LE GRAND HOTEL LIMITED V C F REESE LIMITED HC HAM CIV 2009-419-000082 [2009] NZHC 261 (5 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
                                                               CIV 2009-419-000082


               IN THE MATTER OF           the Companies Act 1993

               BETWEEN                    LE GRAND HOTEL LIMITED
                                          Applicant

               AND                        C F REESE LIMITED
               
                          Respondent


Hearing:       5 March 2009

Appearances: M Patel for Plaintiff
             M Crocket for
Defendant

Judgment:      5 March 2009


                            JUDGMENT OF COOPER J




Solicitors:
M Patel Law, PO Box  1519, Hamilton 3204
Tompkins Wake, PO Box 258, Hamilton




LE GRAND HOTEL LIMITED V C F REESE LIMITED HC HAM CIV 2009-419-000082 5 March 2009

[1]
     The applicant seeks orders pursuant to r 31.11 of the High Court Rules
restraining publication of advertisement of an application
to put it into liquidation,
and staying any further proceedings in relation to the liquidation. Prior to filing the
present application,
the applicant filed an application for an order setting aside the
respondent's statutory demand.        However, that application
was struck out by
Faire AJ on 23 February, because it was out of time.


[2]      The respondent's statutory demand required payment
of the sum of
$27,207.90 in respect of unpaid invoices for gas and plumbing work carried out by
the respondent on the hotel premises
situated at the corner of Victoria and
Collingwood Streets, in Hamilton City. The hotel is known as Le Grand Boutique
Hotel.


[3]
     The quantum of the invoices is not in dispute. Rather, the applicant says that
the contract under which the works were carried
out was not made with the
applicant. It contends that the work was carried out for another company, Bar and
Bistro Ltd, which procured
the works as part of a re-fit of the bar and restaurant
within the hotel which it leased from the applicant. Bar and Bistro Ltd is
now in
liquidation.


[4]      The respondent maintains that the work was carried out for the applicant, and
that it was instructed
in relation to the work by the applicant's general manager. It
will be necessary to examine the rival factual contentions in more
detail later in this
judgment.


[5]      One other issue raised belatedly by Mr Patel can be quickly dealt with. It
concerns a suggestion
that security has been given by the applicant in relation to the
debt to the reasonable satisfaction of the creditor. That language
refers to paragraph
2 of the statutory demand that was served which, amongst other things, gave the
applicant the option that it
"give a charge over [the] property to secure payment of
the debt to the reasonable satisfaction of the creditor".

[6]    Mr Patel
referred to the fact that by a letter dated 15 January 2009, solicitors
acting for the respondent wrote to the applicant stating
that, amongst other things,
the respondent had invoiced Le Grand and registered security interests in the
Personal Property Securities
Register.        There is no evidence about what those
securities were and it is unexplained on the facts how that action could have
amounted to the giving of a charge by the applicant, still less how it could have
constituted a charge securing payment of a debt
to the respondent's reasonable
satisfaction. That argument must fail on the facts.


Relevant principles


[7]    Returning now to
the main area of dispute between the parties, I note that in
Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd  (1989) 1 PRNZ 379,
Wallace J discussed principles applicable to the resolution of applications to stay
liquidation proceedings.     After referring
to relevant Court of Appeal decisions,
Wallace J referred to the Court's inherent jurisdiction to stay winding up proceedings
where
the debt upon which such proceedings are founded is the subject of genuine
dispute. He continued:

       The decisions make it clear
that the jurisdiction to stay is an inherent one to
       prevent abuse of process and that there is no inflexible rule. The governing
       consideration is whether the proceedings savour of unfairness or undue
       pressure. It is, however, a serious matter to
stay winding-up proceedings so
       that the decision to do so is never lightly made. The onus is on the applicant
       and it
is normally necessary to demonstrate "something more" than the
       balance of convenience considerations which it is usually appropriate
to
       consider on an application for an interim injunction.

[8]    Later on the same page of the judgment, Wallace J referred
to the decision of
Eichelbaum J in Pink Pages Publications Ltd v Team Commnications Ltd  [1986] 2
NZLR 704 and agreed that, in a case where there has been time to file appropriate
affidavits it was apt to require the applicant for the stay
to establish a strong prima
facie case as to the existence of a genuine dispute.


