Nuvita Manufacturing and Development Limited v Design and Managements Service Limited [2013] NZHC 3256 (6 December 2013)

Last Updated: 18 March 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-001556 [2013] NZHC 3256

IN THE MATTER of Section 290 of the Companies Act 1993

BETWEEN NUVITA MANUFACTURING AND DEVELOPMENT LIMITED Applicant

AND DESIGN AND MANAGEMENTS SERVICE LIMITED

Respondent

Hearing: 4 December 2013

Appearances: B M Smyth for Applicant

B M Russell and C K Mills for Respondent

Judgment: 6 December 2013

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] On 5 October 2013 the respondent, Design and Managements Service Limited (DMS) served on the applicant (Nuvita) a demand under s 289 of the Companies Act 1993 for payment of the sum of $92,475. The sum was said to represent outstanding payments due under a term loan agreement dated 9 April 2008.

[2] Nuvita has applied to the Court to set aside the demand. It says there is a substantial dispute over whether the debt is owing, details of which have been advised to DMS. It further says that it is solvent and can pay its debts.

[3] The application is made under s 290 of the Companies Act which provides that the Court may grant an application to set aside a statutory demand on certain grounds, one of which is if it is satisfied that there is a substantial dispute whether or

_{not the debt is owing or is due.}

NUVITA MANUFACTURING & DEVELOPMENT LTD v DESIGN & MANAGEMENTS SERVICE LTD [2013] NZHC 3256 [6 December 2013]

[4] The principles on which the Court must decide an application under s 290 are well-established. By reference to numerous cases they are succinctly summarised in Brookers Insolvency Law and Practice at para CA290.02 in these terms (to the extent relevant):

(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) ...

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

[5] Nuvita is a manufacturer. To carry on its business it requires certain plant and equipment. Prior to September 2009 the equipment it used was owned by New Zealand Health Food Company Limited. Nuvita then bought the plant and equipment from that company, and DMS made it an advance to enable it to do so. A term loan agreement was signed on 9 April 2008. The initial advance was for

$73,125, and it was to be repaid by 210 weekly instalments of $300 each, as well as specified additional lump sum payments. It is common ground that Nuvita has not repaid the loan in accordance with the agreed terms and conditions. The parties disagree, however, on the present financial position between them. DMS maintains that it is entitled to payment of the balance of the term loan, which it says is recorded in the statutory demand. Nuvita says that it sold the equipment to DMS, the sale price being partially satisfied by the balance due under the term loan, on the basis that DMS would then sell it to another company, Silberhorn Limited which would then lease the equipment to Nuvita to use in its manufacturing business. DMS says this is not so.

[6] Nuvita argues that there is a genuine and substantial dispute as to the existence of the debt, based on the respective positions of Nuvita and DMS. DMS

says that the position taken by Nuvita is not credible, that in any event the debt remains owing under the term loan until a written release is given (which it has not been) and that DMS was entitled to issue and should now be entitled to rely on the notice issued under s 289.

[7] Additionally, Nuvita says that the notice was signed by a director of DMS and for that reason is not valid. DMS accepts that the notice was signed by a director but says that this complies with s 289.

Is there, arguably, a genuine and substantial dispute as to the existence of the debt?

[8] Mr Lee, a director of Nuvita, says that in May 2009 Mr Carline, a director of DMS, decided that the financial arrangements between them should be altered by the equipment being sold to DMS, which would then sell it to Silberhorn (which is another company owned by Mr Carline) which would then lease the equipment to Nuvita. In support of this he produces:

• An invoice from Nuvita to DMS dated 29 March 2009 for the equipment.

• A receipt from Nuvita to DMS dated 29 March 2009 in respect of the items on the invoice, plus one other.

• An email from Mr Lee to Mr Carline dated 28 May 2009 which reads:

Good Morning Ian

Please see attached receipt as requested.

Also please, please can you transfer some/any payment to us? Carolyn will send through the MYOB asset schedule later this

morning. Regards Colin.

• A draft lease of the equipment from Silberhorn to Nuvita, prepared by McVeagh Fleming, solicitors, for DMS. The document is signed for Nuvita, by Mr Lee, and by Mr Lee as guarantor. It is not executed by Silberhorn.

