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High Court of New Zealand Decisions |
Last Updated: 25 June 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2017-404-2886 [2018] NZHC 966
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BETWEEN
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EAGLE FLIGHT TRAINING LIMITED
Applicant
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AND
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AEROSPACE INVEST PTE LIMITED
Respondent
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Hearing:
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1 May 2018
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Appearances:
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K M Wakelin and C Juneja for the Applicant L Ponniah for the
Respondent
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Judgment:
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16 May 2018
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CORRECTED AND RE-ISSUED JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] On 7 May, I gave a reserved judgment on an application by the applicant (Eagle) to set aside a statutory demand issued by the respondent (Aerospace). Counsel subsequently drew to my attention a computation error in the amount set out at paragraph [108] of that judgment1 for which the statutory demand was upheld. On 16 May 2018 I issued a Minute correcting the computation error under r 11.10 of the High Court Rules, and directing that the 10 working day period referred to in paragraph
[108] 2 of the judgment ran from the date of delivery of the judgment and would expire on 23 May 2018. The judgment is now re-issued, with the corrected figures inserted in (what is now) paragraph [109] 1 and 2.
1 The paragraph has become paragraph [109] in this corrected and re-issued judgment.
EAGLE FLIGHT TRAINING LIMITED v AEROSPACE INVEST PTE LIMITED [2018] NZHC 966 [16 May 2018]
[2] On 22 November 2017, Aerospace served a statutory demand (the statutory demand), claiming the sum of $130,269.51 from Eagle. The amount demanded was said to be owing by Eagle to Aerospace under an agreement to lease an aircraft, entered into in July 2014 (the Aircraft Lease).
[3] Eagle has applied under s 290 of the Companies Act 1993 (the Act) to set aside the demand. I now give judgment on that application.
Background
[4] Eagle operates a business as a flight training school. Its sole director is Mr Alexander Zapisetskiy. Eagle’s shareholders are Aviation School of New Zealand Limited (ASNZ), a company of which Mr Zapisetskiy is the sole director, and a company called Leadtone Limited (Leadtone). ASNZ holds 63.25 percent of the Eagle shares, and the balance is held by Leadtone.
[5] The sole director of Leadtone is Mr Igor Ivanov, and Mr Ivanov is the sole shareholder.
[6] Eagle purchased the flight school business from the former owners in February or March 2010. On 26 February 2010, Mr Ivanov was appointed a director, and Mr Zapisetskiy became a director in May of 2010.
[7] Mr Zapisetskiy and Mr Ivanov were friends as well as partners in the flight training school business, although for the reasons that will become apparent from this judgment they are no longer friends. Mr Ivanov was removed as a director of Eagle on 18 October 2017.
[8] Aerospace is a Singapore-based company. Between 23 September 2015 and 3 March 2017, it was a shareholder in Leadtone. Its sole director is Dmitry Martynov, a businessman who is a friend of Mr Ivanov.
The acquisition and lease of the Aircraft
[9] Mr Ivanov and Mr Martynov both provided affidavits for Aerospace. Mr Ivanov said that in 2013 he and Mr Zapisetskiy decided that Eagle needed a modern twin-engine aircraft for its flight training school, but neither of them had the funds to purchase an aircraft. Mr Ivanov approached Mr Martynov, advising that the school needed an aircraft and asking whether Mr Martynov would be prepared to invest in an aircraft that could be leased to the school. Mr Martynov agreed, but required Mr Ivanov and Eagle to do all that was necessary, including finding the aircraft (Mr Martynov had other business interests, and did not have the knowledge or available time).
[10] Mr Ivanov said that between February and June 2014 there were discussions amongst himself, Mr Zapisetskiy and Mr Martynov over the arrangements to purchase and lease an aircraft. He said that he told Mr Martynov that Eagle would handle all of the arrangements, including finding a suitable aircraft, negotiating the price, dealing with purchase and delivery arrangements, and organising necessary inspections and certifications. Mr Martynov just needed to fund the purchase.
[11] Mr Martynov said in his affidavit that he had never previously been involved in the purchase of an aircraft, and had no idea what was involved. He left it to Mr Zapisetskiy and Mr Ivanov to handle all the arrangements, including finding the aircraft that suited their needs, negotiating the price, and other matters, including organising the New Zealand registration of the aircraft and the issue of the CAANZ Airworthiness Certificate.
[12] Aerospace was incorporated in Singapore for the sole purpose of acquiring and leasing the aircraft to Eagle. In June and July 2014, Mr Martynov and Mr Ivanov, acting respectively on behalf of Aerospace and Eagle, executed two agreements to achieve that end.
[13] The first agreement, dated 23 June 2014 (the Acquisition Agreement) was also signed by Mr Martynov as investor. It set out contractual terms under which Mr Martynov would purchase a Diamond DA42 aircraft (the Aircraft). Eagle would assist
in finding and ferrying the Aircraft to New Zealand, procuring a New Zealand registration for the Aircraft, and then leasing it from Mr Martynov.
[14] The Acquisition Agreement contained the following material terms:
...
2.1 The School will find the Aircraft to purchase.
2.2 The School will negotiate on behalf of the Investor the Price, the Terms and Conditions of the purchase and Delivery of the Aircraft.
2.3 The School will sing (sic) the pre-Purchase Agreement with the Seller.
2.4 The School will organise an Inspection of the Aircraft and the Delivery.
2.5 The School will organise the NZ Registration of the Aircraft and the issue of CAA Airworthiness Certificate.
3.1 The Investor will transfer by request of The School the necessary amount to cover following expenses:
3.1.1 Deposit for the Aircraft
3.1.2 Aircraft insurance
3.1.3 Cost of delivery
3.1.4 Customs and GST Fees
3.1.5 Registration Fees
3.2 The bank details for transfer:
Bank: Bank of New Zealand
Acc Name: Eagle Flight Training Limited Acc No: 851808-0000
SWIFT: BKNZN22
Address: 330 Broadway, Newmarket, Auckland, NZ 1023
3.3. The Balance for the Purchase of the Aircraft the Investor or the Lessor will pay directly to the Seller.
The School and The Lessor will sign the Lease Agreement between parties for 5 (Five) years on Terms and Conditions are described in the Lease Agreement.
