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High Court of New Zealand Decisions |
Last Updated: 5 September 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000191 [2016] NZHC 1926
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BETWEEN
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KOURA MINING LIMITED
Applicant
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AND
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GEOTECH LIMITED Respondent
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Hearing:
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10 August 2016
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Appearances:
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S D Munro for Applicant
A N Riches for Respondent
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Judgment:
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18 August 2016
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JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] On 8 March 2016 the respondent, Geotech Limited (Geotech),
issued a demand to the applicant, Koura Mining Limited
(Koura), under s 289 of
the Companies Act 1993. The demand was served on Koura on 11 March 2016. Koura
applies to set the demand
aside under s 290 of the Companies Act. It relies on
two of the grounds on which the Court may so order, that there is a substantial
dispute over whether or not the debt claimed in the demand is owing or is due
and, alternatively, that Koura appears to have a counterclaim
for a sum
exceeding the amount claimed in the statutory demand. The application is
opposed.
[2] The sum which Geotech demands is $224,082.84, being the balance of
an invoice issued on 1 November 2015 (invoice 3597, $74,553.92)
and the full
amount of each of three invoices (invoices 3660, 3661 and 3662) dated 1 December
2015 but issued on 5 December 2015.
[3] Geotech owns heavy machinery for use in the mining industry. Koura
is a mining company. In 2015 they entered several agreements
by which Koura
leased,
KOURA MINING LTD v GEOTECH LTD [2016] NZHC 1926 [18 August 2016]
or leased with a view to purchasing, certain items of plant and equipment
from Geotech. The terms of the agreements were varied and
it is not necessary
to record each step in this process. It is common ground that the upshot was
three agreements relating to different
items of plant and equipment. These are
referred to in this case as the first, second and third agreements. The first
is a lease
to buy agreement, the third simply a lease. The second was not
recorded in a formal document but there is a letter in evidence from
Geotech to
Koura which sets out Geotech’s view of the contract terms. It appears
from that letter that the agreement is simply
an agreement for sale and purchase
of equipment, with payment to be made by instalments. Nonetheless, Mr McDonald,
a consultant working
with Koura, describes it as a lease to buy agreement, as
does the chief financial officer of Geotech, Mr Currie. Either way, the
intention was that Koura would purchase the equipment to which the
agreement applies (itself a point of contention to which
I will refer later).
Koura would pay monthly payments, as under the other two agreements. After all
the rearrangements had been
made, the total monthly payments to be made by Koura
to Geotech amounted to $179,955.33 plus GST, a total of $206,944.88.
[4] The monthly payments in issue in this case are, respectively,
$36,359.15,
$81,666, and $12,000, in each case plus GST. The demand relates to one
monthly instalment under each of these agreements, together
with invoice 3597
which is for the balance of the November instalment under the second agreement,
after payment of a sum of $19,361.98
on account.
[5] There are two issues to be decided:
(a) Is there a substantial dispute whether or not the debt is owing or is
due? (b) Does Koura appear to have a counterclaim exceeding
the total of
the
invoices?
[6] Section 287 of the Companies Act provides that unless the contrary is proved, a company is presumed to be unable to pay its debts if it has failed to comply with a statutory demand, which is a demand issued under s 289. Section 241(2) provides that a liquidator may be appointed by the Court on the application of, amongst
others, a creditor. Section 241(4) provides that the Court may appoint a
liquidator if it is satisfied that the company is unable
to pay its
debts.
[7] The scheme of these provisions is that failure to comply with a
demand under s 289 creates a presumption of inability to
pay debts by virtue of
s 290 and this is a ground on which a creditor may apply to the Court
for an order appointing
a liquidator. Whilst the issue of a statutory
demand is used in commerce as a means to enforce payment of undisputed debts,
where
there is no qualifying counterclaim against a creditor, it is in fact a
first step in a procedure which may lead to the liquidation
of a debtor company
by establishing an evidentiary presumption of inability to pay debts. The
solvency of the debtor company, in
the sense of ability to pay debts which are
due and owing, is therefore relevant after considering an application to set
aside a
statutory demand. This is because s 291 provides that if the Court is
satisfied that there is a debt which is not the subject of
a substantial
dispute, or is not subject to a counterclaim set-off or cross demand, it may
make an order placing the company into
liquidation. Insolvency is a factor that
would support this course being taken.