[9]    In both Exchange Finance Co. Ltd v Lemmington
Holdings Ltd  [1984] 2
NZLR 242 and Taxi Trucks Ltd v Nicholson  [1989] 2 NZLR 297, the Court of
Appeal confirmed that the issue is whether proceeding with and advertising the

winding up application would create
unfair or undue pressure in the context of what
is a genuinely disputed debt.


The facts


[10]   According to an affidavit sworn
on 5 February 2009 by Mr Aaron Rink, who
is a director of the respondent, the respondent was instructed to carry out the works
by
one Rose-Marie Ubeda, whom he understood to be the general manager of the
applicant.   It states that all correspondence and communications
were with the
applicant company, to which all invoices were sent. He attached invoices showing
that they had been addressed to "Le
Grand Hotel, PO Box 50, Waikato Mail Centre,
Hamilton". Mr Rink also attached copy of a letter dated 10 March 2008 on the
letterhead
of Le Grand Boutique Hotel in which a Mr Joseph, signing as the
"Accountant" wrote as follows:

       We acknowledge the outstanding
debt of $35,507.24 as of 29th February
       2008.

       We are working towards a financial package from bank and if it is
  
    materialised [sic] total outstanding debt will be paid before end of April
       2008. If bank is not approving [sic] the financial
package we will pay the
       outstanding amount in five instalments starting from month of April 2008.
       The payments will
be $7,000 in months of April to July and $7,507.24 in
       month of August 2008.

[11]   The letter is accurately quoted, including
the absence of the definite article in
a number of places where one might expect it to be.


[12]   Also attached to Mr Rink's affidavit
was a letter from Numeric Consulting
Ltd, a company which the applicant's managing director, Mr Michael Blagojevich,
concedes represents
him "from time to time". The letter, dated 23 September 2008,
is addressed to the respondent's solicitors. That letter was in the
following terms:

       Le Grand Hotel Limited

       Your letter of 22 September 2008 has belatedly been referred to us for reply.

       The Le Grand Hotel Limited has encountered some financial difficulty due
       to inexperienced management over the last
two years. This has resulted in
       some "heavy weather" for the company but thankfully due to the financial
       position of
the company's shareholder the pressure can be alleviated.

        Arrangements have already been made for the shareholder of the
company to
        inject further capital to address the financial difficulty.

        The plan to inject further capital was temporarily
delayed due to issues
        surrounding the ground lease value and these issues have only been
        determined yesterday when
a report from a suitably qualified valuer acting in
        the capacity of an arbitrator finally settled the matter. It is understood
that
        this clears the way now for further funding to be made available and
        realistically this should be approved no
later than 14 November 2008.

        We would request that your client grant the Le Grand Hotel Limited a
        further period
of say three weeks to allow the additional funding to be
        finalised and your client paid.

        If there is any problem
with your client granting this indulgence would you
        please contact the writer.

[13]    The same letter was attached to Mr
Blagojevich's affidavit of 16 January
2009. It was not explained to me why a reply dated 23 September to a letter dated
22 September
should be described as "belated". However, I assume nothing turns on
that.


[14]    On the face of it, the two letters amount to
acknowledgements by the
applicant that the debt is due.


[15]    The applicant relied on affidavits sworn by Mr Michael Blagojevich.
In his
first affidavit, Mr Blagojevich asserted that he had undertaken extensive
improvements to the hotel premises over the last
18 years, and had extensively used
the respondent company for the plumbing work required for the improvements. He
claimed that the
plaintiff had been aware throughout that he traded through the
applicant company, and that he personally authorised all work to be undertaken on
behalf
of it. He explained, that during late 2007 his son, Alexander, had approached
him to tenant the downstairs restaurant area of the
hotel and after some negotiation
he had reached agreement to enter into a lease with him. His son then formed Bar
and Bistro Ltd
to operate the restaurant and following a major refit, commenced
trading in the leased premises as Sirocco Bar and Restaurant.


[16]    He continued:

        8.      Because Alexander was new to business he utilized the services of
                the then
Hotel manager to assist him from a business management

               viewpoint. This assistance included ordering goods and services
and
               paying for them.

       9.      I and my ex wife lent substantial funds to the Bar and Bistro Limited
      
        to help Alexander with his business and Alexander also borrowed
               from finance companies and the bank to fund
the business.

