Transdiesel Limited v MTU America Limited
[2016] NZHC 280
•26 February 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000686 [2016] NZHC 280
UNDER the Companies Act 1993 AND
IN THE MATTER OF
an application to set aside statutory demands
BETWEEN
TRANSDIESEL LIMITED Applicant
AND
MTU AMERICA LIMITED First Respondent
AND
MTU ASIA PTE LIMITED Second Respondent
Hearing: 22 February 2016 Appearances:
G D Jones for Applicant
A J Knowsley for First and Second RespondentsJudgment:
26 February 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE ON SETTING ASIDE A STATUTORY DEMAND
Introduction
[1] The applicant (TransDiesel) applies for orders setting aside two statutory demands. One was issued by the first respondent, then known as Tognum America Ltd (T America). The other was issued by the second respondent, then known as Tognum Asia Pte Ltd (T Asia).
[2] The two grounds relied upon by TransDiesel require the Court to consider two issues:
TRANSDIESEL LIMITED v MTU AMERICA LIMITED [2016] NZHC 280 [26 February 2016]
(a) Does TransDiesel arguably have a set-off of the combined amounts which T America and T Asia can claim?
(b)Should the demands be set aside having regard to arbitration agreements incorporated into the contracts between TransDiesel on the one hand and T America, T Asia and their parent company, Tognum AG, on the other hand?
The parties’ dealings
Contract TransDiesel/Tognum AG
[3] Tognum AG is a German-based company which manufactures and sells diesel engines under the MTU brand.
[4] TransDiesel is a diesel engineering company which sells and services heavy diesel machinery, engines and vehicles, including for the rail industry. In 2010, one of TransDiesel’s clients, with a service contract, was Kiwi Rail.
[5] Tognum AG and TransDiesel entered into a written “Distributor Agreement” effective 1 January 2010 (the head contract). In the contract, Tognum AG is defined as “COMPANY” and TransDiesel is defined as “DISTRIBUTOR”.
[6] In the head contract, Tognum AG committed itself and “Affiliated
Companies” to distribution arrangements for a term from 1 January 2010 to 31
December 2012.
[7] The term “Affiliated Company” (albeit with a typographical error) is defined in the head contract’s Additional Provisions:
Alliated [sic] Company
MTU Friedrichshafen GmbH, MTU Detroit Diesel Inc., MTU Onsite Energy GmbH (Augsburg), MTU Onsite Energy Corp., and any company in which these companies have a direct or indirect ownership interest.
[8] TransDiesel’s financial controller, Lee Jenkins, has deposed that Tognum AG
is the parent company of both T America and T Asia. That has not been disputed by
the respondents. I therefore take the respondents for the purposes of this proceeding
to be “Affiliated Companies” for the purposes of the head contract.
[9] The head contract commenced with a “Statement of General Purposes”, which included the following:
COMPANY is in the business of marketing power products, including but not limited to diesel and gas engines as well as engine systems, and parts for these products through its Affiliated Companies. Affiliated Companies sell its product principally to original equipment manufacturers (OEMs) and to Distributors. COMPANY has established a system of independently owned and managed Distributors operating at approved locations to (a) sell directly the engines identified in the Product Addendum, herein called Products, and related Parts, (b) actively and effectively promote the purchase and use of Products, and related Parts, (c) render prompt, efficient, and courteous service to owners and users of such Products within the area assigned within the Area of Responsibility Addendum, and (d) complement Sellers’ own direct sales activities.
The purpose of this Distributor Agreement, herein called Agreement, is to appoint DISTRIBUTOR as an authorised Distributor (a) to sell and service Products and Parts, (b) to establish the location(s) from which DISTRIBUTOR shall conduct Distributor Operations, and (c) to identify the principal management and principal owners of DISTRIBUTOR upon whom COMPANY relies in entering into this Agreement. This Agreement sets forth the rights and responsibilities of COMPANY and DISTRIBUTOR relating to the rights and servicing of Products and Parts and the circumstances in which the Agreement may be terminated.
