Zindia Limited v Arapawa Island Forestry Partnership
[2021] NZHC 29
•27 January 2021
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2020-412-55
[2021] NZHC 29
UNDER the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
ZINDIA LIMITED
Applicant
AND
ARAPAWA ISLAND FORESTRY PARTNERSHIP
First Respondent
AND
VELIDE INVESTMENTS LIMITED
Second Respondent
Hearing: 9 December 2020 Counsel:
Q A M Davies and J S Marshall for the Applicant T J Shiels QC for Respondents
Judgment:
27 January 2021
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 27 January 2021 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 27 January 2021
ZINDIA LIMITED v ARAPAWA ISLAND FORESTRY PARTNERSHIP [2021] NZHC 29 [27 January 2021]
[1] Zindia Limited (Zindia) applies to set aside a statutory demand issued by Arapawa Island Forestry Partnership (the Partnership), in the sum of $2,895,536.
[2] The Partnership says the debt arises under a contract between the parties entered into in August 2016.
[3] The Partnership comprises some 48 partners. Due to the inconvenience of having to co-ordinate signatures of some 48 partners, Velide Investments Limited (Velide) acts as agent for the Partnership. Velide is not a partner of the Partnership.
[4] Velide is the lessee of land on which a Pinus radiata forest is located on Arapaoa Island.1 The forest was planted by the Partnership in 1986. By about 2009, the trees were mature enough for the Partnership to consider harvesting for sale. Proposed sales in 2009 and 2012 did not proceed. The Partnership’s evidence is that it resolved to get the forest “harvest-ready so as [to] make the forest more readily saleable.”
[5] In June 2012, Velide applied for, and in due course was granted, resource consents (the Velide consents) under the Resource Management Act 1991 (RMA).
[6] The uncontested evidence is that log prices are volatile and had been low in 2014 and 2015 but improved significantly in early 2016 prompting the Partnership to offer the harvesting rights for sale.
[7] The contract in issue in this application is entitled “Pay As Cut Timber Sale Agreement” (the Timber Agreement). I will refer to its terms in more detail below. For present purposes, it is sufficient to note the Timber Agreement included a harvesting deadline. The uncontested evidence is the harvesting deadline was the subject of considerable negotiation, with the parties concluding a deadline of 30 June 2019. This gave Zindia nearly three years to complete the harvest.
1 While commonly called Arapawa Island, this is a misspelling. See “Notice of New and Altered Geographic Names” (7 August 2014) 89 New Zealand Gazette 2483 at 2519; and “Notice of Approved Official Geographic Names” (16 July 2020) New Zealand Gazette No 2020-In3118.
[8] The Partnership was conscious that its lease of the land on which the trees were located expired on 31 August 2020. It also required time to comply with resource consent conditions and compliance work that might be required following the completion of harvesting before the lease expiry date.
The Timber Agreement
[9] The Timber Agreement entitled Zindia to harvest trees from a designated area. Zindia paid for the harvested trees on the basis of weight.
[10] The Timber Agreement included a $500,000 performance guarantee and indemnity to be secured by way of a bank bond and a deposit to be paid in cash of
$250,000 plus GST. After a number of delays, the deposit was paid by Zindia and the bond was put in place.
[11] The key clause for the purposes of the statutory demand is cl 5.1 of the Timber Agreement, which provides:
5.Performance
5.1Except as provided in the Specific Terms, the Purchaser will, during the Term, remove all Merchantable Timber from the Sale Area. Merchantable Timber left on the Sale Area in excess of any allowance provided in the Specific Terms shall be measured in the field and the weight and log type estimated by the Vendor’s representatives. The Vendor may invoice the Purchaser for such excess Merchantable Timber left on the Sale Area at the rate of two times the prices provided in this Agreement. The Purchaser may request approval to leave Merchantable Timber or Non Merchantable Timber standing or felled and unrecovered on the grounds of undue Health and Safety risk. Such requests will require the approval of the Vendor’s forest manager, which approval shall not be unreasonably withheld, but it is agreed cost in itself shall not be a reason to leave the timber unrecovered.
[12] The purpose of the clause is clear enough. The Partnership’s lease of the land came to an end on 31 August 2020 and it needed to convert its trees into revenue before then because if the trees were not harvested they would revert to the landowner. Clause 5.1 provides a clear incentive for Zindia to harvest the trees within the agreed time limit as if it did not do so it would have to pay the Partnership for unharvested trees.
