YellowWood Consulting Group Limited v Actility Limited
[2020] NZHC 1296
•11 June 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-655
[2020] NZHC 1296
UNDER the Companies Act 1993 AND
IN THE MATTER
of a statutory demand served on 7 November 2019
BETWEEN
YELLOWWOOD CONSULTING GROUP LIMITED
Applicant
AND
ACTILITY LIMITED
Respondent
Hearing: 10 June 2020 Appearances:
S J Jamieson and J A Higby for Applicant T R J Jeffcott for Respondent
Judgment:
11 June 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 11 June 2020 at 2.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 11 June 2020
YELLOWWOOD CONSULTING GROUP LIMITED v ACTILITY LIMITED [2020] NZHC 1296 [11 June 2020]
Introduction
[1] The applicant, YellowWood Consulting Group Ltd (YellowWood) applies to set aside a statutory demand issued by the respondent, Actility Ltd (Actility), dated 7 November 2019 claiming the sum of €651,325.40 (the debt).
[2] Actility provides saleable IT connectivity solutions to clients. It is an industry leader in LPWAN (Low Power Wide Area Network), large scale infrastructure and provides a new generation Machine to Machine (M2M) communication platform. Actility is a French based company with an Australasian office.
[3] YellowWood provides technology leadership and advisory services, including network design, implementation and operational support systems. YellowWood contracts with other service providers with expertise in network establishment and installation.
[4] The central issue is whether there is a substantial and genuine dispute over the debt, or part of the debt.
Background
[5] On or about 14 October 2017, YellowWood and Actility entered into an agreement (the Agreement) for the provision of goods and services by Actility, including a network-based communication system relevant to radio coverage of large land areas.
[6] Between 31 October and 29 June 2019, Actility issued six invoices to YellowWood. Three payments totalling €79,981.00 were made by YellowWood between 2 December 2019 and 28 February 2020. Actility claim the debt remaining owing and due is €546,294.92.
Submissions
YellowWood
[7] YellowWood takes issue with the quantum of the statutory demand. It accepts that part of the demand for goods and training services in the sum of €118,913.00 is due and remains owing. It says there remains a substantial dispute over other services that were allegedly never provided by Actility.
[8] Miss Jamieson, counsel for YellowWood, explains the dispute originates from Actility entering a very similar supply agreement with Spark NZ. Mr Richard Warwick Jones, sole director of YellowWood, sets out in his affidavit of 21 November 2019 the reasons why YellowWood has refused to pay the charges, namely:
(a)In or about August 2017, Farmlands committed to purchase devices to be operated on YellowWood’s LoRaWAN network. Based on this alleged commitment, YellowWood approached Actility and formed the Agreement, primarily because YellowWood offered a network-based communication system relevant to radio coverage of large land areas, such as farms and rural areas.
(b)The services component of the Agreement was entered into based on Farmlands contracting with YellowWood to provide coverage to over 60,000 shareholder farms.
(c)After the Agreement was entered into, Actility sold the same set of LoRaWAN services to Spark NZ. Farmlands then declined to proceed with its arrangements with YellowWood.
(d)Mr Jones deposes that the majority of services contracted between the parties have never been carried out by Actility.
[9] Actility claims €87,750.92 in penalty interest. This is reached by applying a penalty interest rate of nine per cent per annum. Two invoices record a 20 per cent
interest rate, pursuant to the Article L. 441-6 of the French Commercial Code. YellowWood submits there is no contractual basis for charging penalty interest. Furthermore, the Agreement was entered into in New Zealand and there is no basis for the application of French law.
Actility
[10] Mr Jeffcott, counsel for Actility, submits there is no substantial and genuine dispute whether the debt is owing or is due. Further, YellowWood has repeatedly admitted owing the full amount of the debt, only to change its position when served with the statutory demand.
[11] Mr Jeffcott helpfully sets out the sequence of communication where YellowWood could have raised that the debt was disputed. In his submission, these communications are evidence of the debt owing:
(a)On 7 August 2018, YellowWood acknowledged the late payment of invoices and provided assurances that it would be paid upon receipt of payment from its client.
(b)By letter dated 7 September 2018, Actility issued YellowWood with a notice of default and demanded payment of outstanding invoices be made by 30 September 2018.
(c)On 25 September 2018, YellowWood emailed a letter setting out a proposal for monthly payments of the outstanding invoices totalling
€521,038. Mr Jeffcott submits this is inconsistent with YellowWood’s claim that there is a dispute that payment in full is owed.
(d)On 25 September 2018, YellowWood emailed a proposal for monthly payments.
(e)On 9 October 2018, YellowWood emailed Actility with an assurance that the first payment would be made no later than 26 October 2018.
(f)On 2 November 2018, YellowWood emailed Actility advising that it had capability to meet outstanding payments of NZD$200,000 by 19 November 2018 and ongoing payments.