(emphasis added)
[10] The first operative clause of the head contract identified the rights granted by
Tognum AG:
In reliance on DISTRIBUTOR’s agreement to fulfill the responsibilities and perform the functions described in Paragraph SECOND of this Agreement, COMPANY hereby grants DISTRIBUTOR the non-exclusive rights to:
a) buy from COMPANY and Affiliated Companies the Products identified in the Product Addendum to this Agreement and related Parts for resale or use by DISTRIBUTOR in its Distributorship Operations;
b) …
(emphasis added)
[11] By the next clause of the head contract, TransDiesel provided certain acknowledgements, including:
DISTRIBUTOR hereby accepts from COMPANY the rights specified in this
Paragraph FIRST. In doing so, DISTRIBUTOR acknowledges that:
a) COMPANY and Affiliated Companies have reserved to themselves the right to conduct in DISTRIBUTOR’s Area of Responsibility Distributorship Operations in connection with Products and Parts and to sell Products and Parts directly to any customer;
…
(emphasis added)
[12] By the head contract, the parties agreed that identified Sales Bulletins issued by Tognum AG and its Affiliated Companies were relevant. Those bulletins included provisions as to the Service Commission applicable to any completed sale, with the selling distributor to receive 15 per cent of the Distributor Net Price as invoiced by Tognum AG and its Affiliated Companies and 20 per cent of the Distributor Net Price of parts as invoiced by Tognum AG and its Affiliated Companies.
[13] The head contract incorporated a substantial set of “Additional Provisions”,
in the form of “Articles”, which applied to TransDiesel as a New Zealand distributor.
[14] The Additional Provisions established rights of payment for both Tognum AG
and Affiliated Companies involved in selling product to TransDiesel, in these terms:
11.7 Accounts Payable
In addition to any right of set-off provided by law, all moneys or accounts due to DISTRIBUTOR shall be considered net of indebtedness of DISTRIBUTOR to COMPANY or Seller(s) (including indebtedness arising from the chargeback to DISTRIBUTOR of any claims previously credited to DISTRIBUTOR and subsequently found to have been not properly payable) and COMPANY or Seller(s) may deduct any amounts due or to become due from DISTRIBUTOR to COMPANY or Seller(s) or any amounts held by COMPANY or Seller(s) from any sums or accounts due or to become due from COMPANY or Seller(s) to DISTRIBUTOR.
[15] In the succeeding article, the parties agreed upon the governing law and dispute resolution, in these terms:
11.8 Applicable Law and Arbitration
This Distributor Agreement and all contracts and agreements concluded in accordance with this Agreement are governed by Swiss Law. However, if performance under this Agreement is illegal under a valid law of any jurisdiction where such performance is to take place, the performance will be
modified to the minimum extent necessary to comply with such law if it was effective on the date of execution of this Agreement.
It is understood that neither party shall by reason of this distributorship be held to perform any acts which may in any way constitute a violation of any enforceable imperative laws or any equivalent binding provisions in their own jurisdiction.
All disputes arising out of or in connection with this Distributor Agreement including any question regarding its existence, validity or termination, shall be exclusively, solely, and finally settled under the International Rules of Arbitration of the Chamber of Commerce Zurich by three arbitrators. The place of arbitration shall be Zurich and the language shall be English.
[16] The head contract, in a Product Addendum, provided that TransDiesel had the right to buy, subject to availability, identified products and parts (that is, from both Tognum AG and Affiliated Companies). The identified diesel and gas systems expressly included the Series 4000 diesel engine (as well as accessories for use in connection with it) (collectively “Series 4000”).
[17] By Article 2 of the Additional Provisions, Tognum AG undertook stated responsibilities. By Article 2.2, the parties agreed (amongst other provisions) that:
Certain Products may require particular tools, analytical and engineering equipment, personnel with expertise and training in such Products, and/or complementary components. If DISTRIBUTOR fails to provide or have available any of these requirements, as determined by COMPANY in its sole discretion, so that COMPANY has reasonable cause to believe DISTRIBUTOR is unable or unwilling to adequately serve this market, COMPANY may delete Products related to this market from DISTRIBUTOR’s Product Addendum and may assume the responsibility for this market and the ability to sell to any customer of such deleted Products within the Area of Responsibility, or COMPANY may assign the responsibility to another Distributor.
Contracts TransDiesel/T America and T Asia
[18] Pursuant to the provisions of the head contract, TransDiesel entered into contracts for supply with both T America and T Asia. Both T America and T Asia supplied goods to TransDiesel pursuant to general conditions of sale of the MTU group of companies as prepared in the name of MTU Friedrichshafen GmbH.
