The Trinity Hills Retreat Limited v Kroehl HC Nelson CIV 2010 442 101

[2010] NZHC 1430

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV 2010 442 000101

IN THE MATTER OF     an application to set aside a statutory demand issued under s 289 of the Companies Act 1993

BETWEEN  THE TRINITY HILLS RETREAT LIMITED

Applicant

ANDULLA KROEHL Respondent

Hearing:         12 August 2010

Appearances: N Burley for Applicant

D J Russ for Respondent

Judgment:      12 August 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE

[1]      This is an application by The Trinity Hills Retreat Limited to set aside a statutory demand issued by Ulla Kroehl.   The statutory demand asserts that the company is indebted to Ms Kroehl as a result of a loan made to the company.

[2]      This  proceeding  comes  about  some  years  after  the  parties  behind  the company (Mr Moore and his partner Petra Alt) came together with Ulla Kroehl overseas in much happier times and embarked on discussions which resulted in the purchase of a property at Takaka.  It is unnecessary for me to go into the background detail:- those matters may have to be explored by a trial Court at some point if these issues are not otherwise resolved by the parties.  Suffice to say, it is common ground

that the parties had in mind the purchase of property in the Tasman district on which

THE TRINITY HILLS RETREAT V ULLA KROEHL HC NEL CIV 2010 442 000101  12 August 2010

there  might  be  a  health  retreat  established  with  the  possibility  of  individual ownership of some land as well.

[3]      Ms  Kroehl  either  had  money  or  had  money  coming  to  her,  and  it  was envisaged that she would be the major financier of any project.  It appears to have been envisaged that Mr Moore and Ms Alt, who would move to New Zealand, would attend on the ground to such matters as negotiating the purchase of a suitable property.

The jurisdiction to set aside a statutory demand – the principles

[4]      The Court’s jurisdiction to set aside a statutory demand is contained in s290

Companies Act, and I refer specifically to the basis upon which the Court may grant an application as contained in s290(4) which reads:

290     Court may set aside statutory demand

…

(4)      The Court may grant an application to set aside a statutory demand if it is satisfied that—

(a) There is a substantial dispute whether or not the debt is owing or is due; or

(b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross- demand is less than the prescribed amount; or

(c) The demand ought to be set aside on other grounds.

[5]      For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction these five principles –

•The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.

•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.

•An applicant must establish that any counterclaim, cross demand or set-off is reasonably arguable in all the circumstances.

•It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

Discussion – to whom was the $450,000 advanced?

[6]      As I have come to a clear view that the statutory demand is not sustainable I do not intend to deal with a number of arguments contained in the evidence of Mr Moore and Ms Alt, including that there were counterclaims, cross demands or set- offs which were arguable.   The present application comes down to much more central discussions which occurred between the parties and they are these.

[7]      In her evidence Ms Kroehl, after referring to discussions which occurred between herself and Mr Moore and Ms Alt in 2006, says this:

Between  April  2006  and  April  2008  and  during  meetings  with  myself, Nathan and Petra and other discussions by phone, we continued to discuss the possibility of me buying land in New Zealand.

Nathan ended up purchasing a property at 1075 Takaka Valley Highway, Takaka (the Takaka Property) using $450,000.00 of my money.

[8]      That is the most direct reference which Ms Kroehl makes as to the facts surrounding the advance, which is the subject of the statutory demand.

[9]      Mr Moore, by the nature of the application, had given his first affidavit to start with.  He had said this:

Ms Kroehl had given me the Swiss equivalent of NZ$400,000.00 from an account in Basel.  I did not have a New Zealand bank account and a friend in Nelson let me use his.  Petra and her daughter came to New Zealand in April

2008 and Ms Kroehl came to New Zealand in, I think, May 2008.

[10]     I note particularly the reference to Ms Kroehl giving the money to Mr Moore.

[11]     In a letter subsequently written by Ms Kroehl’s solicitors, Fletcher Vautier

Moore, to Hunter Ralfe on 5 December 2008 these things were said.

Ulla’s funds were advanced in January 2008.

And earlier:

$450,000.00 was applied towards the purchase of the property and part of the balance has been used to fund the work completed to date…

[12]     I take it from this evidence, which was not disputed, that the advance as claimed by Ms Kroehl was made in January 2008.

[13]     In his first affidavit Mr Moore spoke of the land subsequently purchased:

On 12 May 2008, I concluded an agreement for sale and purchase of 76.9 hectares… in the sum of $400,000.00 plus GST.

Mr Moore also said:

Ms Kroehl, Petra and I all approved the Agreement for Sale and Purchase. On or about 19 May 2008, I set up the company to own the property.

[14]     Mr Moore’s reference to the company is a reference to the applicant in this proceeding, The Trinity Hills Retreat Limited.  There is common ground between the parties and ample evidence to indicate, that the company was set up by Mr Moore in his own name because Ms Kroehl as an overseas resident and not a New Zealand national, had no right to become the owner of this sort of property, or a shareholder beyond 25% of the total shareholding of a company.

