TI RAKAU DRIVE LIMITED V ASCOT AUCKLAND LIMITED HC AK CIV 2008-404-006257 [2009] NZHC 666 (3 June 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                   CIV 2008-404-006257


               IN THE MATTER OF             THE COMPANIES ACT 1993

               BETWEEN                      TI RAKAU DRIVE
LIMITED
                                            Plaintiff

               AND                          ASCOT AUCKLAND LIMITED
                                            Defendant


Hearing:       3 June 2009

Counsel:       M Pitch for plaintiff
       
       J Strauss for defendant

Judgment:      3 June 2009


            ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTT




Solicitors:
Malcolm Whitlock, PO Box 105 725, Auckland 1143 for plaintiff
Dyer Whitechurch & Bhanabhai, PO Box 5547, Auckland 1141 for defendant



TI RAKAU DRIVE LIMITED V ASCOT AUCKLAND LIMITED HC AK CIV 2008-404-006257 3 June 2009
[1]    Ti Rakau Drive Limited (Ti Rakau)
has applied for an order that Ascot
Auckland Limited (Ascot) be put into liquidation. The basis for that application is
that Ascot
is indebted to Ti Rakau for the sum of $6,630, and has failed to comply
with a statutory demand to pay that sum.


[2]    The debt
claimed by Ti Rakau is a judgment debt entered in the District
Court at Auckland on 18 February 2008. That judgment has been entered
by way of
enforcement of an order of the Disputes Tribunal of the same date.


[3]    Ascot has filed a statement of defence in which
it alleges that the amount for
which judgment was entered was paid by a third party, John Ede, in or about April or
May 2007. It
appears that this contention was not raised in the Disputes Tribunal,
before its order of 18 February 2008. It was raised in an application
to the Disputes
Tribunal for rehearing. That application was declined.


[4]    Ascot contends that the point has not been determined
before now. It says
that there is evidence before the Court on this application on which the Court can
find that the debt has been
paid, and in that event Ti Rakau does not have the
standing of a creditor to bring the present application.


[5]    Ti Rakau contends
that Ascot has failed to establish a case for payment. It
says that the evidence put forward does not really go beyond assertion,
and falls
short of the standard that would be required at this stage of the dispute. It notes that
the assertion was initially made
before the Disputes Tribunal (although it was raised
only on the application for rehearing), and that Ascot failed to apply to set
aside the
statutory demand that underlies the present application. Further, the evidence now
provided, although more expansive than
that provided on the application for
rehearing, is unsupported by any contemporary records. Ti Rakau also relies on the
fact that
Ascot has given no evidence of solvency to rebut the presumption arising
out of the failure to meet the statutory demand.
Background


[6]     A brief summary of the background to this dispute is needed.


[7]     The dispute has a lengthy history. It first came
before me in October 2005 on
an application by Ascot to set aside a statutory demand issued by Ti Rakau seeking
payment of the sum
of $12,661.95. Ti Rakau claimed that sum as an amount due to
it arising out of a transaction involving a residential property at
1/1 Ambrico Place,
New Lynn. It is unnecessary to rehearse the facts of the dispute at that time: they
are set out in my judgment:
(Ascot Auckland Limited v Ti Rakau Drive Limited HC
AK CIV 2005-404-3569, 26 October 2005). The statutory demand was set aside in
that case on the ground that there was a genuine dispute.


[8]     The dispute eventually found its way to the Disputes Tribunal
which heard
evidence from the parties on their respective contentions, and ultimately determined
that the sum due to Ti Rakau, after
various off sets or credits, was $6,630. There
appears to be some issue as to whether that sum as expressed in the Tribunal's order
contains a typographical error, but it is not material to the present application.


[9]     Ascot was dissatisfied with the decision of the Disputes Tribunal. It applied
for
a rehearing. In support of that application John Ede filed an affidavit in which he
acknowledged original responsibility for the
debt which Ti Rakau is now seeking to
recover, and stated that he had settled that debt in full "some time ago". It is
common ground
that, as part of the various transactions in respect of 1/1 Ambrico
Place, Ascot has assumed responsibility for the debt which Mr
Ede acknowledged in
his affidavit.


[10]    The application for rehearing was declined by the Disputes Tribunal.


[11]    Ti Rakau
issued the statutory demand which underlies the present application
on 7 July 2008. Again it is common ground that a statutory demand
was issued
previously on 28 April 2008 but allowed to lapse.