[9] The reference in the third of these documents to paying part of the invoice reflects the fact that it is for a sum greater than the original term loan advance. It is

common ground that the parties did not give effect to the transaction described by Mr Lee by an exchange of cheques or other remittance. However, Mr Lee’s position is that the balance of the term loan debt was entirely satisfied by DMS taking title to the equipment.

[10] The solicitors who prepared the lease acted at the time for Mr Carline and, I assume, his companies. They sent the lease to Mr Carline on 10 July 2009 with an email in the following terms:

Further to our telephone conversation this afternoon please see proposed equipment lease between Silberhorn Limited and Nuvita Manufacturing and Development Limited. We would appreciate it if you can in due course let us have any comments in respect of the form of this document, particularly can you confirm that the asset schedule is complete and accurate.

There is also reference to registering a financing statement under the Personal

Property Securities Act register against the name of the lessee.

[11] On 23 July 2009 Mr Lee emailed Mr Carline to say that there were certain clauses in the draft lease which he would like to discuss with Mr Carline before signing. He identified the clauses and proposed a discussion.

[12] Mr Carline says that although there were discussions about reconstituting the term loan arrangements, these discussions were driven by Mr Lee (Mr Lee says the opposite). He accepts that he had his solicitors draw up a draft lease agreement. He says that Silberhorn did not execute it at any point, as he decided that he wanted to retain the loan agreement. He says there was never any agreement between DMS and Nuvita that the equipment would be sold by Nuvita to DMS and that the invoice and receipt were produced by Nuvita without there being an agreement to vary the arrangements between the companies. He did not respond to the invoice and the receipt because as far as he was concerned the documents were generated by Nuvita for their own purposes (possibly tax related) and no agreement had been reached for purchase of the equipment by DMS. As to the reference in the email to the receipt being requested by him, he says that he does not recall asking for it.

[13] Evidence was put forward about payments made by Nuvita to DMS and

Silberhorn, and in particular the notations on the records of the companies, some of

which in Silberhorn’s records refer to loan payments which Mr Carline says were an error, but in the end only one element of this information gives me any assistance in reaching a conclusion in this case.¹ Whether the rearrangement on which Nuvita relies was put in place, or whether it was no more than a proposal, can only be established at trial, after full discovery. While Mr Russell levelled some criticism at Nuvita for not providing accounting records to substantiate its version of events, given that it has the onus of establishing that it has a genuine dispute that the debt is owing, equally neither DMS nor Silberhorn produced accounting records relevant to

an overall consideration of this issue. Accounting records provide contemporary documentary evidence of financial transactions. They are particularly helpful in a case such as this where not only are there two versions of what occurred, but also erroneous descriptions on some statements by Silberhorn and by Nuvita of the nature of some payments, and payments of various amounts rather than sums which correspond with the payments required in the documents.

[14] The only further document to which I need refer in this context is a page described as a screen capture in the name of Silberhorn, which, though extraordinarily hard to read as presented to the Court, contains a list of payments made by Nuvita to Silberhorn. On it, in handwriting said to be that of a representative of Silberhorn, are the words “payment sh/be $345 inc gst per month or

$300 plus gst”. Mr Smyth says that the abbreviation means “should be”. He emphasises that this is consistent with a lease, because leases attract GST but term loan repayment sums do not.

[15] In September 2013 Nuvita raised a loan from Southern Finance Limited and granted to that company a security over equipment listed in a schedule. Although there were many more items of equipment than were secured to DMS under a general security agreement to support the original term loan, those items of equipment are included in the equipment secured to Southern Finance Limited. Mr Carline notes that this security was registered just before the registration of the security in favour of DMS fell due for re-registration, so upon the statutory expiration of registration of the DMS security, the Southern Finance Security took

_{priority. Mr Russell criticises the actions of Nuvita in this respect, but more}

¹ [14] below.

fundamentally says that a grant of a security over the very equipment which Nuvita says it leases from Silberhorn is entirely inconsistent with Nuvita’s claim that it sold the equipment to DMS, which then onsold it to Silberhorn to enable that company to lease it to Nuvita. He says that both these unsatisfactory aspects of this transaction, from Nuvita’s perspective, reflect badly on the credibility of its case and should lead to a finding by the Court that the case put forward by Nuvita is not credible.