[19] From each set of general conditions of sale, TransDiesel relies in particular upon clause xvi as to arbitration and applicable law, that provision reading:
XVI Arbitration and applicable law
1.Any dispute, controversy or claim arising out of or in relation to this contract, including the validity, invalidity, breach or termination thereof, shall be settled by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers of Commerce in force on the date when the Notice of Arbitration is submitted in accordance with these Rules. The seat of the arbitration shall be in Zurich, Switzerland. The language of the arbitration proceedings shall be German or English. Arbitration proceedings shall be conducted without the Anglo-American convention of pre- trial discovery.
2.The legal relationships between the Client and the Supplier shall be governed by Swiss substantive law to the exclusion of the UN Convention of 11/04/1980 on Contracts for the International Sale of Goods (CISG).
Cessation of supply of Series 4000 items
[20] Series 4000 was used by Kiwi Rail. TransDiesel was supplying to Kiwi Rail parts, servicing and warranty repairs. Ms Jenkins has deposed as to events at the time TransDiesel was notified of Tognum AG’s decision. She deposes that she learned that Tognum AG’s Australian-based subsidiary, MTU Detroit Diesel Australia Pty Ltd was setting up an Auckland branch and was approaching Kiwi Rail to take over the servicing of Kiwi Rail locomotives. These statements have not been challenged in the affidavits filed for the respondents.
[21] In April 2012, Tognum AG purported to give TransDiesel notice of an amendment to the head contract whereby Series 4000 would be deleted from the Product Addendum which forms part of the contract. TransDiesel protested, whereupon Tognum AG and Affiliated Companies continued with provision of Series 4000 parts through to July 2012.
[22] From 1 July 2012, Tognum AG purported to finalise the deletion of the Series
4000 items.
[23] Formal notice by letter dated 24 August 2012 of the deletion of the Series
4000 was given for Tognum AG by a firm of Sydney solicitors (the Sydney solicitors) who came to handle correspondence subsequently also on behalf of both respondents and of MTU Detroit Diesel Australia Pty Ltd.
TransDiesel’s damages claim
[24] On 30 October 2012, TransDiesel’s lawyers, Lane Neave of Christchurch,
substantively responded to the Sydney solicitors’ letter. They asserted:
(a) the unilateral removal of Series 4000 was a breach of the head contract;
(b)that was also the case under the governing Swiss law (on which they had taken advice);
(c) the breach of contract had caused TransDiesel substantial damages estimated on a preliminary basis to exceed $500,000; and
(d) the letter was formal notice of TransDiesel’s claim for breach of the
head contract.
[25] The Sydney solicitors responded on 19 November 2012. They denied that
Tognum AG was in breach of the head contract. They recorded:
Article 2.2 of the Agreement between the respective clients provides as follows:
“COMPANY may delete Products related to this market from DISTRIBUTOR’s Product Addendum and may assume the responsibility for this market and the ability to sell to any customer of such deleted Products within the Area of Responsibility, or COMPANY may assign the responsibility to another Distributor.”
Our client clearly had the authority to delete the series 4000 from the product addendum.
[26] Lane Neave in turn replied on 11 December 2012. They pointed out that the Sydney solicitors had incompletely recited Article 2.2 of the Additional Provisions. They quoted the complete Article, adding:
Therefore, the company may only delete products where the distributor fails to provide or have available the required tooling equipment, personnel etc or is unable or unwilling to adequately serve the market. Tognum merely purported to unilaterally delete the Series 45000 from the Product
Addendum without any reliance on any alleged failure to perform with
TransDiesel.
[27] On 21 December 2012, the Sydney solicitors responded to Lane Neave. The letter stated that Tognum AG had been entitled to remove Series 4000. They stated:
Contrary to your assertions, our client carefully considered your client’s
obligations and its performance prior to deleting the s 4000 product.
The reasons for such removal are well documented and have been the subject of extensive discussions and correspondence between our respective clients.
[28] Neither in that letter nor in the evidence provided in this proceeding has there been elaboration by Tognum AG or the respondents of any events which might be said to have justified the deletion of products under Article 2.2.
[29] Matters appear to have been left as between Tognum AG and TransDiesel at the end of December 2012 upon the basis that, if TransDiesel saw fit to issue proceedings, Tognum AG proposed to defend them.
[30] There is no subsequent correspondence before the Court in which the Sydney solicitors wrote on behalf of Tognum AG. They later wrote but it was all written on behalf of either the respondents or MTU Detroit Diesel Australia Pty Ltd.
