Waharoa Livestock Limited v Bourton Farms Limited
[2024] NZHC 2421
•26 August 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-183
[2024] NZHC 2421
UNDER Section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
WAHAROA LIVESTOCK LIMITED
Applicant
AND
BOURTON FARMS LIMITED
Respondent
Hearing: 26 August 2024 Counsel:
K A Lomas for Applicant and A T Davis
M G Orange for Respondent (granted leave to withdraw) No appearance for Respondent
Judgment:
26 August 2024
Reasons:
27 August 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
(Reasons)
This judgment was delivered by me on 27 August 2024 at 2.45 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
WAHAROA LIVESTOCK LIMITED v BOURTON FARMS LIMITED [2024] NZHC 2421 [27 August 2024]
[1] This is an application by Waharoa Livestock Ltd (WLL) to set aside a statutory demand issued to it by Bourton Farms Ltd (BFL). By its demand BFL sought payment of $332,507.90 said to be an amount outstanding for lambs purchased by WLL from it in or around February 2024.
[2] WLL applies to set aside the statutory demand under s 290 of the Companies Act 1993, arguing that:
(a)There is a substantial dispute as to whether the debt claimed in the statutory demand is owing or is due because the livestock in question was supplied pursuant to a contract between two different parties, namely FFL Ltd (FFL) and Wood Contractors Ltd (WCL).
(b)There are set-offs which WCL is entitled to apply against any debt owed to FFL, including in respect to issues concerning the quality of lambs supplied.
[3] Prior to the hearing, BFL’s solicitors filed an application seeking leave to withdraw as its solicitors on the record. The application had been made in accordance with the requirements of r 5.41 of the High Court Rules 2016 and served on BFL. No objection to the application had been made and there was no appearance of other counsel or from any representative of BFL. I considered the grounds for making the order sought were made out and granted the application.
[4]The hearing then proceeded, and Mr Lomas spoke to his written submissions.
[5] At the conclusion of the hearing, I made an order setting aside the statutory demand and advised counsel I would issue short reasons in writing. These are those reasons.
Background
[6] Mr Jonathan Wood (Mr Wood) is the sole director and shareholder of WLL. Mr Wood is also the sole director and shareholder of WCL. Mr Wood is 66 years old and suffering from ill-health. For that reason his son, David Wood (Dave Wood), who
is heavily involved in his father’s affairs, provided affidavit evidence in support of the application to set aside the statutory demand.
[7] The sole director of BFL is Ms Celine Bourton. However, it is Ms Bourton’s son, Mr Leonard Bourton (Mr Bourton), a shareholder of BFL, that is the real protagonist in this case. Mr Bourton is the sole director of several other companies, a number of which are (or were) in receivership. Of relevance to these proceedings, Mr Bourton is the sole director of FFL.
[8] Through his company WCL, Mr Wood facilitates the supply and cartage of livestock to farming customers across New Zealand. One of WCL’s major customers is Alliance Farmers Limited (Alliance).
[9] In January 2024, WCL recommenced working with FFL. While not recorded in a formal written agreement, the basis on which WCL did business with FFL was as follows:
(a)FFL (via Mr Bourton) would source stock and, if it had stock which it was unable to sell directly, would ask WCL to sell stock on FFL’s behalf. There were customers who would not deal directly with FFL or Mr Bourton.
(b)WCL would deal with the end-purchasers and arrange for the sale of the stock.
(c)FFL would then deliver the stock as directed by WCL.
(d)Upon delivery of the stock, the end-purchasers would pay WCL. If there were issues with the quantity or quality of stock delivered, the customer might reject the stock and/or make deductions from the amount payable to WCL.
(e)After receiving payment from the customer, WCL would pay FFL the same amount WCL received from the customer less an agreed amount per animal as commission for co-ordinating the supply.
[10] Between 3 January 2024 and 25 February 2024, there were several supplies of livestock under this arrangement. The initial transactions between WCL and FFL went relatively smoothly. In anticipation of further supplies, WCL agreed to make a series of lump sum payments to FFL to help with its working capital requirements. As at 20 February 2024 FFL owed WCL $169,161.36.
[11]FFL went into receivership on 1 March 2024.
[12] On 8 March 2024, WCL received three invoices from BFL for the supply of lambs the previous month to Alliance. WCL had not previously had any dealings with BFL, only with FFL. Mr Wood was surprised and concerned about this development and raised it in a telephone conversation with Mr Bourton. Mr Bourton says that Mr Wood requested that the invoices be redirected to WLL and he had no problem with that. He does not go on to explain why he would have been unconcerned about invoicing a different company than the one he understood BFL had been dealing with. Mr Bourton had the invoices redirected by BFL to WLL. I understand the evidence for WLL is that given the receivership of FFL the intention was to ring-fence the invoices from the previous trading history with FFL, but it now accepts the reinvoicing should never have occurred.
