Waikato Motors Limited v West End Property Developments Limited
[2019] NZHC 865
•17 April 2019
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-419-0013
[2019] NZHC 865
BETWEEN WAIKATO MOTORS LIMITED
Plaintiff
AND
WEST END PROPERTY DEVELOPMENTS LIMITED
Defendant
Hearing: 12 April 2019 Appearances:
M K Brady for the Plaintiff
D M O'Neill for the Defendant
Judgment:
17 April 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 17 April 2019 at 2.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel: Tompkins Wake, Hamilton Vosper Law, Cambridge
D O'Neill, Hamilton
WAIKATO MOTORS LTD v WEST END PROPERTY DEVELOPMENTS LTD [2019] NZHC 865 [17 April 2019]
[1] This is an application by the defendant for orders restraining publication of any advertisement of the plaintiff's liquidation claim,1 or any other information relating to the plaintiff's statement of claim, and staying any further proceedings in the liquidation. I heard the application on 12 April 2019, and on 15 April made interim stay and restraint orders pending further order of the Court.
[2] The defendant says that it is solvent, and that there is a genuine and substantial dispute between the parties as to whether or not the debt demanded by the plaintiff is due. It says that the plaintiff is acting unfairly in bringing the liquidation proceeding, and that the proceeding is an abuse of process; the dispute should be resolved by an ordinary proceeding, and not in the Companies' Court. The defendant says that advertising the proceeding will cause damage to its reputation which would be difficult to quantify.
[3] The plaintiff opposes the application. It says that the defendant failed to pay or compromise the debt claimed in a statutory demand issued by the plaintiff on 11 December 2018 (the statutory demand), and is presumed to be insolvent.2 The plaintiff says that the defendant has advanced no genuine dispute, and there are proper grounds for concern as to its ability to pay the debt. It says that it has not acted oppressively or unfairly in bringing the liquidation proceeding.
The jurisdiction to restrain advertising and stay further proceedings in a liquidation claim
[4] The application is made under r 31.11 of the High Court Rules. That rule provides:
31.11 Power to stay liquidation proceedings
(1)If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—
1 As required by r 31.9 of the High Court Rules 2016.
2 Under s 287 of the Companies Act 1993, unless the contrary is proved (and subject to s 288 of that Act), a company is presumed to be unable to pay its debts if one of a number of grounds stated in s 287 applies. One of them is failure to comply with a statutory demand.
(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b)for an order staying any further proceedings in relation to the liquidation.
(2)The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3)The inherent jurisdiction of the court is not limited by this rule.
[5] The authorities show that the defendant carries a "heavy"3 onus of establishing that there is a strong prima facie case of the existence of a genuine dispute, on substantial grounds.4 The defendant must show "something more" than that the balance of convenience favours the stay. A "genuine" dispute is one that is "real and not fanciful or insubstantial".5 The grounds of the dispute must be "clear and persuasive".6
[6] The Courts have been prepared to entertain an application for a stay even though a subsisting statutory demand has not been challenged. However, good reasons must be advanced to justify a challenge to the debt under r 31.11 when no application was made under s 290 of the Act to set aside the statutory demand. While each case is to be considered on its particular facts, a defendant who failed to apply to set aside a statutory demand on the ground that the debt is disputed needs to show some exceptional factor to justify its failure to make a setting aside application (that being a factor likely to reflect the existence of a genuine dispute).7
[7] A dispute as to only part of a debt does not prevent a plaintiff from proceeding with a liquidation claim, and is not sufficient to justify a stay.8
3 Signs Advertising Limited v CPC New Zealand Limited [2017] NZHC 461 (HC) at [24].
4 Nemesis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 at 385.
5 Signs Advertising Limited v CPC New Zealand Limited, above n 2, at [17]; AAI Ltd v 92 Lichfield Street Ltd (In Rec & Liq) [2015] NZCA 559, confirming Industrial Group Ltd v Bakker [2011] NZCA 142, 20 PRNZ 413 at [24]-[25].
6 Nemesis Holdings Limited v North Harbour Industrial Holdings Limited, above n 3, at 385.
7 Aditude Advertising Ltd (in liq) v Techday Ltd [2012] NZHC 1884 at [11]. See also KiwiRail Ltd v Oceanic Palms Ltd [2018] NZHC 1164.
8 Nemesis Holdings Ltd v North Harbour Holdings Ltd, above n 4, at 385, and Maru Industries Ltd v Dan Forbes Construction Ltd (1989) 2 PRNZ 176.
[8] In Anglian Sales Ltd v South Pacific Manufacturing Ltd,9 the Court of Appeal distinguished the situation where a debtor raises a genuine and substantial set-off, and the situation where the debtor acknowledges the creditor's debt but claims to have a counterclaim which exceeds the amount of the creditor's claim. In the former situation, there will be a question as to whether the plaintiff is in fact a "creditor" entitled to bring the liquidation claim, whereas in the second situation there is no dispute over the validity of the claim on which the liquidation proceeding is based. The Court of Appeal in Anglian Sales considered the judgment of Buckley LJ in Bryanston Finance Ltd v de Vries, where his Lordship observed that it has long been recognised that the jurisdiction of the Court to stay an action in limine as an abuse of process is a jurisdiction to be exercised with great circumspection.10 The right to petition the Court for a winding up order in appropriate circumstances is a right conferred by statute, and a would-be petitioner should not be restrained from exercising it except on clear and persuasive grounds.11
[9]In Anglian Sales, the Court of Appeal then said:12
It follows that where the existence of the debt on which the petition is founded is unchallenged it cannot be said with the same confidence that the proceedings amount to an abuse of process merely by reason of an alleged counterclaim. Where therefore the debtor, while admitting the debt, advances a counterclaim in an attempted answer to a petition, the latter should normally proceed to determination, with the Court retaining a discretion as to whether it ultimately makes a winding up order or not.