T America’s and T Asia’s supply of goods
[31] Goods other than the Series 4000 continued to be made available to
TransDiesel from Tognum AG’s and its affiliated companies.
[32] T Asia issued an invoice for €115,952.15 on 18 December 2012 for goods supplied. Around the same time, T America invoiced TransDiesel for US$286,364.37 for goods it had supplied.
[33] TransDiesel did not either at the time or in this proceeding take issue with the correctness of those invoices.
[34] T Asia and T America incorporated those sums (with NZ$ equivalents) into their respective statutory demands.
[35] Additionally, and pursuant to payment terms in the General Conditions of Sale, both T America and T Asia included within their statutory demands additional sums on account of interest, calculated from the date for payment under each invoice at 10 per cent per annum. Again, the mathematical calculation of the interest is not challenged by TransDiesel. Rather, TransDiesel says that interest did not begin to run as TransDiesel had from the outset an entitlement to set-off (on account of its damages) which exceeded the sum of the T America and T Asia invoices.
TransDiesel’s set-off
[36] Following the presentation of T Asia’s 18 December 2012 invoice to TransDiesel, Keith Twemlow of TransDiesel wrote to T Asia on 2 April 2013. He recorded that TransDiesel exercised its legal right to set-off its damages claim against the invoices rendered by Tognum companies in respect of goods supplied to TransDiesel. Mr Twemlow explained that the sum invoiced by T Asia would be credited against the damages claimed by TransDiesel.
[37] On 16 May 2013, the Sydney solicitors wrote on behalf of T Asia to Lane Neave. They referred to the exchange of correspondence which had occurred and denied that TransDiesel had any basis for a set-off for three reasons. They asserted:
(a) a right to set-off or withhold payment would only arise between contracting parties: Tognum AG and T Asia are separate legal entities;
(b)there is no dispute between TransDiesel and T Asia over the invoice in question or in relation to the satisfactory performance by T Asia of its contractual obligations; and
(c) TransDiesel otherwise has no contractual rights to set-off or withhold payments.
[38] Lane Neave responded on 22 May 2013 with a reassertion of TransDiesel’s entitlement to set-off. They referred to the relationship between all the parties under the head contract. They referred also to Article 11.7 in the Additional Provisions (set out above at [14]) which provided Tognum AG and other sellers with a right of set-
off in addition to rights provided by law. (Mr Jones, for TransDiesel, has not pursued any argument based on that express provision given that it plainly was for the benefit of Tognum AG and its sellers, and not for TransDiesel.) The letter contained a without prejudice proposal (redacted in the document produced).
[39] On 21 October 2013, Lane Neave again wrote to the Sydney solicitors but this time in relation to a new invoice received by TransDiesel from MTU Detroit Diesel Australia Pty Ltd. Lane Neave again asserted TransDiesel’s right of set-off.
[40] There followed a period of almost ten months’ silence on the subject.
[41] Then, on 11 August 2014, the Sydney solicitors wrote to Lane Neave once again, referring to Lane Neave letters of 22 May 2013 and 21 October 2013. The without prejudice proposal contained in the 22 May 2013 correspondence was rejected. Arguments in relation to the TransDiesel damages and set-off claims were rehearsed. The Sydney solicitors demanded immediate payment of the T America and T Asia accounts (but for unstated reasons did not demand payment of the Australian account). They reserved the right of “our client” (sic) to commence legal action against TransDiesel in “an appropriate jurisdiction”.
[42] Ms Jenkins, of TransDiesel, has produced a response dated 22 September
2014 under the name of Mr Jones as barrister. In the letter, Mr Jones explains to the Sydney solicitors that he had recently commenced practice as a barrister and had been retained by Lane Neave as counsel. The letter is addressed to the Sydney solicitors both at their PO Box address and the solicitor’s email address. Mr Jones detailed TransDiesel’s position in relation to both damages and set-off. Responding to the Sydney solicitors’ reference to the commencement of legal action against TransDiesel “in an appropriate jurisdiction”, Mr Jones refers to the contractual provisions both as to the application of Swiss law and the exclusive jurisdiction of the Chamber of Commerce Zurich to arbitrate disputes.