...
[15] The second agreement was the Aircraft Lease. It is dated 10 June 2014, but it was not signed by Mr Martynov (for Aerospace) and Mr Ivanov (for Eagle) until 16 July 2014. The owner and lessor was Aerospace, and the lessee was Eagle.
[16] The term of the Aircraft Lease was 36 months from delivery date. The delivery date was to be a date agreed between the parties.
[17] The Aircraft was described as a used 2007 Diamond DA42, which was to be in “good condition”. Aerospace assumed the responsibility to deliver the Aircraft to Eagle in New Zealand, in a state and condition satisfactory to Eagle and with a current and valid Airworthiness Certificate issued by the New Zealand Civil Aviation Authority (the CAANZ). Aerospace and Eagle agreed to maintain the Aircraft in good condition throughout the term of the Aircraft Lease.
[18] Under cl 4 of the Aircraft Lease, lease payments were to be calculated by reference to the Aircraft’s operating, or flight, hours, referred to as “Airswitch Flight Hours” (ASFH). Eagle was to pay NZD294 per ASFH for an annual minimum of 315 ASFH, and NZD118 per ASFH for any hours exceeding the annual minimum of 315 ASFH. The invoiced amounts for the ASFH, billed monthly, were to be paid by the 20th of the month following the month to which the invoice was related.
[19] Clause 5 of the Aircraft Lease expressly provided that the minimum annual ASFH to be flown was to be 315. The parties agreed to meet annually to reconcile the unders or overs regarding the ASFH minimums, such review to be completed within one month after each anniversary date of the Aircraft Lease. Any additional payments required by Eagle were to be made within 30 days of that review. In the event that the Aircraft was operated for less than the annual minimum, 100 percent of the current ASFH rate was to be charged for each ASFH above the total achieved ASFH that was below the annual minimum. Eagle was to ensure that the aircraft was available to fly
for a minimum of 300 days per annum, and the parties were to agree monthly on the Aircraft’s “available to fly” days.
[20] The Aircraft Lease contained specific provisions for maintenance of the Aircraft (cl 7), and insurance (cl 9). I will return to those provisions later in this judgment.
[21] The Aircraft Lease was to be governed by the laws of New Zealand.
[22] Mr Ivanov said that it was he who prepared the Aircraft Lease. He asserted that Mr Zapisetskiy was aware of the Acquisition Agreement and the Aircraft Lease, and was involved in the entire arrangement with Aerospace prior to and after the purchase of the Aircraft and the signing of the Aircraft Lease.
[23] Mr Zapisetskiy contended that he was not involved with the negotiation of the Acquisition Agreement or the Aircraft Lease, and was not asked to sign either document. Nor was a copy of the Aircraft Lease provided to him after signing; he said that he never saw the Aircraft Lease until he located a copy of it in Eagle’s electronic files after the Aircraft Lease had been terminated.
Delivery of the Aircraft to Eagle and its subsequent use
[24] Mr Zapisetskiy described delays in bringing the aircraft to New Zealand for the first time. It appears that there were issues with flying the Aircraft from the United States to New Zealand, and it took approximately eight months before the aircraft arrived in New Zealand.
[25] It is common ground that Eagle used the Aircraft, and derived income from it, in the period June 2015 to 20 September 2017. It is also common ground that Aerospace terminated the Aircraft Lease on 20 September 2017.
Aerospace’s claims on which the statutory demand was based
[26] Aerospace says that it issued invoices to Eagle for payments due under the Aircraft Lease, as follows:
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Invoice No.
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Date
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$
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$
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ASFH
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ASFH Shortfall
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1
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1.6.15
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2352
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8
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2
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13.7.15
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5457.85
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18.56
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3
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31.8.15
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7538.16
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25.64
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4
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30.9.15
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11554.2
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39.3
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5
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31.10.15
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19874.4
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46776.61
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67.6
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Less Paid
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39143.65
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Balance
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7632.96
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6
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30.11.15
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16346.40
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55.6
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7
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31.12.15
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8261.40
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28.1
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8
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31.01.16
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2822.40
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9.6
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9
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20.03.16
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940.80
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3.2
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10
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31.03.16
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8437.80
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28.7
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11
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30.06.16
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14376.60
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48.9
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12
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31.07.16
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2616.60
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8.9
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13
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31.08.16
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3969.00
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13.5
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15
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30.09.16
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5527.20
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18.8
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15
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31.10.16
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1470.00
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5
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Invoice No.
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Date
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$
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$
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ASFH
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ASFH Shortfall
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16
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30.11.16
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2499.00
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8.5
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17
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31.12.16
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3175.20
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10.8
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18
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31.01.17
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1734.60
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5.9
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19
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28.02.17
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9731.40
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33.1
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20
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01.04.17
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9231.60
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31.4
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21
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31.05.17
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7350.00
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25
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494.1
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22
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30.06.17
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2557.80
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8.7
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23
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21.09.17
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9281.58
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31.57
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110329.38
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Total
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117962.34
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Less min ASFH 1.6.15 to 31.5.17
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630
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Shortfall ASFH 1.6.15 to 31.5.17
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135.9
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at $294 p/ASFH
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$39,954.60
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24
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21.09.17
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39,954.60
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39,954.60
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157916.94
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[27] The statutory demand then gave Eagle credit for two sums totalling $23,223.16 plus GST, to which I will refer later in this judgment. The balance demanded was
$130,269.51.
Payments to Aerospace, alleged variation of the Aircraft Lease, and dispute over whether invoices were issued
[28] In his affidavits, Mr Zapisetskiy asserted that, notwithstanding cls 4 and 5 of the Aircraft Lease, there was in fact no annual commitment to fly a minimum number of hours. He said that his understanding is that it was agreed between Mr Ivanov and Mr Martynov that Mr Ivanov would handle the ASFH records and manage payments to Aerospace. Mr Martynov did not focus on ASFH records or monthly charges, and he was never specific about lease payments or calculation. Mr Zapisetskiy stated that Aerospace never attempted to forward to him any invoices associated with the Aircraft Lease.