[8] In Industrial Group Ltd v Bakker, the Court of Appeal laid
down the way in which the Court is to approach an application under s
290:1
[24] We note that the statutory scheme is for applications to set aside
statutory demands to be a summary proceeding. ... The
section calls for a
prompt judgment as to whether there is a genuine and substantial dispute. It is
not the task of the Court to
resolve the dispute. The test may be compared with
the principles developed in cognate fields such as applications to
remove
caveats, leave to appeal an arbitrator’s award and opposition
to summary judgment.
[25] ... The tight time constraints distinguish the s 290 discretion from
that to be exercised on, say, a summary judgment application,
where the presence
of complex legal issues is not necessarily a bar to a remedy. As with leave to
appeal an arbitrator’s award,
the hearing should, in the normal course, be
short and to the point, and the judgment likewise.
[9] More recently, in AAI Ltd v 92 Lichfield Street Ltd (in rec and
in liq) the
Court of Appeal said:2
1 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 (citations omitted).
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, (2015) 23 PRNZ 52 per
Winkelmann J.
[22] It is important to keep in mind the words of the statute. What the
applicant must show is that the dispute it raises has
substance; the applicant
must explain to the Court what the dispute is; and the dispute so shown must be
real and not a fanciful
or insubstantial dispute.3 The Court must
bear in mind that it is operating in the summary jurisdiction, with the
accompanying disadvantages that brings for
any applicant. The Court must also
keep in mind the requirement that what is intended to be a summary hearing
should not be converted
into a full-blown trial.
First issue: Is there a substantial dispute whether or not the debt is
owing or is due?
[10] The second agreement was negotiated by Mr McDonald for Koura.
Koura wished to buy certain items of the equipment it was
then leasing.
Following discussions between Mr McDonald and Mr Currie, Mr McDonald
wrote to Mr Currie setting out the
equipment that Koura would like to buy and
then proposing payment in the following terms:
Total package NZD$2.7m + GST
Payment of $250,000 + GST up front (this week)
Balance over 27 monthly payments (NZD$81,666 + GST per month) paid
1st of each month
Final payment of $245,000 + GST
Invoices from this week are credited and a new invoice is reissued per
above
The last sentence related to invoices under earlier agreements, which would
end if a new agreement were entered.
[11] Over succeeding days there were negotiations between Koura and Geotech on how this might be achieved. Geotech was receptive to selling most of the equipment which was listed in Mr McDonald’s email of 6 October, and generally receptive to the method of payment which Mr McDonald had proposed. Initially Geotech sought a bigger initial payment than $250,000. It also wished to delete a number of items from the list in Mr McDonald’s initial proposal, as Geotech wished to retain them. This culminated in an email being sent by Mr Currie to Mr McDonald on 21 October with a list of nine items which Geotech was prepared to sell and a summary of the future monthly payments which comprised not only
payments under the first and third agreements described above, but also
payment for
3 Re A Company [1991] BCLC 727 (Ch) at 740 per Harman J.
the nine items described in the email of $88,166 plus GST, $93,915.90 including GST, per month (the sum initially proposed by Mr McDonald). Reference was made to an invoice having been sent for the initial payment as proposed, at first, by Mr McDonald of $250,000 plus GST but Mr Currie acknowledged that this had been sent incorrectly and the invoice should have been for $200,000 plus GST, as this had been agreed by other representatives of Geotech. Koura had paid the latter sum on
14 October.
[12] The letter also recorded agreement that payments under all
agreements would
be “sync’d to the 1st of the month”.
[13] Mr McDonald did not respond to this, so the following day Mr Currie sent him an email asking him to confirm, and arrange payment. Koura already had possession of, and was using, the equipment. Again, there was no response so on 27
October Mr Currie emailed Mr McDonald again saying:
We agreed that you would confirm by email that this was as we discussed, and
that payment would be scheduled immediately. It is now
Tuesday, and we met last
Thursday & neither has happened over the last 4 days. Please advise
urgently.
[14] Mr McDonald responded to Mr Currie a short time later:
We are onto this and will have you sorted right up to date this
week.