[43] There is an unsatisfactory gap in the evidence in this proceeding as to the fate of Mr Jones’ 22 September 2014 letter. The deponents who gave evidence on behalf of T America and T Asia record an “understanding” that the Sydney solicitors never
received the 22 September 2014 letter. The hearsay content of the two deponents’ “understandings” is not attributed and the Court cannot place reliance on it. The respondents are to be taken at least arguably to have been on notice of the contents of the 22 September 2014 letter. In any event, the contents of that letter largely reflect matters put in earlier correspondence.
T America’s and T Asia’s statutory demands
[44] Once again, silence reigned. On this occasion, it lasted until 12 October
2015 when the two statutory demands were served.
The jurisdiction to set aside a statutory demand – the principles
[45] The Court’s jurisdiction to set aside a statutory demand is contained in s 290
Companies Act 1993, and I refer specifically to the basis upon which the Court may grant an application as contained in s 290(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.
[46] For the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction these principles –
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.1
·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.
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.2
· The hearing relating on 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.3
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.4
[47] A significant example of the “other grounds” jurisdiction under s 290(4)(c)
arises when parties have by contract or other binding arrangement submitted their
1 Re A Company [1991] BCLC 737 (Ch) at 740 per Harman J, adopted in AAI Ltd v 92 Lichfield
Street Ltd (in rec and in liq) [2015] NZCA 559 at [22].
2 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) PRNZ 413 at [25]; AAI Ltd v 92
Lichfield Street Ltd (in rec and in liq), above n 1, at [21] – [22].
3 Industrial Group Ltd v Bakker, above n 2, at [25].
4 For this formulation of the applicable principles, I acknowledge the editors of Company and
Securities Law (looseleaf ed, Brookers) at [CA290.02(1)].
disputes or other situations to arbitration, with the consequence that art 8 of sch 1 to the Arbitration Act 1996 would require a stay of proceedings before a Court in relation to the subject-matter.5
[48] There exists a residual discretion under the “other grounds” jurisdiction of
290(4)(c) which enables the Court to do justice between the parties. As Tipping J indicated in Commissioner of Inland Revenue v Chester Trustee Services Ltd, the exercise of the discretion comes down to the Court’s judgment as to whether the creditor’s prima face entitlement to liquidate the company is outweighed by some factor making it plainly unjust for liquidation to occur.6
TransDiesel’s ground 1: Set-off under s 290(4)(b)
Legal principles – equitable set-off
[49] A traditional starting point in New Zealand for a consideration of equitable set-off lies in the formulation of the Court of Appeal in Grant v NZMC Ltd as summarised in the head-note to the Report:7
A defendant may set-off a cross-claim which so affects the plaintiff's claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant's claim calls into question or impeaches the plaintiff's demand. It is neither necessary, nor decisive, that claim and cross- claim arise out of the same contract.
[50] In the subsequent decision of the Court of Appeal in Hamilton Ice Arena Ltd v Perry Developments Ltd, the Court (in place of the “link” concept in Grant v
NZMC Ltd) spoke of a “sufficiently close connection” between the two claims.8
5 In Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188 [2015] 1
NZLR 383 at [52], the Supreme Court held, in relation to a summary judgment application, that a stay application based on the existence of an arbitration agreement should be determined first. See also Selford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1575, [2015] 3 WLR 491, staying a winding up petition based on an unpaid debt which arose out of a contract containi ng an arbitration agreement.
6 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA).
7 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
8 Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA) at [39].
[51] The required linkage or sufficiently close connection of claims will ordinarily lead the Court to require an identity of parties. Such was recognised by Tipping J, in giving the judgment of the Court, in Hamilton Ice Arena. His Honour observed:9
The need for identity of parties is also consistent with the proposition that the cross-claim is regarded in equity [as] fully or pro tanto extinguishing the plaintiff’s right to judgment on the claim. The concept of extinguishment is difficult if the cross-claim is made by a different party.
[52] His Honour then discussed, on the facts of Hamilton Ice Arena, the different parties involved as a matter of law, and the different transactions which had been carefully structured with legal advice on both sides. His Honour continued:10
The case falls a long way short of raising circumstances in which it would be appropriate to lift the corporate veil of Hamilton Ice and treat it and the Speirs brothers as being the same person in law. While we would not wish to rule out the possibility that in some unusual circumstance it might be appropriate to allow equitable set-off where there is no identity of parties, any such circumstance (other than one justifying the lifting of the corporate veil) would have to be consistent with the extinguishment rationale. In this case, there being no basis for lifting the corporate veil and equating the Speirs brothers with Hamilton Ice, we are of the view that the lack of identity of parties is in the circumstances fatal to Hamilton Ice’s claim to set- off the money owing by Perry to the Speirs brothers against the money which it owed Perry for rent.