(g)On 15 January 2019, YellowWood by email, acknowledged and agreed it was in default but requested services continue to be provided by Actility. No dispute as to the debt was raised.
(h)On 17 April 2019, YellowWood confirmed by email that it intended to make payment in April 2019.
(i)On 28 April 2019, YellowWood emailed Actility assuring that YellowWood would be receiving NZD$500,000 from investors and would use the funds to pay Actility.
(j)On 9 May 2019, YellowWood emailed Actility stating it would advise of the payment details the next day.
(k)On 17 May 2019, Actility recorded a telephone conversation with YellowWood in which it was said the NZD$500,000 had been used to pay off other debts. YellowWood gave assurances to Actility that it was “100% sure and committed” on making NZD$45,000 payment by the end of May.
(l)On 25 October 2019, YellowWood responded to Actility’s letter demanding payment (dated 18 October) stating that it “has an agreement with a large partner being signed next week” and that “the deposit enables payment.”
[12] In Mr Jeffcott’s submission, the first attempt to raise a dispute of the amount owed was following the statutory demand issued on 7 November 2019.
[13] In response to YellowWood’s dispute of the services provided, Mr Jeffcott notes YellowWood had not raised any issue or concern previously about the invoices issued, or Actility’s engagement with Spark NZ.
[14] Mr Jeffcott submits if was were any truth to the allegations that the majority of the services contracted were never carried out, this would have been raised at an earlier stage. The allegation lacks detail. Furthermore, YellowWood was contractually obliged to raise any issues within 30 days of the date of each invoice. Instead, in Mr Jeffcott’s submission, YellowWood confirmed on numerous occasions that it did owe the amount demanded.
[15] Mr Jeffcott notes Actility does not offer exclusivity to any customers, unless formalised in a contract. Spark NZ is a well-established telecom operator, whereas YellowWood is a start-up company. As such, Actility was never interested in an exclusive contract with YellowWood.
[16] Mr Jeffcott submits any loss of revenue to due to Spark NZ’s relationship with a third party, Farmlands, is irrelevant as Actility did not enter into the Agreement with YellowWood on the basis of YellowWood’s continuing relationship with Farmlands.
[17] Mr Jeffcott observes that YellowWood is, in effect, seeking to set off an alleged claim against Actility, when the Agreement provides that it is not entitled to do so.
[18] A credit of €42,888 was applied to YellowWood’s account in respect of the goods that were charged, but not delivered.
[19] Finally, Mr Jeffcott notes Actility is surprised that YellowWood questions the legitimacy of the interest charged, as it has not previously disputed this. The interest rate of nine per cent was applied as an act of goodwill.
Law
[20] Statutory demands are intended to be used where there is no substantial dispute over the debt claimed.1 At the time of issuing a statutory demand, there must be no reasonable ground for believing that there is a dispute of substance, or qualifying claim or set-off available to the alleged debtor.2
1 Pirtek Waikato Ltd v Ellison Trading Ltd M107/99 HC Hamilton, 10 October 1999.
2 Bernard Street Properties (2007) Ltd v Rebuild and Repair Canterbury Ltd [2015] NZHC 2096 at [6].
[21] The onus is on an applicant seeking to set aside a statutory demand to establish that either the debt, subject to the demand, is not a due debt, or is subject to a substantial dispute, or that they have a set off or counterclaim that reduces or extinguishes the debt.3
[22] In this case, YellowWood does not rely on a set off and for good reason, the Agreement containing a no set off clause.4
[23] What YellowWood alleges here is that it has been charged for services that it did not use. As I will develop below, the way YellowWood has framed its reason for disputing the debt, does not reconcile with its obligations under the Agreement.
[24] The statutory demand, as issued, included claims for plant, services and interest.
[25] It was common ground that there had been an overcharge by Actility for items of plant and that issue was effectively resolved between the parties and meant that the original demand issued for €651,325.40 was overstated by €42,888. Since the demand was issued on 7 November 2019, YellowWood has paid €79,981. Leaving aside the interest component and adjusting for the above credits, Actility says on any view of it,
€458,544 is owing for services.
[26] Under the agreement, Actility granted to YellowWood, a licence. Appendix 3 of the Agreement is headed “Software As a Service (Saas)”.
[27]Under the heading “License Description” there appears:
License Model: Yearly Recurring Saas
Initial Term = 3 years from Commencement Date
Under the heading “License Charges” there appears:
Total minimum 3-year license charges is €302,250 excluding expenses (expenses such as pre-agreed transport and pre-agreed accommodations will be invoiced to Customer upon receipts).
3 See J P & B M Holdings Ltd v Commissioner of Inland Revenue HC Auckland CIV-2010-404-5208, 26 November 2010 at [7].
4 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425.