[15] On 1 November Geotech rendered invoice 3597 for $93,915.90 inclusive of GST, being the first invoice in accordance with the arrangements set out in Mr Currie’s email, and on 12 November Koura paid $19,361.98 on account of this invoice, along with payments for November under the first and third agreements. This left $74,553.92 owing under the second agreement, which is part of the sum claimed in the statutory demand. This invoice lists the nine items referred to in Mr Currie’s email. At no point prior to the issue of the statutory demand four months later has any issue been taken by Koura in relation to whether there were more items of plant included in the sale agreement than are listed in Mr Currie’s email of 21 October, but Koura now maintains it agreed to buy three more items.
[16] Geotech says that by 1 December the balance of invoice 3597 had been
outstanding from its due date of 1 November and further
monthly payments under
all three agreements were due on 1 December. None of these required payments
was paid on 1 December. On
3 December Geotech removed keys and/or disconnected
batteries from all of the equipment which was the subject of the three
agreements
at both of Koura’s mining sites and on 5 December removed one
truck from one of the sites. Koura says the effect was that
it could no longer
mine.
[17] It appears from emails produced in evidence that in the latter part
of 2015
Koura was being funded from a source in the United Kingdom. In
November
Geotech emailed Koura in relation to the unpaid balance of the instalment due
on 1
November. The emails met with various responses from Koura’s business administrator in New Zealand. The first was that she had had word from the UK that the balance would be paid “on Monday UK time”, and she apologised for the lateness of the payment. The second was that Geotech’s next enquiry had been forwarded to two named representatives of Koura in the UK, and the administrator advised “I hope they will action this payment immediately”. The third enquiry, on
25 November, asking for urgent follow-up did not receive a response. It is
against the background of these emails that Geotech took
action to secure its
machinery from further use on 3 December.
[18] On that date a representative of Koura, Mr Anderson, spoke to Mr Currie, and asked him to send out invoices for the payments due on 1 December, which at that point had not been created. This led to Geotech sending three invoices dated
1 December, on 5 December. On 9 December Mr Anderson emailed saying that the
invoices for November and December would be paid:
You are looking for:
1. the November invoices to be paid.
2. the December invoices to be paid.
3. a bond to be put in place.
With reference to items 1. and 2. the money to pay this is on its way to NZ
and available to be released to your account on Thursday night. ...
...
Ideally, by the end of the week, you will be paid and we will be back mining.
[19] Payment was not made. Mr Currie says that at the time Koura did not
assert that it had any ongoing right to utilise the
machinery until payment had
been made, and no issue was raised about the fact that the machinery had been
disabled.
[20] Geotech continued to attempt to obtain payment. On 16 February
Koura emailed to say “We are anticipating having funding
available in the
few days to pay our creditors”. No payment was forthcoming so
Geotech issued the statutory demand
on 8 March. Mr Currie says that at the
time the demand was issued no dispute had been raised by Koura in relation to
any invoice
constituting the sum claimed in the statutory demand.
[21] Mr Munro’s first argument is that as at 3 December,
when Geotech immobilised all the machinery to which
all three agreements
relate, no sum was in fact owing. He says that as a result of immobilising all
the equipment Geotech repudiated
all three agreements and that by bringing an
end to its mining operations it caused Koura to suffer substantial losses,
presently
estimated at several million dollars.
[22] So far as the first agreement is concerned, this provides that payment will be made on or before the 30th of each month. Mr Munro says that the payment under this agreement was not due until 30 December. So far as the second agreement is concerned Mr McDonald says in his affidavit that the terms in the first agreement would apply to the second agreement. On that basis Mr Munro submits that the December payment under the second agreement was not due until 30 December. So far as the third agreement is concerned, Mr McDonald says that Koura was to pay monthly instalments in advance on receipt of invoices. No invoice had been
received by 3 December.
[23] These contentions by Mr McDonald are not supported by other facts in
the evidence. I refer to three. First, in his affidavit
Mr McDonald
says:
Under the terms of the First, Second and Third Agreements, payment of the
November Invoices was due on or about 1 November 2015. As at
1 November 2015 Koura owed Geotech $149,528.92.
[24] Given that after 1 November 2015 Koura paid Geotech only $74,975, in
partial satisfaction of the November “invoices”
as Mr
McDonald puts it, his statement must imply that as at 12 November the balance
of $74,553.92 was due.
