Stoneburn Farm Limited v Rural Air Work Limited
[2025] NZHC 267
•24 February 2025
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2024-441-52
[2025] NZHC 267
UNDER the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
STONEBURN FARM LIMITED
Applicant
AND
RURAL AIR WORK LIMITED
Respondent
Hearing: 9 December 2024 Appearances:
C Webber and Z Hollander for Applicant M Lawson for Respondent
Judgment:
24 February 2025
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] The applicant, Stoneburn Farm Limited (Stoneburn), applies to set aside a statutory demand issued by the respondent, Rural Air Work Limited (Rural Air) under s 290 of the Companies Act 1993. The statutory demand was issued by Rural Air to obtain payment of $262,500, being the purchase price alleged to be due and owing in relation to a contract allegedly entered into by Stoneburn with Rural Air to purchase an aircraft.
[2] Stoneburn applies to set aside the demand on the basis that there is a substantial dispute over whether or not the amount in the statutory demand is owed by Stoneburn, the statutory demand is an abuse of process, and setting it aside would be just and equitable. Rural Air’s position is that there are no grounds for setting aside the statutory demand.
STONEBURN FARM LIMITED v RURAL AIR WORK LIMITED [2025] NZHC 267 [24 February 2025]
Background
[3] Lindsay McNicol (Lindsay) was the sole director of Stoneburn from 1 May 2014 until his death. On 3 March 2024, at 78 years old, he died, having been diagnosed with extensive metastatic brain cancer in January 2024.
[4] A month prior to his death, on 26 January 2024, it is alleged that Lindsay entered into an agreement with Rural Air for the sale and purchase of a Fletcher ZK-CRY aircraft for $250,000 plus GST. Joshua Calder is the sole director of Rural Air.
[5] It is alleged that Lindsay viewed the aircraft, orally agreed with Mr Calder to buy the aircraft and shook hands. On 26 January 2024, Rural Air provided Lindsay with a deposit slip which recorded on it “$250,000 plus GST” and “10% will hold” in handwriting.
[6] An invoice dated 26 January 2024 was sent to Lindsay which recorded the following:
(a)a non-refundable deposit of $28,750 was due;
(b)once the deposit was paid, Rural Air would deliver the aircraft to Flight Care Ltd (Flight Care) for completion of the 150-hour service and the removal of the top dressing GPS system from the aircraft;
(c)the final payment of $258,750 was due on 10 February 2024 and that, once paid, change of ownership would be signed; and
(d)the total purchase price for the aircraft was $262,500 including GST.
[7] There is no dispute that $25,000 was paid by Stoneburn to Rural Air between 26 January 2024 and 29 January 2024. Rural Air submits that this represents payment of the non-refundable deposit (albeit less the GST component), and therefore part performance of the agreement to purchase the aircraft. Rural Air also says this was the trigger for Rural Air to deliver the aircraft to Flight Care for completion of the
150-hour service and the removal of the GPS system. Stoneburn submits the $25,000 payment was to put the plane “on hold” and, in any event, that there was no valid and enforceable contract because Lindsay was suffering from a disability or disadvantage and there is an unconscionable bargain.
[8] Rural Air contends that Lindsay had commissioned Flight Care to undertake modifications to the aircraft including fitting of a cargo pod. They also say that the balance of the purchase price was payable on 10 February 2024, but was not paid.
[9] The aircraft is currently parked at Hawke’s Bay Airport incurring airport parking fees.
[10] After Lindsay’s death, Stoneburn did not have a director until probate was granted under Lindsay’s will. Lindsay’s son, James McNicol (James) was named as sole director on 18 June 2024.
[11] Between 23 February 2024 and 1 March 2024, James and Mr Calder discussed the aircraft on the phone. On 28 February 2024, before Lindsay died, James texted Mr Calder requesting the aircraft be resold and the $25,000 returned to Stoneburn. This request was repeated by Stoneburn’s accountant on 11 March 2024, following Lindsay’s death.
[12] On 22 April 2024, Rural Air emailed a letter and invoice to Stoneburn. This was acknowledged by Stoneburn who advised that a response could not be provided until probate was granted.
[13] On 2 July 2024 at 9.36am, Stoneburn provided a substantive response to Rural Air's letter of 22 April 2024, indicating that there was a dispute regarding the purchase of the aircraft and whether Stoneburn owed the amount claimed in the invoice. On 2 July 2024, at 12.24 pm, Rural Air served a statutory demand (dated 1 July 2024) on Stoneburn for $262,500, being the balance of the purchase price for the aircraft, including GST.