       10.     The premises needed a substantial refit to modernize the restaurant
               part of the hotel
premises and Alexander engaged tradesmen to
               effect this refit. I understand that the plaintiff was one such trade
               and that they handled the majority, if not all, of the plumbing work
               required.

       11.     It was
common knowledge that the restaurant business was
               Alexander's and was not owned or controlled by me or any of my

              companies.

[17]   Mr Blagojevich noted that invoices received had referred to the work being
carried out on the Sirocco
premises. In relation to the letters to which I have earlier
referred he asserted that the letter from the accountant, Mr Joseph,
was simply an
error and the letter from Numeric Consultants Ltd was written because they had been
"working from a statement sent
to them by the plaintiff and were unaware that the
debt was actually due by Bar and Bistro Ltd". He maintained that "had the full
facts
been presented to Numeric Consultants Ltd they would have advised the plaintiff of
the correct position".


[18]   Mr Blagojevich
also maintained that the applicant company is solvent,
attaching a balance sheet as at 31 March 2007 showing assets exceeded liabilities
by
an amount over $147,700. He claimed that the position had not altered significantly
since 31 March 2007. However, the balance
sheet which he annexed as Exhibit "E"
referred to an advance of $2,959,111 from the M Blagojevich Family Trust.
Mr Blagojevich described
this in his affidavit as a "loan", but he said nothing about
the terms of the loan, including its repayment. On the fact of it, it
amounts to a debt.
The same is true in respect of a loan of $34,850 said to be owed by the applicant to
Mr Blagojevich. It is only
if adjustments are made for these debts that assets exceed
liabilities, but nothing is said about when the loans might have to be
repaid.


[19]   For present purposes, it is sufficient in any event, for the respondent to rely
on the fact that its statutory demand
has been unpaid.

[20]   Mr Rink disagreed that Mr Blagojevich always personally authorised work
done on behalf of the applicant
company. He stated that in the past Mr Blagojevich
had frequently delegated decision-making in respect of work done by the respondent
to management staff. Noting Mr Blagojevich's statement that his son had utilised
the services of the then hotel manager (Mr Blagojevich
did not say who that was) to
assist in managing his business, including ordering goods and services and paying
for them, Mr Rink
said that Ms Ubeda had never held herself out to the respondent
as acting for Bar and Bistro Ltd or for any other company than Le
Grand Hotel Ltd.


[21]   In addition, Mr Rink noted that work had been carried out not only on the
Sirocco Restaurant, but also
to other parts of the hotel's restaurant tenancies
including River Kitchen and the "Pizzeria". In those cases too, the work had been
carried out at the request of the applicant, and not
at the request of tenants of the
areas concerned.


Evaluation


[22]   Where a genuine dispute about the facts arises on affidavits
and there is no
cross-examination it is often the case that the Court will be unable to resolve the
dispute. That must be left to
a subsequent date, when there can be a full inquiry with
witnesses subject to cross-examination in the normal way. However, it is
not enough
for a party simply to make assertions and expect the Court to accept those assertions
uncritically. In a well-known passage
of his judgment in Pemberton v Chappell
[1987] 1 NZLR, Somers J said, at 4:

       Where the only arguable defence is a question
of law which is clear-cut and
       does not require findings on disputed facts or the ascertainment of further
       facts the
Court should normally decide it on the application for summary
       judgment, just as it will do so on an application to strike
out a claim or
       defence before trial on the ground that it raises no cause of action or no
       defence: cf R Lucas & Son
(Nelson Mail) Ltd v O'Brien  [1978] 2 NZLR
       289; and see European Asian Bank AG v Punjab and Sind Bank  [1983] 2
       All ER 508, 516. Where the defence raises questions of fact upon which the
       outcome of the case may turn it will not often be right to
enter summary
       judgment. There may however be cases in which the Court can be confident
       ­ that is to say, satisfied
­ that the defendant's statements as to matters of
       fact are baseless. The need to scrutinise affidavits, to see that they
pass the
       threshold of credibility, is referred to in Eng Mee Yong v Letchumanan

        [1980] AC 331, 341 and in the judgment of Greig J in Attorney-General v
       Rakiura Holdings Ltd (Wellington, CP 23/86, 8 April 1986).

