THE NEW INDIA ASSURANCE COMPANY LIMITED AND ZIWI LIMITED
[2024] NZHC 2770
•26 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000946
[2024] NZHC 2770
BETWEEN THE NEW INDIA ASSURANCE COMPANY LIMITED
ApplicantAND
ZIWI LIMITED
Respondent
Hearing: 26 August 2024 Appearances:
C Walker KC and S M W Chow for the Applicant B J Burt for the Respondent
Judgment:
26 September 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 26 September 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Duncan Cotterill, Auckland Mayne Wetherell, Auckland
J Burt, Auckland
C Walker KC, Auckland
THE NEW INDIA ASSURANCE COMPANY LTD v ZIWI LTD [2024] NZHC 2770 [26 September 2024]
Introduction
[1] The New India Assurance Co Ltd (NIA) applies to set aside a statutory demand served by Ziwi Ltd (Ziwi), for $8,625,000 (including GST).
[2] From 1 October 2022 to 1 September 2023, Ziwi was insured under material damage (MD) and business interruption (BI) policies, whereby NIA provided 30 per cent co-insurance support.
[3] Ziwi claimed under the policies after the 2023 Cyclone Gabrielle floods affected three of Ziwi's locations. The claims were accepted. NIA made progress payments totalling $15,000,000 (plus GST), in addition to those paid by co-insurers.
[4] Ziwi claims that a further sum is presently owing and is a "debt" within s 289 of the Companies Act 1993. NIA says that there is no debt owing and that Ziwi is abusing the statutory demand process.
[5] Despite that, NIA paid Ziwi an additional $3,748,053 (including GST) the day before the hearing, based on its interpretation of the policies.
[6]There are three main issues to determine:
(a)Is there a genuine and substantial dispute as to whether the debt is owing? This turns on two sub-issues:
(i)Is there a genuine and substantial dispute about the correct interpretation of the BI policy?
(ii)Is NIA is obliged to follow the decision of the lead insurer?
(b)If the debt is owing, is there a genuine and substantial dispute about whether the debt was due when the statutory demand was issued?
(c)If so, was issuing the statutory demand an abuse of process?
Background
[7] Ziwi is a manufacturer of premium pet food products. It operates four processing facilities — one in each of Awatoto (Napier), Greenmeadows (Napier), Twyford (Hastings) and Burnham (Christchurch) — in addition to a packaging facility in Tauranga. The Awatoto facility is relatively new — it was commissioned and began production in August 2022, with the intention of significantly increasing Ziwi’s production capacity.
[8] Prior to the 2022/2023 renewal, Ziwi’s MD and BI insurance cover was provided by QBE Insurance (Australia) Ltd (QBE). However, because Ziwi required increased cover at the 2022/2023 renewal, QBE was unable to underwrite the full amount of cover alone. Ziwi’s MD/BI insurance for the period from 1 October 2022 to 1 September 2023 was therefore placed with four co-insurers in the following proportions: QBE 50 per cent, NIA 30 per cent, Ando Insurance Group Ltd 10 per cent and Offshore Market Placements Ltd 10 per cent.
[9] The policy schedules, also referred to as the placing slips, recorded an MD “Total Sum Insured” of $97,245,217 (made up of plant replacement value of
$53,924,217 and stock indemnity value of $43,321,000), and a BI “Total Sum Insured” of $71,050,000.
[10] On 13 and 14 February 2023, Ziwi suffered significant damage to the plant, equipment and stock at its Awatoto facility during Cyclone Gabrielle. This caused disruption to Ziwi’s business for a protracted period. Consequently, Ziwi claimed under the MD and BI policies.
[11] The co-insurers appointed a loss adjuster, Thomas Pasley from Integra Technical Services (Integra). Integra issued reports to the co-insurers on 10 March 2023 and 19 May 2023. Based on these reports, NIA made three progress payments to Ziwi between 24 March 2023 and 29 August 2023 totalling $15,000,000 (plus GST).
[12] Integra issued a third report on 13 December 2023, a fourth report on 18 December 2023 and a fifth report on 26 March 2024. While the other co-insurers made further progress payments based on these reports, NIA did not.
[13] The 2022/2023 MD and BI policies expired on 1 October 2023 (after a one- month extension), and the 2023/2024 MD and BI policies commenced with QBE, NIA and other co-insurers.
[14] However, on 6 March 2024 NIA notified Ziwi’s broker, Tim Groenestein of Gallagher, that the 2023/2024 policies were cancelled effective from 20 March 2024.
[15] On 4 or 5 April 2024, Ziwi issued the statutory demand on NIA for an alleged debt of $8,625,000 (including GST).
[16] On 12 April 2024, NIA’s lawyers wrote to Ziwi setting out NIA’s position that the BI sums insured were limited by location and requested that the statutory demand be withdrawn.