[13] Notwithstanding that the Timber Agreement was signed in August 2016, it was not until 17 May 2018 that Zindia notified the Marlborough District Council (the Council) of its intention to start harvesting the trees. The delay is not explained by Zindia. The Partnership attributes the delay to Zindia’s lack of funding. It may be that Zindia deferred the commencement of harvesting to coincide with an increase in log prices. Such cannot be resolved in this application. There is some evidence from the Partnership that Zindia may have been undertaking preparatory earthworks at the site. The Partnership considers such was unnecessary for the logging operation, but that may represent a different approach to harvesting the trees. In any event, Zindia negotiated for and obtained a nearly three year term to complete the harvest. The Timber Agreement did not require Zindia to commence the harvest by a stated date.
[14] I note the trees were located on steep and not readily accessible land. The forest was on an island and access to the site was by barge. With the land being steep and inaccessible it was not an appealing proposition for forestry contractors. When log prices are high, the demand for contractors increases and, not surprisingly, contractors opt for easier sites than the one in issue in this proceeding.
[15] In any event, a substantial volume of trees were not harvested by the deadline provided in the Timber Agreement and the Partnership issued an invoice for the unharvested trees as it was entitled to do by cl 5.1 of the Timber Agreement. The statutory demand relates to that invoice. There is a disagreement as to the extent of the unharvested trees and I will return to that issue.
The Velide Resource Consents
[16] The Velide consents were attached to the Timber Agreement as sch 5. Clause 11.2(a) of the Timber Agreement provides:
11.2 The Purchaser, its employees, contractors, agents and invitees shall comply with all environmental laws, regulations, codes of practice and the conditions of any relevant resource consents. In particular, the Purchaser will:
(a) comply with the provisions of any resource consent contained in Schedule 5;
[17] There is an issue as to exactly what consents were annexed to the Timber Agreement. That issue cannot be resolved in this context. In any event, as will become clear, it is not the consents themselves that are the issue, rather advice from the Council before the Timber Agreement was entered into that no consents, other than the Velide consents, were required before harvesting could get under way.
[18] Clause 11.2(c) of the Timber Agreement required Zindia to comply with the Partnership’s environmental commitments as set out in the resource consents in sch 5.
[19] The Timber Agreement does not contain a condition requiring Zindia to obtain its own resource consents. Clause 12, under the heading “Compliance with Laws” requires Zindia to comply with all statutes, regulations and other laws relating to the carrying on of its activities under the Timber Agreement.
Zindia’s argument summarised
[20] The proposition underpinning Zindia’s application is that both parties entered the Timber Agreement on the understanding that harvesting was permitted by the Velide consents or, put another way, no further consents were required before harvesting could occur. Zindia says the parties’ common assumption on this point was wrong. Zindia says it has an arguable entitlement to relief under s 24(1)(a)(ii) of the Contract and Commercial Law Act 2017 (the Act).
[21] Having commenced commercial harvesting in mid-2018, Zindia was issued an abatement notice by the Council on 17 July 2018 which required it to “cease and
… not re-commence commercial forestry harvesting”.
[22] Zindia responded promptly, applying to the Environment Court for a stay of the abatement notice. The Environment Court issued a stay on 21 August 2018.
[23] Zindia’s evidence is that the downtime and disruption created by the abatement notice was sufficient for its contractor to leave the site. Zindia points to the difficulty of finding contractors for this less desirable site as the reason why it could not recommence harvesting once the abatement notice was stayed. The Partnership is
critical of Zindia’s lack of progress overall and in particular alleges that Zindia had in fact ceased harvesting before the abatement notice.
[24] At the end of the day, Zindia acted promptly in applying to the Environment Court for the abatement notice to be stayed. It also pursued its appeal against the abatement notice in the Environment Court which released its decision on 22 February 2019.2 Zindia’s appeal was successful.
[25] However, the Environment Court decision was not the end of the matter. The Council appealed the decision to the High Court which, on 29 October 2019 released its decision, essentially overturning the Environment Court decision.3 On 11 June 2020, Zindia was granted leave to appeal by the Court of Appeal in Zindia Ltd v Marlborough District Council.4 Zindia has since abandoned that appeal.
A Contractual Mistake – Was there a common mistake?