[16] Mr Lee says that the equipment Nuvita sold to DMS was included in the security granted to Southern Finance Limited in error. He says that in August 2013 a valuation was prepared of all the equipment Nuvita uses, because in May the parties had reached a settlement of all outstanding issues between them and part of that settlement would result in Silberhorn transferring the equipment to Nuvita and Nuvita taking out an advance on the original equipment plus the rest of its equipment, in accordance with the schedule in the valuation. He says that the deal struck in May 2013 fell apart so Nuvita arranged a temporary loan from Southern Finance to refinance a loan it had from another company at a cheaper rate. He says that:

... I simply did not appreciate the implications of continuing to use the August 2013 schedule when the agreement was finalised. In hindsight, this was a mistake which I now regret, however this does not affect the validity of the dispute between Nuvita and DMS as to whether the debt is due and owing.

[17] It is plain that there are substantial disputes of fact between DMS and Nuvita which fundamentally affect the question of whether Nuvita still owes DMS the balance of the original term loan. The transaction by which Nuvita says it sold the equipment back to DMS for $100,000, to be offset against the loan in satisfaction of it, is in dispute. Whether Nuvita leased the equipment from Silberhorn is in dispute. These disputes are fundamental. Whilst a thorough examination of the documents which one might expect to have been created in a properly recorded and accounted for series of transactions between Nuvita, DMS and Silberhorn, and cross- examination of Mr Lee, Mr Carline and, no doubt other witnesses, would ultimately allow a Court to decide which version of events is correct, the version put forward by Nuvita is supported by the contemporaneous documents to which I have referred, and in my view it well passes the test that a genuine and substantial dispute as to the

existence of the debt lies between Nuvita and DMS. Mr Lee’s explanation in

relation to the security granted to Southern Finance is, on the face of it, plausible.

[18] I need refer to only two more aspects of the evidence, on this issue. First, Mr Russell says that at no time has DMS given any waiver or release in writing of the consequences of default under the term loan agreement, namely that the balance owing under the agreement is due and owing. He says the agreement is not “extinct or spent” as a result. He relies on paragraph 7(e) of the term loan agreement which is in the following terms:

(e) Rights once acquired are not lost:

Once acquired, a lender will not lose a right or power unless the lender agrees in writing to waive or release it.

He says that merely producing the invoice, receipt and draft lease agreement to which I have referred did not constitute a release of the default; more is required, for example a signed deed of release or a settlement agreement bringing the loan agreement to an end and commencing a new arrangement.

[19] Mr Russell develops this argument by saying that the case for Nuvita amounts to an allegation that Nuvita has a counterclaim, set-off or cross demand against DMS, and thus that in the application DMS relies on s 290(4)(b) of the Companies Act, rather than s 290(4)(a), which I have set out above.

[20] Mr Russell is correct in his reference to the wording in the Originating Application, but in my view that is as far as this argument has merit. Nuvita does not seek to set up a cross claim to extinguish liability for an admitted debt. It says that the debt has been repaid by an agreed transfer of property for an agreed sum exceeding the balance owing at the time. If established sufficiently (as I have found it is), that is a defence not a cross claim.

[21] Further, if the debt has been satisfied by transfer of assets of equivalent or greater value by agreement, there is no basis for then saying that as a result of default under the loan agreement having occurred, liability for the loan subsists, merely because there has not been an express release of liability in writing. It amounts to

saying that despite having taken title to goods at an agreed value of $100,000 in satisfaction of the original loan, DMS could still sue on the loan because it had not granted a formal release. That proposition has no foundation or merit.

[22] If on the other hand, at trial, the Court does not find that the arrangements between Nuvita and DMS were varied as Nuvita says, the claim by DMS for repayment of its advance would stand. Nuvita does not say that it repaid the advance by DMS by any other means so, of course, does not say that it relies on a written waiver or release of liability in terms of clause 7(e) of the term loan agreement.

[23] Secondly, the evidence shows that Nuvita made numerous payments to Silberhorn. Neither counsel dwelt on the relevance of this, but I observe that no reason for these payments was produced by DMS, and they are consistent with Nuvita being a lessee as it maintains. On the evidence no other reason existed for Nuvita to make payments to this company, which is also owned by Mr Carline.

Second issue: can a demand under s 289 be executed on behalf of a creditor by one of its directors?

