Casino Properties Limited v Vision Limited (in liq) HC Wellington CIV-2011-485-924 [2011] NZHC 1115 (7 September 2011)

Solicitors: Jackson Russell, Solicitors, PO Box 3451, Shortland Street, Auckland

CASINO PROPERTIES LIMITED V VISION LIMITED (IN LIQUIDATION) HC WN CIV-2011-485-924 7

[1] Before me is an application by Casino Properties Limited, to set aside a statutory demand dated 26 April 2011 issued by the respondent, Vision Limited (in liquidation). The statutory demand claimed from the applicant $52,000.00 said to be “money that was transferred to (the applicant) between 27 October 2009 and 30

to your knowledge, the money was held in trust or as agent for (the respondent).”

[2] The applicant’s grounds for setting aside the statutory demand are that no

2010, Gendall J placed the respondent’s holding company, Double Zero, into liquidation following an application by one of its 50% shareholders, Mr David John Hitchens (Mr Hitchens) as trustee of the Hitchens Trust. The other 50% shareholders of Double Zero were the trustees of the Malcolm Rabson Family Trust (the MRF Trust), one of the trustees of this trust being Mr Malcolm Edward Rabson (Mr Rabson). This order for liquidation of Double Zero followed an irretrievable breakdown in the relationship between the two shareholding groups in the company. It was made pursuant to s 174 of the Companies Act 1993, in spite of opposition by

[4] Following this, the liquidators of Double Zero were also appointed liquidators of the respondent (which was the operating company) by shareholders’ special resolution. Mr Rabson had been the sole director of the respondent, and together with Mr Hitchens, he had been a director of Double Zero.

understand as trustees of the MRF Trust. (A Mr Will was listed as a joint shareholder of the applicant with Mr Rabson until June 2011, presumably as the other Trustee of the MRF Trust until a change occurred). Mr Collins was appointed director of the applicant on 31 March 2011. Prior to that, Mr Rabson was the applicant’s sole director from October 2002 and earlier was a co-director from December 2000.

[6] The relationship between Mr Hitchens and Mr Rabson, and their respective interests as shareholders in Double Zero, as I have noted, had broken down in a substantial way by around September 2009. At that time it appears that there was an air of inevitability as to the company’s trading future. As I have noted above, the respondent was Double Zero’s wholly owned subsidiary. In addition, the applicant company was the respondent company’s landlord under an informal tenancy arrangement at the time. On 15 September 2009 Mr Rabson removed $240,000.00 from the respondent’s bank accounts. $120,000.00 of this was transferred to the MRF Trust and the other $120,000.00 transferred to the Hitchens Trust’s bank account.

[7] Then, between 12 October 2009 and 30 November 2009, as is apparent from the accounts of the MRF Trust, a total of $52,000.00 was transferred from the MRF Trust’s bank account to the account of the applicant. The remainder of the money transferred to the MRF Trust by Mr Rabson was returned to the respondent before the company went into liquidation.

[8] The transfer of this $52,000.00 to the applicant, according to the respondent, occurred at a time when the respondent was not indebted to the applicant, so the applicant had no right to receive or retain the money. The respondent goes on to contend that, to the applicant’s knowledge, the transfer breached undertakings given by Mr Rabson at the time to the effect that he would not dissipate assets of the respondent company that were in his possession.

[9] In these circumstances the respondent contends that it had a clear right to repayment and that the $52,000.00 amount claimed is a debt due by the applicant to the respondent.

[10] In response, the applicant says that no debt is due as the $52,000.00 was properly used to pay amounts owing by the respondent including rent under the lease. On this, as I have noted above, the respondent’s relationship with the applicant was also one of landlord and tenant, the respondent having leased premises owned by the applicant under an informal tenancy arrangement. That relationship was, however, never formalised. Nevertheless, it is accepted that for a time the respondent did pay rent to the applicant at a rate of $9,741.78 per month. It appears, however, that Messrs Rabson and Hitchens agreed that the respondent could have a rent holiday between 1 September 2009 and 30 November 2009, being the period during which the moneys in question were transferred to the applicant’s bank account.

[11] The applicant brings the present application pursuant to s 290(4)(a) which provides that the court may grant an application to set aside a statutory demand if it is satisfied that there is a substantial dispute whether or not the debt in question is owing or is due. The applicant’s solvency is not in issue here. It seems it is not seriously disputed.

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The general principles applicable to applications under s 290(4) are now well established. These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; (2001) 9 NZCLC 262,605 (CA); Fletcher Homes Ltd v Ellis 23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd 3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; (1989) 1 PRNZ 390 (CA), are as follows:

(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve

the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).