[15]     Fletcher Vautier Moore on 31 October 2008 wrote to Hunter Ralfe against a background of issues which had then arisen between the parties.  They said:

We write further to our discussion on 28 October 2008.

As we discussed, we act for Ulla Kroehl who has advanced the total sum of

$517,500.00 to Nathan Moore and his partner Petra which was utilised to fund the purchase of the property in Takaka…

We understand our respective clients’ original intention was to establish a structure for communal ownership of this property which involved establishing  three  building  sites  for  which  building  consent  could  be obtained with the underlying land being owned communally…

Further, it appears that the direction of our clients has changed in terms of the proposed communal ownership of the property.  As such, it is important to record the loan that Ulla has made to Nathan and the company, The Trinity Hills Retreat Ltd. (My emphasis.)

[16]     I note the internal inconsistency between what is stated and the second and the fourth paragraphs.  What is stated in the second paragraph must be taken to have come from the instructions which Ms Kroehl gave her solicitors.  There is a clear statement that the advance was to Mr Moore and his partner (Ms Alt).  This seems to be a relatively obvious proposition in that the money was given to Mr Moore as early as January 2008.  As I have indicated, the company did not come into being until five months later.

[17]     I raised these issues directly with Mr Russ at the commencement of the hearing this morning as the specific grounds set out in the application did not clearly suggest that any advance made was at least arguably made to Mr Moore (and/or his partner) and not to the company.

[18]     Mr  Russ  indicated  he  was  prepared  to  deal  with  the  response  to  the application on that basis as well as others advanced by Mr Burley.   The hearing proceeded.

[19]     Mr Russ’s primary submissions centre around a proposition that the “funds advanced in January”, as they are described by Ms Kroehl, should properly be seen as an advance to Mr Moore for onward advancing to a company later to be formed. The difficulty with that proposition is that on Ms Kroehl’s own evidence and the submissions which Mr Russ gave me, it is was no part of Ms Kroehl’s understanding that there was a company to be formed.   What Mr Moore later did, whether it involved forming a company vehicle or using some other vehicle or indeed investing in his own name, was apparently on Ms Kroehl’s evidence left to Mr Moore.

[20]     In  these  circumstances  in  my judgment  it  is  arguable  that  there  was  an advance to Mr Moore personally and not an advance to the company which was formed some five months later.   For the purposes of this application the applicant company need not establish anything higher.

Discussion – was a 12 July 2008 document a (contractual) agreement?

[21]     I turn briefly to an alternative formulation which was at the heart of Mr Burley’s submissions as filed.  This relates to a document which the parties signed on 12 July 2008.  The document is not easily legible but as best I have deciphered it with the assistance of counsel it reads as set out in Schedule A to this judgment.  It is common ground that the signatures which appear on the first page of the document are those of Mr Moore, Ms Alt and Ms Kroehl.   It is common ground that their initials appear on a second page which bears a map which I have not replicated, having set out only the wording that appears below the map.  The map as attached to the original document shows an aerial photograph with three lots identified by hand bearing numbers 1, 2 and 3.   Unlike other documents which passed between the parties, both sets of parties signed this document and indeed initialled a second page.

[22]     It is Mr Burley’s case for the applicant that the 12 July 2008 document is arguably a contract.  For the respondent Mr Russ says that it should be seen as what is stated at the top of the document, namely a plan.  Mr Russ submits that it should be seen as being of less status than a contract.   Mr Burley has only to satisfy the Court that it is arguable that, objectively assessed, the parties when signing this document intended it to be contractual.

[23]     The context is important.   The parties had a month or two before (in May

2008) achieved their initial goal which was to purchase a property in the Tasman district.   They had done so against an undocumented background where their understandings were oral.  It is logical that some time shortly afterwards they would be wanting to reduce their positions to a degree of certainty.  Ms Kroehl’s money had been paid over in January.   Mr Russ has described the document as being a relatively brief document not addressing many details such as how the project would go forward, how costs would be dealt with and such matters.   These features, he submits, suggest a lack of contractual intention.   But looking at the document (as annexed) I find it at the very least arguable that this was a document prepared and signed by lay people as a means of giving some certainty to a position which at that point had not been certain in terms of its documentation.  The lots to be divided up are dealt with and defined on a map.  Their values are assigned.  How debts will be

shared is dealt with.  How a residual value of one of the lots is to be dealt with is defined.  An option is created.

[24]     The document represents, at least arguably, the wording of laymen seeking the certainty of agreement.  Mr Russ expressly conceded that the document is not void for any uncertainty of its terms.

[25]     The notation in the box on the document reads:

I’m not agree with it anymore 18.10.2008

Ms Kroehl has signed that addition.

[26]     Mr Russ submitted, with some force, that the agreement which was being withdrawn could be seen as Ms Kroehl’s withdrawal of agreement to a plan rather than to a document which was intended to have contractual force.  That may be a proposition that finds some favour with a trial Judge, but at the level of arguability the  notation  might  also  lend  support  to  Mr  Burley’s  proposition  that  what  is contained in this document was what lawyers refer to as an agreement and that what Ms Kroehl was doing was seeking to cancel her agreement entered into on 12 July.

