Training and Contracting Limited v Coromandel Employment Services Limited
[2024] NZHC 1347
•27 May 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2024-470-22
[2024] NZHC 1347
UNDER The Companies Act 1993 BETWEEN
TRAINING AND CONTRACTING LIMITED
Plaintiff/Respondent
AND
COROMANDEL EMPLOYMENT SERVICES LIMITED
Defendant/Applicant
Hearing: 20 May 2024 Appearances:
V J Corbett for the Plaintiff D W Grove for the Defendant
Date of Judgment:
27 May 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 27 May 2024 at 1 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Foy & Halse, Auckland Frontline Law, Wellington
O’Connell Chambers, Auckland
TRAINING AND CONTRACTING LTD v COROMANDEL EMPLOYMENT SERVICES LTD [2024] NZHC 1347 [27 May 2024]
Introduction
[1] Mr Martin is a barrister, and he operates a legal practice through the defendant, Coromandel Employment Services Limited (CES). Mr Martin also works part-time as a paramedic, engaged by the Order of St John.
[2] In 2019, Ms Smith-Moore was studying towards a law degree, and Mr Martin and Ms Smith-Moore agreed that Ms Smith-Moore would provide services to CES, through the plaintiff, Training and Contracting Limited (TCL). Mr Martin and Ms Smith-Moore had a personal relationship in addition to their business relationship.
[3] TCL and CES signed written terms of engagement in September 2019 (the engagement letter). The contract provided for Ms Smith-Moore to provide services at an hourly rate of $175 exclusive of GST. CES was to pay TCL’s invoices on receipt. TCL provided services to CES from 2019 to June 2023.
[4] Four invoices dated 28 June 2023 and rendered by TCL to CES have not been paid. One invoice relates to work undertaken in respect of litigation by a client of CES (referred to as the client work). Three invoices relate to work undertaken in respect of a claim in the Employment Relations Authority, by Mr Martin as claimant against the Order of St John.
[5] On 8 January 2024, TCL served a statutory demand on CES for the amounts due under the four invoices. CES did not apply to set the demand aside. On 9 February 2024, TCL served this liquidation proceeding on CES. CES was entitled to file a defence as of right by 23 February 2024.1
[6] On 19 March 2024, CES applied for an order extending the time for CES to file its statement of defence, including provision of a draft defence. That application is opposed and determined in this judgment.
[7] As a preliminary matter, CES argues that TCL is a contingent or prospective creditor, and therefore could not commence this liquidation proceeding without a grant
1 High Court Rules 2016, r 31.17.
of leave from the Court under s 288(5) of the Companies Act 1993 (the Act). This is not a situation where TCL relies on a claim for unliquidated damages. TCL seeks to enforce what it says is a debt arising on issue of an invoice. A grant of leave under s 288(5) of the Act was not required to commence the liquidation proceeding.
Legal principles
[8] The principles to be applied on an application for an extension of time to file a defence in a liquidation proceeding are well settled. The Court is exercising a discretion, and the Court should consider the following factors:2
(a)Is there an arguable basis that the defendant is not liable?
(b)Is the defendant solvent?
(c)Has the defendant advanced a reasonable explanation for the failure to file a statement of defence?
[9] If factors (a) and (b) justify a grant of leave, the absence of a convincing reason why the delay occurred will not be fatal to the application.3 The ultimate consideration that informs the exercise of the discretion is the overall justice of the case.4
[10] As a general rule, an order placing a company in liquidation will not be made where the application is founded on a debt that is genuinely disputed.5
Is there an arguable basis that the defendant is not liable?
[11] Mr Martin and Ms Smith-Moore have both filed extensive affidavit evidence dealing with the background that led to the invoices that are in dispute.
2 Auckland City Council v Stonne Ltd HC Auckland CIV-2007-404-4208, 30 November 2007 at [21]; NZ Commercial Property Maintenance Ltd v Soullight Painting & Plaster Ltd [2022] NZHC 1401 at [64].
