Cable Price (NZ) Limited v Taimona Haulage Limited [2016] NZHC 828 (28 April 2016)

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UNDER	the Companies Act 1993, Section 241
IN THE MATTER OF	an application for the liquidation of TAIMONA HAULAGE LIMITED
BETWEEN	CABLE PRICE (NZ) LIMITED Plaintiff
AND	TAIMONA HAULAGE LIMITED Defendant

Hearing:	28 April 2016
Appearances:	H King and A Easterbrook for Plaintiff A Holgate for Defendant
_Judgment:	_{28 April 2016}

Webb Ross McNab Kilpatrick (A Easterbrook/H King), Whangarei, for Plaintiff (on instructions)

CABLE PRICE (NZ) LIMITED v TAIMONA HAULAGE LIMITED [2016] NZHC 828 [28 April 2016]

[1] Cable Price (NZ) Ltd applies under s 241 of the Companies Act 1993 for an order that Taimona Haulage Ltd be put into liquidation. Cable Price says that it is a creditor of Taimona for $14,607.68 being the balance owed for repairs carried out and parts supplied in March 2015. Cable Price served a statutory demand on the registered office of Taimona on 27 August 2015. Taimona did not comply with the notice within 15 working days of service. Cable Price began this proceeding in September 2015. It relies on the presumption of insolvency under s 287(a) of the Companies Act.

[2] In a creditor’s application for liquidation relying on inability to pay debts, there are three main questions:

[3] In this case, Taimona defends by contesting the standing of Cable Price as a creditor. It contends that the debt on which Cable Price relies is subject to a genuine and substantial dispute. That is a recognised ground for resisting a liquidation application. The Court of Appeal repeated this in Yan v Mainzeal Property and Construction Ltd :¹

[61] It has long been established that, as a general rule, an order to put a company into liquidation will not be made where the application is founded upon a debt that is genuinely disputed. To apply to wind up a company in such circumstances is regarded as an abuse of the court’s process: Bateman Television Ltd (in liq) v Coleridge Finance Co Ltd. In such cases, the court has an inherent jurisdiction to prevent such an abuse of process. But the court also has power to consider disputed debts in the context of an opposed application for liquidation or upon applications for orders restraining advertising and staying proceedings. The relevant principles were recently

¹Yan v Mainzeal Property and Construction Ltd (in receivership and in liquidation) [2014] NZCA

(a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

(b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

(c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available.

(d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

[4] The Court of Appeal also noted that it had expressed similar views in Link

Scania 360 model 124L truck, registration number APF453. There was a contract between Taimona and Cable Price that Cable Price was to repair the truck. Under the agreement, Taimona relied on Cable Price’s expertise and technical skills to repair the vehicle and to take steps to prevent loss or damage to the vehicle. It pleads that Cable Price breached the agreement in failing to use the required care and skill. In particular there was a problem with oil in the water system and water in the oil system caused by a faulty sleeve in the fourth cylinder. The problem would have been found if the fourth cylinder-head had been removed, but the plaintiff repeatedly failed to identify the issue when a skilled mechanic would have done so. As a further breach of the agreement, the truck was involved in an accident in the plaintiff’s workshop and sustained damage when emergency action was taken to free one of the plaintiff’s employees who was caught underneath. That resulted in damage to the truck and also delays in returning the truck to the defendant. Taimona pleads that the repeated inability of the plaintiff to identify and fix the problem and

_{the workplace accident caused economic loss to Taimona in that it lost a
valuable}

contract said to be worth $21,000 a month where the contract still had nine months to run. Taimona says its losses exceed the amount claimed by the plaintiff.

[6] In support of that defence, Taimona’s director, Mr Diamond, has given an affidavit. He refers to the problem in the engine with oil seeping into the cooling system and engine. There was also engine coolant contaminating the lubricating oil. He put the truck into Cable Price’s workshop in Whangarei. He says that the truck ended up going to the workshop a further three times with the same problem. Taimona paid the bill for the first visit to the workshop. The truck was a Scania. Cable Price are Scania agents, with expertise in dealing with Scania trucks. The first time he uplifted the truck was on 22 August 2014. The problem was not fixed and he took the truck back on 29 August 2014, but he says that the plaintiffs’ testing did not find anything. He says that the truck became unreliable. The engine would overheat. The truck was sent back to Cable Price a third time, on 3 September 2014. Again, the engine was overheating - the same problem that had caused the truck to be sent in for attention before. He says that when the truck was in on the third occasion the plaintiff ’s staff took three of the cylinder heads off and replaced gaskets and fitted and replaced another 22 items. The plaintiff’s staff told him that they thought the problem was sorted. He found that was not the case. He drove the truck about a kilometre from the workshop when an injector hose and a turbo hose came loose because they had not been put back on properly. He had to take the truck back. The staff said the problem was with the injector hose and the turbo hose. He paid for it this time.