[10] Associate Judge Matthews followed Anglian Sales, in Fatweb Ltd v Manaia One Ltd, a case in which the defendant applied under s 31.11 of the High Court Rules for an order restraining publication of an advertisement of the liquidation claim made against it by Fatweb.13 The Associate Judge noted that the Court was being asked to defer the enforcement proceeding of an established liability which Fatweb had elected to take under the Companies Act, while it ascertained whether or not Manaia had a counterclaim which might, if for a sum exceeding the amount it owed to Fatweb, result in Fatweb no longer being a creditor. The Associate Judge referred to the passage cited
9 Anglian Sales Ltd v South Pacific Manufacturing Ltd [1984] 2 NZLR 249.
10 Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63 at 78.
11 At 78.
12 Anglian Sales Ltd v South Pacific Manufacturing Ltd, above n 9, at 252.
13 Fatweb Ltd v Manaia One Ltd [2016] NZHC 1016.
from Anglian Sales at paragraph [9] above, referring to it as "a principle of law standing in Manaia's way".14 Manaia had relied on Heron's Flight Ltd v NZ Properties International Ltd,15 and the Court of Appeal decision in Covington Railways Ltd v Uni-Accommodation Ltd,16 in support of the submission that the liquidation claim should be stayed pending determination of Manaia's counterclaim. However, the Associate Judge pointed out that both Covington and Heron's Flight were decisions made in relation to the final disposition of the liquidation claim: neither was an application for a stay of the liquidation proceeding. Following the principle in Anglian Sales, Associate Judge Matthews concluded that the appropriate time for consideration of issues such as those raised by Manaia was on the final determination of the application for a liquidation order.
The statutory demand and the liquidation claim
[11] The statutory demand claimed a total of $50,350 from the defendant. That sum was comprised of $40,000 said to be due in respect of overpaid rent for the year ending 1 June 2017, and $10,350 being one month's rental which was erroneously paid on 3 April 2018. The rent related to a property the defendant had owned at the corner of Avenue Road and Thames Road, Morrinsville (the property), in which the plaintiff operated a Toyota motor vehicle dealership.
[12] The statutory demand was served on the defendant on 11 December 2018, but it did not pay the amount demanded or take any other step in response to the statutory demand.
[13] The liquidation claim was filed on 25 January 2019. It referred to the defendant's failure to comply with the statutory demand, and asserted that the total amount owing by the defendant to the plaintiff is $50,350. It asked for an order putting the defendant into liquidation on the basis that the defendant is unable to pay its debts and/or it would be just and equitable to put the defendant into liquidation.
14 At [20] and [23].
15 Heron's Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC).
16 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA).
Statement of defence
[14] The defendant filed a statement of defence on 8 February 2019. At the same time, it filed the present application. In its defence the defendant admitted service of the statutory demand on 11 December 2018, but denied liability for the $50,350 claimed. It denied that it was insolvent and unable to pay its debts.
Evidence for the defendant in support
[15] The defendant is a property developer. Its director is Mr Russell Mead, and he provided an affidavit in support of the application for stay and restraining orders.
[16] Mr Mead said that the defendant developed the property initially for a South Waikato Toyota franchisee. A deal with one prospective franchisee fell through, and Mr Mead then began discussions with the operator of the Ebbett Toyota franchise in Hamilton. Mr Mead was also in communication with Toyota New Zealand, who were keen to have a Toyota franchisee in the property.
[17] Mr Mead had discussions with Mr Ben Van Den Engel of Ebbett Toyota, and a lease was eventually signed for the property on or about 3 September 2015 (the Lease). The defendant was the landlord and the plaintiff was the tenant. Ebbett Waikato Group Ltd was named as guarantor of the tenant's obligations under the Lease. The annual rent payable under the Lease was $100,000 plus GST, payable by equal monthly instalments of $3,333.33. The term was five years, with five rights of renewal, each for a five year period. The commencement date was to be 10 working days after a certificate for public use was issued in respect of the building to be erected on the property in accordance with certain agreed building plans, but would not be later than 1 June 2016.
[18] By deed of variation entered into between the parties about six months later (the Variation), the commencement date was amended to 1 November 2016. The annual rent was increased to $108,000 per annum plus GST, and the final expiry date was fixed at 3 October 2041. In all other respects the terms and conditions comprised in the Lease were confirmed.
[19] Mr Mead said that the plaintiff's willingness to pay an additional $8,000 per annum reflected an agreement between the parties under which the plaintiff would acquire the architect's plans for the building on the property in consideration of the sum of $40,000 to be paid over the first five year term of the Lease. Mr Mead explained the matter by saying that Mr Van Den Engel initially required the architect's plans to send to the plaintiff's architects so that they could be assured that the plans met the plaintiff's requirements, but about six months later Mr Van Den Engel said that he wanted to use the plans for another Toyota outlet. Mr Mead said that he told Mr Van Den Engel at that point that he could have access to the plans if he agreed to pay the
$40,000. Mr Van Den Engel initially would not pay, but agreed on a compromise under which the $40,000 would be added to the rent at the rate of $8,000 per annum over the ensuing five years.
