribunal would not be an issue if the parties asked the Tribunal to rule on the number of loads carted only. I make no comment whether framing the claim in that way would permit the Tribunal to determine that issue.

[24]   Accordingly, with the plaintiff taking off the table recourse to the Disputes Tribunal and not wanting the matter to be determined by an expert, it is not clear to me how the plaintiff saw the dispute being resolved.

[25]   One means of resolving the dispute open to the plaintiff, which does not require co-operation from the defendant, is for it to issue a claim in the District Court. Associate Judge Andrew’s condition also bound the plaintiff. The condition refers to the parties having to take prompt steps to resolve the dispute  and is not limited      to alternative dispute resolution. As the defendant’s funds are to be held on trust until the dispute is resolved, it too has an interest in the matter being resolved promptly.  If the plaintiff considered alternative dispute resolution in whatever form was not practical, then it should have issued District Court proceedings. Ms McDermott submitted the defendant had not engaged in good faith in resolving the matter. However, when asked what options the plaintiff had advanced for resolving the matter, her response was she did not think any had been advanced by the plaintiff.

[26]   My finding that the stay ought not to be lifted is sufficient to deal with the plaintiff’s application to liquidate the defendant and is the basis of it being dismissed. Against the possibility that finding is incorrect, I consider briefly how I would have approached the matter had the stay been lifted.

[27]   To be entitled to an order for liquidation, the plaintiff has to establish that the defendant is insolvent. A realistic commercial approach to the assessment of solvency is required, taking an overall perspective of the debtor’s financial position. The Court must make an objective assessment of all the evidence and determine whether there is a genuine or substantial dispute in relation to the claimed indebtedness or in respect of the defendant’s ability to satisfy its debts.3

[28]   Associate Judge Andrew determined, on the material before him at the time of the application to restrain advertising, that there was a genuine and substantial dispute as to the existence of the debt “… the issue of insolvency really only becomes

3      Owens v Waka Management Holdings Ltd [2016] NZHC 2968.

important if the Court is not satisfied there is a substantial dispute about the liability for payment of the debt”.4

[29]   The plaintiff issued a notice requiring the deponent for the defendant to be cross-examined on his affidavits. In terms of the key issue of whether the plaintiff has demonstrated the defendant is unable to pay its debts as they fall due, that is, it is insolvent, little emerged from that cross-examination which assisted the plaintiff.

[30]   Mr Zhang, the director of the defendant company, swore an affidavit referring to the defendant owning a property in Papakura, Auckland. In his affidavit, the address was incorrect but that was subsequently corrected. Attached to the submissions for the defendant was a copy of the title for the property.  Ms McDermott had obtained  a copy of the capital value of the property which was $1,500,000. Mr Zhang, in his evidence, said that the mortgage and caveat against the property secured indebtedness of $950,000.

[31]   Accordingly, the defendant company on that evidence has equity of $550,000 in the property. Mr Zhang went further and said since the time of that valuation, the defendant company had built five dwellings on the site and hence the defendant’s equity in the property was substantially more than $550,000.

[32]   Ms Wickes, counsel for the defendant, noted in her closing submissions that the cross-examination confirmed the plaintiff and the defendant had engaged in business over an extended period, indicating that the defendant is not a one venture entity. The defendant was incorporated on 28 November 2013 and the evidence is that the parties first started dealing with each other in 2014.

[33]   In an opposed liquidation, the burden of proof remains throughout upon the plaintiff to establish the defendant is insolvent, although the evidential onus of proof may shift as evidence is provided.

4      Matamata Tennis Club Inc v Grassman New Zealand Ltd [2012] NZHC 463.

[34]   The presumption of insolvency created by non-compliance with the statutory demand becomes less important when there is a finding that there is a substantial dispute between the parties or issue as to whether the plaintiff is due the payment it claims.5 Of course here, the amount in the statutory demand has been paid into the solicitors trust account where it remains.

[35]   The defendant is a property development company which has been trading since 2014. The evidence is that its most recent project is the completion of the development of five dwellings referred to above which it still owns. The plaintiff would be aware, from its history of working with the defendant, that it had carried out a number of developments. While it is true the defendant has not put its financial accounts before the Court, the evidence remains that it has substantial equity in the Papakura property referred to.

[36]   To the extent the cross-examination sought to establish there was not a genuine dispute again, I do not think that the cross-examination advanced the plaintiff’s position. For example, a theme of the cross-examination was to have the defendant’s director accept that the plaintiff’s invoices were based on the number of truck loads carried as opposed to the records of the volume of material dumped known as “bill dockets” or “tip dockets’ of site excavation plans. However, the point is that while the director of the defendant company accepts the plaintiff’s invoices are to be based on the number of loads carried, he refers to the records of the material dumped and the excavator plans to support his claim that the number of loads recorded in the invoices is inflated.

[37]   Another theme of the cross-examination was that, where multiple adjoining properties are being developed, it is common practice for soil to be moved from one site to another until such time as the developer knew what, if any, of the stockpiled soil is needed for landscaping or other uses. The defendant’s director was cross-examined on the basis that, if soil was moved from one site to another, it  would mean the engineer’s excavation plans could not be relied on as an accurate estimate of the material to be removed. The defendant’s director accepted that

5      Matamata Tennis Club Inc, above n 4, at [27] and [28].

proposition but I accept Ms Wickes’ submission in reply that the cross-examination did not move from this high level of questioning to focus on what happened on the sites in issue at this case.

[38]   While further material has been filed by the plaintiff and responded to by the defendant, the fact is that material and the outcome of the cross-examination did not provide an answer to the credibility issues noted in Associate Judge Andrew’s decision at [23] set out [10] above.

[39]   Accordingly, even if the stay was lifted, the application for liquidation would have been dismissed.  While the evidence of solvency is not complete, the evidence  I have points to the company being solvent and the core dispute identified by Associate Judge Andrew remains.

The way forward

[40]   Resolution of this dispute in part requires credibility findings. The plaintiff can issue proceedings in the District Court and seek costs in relation to that process in the ordinary way.

[41]   The parties could, as I have said, agree to a process that amounts to an arbitration where they agree to hold an informal hearing in front of an independent expert. They could appoint someone to act as an arbitrator, but on an inquisitorial basis where that person would be at liberty to make their own enquiries, for example, interview the parties and drivers involved, examine the  documents,  and come to     a decision.   The parties could consider an arbitrator who speaks Mandarin, given     I understand that is the first language of the directors of the parties. Alternatively, the plaintiff could accept that not all of its claim will be recoverable and have the matter resolved in the Disputes Tribunal.

Order

[42]The formal order of the Court is that the informal application to lift the stay is

declined.

Costs

[43]There is no reason why costs on this application should not follow the event.

[44]   Accordingly, there is an award of costs in favour of the defendant on a 2B basis with disbursements as fixed by the Registrar.

Associate Judge Lester

Solicitors:

Righteous Law, Auckland (for Plaintiff) Loo & Koo, Auckland (for Defendant)