Ferguson t/a Farm Forest Logging v Tanglewood Forests Ltd [2003] NZCA 274; (2003) 16 PRNZ 997 (26 November 2003)

Court of Appeal of New Zealand

[Index] [Search] [Download] [Help]

---

Ferguson t/a Farm Forest Logging v Tanglewood Forests Ltd [2003] NZCA 274 (26 November 2003); (2003) 16 PRNZ 997

Last Updated: 16 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 57/03

BETWEEN WILLIAM GORDON ALEXANDER FERGUSON AND KATHLEEN ANNE HOUKAMAU, both of Masterton, Forestry Contractors, trading as FARM FOREST LOGGING

Appellants

AND TANGLEWOOD FORESTS LIMITED, a duly incorporated company having its registered office at Masterton

Respondents

Hearing: 19 November 2003

Coram: McGrath J

Heath J

Doogue J

Appearances: T G Stapleton for Appellants
G J Allan for Respondent

Judgment: 26 November 2003

JUDGMENT OF THE COURT DELIVERED BY DOOGUE J

Introduction

[1] This is an appeal against the decision of Master Gendall under s290 Companies Act 1993 (s290) to set aside a statutory demand issued by the appellants against the respondent.
[2] Section 290(4) provides:

(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—

(a) There is a substantial dispute whether or not the debt is owing or is due; or

(b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c) The demand ought to be set aside on other grounds.

[3] The statutory demand claimed a debt in respect of forestry contracting and other services provided by the appellants to the respondent. The respondent applied to set aside the demand on three grounds. First, the respondent relied on s290(4)(a) that there was a substantial dispute whether or not the debt was due or owing as there was evidence that the services and works performed by the appellants were not performed in a good and workmanlike manner in accordance with the contract nor performed in accordance with the standard required within the New Zealand forestry industry. Secondly, the respondent relied upon s290(4)(b) in that it had a counterclaim in an amount exceeding the amount claimed in the statutory demand in relation to the matters already mentioned and other matters. Thirdly, the respondent relied upon s290(4)(c) asserting that the demand should be set aside upon the ground that the contract between the parties included an arbitration clause and that the respondent had offered to submit the disputes to an arbitrator for resolution in a proper manner.
[4] The Master decided that the statutory demand should be set aside on each of those bases.

Background

[5] The appellants had a written contract with the respondent dated 31 August 2000 to carry out the logging of certain plantings in the respondent’s forest either until that logging was completed or until 31 March 2003 if the logging was not completed by that date. The contract provided for it to be the complete contract between the parties. Any additional work or terms required agreement in writing. The contract contained an arbitration clause.
[6] That contract followed the appellants’ carrying out earlier work for the respondent. Up until February 2002 the respondent had different forest managers for its forest. In that month the appellants were asked to take over the forest management role and it is common ground that the appellants managed the forest from about March 2002 until 30 September 2002.
[7] On 17 September 2002 the appellants had written to the respondent demanding payment of invoices and other accounts totalling a little over $92,000. On 20 September 2002 the respondent replied acknowledging a debt of a little over $79,000. It said that most of that was due on that date with the balance being overdue by approximately 14 days. A few days later $25,000 was paid. However, the balance was not paid by 30 September 2002 and the appellants on that date terminated the contract with the respondent because of the continued non-payment of their account. A further $8,000 was paid by the respondent on 2 October 2002. By that date some 186 payments totalling $1,570,000 had been paid by the respondent to the appellants in respect of their services. There had been no written complaints about the quality of the appellants’ work.
[8] Immediately following the termination of the contract it appears that the respondent engaged a forestry consultant, a Mr Orme, to inspect the forest and report on its operations to date. As a result of his oral advice the respondent wrote on 22 October 2002 to the appellants making complaints in respect of their performance in the management and logging of the forest. The letter recorded the opinion of the consultant that substandard operational practices had resulted in substantial losses to the respondent. The letter stated:

These losses were estimated to exceed by a considerable amount the balance of $78,000 owing on your account.