[20] Mr Mead said that, in addition to the arrangement relating to the architect's plans, Toyota New Zealand agreed in October 2015 to pay $40,000 which the defendant could use to assist with the building construction costs. He referred in support to an email dated 1 September 2015 from Mr Kerry Walker, the Corporate Manager, Franchise Development, for Toyota New Zealand.
[21] Mr Walker's email of 1 September 2015 noted that he had heard from Mr Van Den Engel that the plaintiff and the defendant had reached an agreement on building fit-out responsibilities, and were ready to sign an agreement to lease. The email went on to say:
In view of this, I am happy to release the final rent subvention payment as promised — please send me an invoice per our previous arrangements.
[22] Toyota New Zealand (Mr Walker) wrote to Mr Mead on 8 October 2015 following up on the payment of $40,000 (including GST) it proposed to make. The letter of 8 October 2015 said:
Advance Payment of Year 1 Rent
In order to facilitate development of [the property], TNZ [ie Toyota New Zealand] propose to make an advance payment of $40,000 (incl gst) towards the first year's rent.
This payment is made on behalf of Ebbett Waikato Group Ltd and is to be prorated on a monthly basis across rental charges for the first year of occupation of [the property].
Please signify your acceptance of this proposal by counter-signing this letter and returning to me by email along with an invoice for the sum specified.
[23] Mr Mead counter-signed the letter and sent an invoice to Toyota New Zealand for the $40,000.
[24] In his reply affidavit, Mr Mead produced a copy of the invoice. It was addressed to Toyota New Zealand and dated 9 October 2015. The invoice was headed "Invoice for Advance on First Year's Rental". The invoice referred to a "one-off" payment of $40,000, GST inclusive. It went on to say: "This payment is to be used for direct associated build costs and interest".
[25]Toyota New Zealand duly paid the $40,000 to the defendant.
[26] Mr Mead said that, in a conversation later in October 2015, Mr Walker told him that the $40,000 would not have to be repaid because he would talk to the Toyota New Zealand Board and it would be written off. Mr Mead was keen for that to happen, because the defendant was not then in a position to repay the $40,000.
[27] Mr Mead said that he took Mr Walker at his word, presumed the $40,000 was written off, and thought no more about it.
[28] Mr Mead addressed the defendant's arrangements with Toyota New Zealand over the $40,000 payment agreed in October 2015 further, in his reply affidavit. He said that the invoice the defendant sent to Toyota New Zealand was sent so that Mr Walker could place something before the Board of Toyota New Zealand and get it forgiven. If at any stage he had thought the defendant would have to pay the money back, it would not have taken the money.
[29] Mr Mead acknowledged that there was nothing in writing from Mr Walker regarding the forgiveness of the $40,000, but Mr Mead did retain diary notes of his discussions with Mr Walker in early October 2015, and he produced copies of diary entries made on 5, 6, 7, 8, and 9 October 2015.
[30] Referring to those diary notes, Mr Mead said that he spoke to Mr Walker on 5 October 2015 and told him that he was struggling to get up and running with the project due to delays caused by the plaintiff. He suggested to Mr Walker that Toyota New Zealand "pay some more interest to keep the site". Mr Mead said that Toyota New Zealand was very keen to retain the site, and did not want to lose an opportunity to have a Morrinsville dealership.
[31] On 6 October 2015 Mr Walker came back to Mr Mead and said that it was a "no go", because he couldn't secure any more funding for the project until there was a signed lease.
[32] On 7 October 2015 Mr Walker telephoned regarding the possibility of getting the money through the Toyota New Zealand Board "if the invoice was worded differently". Mr Mead relayed that to his financial broker/adviser on 8 October 2015, and they both agreed that it would not help the defendant much if it had to pay the money back: its concern was that its banker, KiwiBank, might not advance the necessary funds for the repayment.
[33] Mr Mead said that the conversation on 9 October 2015 with Mr Walker resulted in Mr Mead noting that they had possibly found a solution. He said that that solution was Mr Walker telling him that the defendant did not have to pay the $40,000 back.
[34] The plaintiff paid its rent from the time it moved into the property in late 2016, at the rate of $108,000 per year. Mr Mead said "the original $40,000 was over and above that sum".
[35] Mr Mead then referred to a telephone call from Mr Van Den Engel in November 2018, in which Mr Van Den Engel claimed that the plaintiff owed the plaintiff $40,000. Mr Mead denied any such liability, and explained that the payment of $8,000 per annum spread over five years was for the architect's plans. Mr Mead said he was confused by the demand, as that was the only money he could think of that might be demanded from the defendant. Mr Van Den Engel told Mr Mead that the $40,000 was not for architect's plans, but related to the advance from Toyota
New Zealand. Mr Mead said that he never thought that would be demanded, as he had been assured that Toyota New Zealand would not require it to be repaid. He told Mr Van Den Engel that he had it confirmed by Mr Walker that it would not have to be repaid.
[36] Mr Mead said that he left matters with Mr Van Den Engel on the basis that he would check with the defendant's accountants to see what was going on. Subsequently, Mr Van Den Engel telephoned a few times, but Mr Mead said that he and Mr Van Den Engel kept missing each other.
[37] Mr Mead said that he was in Australia between 9 December 2018 and 21 December 2018, when the statutory demand was served. He suffered a spider bite on 12 December 2018 while in Australia, and was hospitalised for four days as a result. He acknowledged that he was notified by email about the statutory demand, but because of the spider bite and a family situation he was dealing with in Australia he did not grasp the importance of the statutory demand. When he returned to New Zealand he tried to contact his solicitors, but they were closed for the Christmas break.