[24] Mr Smyth says that a demand under s 289 must be executed by a solicitor for the creditor, not by one of its directors. He says that a company is not entitled to represent itself in the High Court unless there are exceptional circumstances, such as urgency. He says that the issuing of a statutory demand is part of that process, and a very serious step with serious consequences, namely the establishment of jurisdiction to place a company into liquidation. He relies on the following passage from the judgment of Master Lang (as he then was) in Rembrandt Custodians Ltd v Pro-Drill

(Auck) Ltd:²

[37] The issuing of a statutory demand is a very serious matter. As this Court has often pointed out, the recipient of a statutory demand must act quickly in order to avoid the statutory consequences of failing to comply with the demand: see for example Keystone Ridge Ltd v City Sales Ltd (Unreported, High Court, Auckland, M549/02, 9 July 2002, Heath J) and Isolare Investments Ltd v Fetherston (Unreported, High Court, Auckland, M1042/02, 17 October 2002, Master Lang).

² Rembrandt Custodians Ltd v Pro-Drill (Auck) Ltd HC Auckland M337-IM03, 13 June 2003.

[38] One of the most significant potential consequences is the establishment of jurisdiction to immediately place the company in liquidation. If a company wishes to avoid those consequences it must either persuade the issuer of the statutory demand to withdraw it or, alternatively, apply to the Court for an order setting the demand aside. The timeframe for the filing of such an application is very tight. There is no room for error, because the Court has no power to extend the time within which an application to set aside a statutory demand may be filed. In those circumstances, it is obviously encumbent on the issuer of a statutory demand to ensure that the demand is being issued on a proper basis. In particular, it must take care to ensure that the debt which is claimed in the statutory demand is not the subject of a genuine dispute: see First Light Construction Ltd v Glenn’s Glass & Aluminium Ltd (Unreported, High Court, Rotorua, M33/02, 15 August 2002, Master Lang).

[39] For this reason the Court takes the view that a statutory demand ought to be issued by the creditor’s solicitor rather than by the creditor itself or a debt collection agency. This was emphasised by Master Gambrill in Ebert Construction Ltd v Advanced Windows Ltd 14 PRNZ 681 where the Master said:

[2] ... The company is not entitled to represent itself in this Court (Re G J Mannix Ltd [1984] 1 NZLR 309) unless there are exceptional circumstances or urgency. In my view the statutory demand process and the statutory demand forms the initial legal step in the proceeding and the company should issue these demands through their solicitors who are both officers of and accountable to this Court. They have an overriding obligation to the Court to evaluate whether, in law, a demand is sustainable before they take the responsibility of issuing the same.

[3] I am aware of the development of a practice of companies themselves issuing these demands without evaluating the legal consequences and identification of whether a demand is properly issued and the sum is deemed and owing. The document in my view forms part of the Companies Act procedures laid down for liquidation and should only be issued by the company’s legal representatives.

[25] Mr Russell says that there is no provision in the Companies Act requiring execution of a notice under s 289 by a solicitor for a company. Whilst he has no quarrel with the observations of the Court in Rembrandt, the view expressed by Master Gambrill in Ebert Construction Ltd and by Master Lang do not amount to requiring that a notice be signed by a solicitor.

[26] Section 289(2) states:

(2) A statutory demand must –

(a) be in respect of a debt that is due and is not less than the prescribed amount; and

(b) be in writing; and

(c) be served on the company; and

(d) require the company to pay the debt, or enter into a compromise under Part 14 of this Act, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within 15 working days of the date of service, or such longer period as the Court may order.

[27] It can be seen that Mr Russell is correct: there is no requirement that the notice be executed by any particular person, nor any prohibition on its being executed by a director of the company.

[28] With respect, I agree with Master Lang that a statutory demand ought to be issued by a creditor’s solicitor rather than by the creditor itself or a debt collection agency, because of the significance of a statutory demand, which is described by the Judge in paragraphs [37] and [38]. However, whilst it is certainly the view of this Court that a statutory demand ought to be issued by a creditor’s solicitor, rather than a creditor or a debt collection agency, neither Master Lang nor Master Gambrill say that a demand issued other than by a creditor’s solicitor is invalid. Nor, in my opinion, can that be the case, given the lack of any such provision in the Companies Act.

[29] Both the Judges express a strong preference for the following of a certain procedure but neither purports to take the point any further than that. Mr Smyth is reading too much into the quoted passage when he says that the notice in this case was invalid as it was executed for DMS by Mr Carline.