[25] Secondly if, as Mr McDonald says, payment of the November invoices
was due on or about 1 November, it follows that payment
of the December invoices
was due on or about 1 December.
[26] Mr McDonald contends that no payments were due until invoices were received, a contention supported by Mr Munro on the basis that this would be an implied term of each of the contracts, and that invoices would be necessary for the purposes of GST compliance. However, I cannot see any basis on which there would be an implied term requiring the issue of an invoice before a contractually agreed payment became due, and I do not accept that argument. As to GST invoices, there must be compliance with the requirements of the Goods and Services Tax Act
1985 but again, this is a separate issue from compliance with a
contractual obligation.
[27] In relation to that obligation, I refer again to the email written by Mr Currie to Mr McDonald on Wednesday 21 October, which contains the provision that in relation to future payments, “all payments are sync’d to the 1st of the month”. Whilst Mr McDonald now takes issue with some of the material in this letter, at no point did Mr McDonald take any issue with it prior to the issue of the statutory demand, and nor did any other representative of Geotech. Rather, when Mr McDonald did reply
on 27 October not only to this email but to follow-up emails as I have
described, he
stated that Koura would “... have you sorted right up to date this
week.”
[28] Thirdly, on 17 March 2016, Koura’s solicitors wrote a letter
to the solicitors for Geotech. At paragraph 17 of the
letter the solicitors
say, under a subheading “December Invoices”:
The terms of each of the agreements that our client hired the equipment under were that our client paid your client on the 1st of each month and in advance.
[29] Understandably, Mr Munro submitted that the Court should be very hesitant not to accept the sworn testimony of Mr McDonald, particularly given that Mr Currie does not take issue with it in his affidavit in opposition. As a general principle, that contention is sound. However, the Court is not required to accept every statement in an affidavit as accurate. In Attorney-General v Rakiura Holdings
Ltd, Greig J said:4
In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 at
341 E, the Judge is not bound:
“to accept uncritically, as raising a dispute of fact which calls for
further investigation, every statement on an affidavit
however equivocal,
lacking in precision, inconsistent with undisputed contemporary documents or
other statements by the same deponent,
or inherently improbable in itself it may
be.”
[30] Approaching an assessment of this point in accordance with this principle, I do not accept Mr Munro’s argument, based on Mr McDonald’s affidavit, that none of the invoices were due for payment by the time Geotech disabled the machinery on
3 December. It is inconsistent with other portions of Mr McDonald’s
own evidence, with the email written by Mr Currie which
refers to payments being
due on the first of the month, a statement with which no issue was taken at the
time or for approximately
five months thereafter, and with the letter
written by Koura’s solicitors, which in the absence of any indication
to
the contrary, I take to record Koura’s instructions. The payment term in
the first and third agreements were, in my view,
altered by the terms of the
agreement recorded in the email of 21 October; written communications support
that position.
[31] As a result I do not find it to be arguable that payment of the invoices now comprised in the statutory demand was not due by 3 December. The consequence of this is that a foundation is not laid on this basis for Koura to have a claim against Geotech for wrongfully putting the use of its machinery beyond the reach of Koura until payment was made.
[32] It is important to note that Geotech did not cancel any of the
agreements on that day. Emails exchanged at that time plainly
show that
Geotech would have allowed the machinery to be put back in use had payment been
made. For example, Mr Currie wrote to
Mr Anderson, an accountant working on a
consultancy basis for Koura, on 3 December at 12.37 pm, responding to a phone
call from Mr
Anderson to him that morning. He said:
Further to our phone call this morning I will be in touch later this afternoon with new invoices and a statement to be settled in full with cleared funds, prior to our equipment being released to your company. This will be circa
375K, less an adjustment for the HM400 as discussed, & will be comprised
of three items:
1. Arrears due
2. Dec payment due 1 Dec
3. Bond in lieu of trust
[33] It was in response to this that Mr Anderson wrote to Mr
Currie on
9 December stating that the money to pay the November and December invoices
was “on its way to NZ and available to be released
to your account on
Thursday night.” And then observing, as I have noted above, that
“Ideally, by the end of the week,
you will be paid and we will be back
mining.”5
[34] It is therefore clear that from the time the equipment was
immobilised Geotech was willing to release it back to
Koura when it was paid,
and that Koura believed it was about to pay, and was obliged to do so.