[23]
  As the opening words show, the matter before the Court of Appeal involved
an application for summary judgment. However, the principles
discussed are of
general application. In the Privy Council decision to which Somers J referred, Eng
Mee Yong v Letchumanan  [1980] AC 331, Lord Diplock said at 341:

       Although in the normal way it is not appropriate for a judge to attempt to
       resolve conflicts
of evidence on affidavit, this does not mean that he is
       bound to accept uncritically, as raising a dispute of fact which calls
for
       further investigation, every statement on an affidavit however equivocal,
       lacking in precision, inconsistent with
undisputed contemporary documents
       or other statements by the same deponent, or inherently improbable in itself
       it may
be. In making such order on the application as he "may think just"
       the judge is vested with a discretion which he must exercise
judicially. It is
       for him to determine in the first instance whether statements contained in
       affidavits that are relied
upon as raising a conflict of evidence upon a
       relevant fact have sufficient prima facie plausibility to merit further
   
   investigation as to their truth.

[24]   Again, although the context is different, the principles are of general
application to
cases involving affidavit evidence.


[25]   A number of considerations             have    persuaded     me    not   to      accept
Mr Blagojevich's key assertions. First, his claim that the debt is not one owed by the
respondent is contrary to the clear inference
able to be derived from the letters
written by the hotel's accountant, Mr Joseph, and Mr Blagojevich's agent, Numeric
Consulting
Ltd. As has been noted, those letters were dated respectively 10 March
and 23 September 2008. In the former, there was reference
to obtaining a bank loan
to meet the debt failing which there was an offer of payments by instalments. To
dismiss that letter as
simply "an error on my accountant's part" without more, is
distinctly unconvincing. At stake was a substantial amount of money. I
consider it
highly implausible that the offer would be made in the terms it was if there had been
any doubt about liability for the
debt. I note that the applicant has not called any
evidence from Mr Joseph to explain his alleged mistake.


[26]   The 10 March
2008 letter is itself part of the context in which the
23 September 2008 letter must be read. Again, the subsequent letter amounts
to an
acknowledgement that the money is owed by the applicant. A request is made for

time to pay it. It would be extraordinary
if the same mistake had been made twice by
persons associated with the hotel in respect of substantial sums. Mr Blagojevich's
explanation
that Numeric Consultants Ltd were working from a statement sent to
them by the plaintiff is also unconvincing. It requires one to
assume that that
company made no attempt to ascertain the correct position from Mr Blagojevich.
Such an assumption is not justified
in the absence of any affidavit from anyone in
that firm explaining how this state of affairs could have occurred.


[27]     Added
to these considerations is the fact that the invoices on which the debt
is based cover a period commencing on 30 September 2007.
The invoices were
clearly addressed to the applicant. There is no evidence of any issue having been
raised about the liability of
the company to pay the invoiced amounts until after the
respondent took formal steps in relation to the matter. Indeed, an issue
was not
raised until after the service of the second statutory demand.        By the time the
10 March letter was written, the debt
had already risen to $35,207.24, apparently
without demur on the company's part. In fact, it is apparent that some invoices had
been
paid, so as to reduce the amount of their debt to the amount covered in the
statutory demand.


[28]     I note also that Mr Blagojevich
has not responded to Mr Rink's evidence
about Ms Ubeda. Nor is there any affidavit from her, yet her name (perhaps mis-
spelt as
"Rosemary") nevertheless appears on the invoices that were sent to the
applicant. I have no reason to doubt Mr Rink's evidence that
he had dealt with
Ms Ubeda, that it was she who had ordered the work to be done and that she never
held herself out as acting for Bar and Bistro Ltd or for any company other than
the
applicant.


[29]     I am not satisfied in the circumstances that the applicant here has shown a
genuine dispute on substantial
grounds and, as a consequence, I am not satisfied that
there is any basis upon which I should either restrain advertisement or order
a stay of
any further proceedings in relation to the liquidation.


Result

[30]   For these reasons the application is dismissed.


[31]   Having heard counsel on the question of costs I direct that the costs of the
respondent should be paid by the applicant
on a Category 2 Band B basis.


[32]   I record that after I had delivered the above judgment orally, Mr Patel made
an oral application
for a stay of execution of the judgment so as to enable discussions
to take place with the respondent with a view to reaching a resolution
of the dispute.
Ms Crocket opposed that course being followed. In the circumstances, I briefly
noted that I could see no justification
for a stay, but that if Mr Patel chose to make a
formal application it could be considered subsequently.