[26] The criteria for a contractual mistake is set out in s 24 of the Act. Section 24 provides:
24Relief may be granted if mistake by one party is known to another party or is common or mutual
(1)A court may grant relief under section 28 to a party to a contract if,—
(a)in entering into the contract,—
(i)the party was influenced in the party’s decision to enter into the contract by a mistake that was material to that party, and the existence of the mistake was known to the other party or to 1 or more of the other parties to the contract; or
(ii)all the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii)the party and at least 1 other party were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and
2 Zindia Ltd v Marlborough District Council [2019] NZEnvC 30.
3 Marlborough District Council v Zindia Ltd [2019] NZHC 2765.
4 Zindia Ltd v Marlborough District Council [2020] NZCA 209.
(b)the mistake or mistakes resulted, at the time of the contract,—
(i)in a substantially unequal exchange of values; or
(ii)in a benefit being conferred, or an obligation being imposed or included, that was, in all the circumstances, a benefit or an obligation substantially disproportionate to the consideration for the benefit or obligation; and
(c)in a case where the contract expressly or by implication provides for the risk of mistakes, the party seeking relief (or the party through or under whom relief is sought) is not obliged by a term of the contract to assume the risk that that party’s belief about the matter in question might be mistaken.
(2)The relief may be granted in the course of any proceeding or on application made for the purpose.
(3)For the purposes of subsection (1)(a)(i) and (iii), the other party or other parties must not be a party or parties who have substantially the same interest under the contract as the party seeking relief.
[27] I accept Zindia’s submission that it is reasonably arguable that both parties thought the resource consents annexed to the Timber Agreement permitted the harvesting of timber contemplated by the Timber Agreement or that no further consents were required. I consider such to be reasonably arguable for the following reasons.
[28] Firstly, the Timber Agreement was not made conditional on Zindia obtaining resource consents for harvesting. It is inherently unlikely that Zindia would have committed to the Timber Agreement, in particular with the implications of cl 5.1 and the requirement to pay a deposit and put in place a bond, if it did not believe it had the ability to harvest. Rhetorically, why would the Partnership have required Zindia to obtain new consents when it held its own consents? The Partnership’s evidence is that it obtained the consents so that the forest would be “harvest-ready” in order to make it more saleable.
[29] Secondly, it would not make sense for Zindia to be bound by the conditions in the resource consents attached to the Timber Agreement if it also had to obtain its own consents, which would inevitably contain further conditions which would not necessarily be consistent with those in the Velide consents.
[30] Thirdly, a strong indicator that both parties entered the Timber Agreement on the common understanding that the Velide consents permitted harvesting is that both parties checked with the Council that no further consents were required for harvesting.
[31] Fourthly, further evidence of the mistaken common understanding as to the Velide consents is the following email exchange. Zindia engaged Merrill & Ring NZ Ltd to assist it with pre-contract due diligence in relation to the forestry rights. On 1 July 2016, Mr Turbitt of Merrill & Ring NZ Ltd emailed a Mr Boddington of the Council. Mr Turbitt, referring to the Velide consents, asked: “My question is: Is a new consent required for harvesting in light of the new MEP and the rules which become operative on 9 June 2016.”.5 Mr Boddington replied the same day: “Hi Murray: The answer is NO. We discussed this in light of a similar query some days ago from lawyers acting for (perhaps?) Velide (the consent holders).”
[32]Then on 6 July 2016, Mr Boddington emailed Mr Turbitt as follows:
Hi Murray: the opinion given below should not be acted upon until I get back to you. There is divergence of opinion here whether Velide can continue to harvest without a consent to harvest as required under the new MEP. I shall discuss with our in-house solicitor and get back to you asap.
Cheers Guy.
[33] Mr Davies (counsel for Zindia), submitted that Mr Boddington’s cautionary email was an indicator that the Council knew its advice would be acted on – hence the warning to hold off acting on the advice until it could be confirmed. I accept that submission.