[35] I find that it is not arguable that Geotech repudiated the contract,
nor that
Koura was of the view, at that time, that it had.
[36] Even if that conclusion is wrong, it does not follow that it is arguable that on the basis of the immobilisation of the machinery on 3 December, Koura has any claim of significance for damages against Geotech. Geotech was prepared to release the machinery immediately once it was paid. If Koura was suffering any losses as a result of the machinery being unavailable for its mining operations from the time it was immobilised on 3 December, it was aware by just after midday that day that if it paid Geotech, the machinery would be released for use. It could, therefore, have
mitigated any loss it believed it was suffering by paying all due payments. At the very least, even if the December invoices were not then due, the balance of the November invoice on the second agreement was due. Payment of the December invoices could have followed at the date Koura now says they were due, the end of December. So even if Koura were to establish that the December payments were not due by 3 December, despite the statements by and on behalf of Koura to the contrary, any damages could not exceed losses established on evidence for the intervening period. It was open to Koura to pay the December invoices on 3 December to mitigate this loss even if it did believe this would be before due date. Then its loss would be interest on $206,944.88 for perhaps 28 days, well less than the sum now
demanded.6
[37] It failed to make these payments at the time and has continued to fail to do so right up to the point when, through its solicitors by their letter of 17 March, Koura purported to cancel the contracts. Plainly representatives of Koura who were dealing with Geotech at the time thought that money would be forthcoming for this purpose but that did not occur. There is no evidence that the setback in the mining operation which would have occurred between the morning of 3 December and the time when payment could have been made caused any loss which could not have been mitigated
by making immediate payment of the sums owing.7
[38] For these reasons I find that Koura does not have an arguable
defence to the claim that the sum in the statutory demand is
due and owing on
the basis of the immobilisation undertaken by Geotech on 3 December.
[39] Mr Munro’s second argument is that even if the December
invoices were due and owing on 1 December Koura was, at that
point, in credit
with Geotech once the deposit, as he describes the payment of $200,000 plus GST,
is applied to the sum then owing.
[40] As can be seen from the summary of the payments initially proposed by
Mr McDonald when he opened negotiations on buying the equipment which is the
subject of the second agreement, the sum of $200,000
(then $250,000 but
later
6 See [55] below.
7 The immobilisation was on the morning of 3 December because by just after midday reference
was made to this in Mr Currie’s email from which I have quoted.
changed) plus GST was described as a payment “up front” to be
followed by 27 monthly payments and a final payment. Mr
McDonald then described
the proposal he was making as a “total package NZD$2.7m + GST”.
Arithmetic applied to the payments
he was proposing validates this – they
add to $2,699,982.
[41] Although the amount of the initial payment changed, the structure of the agreement remained throughout the negotiations, as did both the monthly payments and the final payment. There is no charge for interest. The structure simply provides for payment of the entire purchase price to be made by a total of 29 payments, the first of which was the “up front” payment described. This is not consistent with the payment being a deposit, in the sense that word is used in a legal context. In Brown v Langwoods Photo Stores Ltd, Cooke P referred to “... the role of a deposit as an
earnest that the purchaser will go ahead ...”.8 The
meaning and purpose of a deposit
are discussed in detail by the Court of Appeal in Garratt v
Ikeda.9
[42] Notwithstanding the fact that representatives of both Geotech and
Koura describe this payment as a deposit, I do not see
it as a deposit in the
sense that this word is used in the law relating to contracts for sale and
purchase.