[14] Rural Air has refused to withdraw the statutory demand. Stoneburn filed the application to set aside the statutory demand on 5 September 2024.
Legal principles
[15] Under s 290 of the Companies Act 1993, the Court may, on the application of a company, set aside a statutory demand. The Act relevantly provides:
290 Court may set aside statutory demand
…
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the 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
…
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
[16] The general principles that apply to applications to set aside statutory demands are well settled.1
a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court's task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
[17] In 144 Trustees Ltd v Mike Pero Real Estate Ltd, Osborne J set out a general approach to the exercise of the Court’s jurisdiction to set aside a statutory demand under s 290(4):2
As to s 290(4)(a):
·The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. Put another way, the applicant must show that there is a real and not a fanciful or insubstantial dispute.
·The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
·If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
1 See Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
2 144 Trustees Ltd v Mike Pero Real Estate Ltd [2018] NZHC 3197, (2018) NZCPR 220 at [8].
As to s 290(4)(b):
·An applicant must establish that it appears to have a counterclaim, cross-demand or set-off which is reasonably arguable in all the circumstances.
·The “appearance” test involves a review of low threshold.
·The hearing relating to a s 290(4)(b) argument is to be short and to the point.
·It is to be distinguished from a summary judgment application where complex legal issues are not a bar to a remedy.
As to both ss 290(4)(a) and (b)
·It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
Analysis
[18] With regard to the existence of the alleged debt, Stoneburn contends that there is no enforceable agreement. This is for two reasons. First, Stoneburn did not accept and/or part perform any agreement to purchase the aircraft; second, in any event, there is an issue as to Lindsay’s capacity to protect his and Stoneburn’s best interests and there is an unconscionable bargain. Rural Air contends that the arguments as to failure of offer and acceptance and/or failure of consideration are misconceived and unsustainable. Rural Air also contends there was no incapacity and that the submission that the contract is unconscionable is unsustainable.
[19] The parties spent some time in written and oral argument on the issue of whether Rural Air would be an “unpaid seller” under s 173 of the Contract and Commercial Law Act 2017 (CCLA). Stoneburn contends that, if there is an enforceable agreement for sale and purchase of the aircraft, then s 173 would apply, and the remedies available to Rural Air “do not create an immediate debt due and owing to Rural Air” capable of supporting a statutory demand. Stoneburn contends that the correct process would be for Rural Air to either sell the aircraft and bring a claim for damages, seek an order for specific performance, or bring a claim for the price and obtain judgment which could then be enforced by statutory demand. Rural Air contends that this not a situation covered by s 173 of the CCLA and also contends that property has passed pursuant to s 144(2) of the CCLA.
[20] In my view, it is not necessary for the purposes of the present application to determine whether Rural Air is an “unpaid seller” under s 173 or whether property has passed. Section 191(2) of the CCLA provides that:
“…if the price is payable on a certain day irrespective of delivery, and the buyer wrongfully neglects or refuses to pay the price, the seller has, against the buyer, the right to claim for the price”.
[21] Section 191(3) makes it clear that subsection (2) applies even if property has not passed. Therefore, assuming there is an enforceable contract, it is apparent that Rural Air would be entitled to sue for the price. A further issue then arises as to whether this means there is debt due and presently payable which is capable of supporting a statutory demand,3 or whether Rural Air should have issued substantive proceedings and applied for summary judgment.4
[22] Putting aside the procedural issue, it seems to me that the fundamental issue is whether there is a substantial dispute as to the validity and enforceability of the alleged oral agreement. I now turn to consider this issue.
Capacity/unconscionable bargain
[23] In my view, the application to set aside the statutory demand turns on the issue of capacity and unconscionable bargain.
[24] Mr Lawson, for Rural Air, submits that s 151(2)(f) of the Companies Act 1993 provides that a person is disqualified from being appointed as a director if they are subject to a property order made under s 30 or s 31 of the Protection of Personal and Property Rights Act 1988 (PPPR). He notes that there is no suggestion that Lindsay was the subject of any order under the PPPR Act and, if in fact he had been incapacitated in January 2024, then the company or Lindsay’s son (James) should have sought such an order. He also notes s 158 of the Companies Act provides that the acts of a director are valid even though the person’s appointment was defective, or the person is not qualified for appointment.