[38] Mr Mead contended that the advance of $40,000 was not an advance by the plaintiff. Toyota New Zealand made the advance on behalf of Ebbett Waikato Group Ltd (the plaintiff's ultimate holding company), but Ebbett Waikato Group Ltd is not the company now making the claim against the defendant.
[39] Mr Mead also noted that the statutory demand stated that the $40,000 debt represented overpaid rent for the year ending 1 June 2017, but that could not be so because the rent paid by the plaintiff for that year was $108,000.
[40] Mr Mead then addressed the claim in the statutory demand for $10,350. He accepted that the $10,350 represented rental the plaintiff had paid to the defendant in error. However, the defendant has a counterclaim that Mr Mead believed would exceed the $10,350 claimed by the plaintiff.
[41] The tenant (presumed to be the plaintiff) had erected a large pylon Toyota sign outside the property without obtaining the necessary sign-offs for construction and erection of the sign. No fees were initially paid to the Matamata Piako District Council (the Council) for the necessary building consent and the subsequent inspections of the construction work, and the Council had told the defendant the sign would have to be x-rayed and surveyed to obtain the necessary Code Compliance Certificate. Mr Mead said that the defendant is obliged to obtain the Code Compliance Certificate for the current owner (the property having been sold by the defendant).
[42] Mr Mead said that he did not know how much it would cost to have the footings for the sign x-rayed, or to have the necessary survey work done to demonstrate that the sign has been erected in the correct position, but from his experience it would probably cost in the vicinity of $10,000. He said the defendant was loathe to pay that sum when it would be out of pocket for work done without appropriate Council approval by the plaintiff, especially as the work was done without consultation with him. He said that he had told the plaintiff that there needed to be certain steps undertaken to ensure that the sign met all Council requirements, but the plaintiff had failed to take those steps.
[43] Mr Mead produced copies of correspondence from the Council relating to the sign, including a letter dated 2 June 2017 that referred to outstanding fees payable before a building consent could be granted for the sign. A letter from the Council dated 5 December 2018 stated that no inspections had been carried out on the building consent (which had been issued on 17 January 2018), and that the building consent would lapse on 17 January 2019 if construction work on the sign had not been started by then.
[44] On 17 January 2018 Mr Mead sent an email to Brand Partners (Toyota New Zealand's sign supplier) in which he said that he had originally been informed that Toyota New Zealand would take care of the pylon sign. However, they did not do so and Mr Mead had had to submit the appropriate documents. Mr Mead's email said that, as the sign belonged to Toyota New Zealand, it should never have been his responsibility as developer. He had sorted it out, but had to pay the Council another
$1,160 to do so.
[45] On 17 December 2018 Mr Mead sent an email to Brand Partners saying that no Producer Statement had been issued for the sign as the Council had required. Nor had any foundation inspections been booked or done. Mr Mead told Brand Partners the Council was trying to sort it out, but it required the Producer Statement for the foundations. Mr Mead asked for the assistance of Toyota New Zealand, as the work had been done by its contractor.17
[46] Mr Mead provided copies of financial statements for the defendant for its financial year ended 31 March 2018. The financial statements showed that the defendant made net losses in each of the financial years ended 31 March 2016 ($47,207), 31 March 2017 ($93,585), and 31 March 2018 ($29,103). The balance sheet for the defendant as at 31 March 2018 showed a substantial negative equity, in that year and in the two preceding financial years. Net liabilities at 31 March 2018 were shown at $281,078, and the corresponding figure for the March 2017 financial year was $251,975.
[47] The March 2018 financial statements showed a term liability of $210,074, and a current liability of $9,226, owing to KiwiBank. Mr Mead provided an email from KiwiBank dated 7 February 2019 confirming that the defendant's lending facilities with the bank had been fully repaid, and that the defendant had no current liability to KiwiBank.
[48] Commenting on the financial statements, Mr Mead said that the defendant owns a section in Morrinsville which it is intending to develop. He said that a debt of
$450,000 shown in the March 2018 financial statements as owing to Paterson Enterprises Ltd had been suspended — that company has agreed to come in as a joint venture equity partner in a development on the section, and it would be repaid on completion of the development. Mr Mead provided a copy of an email dated 7 February 2019 from Mr Peter Paterson stating that Paterson Enterprises Ltd holds a mortgage over the Morrinsville section securing $450,000, and that his company and Mr Mead were then in the process of getting plans drawn up for a joint venture
17 It appears from email communications between Mr Mead and Mr David Bellehewe of Toyota New Zealand in December 2018 and January 2019 that it was accepted that, in the absence of the Producer Statement or any inspections, there would need to be an x-ray of the pylon foundations.
development on the section. The value of the section would be incorporated within the proposed development. Mr Mead noted that, if the $450,000 liability to Paterson Enterprises Ltd were converted to equity, the term liabilities of the company would be reduced by $450,000, providing positive shareholders' funds. Mr Mead also referred to related party advances totalling $78,866 referred to as liabilities in the defendant's March 2018 balance. Mr Mead did not make it clear who the "related party" was, but said that the related party advances would also be reduced by $78,000.
[49] Mr Mead estimated that the development on the Morrinsville section will cost around $5 million, and he considered it will provide a huge benefit to the defendant. Advertising the liquidation proceeding would in his view put the current negotiation process in jeopardy, and might well derail it. For that reason, he did not want to see the liquidation claim advertised.