[43] Whether that view is correct or not, the result is in my view the same as far as the present case is concerned. Mr Munro argues that even if the balance of the November invoice, and the December invoices, were due by 3 December, Koura was in fact in credit with Geotech because Geotech held a deposit of $200,000 plus GST, and there was therefore no sum owing when the machinery was disabled. He says that the principle relating to forfeiture of deposits is an exception to the general rule that a vendor cannot retain sums paid under a contract which amount to penalties. He says that the right to retain a deposit only applies in relation to contracts for the sale and purchase of real estate and only if certain conditions are met. He says that the deposit in this case was not a genuine pre-estimate of loss, and in any event there was a separate estimate of loss contained in the first agreement, which provides for a
penalty of $400 per day to be paid in the event of breach. He says this
term applies
8 Brown v Langwoods Photo Stores Ltd [1990] NZCA 180; [1991] 1 NZLR 173 (CA) at 176.
9 Garratt v Ikeda [2001] NZCA 316; [2002] 1 NZLR 577 (CA) at [34] and [35].
to the second agreement as well. He says that a deposit can only be
forfeited if there is an agreement that this will occur in the
event of
breach.
[44] On this basis Mr Munro submits that it is arguable, for present
purposes, that not bringing the first payment into account
against overdue
invoices offends the law against retention of sums which amount to penalties and
therefore it must brought to account.
[45] I do not find this argument to be tenable. First, the law in relation to payment of deposits does apply to contracts for sale and purchase of articles other than real estate. Secondly, if the sum of $200,000 plus GST is properly described as a penalty, it was well under 10 per cent of the purchase price under the second agreement and therefore within the terms discussed by Tipping J in Garratt v Ikeda. His Honour
said:10
This is an aspect of the law where it is of the highest importance to have as
much certainty as possible. The primary nature of a
deposit as expressed in the
authorities cited, and both the popular and legal usage of the word, support
the view that when the
parties describe as a deposit a sum not exceeding 10 per
cent, paid or payable to seal the bargain, they must be taken as knowing
and
intending that if the purchaser defaults the deposit will be liable to
forfeiture or recovery by the vendor. There can be few,
if any, purchasers in
New Zealand who do not understand and accept that a 10 per cent deposit is not
refundable if they default.
...
[46] For this reason, even if the initial payment was a deposit as that
term is used in the law of contract, Geotech was not
obliged to offset
this sum against the instalments which were in default by 3 December. In
any event, the argument is elliptical
because if the first payment was a deposit
and was applied to meet the contested instalments, Koura would still be behind
in its
obligations by the same sum. Mr Munro’s analysis did not allow,
either, for the fact that the ‘deposit’ was on
the second agreement,
so could not be applied to the first or the third.
[47] I accept Mr Riches’ argument that if the payment was properly characterised as a deposit on the second agreement, Geotech was entitled to forfeit it when Koura breached the second agreement and later cancelled the contract. I accept also his
alternative position that if that is not the case, the deposit is just
one factor which
10 At [40].
would be taken into account by the Court if Koura were to apply for relief
under s 9 of the Contractual Remedies Act 1979, and that
it is most unlikely
that Koura would obtain relief given that it is the party in breach for not
paying required instalments under
the three contracts. On the facts before the
Court I cannot see any arguable basis on which Koura could maintain a claim to
be entitled
to a refund of all or part of the first instalment of the purchase
price. The short point is that Koura defaulted in making contractually
required
payments in November and in December and continued to default up until the point
at which it cancelled the contract in April.
Throughout November 2015 it had use
of the machinery to which the second agreement applies when it had only paid
approximately one-fifth
of the amount of that month’s
instalment.
[48] The third argument by Mr Munro is that the sum claimed in the
November and December invoices for the second agreement is
in dispute because
Geotech failed to supply equipment to Koura which was included in that
agreement.
[49] The basis of this argument is the contention in his affidavit by Mr McDonald that in addition to the nine items listed in the email written by Mr Currie on
21 October, on which Geotech relies, it was also agreed that the second
agreement would include three items not on that list, a Hyab
Hino, a Cummins
engine, and a GT1250 lighting tower. He says it was agreed that these items
would be included, and that the email
from Mr Currie was inaccurate. The three
items concerned were given values by Mr McDonald, in his initial email of 6
October
in relation to entering a purchase agreement, a total of
$94,000.
[50] Mr McDonald’s evidence on the items included in the agreement is at variance with the email relied on by Geotech as forming the basis of the contract. Although he was asked to confirm the contents of the email more than once by Mr Currie, Mr McDonald made no reference whatsoever to the list of equipment being inaccurate in his one and only response on 27 October, where he referred only to the requests for payment of overdue monies. On a matter as fundamental as the list of equipment being purchased, the obvious step for Mr McDonald to take when he received the email and was asked to comment on it was to inform Mr Currie that the list of equipment was not right. The first that Geotech knew of this view was
when Koura’s solicitors informed it in their letter of 17 March, five
months later and after Koura had paid part of the November
invoice, and made
promises to bring all payments up to date in November and December.