(b) The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.

(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.

(d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application.

(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[13] There is no argument between the parties here that there was some form of lease arrangement between the applicant as landlord and the respondent as tenant around the end of 2009. I am satisfied on the basis of all the evidence before the Court that the parties were in agreement that a rent holiday under this lease arrangement was to take place from 1 September 2010 until 30 November 2009. Further, there is no dispute here that the $52,000.00 was transferred in various payments from the respondent’s account to the applicant’s via the MRF Trust between 22 September 2009 and 30 November 2009. I am further satisfied that if the respondent here can show that there is no genuine dispute to a debt which it could succeed in recovering in an action for money had and received, I ought not to set

aside the statutory demand.[3] In those circumstances this would be a clear case of

funds held unlawfully and there is no reason in principle why the statutory demand procedure ought not to be used to recover those funds.

[14] The only real issue argued in the present case is whether the respondent was liable for rent from 1 December 2009 such that the applicant had a valid claim as landlord to the $52,000.00 or any part of it? In other words, was rent waived for the operative period/s and/or did the respondent cease to occupy the applicant’s premises

[15] Before me, the respondent argued that the evidence shows that the tenancy ended on 30 November 2009, at which time all rent under the lease was up to date. Two main facts are mounted in support. First, it was Mr Rabson’s own evidence in the 2010 proceedings before Gendall J that the respondent’s tenancy did end on 30

November 2009. At paragraph 11 of Mr Rabson’s unsworn affidavit filed in the proceedings before Gendall J, he said:

[The respondent] rented premises from [the applicant]. There was no lease agreement. The rent was $9,740.78 per month inclusive of GST. Rent was paid to the end of August 2009.... Rental arrangements between [the applicant] and [the respondent] came to an end on 30 November 2009.

[16] Secondly, on 1 December 2009 Mr Rabson had the alarm code and locks changed for the property as that appears to be the day on which the respondent left the premises.

[17] In response, Mr Rabson states that the date of 30 November 2009 mentioned in this affidavit in the proceedings before Gendall J, as a result of his inelegant expression, related simply to the end of the rent holiday period and not to a termination date of the actual lease. The response Mr Rabson gave for altering the alarm code and changing the locks was that Mr Hitchens was no longer a director of the respondent (Mr Hitchens ceased as director on 30 October 2009), that he had failed to return his keys and that Mr Rabson did not want him accessing the building. But Mr Rabson contends this did not mean that the respondent company had ceased its occupancy and lease of the premises.

[18] There are two documents between Messrs Hitchens and Rabson which have some importance here. The first, an email dated 7 September 2009, was sent from Mr Rabson, and said:

As discussed with you previously [the applicant has] offered a rent holiday to [the respondent] and [the respondent] can use that time to vacate the premises.

[19] That email appears to support the respondent’s contention that it left the premises from 1 December 2009 onwards.

[20] The second document, which may to some extent support the applicant’s position, however, is a written undertaking entered into between Mr Rabson and Mr Hitchens on 16 October 2009. Clause 2 of this undertaking recites:

2 I, Malcolm Rabson additionally undertake that, until a final determination of proceeding CIV-2009-485-1961: [ie that in which Double Zero Holdings was placed into liquidation]

November 2009 at the earliest. Rent will continue to accrue no obligation on [the respondent] to pay such rent will arise until 1 December 2008 (sic) [presumably that ought to be 2009] at the earliest.

[21] Mr Rabson’s affidavit in proceedings before Gendall J noted at [15] above, the email dated 7 September 2009 and the fact that Mr Rabson had the locks and security code to the premises’ changed (and the fact that the applicant then took over the respondent’s account with its security company) in my view are all significant indicators that the lease ended and the respondent had no liability to the applicant for rent after 30 November 2009. Further, it is undisputed that at the time that the

$52,000.00 was transferred to the applicant (being between 22 September 2009 and

30 November 2009), the respondent did not owe rent to the applicant and thus at that time, the applicant had no right to receive or retain the moneys.

[22] Notwithstanding this, as I understand the position from the evidence before the Court, significant assets of the respondent remained in the leased premises after 1

December 2009 (thus, it is said, preventing a re-leasing of the premises to new tenants) and stayed there at least until the respondent was placed into liquidation on

Rabson was acting at the time as a director of both the applicant and the respondent).

[23] That factor, however, coupled with the impact of the undertaking I have noted at [20] above, as I see it raises a possibly arguable dispute here that the respondent’s lease may have continued beyond 1 December 2009, and thus some amounts for rent, rates and other charges might have been due to the applicant and properly offset against the $52,000.00 payments.