[29] Mr Zapisetskiy also said that the parties did not follow the terms of the Aircraft Lease as to payment generally. He said that Mr Martynov and Mr Ivanov had a good working relationship, and “sporadic payments were made on an informal basis, with no invoices being issued”. He said that an example of the payment arrangement with Aerospace was that Mr Martynov requested that Eagle make payment by the end of the financial year, in order for him to review Aerospace’s accounts at once.
[30] It was Mr Ivanov who was responsible for the reconciliation of Eagle’s accounts with Aerospace. That generally involved Mr Ivanov compiling a reconciliation statement. Mr Zapisetskiy said that on several occasions Mr Ivanov would verbally ask Mr Zapisetskiy to make payment to Aerospace, in each case without an invoice being issued by Aerospace.
[31] Mr Zapisetskiy described Eagle’s general practice when an account or invoice was received from a creditor (generally by email to either “accounts” or “Igor”, at Eagle’s email address). The invoice would be stored in a Dropbox and/or in a physical folder.
[32] Mr Ivanov acknowledged that, with Mr Zapisetskiy’s and Mr Martynov’s knowledge and approval, he dealt with the monthly invoicing under the Aircraft Lease. He said that he used Eagle’s ASFH records, and prepared the monthly invoices on behalf of Aerospace. He then received the invoice on behalf of Eagle, by formally recording the invoice in Eagle’s database, filing a hard copy in a folder, and inputting the invoice into Eagle’s MYOB accounting software.
[33] Mr Ivanov accepted that he handled the bookkeeping for Eagle, including tasks like entering invoices in MYOB, bank reconciliation in MYOB, and the filing of returns with the Inland Revenue Department. But he said Mr Zapisetskiy always had access to Eagle’s MYOB files, which were stored in Dropbox, and that from March 2016 Mr Zapisetskiy had sole authority to operate Eagle’s bank account.
[34] Mr Ivanov took issue with Mr Zapisetskiy’s description of how invoices were received and processed. He said that he adopted the following process:
16.1 when a hardcopy invoice is received (in the mail or otherwise) it is placed in a leaver arch file in alphabetical order
16.2 when an invoice is received by me via email at either
accounts@aviationschool.co.nz or Igor@aviationschool.co.nz I would print it and place the copy in the leaver arch file.
16.3 the leaver arch file is kept in an unlocked shelf in my office and older files were kept in storage at a school premises (annexed hereto marked “H” is a photo of the files.
16.4 Then I enter the invoices in MYOB every month for payment on the 20th of the month following
[35] Mr Ivanov said it was never his or Eagle’s practice to store invoices in Dropbox. On a couple of times when he was away and invoices were received, staff were requested to scan the invoice to Dropbox so that Mr Ivanov could easily access it. However, at all times Mr Zapisetskiy had access to MYOB and to the physical lever arch files held at Eagle’s premises (or in storage).
[36] Mr Zapisetskiy denied that there were ever any genuine invoices sent by Aerospace to Eagle, at least in the period prior to the termination of the Aircraft Lease on 20 September 2017. He said that the purported invoices forming the basis for most of the claims in the statutory demand could not be found in Eagle’s Dropbox folders,
or in the physical files left by Mr Ivanov following his removal as a director of Eagle. Mr Zapisetskiy said that when he received the statutory demand he thoroughly searched both Eagle’s electronic and hard copy records, and could not locate any of the purported invoices, other than invoices 023 and 024 that were emailed to him on 27 and 28 September 2017. He asserted that if any of the earlier invoices existed, they would have been saved to Dropbox and/or printed and filed on the physical file. He would have found them.
[37] Mr Zapisetskiy referred to two occasions when Mr Martynov specifically asked for payment of a fixed amount. The first was on 19 May 2016, when Mr Martynov requested $13,000. The second was on 16 June 2017, when Mr Martynov requested $10,000 to cover the current costs of conducting business records and preparing annual financial statements.
[38] Mr Ivanov strongly refuted Mr Zapisetskiy’s allegation that the invoices had been fabricated after the fact to create a debt due and owing to Aerospace. He deposed that the Aerospace invoices were received by him as a director of Eagle, and they were recorded in Eagle’s business records at the material time.
[39] Mr Ivanov also asserted that Mr Zapisetskiy was aware of the overdue amount by the end of September 2017. On 4 October 2017, Mr Zapisetskiy sent an email to Mr Martynov attaching an invoice for maintenance of the aircraft. The invoice was for the sum of $52,358.21, and I will return to it later. For the purposes of the present narrative, it is enough to note that Mr Zapisetskiy stated in the email:
Therefore, our outstanding is NZD117,021.54 [less the $52,358.21 invoiced by Eagle – net balance NZD64,663.33].
...
I would like to remind you that according to clause 5 of [the Aircraft Lease] parties agreed that [Aerospace] shall charge [Eagle] only for actual flight hours, but not for annual minimum. Your invoices that are shown in your statement dated 21/09/2017 also confirmed this arrangement. [Aerospace] never intended to charge [Eagle] minimum fixed amount, otherwise monthly invoices would reflect it. Furthermore, over last 12 months we discussed outstanding amount several time. You always and only referred to amounts reflecting actual time. It looks like, unfortunately, that you decided to challenge us after I mentioned in my email dated 27/09/2017 that there would be invoices for maintenance that had to be done in order to prepare the aircraft
for registration in NZ and fit the purpose of the [Aircraft Lease] between parties.
[40] Mr Ivanov also referred to a number of financial statements or records for Eagle, which acknowledged a liability to Aerospace under the Aircraft Lease. He referred to the following:
[41] In his reply affidavit, Mr Zapisetskiy asserted that Mr Ivanov had attempted to diminish his role as Eagle’s bookkeeper. He said that he trusted Mr Ivanov to adequately record Eagle’s accounts and advise him if there were any issues. He disputed Mr Ivanov’s statement that he was the sole operator on Eagle’s bank account, saying that Mr Ivanov had full access to the bank account and had authority to transfer any amount to any payee, including Aerospace, at his discretion. That authority was cancelled only after Mr Ivanov was removed as a director of Eagle on 18 October 2017.