[51] Even if, on the present application, the evidence of Mr McDonald
should be accepted despite these factors, the value of the
items represents a
very small percentage of the total value of the items which were sold in the
second agreement. A dispute raised
on an application to set aside a statutory
demand must be genuine and substantial. Even assuming this element of the
alleged dispute
to be genuine, it is not shown that it is substantial. There is
no evidence that any request was made at any point that these items
be supplied
so that they could be used in Geotech’s mining operation. There is scant
evidence that the mining operation was
adversely affected to any significant
extent by these items not being supplied. Importantly, there is no evidence
that the non-supply
of these items caused any specific loss, either by
disruption or by Koura having to obtain these items elsewhere at some expense.
Given that the items in issue had a value of approximately 3.3 per cent of the
contract price, the most that could be credited to
the outstanding instalments
claimed in the demand is approximately $7,000 to $8,000.
[52] In giving this summary I have not overlooked the fact that there is
conflicting evidence over the provision of a lighting
tower, one of the three
items in question. The parties disagree on whether this item was supplied or not
and it is not clear whether
the parties are referring to the same lighting tower
in their evidence. There is brief reference to the lighting tower being
necessary
for the overnight operation of Koura, but no evidence as to the effect
of it not being there. There is also evidence that a lighting
tower was
supplied but damaged by Koura, though this is denied. The true position in
relation to the lighting tower cannot be established
on the present case, but
for the reasons given I find that issues over supply of equipment do not raise a
dispute of sufficient substance
to justify setting aside the demand.
[53] For these reasons I find that Koura has not established that it has an arguable defence to liability to pay the sum claimed in the statutory demand.
Second issue: Does Koura appear to have a counterclaim exceeding the total
of the invoices?
[54] The basis on which Koura maintains it has a counterclaim is
two-fold. First, it says that Geotech is in breach of the second
agreement by
failing to supply the three pieces of equipment to which I have referred. No
detail is provided of the loss this might
have caused and I am unable to
assess whether any sum might be recovered by Koura from Geotech in this
regard. This
is fully discussed above.
[55] The second basis of a counterclaim is said to be the wrongful action
of
Geotech in disabling the equipment in both mines, and all three agreements,
on
3 December. I have canvassed this in detail in the context of the submission that this provided an arguable defence to liability to pay the sum demanded and the same analysis applies.11 It has not been established even to the degree required for the application before the Court that Geotech repudiated the contract on 3 December, but even if that conclusion is wrong, Koura failed to take the most obvious and simple step to mitigate its loss, namely paying the outstanding invoices, when it was clear
that Geotech was receptive to reinstating the use of the equipment upon
payment being made.
[56] Koura has simply failed to meet any of its financial commitments to Geotech since 1 December, in respect of all three agreements, and in part for November in relation to the second agreement. Even if Geotech did repudiate the agreements, Koura is entirely responsible for the loss that it claims to have incurred, running into several million dollars, by not mitigating its loss. Mr Munro argued that the issue of mitigation of loss could only be determined at trial. Whilst as a general proposition that submission has some weight, it does not carry weight in this case where the form of mitigation is so obvious, simple and readily assessable. In short, had Koura paid the invoices, it would not have incurred any loss at all, apart perhaps from interest (if incurred) on $206,944.88 for 28 days. At 5 per cent this is a sum under
$800.
11 See [35] above.
[57] For these reasons Koura has not established that it has an
arguable counterclaim against Geotech.
Outcome
[58] The application to set aside the statutory demand is
dismissed.
[59] Mr Riches said that in this circumstance it was appropriate for costs to be awarded to his client on a 2B basis and I agree. Koura will pay to Geotech costs on
a 2B basis with disbursements fixed by the
Registrar.
J G Matthews
Associate
Judge
Solicitors:
Anderson Lloyd, Christchurch
Saunders & Co, Christchurch
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URL: http://www.nzlii.org/nz/cases/NZHC/2016/1926.html