[50] Mr Mead said that the defendant's only other current creditor is an electrician, and that the defendant has that debt in hand.
Evidence for the plaintiff in opposition
[51] Affidavits in opposition were provided by Mr Van Den Engel and by Mr Walker.
Mr Van De Engel
[52] Mr Van Den Engel said that Toyota New Zealand made an advance of $40,000 towards the rent to be paid under the Lease. He relied on the terms of the letter dated 8 October 2015 from Toyota New Zealand to the defendant.
[53] Mr Van Den Engel acknowledged that the 8 October 2015 letter should have said that the payment by Toyota New Zealand was made on behalf of the plaintiff, which was the lessee, rather than the plaintiff's parent company (and guarantor), but it was obvious that the payment was being made as an advance payment of rent and for the benefit of the plaintiff as lessee.
[54] As a result of the advance payment of rent made by Toyota New Zealand, the remaining rental left for the plaintiff to pay for the first year was $68,000. Instead, it mistakenly paid the full $108,000. Mr Van Den Engel produced a copy of a bank statement showing rent payments made at the rate of $10,350 per month ($108,000 plus GST per annum) throughout the first year of the lease.
[55] Mr Van Den Engel said that, until the present liquidation proceeding was filed, Mr Mead never disputed the debt. All Mr Mead said was that he would look into it.
[56] Mr Van Den Engel said that the first mention the plaintiff had heard of any issues over the large Toyota sign was when he read Mr Mead's affidavit in this proceeding. He said that the pylon sign was arranged direct between Toyota New Zealand and Mr Mead, and that the plaintiff was not involved with it.
[57] In response to Mr Mead's evidence directed to the solvency issue, Mr Mead inferred that the defendant does not presently have the funds to pay the $50,350.
[58] On the defendant's failure to respond to the statutory demand, Mr Van Den Engel said that he told Mr Mead that proceedings could ensue as early as the middle of November 2018. The liquidation claim should not have come as a surprise to Mr Mead. Mr Van Den Engel said that Mr Mead did not raise any of the arguments over the $40,000 payment or the sign which he raised in his affidavit in this proceeding.
Mr Walker
[59] Mr Walker confirmed that the $40,000 paid by Toyota New Zealand was made as an advance payment of rent, and that the intention was that the plaintiff's rent for the first year would be reduced by $40,000 to reflect the payment made by Toyota New Zealand.
[60] Mr Walker said that he did not recall any conversation with Mr Mead to the effect that the money did not have to be repaid. He said that if there was such a discussion, it would have been because he understood that the payment was made towards rent, and that the plaintiff would be paying a reduced rental.
Affidavit of Mr Mead in reply
[61] Mr Mead generally repeated his evidence relating to his communications with Mr Walker in 2015, including the statement allegedly made by Mr Walker in October 2015 that the defendant would not have to pay the $40,000 back.
[62] Mr Mead then addressed Mr Van Den Engel's affidavit. He denied that he had not disputed the claim for the $40,000. He said that he told Mr Van Den Engel when they spoke about the $40,000 initially that he had no idea what Mr Van Den Engel was talking about. Initially, he thought it had something to do with the $40,000 payment made in respect of architect's fees.
[63] Mr Mead acknowledged that Mr Van Den Engel rang him a couple of times when he was in Australia and couldn't get hold of him. He said that he responded, but that his calls went to voice mail.
[64] On the wording of the statutory demand, Mr Mead said that the defendant sold the property in 2017, and settled the sale in January 2018. Rent was paid to the new landlords after settlement date. The $40,000 paid by Toyota New Zealand was paid in 2015, and the plaintiff went into occupation of the property in November 2016. Mr Mead said that the $40,000 was given to the defendant by Toyota New Zealand to help with the construction costs.
[65] In response to Mr Van Den Engel's evidence relating to the claimed overpayment of $10,350, Mr Mead said that he was notified by the plaintiff about the Council's letter raising issues about the sign, in June 2017 (although the Council's letter was addressed to the defendant, Mr Mead said that it was sent to the plaintiff).
[66] Referring to the January 2018 correspondence with Mr Mark Lilley of Brand Partners, Mr Mead said that the sign in question was not the defendant's sign, but belonged to Toyota New Zealand. That is why Mr Mead wrote to Brand Partners, with a copy to the plaintiff.
[67] Mr Mead referred to an email from Mr Bellehewe of Brand Partners dated 24 January 2019. Mr Bellehewe said that Brand Partners had no photos of the sign on
file, and nor did the contractors who erected the sign. Mr Bellehewe appeared to accept that no one had arranged for Council inspections. He said that, unless Mr Mead could find something at his end, Mr Mead would need to arrange to x-ray the foundations.
[68] Mr Mead also referred to a number of outstanding accounts that he referred to the plaintiff when it took over the dealership on the property in November 2016. Mr Mead sent an email to Mr Walker and to Mr James Harvey of the plaintiff on 10 November 2016, referring to "a few accounts for the build which were approved by either yourselves or Brand Partners that need to be addressed". The email then set out a list of three specific items, the first two of which were later paid by Toyota New Zealand or the plaintiff. The third item was repairs to the stormwater line and water line damage caused by the Brand Partners contractor when digging foundations for the pylon sign (amount charged $699 plus GST). The email also referred to charges from the Council and the architect relating to the pylon sign (total amount $5,080 plus GST). Mr Mead enquired how that claim should be handled, noting that "there is a considerable amount that we are being asked to pay that is over and above our contract".
