Cargill Contracting Limited v Heyward Holdings Limited [2016] NZHC 351 (4 March 2016)

Last Updated: 11 March 2016

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2015-412-000115 [2016] NZHC 351

UNDER	the Companies Act 1993
BETWEEN	CARGILL CONTRACTING LIMITED Plaintiff
AND	HEYWARD HOLDINGS LIMITED Defendant

Hearing:	1 March 2016
Appearances:	L A Andersen for Plaintiff J Moss for Defendant
Judgment:	4 March 2016

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] Cargill Contracting Limited (Cargill) is seeking an order putting Heyward Holdings Limited (Heyward) into liquidation. It pleads that Heyward is insolvent and unable to pay its debts. On 25 September 2015, Cargill served Heyward with a demand under s 289 of the Companies Act 1993 in respect of a claimed debt of

$82,676.74. Heyward neither met the debt, nor applied to set aside the notice. As a result it is now presumed to be unable to pay its debts. Therefore, a ground for placing Heyward into liquidation has been established.

[2] Heyward, however, challenges the debt which was the subject of the notice. It applies for an order staying Cargill’s proceeding, and restraining advertising of the application under r 31.9 of the High Court Rules. Initially it also sought an order setting aside the statutory demand, but it accepts that the application was made outside the time limit imposed by s 290, and that s 290(3) provides that an extension of time for such an application cannot be granted. Accordingly, it does not pursue

_{this aspect of its application.}

CARGILL CONTRACTING LTD v HEYWARD HOLDINGS LTD [2016] NZHC 351 [4 March 2016]

[3] The remaining two aspects of the application are interrelated. If the proceeding is stayed, the application would not be advertised. Conversely, advertising is a necessary procedural step on an application for liquidation, so would not be stayed unless the proceeding itself was stayed. These applications are therefore considered together.

[4] In Nemisis Holdings Limited v North Harbour Industrial Holdings Limited, Wallace J summarised the principles to be applied by the Court on applications for a stay:¹

(a) The Court has an inherent jurisdiction to stay winding-up proceedings where the debt upon which such proceedings are founded is the subject of genuine dispute. In those circumstances the plaintiff cannot show it has the status of a creditor or that there has been neglect by the company to pay.

(b) The jurisdiction is an inherent one to prevent abuse of process. There is no inflexible rule.

(c) The governing consideration is whether the proceedings suggest unfairness or undue pressure.

(d) It is a serious matter to stay winding-up proceedings, so the decision to do so is never made lightly. The onus is on the applicant and it is normally necessary to demonstrate “something more” than the balance of convenience considerations which are usually considered on an application for interim injunction. If the defendant company has had an opportunity to file appropriate affidavits, such defendant is required to establish a strong prima facie case of the existence of a genuine dispute on substantial grounds, or show that there are clear and

_{persuasive grounds for a stay.}

1. Nemisis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 (HC) at 385.

Facts

[5] In 2012, Heyward applied to the Dunedin City Council for resource consent to subdivide an area of rural land in Murdering Beach Road, near Dunedin. In May

2012, the application was granted, with certain conditions imposed under the

Resource Management Act 1991. One of these was in the following terms:

4. Prior to certification pursuant to s 224(c) of the Resource Management

Act 1991 the applicant shall complete the following:

(a) That rights of way B and C shall be formed to a minimum width of 5.0m with an all-weather surface, and shall be adequately drained for their duration.

(b) That right of way A and the existing rights of way created by EI 6316675.5 shall be formed or upgraded so as to be 5.0m wide, have an appropriate all-weather surface, and be adequately drained for their duration.

[6] Heyward engaged Cargill to undertake the works necessary to comply with this condition. It charged Heyward $160,768.83. Heyward paid $78,092.09 initially, claiming that the work was not of a sufficiently high standard. It obtained a quote from another contractor, Fulton Hogan, to undertake what it sees to be remediation works, in the sum of $76,335.28. After receiving this quote it paid to Cargill the difference between the sum initially unpaid, and the amount it would have to pay to Fulton Hogan for remediation works, a further $6,341.46. The remaining

$76,335.28 remains unpaid.

[7] The quote from Fulton Hogan was not received until October 2015, some three weeks after Cargill had issued its statutory demand for $82,676.74. I understand that it now accepts that the sum for which it can claim is the reduced sum of $76,335.28.

[8] Heyward has issued a proceeding in the District Court against Cargill claiming that Cargill has breached its contract by not completing the required works to the contractually required standard. It claims the cost of remediation in the sum quoted by Fulton Hogan, and damages based on an allegation that three of the lots created in the subdivision have sold at below the values they would otherwise have had, because the access driveway was defective. In the proceeding now before this court it claims that it has a defence to Cargill’s claim on the same basis, and is

entitled to set off against Cargill’s charges the amount it will cost to bring the access up to an acceptable standard.

[9] Heyward has sold all the lots in the subdivision. The last sale was to a related company at a price assessed by a registered valuer, and that company has since on- sold the property to third parties. Heyward does not have any assets. It has a debt of

$750,000 to another related company, but says it is not in default under that advance. It has “two other parties attempting to claim debts from it” which it says are disputed, and it maintains that it does not owe any sum to Cargill because of its claimed right of set-off.

[10] In the statement of claim filed in the District Court, Heyward specifically pleads that its instruction to Cargill was to “complete roading to DCC standards for the titles to issue, including culverts”. In an affidavit sworn on this proceeding Mr Maitland Booth, the director of Heyward, confirms that he instructed Cargill to construct the road to a “minimum standard”. It is common ground that the Dunedin City Council accepted that the condition on its resource consent had been complied with and issued its certificate under s 224(c) of the Resource Management Act, with the result that the subdivision consent became unconditional, titles were issued, and in due course all the sections on the subdivision were sold.