3 Brookers Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) at [CA289.02(1)]
4 Gault on Commercial Law (online looseleaf ed, Thomas Reuters) at SI7(6).
[25] However, depending on the particular circumstances, it is arguable that equity may intervene in a transaction where a director of a company is suffering from a qualifying disability or disadvantage (such as illness) which diminishes their ability to assess the bests interest of the company, and the other party is aware of that disability or disadvantage and takes advantage of it.5
[26] In Gustav & Co v Macfield Ltd, the Supreme Court summarised the basis upon which unconscionable transactions are subject to equitable intervention:6
The Court of Appeal dealt fully and accurately with the authorities which discuss the relevant general principles and no issue was raised in this Court regarding those principles. Equity will intervene when one party in entering into a transaction, unconscientiously takes advantage of the other. That will be so when the stronger party knows or ought to be aware, that the weaker party is unable adequately to look after his own interests and is acting to his detriment. Equity will not allow the stronger party to procure or accept a transaction in these circumstances. The remedy is conscience-based and, in qualifying cases, the Court intervenes and says that the stronger party may not take advantage of the rights acquired under the transaction because it would be contrary to good conscience to do so. The conscience of the stronger party must be so affected that equity will restrain that party from exercising its rights at law. All necessary consequential orders may be made in aid of the primary remedy.
[27] The Supreme Court clarified that the focus is on examining whether the transaction is unconscionable at the date it is entered into.7 The principles stated by Arnold J for the Court of Appeal, which the Supreme Court approved, were:8
[30] We do not propose to analyse these authorities in detail. Rather, we derive the following principles from them. The principles stated are not exhaustive, but are sufficient for the purposes of this case.
1Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.
2This equitable jurisdiction is not intended to relieve parties from ‘hard’ bargains or to save the foolish from their
5 This was considered in Gustav & Co Ltd v Macfield Ltd [2008] NZSC 47, [2008] 2 NZLR 735 [Gustav & Co Ltd v Macfield Ltd (SC)]; Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 [Gustav & Co Ltd v Macfield Ltd (CA)]; Gustav & Co Ltd v Macfield Ltd HC Christchurch CIV- 2004-409-1606, 15 July 2005. In that case, the director was an experienced property developer with terminal liver cancer who entered into a property transaction on behalf of his company. After a full trial and cross examination of the witnesses, including a medical witness, it was determined that the transaction fell significantly short of being unconscionable.
6 Gustav & Co Ltd v Macfield Ltd (SC) above n 5, at [6].
7 At [5].
8 Gustav & Co Ltd v Macfield Ltd (CA), above n 5 at [30]–[31].
foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.
3A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party's ability to assess his or her best interests. It is an open- ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.
4If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.
5Before a finding of unconscionability will be made, the stronger party must know of the weaker party's disability or disadvantage and must ‘take advantage of’ that disability or disadvantage.
6The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such inquiry, may be treated as if he or she knew of the disability or disadvantage.
7‘Taking advantage of’ (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:
‘ … circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
8If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.
[31] While factors such as a marked imbalance in consideration or procedural impropriety are generally present in unconscionability cases, neither is a prerequisite for relief. However, if there is no significant imbalance in consideration or if the weaker party received full independent advice it is unlikely that any issue of unconscionability will arise.
[28] For the purposes of this application, it is necessary to consider whether Stoneburn has shown it is arguable that at the time of the alleged oral agreement on 26 January 2024 Lindsay was under a qualifying disability or disadvantage which made him unable adequately to assess Stoneburn’s best interests, and that Rural Air was aware of this and took advantage of it.
[29] Rural Air has produced affidavits from five people who dealt with and/or knew Lindsay, including Mr Calder. Rural Air says that these affidavits show that, at the time of the purchase, Lindsay was not under a qualifying disability or disadvantage. Mr Calder states that Lindsay drove himself to his property to inspect the aircraft and “was not impaired in any way”. He states that at no time did Lindsay “show signs of not having a full understanding of what he was doing and there was nothing in his behaviour to suggest that he was suffering under any form of impairment”.
[30] Craig Hare is a director of Flight Care, an aeronautical engineering company. He says he had known Lindsay for many years and Lindsay asked him to fly with him to Auckland to view a Beaver aircraft he might purchase. However ultimately Lindsay agreed to purchase the Fletcher aircraft from Rural Air/Mr Calder. Mr Hare states that Lindsay commissioned Flight Care to undertake modifications to the aircraft and that Lindsay was “of a clear mind” as to what he wanted, and provided sketches of what he wanted done with the aircraft.