Discussion – conclusion

[27]     In these circumstances, I find that the applicant has discharged the burden upon it of showing that it arguably has a genuine and substantial dispute as to the existence of the debt.

[28]     In reaching this conclusion I have not had need to refer to a further document which was not formally in evidence but which counsel agreed in the course of argument should be handed up to the Court.   In a caveat which Ms Kroehl subsequently lodged against the title on 30 October 2008 (when the parties had reached disagreement)  Ms Kroehl claimed a beneficial interest in the land contained in the title as a cestui que trust of a trust of which the registered proprietor, Trinity Hills Retreat Limited, was trustee.  The logic of that assertion by Ms Kroehl was that there had been something in the nature of a joint venture, as asserted by the applicant

and by Mr Moore and  his partner, and that Ms Kroehl thereby had obtained a beneficial interest in the land itself.  This again, at least arguably, might cut across the proposition that as a matter of contract law a debt had been created and that Ms Kroehl was entitled by repayment of a loan to her $450,000 plus an additional sum for further payments.   If it had been necessary I would have found that this had fortified Mr Burley’s submissions as to an arguable dispute.

Broader issues

[29]     In conclusion I say this in relation to the facts of this case.  It is a tragedy that these parties, who embarked with a large sense of community of interest between them, for all intents and purposes have been logjammed for some two years, unable to move forward.   The Court is conscious of the financial implications for both parties.   Perhaps the only glimmer of sunshine in gloomy this picture is that the market over the last year or so may not have been a good market into which to be marketing the land.  I am also told that the subdivision process that may have been contemplated has not been completed in any event.  The Court urges the parties to find a means of mediating or resolving the issues between them.   The Court appreciates that Ms Kroehl lives overseas and there may be difficulty in arranging direct discussion, but mediations can occur with parties at a distance.  The present step in the litigation will have been expensive for the parties.   If further litigation ensues, it is bound to involve more expense than the parties have already incurred to this point.   The issues which came before the Court in a limited form in this application now need to be dealt with in some other context, because this proceeding itself comes to an end.   I urge the parties to find some way of dealing with their issues co-operatively.

Orders

[30]     I order:

i)The statutory demand which is the subject of the application is set aside; and

ii)Costs   are   to   follow   the   event   (Mr   Burley   has   made submissions that this may be a case for either indemnity or increased costs.  I can understand the sense of grievance of the applicant company in that it sought by correspondence to cut across  the  need  for  this  application  but  the  respondent continued with her position in regard to it.   That said, the restricted issues in an application of this nature are not of great complexity and did not require, on my assessment, great preparation.   To some extent the parties have brought these issues on themselves by not documenting significant commercial transactions between themselves at the start.   In my assessment it is a proper case for costs to be on the usual

2B basis.)  The respondent is to pay costs of and incidental to this proceeding on a 2B basis, together with disbursements to be fixed by the Registrar.

[31]     At the conclusion of the judgment I have just delivered counsel addressed me as to whether the application and the proceeding should be formally brought to an end.  I accept that in the particular circumstances of this case it is appropriate that the Court grants the parties the indulgence of adjourning the proceeding to be called in the list on a date in approximately six weeks’ time, to see whether the parties wish to avail themselves of a settlement conference process.   If not, counsel may, by memorandum, indicate to the Court that no further steps are required.  In that event, I direct the Registrar to then close the Court file.   Otherwise, if there is agreement, counsel are to file a memorandum requesting a settlement conference, indicating how long will be required in that regard and what special arrangements, if any, will be needed for the conduct of the conference.

[32]     On that basis I adjourn the proceeding to the list at Nelson on 6 October

2010.

Solicitors:

Hunter Ralfe, Nelson

Fletcher Vautier Moore, Nelson

Plan from Petra + Nathan + Ulla

520 000

270 000  250,000 extra

I’m not agree with it anymore 18/10/2008

[Ulla Kroehl signature]

Fees

265 000 lowest sale price

Inhouse  12/7/08

Ulla outrightly own “lot 2” approximate 6ha reference map we do, for the agreed price of 270,000

Ulla outrightly own “lot 1” approximate 1.6ha reference map we do

Ulla give the authority for the sale of lot 1 to Nathan for the min value of $250 00
NZ within 12 month.

Ulla will get 20% of any suplus above 250 000 after all costs eg GST capital gain and works go going costs etc… are payed for

If after 12 months there is a loss it is shared 50/50 between Ulla and Petra/Nathan

50%             50% The payment of which will be worked out at that time.

[Ulla Kroehl signature]  [N Moore signature] [Petra Alt signature]

Each party has frist option on increasing there lot/share size or straight purchase for the price agreed at

[initials]

[aerial photograph]

MAP I  lot 1 – ulla’s for sale

lot 2 – ullas house & land

lot 3 – Petra & Nathan (Trinity hills retreat)

belongs

[initials]