[12]    Ascot did not apply to set aside the statutory demand of 7
July 2008.
[13]    Ti Rakau issued the present application for liquidation on 22 September
2008. Ascot filed a statement of defence
on 21 October 2008. In that statement of
defence it denied that it was indebted to Ti Rakau, and that it was unable to pay its
debts,
and further pleaded (described as an affirmative defence):

        8.     Further the amount for which judgment was entered in the
               proceeding, $6,600.00 was paid by a third party namely John Ede in
               or about April or May 2007.

  
     9.     On or about May 9, 2008 and on or about July 29, 2008 the
               defendant by its legal advisers wrote to the
plaintiff after it had
               issued and served statutory demands dated April 28, 2008 and July
               7, 2008 in
terms, relevantly:-

                     "We formally put you on notice that should Ti Rakau Drive
                     Limited
file a proceeding in the higher court at Auckland
                     seeking to have Ascot Auckland Limited wound up our client
                     will apply to have such proceeding struck out as an abuse of
                     process, and seek solicitor
client costs against both [Ti Rakau
                     Drive Limited] and its directors.

                     The grounds upon
which our client shall make such an
                     application are as follows:-

                     (a)   the debt has been
paid in full as is or ought be well
                           known to [Ti Rakau Limited] though its director(s); and

        
            (b)   it transpires that alleged judgment of the Disputes
                           Tribunal of February 18, 2008, following
the hearings
                           in on [sic] December 10, 2007 and on February 16,
                           2008 because
is[sic] a nullity at law because it is given
                           in favour of an entity that does not exist. Ti Rakau
   
                       Drive Limited was at the time of both hearings (and
                           therefore the judgment) struck
off, and had been since
                           October 12, 2007."

        10.    In the premises this proceeding is an abuse
of process and the
               defendant seeks the cost consequence in the prayer for relief below.

Counsel are agreed that there
were typographical errors in that letter and the words
Ti Rakau Drive Limited in square brackets be inserted to reflect the true
meaning of
the letter.


Principles


[14]    The application is brought pursuant to s 241(4)(a) and/or (d) of the
Companies Act
1993 which read (in relevant part):
       241     Commencement of liquidation

       ....

       (4)     The Court may appoint
a liquidator if it is satisfied that--

               (a) The company is unable to pay its debts; or

       ....

            
  (d)     It is just and equitable that the company be put into
                       liquidation.

[15]   It is not in dispute
that the effect of Ascot's failure to have the statutory
demand set aside is that it is presumed to be unable to pay its debts: s 387 of the
Companies Act 1993. Failure to apply to set aside a statutory
demand does not
necessarily preclude a company contending that it has a substantive defence based on
a challenge to the underlying
debt. However, in such cases the defendant company
will need to show some special or exceptional factor justifying that failure (reflecting
the existence of a genuine dispute). Further the Court still retains a discretion if
satisfied that there is a genuine dispute: Brookers
Insolvency Law and Practice para
CA241.04(1).


[16]   Counsel for Ascot took the slightly unusual step of calling Ti Rakau's
director,
Mr Chapman, to give evidence orally as to whether or not the debt had been
settled as suggested by Mr Ede. There had been no affidavit
in reply to Mr Ede's
affidavit, in particular to the following passages:

       5.      In about April or May 2007 I negotiated
a settlement with Grant
               Reynolds on behalf of Debt Recovery Co NZ Limited to pay the
               debt in full at
a compromised sum of $10,000.00. Grant Reynolds
               was the agent of Mr Chapman and his company, Debt Recovery Co
   
           NZ Limited. When this occurred Mr Reynolds returned the stamp
               albums to me.

       6.      The payment
of $10,000 was made by an electronic transfer from a
               company I was working for at the time called Neil Timber Ltd.

       7.      I only ever had one loan from Debt Recovery Co NZ Limited. The
               stamp albums were put up as security
for that loan and no other.

[17]   It has to be said that the evidence given by Mr Chapman did no more than
confirm that the payment
of the debt is still in dispute. Nevertheless, counsel for
Ascot submitted that it was still open to the Court, on all the evidence
before it, to
find that the debt had been paid. The thrust of the evidence on which he relies, as I
recorded it is:


        a)
       Mr Ede was the original debtor (this was acknowledged by Mr
                  Chapman);


        b)        The debt for which
Ascot assumed liability was originally Mr Ede's
                  debt;


        c)        Certain stamp albums were provided as
security for the original debt;


        d)        The stamp albums were to be returned once the debt was paid;


        e)   
    The albums were later returned (albeit to Mr Ede) (a fact that is
                  recorded in the Disputes Tribunal decision).