Discussion

[11] The case for Heyward is founded on the proposition that it has a genuine dispute with Cargill over the quality of its work which it is airing in the District Court, that until the outcome of that proceeding is known Cargill does not have the status of a creditor and its application to wind up Heyward is therefore an abuse of process.

[12] In accordance with the principles summarised in Nemisis,² the Court must examine the claims made by Heyward to determine whether in fact it has a strong prima facie case showing the existence of a genuine dispute on substantial grounds.

_{From the evidence before the Court a number of difficulties with Heyward’s case can}

² Nemisis Holdings Limited v North Harbour Industrial Holdings Limited, above n 1.

readily be identified. First, it expressly claims in the District Court proceeding a contractual obligation on the part of Cargill to complete works to Dunedin City Council standards sufficient for the titles to issue. That in fact occurred, and I see little prospect of a claim based on breach of that contractual requirement succeeding.

[13] Secondly, Mr Booth expressly accepts that it required Cargill to complete the works to the bare minimum standard that would be acceptable to the Dunedin City Council. It appears to face real difficulties in now saying that the work should have been completed to a higher standard.

[14] Thirdly, although there is no evidence from a representative of Fulton Hogan, its quote is in evidence and it is apparent that relatively substantial upgrading of the accessway is proposed. It is not established on the evidence, even on an arguable basis, that the work which is now proposed is work which Cargill was required to do under its contract with Heyward, but did not do.

[15] Fourthly, it appears from the evidence that Heyward did not turn to Fulton Hogan for an independent quote until after it had received an earlier demand under s 289 for payment of the balance of Cargill’s account. Before then (on 16 July 2015) Heyward had sold the final block of land (lot 7-8) to a related company, Chapman Road Holdings Limited for $400,000 and shortly after that (on 28 August 2015) Chapman Road Holdings Limited had sold it to independent parties. The result was that by the time Heyward sought a price from Fulton Hogan for the work which Fulton Hogan has specified to upgrade the road, Heyward no longer owned any land on the subdivision. Nor, therefore, had it retained any right to carry out any work on the access. Although it seems there have been some expressions of discontent with the standard of the access from buyers of sections, the prospect of Heyward having any liability to carry out any work on it seems to be minimal and Heyward has no right to go on the land to carry out work merely because it holds the view that Cargill’s work was substandard and it should gratuitously improve the situation. So far as the state of the access is concerned, Heyward does not appear to have suffered any direct loss which it can set off against the amount claimed by Cargill.

[16] The second element of its claim in the District Court relates to the prices at which sections were sold. Heyward introduced evidence by way of a report (but not an affidavit) from Mr M F Moore, a registered valuer. He noted that he had assessed lot 2 to be worth $350,000, but it had sold for $300,000, that lot 3 had been assessed to be worth $300,000 and had sold for $290,000 and that although lot 4 had been assessed as valued at $400,000 and had been sold by Heyward for that sum, the related party to which it was sold had then on-sold it for $365,000. Heyward’s position is that the differences between sale prices and assessed market values are attributable to the condition of the roadway. To substantiate this he relies on an opinion expressed by Mr Moore in his report. After criticising the state of the roadway, Mr Moore says:

It is very apparent from the time that it has taken to obtain sales for these properties that the poor standard of access severely affected the saleability of these blocks, regardless of their size and good seascape outlooks. This factor has been confirmed by the sales that have now been achieved at a considerable discount from my original valuation assessments.

[17] This statement from Mr Moore is only contained in a report. He did not give sworn evidence so was not accredited as an expert; nor did he give the required certificate for the presentation of expert evidence.³ The Court is not required to accept this evidence uncritically. Were Mr Moore to be questioned about it, at least the following points would arise for further elaboration. First, the initial market assessments may have been ambitious. Secondly, there may have been a change in

market circumstances between the assessment and sale dates.

[18] Thirdly, all valuations are assessments based on a range of criteria, and it is generally accepted that a sale may well be achieved within a narrow margin of the assessed value. As can be seen from the figures I have cited, one of the sections was sold at approximately three per cent below its assessed market value, one was sold at market value in a related party transaction at valuation, and later resold at under

10 per cent less, and only the sale of lot 2 reflects any material difference between

_{assessed market value and the sale price achieved, some 14 per cent.}

³ High Court Rules, r 9.43.

[19] Finally on this point, whilst Mr Moore seeks to blame the condition of the roadway for the lower achieved sale prices, there is no evidence before the Court that in fact either of the two blocks which were sold by Heyward foreshadows below his assessed values achieved a lower price for this reason. It is trite to say that numerous other market forces may have been the driving reasons for the offers that were made and the acceptances which were given.

[20] For all of these reasons I am not satisfied that Heyward has an arguable claim against Cargill which amounts to a set-off of the sum which Cargill is owed under its statutory demand.

Outcome

[21] I make the following orders:

(a) The application to stay this proceeding, and to stay advertising, is dismissed.

(b) Pursuant to s 290(3) of the Companies Act I extend time for compliance with the statutory demand to 4.00 pm on Thursday, 24 March 2016.

(c) The proceeding is adjourned to the List on 7 April 2016 at 10.00 am.

(d) Heyward will pay Cargill costs on a 2B basis with disbursements fixed by the Registrar.

_{J G Matthews}

Associate Judge

Solicitors:

Len Andersen, Barrister & Solicitor, Dunedin.

Symphony Law Limited (Katherine Cowan), Christchurch.