[34] The next email in the chain was from Mr Turbitt to Mr Boddington on 8 July 2016 at 4.46 pm. Mr Turbitt referred to an email sent by Mr Boddington to Mr Derek McLachlan earlier at 11.53 am on 8 July 2016. Mr McLachlan is a solicitor at Gallaway Cook Allan, who acted for the Partnership in the sale of the harvesting rights. The 11.53 am email from Mr Boddington said:
Hi Derek: I have checked the files for property no. 534661 and located parts of the application and Decision (attached) which granted the establishment of the forest on the Hadleigh property. I have discussed with our in house
5 Emphasis in the original.
solicitor and we are of the view (as originally given) that harvesting can continue without requirement for RC under the new MARLB Environ Plan, now that we have determined lawful establishment (decision) 25/09/1981. You will note from one of the pages that there is a clear intent to plant and harvest. I trust this clarifies our position. Regards Guy.
[35] It is not explained how Mr Turbitt came to be in possession of the email between Mr Boddington and Mr McLachlan, but it is a reasonable inference that Mr McLachlan forwarded the email to Mr Turbitt.
[36] As I have said, Mr Turbitt, having received that email, contacted Mr Boddington on 8 July 2016 attaching the email from earlier that day. Mr Turbitt in his email of 4.46 pm said to Mr Boddington:
Guy
I see from your email correspondence you have had with Derek McLachlan today (copy reproduced in italics below) that it appears that there is no impediment to forest harvesting on the land covered by Resource Consent U120345.1 to U120345.6.
My clients are in the process of purchasing the cutting rights to the trees and have been reluctant to sign until this issue was resolved.
Can you please confirm to me that no additional resource consent will be required for forest harvesting to occur.
[37] Mr Boddington replied the following Monday morning at 9.16 am and his advice was: “I confirm our view that no additional RC is required on the Velide site.”
[38] Mr Turbitt then forwarded the full email chain to Zindia and said: “Looks like no consent for harvesting will be required.”
[39] This exchange, in my view, shows it is at least reasonably arguable that both parties entered the Timber Agreement on the mistaken common understanding that the existing resource consents would permit harvesting or, put a different way, that no further consents were required.
[40] Mr Shiels QC, counsel for the Partnership and Velide, submitted the Partnership was indifferent to consenting issues in relation to the harvesting of the timber. He submitted consenting issues were a matter for Zindia and the question
of whether consents were needed or otherwise did not influence the Partnership’s decision to enter the Timber Agreement. Accordingly, Mr Shiels submitted there was no mutual mistake.
[41] I am not satisfied consenting issues were a matter of indifference to the Partnership. The Partnership had obtained the resource consents in order to facilitate the sale of the timber – so as to make those rights “harvest-ready”. It had, at around the time it was dealing with Zindia, lost a sale to another buyer who had entered into a contract to buy the rights subject to a due diligence condition. That contract did not become unconditional. Zindia wanted to undertake its due diligence prior to entering a contract. Therefore, it is likely confirming that the timber rights remained “harvest-ready” was a matter of importance to the Partnership as such was a point in favour of the harvesting rights.
[42] The Partnership apparently instructed its solicitor, Mr McLachlan, to make an enquiry of the Council resulting in the email from Mr Boddington, referred to at [31] above. It also appears that Mr McLachlan knew that Mr Turbitt was undertaking due diligence work for Zindia and provided him with Mr Boddington’s email. The Partnership does not offer any evidence as to why Mr McLachlan’s communication with Mr Boddington occurred. The natural inference is the Partnership, which was keen to sell and had lost one buyer at the due diligence stage, was making enquiries of the Council to ensure the forestry rights remained harvest-ready in order to help with the satisfaction of Zindia’s due diligence process.
[43] Looked at from the Partnership’s point of view, it is clear it wanted/needed the trees to be harvested to realise their value. It was under some financial pressure at the time so locking in a sale was to its advantage. Harvesting could only be achieved if such did not require a consent, or the necessary consent was in place, or if the harvester applied for and obtained a consent. Harvesting had to be completed within a known time. If the Partnership had known there was no existing right to harvest, it may well have required Zindia, as a term of the Timber Agreement, to promptly apply for the necessary consents as, without the consents being in place, the Partnership was exposed to the risk that the harvest could not be completed within time, if at all. The Partnership would be left with its remedies against Zindia. At the very least,
the Partnership, if it had known the true position in respect of the consenting requirements around harvesting, may have sought different conditions in relation to the bond/guarantee and/or express conditions requiring Zindia to obtain the necessary consents. Indeed, given the Partnership’s own position that it wanted to sell a harvest-ready forest, there is a likelihood it would have taken an entirely different approach to the Timber Agreement.
[44] Mr Shiels also submitted there was an element of futurity or expectation in relation to the alleged mistake.