Outcome

[30] The notice given under s 289 of the Companies Act by DMS to Nuvita on

16 September 2013 is set aside under s 290(1) of the Companies Act.

Costs

[31] Nuvita is entitled to costs. Mr Russell says that costs should follow the outcome of the case and be awarded on a 2B basis. He notes that one ground relied on for the order sought by the applicant was that the applicant is solvent, an argument which could not succeed.

[32] Mr Smyth said he not only seeks increased costs, but also seeks costs against Mr Carline, as well as against DMS. He says Mr Carline was expressly advised of the basis on which Nuvita maintains the sum claimed is not owing, both before the issue of the notice and afterwards, on two occasions.

[33] Rule 14.6(3) provides that the Court may order a party to pay increased costs in certain circumstances. One of these is where a party has contributed unnecessarily to the time or expense of the proceeding by taking or pursuing an unnecessary step or an argument that lacks merit.

[34] In essence Mr Smyth says that the application should not have been required as the notice should have been withdrawn, or at the latest, once the application and affidavit in support was served the notice should have been withdrawn; by persisting right through to argument at a fixture the respondent has taken a position that entirely lacks merit.

[35] Mr Smyth says that costs should be awarded against Mr Carline personally on the basis of the authorities referred to in Time3 Global Ltd v Norrie.³ There the Judge referred to Mana Property Trustee Ltd v James Developments Ltd (No 2):⁴

[10] A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. In the case of a liquidator that is a principle of very long standing. There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order will not be made unless there has been some relevant impropriety on the part of the liquidator.

[11] The Privy Council recognised that in some cases where a non-party may have both controlled the proceeding and funded it, or is to benefit from it, justice will require that if the proceeding fails, the non-party will pay the successful party’s costs.

The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.

Such a person is the real party to the litigation. But that is not ordinarily the position of a liquidator, although it may be the position of a creditor or shareholder who funds a liquidator. As the Privy Council remarked, where

³ _{Time3 Global Ltd v Norrie [2013] NZHC 3007.}

4. Mana Property Trustee Ltd v James Developments Ltd (No 2) [2010] NZSC 124, [2011] 2 NZLR 25.

the non-party is a liquidator, he or she can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his or her own interests. The reluctance of courts to make awards against liquidators who are non-parties is for the very good reason that otherwise they may not be prepared to take on the role and enter into litigation that may be beneficial for the company and thus for creditors.

[Citation omitted]

[36] In terms of this principle, Mr Smyth says that Mr Carline defended the case for his own benefit, controlled the proceeding and he should be responsible for costs. Mr Smyth also says that the evidence indicates that DMS may not be able to meet an adverse award of costs itself.

[37] I am not satisfied that this principle applies in this case. Certainly Mr Carline as the director of DMS was instrumentally involved, from signing the original notice to being the principal witness for his company, but I do not think it can be said on the information before me that he has acted with any impropriety, has borne the expense himself, or defended the claim for his own benefit.

[38] I reject the application for costs against Mr Carline personally.

[39] In relation to increased costs Mr Smyth relies on McWilliam Consulting Group Ltd v Keith Ussher Architecture Services Ltd.⁵ In that case I referred first to the passages from Rembrandt Custodians cited above, then to a lengthy passage from Gateway Cargo Systems Ltd v Airborne Freight Ltd.⁶ This passage is directly relevant in the circumstances of this case:

[7] In a judgment I delivered on 23 February 2004 International Air Training (NZ) Ltd v Rohlig New Zealand Limited (High Court, Auckland, CIV 2003-404-3464) I made the following observations in relation to statutory demands and the following originating applications:

Rule 46 provides that costs are to be in the discretion of the Court. In Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (CA 296/01, 29 September 2002) the Court of Appeal, in noting the Court's over-riding discretion pursuant to r46 said:

⁵ _{McWilliam Consulting Group Ltd v Keith Ussher Architecture Services Ltd [2012] NZHC 33.}

⁶ Gateway Cargo Systems Ltd v Airborne Freight Ltd HC Auckland CIV-2003-404-7207,

16 March 2004, Master Faire.

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Counsel [sic]. We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.

The general principles to be applied in the exercise of that discretion are those contained in r47. The first general principle there stated is that the party who fails with respect to a proceeding should pay the costs to the party who succeeds.