[31] Dennis Thompson is a director and shareholder of an Auckland based company specialising in aircraft sales and servicing, importation and exportation. He states that Lindsay expressed a “keen interest” in purchasing a Beaver aircraft from him in January 2024, and had arranged to fly to Ardmore with an engineer (Mr Hare) to inspect the aircraft. Mr Thompson states he had discussions with Lindsay in which Lindsay proposed modifying the plane to be “like a camper van and tour around Australia in it”. He says that a few days before the inspection Lindsay telephoned him to advise he had changed his mind and had chosen to purchase the Fletcher aircraft.
He states “[t]his came as a surprise to me”, but then says he did not have any concerns about Lindsay’s intentions or capacity to make decisions and he was “very focused and clear on what he wanted to achieve”. Lindsay had also purchased a Cessna aircraft and had requested that Mr Thompson’s firm market and sell it on his behalf, but Mr Thompson never saw the Cessna aircraft.
[32] Bruce Stephenson is an 84 year old company director and states he has known Lindsay “my whole life”. Lindsay “was often popping in for a chat and to bring me up to date with his next venture”. After not seeing Lindsay for a few weeks, Lindsay “suddenly tuned up” to tell him he had just bought the Fletcher aircraft from Mr Calder and was “getting it converted, in his words to ‘a caravan’.” Mr Stephenson states that this “confused me” but Lindsay explained the aircraft would carry camping equipment and gear. He states that, “Lindsay was very pumped up and excited about the operation in Australia and working with his son” and there was “nothing that I saw that would cause me to question his intentions or his capacity to carry them through”.
[33] Finally, Ron Day states he knew Lindsay for five years. Lindsay called in to see him in February 2024 and was “looking the best I had seen him for some time.” Lindsay told him he had been looking at a Beaver aircraft in Auckland but was buying the Fletcher aircraft from Mr Calder. Lindsay “talked at length about the condition of the Fletcher and how good it was” and that he had paid a non-refundable deposit. Mr Day states he was “surprised at the non-refundable part” but Lindsay said “it was definitely going to go through this time (unlike the Beaver)”. Mr Day states that he “never passed judgment on Lindsay’s schemes because I’ve never known anyone to be so positive” and “age didn’t seem to enter his mind as a factor”.
[34] Stoneburn has produced two affidavit from Lindsay’s son, James. He states that Lindsay was first diagnosed with stage four prostate cancer in 2021 and while “it was thought Dad had recovered…. he never quite returned to his normal self”. He states that:
In the years leading up to Dad’s death, I had experienced a decline in Dad’s cognitive and mental health, as had other family and friends - who have let me know they would be willing to testify to this. Conversations with Dad had become difficult to follow. His actions, including purchases, were often random and without much logic. His behaviour had been so unusual, and his
health had deteriorated so much, that I had asked Dad and his accountant to put all transactions before me for approval. The aircraft purchase was not, and I understand his accountant did not know about it prior to the purchase either.
[35] James also states that he became aware of the purchase in the days prior to Lindsay’s death, as Mr Calder called him. James says that at this stage (that is, prior to 3 March 2024) “Dad was incapacitated and his power of attorney had been activated”.
[36] James refers to a letter from Lindsay’s oncologist (Dr Paula Barlow) which is exhibited to his affidavit. The letter records that scans around 13 January 2024 found that Lindsay had extensive metastatic cancer within the brain and that “patients with brain metastases often have impaired cognitive functions including capacity making decisions”. Mr Lawson submits that, notwithstanding Lindsay was under her care, Dr Barlow does not depose that Lindsay was suffering impaired cognitive function and/or impaired capacity for making decisions. He submits that Dr Barlow’s letter is not admissible as evidence (as it is hearsay), but even if it was admissible, it does not establish incapacity.