[45] Mr Shiels referred to what he described as a volatile resource consent environment at the time of the Timber Agreement in 2016. Zindia secured a three year term to complete the harvesting. Mr Shiels’ proposition was if Zindia was mistaken in its belief that the resource consent requirements for harvesting would not change for those three years when it entered the Timber Agreement, then that was a mistake as to expectation not covered by the Act.
[46] In Camcorp Ltd v Force Entertainment Centre Ltd, the Court of Appeal said: “Contracting in the expectation of a course of events does not give rise to initiating mistake if matters do not turn out as expected.”6
[47] Whatever assumptions Zindia may have made about the resource consent environment not changing during the term of the Timber Agreement, it is now clear as a result of this Court’s upholding the Council’s abatement notice, that the advice given by Mr Boddington prior to the Timber Agreement was incorrect.
[48] The legal issue leading to the abatement notice, that is, the legal issue that meant Mr Boddington’s advice was wrong, existed at the time of his advice. If Mr Boddington’s advice had been correct and an abatement notice had been issued as a result of a law change after the parties entered the Timber Agreement, then I would agree that there was no mistake operative at the time the Timber Agreement was entered, but that is not the proposition relied on by Zindia. Zindia says the advice given to it and the Partnership by Mr Boddington was wrong when it was given.
6 Comcorp Ltd v Force Entertainment Centre Ltd CA212/02, 13 June 2003 at [34].
[49] Mr Shiels also submitted Zindia must have made assumptions about the resource consent environment not changing as its conduct indicated that it was not intending to start harvesting immediately. I do not think there is anything in this point. If the resource consent environment turned against Zindia because it delayed harvesting, that is a risk that it ran for its own reasons, but again, it was not a post contract change in consent requirements that led to the abatement notice being issued.
[50] Mr Goldsmith’s evidence, on behalf of the Partnership, was that it should have been possible to complete the timber harvest well within the three year term. Assuming that is the case, then Zindia enjoyed the option of when it would harvest, but of course if it delayed harvesting, it ran the risk that it would run out of time. It also ran the risk that the resource consent environment would change. Again, that is not what caused Zindia’s issues in this case. The resource consent situation was not as both parties believed it to be at the time the Timber Agreement was entered.
[51] Mr Shiels also placed great weight on the fact that the Timber Agreement requires Zindia to comply with all environmental laws (cls 11.2 and 12 of the Timber Agreement). However, those provisions were drafted against the background that both parties believed no further consents were required for harvesting to occur. I refer to this further below.
[52] I am satisfied there is a reasonably arguable case of both parties entering the Timber Agreement under a common mistake in respect of what the resource consents permitted or that no consent was required for the harvesting itself.
[53] In order for there to be relief as a result of a common mistake, it must result in a substantially unequal exchange of values or the incurring of an obligation substantially disproportionate to the consideration provided.7
[54] Zindia committed to harvest the trees owned by the Partnership. It provided a $500,000 bond in respect of its obligations and paid a cash deposit of $250,000. It had, in effect, a “take or pay” obligation in respect of uncut timber pursuant to cl 5.1. Without the ability to harvest, Zindia was exposed to losing its bond and deposit. The
7 Contract and Commercial Law Act 2017, s 24(1)(b).
abatement notice, on Zindia’s evidence, created disruption to its harvesting arrangements as the uncertainty it created meant Zindia’s forestry contractor left the site.
[55] Mr Shiels submitted the mistake did not result in a substantially unequal exchange of values. He submitted Zindia’s expert advice, at the due diligence stage, was equivocal. He submitted Zindia was “plainly prepared to assume some risk in relation to resource consent issues”. That is not the way I read the evidence. The document relied on by Mr Shiels is an email of 22 August 2016 from Mr Turbitt to the Historic Places Trust in relation to an archaeological sites management plan. This does not suggest Zindia was running the risk that it did not have the right to harvest – it was recognition that the consent conditions had to be addressed.
[56]On the same day, Mr Turbitt sent another email to Zindia which said:
I’, trying to discover all the issues with the resource consents (there are several of them + variations as well) and exactly what things have been done and what still needs to be done to meet consent requirements.
[57] Again, this is not an indication of a preparedness to take risk in relation to the ability to harvest timber at all. I accept it indicates Zindia’s consultants saw there were issues with the consents that needed to be worked through. However, the tenor of the email as a whole is that Mr Turbitt was requesting a meeting with one of the vendors plus their consultant to get the information needed for him to prepare a harvesting plan for approval.