3 Auckland City Council v Stonne Ltd, above n 2, at [49].
4 NZ Commercial Property Maintenance v Soullight Painting & Plaster Ltd, above n 2, at [65].
5 Yan v Mainzeal Property and construction Ltd (in rec, in liq) [2014] NZCA 190 at [61].
[12] In his first affidavit, Mr Martin says that the work undertaken by Ms Smith-Moore that is the subject of the invoices fell outside of the written contractual terms between TCL and CES.
[13]In respect of the invoice for the client work, Mr Smith says:
(a)CES had agreed to act for the client for a fee contingent on success;
(b)CES did so because the client was a friend of Ms Smith-Moore, and Ms Smith-Moore asked Mr Martin to act on that basis;
(c)Mr Martin and Ms Smith-Moore orally agreed that TCL would only be paid by CES for this work if, and when, CES received payment from the client of its own contingent fees.
[14] The parties were free to vary the terms comprised in the engagement letter. Ms Smith-Moore denies any variation as alleged by Mr Martin.
[15] An email from Ms Smith-Moore to Mr Martin on 28 June 2023 confirms that TCL’s fee was based on 50 per cent of the contingent fees due from the client to CES. That is consistent with a term that payment of TCL’s fee was also contingent. However, whether such an arrangement was made will depend on the oral evidence of the parties. CES’s position is arguable.
[16] Further, Ms Smith-Moore has managed to procure a payment of $10,000 direct to Ms Smith-Moore, or held for her benefit by a third party. This transaction is not adequately explained in the evidence. It is a transaction that will need to be taken into account.
[17] In respect of the three invoices that relate to Mr Martin’s own litigation against the Order of St John, he says that CES is not liable to pay the invoices because:
(a)the services were provided by Ms Smith-Moore direct to Mr Martin in his personal capacity, and not by TCL to CES;
(b)Mr Martin and Ms Smith-Moore had a mutual understanding that Ms Smith-Moore was providing her services on a pro-bono basis.
[18] Ms Smith-Moore has produced correspondence that she wrote on behalf of Mr Martin related to the litigation, and submissions that she prepared and filed in the Employment Relations Authority. These documents confirm that CES was representing Mr Martin. It appears likely that Ms Smith-Moore provided her services in respect of these matters to CES.
[19] However, an issue remains regarding the terms on which those services were provided. Ms Smith-Moore denies that she agreed to act pro bono. She points to email correspondence between the parties said to support her position that services were provided pursuant to the contract between TCL and CES, and payment was due on invoice. The emails relied on are equivocal on the pro bono issue.
[20] Again, a finding on the terms agreed by Mr Martin and Ms Smith-Moore in respect of the work undertaken by Ms Smith-Moore on Mr Martin’s personal matters requires oral evidence from the parties. CES’s position is arguable.
[21] I am satisfied that there is an arguable basis that CES is not liable to TCL on any of the invoices. I reach that conclusion by an assessment of Mr Martin’s first affidavit and Ms Smith-Moore’s affidavit in opposition. I do not rely on the extensive affidavit in reply from Mr Martin dated 17 April 2024, and I note that TCL objects to the admission of that affidavit on the grounds that it goes beyond a reply and introduces new matters.
Is the defendant insolvent?
[22] TCL relies on CES’s failure to apply to set aside the statutory demand, and the presumption of insolvency under s 287 of the Act. That presumption is rebuttable, and it remains open to CES to establish that it is solvent.
[23] At present there is limited evidence before the Court regarding CES’s solvency. Mr Martin has produced a letter from CES’s accountant, which states that the accountant, Mr Balme, had recently completed CES’s financial statements for the year
ended 31 March 2023. Mr Balme notes that CES’s only creditor is Mr Martin. This analysis ignores TCL’s claim.
[24] There is insufficient evidence for the Court to make a preliminary finding on the issue of CES’s solvency. It is not appropriate to rely on the presumption of insolvency for present purposes when the underlying debts are subject to a bona fide dispute.
Has the defendant advanced a reasonable explanation for its failure to file and serve its statement of defence on time?
[25] CES responded to the invoices by correspondence from Mr Martin to Ms Smith-Moore on 9 July 2023, raising the same grounds now advanced in support of CES’s application for leave to file its defence.