[17] On 15 April 2024, Ziwi’s lawyers informed NIA’s lawyers that they would not withdraw the statutory demand.
[18] On 21 June 2024, Ziwi reached an agreement with QBE to resolve Ziwi’s claim for a total of $96,500,000 (plus GST). On 27 June 2024, Ziwi and the co-insurers under the 2022–2023 policy (except for NIA) executed a settlement agreement and discharge. The terms of the settlement agreement provide for NIA to pay
$16,042,500.00 (including GST).
Legal Principles
[19] The Companies Act provides that a statutory demand must be in respect of a debt that is owing and due:
289 Statutory demand
(1) A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.
(2)A statutory demand must—
(a)be in respect of a debt that is due…
…
[20] The debt cannot be a contingent or prospective debt.1 The debt must have fallen due at the date of the demand.2
[21]The Court may set aside a statutory demand if it is satisfied that:3
(a)there is a substantial dispute about whether or not the debt is owing or due;
(b)the company applying to set aside the demand 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 of $1000;4 or
(c)the statutory demand ought to be set aside on other grounds.
[22] The general principles that apply to applications to set aside statutory demands are well-settled:5
(a)The applicant must show there is a genuine and substantial dispute as to the existence of the debt. However, the applicant need only show that there is a “fairly arguable” basis on which the applicant is not liable for the amount claimed;6 there is no obligation to prove the actual defence. The Court’s task is not to resolve the dispute, but to determine whether there is a substantial dispute over the alleged debt.
(b)The mere assertion of a dispute is insufficient. Material short of proof is required to support a claim that a debt is disputed. If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before a statutory demand is issued.
1 Precinct Properties Holdings Ltd v Golden Tower NZ Ltd [2019] NZHC 3225 at [5].
2 Re Bryant Investment Co Ltd [1974] 1 WLR 826 at 828; and All Safe Scaffold Ltd v Coghlan
[2016] NZHC 3106 at [13].
3 Companies Act 1993, s 290(4).
4 Companies Act 1993 Liquidation Regulations 1994, reg 5.
5 See Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
6 Hillcrest Marketing Ltd v Moyes Motor Group Ltd HC Auckland M1410/96, 10 December 1996.
(c)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.
[23] A statutory demand can be allowed to stand in reduced figures representing items not open to dispute.7
Is there a genuine and substantial dispute about whether the debt is owing?
[24] NIA clams that there is a genuine dispute about whether the debt claimed in the statutory demand is owing, because the debt is based on an interpretation of the BI policy that it disputes.
[25] It is not enough for NIA to simply state that it disputes Ziwi’s interpretation of the policy. To have the statutory demand set aside, NIA must establish that there is a genuine dispute that should be determined through ordinary proceedings before the statutory demand procedure is invoked.
Is there a genuine and substantial dispute about the correct interpretation of the BI policy?
[26] NIA says that the MD and BI policies were procured and written on the express basis that each Ziwi site would have a specific sum insured limit for MD and for BI. NIA says that on 21 September 2022 and 29 September 2022, Ziwi, through its broker Gallagher, submitted spreadsheets in which Ziwi only sought BI cover for four of its 17 sites, and Ziwi proposed MD and BI sums insured specific to each site. NIA says that it expressly agreed to provide coinsurance support based on the sums insured stipulated in the spreadsheet.
[27] In the alternative, NIA says that to the extent that the BI policy wording does not reflect the common intention that BI cover would only be provided for the four stipulated sites and would be limited by sums insured specific to each site,
7 21st Century Investments Ltd v ANZ National Bank Ltd [2011] NZCA 548 at [41]–[42], citing
United Homes (1988) Ltd v Workman [2001] 3 NZLR 447, (2001) 9 NZCLC 262,605.
the policy must be rectified so that the BI policy refers to the 29 September 2022 spreadsheet.
[28] Ziwi rejects that there are site-specific sub-limits to the BI cover (or the MD cover). Ziwi says the BI policy indemnifies it for loss resulting from business interruption in connection with loss or damage to any of its property covered by the MD policy, up to the global limit (the "Total Sum Insured" in the BI policy schedule) of $71,050,000.
[29] Ziwi says that the BI policy makes no mention of any site-specific sub-limits (or any sub-limits at all), nor does it incorporate or even reference the spreadsheet upon which NIA seeks to rely. It says that the only relevance of the spreadsheet is to specify the locations at which the MD Policy covers plant and stock, and to declare the values serving to make up the overall sums insured. However, it says those values do not operate to limit either the MD or the BI policy coverage at any location.
Is NIA obliged to follow the decision of the lead insurer?
[30] Ziwi further contends that whatever NIA’s view of the BI policy, NIA is bound to follow the approach taken by the lead insurer, QBE. QBE has agreed with Ziwi that the sums insured are to apply globally, and it has settled Ziwi’s claim on that basis.
