Pakiri Investments Limited v Adroit People Limited [2012] NZHC 3113 (22 November 2012)

Last Updated: 5 December 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-004510 [2012] NZHC 3113

BETWEEN PAKIRI INVESTMENTS LIMITED Applicant

AND ADROIT PEOPLE LIMITED Respondent

Hearing: 19 November 2012

Appearances: E J H Morrison and E Ho for Applicant

K P McDonald for Respondent

Judgment: 22 November 2012

JUDGMENT OF VENNING J

_{Re application to set aside statutory demand}

This judgment was delivered by me on 22 November 2012 at 11.30 am, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors: Focus Law Limited, PO Box 3993, Shortland Street, Auckland 1140

Kevin McDonald & Associates, PO Box 331065, Takapuna, Auckland 0740.

PAKIRI INVESTMENTS LTD V ADROIT PEOPLE LTD HC AK CIV-2012-404-004510 [22 November 2012]

Introduction

[1] Pakiri Investments Limited (Pakiri) applies to set aside a statutory demand issued against it by Adroit People Limited (Adroit) on 20 July 2012. Adroit claims Pakiri owes it $79,634.87.

[2] Adroit is a specialist recruitment company which focuses on executive and IT placement. In addition to recruiting permanent staff it arranges for short and medium term contractors to be placed with clients. It provided those services to Pakiri.

[3] Pakiri is a technology start-up company which carries out research and development of specific computer application software product. It does not trade so does not have a revenue stream. It raises money for its research, other activities and to pay its debts from investors who purchase shares in Pakiri from the Read Family Trust.

The debt claimed

[4] The debt of $79,634.87 is made up of invoices for services rendered by Adroit to Pakiri primarily in relation to invoice 10021 (a permanent placement in November 2010), invoices for the services of Messrs King and Gordon during 2011 and for a placement fee for Ms O’Hara, together with interest on the outstanding accounts.

The legal principles

[5] The general principles applicable to applications under s 290(4) are well established and understood.[1] The onus is on the applicant to show there is arguably a genuine and substantial dispute as to the existence of the debt. If there is a genuine and substantial dispute then it is not the task of the Court on an application such as

_{this to resolve the dispute. However, mere assertion of a genuine and substantial}

dispute is not sufficient. Material short of proof is required to support the claim that the debt is genuinely disputed.

The disputes raised

[6] Both in Mr Read’s[2] affidavit, and in counsel’s submissions the following

disputes are raised on behalf of the applicant: (a) the claim for interest;

(b) the claim in relation to Mr Gordon’s services;

(c) the claim in relation to Mr King’s services (and related claim to set- off);

(d) $42,570.00 for shares held by Adroit in Pakiri. (This also features as a counterclaim and/or set-off);

(e) the GST element of Ms O’Hara’s placement fee.

Decision

[7] As a starting point, it is notable that the statutory demand is based on claims for services provided from November 2010 until September 2011 (with the exception of the invoice relating to Ms O’Hara). Although Mr Ravikulan, Pakiri’s chief financial officer, says that Pakiri had raised its concerns prior to receiving the statutory demand, except for the issue of Mr King’s services, the email communications between the parties do not support that allegation.

[8] Between February 2012 and 6 July 2012 the parties engaged in email correspondence regarding Pakiri’s outstanding account. Significantly, at no stage was there any suggestion in those communications that there was any dispute

_{concerning the amount claimed by Adroit. The focus was on Pakiri’s ability to pay.}

For example, in response to Adroit’s demand for payment of its outstanding account

Pakiri responded on 17 February 2012:

Funds are now expected next week, but still no hard documentation apart from a bank doc showing funds approved but no xfer docs yet. ...

[9] On 1 May 2012 Mr Read sent an email to staff (which was forwarded to

Adroit):

Just to advise that today Igor Sutich and I on behalf of [Pakiri] and the Read Family Trust executed a comprehensive Letter of Intent (LOI) with the Australian investment group.

This outlines the basic terms of the Formation and Operation Agreement between the parties to form ONE Global Limited (the replacement for TIME3 Global Ltd) and has a signature date of the 14th of May at which time they will deposit the US$50 million.