[13] Upon his appointment, the receiver of FFL and other related companies, Gareth Hoole, was provided access to the accounting records for FFL which he described as appalling, with multiple unreconciled items. He also gives evidence that upon appointment he secured the companies’ bank accounts. He says that shortly after 1 March 2024 (although he cannot say when exactly) Mr Bourton contacted him to complain that he did not have access to working capital, and asked if he could continue to trade using BFL. Mr Hoole told Mr Bourton that if he did so he could not use any of the assets that were the subject of the receivership. Mr Hoole believes that it is likely the transactions to which the disputed invoices relate were completed by FFL and not BFL.
Legal principles
[14]Section 290 of the Companies Act provides:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the 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)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
[15] The principles that apply when the Court is exercising the discretion under s 290(4) of the Companies Act are well established and were confirmed by the Court of Appeal in Confident Trustee Ltd v Garden and Trees Ltd.1 In summary:
(a)The onus is on the applicant to show there is a fairly arguable basis on which it is not liable for the amount claimed. The task for the Court is
1 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16].
not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion a 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 by means of ordinary civil proceedings.
(c)If a counterclaim, cross-demand or set-off is suggested, an applicant must establish that this is reasonably arguable in all the circumstances.
(d)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.
[16] In AAI Ltd v 92 Lichfield Street Ltd (in rec & liq), where the Court of Appeal summarised the onus on an applicant as:2
What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.
Analysis
[17] The issue is whether WLL has shown a fairly arguable case that it is not liable for the amount claimed on the basis that the transactions in question were undertaken pursuant to a contract between FFL and WCL.
[18] Mr Bourton says WLL is attempting to take advantage of FFL being in receivership to muddy the waters and avoid paying what is owed. On the other hand, WLL says it is a fair inference that, faced with the receivership of his companies and
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnote omitted).
the financial constraints that imposed, Mr Bourton is trying to use BFL to collect a debt that is in fact owed to FFL. WLL considers it is now in an invidious position, and while WCL will pay whatever may be owing to FFL it does not want to pay BFL and then face a claim from the receiver for the same monies.
[19] I am satisfied that there is a substantial dispute as to who the contracting parties were for the supply of the lambs which are the subject of the invoices in issue for all of the following reasons:
(a)Neither WCL nor WLL had any prior contractual relationship or dealings with BFL.
(b)There was a pattern of trading exclusively between WCL and FFL prior to FFL going into receivership on 1 March 2024.
(c)The invoices in issue were initially issued by BFL to WCL, not WLL.
(d)While Mr Wood asked that the invoices be redirected to WLL, the reason for doing so has been explained and it was very quickly realised that should not have happened. This was made clear in correspondence between the parties’ solicitors.
(e)While the lambs were supplied during February 2024, it was not until 8 March 2024, after FFL was in receivership, that BFL issued the invoices.
(f)BFL’s director is Mr Bourton’s mother, and there is nothing to suggest BFL has previously been involved in supplying livestock or that it had any previous dealings with WLL or WCL.
(g)There is evidence that BFL was not trading prior to 1 March 2024 and that all of Mr Bourton’s livestock transactions between January 2024 and March 2024 were through FFL.
(h)While BFL, through its accountant, has produced invoices for the purchase of the lambs in question by BFL from a third party, the invoices are dated 7 March 2024 and there is no explanation for the delay in issuing them. There is also evidence that typically such invoices would be issued the same day or within two days.
(i)While the receiver of FFL could not definitively say if the amount claimed is owing to FFL, he is of the view that it likely is.
[20] For those reasons the statutory demand must be set aside. It is not necessary for me to consider the additional ground advanced by the WLL which goes only to quantum.
Result
[21] The statutory demand issued by BFL to WLL dated 5 April 2024 is set aside under s 290(1) of the Companies Act 1993.
[22] The applicant has been successful and is entitled to costs. Mr Lomas says above scale or indemnity costs will be sought. I reserve costs on the basis that Mr Lomas will file a memorandum asking for costs and disbursements to be fixed within 14 days. The respondent will have seven days to file any memorandum in response. I will determine the issue of costs on the papers. Submissions are to be no longer than six pages.
O G Paulsen Associate Judge
Solicitors:
Braun Bond & Lomas Ltd, Hamilton Fortune Manning, Auckland
Copy to: Mr Bourton
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