[18]    Counsel for Ascot submitted that these facts supported the evidence of Mr
Ede set out above, particularly in the absence
of any opposing evidence from the
person at Ti Rakau with whom Mr Ede says that he dealt, Mr Grant Reynolds.


[19]    I am not persuaded
that the evidence before the Court is clear enough to
determine the issue. The evidence given by Mr Chapman today did not determine
the matter one way or another. However, I note that Mr Chapman remained of the
view, at the end of his evidence, that the debt had
not been settled before the matter
went to the Disputes Tribunal, and he referred on several occasions to the fact that
the dispute
was raised in the Tribunal (albeit it seems only on the application for
rehearing).   Mr Chapman also contested whether or not the
albums had been
provided by way of security.


[20]    I also find it curious that, in this hotly disputed matter, Ascot has been
unable
to provide any documentary support for the alleged payment even though it is
alleged that the payment was made some time in
late 2007. It is also curious that the
matter was raised in the Disputes Tribunal on the application for rehearing, and
apparently
raised in correspondence after issue of the statutory demand underlying
this application, but not pursued by way of an application
to set aside the statutory
demand. Nor is there any explanation given by Ascot of the failure to apply to set
aside.


[21]    
I am led to the conclusion that the alleged payment does not constitute such
an exceptional factor as to justify Ascot's failure to apply to set aside and allow this
matter to be reopened in the context of this application for liquidation. The failure to
apply to set aside the statutory demand
at the very least goes to the credibility of
Ascot's case.    Coupled with the continuing dispute by Ti Rakau, and the late
emergence
of the allegation of payment (it was not originally before the Disputes
Tribunal) I am not persuaded that there is a sufficient basis
established for a genuine
dispute.


[22]     I also take into account Ascot's failure to adduce any evidence as to
solvency. Given
the history of this matter that omission is surprising to say the least.
Ascot must have contemplated that it would be unable to
establish anything more
than a possibly arguable case on this application. In that event it would be a relevant
factor for the exercise
of the Court's discretion to show that it was solvent. Failure
to do so really leaves the Court with little scope for the exercise
of its discretion in
Ascot's favour. I accept the submission of counsel for Ascot that the Disputes
Tribunal did not decide the merits
of whether or not the debt had been paid.
However, it was still for Ascot to establish its case in this Court. I find that it has
not
done so.


Decision


[23]     Ti Rakau has a clearly established judgment debt in its favour.           I have
considered, but
do not accept, Ascot's argument that there is a genuine and
substantial dispute over that debt such as to call into question Ti Rakau's
standing as
creditor. Ascot's failure to pay the statutory demand, or to have it set aside, raises a
presumption of insolvency. On
that basis Ti Rakau is entitled to seek an order
placing Ascot into liquidation. I see no reason to exercise the Court's residual
discretion not to do so.
[24]   I make an order placing Ascot into liquidation.        Paul Suter, insolvency
practitioner of Auckland,
is appointed liquidator. This order is made at 6:23pm
today, 3 June 2009.


[25]   Counsel for Ascot sought deferral of the making
of the order for liquidation
so as to allow Ascot time in which to settle the debt. Had it provided evidence of
solvency I would
have been prepared to accede to that request. In the absence of
such evidence, and particularly as to whether there are any other
outstanding
creditors, I am not prepared to make that order. It remains open to Ascot to take
steps to settle both this debt and
any other debts and to apply for termination of the
liquidation pursuant to s 250 of the Companies Act 1993. I accept that there
will be
a cost associated with that, but that is a matter that Ascot should have considered
before today.


[26]   Ti Rakau is entitled
to costs. Its counsel sought additional costs for arranging
for Mr Chapman to be present for examination today. I am not prepared
to order
other than standard scale 2B costs. In that respect I am taking into account the
modest amount at issue, and the lengthy
history of dispute. I consider that an award
on a 2B basis is appropriate in all the circumstances of the case. I make no special
award in respect of the attendance of Mr Chapman today.




                                                            ____________________
                                                            Associate Judge Abbott