[31] The MD and BI policy schedules record that the policies are subject to the Co-insurance Lead clause R1610.02 (lead clause), which provides:
In this Policy, and unless the context requires otherwise, all references to QBE Insurance (Australia) Limited (“the Lead Insurer”), are deemed to include all other insurers participating in this Policy.
The participating insurers agree to accept any decision of the Lead Insurer and to follow that decision in all matters relating to this Policy, other than in respect of any ex-gratia settlement proposed by the Lead Insurer or where there is a material change to the risk/s insured under this Policy.
[32] NIA denies that it is bound to follow QBE’s “global limit” approach. It says that the obligation to follow only applies in respect of “any decision…relating to” the
policies, such as a decision to appoint a particular loss adjuster. It says it is not up to any of the insurers, including the lead, to “decide” what the scope of cover under the policy is; that is a matter of law. NIA submits that the two express exceptions for a proposed ex gratia settlement or a lead decision which materially alters the risks a co-insurer agreed to insure confirm this position.
[33] NIA has filed expert evidence from an experienced insurance practitioner, Matthew Chandler-Wall. Mr Chandler-Wall’s evidence is:8
22 …the co-insurance lead clause R1610.02 is intended (subject to certain limits) to bind co-insurers having a lesser percentage of the cover to ‘follow’ decisions made by the lead insurer. However, that does not mean that co- insurers are required to automatically follow all decisions by the lead insurer.
23 It is not a blind “follow the leader” approach; based on my experience, it is never set in stone that co-insurers will automatically be bound by the decisions of the lead insurer. For example, if a lead insurer were to make a decision to accept a claim which is in whole or part outside the scope of the policy’s cover (e.g. an ex-gratia decision made for business reasons) then that is not binding on the co-insurers. The accepted market practice would then be that each co-insurer would be entitled [to] make its own decision about whether it will accept what the lead insurer has decided to do.
[34] Consequently, NIA says, the lead clause does not apply to the settlement entered into by the other co-insurers with Ziwi.
[35] Alternatively, that the settlement was an ex gratia settlement, an exception to its obligation to follow the lead insurer. NIA says that if QBE decides to afford cover that is not required by the policy, that is an ex gratia payment. It says that whether a payment is ex gratia must turn on whether it is provided for in the policy or not, rather than on QBE’s belief as to whether it is provided for in the policy.
[36] Furthermore, NIA says that it contracted on the basis that there were sum insured limits for both MD and BI per location. If QBE decides not to apply those limits, it materially alters the risks which NIA agreed to insure, so the second exception applies.
8 Affidavit of Matthew Edward Chandler-Wall, sworn 18 April 2024.
[37] Ziwi responds that to adopt such a construction limiting the ambit of the lead clause would be to “drive a coach and horses” through the clear purpose of the clause. It relies on PT Buana Samudra Pratama v Maritime Mutual Insurance Association (NZ) Ltd, where the Queen’s Bench rejected the proposition that a “follow clause” in a policy only required the defendant co-insurer to follow the lead insurer’s decisions on the quantum of claims within the terms of the policy. 9 The Court held that the clause encompassed decisions or settlements as to whether a claim fell within the terms of the policy.10
[38] Ziwi emphasises that the lead clause here requires participating insurers to agree and accept any decision of the lead insurer, and to follow that decision in all matters relating to the policy.
Analysis
[39] In my assessment, NIA has raised a genuine and substantial dispute over the correct interpretation of the BI policy. Furthermore, I am not satisfied, based on the evidence before me, that the lead clause was triggered so as to override that dispute when the statutory demand was issued.
[40]First, I address the dispute relating to the policy.
[41] The MD and BI policies must be read together, because BI cover is dependent on there being physical damage covered by the MD policy.
[42] The relevant MD policy wording is the “Crombie Lockwood QBE Agreed Material Damage Policy Wording” (May 2014). The insuring clause states:
In consideration of the insured having paid or having promised to pay the required premium, the insurer agrees to indemnify the insured for Loss or Damage to Insured Property during the Period of Insurance in accordance with the terms of this policy.
The Policy Schedule attached to this policy forms part of the policy.
(emphasis added)
9 PT Buana Samudra Pratama v Maritime Mutual Insurance Association (NZ) Ltd [2011] EWHC 2413 (Comm), [2011] 1 Lloyd’s Rep 655 at [26].
10 At [26].
[43] “Loss or Damage” is defined to mean “Unintended and unforeseen physical loss or physical damage”.
[44]“Insured Property” is defined as:
All tangible property of every description at the Location not expressly excluded by this policy;
(a)owned by the Insured,
(b)in the Insured’s care, custody or control,
(c)property held by the Insured jointly or in trust,
(d)property held by the insured on commission,
(e)property for which the Insured is responsible or had assumed responsibility at the time of any Loss or Damage, including property which is sold but not delivered or for which payment has not been received.