[69] Mr Mead confirmed that no one has paid the $5,779 plus GST comprising the cost of repairs to the stormwater line, and the Council and architect charges. These amounts were paid by the defendant, and Mr Mead contended that they have been owing to the defendant since November 2016.
[70] Mr Mead said that there have since been further costs incurred, including x-raying the foundations for the pylon sign. He said that either Toyota New Zealand or the plaintiff needs to pay these costs, which were not the defendant's responsibility. Final accounts are not yet in, but Mr Mead said that he expected them to exceed
$10,000 plus GST. There would also need to be a surveyor involved to ensure that the pylon had been erected in the correct place.
[71] In addition, Mr Mead referred to a mix-up over the payment of rates. He said that rates ($3,839.43 including GST) paid by the defendant for the property were the plaintiff's responsibility.
[72] The topic of liability for the rates was the subject of correspondence between Mr Harvey of the plaintiff and Mr Mead in April 2018. In an email dated 18 April 2018, Mr Harvey said that his accounts department understood that there had been a wash up of the rates issues when the property was transferred by the defendant to the new owner. He asked Mr Mead to look into it and get back to him.
[73] On 19 April 2018 Mr Mead sent an email to Mr Harvey setting out what he considered to be the amount owing for rates for the period 1 November 2016 to 16 January 2018. The total amount was $3,839.43, inclusive of GST.
[74] Mr Harvey replied the same day, asking Mr Mead to send him the rates bill. He said he would look into what the plaintiff had been charged at the "change of hands", and go from there. Mr Harvey also said "I have now been waiting for three months for the overpayment of rent. You need to get this sorted asap …".
[75] Mr Harvey sent a further email to Mr Mead in the afternoon of 19 April 2018, repeating that he recalled a "wash up of something" at the time the building ownership changed hands. He told Mr Mead to send him the bill with the supporting documents for rates, and his administration would sort it out.
[76] Mr Mead's contention is that $3,839.43 remains owing for rates to this day. Adding all of the defendant's claims, he contends that the amount owing to the defendant exceeds the amount of $10,350 claimed in the statutory demand.
Discussion and conclusions
[77] In my view the defendant has failed to show that there exists a genuine and substantial dispute over the plaintiff's claim to a refund of the $40,000. The letter dated 8 October 2015 from Toyota New Zealand made it perfectly clear that, while the defendant would be able to use the $40,000 to defray the costs of the construction work on the property, the $40,000 was to be treated as a payment of advance rental for the property made on behalf of the Ebbett Toyota entity who would become the lessee. The defendant accepted the money on that basis from Toyota New Zealand, but the plaintiff (the Ebbett Toyota entity that became the lessee) mistakenly paid the full
$108,000 rent reserved by the Lease, failing to allow for the fact that $40,000 had been paid towards that rent by Toyota New Zealand a little over a year earlier.
[78] The defendant's invoice to Toyota New Zealand dated 9 October 2015 was headed "Invoice for Advance on First Year's Rental", and that seems to be consistent with all parties then understanding that the $40,000 advanced by Toyota New Zealand was effectively an advance made to the Ebbett Toyota entity who would become the lessee, with the $40,000 to be applied in reduction of that entity's rent liability in the first year of the Lease.
[79] I accept Ms Brady's submission that there is no inconsistency between Mr Walker's letter of 8 October 2015 and the defendant's invoice sent to Toyota New Zealand the following day. The defendant was short of funds, and Toyota New Zealand was prepared to assist the defendant's cash flow by providing the
$40,000 "up front". But the documents show that it did that on the basis that the payment was to be applied against the first year's rent payable under the Lease. Whether the $40,000 was in fact written off as between Toyota New Zealand and the Ebbett Toyota Group is neither here nor there as far as the present application is concerned — as between the plaintiff and the defendant, it was clear that the defendant had already received the first $40,000 of rent payable under the Lease before the Lease commenced, so that the balance payable for the first year would only be $68,000.
[80] I also accept Ms Brady's submission that it does not matter that Mr Walker's letter of 8 October 2015 referred to Ebbett Waikato Group Ltd as the party to whom the Toyota New Zealand advance was made (and on whose behalf the $40,000 payment was being made). The important point is that the payment was clearly intended to be on account of the first year's rent under the Lease, and in any event Ebbett Waikato Group Ltd entered into the Lease as guarantor of the lessee's obligations.
[81] Mr Walker's evidence is entirely consistent with the construction of the events put forward by Ms Brady, which I accept. Mr Walker said that he did not recall any conversation with Mr Mead to the effect that the money did not have to be repaid, but that if there was such a discussion, it would have been because he understood the
payment was made towards the rent and that the plaintiff would be paying a reduced rental.
[82] Mr O'Neill submitted that the fact that Mr Walker is alleged to have told Mr Mead in a telephone conversation that the money would not have to be repaid immediately raises a substantial and genuine dispute on the $40,000 issue. But any such statement Mr Walker may have made would have been true as far as it went — the $40,000 would not have to be refunded by the defendant to Toyota New Zealand: it was effectively in the nature of a grant to the Ebbett Toyota entity who would assume liability for rent under the Lease. Further, Mr Mead's evidence was that Mr Walker only told him later in October 2015, after Mr Walker had sent the letter of 8 October 2015, that the $40,000 would not have to be repaid. By that time, the defendant had invoiced Toyota New Zealand for the $40,000, and it appears that that sum had been paid to the defendant.18 If the intention was that this was to be some sort of gift by Toyota New Zealand to the defendant (or payment to secure the property for a future Toyota dealership), one would have expected that to have been stated before the amount was paid.
