VERONICA WEST LIMITED AND MASTER DESIGN FURNITURE LIMITED
[2024] NZHC 3634
•11 December 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1371
[2024] NZHC 3634
UNDER
AND
section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
VERONICA WEST LIMITED
Applicant
AND
MASTER DESIGN FURNITURE LIMITED
Respondent
Hearing: 21 October 2024 Appearances:
B Prewett for the Applicant A Ho for the Respondent
Judgment:
11 December 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 11 December 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Crimson Legal, Auckland
VERONICA WEST LTD v MASTER DESIGN FURNITURE LTD [2024] NZHC 3634 [11 December 2024]
Introduction
[1] Veronica West Ltd applies to set aside a statutory demand served on it by Master Design Furniture Ltd. The statutory demand is in respect of an award for costs and disbursements of $36,690.10 made following an earlier application by Master Design to set aside statutory demands served on it by Veronica West and the trustees of the Doonan Family Trust.1 The earlier statutory demands related to allegedly unpaid rent and outgoings by Master Design, as lessee, to Veronica West and then the Doonan Family Trust, as lessor. I set aside the earlier demands on the basis that it was reasonably arguable that at least part of the rent and outgoings ought to be abated under cl 27.5 of the lease as a result of the COVID-19 pandemic.2
[2] I made the costs award that is the subject of the statutory demand in this application partly on an increased basis as I held that Veronica West and the Doonan Family Trust ought to have withdrawn the statutory demands following a letter from counsel for Master Design highlighting a decision considering a similar dispute.3
[3] Veronica West has not paid the costs award and now applies to set aside the statutory demand served by Master Design in respect of the award. Veronica West submits the demand ought to be set aside because it has a counterclaim, being its claim for unpaid rent and outgoings by Master Design. Veronica West says this claim remains outstanding and totalled $71,762.03 as at 17 May 2024, significantly exceeding the amount specified in the statutory demand.
[4]Master Design opposes the statutory demand being set aside on two grounds:
(a)Veronica West should not be allowed to rely on its counterclaim because most of the rent and outgoings ought to be abated and because the amount due to Veronica West cannot be quantified until determined by arbitration.
1 Master Design Furniture Ltd v Veronica West Ltd [2024] NZHC 1103 [Costs Decision]
2 Master Design Furniture Ltd v Veronica West Ltd [2023] NZHC 3831 [Statutory Demand Decision] at [77] and [80].
3 Costs Decision at [47].
(b)Even if the amount of Veronica West’s counterclaim is quantifiable, Master Design has valid “counter-counterclaims” exceeding Veronica West’s counterclaim which should all proceed to arbitration. The statutory demand in respect of the costs award should not be set aside in the meantime.
[5] I set out the legal principles applying to applications to set aside statutory demands before considering the application of those principles in the circumstances of this recent demand.
Relevant legal principles
[6] The court’s power to set aside a statutory demand is provided by s 290(4) of the Companies Act:
(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.
[7] The Court of Appeal confirmed the principles a court should apply when exercising the s 290(4) discretion in Confident Trustee Ltd v Garden and Trees Ltd:4
[16]The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
4 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 confirmed by the Court of Appeal in Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 at [26].
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
(footnote omitted)
[8] Veronica West’s application is pursuant to s 290(4)(b) — that it has a counterclaim.
[9] In Manchester Securities Ltd v Body Corporate 172108, the Court of Appeal held:5
Just as any defence must be shown to be reasonably arguable, so must any set- off, counterclaim or cross-demand. However the obligation is not to prove the actual claim. It is not expected that the dispute itself is to be tried in the course of hearing the application. It has been said that “clear and persuasive” grounds must be shown for a set-off, rather than a mere assertion.6 There must be a real evidential basis for the claim, and the claim must be arguable as a matter of law”.7
[10] In addition, the applicant must show that the amount of the set-off (or counterclaim as it is here) is equal to or more than the amount claimed in the statutory demand.8
Ae there clear and persuasive grounds for Veronica West’s counterclaim including for it being more than the amount of the demand (plus the prescribed amount)?
[11] Master Design relies on my finding in its successful application to set aside Veronica West’s earlier demand, that I could not reduce the amount claimed by Veronica West in respect of rent and outgoings to an uncontested amount as there was no formula available on which to do so. I commented that this was not an exercise that could be undertaken in an application to set aside and was instead a matter for arbitration or an ordinary proceeding.9 On this basis, Master Design says that the
5 Manchester Securities Ltd v Body Corporate 172108, [2018] NZCA 190, [2018] 3 NZLR 455 at [27].
6 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at [11].
7 Provida Foods Ltd v Foodfirst Ltd [2012] NZCA 326, (2012) 21 PRNZ 546 at [32].
8 Manchester Securities Ltd v Body Corporate 172108, above n 5, at [28].
9 Statutory Demand Decision, above n 2, at [79].
counterclaim is not quantifiable and so cannot fall within the test at s 290(4)(b), that the counterclaim is for greater than the amount of the statutory demand by at least the prescribed amount of $1,000.