[26] Further correspondence between the parties followed in late 2023. After the statutory demand was served, Mr Martin wrote to TCL’s lawyers on 10 January 2024, again raising the same disputes. Mr Martin suggested mediation.
[27] In his first affidavit, Mr Martin says that there was no further correspondence with Ms Smith-Moore or her lawyers after 10 January 2024 until March 2024, other than service of the liquidation proceeding on 9 February 2024.
[28] In her affidavit in opposition, Ms Smith-Moore disputes that evidence. An email dated 27 February 2024 from CES’s then solicitors, Willis Legal, to TCL’s solicitors, Frontline Law, acknowledged service of the liquidation proceeding, and included the following paragraphs:
6.It appears, on the face of it, inappropriate for your client to have then filed the liquidation proceedings.
7.Our client is willing to engage, through counsel, to bring this matter to a constructive resolution.
8.If the parties are unable or unwilling to resolve the matter through counsel, the appropriate way for this matter to be advanced is by your client filing a summary judgment application. The statutory demand and liquidation process, with notice that the invoices are disputed, is an inappropriate forum.
[29] Mr Hague from Frontline Law has provided an affidavit confirming that he had a telephone discussion with the sender of the letter, Mr Cameron of Willis Legal, on 28 February 2024. Plainly, there was communication between the parties’ solicitors at that time.
[30] Mr Martin seeks to clarify his evidence in his affidavit in reply. TCL argues that the affidavit does not comply with r 9.76 of the High Court Rules 2016, which relates to evidence given by affidavit generally. This is an interlocutory application, and the apposite rule is r 7.26, which provides:
7.26 Affidavit in reply
(1) Any reply by the applicant to the respondent’s notice of opposition or affidavit must be by affidavit, which must be filed and served within—
(a)the period of 5 working days after service of the notice of opposition; or
(b)if the hearing date for the application is within that period, 1 pm on the working day before that hearing date.
(2)The affidavit in reply must be limited to new matters raised in the notice of opposition or in an affidavit filed by the respondent.
[31] Assessment of whether the affidavit is in reply should not rest on its extent, nor whether it is original, but on whether it relates to the evidence of the respondent and is relevant to the issues.6
[32] I am satisfied that Mr Martin’s evidence in reply on this issue is admissible. In his affidavit in reply, Mr Martin explains that his earlier evidence regarding a lack of communication was intended to be a reference to communication about how the proceeding might be resolved outside of Court.
[33] Mr Martin says that after the correspondence and communications in late February he sought alternative legal representation to defend this proceeding. Mr Martin produces an email that he sent to Willis Legal on 7 March 2024, raising his concern that the deadline for filing a statement of defence may have passed.
6 Minister of Education v Carter Holt Harvey Ltd [2020] NZHC 1539 at [121]–[123].
[34] The parties have different views on the consequences that should flow from the communications between their respective solicitors in February 2024, however, two matters are clear:
(a)at all times CES denied liability to pay the invoices, and the grounds for dispute were made clear to TCL; and
(b)CES attempted to initiate an alternative dispute resolution process, and then belatedly moved to file a defence.
[35] It appears that Mr Martin was endeavouring to avoid the expense of filing a defence in the liquidation proceeding, based on an expectation that TCL would agree to some form of alternative dispute resolution process, whether formal or informal. That does not amount to an excuse for failing to file a defence on time, but it does explain why the default occurred.
Other discretionary factors
[36] CES’s delay in filing its defence was approximately 17 working days. TCL has not been able to point to any prejudice arising from that delay, other than the inevitable prejudice that arises when a party is permitted to defend a proceeding.
[37] Given my finding that there is a bona fide dispute regarding TCL’s status as a creditor, and balancing the other factors discussed in this judgment, I find that this is an appropriate case for an exercise of the Court’s discretion in favour of CES, permitting the late filing of a statement of defence.
Costs
[38]Costs should follow the event on a 2B basis.
Orders
[39]The time for the defendant to file its statement of defence is extended to
4 June 2024.
[40] The plaintiff shall pay the defendant costs on a 2B basis together with disbursements as fixed by the Registrar.
[41] The liquidation proceeding is adjourned to the Companies List on 24 June 2024 at 10.30 am for further directions.
Associate Judge Brittain
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