Igor will send out the formal update later this week with further news, but I felt we all deserved to know that we had reached a milestone of this magnitude ...

Mr Dorset, Adroit’s director, then responded to Pakiri on 17 May 2012:

Igor, excellent news from Evan last email to shareholders.

I assume, as the Australian people flew out to Singapore and Europe yesterday, that the FOA has been duly signed and all is complete?

Can I also assume that you will be in a position for Pakiri to remit funds to pay our account in full by next Wednesday?

The response by Mr Sutich on the same day, 17 May 2012 confirmed the promise to pay:

Hi Neil. We will advise all shareholders when the FOA has been duly signed and [of] course your invoices will be paid when we receive the funds. As to whether that is next Wednesday or next month, we do not know until we actually receive them.

Kind Regards, ...

Those communications during early 2012, well after the services had been supplied, do not suggest Pakiri had any genuine reason not to pay Adroit’s account, other than its financial inability to do so.

The claim for interest

[10] The applicant takes issues with the respondent’s claim for interest. The respondent has claimed interest at 18 per cent, apparently on a compounding basis. The amount is $13,675.67.

[11] Pakiri submits that it never agreed to the payment of interest, compound or otherwise. However, Adroit’s terms of business record that:

Any overdue amounts will incur an interest charge calculated at 18% per annum.

[12] Mr Newman, a director of Pakiri, has attached an email exchange on 21 and

22 February 2011 which confirms that Adroit’s terms of business were advised to Pakiri at that time. Indeed Pakiri had some input into the final wording of the terms. I conclude that Pakiri was aware of Adroit’s terms of business, and agreed to them. The parties carried on business on the basis of the terms. I accept, however, that there is no reference to interest being compounded. Interest at a simple rate of 18 per cent per annum is, however, payable by Pakiri on outstanding accounts.

Claim in relation to Steve Gordon

[13] Next, Pakiri generally challenges the $26,565.00 charged for Mr Gordon’s services. Mr Gordon carried out contract work for Pakiri during August 2011. Mr Read says that:

It is accepted something is owed in respect of this invoice, but given there is a discrepancy of $3795 within Adroit’s own invoices, and that there has not been any acceptable verification of this discrepancy, or of the contract or time records, the entire invoice is in dispute.

[14] The $3,795.00 “discrepancy” is explained by Mr Dorset. The first invoice initially issued in relation to Mr Gordon’s services of $22,770.00 failed to include the final three days’ work Mr Gordon had carried out. A replacement invoice was then issued for $26,565.00. A copy of the amended invoice was provided to Pakiri on 19 September 2011. No dispute has been raised in relation to Mr Gordon’s

services other than the general and bare allegation of Mr Read. There is no genuine

and substantial dispute concerning Adroit’s claim for Mr Gordon’s services.

Claim in relation to Mr King

[15] Mr King was an IT consultant who performed casual work for Pakiri from time to time under placement by Adroit. Adroit issued invoices totalling $17,766.53 in relation to Mr King’s work as a contractor. Pakiri has paid $8,146.78 but refuses to pay the balance $9,619.75.

[16] The arrangement between Adroit and Pakiri in relation to Mr King’s services was that Mr King issued regular invoices to Adroit. Adroit then billed Pakiri. Pakiri was to pay Adroit’s invoices within seven days of receipt.

[17] Mr Read says there were ongoing technological problems with Pakiri’s server. Mr King was responsible to prevent and repair those issues. He says Mr King was aware of the importance of the server being operational during Mr Read’s absence overseas but did not make himself available to fix the problems. He says Mr King’s work was substandard as was his technical knowledge.

[18] Mr King’s evidence is that he had some initial difficulties in his dealing with Mr Read who called him at all hours of the night to discuss IT matters when he, Mr Read, was overseas. Mr King stopped responding to calls from Mr Read made outside normal business hours. That created the initial tension between the two of them.