[12] However the question I was addressing in the passage referred to above was whether any part of the statutory demand was undisputed and ought to stand. This is a different question to whether in terms of s 290(4)(b) there is an evidential basis for Veronica West’s counterclaim to at least the amount of the statutory demand plus the prescribed amount and whether the counterclaim is arguable as a matter of law.
[13] I consider there is a “real evidential basis” for the counterclaim because it relates to the months in which Master Design occupied the premises. The claim is also arguable as a matter of law based on the terms of the lease. This is because clause
27.5 of the Lease requires a “fair reduction” in rent and outgoings in respect of the pandemic where the business cannot “fully operate.” Veronica West allowed a full abatement of rent at Alert Level 4 of the COVID-19 Alert System but no abatement at Alert Level 3, and no abatement of outgoings at either level.
[14] The two issues that arise in respect of the counterclaim are whether Master Design could “fully operate” its business during the relevant period and what is a “fair reduction” of rent and outgoings if it could not. Both of these issues are disputed and neither of these questions can be answered in the context of an application to set aside a statutory demand. The claim needs to be determined in its full factual context.
[15] Counsel for Master Design refers to the discussion of cl 27.5 of the lease in Burgered Restaurants Auckland Ltd v Chunilal10 and Coffee Culture Franchises Ltd v Home Straight Park Trustees Ltd11 and submits it is clear that the rent and outgoings ought to be abated.
[16] In addition, counsel for Master Design refers to other issues arising with the claim for rent, including that the claim to underpaid rent relates to Veronica West’s decision to increase Master Design’s rent on 1 December 2021, in the middle of a
10 Burgered Restaurants Auckland Ltd v Chunilal [2022] NZHC 1903 at [46]–[47].
11 Coffee Culture Franchises Ltd v Home Straight Park Trustees Ltd [2021] NZHC 577 at [28].
global pandemic, and that Master Design did not pay rent for March 2023 as it moved out on 22 February 2023.
[17] But as counsel for Master Design appeared to accept in the hearing, the position between the parties in terms of unpaid rent and outgoings and the extent to which either or both ought to be abated cannot be determined in the context of an application to set aside and instead needs to be determined by agreement or arbitration.
[18] I am therefore satisfied that there is a real evidential basis for the counterclaim for an amount that exceeds the amount of the statutory demand by at least the prescribed amount and that it is arguable as a matter of law.
Do Master Design’s “counter-counterclaims” outweigh Veronica West’s counterclaim?
[19] Counsel for Master Design submits as a secondary argument that Master Design has five additional claims against Veronica West for:
(a)broken roller doors;
(b)wasted space;
(c)locked gate preventing use of the fire exit door;
(d)water damage; and
(e)breach of covenant of quiet enjoyment.
[20] Master Design says that while this Court did not determine these claims in the previous proceeding, they were held to be reasonably arguable and that all of these claims ought to be dealt with in arbitration or ordinary proceedings. Master Design pleads that the loss arising from the damage caused by the water leaks is $95,603.97 and that this sum is supported by calculations and a quote from a fabric supplier. Master Design submits that this claim alone would exceed the entire amount of rent and outgoings claimed by Veronica West in its counterclaim.
[21] Counsel for Master Design appeared to submit that because the costs award is not in dispute, the statutory demand ought to be left to stand, allowing the disputed claims, Veronica West’s counterclaim and Master Design’s “counter-counterclaims” to be resolved by mediation or arbitration.
[22] However, the question s 290(4) requires the Court to address is whether the amount demanded is disputed (which both parties accept the costs award is not) or whether Veronica West has a counterclaim for more than the amount of the statutory demand (plus the prescribed amount). I have held above that it does. Master Design’s “counter-counterclaims” are not the subject of the statutory demand (and nor could they be because they are disputed) and so are not relevant to that issue.
[23] The fact that the costs award is not disputed does not provide a basis for the exercise of the discretion not to set aside the demand where Veronica West has sufficiently established it has a counterclaim.
Result
[24] The application to set aside the statutory demand is granted pursuant to s 290(4)(b) of the Companies Act.
Costs
[25] Veronica West has succeeded and so is entitled to costs. I ask the parties to confer and only if costs are unable to be agreed, to file memoranda, on behalf of the applicant by 24 January 2025 and the respondent by 7 February 2025.
Final note
[26] I record that at this stage the parties either need to reach agreement (by attending a mediation or otherwise) or proceed with arbitration to have matters properly determined. Further service of statutory demands or other steps in the summary jurisdiction ought to be avoided as the substantive disputes between the parties are unable to be resolved in this context.
Associate Judge Sussock
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