As a result the respondent said that no further payments were going to be made to the appellants pending their acceptance of the situation or a determination of the dispute by arbitration.

[9] Rather than ask for the basis of the consultant’s views the appellants had the statutory demand in issue delivered to the respondent on 6 November 2002.
[10] On 20 November 2002 the solicitors for the respondent wrote in detail to the appellants’ solicitors enclosing a copy of Mr Orme’s report. In addition the letter indicated that in the interests of achieving a fair and speedy resolution of the disputes between the parties, the respondent proposed that all disputes and differences be submitted to an appropriate arbitrator to carry out a procedurally informal and cost effective arbitration as soon as possible for an early resolution of the disputes. Because the appellants had expressed doubts about the respondent’s solvency and the respondent had concerns about the solvency of the appellants, it was suggested that each provide appropriate security to protect the position of the other in relation to any award adverse to them. As the appellants did not immediately agree to withdraw their statutory demand the respondent, to comply with the requirements of s290, made the requisite application to the High Court to set the notice aside.
[11] Both parties filed affidavits in respect of the application which the appellants opposed. The critical evidence for the respondent was the report from Mr Orme affirmed by him. It appears that Mr Orme has subsequently become the manager of the respondent’s forest. The precise chronology in respect of events is not clear at this stage but in any event nothing turns upon it. The report identified various aspects of alleged failure by the appellants to carry out their work and services in a proper and workmanlike manner and to industry standard. The report indicated that the terms of the logging contract were not adhered to specifically. The consultant estimated the real costs to the respondent as possibly exceeding $200,000, a sum well in excess of the appellants’ statutory demand for a little over $89,000.
[12] The affidavit for the appellants by Mr Ferguson narrated the history already recorded in greater detail and took issue with Mr Orme’s report. In addition it noted that there had been no complaints by earlier forest managers and that one of the directors of the respondent had engaged the appellants’ services on another forestry project and that there had been no complaint arising from that. Mr Ferguson expressed the view that there was nothing to refer to arbitration and that if there was any dispute to be determined it should be by litigation.

The Master’s judgment

[13] After briefly explaining the background to the matter the Master traversed s290(4) and the relevant case law relating to its application. There is no suggestion that he misdirected himself as to the principles applicable to the application. It was agreed that in terms of United Homes (1988) Limited v Workman [2001] 3 NZLR 447 the provisions of s290(4)(a) and (b) simply require the company to show a “fairly arguable basis,” and nothing more, on which it is not liable on the demand in question or has a sufficient counterclaim to justify the demand being set aside.
[14] The Master went on to deal with the three issues before him. In respect of the issue of whether there was a substantial dispute whether or not the debt was owing or due, he referred to the substance of the submissions for the appellants and the substance of the evidence relied upon. He noted that although the appellants had attacked the independence of Mr Orme, they had not adduced any evidence negating such report. He noted further that Mr Orme’s credentials and qualifications were unchallenged. He was therefore entitled to rely upon the consultant’s report. Given its substantiation of the complaints about performance of the contract, which as he saw it went to the heart of the amount claimed under the statutory demand, he was satisfied that the respondent had established on a fairly arguable basis that it had a substantial dispute whether or not the debt was owing or due. The Master was therefore satisfied that he should exercise his discretion to set aside the statutory demand.
[15] The Master went on to consider the issue of whether the respondent had established under s290(4)(b) that there was a fairly arguable basis for its counterclaim. He noted with reference to the decision of this Court in Alfex Doors & Windows Ltd v Alutech Windows & Doors Ltd, CA 38/01, 30 May 2001, that having regard to the evidence of Mr Orme there was “a sufficient evidential foundation to enable the Court to satisfy itself that there is an arguable case”. He expressed the view that the respondent’s counterclaim argument was arguably even stronger than its claim that the debt was substantially disputed.
[16] The Master went on to deal with the issue whether the demand should be set aside under s290(4)(c). He referred to the arbitration clause in the contract. He noted the appellants’ argument that the bulk of the claims in the statutory demand related to work which was not covered by the written contract between the parties and could not be subject to the arbitration clause. He rejected that argument. He took the view that the wording of the contract relating to services and works to be undertaken had a degree of generality which in his view would cover the full extent of services which he understood were provided by the appellants. He was satisfied from the matters raised in Mr Orme’s report that there was sufficient material before the Court to show there was a fairly arguable basis that the arbitration clause applied.