[42] As for access to Dropbox and Eagle’s MYOB files, Mr Zapisetskiy acknowledged that he may have had “access”, but said that did not necessarily mean that he was aware of or reviewed them on a regular basis. He said that he was responsible for Eagle’s daily operations and business development, and the latter included regular travel to South East Asia. Mr Ivanov was both a director and Eagle’s bookkeeper, and Mr Zapisetskiy looked only at the company’s records if Mr Ivanov asked him to, or during major events such as a loan and/or preparation of annual
financial statements. On occasion, Mr Ivanov would ask him to make a payment to Aerospace without an invoice actually being issued. He repeated his denials that Aerospace ever issued invoices to Eagle, that such invoices were received by Eagle, or that he reviewed them.
[43] As for the signing of Eagle’s financial statements, Mr Zapisetskiy said that Mr Ivanov prepared the statements referred to by him, and that he relied on Mr Ivanov not to misrepresent Eagle’s company records to him. He said that is “why I would have signed those financial statements”.
[44] Mr Zapisetskiy also noted that the various accounting records recording debt owed to Aerospace reflected only actual flight hours (and not annual minimums). He said that was in accordance with the arrangement that Eagle would have to pay only for actual flight hours. He said that these figures were derived from Eagle’s flight logbooks data, and not from any invoices purportedly issued by Aerospace.
[45] The Aircraft Lease did provide for an annual review and wash-up of the Aerospace entitlement to payment, and Mr Ivanov acknowledged that it was his responsibility as a director of Eagle to attend to that. He said that he never got around to it. That was to a considerable extent because, even if he had done the annual review and issued a wash-up invoice on behalf of Aerospace, Eagle was in no position to pay the invoices on their due dates. He was grateful that Aerospace did not push the issue.
[46] Mr Ivanov said there is no dispute involving the Aerospace invoices, which are overdue. They were not paid on time because Eagle needed the money to pay other expenses. He said that, at the time, both Mr Zapisetskiy and he were grateful to Aerospace for not creating a fuss and demanding full payment. From time to time, normally when Mr Martynov asked for money to be paid to Aerospace for expenses, Eagle would make some payment to Aerospace. However, there was no agreement with Mr Martynov or Aerospace to vary or change the terms of the Acquisition Agreement or the Aircraft Lease.
Mr Martynov’s affidavit
[47] Mr Martynov also denied that there was any agreement to change the terms of the Aircraft Lease, particularly in relation to the charges payable. He said that the only reason he did not take steps to recover overdue payments earlier was because of his friendship with Mr Ivanov. However, he did on several occasions raise his concern about the overdue payments with Mr Zapisetskiy, particularly when Aerospace needed some funds. He said that he was left in no doubt following his discussions with Mr Zapisetskiy that he was aware of the Aircraft Lease and accepted its terms.
[48] Mr Martynov specifically denied that there was any variation or waiver under which Eagle would have to pay Aerospace only for actual flight hours.
[49] Mr Martynov said that all of his dealings in respect of the invoicing under the Aircraft Lease were with Mr Ivanov, who he understood had the requisite authority as a director of Eagle. He left Mr Ivanov to deal with the monthly invoicing on behalf of Aerospace, and he expected a reconciliation at the end of the financial year.
[50] Mr Martynov confirmed that all the invoices listed were issued by Aerospace to Eagle on or about the dates stated, although he relied on Mr Ivanov for the calculation of amounts payable, as he was not in New Zealand and had other businesses to run. He said that at no time in any of his discussions with Mr Zapisetskiy did Mr Zapisetskiy ever ask what outstanding amounts Aerospace was asking to be paid by instalments. Nor did Mr Zapisetskiy request invoices, or say that he had never received any invoices. Mr Zapisetskiy’s response was that he would speak to Mr Ivanov and make some payments. He led Mr Martynov to believe that he knew of the outstanding invoices. Had Mr Zapisetskiy asked for invoices, Mr Martynov said that he would have sent the invoices to him.
[51] Mr Martynov said that following the termination of the Aircraft Lease he reviewed the amounts which had been invoiced. He then appreciated that the invoiced amounts were lower than those specified in cl 4 of the Aircraft Lease. He therefore issued a corrective and further invoice (number 024, dated 21 September 2017), and an updated statement, claiming an additional $39,954.60. With the $117,962.34 that
Mr Zapisetskiy had acknowledged in his email of 4 October 2017, the balance claimed in the statement of 21 September 2017 was $156,976.14.
Eagle’s disputes and counterclaims
[52] Eagle makes the following contentions:
(a) Maintenance to bring the Aircraft to CAANZ standards ($22,811.42);
(b) Propeller overhaul costs to bring the Aircraft to CAANZ standards ($11,421.88);
(c) Costs for changing engine parts ($15,284.76);
(d) CAANZ GPS navigation operation approval costs ($2,840.15); and
(e) Post-termination costs of $15,866.63;
Eagle says that, pursuant to cl 3 of the Aircraft Lease, Aerospace was to deliver the Aircraft to Eagle (with a current and valid airworthiness certificate issued by CAANZ). Aerospace was also responsible for engine replacement and propeller overhaul costs, under cl 7 of the Aircraft Lease. The post-termination costs of $15,866.63 substantially comprise a charge Eagle has made of $350 per day for a period of 35 days following the termination of the Aircraft Lease on 20 September 2017. Eagle says that it was obliged to retain the Aircraft in its possession as the registered operator, and Aerospace failed to take appropriate steps to change the registered particulars with CAANZ for the period of 35 days. The $15,866.63 claim also includes a small component for insurance of the Aircraft in the period after 20 September 2017.