(emphasis added)
[45]“Location” is defined to include:
(a)All premises owned, leased or used by the Insured as detailed in the Schedule of Insured Property attaching to the policy.
[46] The MD policy schedule sets out the specific details relevant to the insured. These include the names of the insured and the insurer (or co-insurers in this case), the period of insurance, the schedule of property insured, endorsements and/or clauses, excesses and insurer ratings. The policy schedule states that “This schedule forms part of the Policy Wording”.
[47]The section headed “Schedule of Property Insured” has the following details:
[48]I will return to the spreadsheet referred to in the schedule.
[49] Turning to the BI policy wording (the “Crombie Lockwood QBE Agreed Business Interruption Policy Wording” (May 2014)), the insuring clause provides:
In consideration of the Insured having paid or having promised to pay the required premium, the Insurer agrees to indemnify the Insured for loss resulting from interruption to or interference with the Insured’s Business in connection with Damage during the Period of Insurance to any buildings or other property owned, used or intended to be used by the Insured, in accordance with the terms of this policy.
The maximum amount payable under this policy during the Period of Insurance for each insured item is the sum insured for that item.
The maximum amount payable under the policy during the Period of Insurance for all loss arising from any one insured event for all insured items is the total sum insured as specified in the Policy Schedule.
(emphasis added)
[50]“Damage” is defined as:
Unintended and unforeseen physical loss of or physical damage to any property [occurring] during the Period of Insurance:
(i)That is accepted as a claim under the Insured’s Material Damage policy or would have been accepted but for the application of an excess, or
(ii)That would have been accepted as a claim under a Material Damage policy had the Insured owned the property, or…
[51] The BI policy schedule contains the same details as the MD policy schedule, namely the names of the insured and the co-insurers, the period of cover, endorsements and/or clauses, excesses and insurer ratings. However, whereas the MD policy schedule contains a “Schedule of Property Insured”, the BI policy schedule includes a “Schedule of Items Insured”. This corresponds with the insuring clause in the BI policy wording, which defines the maximum amounts payable with reference to item(s) insured.
[52]The “Schedule of Items Insured” section in the BI policy schedule reads:
[53] To summarise then, under the BI policy the co-insurers agreed to indemnify Ziwi for loss resulting from interruption to or interference with Ziwi's business, where the interruption/interference occurred in connection with unintended and unforeseen physical loss of, or damage to, any property of Ziwi, provided the loss or damage to the physical property was covered by the MD Policy, or would have been had Ziwi owned the property, or but for the application of an excess.
[54] The MD policy covers all tangible property owned, controlled or held by Ziwi (or for which it was responsible) at all the premises owned, leased or used by Ziwi identified in the "Schedule of Insured Property" (the Location(s)). In this case, the Location is "as per the attached spreadsheet".
[55] The BI "Schedule of Items Insured" defines the Location(s) for which BI cover is provided for the insured items (such as gross profit) as "All Locations". This can only refer to the Location(s) defined in the MD policy, as this term is not defined in the BI policy wording or the BI policy schedule.
[56] It is common ground that the spreadsheet referred to in the MD policy schedule’s “Schedule of Property Insured” is an A3 document named “Reformatted MDBI Premium Calculation 2022(18870989.1).xlsx - MDBI”. The heading is “Ziwi Limited - 1 October 2022 To 1 September 2023 Material Damage & Business Interruption”. The spreadsheet shows information for 22 locations throughout New Zealand, evidently owned or operated by Ziwi, including:
(a)the “Cresta Zone” for each location
(b)the “Occupancy” (i.e., the use of each site);
(c)the “Year Built” (for six of the locations);
(d)information about the nature of the “Construction” (for all but one location);
(e)the nature of the “Fire Protection”, for eight locations;
(f)the nature of the “Security” systems, for the same eight locations;
(g)the “Plant” value and “Stock” value, where applicable, which is summed to a “Sum Insured” for each location (impliedly for MD);
(h)an “Indemnity Value” for each location;
(i)the “Gross Profit”, “Additional Costs”, and “Claim Prep” (claims preparation costs), where applicable, which are summed to a “Sub Total BI” (this was only for four of the 22 locations); and
(j)a “Total MDBI Sum Insured” for each location, which is the sum of the values in the “Sum Insured” and “Sub Total BI” columns for each location.
[57] The total of the “Sub Total BI” column is $71,050,000; and the total of the “Total MDBI Sum Insured” column is $168,295,217.
[58] The total values for “Plant”, “Stock” and “Sum Insured” across all locations in the spreadsheet correspond with the “Plant”, “Stock” and “Total Sum Insured” values in the MD policy schedule. The total values for “Gross Profit”, “Additional Costs”, “Claim Prep” and “Sub-total BI” correspond with the values for “Gross Profit”, “Additional Increased Costs of Working”, “Claim Preparation Costs” and “Total Sum Insured” in the BI policy schedule.