This appeal

[17] The submissions for the appellants seek to persuade us that the Master was wrong in respect of his determination in relation to each branch of s290(4). We do not find it necessary to address the arguments relating to s290(4)(a) and (c). The position in respect of s290(4)(b) relating to the respondent’s counterclaim is so clear cut that it is quite unnecessary to traverse the more detailed issues relating to the application of the other two provisions.
[18] The appellants submit that there was no fairly arguable basis that the respondent had a counterclaim. The appellants attack the timing of Mr Orme’s report and in particular the fact that it was only commissioned by the respondent after the appellants had terminated the contract for non payment. The appellants go on to submit that the Master erred by giving it undue weight when in particular Mr Orme was not independent of the respondent and when Mr Ferguson, an experienced forestry contractor, had denied the allegations about the performance of the appellants’ services. They also submit that the Master erred by given weight to the fact that there was no report from a similarly qualified person to negate Mr Orme’s report. They submit that the Master should have evaluated the weight to be given to the forestry consultant’s report in the light of the facts and the relevant surrounding circumstances. They say that the very fact that there was no expert forestry opinion or any other criticism of the appellants’ work prior to the obtaining of a report from Mr Orme negates his conclusions. That is particularly so, they say, when until October 2002 there had been no complaint whatever by the respondent and either payment or an acknowledgement of debt in respect of all accounts of the appellants to the termination of the contract. It is submitted that when all of these factors are weighed and balanced they cannot be overcome by the critical content of Mr Orme’s report.
[19] The appellants’ argument ignores the obvious. Mr Orme’s report provided a fairly arguable basis for the respondent’s counterclaim. Unless Mr Orme or his report were totally discredited the Master had to accept it as evidence of a fairly arguable basis for the counterclaim. The Master was not required to consider the respective merits of the cases of the appellants and the respondent. There was no evidence before him that showed that Mr Orme’s report had to be rejected for good cause of one kind or another. There was no attempt by the appellants to do that. They sought to rely upon the relationship between Mr Orme and the respondent as he became the respondent’s new forest manager. That could only go to the ultimate weight to be given to the report. Mr Orme’s credentials were not in issue. There was nothing from a suitably qualified person to negate the content of his report. Thus the Master could do nothing other than accept it as establishing a fairly arguable basis for the respondent’s counterclaim. The Master was not concerned with anything other than that. He was not concerned with proof of the counterclaim. He was not concerned with the weight to be given to the report. He was merely concerned with whether it provided a fairly arguable basis for the counterclaim. On any reading of the report, despite all the other evidence before the Court, it was inevitable that he would reach the conclusion that he did.
[20] The result is that regardless of what the position might be in respect of the s290(4)(a) and (c) matters the Master was justified in setting aside the appellants’ statutory demand.
[21] We think it worthy of note that in this case, whatever the respondent’s motivation, it provided the appellants with the report upon which it was relying in respect of its counterclaim and indicated a willingness to see all disputes between the parties arbitrated in an informal and timely fashion. It also addressed the issue of solvency of apparent concern to the appellants. We leave open whether that would have provided another ground for setting aside the notice under s290(4)(c). It does not appear to have been specifically put to the Master in that way. Whether or not the offer to resolve disputes by arbitration was a sufficient ground to set aside the notice under s290(4)(c), the existence of an offer designed to provide a mechanism to resolve all outstanding disputes tells against the exercise of any residual discretion in favour of the appellants.

Decision

[22] The appeal is dismissed. The respondent is entitled to its costs in the sum of $3,000 together with its reasonable disbursements which are to be fixed by the Registrar in the event of dispute.

Solicitors:
Sygrove Law Office, Wellington for appellants
Gold Walsh, Masterton for respondent