Aerospace has accepted parts of the maintenance amounts claimed by Eagle – in the statutory demand it gave credits for the sums of
$11,421.88 (“propellers overhaul according to CAANZ requirements”), and $15,284.76 (“Engines parts change – due like items”), corresponding to Eagle’s counterclaims 4(b) and (c) above. The balance of these counterclaims is therefore $25,651.57. Beyond those credits, Aerospace says that payments of USD75,000 and USD80,000 made by it in 2014 have already paid for the maintenance claims in question. That is disputed by Eagle. It says that those US dollar payments do not relate to its invoices covering claims 4(a) to (c) above.
to destroy Mr Zapisetskiy if he did not comply and sell the business. Aerospace terminated the Aircraft Lease on 20 September 2017, and on
22 September 2017 Leadtone, who leased a building to Eagle, terminated the building lease. Mr Zapisetskiy formed the view that those steps were part of a wider plan to destroy Eagle, following Mr Zapisetskiy’s refusal to sell 100 percent of the business. Mr Ivanov was said to have been pushing for a full sale of the business so that he could meet personal financial difficulties he was alleged to be going through. Mr Zapisetskiy then caused ASNZ to call for a special Eagle shareholders’ meeting, and on 18 October 2017 the shareholders resolved to remove Mr Ivanov as a director of Eagle, with immediate effect. Mr Zapisetskiy expressed concern that Mr Ivanov is seeking to use the dispute with Aerospace as an excuse to appoint a “friendly” liquidator of Eagle, and to wrest control of the sale of Eagle away from ASNZ for his own personal benefit. In those circumstances, it contends that the statutory demand was issued to put improper pressure on it, in circumstances where there was mistrust and animosity between Mr Zapisetskiy and Mr Ivanov.
Applications to set aside statutory demands – legal principles
[53] A statutory demand is a demand, made in accordance with s 289 of the Act, by a creditor in respect of a debt owing by a company to the creditor.2 The statutory demand must be in respect of a debt that is due and is not less than the prescribed amount (currently $1,000), and it must require the company to pay the debt, or enter into a compromise or otherwise compound with the creditor, or give a charge over its property to secured payment, to the reasonable satisfaction of the creditor, within 15 working days of the date of service of the demand.3 If a company fails to comply with
2 Companies Act 1993, s 289(1).
3 Section 289(2).
a statutory demand, that failure provides prima facie proof that the company is unable to pay its debts – a ground on which the creditor may apply to put the company into liquidation.4 Section 290 of the Act materially provides:
290 Court may set aside statutory demand
(1) The court may, on the application of the company, set aside a statutory demand.
...
(4) The court may grant an application to set aside a statutory demand if it is satisfied that—
(a) there is a substantial dispute whether or not the debt is owing or is due; or
(b) the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) the demand ought to be set aside on other grounds.
(5) A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6) In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7) An order under this section may be made subject to conditions.
[54] Section 291 of the Act materially provides:
291 Additional powers of court on application to set aside statutory demand
(1) If, on the hearing of an application under section 290, the court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the court may—
(a) order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or
(b) dismiss the application and forthwith make an order under section 241(4) putting the company into liquidation,— on the ground that the company is unable to pay its debts.
4 Sections 287(a) and 241(4)(a).
(2) For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a), the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.
[55] The onus is on the applicant for an order setting aside a statutory demand to show that there is a genuine and substantial dispute as to the existence of the debt. The dispute must be real and not fanciful or insubstantial; the applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. The mere assertion that a dispute exists is not sufficient. An applicant must establish that any counterclaim or cross-demand is reasonably demandable in all the circumstances. The obligation is not to prove the actual claim; such an obligation would amount to the dispute itself being tried on the application.5
[56] If an application to set aside a statutory demand is made on the basis that the debt is disputed, proof of solvency is not determinative but will support the applicant’s case that the dispute is genuine.6
[57] The Court is entitled to allow statutory demands to stand in reduced amounts representing items not open to dispute.7
Issues
[58] The following are the issues to be determined:
minimum ASFH, and Eagle would pay based only on actual flight hours?
[59] I will address each of those issues in turn.
Issue 1 – Is it reasonably arguable for Eagle that no debt was owing at the date the statutory demand was issued, because no invoices had been sent by Aerospace to Eagle?
[60] The answer to this issue is “no”.
[61] Eagle could not seriously contend that it was not bound by the Aircraft Lease, and I did not understand Ms Wakelin to be advancing that argument. Mr Ivanov was a director of Eagle at the time the Aircraft Lease was signed, and there is nothing to suggest that he did not then have authority to commit Eagle to the transaction.
[62] Nor could Eagle seriously contend that it thought it had no liability to Aerospace for payments under the Aircraft Lease – Mr Zapisetskiy knew that Eagle
did not own the Aircraft, and he knew that Eagle was using the Aircraft under lease terms agreed with Aerospace. If he did not personally take the trouble to obtain a copy of the Aircraft Lease until after it was terminated, that cannot in my view affect the binding nature of the Aircraft Lease.
[63] Mr Ivanov and Mr Martynov both say that the invoices were issued on or about the dates set out in the table at paragraph [25] of this judgment, but even if they were not (a point I do not need to decide) it is clear from the email correspondence, including in particular Mr Zapisetskiy’s email dated 4 October 2017 referred to at paragraph [38] of this judgment, that Aerospace had sent a statement to Eagle on 21 September 2017 showing the invoices. That statement listed each of the invoices making up Aerospace’s (then) claim for $117,021.54, with invoice numbers, dates, and amounts. If Mr Zapisetskiy considered that no invoices had been issued at all, one might have expected him to take that point up with Mr Martynov in his email of 4 October 2017. He did not do so. And Mr Zapisetskiy confirmed in his email of 4 October 2017 that “our outstanding is NZD117,021.54 [less the $52,358.21 that Eagle had invoiced to Aerospace]”.
[64] The financial statements signed by Mr Zapisetskiy also acknowledge that he was perfectly well aware of Eagle’s liability to Aerospace under the Aircraft Lease.