[28] Miss Jamieson, counsel for YellowWood, explains that it entered this Agreement with Actility thinking that YellowWood had a commitment from Farmlands to assist YellowWood in introducing the communication system being supplied by Actility into the rural business sector. YellowWood says in substance, that it was let down by Farmlands who elected to source services from another provider (Spark NZ), albeit that Farmlands also dealt with Actility.
[29] As an aside, there is nothing in the point that Actility also provided services to Spark NZ, a competitor of YellowWood. The Agreement between YellowWood and Actility does not contain any exclusive supply arrangements and indeed, Mr Jones the director of YellowWood, acknowledged in his affidavit that before YellowWood entered the Agreement with Actility, he was aware Actility was intending to enter into a similar supply agreement with Spark NZ.
[30] The practical effect of Farmlands not taking its planned business arrangements with YelllowWood any further (according to Mr Jones), is that YellowWood was left with an Agreement under which it committed to make minimum license payments without the ability to fully utilise the services to be supplied by Actility to it, covered by the minimum charges in the license. YellowWood had excess capacity it could not on-sell because it says (in effect) it was let down by Farmlands. Hence, YellowWood says it has not been supplied with services and therefore says it should not pay for them. Of course, that submission misses the point that under the Agreement, YellowWood committed to pay a minimum license charge. Commercially, if it did not fully utilise all the services available under that license, then that is not Actility’s problem.
[31] Miss Jamieson was not able to develop any real answer to this issue. She referred to Mr Jones’ affidavit where he recounts being contacted by senior management of Actility who he says recognised that the capacity available under the license vastly exceeded the actual quantity of services being used by YellowWood. Mr Jones says that senior management offered to renegotiate the SaaS component of the Agreement. Even if that is right, Mr Jones does not say that he accepted the offer to renegotiate and struck alternative terms. That Actility may have been prepared to adopt a commercial approach to resolving the amount owed, and the unused capacity
under the Agreement, does not, without more, provide an answer to the contractual commitment of YellowWood to pay the minimum license charge.
[32] There was no suggestion that Actility did not make available the capacity covered by the SaaS license. The fact is, because of commercial issues between YellowWood and Farmland, YellowWood was not able to on-sell all of the capacity covered by the license.
[33] I also suspect Mr Jones was aware that he had committed to pay a minimum license charge, as evidenced by the great number of assurances of payment by Mr Jones, including the offer of payment plans and the like, which made no mention of any dispute. The statutory demand was a result of YellowWood failing to meet its commitments to pay.
Interest
[34] The issue of interest is not straightforward. The contract contains the following clause dealing with interest:
In accordance with the provision of article L 441-6 of French law “Code du Commerce”, modified by the law of 22nd March 2012, in the event of late payment, Customer shall be indebted and liable to late payment penalties represented of 40 Euros for recovery costs.
[35] The difficulty with the above clause is that does not, on its face, refer to interest, rather only a “payment penalty”.
[36]The invoices issued by Actility contain the following:
Any incident of payment is subject to penalties for delay. Pursuant to Article L 441-6 of the French Commercial Code, penalties for late payment at an annual rate of 20% and an indemnity of € 40 are payable in the absence of payment on the day following the payment date shown on the invoice.
[37] As Miss Jamieson said, an attempt to introduce a right to claim interest in an invoice will usually come too late to have any contractual effect. Whether here there were sufficient invoices to say that the terms of the invoices had become part of the Agreement, is not a matter suitable for determination in the statutory demand context.
[38] A further point is that at no time prior to the issuing of the statutory demand had Actility separately calculated and invoiced the amount claimed for interest. In order for a debt to be subject to a statutory demand, it must be due and payable prior to the issuing of the demand.5 That did not occur here. If a claim for interest is possible here, then it was not due and payable at the time of the issuing of the demand and therefore should not have been included in the demand.
[39] I am satisfied that the statutory demand should be set aside to the extent of the interest claim.
[40] Taking into account the amount of the statutory demand, less the amount claimed for interest, and less the adjustments I have referred to earlier, the statutory demand is set aside, save for the sum of €458,544.
[41] The time for compliance with the statutory demand is extended by 10 working days, the first day of the 10 working days is 11 June 2020. If the amount is not paid within the 10 working days, then Actility is free to take such steps in reliance on the unmet statutory demand as it thinks fit.
Costs
[42]In my view, costs should follow the event on a 2B basis.
[43] Mr Jeffcott suggested that the claim by YellowWood that services were not provided in the context I have set out, was disingenuous and that should perhaps reflect on costs. However, given the demand was overstated in respect of the item of plant referred to earlier, and in respect of interest, I consider that costs on a 2B basis in favour of Actility is a fair outcome in respect of costs.
Associate Judge Lester
Solicitors:
Tavendale and Partners, Christchurch Lowndes Ltd, Auckland
5 Companies Act 1993, s 289(2)(a).
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