[59] Ziwi’s broker, Mr Groenestein, sent Rajendra Parikh of NIA a version of this spreadsheet on 21 September 2022, when he enquired whether NIA would be interesting in affording cover. His email said:
Attached you will find quotation slip, spreadsheet of values by location with some basic COPE info in it…
QBE have indicated they will need to reduce capacity back to 50-60% lead due to the values at Awatoto, so I’m looking for co-insurance support on this programme…
[60] Attached to the email were: quotation slips for MD and BI, a risk engineering report for Ziwi's new Awatoto (Napier) location, and the spreadsheet. Mr Groenestein explained:
…Last year’s rating attached (Gross) in the spreadsheet for your information (which I don’t expect too much deviation from)…
[61] Mr Parikh reviewed this information and then responded to Mr Groenestein by email on 23 September 2022:
Thanks for your submission for above risk.
We have reviewed MDBI sums insured break up and other details provided.
We are able to offer 25 to 30% co-insurance support for this group subject to acceptable lead terms.
[62] On 28 September 2022, Mr Groenestein sent an email to Mr Parikh attaching formal terms from QBE, and asking if NIA would write 30 per cent at those terms. He sent separately a revised version of the "MDBI Premium Calculation 2022.xlsx" spreadsheet.
[63]Mr Parikh responded the same day, saying:
Thanks for renewal lead terms for above risk.
We have reviewed our exposure based on break up of MDBI sums insured provided for this risk.
We confirm 30% co-insurance support for this risk as per renewal terms quoted by QBE subject to following changes / conditions:
1. A lead signed Placing slip for our share to be provided to New India by 7th October 2022.
2. Tax Invoice with premium calc summary to be provided by 21st October 2022 failing which policy stands cancelled immediately and no notice will be given.
3. We will claim TIME ON RISK premium for 21 days if renewal closings are not provided by 21st October 2022.
[64] Mr Groenestein responded by email on 29 September 2022, providing the policy schedules for signature and return, and an updated version of the spreadsheet. He noted that one of Ziwi’s locations had reduced plant and stock and would become disused so “the overall values [had] decreased slightly”.
[65] The significance and effect of the spreadsheet is the key point of contention between the parties. NIA maintains that Ziwi’s BI cover is limited to the four Ziwi locations in the spreadsheet with an entry for “Sub Total BI”, and the limit of cover for each location is the value of the entry. On this interpretation, Ziwi’s insurance for business interruption losses arising out of its Awatoto site is limited to $28,050,000. Conversely, Ziwi says that the only purpose of the
spreadsheet was to identify the locations at which the MD policy covers plant and stock, and the only limit on Ziwi’s BI insurance is the “Total Sum insured” value in the policy schedule of $71,050,000.
[66] The interpretation advanced by NIA has difficulties. First, it is inconsistent with the insuring clause in the BI policy wording. The insuring clause refers to business interruption loss connected to “Damage” to any buildings or other property owned or used by Ziwi, and “Damage” is primarily defined to include physical damage/loss that is or would have been accepted under the MD policy. So, cover is available under the BI policy regardless of where the damage occurs, provided that it is damage to a building or property covered by the MD Policy.11
[67]Second, the insuring clause states:
The maximum amount payable under this policy during the Period of Insurance for each insured item is the sum insured for that item.
The maximum amount payable under the policy during the Period of Insurance for all loss arising from any one insured event for all insured items is the total sum insured as specified in the Policy Schedule.
(emphasis added)
[68] There is no reference in the insuring clause to the spreadsheet or values given in a spreadsheet. The maximum amounts payable are prescribed with reference to the sum insured for each item; and the total sum insured for all items specified in the policy schedule. The policy schedule does not define the sum insured for each item or the total sum insured for all items with reference to specific locations. It gives aggregate sums insured for all locations.
[69] Third, the BI policy schedule describes the “Location” of the “items insured’ as “All Locations”. NIA submits that the reference to “All Locations” must, in context, refer to all the locations shown in the spreadsheet as having BI cover, rather than all Ziwi’s locations. That submission is not compelling. The word “Locations” in the BI policy schedule must be a reference to the “Locations” defined in the MD policy wording and identified in the MD policy schedule with reference to the spreadsheet.
11 Or unintended/unforeseen physical loss/damage caused by explosion, overheating, rupture, bursting, cracking, leakage or collapse of any pressure vessel.
The natural meaning of the words “All Locations” is just that — all the locations identified in the spreadsheet. If the BI cover was intended to be limited to four locations one would expect the policy schedule to specify that, rather than to say “All Locations”.
[70] Having said that, NIA need not establish that its interpretation is correct, or even that it is reasonably arguable. It need only establish that there is a real dispute which should be resolved through ordinary proceedings.
[71]I find that there is such a dispute for three reasons.