[37] Stoneburn does not explain why there is no affidavit from Dr Barlow, and, in the circumstances, I cannot assess whether her letter might be admissible under s 18 of the Evidence Act 2006. Rule 7.30 of the High Court Rules provides that a judge may accept statements of belief in an affidavit in which the grounds of belief are given (including in originating proceedings). However, this rule does not apply where deponents rely on hearsay statements of others to assert disputed factual matters.9 In this case I do not consider that it can be seriously in dispute that Lindsay died from metastatic cancer within the brain approximately five weeks after the impugned transaction, and that brain metastases may lead to impaired cognitive function. I agree with Mr Lawson that Dr Barlow’s letter, even if it was admissible, does not establish that Lindsay actually had impaired cognitive function and/or impaired capacity for making decisions. However, Stoneburn is not required to establish that Lindsay suffered from impaired cognitive function and/or decision-making capacity at this stage. Stoneburn is required to show that it is arguable that Lindsay was impaired or
9 HSK Trading Ltd v Carter Building Supplies [2021] NZHC 1897 at [6].
disadvantaged at the time of the oral agreement, and that Rural Air was aware of this and took advantage of it.
[38] In his reply affidavit, James refers to the fact that Lindsay had lost his pilot’s licence in 2022. This had been the subject of several media reports and was “very public” at the time. Mr Calder provided a second affidavit in response to James’ reply affidavit stating that he had no knowledge whether Lindsay held a pilot’s licence and the “short point is that you do not have to hold a pilots license in order to purchase or own an aeroplane”.
[39] With regard to the possibility of Lindsay coming to Australia to be involved in James’ business, James states:
While Dad had said to me that he wanted to come over to Australia to be involved in my business, he did not mention to me that he was going to purchase an aeroplane to convert to a “caravan” that he would fly over to Australia in, and then across long distances in Australia. The whole concept of doing that at his age and after the health issues he had is crazy.
While I loved Dad, he was old and vulnerable and would have been a health and safety risk to my business if there was an accident. I did try and explain this to him, but it would upset him and I did not want to upset him, particularly given all he had gone through with cancer. After a while I let it go – knowing that he would never actually come to Australia or that I would not let him if he actually tried.
[40] James reiterates that, as at January 2024, “[w]e already had plans in place to have transactions approved. He states that “Dad lived in a small rural town…. I suspect that most people in town would have known that Dad had cancer and was still vulnerable”. James exhibits letters from Judy Bain, Lindsay’s sister who held power of attorney for Lindsay and Brian Coakley, who states he knew Lindsay for around 30 years and was also involved in aviation. James states that these people also noticed a deterioration and decline in Lindsay’s behaviour around the relevant time. However, again, Ms Bain and Mr Coakley have not provided affidavits and I am unable to assess whether their hearsay statements are admissible under the Evidence Act. Further, the statements relate to disputed issues of fact and therefore r 7.30 does not apply.
[41] James also states in reply that he was not aware prior to Lindsay passing that he had also been considering purchasing the Beaver aircraft in Auckland, and that he
had recently purchased another Cessna aircraft, which James has since made arrangements to sell. James refers to and exhibits email correspondence between Lindsay and Mr Thompson which is referred to in Mr Thompson’s affidavit.
Qualifying disability
[42] As to qualifying disability, it is apparent that 78-year-old Lindsay, suffering from metastatic cancer within the brain, entered into the alleged oral agreement to purchase the Fletcher aircraft for $250,000 (excl GST) on 26 January 2024, and died approximately five weeks later. Lindsay had recently bought another Cessna aircraft, which he was proposing to sell through Mr Thompson, although it was never delivered to Mr Thompson. There is also reference in an email from Lindsay to Mr Thompson to a further aircraft (“croppy”) which Lindsay proposed to sell through Mr Thompson, but it is not clear from the evidence what aircraft Lindsay is referring to. Lindsay also made enquiries to purchase a further aircraft, the Beaver aircraft, from Mr Thompson. But days before going to Auckland to inspect the aircraft with Mr Hare (an engineer), Lindsay pulled out of the deal because he had chosen to purchase the Fletcher aircraft. This surprised Mr Thompson. Lindsay’s friend, Mr Day, was also surprised that Lindsay had paid a non-refundable deposit for the Fletcher aircraft.
[43] Rural Air’s witnesses depose that there was nothing in Lindsay’s behaviour which indicated he was labouring under any impairment at the relevant time. However, James states he had experienced a decline in Lindsay’s cognitive and mental health in the years prior to his death and his actions, including purchases, were often random and without much logic. James states that, prior to the purchase of the Fletcher aircraft, he had asked Lindsay and his accountant to put all transactions before him for approval. Lindsay was telling people that he intended to modify the Fletcher aircraft to be like a “caravan” and take it to Australia where he would be working with James, and he had provided some sketch designs for modifications to Mr Hare. However, James says that the whole concept of doing this at his age and after his health issues was “crazy”, and the idea of Lindsay working in James’ business was unrealistic. It seems to me that it would be necessary for the Court to consider expert medical evidence, including evidence from Dr Barlow, to assist in resolving the conflicting factual evidence, and to properly determine the issue of impairment or disadvantage.