[83] I note also that, while Mr Mead was careful to take diary notes of conversations he had with Mr Walker on 5, 6, 7, 8 and 9 October 2015, he did not produce any diary note of what, on the defendant's case, would now seem to be the most important telephone conversation with Mr Walker, namely the conversation in late October 2015.
[84] I see nothing in the diary notes from early October 2015 produced by Mr Mead that would support the defendant's position on the issue of how the $40,000 was to be treated by the defendant. On 6 October 2015 Mr Walker told Mr Mead that it was a "no go" on Toyota New Zealand making a cash contribution to keep the property available for a Toyota dealership. No funding would be available until the Lease was in place. This reference to the Lease is entirely consistent with the $40,000 being an
18 Mr Mead said in his first affidavit that Mr Walker said in the later October 2015 conversation that the $40,000 would not have to be repaid because he would talk to the board of directors for Toyota New Zealand and have it written off. Mr Mead said he was keen for that to happen, because the defendant was not in a position at that time to repay the $40,000 (implying that the defendant had the $40,000 at the time of the late October 2015 telephone conversation between Mr Mead and Mr Walker).
advance contribution towards rent, as recorded in the 8 October 2015 letter and the defendant's 9 October 2015 invoice.
[85] On 7 October 2015 Mr Walker apparently told Mr Mead that he might be able to get a payment through the Toyota New Zealand board if the invoice were worded differently, but again that seems entirely consistent with the arrangement eventually made, under which the defendant would receive $40,000 to assist with its cash flow and the construction work generally, but that would be treated as an advance payment of rent under the Lease. Mr Mead's diary entry on 9 October 2015 ("OMG we may have found a solution to keep going") is again consistent with the defendant receiving a $40,000 injection of cash to keep it going, which would be applied towards the first year's rent once the Lease started.
[86] The reference to a "subvention payment" in Mr Walker's email to Mr Mead dated 1 September 2015 does not suggest any alternative view. The expression "subvention payment" is usually encountered in the context of income tax law, where a profit-making company may make a payment to another company within the same group which has made a loss. It is not at all clear why the expression "subvention payment" was used by Mr Walker in this case, where there appears to have been no relevant income tax connotation. Mr O'Neill did refer to various dictionary definitions of the word "subvention", including "a grant of money, especially from a government" (Oxford English Dictionary), and "the provision of assistance or financial support such as endowment or a subsidy from a government or foundation" (Merriam-Webster Dictionary). Mr O'Neill submitted that, if the intention was that the payment was to be a loan to the defendant, why not say so? He suggested that the correspondence from Toyota New Zealand was, at best, equivocal.
[87] None of those definitions appears to assist, and as I understand it no one is suggesting that the $40,000 was intended to be a loan made by Toyota New Zealand to the defendant. (If there was any loan, it would have been a loan by Toyota New Zealand to the Ebbett Toyota group). In any event, whatever Mr Walker may have contemplated when he sent the "subvention payment" email in early September 2015 was apparently a "no go" by 6 October 2015 when Mr Walker spoke to Mr Mead on the telephone. In those circumstances I consider there is no basis on which the
Court could treat the reference to a subvention payment in Mr Walker's email of 1 September 2015 as explaining or informing the basis for the payment of the $40,000 by Toyota New Zealand to the defendant the following month.
[88] Mr Mead referred to an agreement under which the plaintiff would pay the defendant $40,000 for the benefit of using architectural plans, but it seems to me that that is not relevant to the present dispute. It may be that an agreement relating to architectural plans explains the increase in the rent from $100,000 per annum (under the Lease) to $108,000 per annum (under the Variation), but if that is what was agreed payment for the architectural plans would have been made in the extra rent paid by the plaintiff under the Variation. Those payments were separate and distinct from the
$40,000 credit the plaintiff was entitled to receive against the first year's rent.
[89] Mr O'Neill submitted that the absence of any correspondence between the parties relating to the $40,000 payment raises question marks over the intention of the parties (including Toyota New Zealand) in paying the $40,000. The parties and/or their solicitors could have been expected to raise the matter. He also submitted that there was no overpayment, because the plaintiff paid precisely what it was required to pay in terms of the Lease.
[90] That last submission cannot be right. If it was the intention of the parties, as it clearly was, that the $40,000 paid by Toyota New Zealand to the defendant would be applied against the first year's rent under the Lease, then quite clearly the plaintiff paid
$40,000 too much when it paid $108,000 for the first year's rent.
[91] Nor do I consider there is anything in the apparent absence of correspondence about the $40,000 between the parties and/or their solicitors. The simple absence of correspondence cannot be sufficient to elevate the issue over the $40,000 to a genuine and substantial dispute in circumstances where the Toyota New Zealand letter of 8 October 2015, and the defendant's invoice of 9 October 2015, are perfectly clear in their terms.
[92] I conclude that the defendant has not raised a genuine and substantial defence on the $40,000 issue.
[93] Turning to the claim for $10,350, the defendant accepts that the plaintiff overpaid its rent to that extent, but says that the amount should be off-set against costs incurred by the defendant associated with the large Toyota sign erected outside the property. The defendant has incurred expense obtaining the necessary Code Compliance Certificate for the construction and erection of the sign, and it says that either the plaintiff or Toyota New Zealand should have met those costs.