[65] Even if no invoices had been sent by Aerospace under the Aircraft Lease, I am satisfied on the evidence that Eagle, through its director, Mr Ivanov, must have waived any entitlement to receive invoices. The important points are that Mr Zapisetskiy was perfectly well able to calculate Eagle’s liability himself – he was in charge of Eagle’s flight operations, and must have had access to the flight hours the Aircraft operated, and that it is simply implausible for him to contend that he was unaware of the main terms of the arrangement with Aerospace. He was a director of Eagle at all material times, and through ASNZ he had a substantial investment in Eagle. The Aircraft was essential for the flight school operation, and any businessman in Mr Zapisetskiy’s position must have been keenly aware of the revenue the Aircraft might generate and how much it would cost to operate (including the lease payments payable to Aerospace).
[66] Aerospace sent a statement to Eagle on 21 September 2017 asserting that
$117,021.54 was owing to it, and on 4 October 2017 Mr Zapisetskiy acknowledged to Mr Martynov that the $117,021.54 was “outstanding” (subject to Eagle’s counterclaim). In those circumstances I do not consider that any further demand by Aerospace was necessary before it issued the statutory demand.
[67] The answer on issue (1) then, is that, subject to the counterclaims Eagle has advanced, at least $117,021.54 was owing to Aerospace.
Issues 2 and 3 – If the answer to issue (1) is “no”, is it reasonably arguable for Eagle that the Aircraft Lease was varied to provide that there would be no minimum ASFH, and Eagle would pay based only on actual flight hours? If there was no such variation to the Aircraft Lease, is it reasonably arguable for Eagle that Aerospace has waived its entitlement to claim the additional sum of
$39,954.60 for the shortfall between amounts charged and the minimum ASFH?
[68] I will address these two issues together.
[69] The situation is unusual, in that Mr Ivanov appears to have been acting as agent for both Aerospace and Eagle in (i) issuing the invoices for Aerospace (assuming they were issued on or about the dates they bear) and (ii) “receiving” the invoices on behalf of Eagle. It appears that Mr Ivanov believed that Eagle could not pay in any event, and in those circumstances simply calculated the liability on the basis of the actual flight hours. Mr Martynov had been content to leave the matter with Mr Ivanov to deal with on behalf of Aerospace, and he did not pick up the minimum ASFH issue until after the Aircraft Lease had been terminated.
[70] I do not consider Eagle has made out an arguable case that the minimum ASFH provisions of the Aircraft Lease were varied, although the evidence does appear to support some “meeting of minds” between the parties that the annual reviews provided for in cl 5 of the Aircraft Lease need not be carried out. What is not clear is whether Aerospace intended to permanently waive its right to the minimum ASFH payments, or whether there was only a temporary acceptance of what Mr Ivanov frankly described as Eagle’s inability to pay.
[71] A waiver requires a clear, unequivocal representation by the waiving party to the other contracting party.8 Mere delay, unaccompanied by representations or other indicative conduct, is unlikely to give rise to a claim of waiver.9 The intention to waive must be made known to the other party, expressly or by conduct, and in doubtful cases, the onus is on the person alleging waiver to establish it.10 The person relying on waiver must also show that he or she has relied on the representation made.11
[72] In this case I think it arguable, on Aerospace’s own case, that Eagle did, or may have, relied on the invoices Mr Ivanov says he prepared, as a representation that Aerospace would not enforce its strict right to claim the minimum ASWH at $294 per ASFH. I think there is also a reasonable argument for Eagle that the minimum ASFH payments would not be claimed unless and until the review contemplated by cl 5 of the Aircraft Lease had been carried out. Clause 5 provided that the parties would meet annually to reconcile the unders or overs regarding ASFH minimums, such review to be completed within one month after each anniversary date of the Aircraft Lease. Clause 5 went on to provide that “Any additional payments required by the Lessee will be made within 30 days of such review.” In circumstances where no minimum ASFH were charged, and no reviews appear to have been carried out, there would not have been any “reconciliations” of the “unders”. In those circumstances I think it reasonably arguable for Eagle that no liability for the minimum ASFH had arisen before the Aircraft Lease was terminated.
[73] I also do not consider Mr Ivanov has provided an adequate explanation of why he did not issue the invoices strictly in accordance with cls 4 and 5 of the Aircraft Lease. It was he who prepared the Aircraft Lease, and he would have been well aware of the minimum ASFH requirements.
[74] I conclude that the additional $39,954.60 invoiced by Aerospace for the minimum ASFH claim is the subject of reasonable dispute. The statutory demand will be set aside to the extent of that part of the claim.
8 Connor v Pukerau Store Ltd [1981] 1 NZLR 384.
11 Above n 7.
Issue 4 – Has Eagle shown that it is solvent? If so, should the statutory demand be set aside on that account?
[75] The short point is that there is no satisfactory evidence that Eagle is solvent.
[76] Copies of financial statements produced in evidence were neither complete nor up-to-date (there was no statement of financial performance as at 31 March 2017, and the statement of financial position appeared to be missing at least one page).
[77] Further, on 4 October 2017, Mr Zapisetskiy acknowledged an outstanding debt of a little over $117,000, but that sum has not been paid. Even allowing for Eagle’s counterclaims, there would still be a substantial balance that has not been paid. Also, Mr Ivanov’s evidence is clear that payments were not paid under the Aircraft Lease because Eagle could not make the payments and meet its other financial commitments.
[78] Even if Eagle had established that it is “balance sheet solvent”, that would not provide an answer on the solvency issue, which is concerned primarily with Eagle’s cashflow and its ability to pay its debts as they fall due.12
[79] The answer to issue 4 is “no”.
Issue 5 – Should the statutory demand be set aside, or allowed to stand in a reduced amount, because of Eagle’s counterclaims for maintenance and other costs, and/or for post-termination costs?
[80] A reasonably arguable counterclaim does not have to be so linked with the creditor’s claim that the debtor would have an equitable set-off defence. As Associate Judge Lang noted in Phoenix Organics Ltd v RD2 International Limited:13
... as a matter of principle, an applicant seeking to rely on section 290(4)(b) of the Act is not required to establish any link between the amount claimed in the statutory demand and subject matter of a cross-claim or counterclaim relied upon.