[7] The fourth time the truck needed attention was on 7 December 2014. The truck was at the Winstone’s Quarry which is fairly close to the Cable Price branch in Whangarei. The plaintiff’s mechanics were called and inspected the truck. The mechanic said that the problem was that the engine was hydro-locked. This apparently meant that water was in the cylinders and was covering the pistons. The truck had to be towed back to the workshop on 8 December 2014. The truck was supposed to have been returned on 5 January 2015 but that had to be rescheduled. He had a phone call in early January that there had been an accident in the workshop and a mechanic had been trapped under the cab of the truck. Worksafe New Zealand was called in. He says that the vehicle was not returned until 7 March 2015.

He says that with the truck out of action he lost a valuable contract to carry spoil from the Waterview Connection Project in Auckland. That contract was to run from January 2014 to October 2015. Net earnings per month were $17,420.49. He puts Taimona’s loss at about $209,000.

[8] Mr Diamond has added that the truck suffered damage as a result the accident in the workshop. He has attached photographs showing damage to the truck. Mr Diamond queried the matter with the manager of the workshop and when an account was sent, he spoke to the lady from the accounts department and told her that he was unhappy about the bill.

[9] It is uncontested, however, that he did not respond to the statutory demand. The failure to respond to the statutory demand has given rise to a rebuttable of presumption of insolvency. That is beside the point for this case. This case has not been fought on questions of insolvency but on the plaintiff’s standing as a creditor.

[10] A creditor whose debt is subject to a dispute may apply for liquidation if they first obtain leave from the court under s 288(5) of the Companies Act, but to do so they have to establish a prima facie case that the company is unable to pay its debts. Cable Price did not make any application for leave under s 288. In doing so it would not be able to rely on the statutory demand because the debt on which it relies is subject to a substantial dispute.

[11] With its evidence, Taimona has shown an arguable basis for disputing the debt alleged by Cable Price. There may be grounds for not paying the bill and, in addition, there may also be grounds for a counterclaim for the economic losses arising out of failures, first, to carry out the work properly, those defaults going back to earlier workshop visits in 2014, and, in addition, the damage sustained.

[12] Cable Price’s response came in an affidavit by Mr John Bateson. He lives in Wellington. He is Cable Price’s treasury and risk manager. His affidavit runs for some 30 paragraphs. He deposes as to the vehicle repairs. His evidence is intended to show that Cable Price carried out its work properly and that there was no fault on

the part of Cable Price for the accident which it says occurred on 15 January 2015, in which the employee was caught beneath the cab of the truck.

[13] Mr Bateson has exhibited the unpaid invoice. That document may be admissible under the “business records” exception to the hearsay rule. But the rest of his affidavit offends as inadmissible hearsay. Mr Bateson does not have any firsthand knowledge of the work carried out by the Whangarei branch on Taimona’s truck. He is relying on information gathered from company records and reports from people in Whangarei. As such, his evidence is hearsay. The relevant hearsay provisions of the Evidence Act 2006 are ss 17 and 18:

(ii) the hearsay statement is relevant and not otherwise inadmissible under this Act.

(a) the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and

(ii) the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.

[14] For Mr Bateson’s evidence to be admissible, Cable Price has to bring his evidence within s 18(1). Neither limb of s 18(1) is satisfied. Mr Bateson’s evidence puts the company’s side of the story as given to him by other people in the company.