[94] A fundamental problem for the defendant is that it has not made clear in its affidavits whether responsibility for the erection of the Toyota sign was the plaintiff's or Toyota New Zealand's. Counsel did not draw to my attention any provision in the Lease relating to the erection of signage on the property, and it appears from the evidence that the sign would have been supplied by Brand Partners, who are contractors to Toyota New Zealand, and would have been owned by Toyota New Zealand. Mr Van den Engel's evidence was that the erection of the sign was arranged direct between Toyota New Zealand and Mr Mead, and that the plaintiff was not involved with it.
[95] As far as the evidence goes, it appears that Brand Partners was taking some responsibility for sorting the matter out. For example, in an email from Mr Bellehewe of Brand Partners dated 20 December 2018 Mr Bellehewe said: "I am in the process of looking through the job to find everything I need to get the PS4 [Producer Statement] through to you". And in Mr Mead's earlier email to Brand Partners dated 17 December 2018 Mr Mead had asserted that the work on the sign was done "solely by your contractor".
[96] None of the correspondence in my view sufficiently lays responsibility for this work at the door of the plaintiff.
[97] Nor is it sufficiently clear that the defendant is asserting matters which would constitute an equitable set-off (and thus a potential defence), or whether the defendant is asserting a counterclaim (which, on the principle illustrated by Anglian Sales and Fatweb, would not support the application for the stay and restraint orders).
[98] The only quantified claims so far made by the defendant are the Council and architect charges relating to the large Toyota sign ($5,080 plus GST), and a claim of
$699.00 plus GST for repairs to a stormwater line damaged by the Brand Partners contractor. While the defendant says that it expects there to be further costs (relating to the x-ray of the foundations and a surveyor's fee) which will take the total costs beyond the $10,350 claimed by the plaintiff, the defendant has not provided any evidence of what those additional costs might be. That factor, considered with the principle that a counterclaim is not normally sufficient to provide a basis for an order under s 31.11, persuade me that the matters raised by the defendant in opposition to the claim for the $10,350 do not justify the making of a stay or restraint order.
[99] Mr Mead also referred in his reply affidavit to a "mix up over the payment of rates" ($3,839.43 inclusive of GST, paid by the defendant). I am not prepared to consider the defendant's allegations over the rates. They were not referred to at all in its statement of defence, notice of interlocutory application, or Mr Mead's first affidavit, but were raised for the first time in the reply affidavit. The plaintiff has therefore had no opportunity to respond to the claim.
[100] Even if the defendant had shown a genuine and substantial dispute over the claim for $40,000, for the reasons I have stated above it did not produce sufficient evidence of a substantial dispute relating to the claim for the $10,350. A dispute as to only part of a debt does not prevent a plaintiff from proceeding with a liquidation claim, and will not be sufficient to justify a stay.19
[101] The defendant produced financial statements for the years leading up to 31 March 2018, but they do not provide any basis for a different view from the one to which I have come on the strength of the defendant's claims, and the clear conclusion I have reached that there is nothing in the commencement of the liquidation claim that savours of unfairness or undue pressure. Ms Brady correctly noted that the financial statements produced do little or nothing to show that the defendant is currently able to pay its debts as they fall due for payment. For example, while KiwiBank advised in February 2019 that the debt of approximately $220,000 owing to the bank as shown
19 Nemesis Holdings Ltd v North Harbour Holdings Ltd, above n 4, at 385.
in the defendant's financial statements to 31 March 2018 had been repaid, the defendant has failed to provide any evidence on how the repayment was made. If the satisfaction of the KiwiBank debt was reflected in a corresponding reduction in assets or increase in liabilities elsewhere within the defendant's balance sheet, the repayment of the KiwiBank debt would not necessarily have improved the defendant's financial position. Similarly, the evidence relating to the $450,000 debt to Paterson Enterprises Ltd having been suspended was not in fact confirmed by the email from Mr Paterson dated 7 February 2019. The email only said that Mr Paterson's company holds a mortgage over the Morrinsville section securing the $450,000, and that work is under way with a view to a joint venture development between Mr Mead and Paterson Enterprises Ltd on the section. It appears that the Paterson Enterprises Ltd debt might be converted to equity at some future point, but there is no evidence before me that that has yet occurred, or confirmation that the $450,000 has indeed been "suspended". Similarly, there is insufficient information provided on the related party advances for me to conclude that they have either been repaid or are likely to be repaid within the near future.
[102] For completeness, I add that I have reached my conclusions without putting any significant weight on the defendant's failure to respond to the statutory demand. Mr Mead has explained the difficult circumstances he encountered in Australia at the time the statutory demand was served, including being in hospital for a period of four days. Some allowance needs to be made for that, and the fact that it would likely have been difficult to obtain legal advice on Mr Mead's return to New Zealand immediately before the Christmas break.
Result
[103]I make the following orders:
(1)The interim stay and restraint orders made by the Court on 15 April 2019 are discharged.
(2)The defendant's interlocutory application for orders restraining publication of advertisement or any other information relating to the
statement of claim, and staying any further proceedings in relation to the liquidation, is dismissed.
(3)The defendant is to pay the plaintiff costs on a 2B basis in respect of the application, plus disbursements to be fixed by the Registrar.
(4)The plaintiff's liquidation claim is to be listed for further mention in the list at 10.45am on 27 May 2019.
Associate Judge Smith
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