[53] Later in the judgment, Tipping J returned to the requirement of a “sufficiently close connection” between the two claims before turning to consider the contracts involved:
[41] The two contracts here – the lease and the refurbishment contract – concerned different premises in different cities. One involved rent, the other wages. They really have no practical or conceptual linkage at all. The fact that the money due to the Speirs brothers was intended by them to be used to discharge Hamilton Ice’s obligations under the lease is by no means sufficient for equitable set-off. In almost all cases of money cross-claims one party can say to the other, if you had paid me I would have been able to pay you. If that were a sufficient justification for set-off, the difference between set-off and counter claim would be blurred almost to the point of extinction. An issue such as the present is in the end one which turns on a combination of analysis and impression. The trial Judge came to the view that the claims were not sufficiently linked. We cannot say he was wrong; indeed we agree with his conclusion. This ground of appeal must therefore fail.
9 At [8].
10 At [9].
[54] In Le Fleming v Awataieri Holdings Ltd, Fogarty J allowed the appeal of defendants against summary judgment.11 His Honour applied Hamilton Ice Arena. The District Court Judge had placed reliance on the usual need for identity of parties combined with what he considered an absence of unusual circumstances. The Judge had decided that there was therefore not the required link between the two agreements involved.
[55] Fogarty J disagreed. His Honour observed:
[20] The criteria of “link”, and “sufficiently close connection” are standards. Their application turns on a “combination of analysis and impression” per Tipping J in Hamilton Ice: [41]. There the Court of Appeal regarded as a material fact that the arrears on the lease were in respect of the Hamilton premises and the refurbishment contract was in respect of the Auckland premises, there being no practical or conceptual linkage between these debts.
[21] The ultimate issue is unconscionability …
Later, in his judgment, Fogarty J continued:
… Either way, past advantage, mutual or unilateral, can make subsequent conduct unconscionable.
[24] There may be material differences on the facts between the linkage of the contracts in Hamilton Ice and here. In Hamilton Ice the two separate contracts were separated both geographically and by different businesses. Here both contracts pertain to the same business of extracting milk fat from one herd of cattle.
Legal principles – set-off in a statutory demand context
[56] In Le Fleming v Awataieri Holdings Ltd, the Courts were dealing with a plaintiff’s summary judgment application. The consideration of a claimed set-off in that jurisdiction will attract somewhat similar treatment as required in a statutory demand setting. In Le Fleming, Fogarty J observed:
[27] Equity looks to a much broader range of facts than the common law. Defences of equitable set-off are not naturally suitable to disposal by summary judgment…
11 Le Fleming v Awataieri Holdings Ltd HC Dunedin CIV-2009-412-848, 19 March 2010.
[57] The caution required in a summary judgment context, as recognised by Tipping J in Le Fleming, must be applied with still more force in a statutory demand context, having regard to the observations of the Court of Appeal in both Industrial Group Ltd v Bakker and AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq).12
Application of principles
[58] I turn first to TransDiesel’s damages claim which it seeks to set-off.
[59] TransDiesel’s complaint as to the unilateral deletion of Series 4000 from the Product Addendum is not a fanciful or insubstantial complaint. On the contrary, the respondents chose not to engage, through their deponents, on that topic. In his submissions for the respondents, Mr Knowsley responsibly did not suggest that the Sydney solicitors’ incomplete citation of Article 2.2 of the Additional Provisions could constitute a complete or adequate response to TransDiesel’s complaint. Tognum AG has not adduced evidence of the existence of the pre-conditions which would have entitled it to delete products from the Product Addendum.
[60] The next consideration is whether the amount which TransDiesel would set- off is of the order of the respondents’ claims. In this context, I disregard the respondents’ interest claims as calculated from the dates of their invoices and statements of account dates as they post-date the entitlement which TransDiesel would have to damages if it is established.
[61] From the start of the relevant correspondence (October 2012), TransDiesel identified NZD 500,000 as its preliminary estimate of damages. When further correspondence ensued into 2014, TransDiesel (through Mr Jones) provided a more detailed schedule of calculated losses in the form of a spreadsheet. The calculation, broken down into four areas of service and supply, showed predicted sales revenue of $1,539,069.70 as against costs of $844,592.57, to produce a (lost) gross margin of
$694,477.13. Ms Jenkins, TransDiesel’s deponent, produced that spreadsheet as
TransDiesel’s “refined calculation” of damages. The respondents did not provide
12 Industrial Group Ltd v Bakker, above n 2; AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq), above n 1.
any evidence to suggest that there was a flaw in the approach adopted in the spreadsheet.