[72] It is undisputed that Mr Groenestein sent Mr Parikh the spreadsheet with the policy proposal — in fact, he sent multiple versions. If the purpose of the spreadsheet was merely to show Mr Parikh the basis for the premium calculation, and to identify the locations insured, it is difficult to understand why the final spreadsheet referred to in the MD policy schedule included site-specific values. Mr Groenestein has not given evidence.
[73] Additionally, there is uncontested expert evidence that insurers do (sometimes) choose to limit their exposure for BI cover by imposing sub-limits relating to specific locations. Mr Chander-Wall says:
17 The other way in which an insurer's capacity is limited for risks of this complexity is by adopting a location-by-location limit to the amount of the cover. This approach is the standard approach in the New Zealand market after the Canterbury earthquakes when capacity for insurance become extremely limited, and continues today for the likes of Wellington, where insurers are managing the aggregate earthquake exposure.
18 …The schedule presented will list the total amount of cover for that particular situation of risk for either the MD or BI cover being sought. The schedule is then referred to in the Placing Slip and forms the basis upon which the co-insurers accept their risks (and in turn upon which they confirm their internal reinsurance arrangements)…
[74] Furthermore, in his emails of 23 and 28 September 2022, Mr Parikh confirmed support after reviewing the “MDBI sums insured break up and the “break up of MDBI sums insured”. Objectively, this statement could refer to the sums insured per location for BI and for MD in the spreadsheet.
[75]I now turn to consider the lead insurer clause.
[76] As noted, Ziwi’s position is that whatever NIA’s interpretation of the policy, NIA is obliged to follow the “global sum insured” approach of the lead insurer; whereas NIA disputes that the lead clause applies to the lead insurer’s decision to adopt this approach and settle with Ziwi on that basis.
[77] I mean no disrespect to the submissions of counsel, but in my view, this is an issue for another day. That is because there is no evidence before me to show that QBE had made a “decision” within the meaning of the lead insurer clause by 4 or 5 April 2024, when Ziwi issued the statutory demand.
[78] The only evidence of QBE’s position is hearsay evidence appearing through Mr Pasley’s briefing note of 22 January 2024 on the issue of site limits to the BI policy. QBE has not given evidence in this proceeding. Nor has Mr Pasley. The briefing note is attached to an affidavit of Mr Parikh.
[79] The briefing note is described as responding to “questions raised by co-insurers on the application of site limits vs Total Sums Insured, specifically addressing the questions and advice of OMPL, on behalf of Lloyd’s, and NIA”. In the cover email, Mr Pasley states that QBE “has signed off on the attached document and confirmed to us that it will not be seeking to apply lower limits than the Total Sums Insured, for the reasons set out in our Briefing Note”. Within the briefing note, Mr Pasley expands that QBE’s view, with which Integra agreed, was that the spreadsheet was not attached to and did not form part of the policy, and the declared value of $70 million gross profit applied across all locations.
[80]The briefing note concludes:
We submit this Briefing Note for your collective consideration. QBE has indicated that it considers the limits identified by OMPL (Stock) and [NIA] (Stock and BI), do not apply for the reasons set out above, principally that the Limits or Sums Insured were not imported into the Policy. We now await your individual instructions…
[81] In my view, it is disputable whether QBE’s “indication”, communicated to the co-insurers through this briefing note, constituted a “decision” within the meaning of
the lead clause. Without direct evidence from QBE or Mr Pasley, I am unable to conclude that QBE had made a “decision” by this point in time, or by 4/5 April 2024, that the co-insurers were obliged to follow.
[82] In the absence of evidence, an available inference is that it was not until June 2024 that QBE made a “decision” when it agreed, on behalf of all co-insurers, to settle Ziwi’s claim. Arguably, at that point, the lead clause was triggered, and NIA became obliged to follow. But until that point, arguably there was no clear lead insurer decision for NIA to follow, and therefore the interpretation of the policy remained disputed.
Is there a genuine and substantial dispute as to whether the debt was due when the statutory demand was issued?
[83] NIA submits that Ziwi has not proved that it is entitled to any amount, beyond the $15,000,000 (excluding GST) already paid by NIA. Further or alternatively, NIA submits that there is no sufficient evidence that there was a liquidated sum due at the time the statutory demand was issued.
[84] NIA submits that when the statutory demand was served (which it says occurred on 5 April 2024), Ziwi’s claims for cover under the MD and BI policies were still being processed, and the quantum of the claim had not been finalised.
[85] NIA says that this lack of finality is evidenced by Ziwi’s notice of opposition and the alternative calculations presented in Mr Boase’s second and third affidavits. In Ziwi’s notice of opposition filed on 4 June 2024, and Mr Boase’s second affidavit, it was contended that there was a lesser, undisputed amount of at least $1,642,119 (plus GST) which was due and payable even on NIA’s interpretation of the BI policy. Then, in Mr Boase’s third affidavit, in the context of discussing the settlement agreement and discharge as at 5 July 2024, Mr Boase claimed that the alternative and undisputed amount owing was actually $3,748,053.
