Print Promo Group Limited v Turnkey Franchising Group Limited HC Wellington CIV-2010-485-2267 [2011] NZHC 128 (22 February 2011)

Last Updated: 25 May 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2010-485-2267}

BETWEEN PRINT PROMO GROUP LIMITED Plaintiff

AND TURNKEY FRANCHISING GROUP LIMITED

Defendant

Hearing: 21 February 2011 (Heard at Wellington)

Counsel: G.W.D. Manktelow - Counsel for Plaintiff

P.C. Gilbert - Counsel for Defendant

Judgment: 22 February 2011 15:30:00

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment is delivered by Associate Judge Gendall on 22 February 2011 at 3.30 pm under r 11.5 of the High Court Rules.

Solicitors: Guy & Toby Manktelow, Barristers & Solicitors, PO Box 31-265, Lower Hutt

PC Gilbert, Solicitor, PO Box 10070, Wellington

PRINT PROMO GROUP LIMITED V TURNKEY FRANCHISING GROUP LIMITED HC WN CIV-2010-485-

2267 22 February 2011

Introduction

[1] This is an application by the plaintiff to set-aside a statutory demand issued against it by the defendant claiming the sum of $27,987.39 described as being for

―monies owing by you in respect of franchise fees during the month of June 2009‖.

The application is opposed by the defendant.

Background Facts

[2] The plaintiff runs a printing business based in Alicetown, Lower Hutt. The defendant’s business involves assisting other enterprises with the franchising of their businesses for a fee. The plaintiff agreed in mid-2009 to engage the services of the defendant to assist it in franchising its printing business under a contract whereby the plaintiff was to pay $48,000.00 plus GST for the work involved.

[3] Of this sum the plaintiff paid to the defendant $27,200.00 before it purported to cancel the contract in August 2010. The statutory demand which followed from the defendant claims a balance owing by the plaintiff under this contract said to be

$27,987.31.

[4] The plaintiff brings this application pursuant to s 290 Companies Act 1993 which sets out the basis on which a statutory demand may be set-aside as follows:

290 Court may set aside statutory demand

(1) The Court may, on the application of the company, set aside a statutory demand.

...

(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.

[5] Section 290(4)(a) requires an applicant to show a fairly arguable basis upon which it is not liable for the amount claimed in the statutory demand: Queen City Residential Limited v Patterson Co Partners Architects (No 2) [1995] 3 NZLR 307, United Homes (1988) Limited v Workman [2001] 3 NZLR 447 at 451-2. It must show that there is a genuine and substantial dispute as to the existence of the debt: Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297. Whether there is a ―substantial dispute‖ is a question of fact to be determined in light of all the relevant circumstances: Lockwood Buildings Ltd v Hunter Douglas Coilcoaters Ltd (1988) 4

NZCLC 64,295.

[6] The sole ground advanced by the plaintiff in its application to set-aside the statutory demand is that set out in s 290(4)(a), namely that there is a substantial dispute whether or not the debt in question is owing or is due.

[7] On this, the plaintiff ’s position is that the defendant did not provide what it contracted to make available under its contract with the plaintiff and/or that it did not do so within a reasonably timely fashion, and that as a result the plaintiff had no alternative but to cancel the contract which it did in August 2010. The plaintiff contends that in fact it should be entitled to recover the $27,200.00 it has already paid to the defendant and that certainly it has no liability for any balance claimed to be due to the defendant under the contract.

[8] As to that contract, from the material before the Court I need to say that its precise terms are singularly unclear. It does appear that at least part of the work to be carried out under the contract by the defendant was the provision of certain franchise documentation listed as:

Franchise overview; Franchise disclosure; Franchise Agreement;

Franchisee Recruitment Documents; Operations Manual;

Administration and Finances Manual;

_{Franchise Branding and Marketing Manual.}

[9] In addition, however, the plaintiff contends that the defendant was to assist it

in marketing and obtaining potential purchasers for the plaintiff’s franchises.

[10] Although this aspect is disputed by the defendant, what is clear is that some degree of marketing advice and the completion of due diligence on all prospective franchisees together with the training of successful franchisees in the plaintiff’s manuals was envisaged between the parties.

[11] Before me, the parties appeared to accept that although the defendant has produced a ―Draft Operations Manual‖ for the plaintiff, there is some question mark hanging over the provision of other agreed documentation and the additional services to be provided under the contract by the defendant.

[12] Suffice to say that the defendant’s position, as I understand it, is that once the plaintiff purported to terminate the contract in August 2010 then it was not possible for the defendant to provide further marketing advice, due diligence or training for perspective franchisees.

[13] In the material before the Court there is much by way of claim and counter- claim between the parties over who may be at fault here.