[19] Mr Read says he did not authorise Pakiri to make payments of any invoices to Adroit relating to Mr King’s work until he knew the server to be stable and that all information had been handed over to ensure the new supplier could perform the tasks required. He says the problems were not resolved and Mr King caused further problems by withholding passwords. Mr Read seeks to recover the $8,146.78 paid to Mr King by way of set-off and says the $9,619.75 for the last two invoices 10080 and 10084 for Mr King’s work is disputed. Of particular concern to Mr Read was Mr King’s refusal to provide passwords.

[20] Pakiri did not pay the initial invoices Adroit issued for Mr King’s services. In June 2011 Mr King told Mr Judson of Pakiri that he would not return to work until his invoices were paid. The outstanding invoices were then paid (despite Mr Read’s evidence that was not authorised) and Mr King resumed work. Mr King then experienced further difficulties with payment. He completed his outstanding work with Pakiri in August and did no further work for it. Then, in October 2011 Mr King was contacted by Mr Judson with a request that he provide a password to enable Mr Judson to modify a program Mr King had set up for the applicant. The password was not needed to run the program but was needed to modify it. Mr King declined to release the password until his last two invoices were paid. Mr King said he then received abusive emails from Mr Read in response.

[21] Mr Dorset accepts in his evidence that on 11 October 2011 he received a memo from Mr Read alleging Mr King’s work was not up to standard but says no specific details were provided. Adroit invited Pakiri to send details of any issues they had with Mr King so that they could present them to him and consider the issue of fees. No response was received. Mr Dorset considers the complaint concerning Mr King’s services is now out of time

[22] Although the Court has certain reservations as to the validity of Pakiri’s complaint regarding Mr King’s services, on this issue, unlike the other issues Pakiri sought to raise, there is a record of Pakiri’s dissatisfaction in relation to Mr King’s services. Clearly there were issues between Mr King and Mr Read. There is an arguable dispute at least in relation to the last two invoices rendered. I propose to adjust the amount claimed to take account of that. There is, however, no basis to allow a set-off for the payments made to Mr King. The services were supplied. Pakiri has not made any attempt to quantify a loss arising out of Mr King’s services and while Mr Read may not have wished it to do so, Pakiri paid Mr King’s fee for those services. Adroit also relied on those payments to pay Mr King direct.

The shareholding issue

[23] A principal issue between the parties is the sum of $42,570.00 being an agreed value of shares transferred to Adroit. Adroit says that related to Ms O’Hara’s services. Pakiri says it was just on account generally.

[24] The first point in relation to this sum is that it does not feature in the amount claimed by Adroit in its statutory demand. The only amount claimed in relation to Ms O’Hara’s services is the sum of $2,875.00 to which I shall shortly return. The sum of $45,281.25 relating to invoice 100121 was for a permanent placement in November 2010. The relevant invoice in relation to Ms O’Hara was issued in June

2011. The share issue could only have relevance as a counterclaim or set-off.

[25] Adroit was commissioned to find a chief marketing officer for Pakiri. It suggested Ms O’Hara. Adroit issued an invoice, 10077, for a placement fee (calculated at 15 per cent of the annual salary) for Ms O’Hara in the sum of

$45,281.25. Mr Dorset says that, after discussion between the parties it was agreed that Adroit’s fee for Ms O’Hara’s placement would be paid in large part by way of transfer of shares in Pakiri (to the value of $42,570.00). Accordingly, in consideration for the issue of shares in Pakiri at Adroit’s direction, Adroit issued credit note 10069 for $42,570.00. Mr Read says the shares were transferred to reduce Pakiri’s account generally and the transfer was not related to Ms O’Hara’s placement fee.

[26] But the emails from Adroit to Pakiri on 19 September 2011 confirm that the credit note 10069 (relating to the value of the shareholding) was to be applied against the invoice 10077 for Ms O’Hara. That contemporaneous document is consistent with Adroit’s case. I note that Pakiri did not challenge that email advice at the time.

[27] As matters turned out, Pakiri was not able to retain Ms O’Hara’s services. The parties then met in February 2012 to discuss that issue, and the outstanding account generally. Mr Dorset says it was agreed that Adroit would void the invoice for Ms O’Hara’s placement fee and also void the credit note which it had issued.