[62] It cannot be said of the damages claim either as to its alleged existence or as to its estimated amount that it is fanciful or insubstantial.
[63] That established, it remains necessary that TransDiesel demonstrate that it appears to have a set-off for the claimed sum available against these particular respondents, namely T America and T Asia.
[64] In the limited evidence before the Court of the dealings which TransDiesel had with Tognum AG and the various other companies in the Tognum/MTU group, there is material which renders reasonably arguable TransDiesel’s assertion of a right of set-off against the claims of T America and T Asia. There is the linkage or substantial connection between the parties’ claims which begins with the head contract itself. Tognum AG did not purport to contract solely on its own behalf. It contracted also on behalf of the Affiliated Companies. Such an extended reach of the head contract is entirely understandable when regional distribution rights were being established and distributors were to source product from different entities within the Tognum/MTU group. This is a different situation from that confronting the Court of Appeal in Hamilton Ice Arena where there were two separate contracts which were separated both geographically and by different business structures. There is more similarity between this case and that in Le Fleming where both the contracts involved pertained to the same business of extracting milk fat from one herd of cattle.
[65] As in Le Fleming, there may be other facts further distinguishing this case from Hamilton Ice Arena which would need to be explored at trial.
[66] The core of TransDiesel’s set-off argument is reasonably arguable on the documentary history itself. But beyond that, the Court is entitled to take into account the unexplained periods of silence on the part of Tognum AG, T America and T Asia (through the Sydney solicitors whom they all retained). The failure to respond to Mr Jones’ 22 September 2014 letter is not explained by admissible
evidence yet is followed much later by the issue of statutory demands. The earlier failure to respond to the 22 May 2013 and 21 October 2013 letters until 11 August
2014 is also unexplained. The periods of silence and apparent inaction reinforce the impression from the documentary record that TransDiesel had raised at least arguable issues.
Outcome on ground 1
[67] I am satisfied that TransDiesel appears to have a set-off which is available against both respondents which exceeds the amounts cumulatively specified in both demands (when adjusted to remove the interest claims). Pursuant to s 290(4)(b) of the Companies Act, it is appropriate to set aside the statutory demands.
TransDiesel’s ground 2: the arbitration agreement and governing law as “other grounds”
[68] Had this been a proceeding by either T America or T Asia for an order putting TransDiesel into liquidation, it would have been appropriate to first consider any stay application made by TransDiesel in reliance upon the arbitration provisions of both the head contract and of the uniform general conditions of sale.13
[69] For TransDiesel, Mr Jones emphasised the two-fold nature of the clauses dealing with arbitration and applicable law. First, there is the agreement of all parties (including Tognum AG, T America and T Asia) that the legal relationships will be governed by Swiss substantive law. Secondly, the matters to be settled by arbitration include not only “disputes” but also “any controversy or claim arising out of or in relation to [each] contract”.
[70] For the respondents, Mr Knowsley emphasised the lack of any dispute as to the correctness of the invoices on their face.
[71] As TransDiesel has established grounds for the setting aside of each statutory demand under s 290(4)(b) of the Companies Act, I refrain both from further
considering the application also in terms of s 290(4)(c) of the Act. The matter may
13 Zurich Australian Insurance Ltd v Cognition Education Ltd, above n 5.
have to be considered further by this Court if any party seeks to pursue proceedings in this jurisdiction.
Costs
[72] It is appropriate that costs and disbursements follow the event. I will be so ordering. If the parties are unable to agree on the amount, submissions are to be filed by memorandum (six page limit) in the following order:
(a) applicant’s submissions within 10 working days; and
(b) respondents’ submissions within five working days thereafter.
Orders
[73] I order:
(a) The statutory demands dated 9 October 2015 and issued by the first and second respondents respectively are set aside.
(b) The respondents are to pay the applicant’s costs and disbursements of
the application, with the amount of costs and disbursements reserved.
Associate Judge Osborne
Solicitors:
Lane Neave, Lawyers, Christchurch
Counsel: G D Jones, Barrister, Christchurch
Rainey Collins, Wellington
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