[58] Further, Mr Shiels refers to the email from Mr Boddington referring to “views” of Council officers and Mr Turbitt saying that it “looked like” no further consents were required. When the email chain is read as a whole – and that is the way it was forwarded to Zindia – the points raised by Mr Shiels do not support the idea that Mr Turbitt’s advice was equivocal.
[59] As to the actual affect of the abatement notice on Zindia’s forestry contractor, such is not a matter that can be resolved in this application. To deal with this application it is sufficient that I am satisfied it is reasonably arguable that the common mistake resulted in a substantially unequal exchange of values. The Partnership got
the protection of cl 5.1 backed by a bank bond and a deposit. Zindia did not get the right to harvest that both parties believed existed.
[60] Finally, Mr Shiels submits that s 24(1)(c) of the Act prevents Zindia relying on mistake. That section provides that the Court may grant relief in relation to a mistake if:
[I]n a case where the contract expressly or by implication provides for the risk of mistakes, the party seeking relief (or the party through or under whom relief is sought) is not obliged by a term of the contract to assume the risk that that party’s belief about the matter in question might be mistaken.
[61] Mr Shiels relied on a number of clauses, including cl 7.3 of the Timber Agreement which provides as follows:
The Purchaser agrees that it enters into this Agreement and in reliance upon its own full and complete examination of the timber in the Sale Area. The parties acknowledge that no representations, either in words or by conduct in connection with or in the course of the making of this Agreement, have been made other than representations contained in this Agreement. For the purposes of Section 4 of the Contractual Remedies Act 1979, the parties acknowledge that having regard to all the circumstances, it is fair and reasonable that this provision should be conclusive between the parties. For the purposes of section 5 of the Contractual Remedies Act, the Purchasers sole remedy will be $100.00.
[62] Mr Shiels also relied on cl 11 (already referred to) and cl 12 of the Timber Agreement which requires the purchaser to comply with all statutes relating to the carrying on of its activities under the Timber Agreement and cl 17 which is an entire agreement clause.
[63] I am not satisfied that those general provisions mean Zindia is obliged to assume the risk of a mistake as to the ability to, without more, harvest the forest. That the forest was “harvest-ready” was the fundamental assumption of both parties to the Timber Agreement. The whole structure of the Timber Agreement assumed that Zindia could commence harvesting, without more. I do not consider these general clauses mean the parties intended the risk of a mistake about that fundamental common assumption had to be borne by Zindia.
[64] Clauses 11.2 and 12 both require the purchaser to comply with all environmental laws. Of course, Zindia was obliged to comply with all laws, environmental or otherwise, irrespective of cls 11 and 12. Clauses 11 and 12 were, in my view, intended to make a breach by Zindia of environmental or other laws a matter that would also constitute a breach of the Timber Agreement with the Partnership. The purpose of those provisions was not to allocate the risk of mistake in relation to what those laws required, but to give the Partnership its own contractual remedies should Zindia break any laws relating to the forestry operation.
Should the statutory demand be set aside?
[65] I remind myself that in this context the question is whether the applicant, Zindia, has shown a reasonably arguable basis upon which it is not liable for the amount claimed.
[66] In AAI v 92 Lichfield Street Ltd (in receivership and in liquidation), the Court of Appeal said:8
[22] It is important to keep in mind the words of the statute. 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.
(footnote omitted)
[67] Zindia says that once it shows it has an arguable case for seeking relief under the Act, such means there is an arguable case that the quantum of the Partnership’s claim is disputed. Zindia being arguably entitled to relief under the Act means, in my view, that the Partnership’s claim is no longer for a liquidated amount. Zindia’s case is, had it known that the resource consents were not available to it, it would not have entered the Timber Agreement at all. Under s 28 of the Act, the Court has very broad powers once a mistake is established, including cancelling the contract and ordering compensation either way.
8 AAI v 92 Lichfield Street Ltd (in receivership and in liquidation) [2015] NZCA 559.
[68] There is an alternative claim raised by Zindia (one of a number) that there was an innocent misrepresentation that the resource consents permitted harvesting. As I have said, it appears the Partnership’s solicitor made available to Mr Turbitt the email from Mr Boddington confirming harvesting. Different issues arise in respect of the alleged misrepresentation claim. It might be argued that Mr McLachlan was only a conduit for the advice from the Council, or alternatively, that the Partnership was adopting that advice for the purpose of reassuring Zindia to encourage it to enter the Timber Agreement.