[24] Given that position, and the fact that the respondent has been in liquidation since 5 February 2010, there is a possible argument here that not only does the applicant have a right of set-off for monies owed prior to the date of liquidation but the parties must set-off those monies owed against liabilities due to the respondent

under s 310 of the Companies Act 1993.[4] It is clear, however, that this mandatory right to set-off is not available where the amount to be set-off is not “due” at the time of the liquidators’ appointment.[5] As commented by the authors of Insolvency Law & Practice:[6]

An obligation that arises after the commencement of liquidation cannot be set off: Ince Hall Rolling Mills Co v Douglas Forge Co (1882) 8 QBD 179; 30 WR 945, although it may in any event gain priority in another way if the claim is in respect of expenses of a liquidation.

[25] Even taking the most favourable view of the evidence advanced by Mr Rabson for the applicant here however, (taking into account rent, rates and other debts due up to the date of liquidation and not including rental and other payments for the rent holiday period), not all of the $52,000.00 in issue in this case can be accounted for. In submissions advanced before me on behalf of the respondent, the following table is provided itemising the most that the respondent could possibly have owed the applicant by way of offset as rental, rates and other costs on this basis

Description	Amount
Rent due 1/12/2009	$9,741.78
Rent due 1/01/2010	$9,741.78
Rent due 1/02/2010	$9,741.78
Rates due 20/10/2009	$2,933.00
Rates due 20/12/2009	$2,933.00

Insurance owed to [the applicant] to 5/02/2010 (date of liquidation) – 97 days at $19.73 per day	$1,913.81
Clean up costs	$3,000.00
Less monies received from sublease tenants Ferndale Furniture – 10/11/2009 Ferndale Furniture – 20/11/2009	($1,687.05) ($337.50)
Less items sold December 2009	($4,560.00)
Total	$33,420.60

[26] I am mindful here that first, the application before me is one to set aside a statutory demand issued against the applicant, a company whose solvency at this point appears not to be in issue, and secondly that, on such applications, any disputes between the parties properly raised are normally to be resolved by means other than proceedings such as this in the Companies Court.

[27] That said, I am satisfied here, but only by a rather fine margin, that the applicant has shown that there is arguably a genuine and substantial dispute but only as to the $33,420.60 noted above. The statutory demand therefore cannot remain for that amount. That leaves $18,579.40 unaccounted for. The applicant has not shown any basis on which I can be satisfied that there is any real or genuine dispute over that $18,579.40 and I find therefore that the applicant owed this sum to the respondent as at the commencement of the liquidation of the respondent.

[28] The proper approach here therefore is to allow the statutory demand to stand in that reduced figure on the basis that it is an undisputed debt – United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 at 451; Air Tahiti Nui SAEML v Pounamu International Ltd [2011] NZCCLR16.

(a) The statutory demand is set aside, except as to the sum of $18,579.40. (b) The applicant is to have a period of 10 working days from the date of

this judgment to pay to the respondent that sum of $18,579.40 failing which the respondent can proceed with an application to have the applicant placed in liquidation.

[30] Although the present application has technically succeeded to a limited extent, the respondent has been successful in substance and I therefore award costs to the respondent on a 2B basis together with disbursements as fixed by the Registrar.

[1] Hitchens v Double Zero Holdings Limited CIV-2009-485-1961, 5 February 2010.

[2] Insolvency Law and Practice (online looseleaf ed, Brookers) at [CA290.02]; adopted in North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007 at [17]; Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd HC Auckland CIV-2008-404-4725, 19 January 2009 at [4] and Trinity Hills Retreat Ltd v Kroehl HC Nelson CIV-2010-442-101, 12 August 2010 at [5].

[3] OPC Managed Rehab Ltd v Accident Compensation Corporation [2006] 1 NZLR 778 (CA) at [55];

Air Tahiti Nui SAEML v Pounamu International Limited [2011] NZCCLR 16 (HC) at [38].

[4] For the application of s 310 to an equitable debt see Managh v Jordan HC Napier CIV-2008-441-547, 19 June 2009 at [50].
[5] Paganini v Official Assignee CA308/98, 22 March 1999 (CA) at [13]-[14]; NZ Associated Refrigerated Food Distributors Ltd v Donley HC Auckland CIV-2008-404-1978, 30 October 2009 at [44] and [46]; McCullough v Base Control Ltd (in liq) HC Auckland CIV-2008-404-3375, 24 November 2008 at [35]-[43].

High Court of New Zealand Decisions

Casino Properties Limited v Vision Limited (in liq) HC Wellington CIV-2011-485-924 [2011] NZHC 1115 (7 September 2011)