Actual or constructive knowledge of impairment
[44] As to whether Rural Air had actual or constructive knowledge of any impairment and took advantage of it, it is apparent that Lindsay contacted Mr Calder about the aircraft for the first time on 26 January 2024, and drove to Mr Calder’s house “to look at the plane” the same day. Lindsay had intended to inspect the Beaver aircraft with Mr Hare, but he did not take anyone with him to look at the Fletcher aircraft. Mr Calder must have been aware that Lindsay had only seen the plane that day and there had not been an independent engineering assessment of the aircraft or an independent assessment of the transaction by anyone before Lindsay agreed a price of
$250,000 plus GST with Mr Calder and entered into an alleged oral agreement to purchase the aircraft. There is no evidence from either party regarding the actual market value of the aircraft. There is evidence that the fact that Lindsay had lost his pilot’s licence was in the public domain and had been “very public” in the small rural community. However, Mr Calder states he had no knowledge as to whether Lindsay had a pilot’s licence and says it wasn’t relevant. James also states that he suspects that most people in the small rural community would have known Lindsay had cancer. Mr Calder does not respond to this part of James’ evidence.
[45] There was no formal written agreement produced by Rural Air other than an invoice prepared by Mr Calder’s wife on 26 January 2024 and sent to Lindsay; Mr Calder says no written agreement was required. The alleged terms provided for a short period for payment, with the non-refundable deposit to be paid by 29 January 2024. The aircraft was not to be delivered to Flight Care (Mr Hare) for the 150-hour check until after payment of the non-refundable deposit. The balance of the purchase price had to be paid shortly afterwards, by 10 February 2024. This can be contrasted with the due diligence conditions in Gustav & Co Ltd v Macfield. The Supreme Court found that:10
Furthermore, the due diligence conditions were framed so as to allow Gustav considerable time and scope to assess the viability of the transaction and to make up its own mind with legal assistance whether it wished to proceed. This underlines the lack of anything unconscionable in the terms of the transaction itself, either at the time it was entered into or indeed at any time.
10 At [25].
[46] It is apparent that Lindsay was in communication with Stoneburn’s accountant before paying the deposit, and the accountant paid the deposit on behalf of the company, but there is no direct evidence from the accountant at this stage as to what he knew about the transaction or whether he had any concerns.
[47] Overall, on the basis of the evidence before me, I consider it is arguable that Lindsay was suffering from a disability or disadvantage at the time of the alleged oral agreement which made him unable adequately to assess his and Stoneburn’s best interests, and it is arguable that Rural Air was aware of this and took advantage of it. There are extensive conflicts of evidence between Rural Air’s witnesses and James which raise issues of credibility, and which can only properly be resolved after a full trial and examination and cross examination of the witnesses.11 Accordingly, I find that there is arguably a genuine and substantial dispute as to the validity and enforceability of the alleged oral agreement and therefore as to the existence of the debt.
Other grounds relied on by Stoneburn
[48] Given my finding above that there is a substantial dispute as to the validity and enforceability of the alleged oral agreement and therefore as to the existence of the debt based on unconscionable bargain, I do not need to consider Stoneburn’s other argument as to lack of acceptance and consideration. Nor do I need to consider Stoneburn’s argument that the statutory demand is an abuse of process (which is to some extent based on the assumption that there is a substantial dispute) and/or that it is just and equitable that it be set aside because Rural Air has other remedies.
Result
[49] The statutory demand is set aside under s 290(4)(a) of the Companies Act 1993.
11 As occurred in Gustav & Co Ltd v Macfield Ltd (SC), above n 5; Gustav & Co Ltd v Macfield Ltd (CA), above n 5 ; Gustav & Co Ltd v Macfield Ltd HC Christchurch CIV-2004-409-1606, 15 July 2005.
[50] I have not heard fully from the parties on costs. My preliminary view is that costs should follow the event and that Stoneburn is entitled to 2B costs and reasonable disbursements as fixed by the Registrar. The parties should be able to agree on costs. However, if agreement cannot be reached, then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
Anderson Lloyd, Queenstown for Applicant Lawson Robinson, Napier for Respondent
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