[69] Zindia did not purport to cancel the Timber Agreement. The Timber Agreement contains an entire agreement clause, however, s 50 of the Act would permit the Court to look behind that clause. No attempt to quantify a damages claim has been made. If misrepresentation had been the only claim raised, I would not have set the demand aside.
[70] Zindia also relies on a force majeure clause. I do not think it arguable that Zindia can rely on the force majeure clause. The clause requires a party claiming to be affected by a force majeure event to immediately give notice, including full particulars of the event, to the other party. The affected party is then obliged to use its best endeavours to investigate and remedy the effect of the force majeure event.
[71] In the event of force majeure, the term of the Timber Agreement is extended to the extent reasonably necessary to enable the performance of the affected party’s obligations. But in the event there is failure to perform a material obligation of the Timber Agreement as a result of a force majeure event for 20 days (continuous or otherwise) during any consecutive 30 day period, the other party may give notice to the affected party of its intention to cancel the agreement. If the failure to perform is then not remedied within 10 working days, the other party may terminate the agreement.
[72] Zindia did not issue a notice invoking this clause – not even on receiving the abatement notice. The structure of the force majeure clause is that a notice advising of a force majeure event is critical to the application of the clause. The parties’ rights and obligations run from the date of the notice.
[73] I am satisfied that in the absence of a notice that complies with the force majeure clause, it is not open to Zindia to now rely on force majeure.
[74] Zindia also relied on the principle of frustration. Given the conclusion I have reached in respect of the Contractual Mistakes Act, it is not necessary for me to comment on this final ground.
Conclusion
[75] I am satisfied that the availability of the Velide consents was, at least arguably, an important failure to both parties in entering the Timber Agreement. At the risk of repetition, the Partnership obtained the consents in order for the forest to be “harvest-ready so as [to] make the forest more readily saleable”. The Partnership’s solicitor enquired of the Council as to whether the consents could be relied on or further consents for harvesting were required and he communicated that advice to Zindia’s due diligence agent.
[76] Just what relief for the mistake will look like will depend on too many factors to allow such to be the subject of this application. It is not possible to say with certainty what, if any, amount will be payable by Zindia to the Partnership at the end of the day.
[77] Accordingly, I find that the mistake issue means the claim by the Partnership is not suitable for a statutory demand and it is accordingly set aside.
Quantum
[78] The quantum of the Partnership’s claim was calculated in accordance with the formula in cl 5.1 of the Timber Agreement.
[79] The Partnership wrote to Zindia explaining the process of calculation and attaching an invoice for the amount. Zindia has apparently not requested the documents/assessments on which the quantification is based. Certainly, such are not before the Court.
[80] Clause 5.1 confers upon the Partnership the right to carry out the calculation of the amount payable under that clause and to raise an invoice accordingly. Such a contractual discretion would, in my view, be subject to what is known as the default rule - that is, an obligation that the assessment be carried out honestly in good faith and not arbitrarily, capriciously or unreasonably.9
[81] Having not requested details of the underlying calculations, it is not open to Zindia to say the Partnership’s calculations are in breach the default rule.
[82] It is not simply a matter of Zindia putting up an alternative figure. It agreed to the calculation being carried out in accordance with cl 5.1. To demonstrate that it is not bound by that assessment, it needs to show that the assessment was not carried out as required by the “default rule”.
Result
[83] I grant Zindia’s application to set aside the statutory demand, pursuant to s 290 of the Companies Act 1993.
[84] If counsel cannot agree costs, then memoranda not more than five pages are to be filed. The applicant’s to be filed within 10 days of the date of this judgment, and the respondents’ within a further 10 days. At this point, my impression is that costs follow the event on a 2B basis and if counsel are content with that outcome then such shall be the order of the Court if no memoranda are filed.
Associate Judge Lester
Solicitors:
McMillan & Co, Dunedin Gascoigne Wicks, Blenheim
Copy to counsel:
T Shiels QC, Dunedin
9 See discussion in Stephen Kós “Constraints on the Exercise of Contractual Powers” (2011) 42(1) VUWLR 17.
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