[81] The learned authors of Brookers’ Company and Securities Law note that the words of s 290 of the Act impose no requirement that the two matters be linked, and
12 Companies Act 1993, s 241 (4)(a).
13 Phoenix Organics Ltd v RD2 International Limited (2003) 9 NZ CLC 263,380 at [26].
that it would have been a simple matter for the legislature to have included such a requirement. The rationale underlying s 290(4)(b) is that the recipient of a statutory demand should not be forced to comply with the demand if there remains outstanding a genuine and arguable claim against the issuer of the demand. On that basis, it is irrelevant whether or not there is a link between the debt claimed and the dispute which is the subject of the cross-claim or counterclaim.
[82] The learned authors of Brookers Company and Securities Law also note that there is no requirement in s 290(4) for the counterclaim to equal or exceed the amount of the statutory demand. The usual approach would be to set off the amount of the counterclaim against the statutory demand.14
[83] I will address the post-termination costs counterclaim first.
[84] Eagle’s first post-termination counterclaim is for $350 plus GST per day, from the date of the termination of the Aircraft Lease on 20 September 2017 to 24 October 2017, being the date the CAANZ website records the change of possession date for the Aircraft back to Aerospace. In my view, Eagle has not made out a reasonably arguable case on the counterclaim for this part of the $15,866.63 claim for post- termination costs.
[85] Eagle has failed to provide any evidence supporting its claim for $350 per day for 35 days for its costs of retaining possession of the Aircraft following the termination of the Aircraft Lease. Specifically, there is no evidence of Eagle being charged any parking charges by any Airport Authority, or incurring any other out-of- pocket expenses at the claimed rate and for the claimed period. Nor is there any evidence to support the purported daily charging rate of $350.
[86] The balance of the post-termination costs is a claim of $2,469.70 for insuring the Aircraft during the time it remained in Eagle’s possession following the termination of the Aircraft Lease. In his affidavit, Mr Martynov said he had no idea what this item related to, but that if it was an issue Aerospace was prepared to deduct
14 Brookers Company and Securities Law Thomson Brookers, 2007 at CA 290.04(4).
this amount from the statutory demand sum, purely for the purposes of the statutory demand hearing.
[87] Having regard to that concession from Mr Martynov, and having regard to cl 9 of the Aircraft Lease (which provided that Eagle’s obligation to insure the Aircraft would apply only “Throughout the term of [the Aircraft Lease]”, I find that Eagle has made out an arguable counterclaim on this part of its post-termination costs claim. I also consider that this part of the counterclaim is arguably sufficiently closely linked to Aerospace’s claim for the lease payments that it would be inequitable to allow Aerospace to recover the unpaid lease payments of $117,021.54 without bringing to account what appears to have been a prepayment by Eagle of insurance relating to the (post-termination), period when it was not responsible for the Aircraft. This part of the counterclaim arguably qualifies as an equitable set-off15 affording Eagle a partial defence to the extent of $2,469.70. The statutory demand will also be set aside to the extent of the $2,469.70.
[88] Turning to Eagle’s counterclaims set out at subparagraphs 4(a), (b), and (c) of paragraph [51] of this judgment, the total of these claims is $49,518.06. However, it is common ground that Aerospace has already credited $11,421.88 on item 4(b) (propeller overhaul costs), and $15,284.76 on item (4)(c) (costs for changing Engine parts) – a total of $26,706.64. Eagle’s remaining counterclaims are therefore the claims at subparagraphs [51](4)(a) and (d) for maintenance to bring the Aircraft to CAANZ standards ($22,811.42), and CAANZ GPS navigation operation approval costs ($2,840.15).
[89] The balance of this part of the counterclaims is disputed by Aerospace. It says it has paid these sums. Mr Martynov produced invoices said to have been received from Eagle in 2014, one for USD80,000 for prepayment, inspection, insurance and airworthiness certificate, and the other dated 24 August 2014 for $75,000, for delivery, inspection, propeller overhaul, NZCAA inspection, and New Zealand registration. Mr Martynov said that these two invoices covered the counterclaims referred to at
15 Grant v New Zealand Motor Corporation [1988] NZCA 135; [1989] 1 NZLR 8.
subparagraphs [51] (4)(a) and (d) of this judgment, and that those invoices were duly paid by Aerospace into Eagle’s bank account in 2014.
[90] Mr Zapisetskiy accepted that a total sum of USD155,000 was paid by Aerospace back in 2014, but he said that those payments did not relate to Eagle’s remaining counterclaims. He contended that the two invoices produced by Mr Martynov are fictitious, having been created only in late 2017 to create the appearance that Eagle’s counterclaims (a) and (d) had already been paid. Mr Zapisetskiy said the following in his reply affidavit in respect of the two invoices produced by Mr Martynov:
6.8 In respect of [Eagle’s] invoices “005048” and “005332” ... I believe that these invoices have been backdated by Mr Ivanov and not issued in 2014 as Mr Martynov has claimed. Annexed marked “AZC” is
a copy of [Eagle’s] sales register printout from MYOB for the period 1 June 2014 to 30 August 2014. This printout records all invoices issued by [Eagle] during the relevant period. I note that all invoices are numbered consecutively, and that the numbers commenced at “00002864” and end at “00003000”. As an aside, I note that as at the date of preparing this affidavit, [Eagle’s] invoices have only reached “00004230”.
6.9 Invoice “05332” dated 24 August 2014 refers to “propeller overhaul”. Our engineers discovered that the propellers had to be overhauled only after the [Aircraft] and its logbooks arrived at our maintenance provider’s facilities located at Hamilton airport, on or around the 9th of May 2015 (I refer to the invoice of Aeromotive Limited dated 28 May 2015 which is part of annexure “AZG”). In other words, this information did not exist as at 24 August 2014 so, an invoice relating to a propeller overhaul could not possibly be rendered. I therefore believe these invoices were generated by Mr Ivanov around July 2015 at the earliest.