But what he says is clearly contestable. I do not have a reasonable assurance that what he has said is reliable. Moreover, the people who passed the information on to Mr Batson have not been identified. As for the second limb, Cable Price has not adduced any evidence why any of the people who passed the information on to Mr Bateson are unavailable as witnesses. I am also not satisfied that undue expense or delay would be caused if the people who gave the information to Mr Bateson were required to be give evidence. Evidence on a liquidation application is typically given by affidavit. This is very much a Whangarei proceeding. The work was carried out at Whangarei, presumably by staff living in or near Whangarei. The defendant is in Whangarei. The case has been heard in Whangarei. I cannot understand what difficulty there would be for people based in Whangarei to give evidence by way of affidavit for this proceeding.

[15] When I raised this with Ms King, she advised that she had instructions that the branch manager at the time of the work was no longer in the company’s employ. That, however, was simply the instructions she had been given and was not evidence. If Cable Price wished to lay a foundation for me to make findings under s 18(1)(b), it needed to provide an evidential foundation for doing so. It has not.

[16] In any event, I am not satisfied that Mr Bateson’s evidence is sufficient to show that Taimona is indisputably indebted to Cable Price for the sum claimed in this proceeding. Mr Bateson’s evidence does no more than show that Cable Price has an answer to the complaints made by Taimona. It does not, however, establish that the debt is indisputably due. There remains a contest between Mr Diamond on the one hand describing the failures of Cable Price to address the problem with the truck on three separate occasions, and the problem only being properly identified on the fourth occasion, and then a delay as a result of an accident in their workshop and the assertions of Mr Bateson on the other hand that his company did a good job and did not fall below the standards expected of competent truck mechanics. On that material, I am unable to resolve the differences between the parties. I ought not to enter into a determination of the merits of the dispute. They are better decided in a proceeding in a civil court. In fact given the amount at issue the proceeding could be properly heard in the Disputes Tribunal unless, of course, Taimona wants to argue for greater losses outside the jurisdiction of the Disputes Tribunal. Taimona has raised a

genuine reason for disputing its liability to Cable Price for the invoice rendered in

[17] In its written submissions, Cable Price raised an argument based on the decision of Associate Judge Abbott in Balmoral Marketing v Karapiro Spa³to the effect that a company that fails to apply to set aside a statutory demand may be barred from disputing the debt in a subsequent liquidation application. That decision has been overtaken by later decisions – Heron’s Flight Ltd v NZ Properties International Ltd⁴and the Court of Appeal’s decision in Yan v Mainzeal Property Construction Ltd.⁵The failure of a company to respond to a statutory demand may raise a question as to a defendant’s genuineness in contesting its liability for the debt at the liquidation application stage, but even with that concern, I am still satisfied

[18] One further matter is that Mr Bateson has attached to his evidence some terms of contract. They comprise a printed form. They have not been signed by Taimona. Mr Bateson’s evidence is insufficient to show that Taimona is contractually bound by those conditions. I have not considered those conditions because on the evidence it is not clear that Taimona is contractually bound by them.

[19] In summary, Taimona has shown that the debt on which Cable Price is relying is subject to a genuine dispute, and it would be inappropriate for the court to enter into a consideration of merits of a dispute in a liquidation application. The matter is better dealt with in a civil court. Because Taimona has a proper defence to this proceeding, I dismiss the liquidation application.

[20] Counsel conferred as to costs. Costs according to scale are $9,430.00. I understand that to include disbursements as well. Cable Price resists the costs being ordered. It submits that Taimona ought to have applied to set aside the statutory demand. That would have saved the filing a liquidation application. The

_{normal rule is that costs follow the event. Admittedly it is more
convenient both for}

⁴_{Heron’s Flight Ltd v NZ
Properties International Ltd [2011] NZHC 136; [2012] 1 NZLR 424 (HC).}

the creditor and the company to resolve these matters at the statutory demand stage. But a company served with a statutory demand is not under any duty to apply to set aside a statutory demand. It has the opportunity to do so. Cable Price had the option to discontinue this proceeding once it saw the defence. It could then evaluate whether it could usefully continue with the proceeding. Having elected to go to hearing on the proceeding, it cannot complain about costs being awarded against it after it has known of the defence and seen the affidavit evidence in support of that defence. It is a standard case for costs to follow the event. Accordingly I award costs to Taimona Haulage Ltd for $9,430.00.

High Court of New Zealand Decisions

Cable Price (NZ) Limited v Taimona Haulage Limited [2016] NZHC 828 (28 April 2016)