[86] Ziwi maintains the debt was owing at the time the statutory demand was issued. It submits that NIA’s obligation under the BI policy was to indemnify Ziwi against loss it has suffered, and that obligation was triggered at the time the loss was suffered,
subject only to the terms of the BI Policy. Ziwi says that the insurers had appointed Integra as loss adjuster, to determine the loss on their behalf, and that by 28 March 2024, all other co-insurers had agreed to payments totalling $86,250,000 including GST (on a 100 per cent basis) based upon Integra’s recommendations. Ziwi says that the amount which Integra had recommended by that time (and to which all other co-insurers had committed) vastly exceeded the amount of approximately $70,000,000 (including GST) needed to trigger NIA’s exposure of $3,748,053 based upon its incorrect interpretation of the Policy.
[87] Consequently, Ziwi submits that even if NIA’s interpretation of the policy is arguable (which is denied), the statutory demand ought to be upheld in the lesser amount of $3,748,053 (including GST). This is the amount calculated by Integra — NIA’s own loss adjuster — as owing by NIA to Ziwi under NIA’s interpretation of the BI policy.
[88]As noted earlier, NIA has now paid this lesser sum of $3,748,053.
Analysis
[89] I am of the view that it is at least arguable that the debt, even if owed, was not due when the statutory demand was issued.
[90] When Ziwi served the statutory demand on NIA on 4 or 5 April 2024, QBE had accepted indemnity, but as each report of Integra emphasised, the quantum of Ziwi’s claim was evolving and subject to Integra’s verification.
[91] Relevantly, in Integra’s fifth report to the co-insurers (excluding NIA) dated 26 March 2024, Integra noted that it had been working extensively with Ziwi to evaluate the revised claim Ziwi submitted on 11 December 2023. Integra stated that the main purpose of the fifth report was to recommend a fifth progress payment of
$15,000,000 (plus GST), “While we continue to work with Ziwi with a view to reaching a final settlement of the claim”. Integra said that, based on NIA’s position on the site-specific sub-limits, it would report to NIA separately as to its 30 per cent. Integra concluded that it continued to work with Ziwi “to quantify the final loss”.
[92] In a separate email to NIA dated 7 March 2024, Mr Pasley calculated that based on NIA’s approach, and NIA having paid $15,000,000, NIA would have $3,307,229 plus GST ($3,803,313.35 including GST) to pay.
[93] In an email dated 22 March 2024, Mr Pasley informed NIA that Integra had received a revised (but not final) claim submission from Ziwi in the previous two days, which they were reviewing. It appears that Integra provided a copy of the fifth report to co-insurers to NIA on 4 April 2024.
[94] Mr Boase seems to accept that Ziwi’s claim was not finalised until June 2024. His affidavit dated 27 May 2024 (in opposition to the application to set aside the statutory demand) states:12
39. The claim process has involved Ziwi providing information to Integra … for assessment on an iterative basis as the claim has evolved, and further details as the losses suffered have become known.
…
42. The quantum of the claim has grown iteratively as new and better information has come to hand on the losses suffered by Ziwi during the indemnity period…
…
52. Ziwi’s BI claim totals circa $80 million, although it observes that this will be limited to $71 million due to the total sums insured.
53. A number of reports have been presented by Ziwi’s Claim Preparer to Integra in the form of integrated Excel spreadsheet models and detailed supporting narrative. These have in turn caused Integra to report to insurers, which have included interim payment recommendations.
54. Ziwi has continued to supply supplementary information to Integra, in order to assist it in its deliberations since Ziwi’s third report in December 2023.
…
56. Ziwi has met with Integra’s representatives in Awatoto and Auckland in February 2024, to discuss and answer Integra’s queries and to address any concerns that Integra has expressed as part of the process in validating the claim. Ziwi continues to provide further requested information and to meet with Integra’s representatives to close any gaps in knowledge and get to an
12 Affidavit of Benjamin Paul Boase in Opposition to Originating Application to Set Aside Statutory Demand, dated 27 May 2024.
end point to agree a final claim amount with insurers. That amount is likely to be in the region of $100 million.
[95] Mr Boase also acknowledges that the interim non-specific payments recommended by Integra are an acknowledgement that the total amount of Ziwi’s claim will not be less than the total value of those payments.13
[96] Integra’s sixth and final report circulated on 26 June 2024 confirms that Ziwi’s claim continued to evolve until at least mid-May 2024. The report records that since the fifth report, Integra had continued to engage with Ziwi and receive verbal and written supporting data in Ziwi’s efforts to validate its claim. The report notes that Ziwi submitted a final submission on 15 May 2024. It records that as a result of Integra’s “many meetings, extensive analysis and data review”, Integra issued a briefing note on 4 June 2024 setting out a proposed settlement figure, and a settlement proposal was sent to Ziwi on 12 June 2024. It states that Ziwi reached agreement with QBE, acting on behalf of all co-insurers, on 20 June 2024.