Instead Adroit would just charge a facilitation fee of $2,500.00 (plus GST) for its work in introducing Ms O’Hara (in total $2,875.00 (including GST)) but that would be the limit and extent of the fee charged for Adroit’s work in relation to Ms O’Hara. To complete the unwind, Adroit agreed to retransfer the shares that had been transferred to it to Pakiri in relation to Ms O’Hara’s services.

[28] Mr Read says that Pakiri did agree to let Ms O’Hara go and also agreed to a facilitation fee of $2,500.00 (although he says that was including GST, not plus GST). However, in relation to the share transfers Mr Read says the position remains that Adroit holds the shares and has failed to deduct the agreed value of the shares from its account with Pakiri. Mr Read says:

It is only in the last month or so that Adroit have requested to return these shares. The shares were transferred by the Read Family Trust, not Pakiri, and Pakiri owes the Read Family Trust for them.

[29] Mr Read’s evidence is contrary to the file note Mr Dorset made at the time of the meeting in February 2012, which records:

Steve Gordon – Aug – extra 3 days OK. Interest OK – not totally happy though!

Invoice $2500 + GST for Jen to replace rendered

[Pakiri] get shares back.

J King last invoice – issues – but not notified in due time or in writing. ...

That contemporaneous record is consistent with Mr Dorset’s explanation and that

Pakiri agreed the fee of $2,500.00 plus GST.

[30] Mr Read says that it was in September 2011 that the invoice relating to Ms O’Hara had to be withdrawn because Ms O’Hara did not take a permanent position with Pakiri. However, the invoice and credit note were not withdrawn until after the meeting in February 2012. What took place in September was the issue of the credit note to reflect the issue of shares to Adroit. Notably, it was not for the full sum of the invoice. Following the meeting in February, Adroit sent an email of 24 February with a copy of an updated statement as at 31 January 2012 to Pakiri. The statement removed the references to the share purchase issue at that time.

[31] Mr Read next says that the shares have not been returned. However, Mr Dorset has produced copies of the executed share transfers relating to the shares and a letter from Adroit’s solicitors returning the shares. On the evidence before the Court the shares have been returned and there is no basis for the counterclaim or set- off which Pakiri seeks to raise in relation to the share issue. Mr Read’s allegation that the shares belong to the Read Family Trust, not Pakiri, does not advance Pakiri’s position. It is not in dispute they were issued to Adroit on account of Pakiri’s debt to that company.

Summary/result

[32] On the evidence before the Court Pakiri has established an arguable dispute in relation to the last two invoices issued by Mr King. Further, Adroit is not entitled to charge compound interest on its terms of trade.

[33] Apart from those limited issues however, Pakiri fails to satisfy the Court there is a genuine and substantial dispute in relation to the other amounts claimed in the invoice attached to the statutory demand and further, Pakiri fails to satisfy the Court that it has an arguable set-off, cross-claim or counterclaim in relation to the value of the shares.

[34] The resulting calculations are:

Sum claimed in the statutory demand $79,634.67

Less: Compound interest charged $13,675.67

Less: King invoices 10080 and 10084 $9,619.75 $23,295.42

_$56,339.25

_{Plus interest at 18% per annum for one year}

_{(1 November 2011 to 1 November 2012)}[3] _$10,141.05

_$66,480.30

[35] Finally, I note there may be an issue as to Pakiri’s solvency. As noted it has no revenue stream. The bare allegation by its chief financial officer that it is solvent is not supported by any documentary or other independent evidence. It should be required to pay the sum it owes and, if it is not able to do so, should be liquidated.

Result/orders

[36] Pakiri is to pay the sum of $66,480.30 by 12 December 2012 failing which

Adroit may apply to place Pakiri into liquidation.

Costs

_{[37] Costs to Adroit on a 2B basis together with disbursements.}

Venning J

---

[1] Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC

260,936.

[2] The Trustee of the Read Family Trust, the majority shareholder of Pakiri.

[3] It is not for the Court to recalculate interest on a monthly rest basis.