Counsel’s Arguments and My Decision

[14] In his submissions before me, to his credit Mr Gilbert, counsel for the defendant, in the opening paragraph of his written submissions stated:

1.1 The papers would indicate that there could be a substantial dispute between the parties.

[15] Mr Gilbert then went on to acknowledge that if a substantial dispute did exist here, then in terms of s 290(4)(a) Companies Act 1993 the Court could properly set- aside the statutory demand without further enquiry.

[16] Mr Gilbert accepted that there is clearly a dispute between the parties here, and the material before the Court in my view has confirmed this. The only issue is whether this dispute is a ―substantial‖ one sufficient to activate s 290(4)(a) Companies Act 1993.

[17] On this, Mr Gilbert suggests that the dispute raised by the plaintiff may not be a substantial one or indeed genuine. Mr Manktelow for the plaintiff takes issue with this. The plaintiff’s position, as I understand it, is that the terms and conditions of the contract between the party at least impliedly indicate that marketing advice of some sort was an important ingredient. In addition, the plaintiff says that here the defendant has received $27,200.00 for a product that has either not been completely supplied, or at the very best for a product the bulk of which was produced late with significant financial consequences for the plaintiff.

[18] On this, Mr Manktelow points to Exhibit ―A‖ to the second affidavit of Anthony De Vries sworn 7 February 2011 in support of the present application. This exhibit appears to be an email exchange between the plaintiff and the defendant whereby the plaintiff states:

You had promised you were going to market franchises for us and the idea was you were to assist us in selling, that is why we had signed up with you.

[19] The undisputed email reply from the defendant states in response:

Yes you are right, but as discussed with you on many things we need to spend time in documenting your systems. But you have changed systems part-way into doing the documents, so we asked you to provide the information a number of times (this) we are still waiting for this to happen. .... We are unable to market the franchises until this Operation Manual is completed ....

[20] Finally, towards the conclusion of the hearing of this matter before me, Mr Gilbert for the defendant highlighted the uncertainty of what (if anything) may be owing to the defendant here, when in the last paragraph of his written submissions to me, he noted:

8.6 It is respectfully submitted that taking a broad brush approach to this matter which amounts to a dispute of only $28,000.00, the Court can find in favour of the defendant, can quantify a sum that is still owing taking into account that part of the contract which has not been fulfilled, namely a final operations manual and assistance in marketing, and pursuant to s 291 of the

Companies Act 1993, make an order that this sum be paid by the defendant within a specified time.

[21] What these comments must ultimately lead the Court to conclude is that there is certainly here a dispute between the parties as to whether the defendant may be entitled to all or any of the contractual claim made in its statutory demand. This is based upon the fact that, for whatever reason, the defendant has not fulfilled its obligations and carried out all matters it was obliged to undertake under the contract.

[22] Brookers Insolvency Law & Practice, Volume 2 at para CA290.07, in dealing with applications such as the present, states in part:

Where the amount in dispute is not substantial, the Court may decide the matter on its merits without separate litigation being required; Re King’s Cross Industrial Dwellings Co (1870) LR 11Eq149. However, the more usual course is dismissal of the liquidation proceedings on the basis that the merits of the claim should be properly tested in the ordinary course of litigation and not by way of proceedings in the Companies Court: Stonegate Securities Limited v Gregory [1980] CH 576; [1980] 3WLR 168 (CA); Brinds v Offshore Oil NL (1986) 60 ALJR185; 4 ACLC

227.

[23] In the case before me, counsel acknowledged that the amount in dispute between the parties was not substantial. From what was said, however, there seemed to be a reluctance by the parties to bring proceedings in the District Court to properly settle the amount in dispute.

[24] Notwithstanding this, in my view the issue of a statutory demand and thus bringing the matter before the Companies Court in circumstances such as the present where there is clearly a dispute as to amounts due, cannot be seen as appropriate.

[25] As I have noted above, the terms and conditions of the contract between the parties are decidedly uncertain. The evidence before the Court is disputed in large respects and in my view it clearly indicates that the dispute between the parties is a substantial one. Indeed the plaintiff has suggested that it may itself have a claim against the defendant for breach of contract to recover the $27,200.00 it has already paid, but significantly as yet no proceedings have been issued for this.

[26] Under all the circumstances here I am satisfied the plaintiff has done enough to show that there is a genuine and substantial dispute as to the existence of the debt

in question – Taxi Trucks Limited v Nicholson. The proper course here is for the merits of the claim and counter-claim to be tested in the ordinary course of litigation and not by way of liquidation proceedings in this Court.

Conclusion

[27] For these reasons the plaintiff’s application succeeds.

[28] An order is now made setting aside the statutory demand issued by the defendant on 29 October 2010.

[29] As to costs, the plaintiff has been successful in its application and I see no reason why it should not be entitled to costs in the usual way.

[30] An order is now made that the defendant is to pay to the plaintiff costs on this application on a 2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’