[97] The fact that Ziwi’s claim was still evolving during May/June 2024 is apparent from an email sent by Mr Pasley to Venkat Sridhara of NIA on 25 June 2024:
I had started the update report to you however the quantum figures kept moving until recently making finalisation of the [sixth] report a challenge.
[98] Even on Ziwi’s own evidence, the amount of the alleged debt was not finalised until the settlement agreement and discharge was executed by the co-insurers (other than NIA) on 27 June 2024. In the context of discussing the settlement agreement and discharge under the heading “Finalisation of Ziwi’s claim” in his second supplementary affidavit, Mr Boase says:14
5. Having finalised the amount of Ziwi’s claim, the total amount payable by each insurer has now been crystallised. Because NIA is a co-insurer for 30%, it is obliged to pay Ziwi a total of $28,950,000 plus GST in respect of the claim. However, having already paid $15,000,000 plus GST, NIA now owes Ziwi the balance of $13,950,000 plus GST – a total of $16,042,500.
13 Affidavit of Benjamin Paul Boase in Opposition to Originating Application to Set Aside Statutory Demand, above n 12, at [62].
14 Second Supplementary Affidavit of Benjamin Paul Boase in Opposition to Originating Application to Set Aside Statutory Demand, dated 5 July 2024.
[99] Curiously, the statutory demand is for an alleged debt of $8,625,000 (including GST), said to be for 30 per cent of the fourth and fifth non-specific progress payments recommended by Integra. But, as noted, NIA was explicitly excluded from the fifth report to co-insurers on 26 March 2024 because of NIA’s position on the site-specific sub-limits. Furthermore, the figure cannot be the sum of the recommended progress payment from NIA in the fourth report ($3,450,000 including GST) and the separate calculation made in the 7 March 2024 email ($3,803,313.35 including GST), as this comes to $7,253,313.35 (including GST).
[100] In any event, I am clear that it is at least arguable that the debt, even if owed, was not due when the statutory demand was issued. NIA’s obligation to indemnify Ziwi against loss arose at the time the loss was suffered. But until that loss was quantified it is arguable that there was no debt for a certain amount owing and due.
[101] By April 2024, the loss adjuster had recommended certain progress payments based on the expected final quantum of Ziwi’s claim. Ziwi seeks to characterise Integra’s recommendations as creating a debt because the amount recommended exceeded the amount needed to trigger NIA’s exposure of $3,748,053 based upon its interpretation of the BI policy. I consider that it is at least arguable that Integra’s recommended progress payments did not constitute a debt; rather, they were recommended progress payments against a debt that would crystallise when the final claim was submitted and the loss adjustment process was complete.
Was the statutory demand an abuse of process?
[102] NIA claims that issuing the statutory demand in circumstances where Ziwi knew that there was a dispute about its claimed entitlement, stipulating a debt which is materially different from the debt Ziwi now seeks to prove, and doing so before the relevant insurance claims had been adjusted, was an abuse of the statutory demand process. NIA says that Ziwi should never have issued the demand, and at least should have withdrawn the demand as soon as NIA’s solicitors wrote to it setting out the basis of the dispute. NIA accordingly seeks costs on an indemnity, or alternatively, an increased, basis.
[103] Ziwi submits that issuing the statutory demand in circumstances where NIA, even on its own interpretation of the policy, was indebted to Ziwi for approximately
$3,750,000, cannot amount to an abuse of process.
[104] In my view NIA had raised a genuine dispute about whether the BI policy had site-specific sub-limits or not before the statutory demand was used. This is self- evident from Integra’s January 2024 briefing note on the issue. Ziwi was on notice of NIA’s position that site-specific sub-limits applied. It is irrelevant that Ziwi disagreed with NIA’s position.
[105] Where there is a real dispute about whether the alleged debt is owing or due, the statutory demand procedure should not be invoked. That is because the consequences for a recipient who does not comply with a statutory demand are severe
— it is presumed that they are insolvent. Furthermore, a summary hearing of an application to set aside a statutory demand is not suited to resolving real disputes about the existence of a debt. Rather, ordinary proceedings should be filed to establish a judgment debt before invoking the statutory demand procedure.
[106] Additionally, the statutory demand was premature because arguably the debt had not crystallised. Ziwi had not submitted its final claim and the loss adjustment process was incomplete.
Result
[107]I order that the statutory demand is set aside.
[108] Ziwi is ordered to pay NIA’s costs and reasonable disbursements. I invite submissions on costs, of no more than five pages, to be filed within 20 working days.
Associate Judge Gardiner
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