There is developing a trend where debt collectors use statutory demands as the first step in a process to recover a debt. The statutory demand procedure is not intended as a debt collection device. Its purpose is to provide the evidential foundation to support an application to appoint a liquidator in respect of a company. That follows from s287 of the Companies Act 1993. One of the persons authorised to apply to appoint a liquidator, by virtue of s241 of the Companies Act 1993, is a creditor of the company. A creditor, in terms of s241 of the Companies Act 1993, includes both contingent and prospective creditors. A creditor will be successful if the creditor can show that the company is unable to pay its debts. It is for that purpose that the statutory demand is used. The reason that it is used is because noncompliance, in terms of s287, presumes that the company is unable to pay its debts. Precise proof of the quantum of debt where a liquidator is appointed is a matter that will ultimately have to be determined by the liquidator of the company. The liquidator's principal duties are defined in the Companies Act 1993 starting at s253.

[40] The notice in issue is dated 26 September. On 20 September Nuvita’s solicitors wrote to DMS, for the attention of Mr Carline, acknowledging an earlier notice Mr Carline had given relating to repossessing the equipment. The letter set out, briefly, the reasons Nuvita puts forward in support of its position that the debt was extinguished, and although lacking in detail it is broadly the argument that was brought on this application.

[41] Then, after the demand was served on 5 October, the same firm wrote again, also briefly, referring to the grounds given to establish a dispute in their earlier letter, and requiring the statutory demand to be withdrawn within 24 hours failing which proceedings would be issued to have the demand struck out.

[42] This was met with a letter from a barrister acting for DMS who said that the sum claimed “appears to be owed by any test” but he did not otherwise respond to the argument put forward by Nuvita’s solicitors.

[43] The solicitors then responded direct to him in a two page detailed letter dated

8 October in which they enclosed the key documents which I have referred to earlier and set out Nuvita’s position in a great deal more detail. Again the solicitors asked that the statutory demand be withdrawn and indicated that if it was not, proceedings would be issued to set it aside.

[44] At that point DMS was on clear notice of the position of Nuvita. That position has not materially altered since. DMS ignored the request and this proceeding ensued. The evidence for Nuvita is in generally the same terms as the letter of 8 October.

[45] Notwithstanding this, DMS has persisted with its view that Nuvita does not have a genuine and substantial dispute as to the existence of the debt. It has produced to the Court evidence which materially conflicts with the evidence presented on behalf of Nuvita, presumably in the expectation that the Court will prefer the testimony of Mr Carline over that of Mr Lee, even though Mr Lee supports his testimony by reference to contemporaneous documents. No matter how firmly Mr Carline may believe that his company’s position is right, an objective and considered assessment of the position set out in the letter from Nuvita’s solicitors on

8 October 2013, including the documents enclosed with that letter, would have led to the view that there is a dispute in relation to whether the debt is owing, and that dispute is based on sound grounds. That position continued after Nuvita had been obliged to take proceedings to set aside the demand, and then laid out its case in the form of sworn testimony.

[46] I am satisfied that insufficient regard was had to the correct principles which apply to the use of demands under s 289. These principles are referred to in numerous cases, including Rembrandt Custodians.

[47] The strongest point in favour of DMS’s position is the granting by Nuvita of a security over the equipment, and other equipment, to Southern Finance. However, Nuvita’s explanation for that was given in an affidavit in reply and is unchallenged. After that affidavit was served there was yet another opportunity for DMS to

reassess its position and realise that the remedy it believes it is entitled to must be sought in another jurisdiction.

[48] I find that the notice should have been withdrawn without these proceedings being necessary, and that there followed further opportunities for that to occur without taking the case through to a defended hearing. The position taken by DMS on this proceeding put Nuvita to significant expense within a tight timeframe, and thereafter. There should be an uplift in costs accordingly. As noted in McGechan on

Procedure,⁷ increased costs are routinely awarded against parties who proceed with

an inappropriate statutory demand in the face of a warning by the applicant company

– here, before and immediately after the notice was issued, and in the documents filed in support of the application.

[49] I do not accept, however, that the uplift should be as great as Mr Smyth requested, 100 percent. Scale costs are intended to represent approximately two- thirds of actual costs and an uplift of 50 percent should therefore approximate actual costs incurred. In my opinion an uplift of that amount is appropriate. The decision on the facts in McWilliam Consulting is not a precedent for a higher increase.

[50] I direct DMS to pay to Nuvita costs on a 2B basis plus 50 percent, and disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Cameron & Company, Christchurch.

Lane Neave, Christchurch.

⁷ HR14.6.02.