6.10 Further, while I acknowledge that payments of $US80,000 and
$US75,000 were made to [Eagle] by Aerospace to purchase the [Aircraft] and deliver it to New Zealand, I do not believe that these payments relate to or have any connection with invoices “005048” and “005332”. The remittance information supplied by BNZ ([Eagle’s] bankers) for the $US80,000 payment refers to “purchase agreement of [the Aircraft]” while the remittance information for the
$US75,000 payment refers to [the Acquisition Agreement]. Copies of the remittance information is annexed. ...
[91] Eagle’s counterclaim for the $22,811.42 was supported by an invoice from Aeromotive Ltd dated 28 May 2015 for that sum. The invoice was headed “Work and inspections for C of A compliance”. I take “C of A” to be an abbreviation for
“Certificate of Airworthiness”. That is consistent with the Certificate of Airworthiness, which was issued by CAANZ on 26 May 2015.
[92] Eagle’s invoices to Aerospace for the USD80,000 and USD75,000, as attached to Mr Martynov’s affidavit, were respectively dated 23 June 2014 and 24 August 2014. On the face of it, it is difficult to see how or why they would have been issued to cover work that had not yet been undertaken.
[93] The two US dollar invoices produced by Mr Martynov are also both said to relate to the Acquisition Agreement (“Service Agreement 23/06/14”). The Acquisition Agreement did provide at cl 3 that Mr Martynov would transfer to Eagle the necessary amount to cover the following expenses:
3.1.1 Deposit for the Aircraft
3.1.2 Aircraft Insurance
3.1.3 Cost of delivery
3.1.4 Customs and GST Fees
3.1.5 Registration Fees
[94] However, it does not appear to me that the work billed by Aeromotive on 28 May 2015 fell into any of those categories. On the contrary, it arguably came within cl 3 of the Aircraft Lease, and in particular that part of the clause that made Aerospace responsible for delivery of the Aircraft to Eagle at Eagle’s (New Zealand) base “in a state and condition satisfactory to [Eagle] and with a current and valid Airworthiness Certificate issued by [CAANZ].”
[95] For those reasons, and quite apart from Eagle’s challenge to the genuineness of the two invoices produced by Mr Martynov, I am satisfied that Eagle has a genuine and reasonably arguable counterclaim in respect of the $22,811.42 invoiced to it by Aeromotive Ltd.
[96] The remaining counterclaim is the claim for GPS navigation operation approval costs of $2,840.15. This claim was the subject of an invoice from CAANZ to Eagle dated 13 January 2016 (reduced by a Credit note issued on 28 January 2016
in respect of incorrect hours charged). The invoice narration read “Flight test post aircraft IFR GPS Inst Partial invoice ... GPS installation Approval”.
[97] In the absence of evidence on the point I will assume that Eagle had the Aircraft fitted with a GPS device for use while flying on Instrument Flight Rules, at some time in or shortly before January 2016. By then the Aircraft already had its Airworthiness Certificate, and it is not clear how this cost would have been Aerospace’s responsibility under cl 3 of the Aircraft Lease. Nor is it clear that the GPS installation approval cost would have been Aerospace’s responsibility under the maintenance provisions of cl 7 of the Aircraft Lease.
[98] I think it was for Eagle to provide sufficient evidence to show that this counterclaim is reasonably arguable, and in my view it has not done that.
[99] The result on this issue is that Eagle has shown that it has genuine and reasonably arguable counterclaims in the sums of $2,469.70 and $22,811.42 (total 25,281.12). The statutory demand will be further set aside to that extent.
Issue 6 – Should the statutory demand be set aside on the “other grounds” identified by Eagle, under s 290(4)(c) of the Act?
[100] In Applefields Ltd v Trustees Executors & Agency Co of New Zealand Ltd, the High Court noted that the legitimate purpose of a statutory demand is to obtain payment for a debt due.16 Demands issued for other or ulterior purposes will be viewed as an abuse of Court process. The exercise of the Court’s discretion to set aside a statutory demand for abuse of process will turn on the justice of the particular case, which is to be exercised on a principled basis.17
[101] Ms Wakelin submitted that Aerospace has not put forward any compelling reasons as to why the purported debt was not collected earlier – its failure to do so suggests that it has improperly used the statutory demand process as a debt collection
device. She pointed to the breakdown in the relationship between Mr Zapisetskiy and Mr Ivanov, submitting that where a liquidation proceeding (or a preliminary step such as the issue of a statutory demand) relates to a breakdown in relationships between persons involved in a company, the best approach is to resolve the dispute with the benefit of full evidence, not in the Companies’ Court.
[102] Ms Wakelin submitted that the statutory demand was issued in retaliation by Aerospace, as a response to the breakdown in the relationship between Mr Zapisetskiy and Mr Ivanov. She referred to Mr Zapisetskiy’s beliefs that Mr Ivanov arranged for Mr Martynov to terminate the Aircraft Lease as retaliation against Mr Zapisetskiy refusing to sell Eagle, and that Mr Ivanov and Mr Martynov “orchestrated a plan to destroy [Eagle] as they failed to gain control of the business”. She also referred to Mr Zapisetskiy’s evidence that, following his removal as a director of Eagle, Mr Ivanov took up a role at Aerospace.
[103] In my view, there is no sufficient foundation in the evidence for the statutory demand to be set aside on the basis put forward for Eagle. As Ms Wakelin noted, each case is to be judged on its own facts, and in this case an important fact is that I have found there is no arguable defence to $91,740.42 of the amount demanded in the statutory demand. Mr Zapisetskiy acknowledged liability for a substantial part of the amount demanded as early as 4 October 2017, but Eagle made no move to pay the undisputed balance within the ensuing period of approximately seven weeks before the statutory demand was issued.
[104] Nor is there any admissible evidence of abuse of process on the part of Aerospace. Mr Zapisetskiy’s expressions of belief are not evidence, and in the email terminating the lease Mr Martynov told Mr Zapisetskiy:
The reason for termination is the debt outstanding for many months for the lease of the aircraft. I have previously informed about it in my letter, including the letter of 27.4.2017, where I warned that a termination of the lease agreement was a possibility.
If the debt will not be repaid in full in 5 working days, I will commence court proceedings.
[105] It is the rights of Aerospace with which I am presently concerned, not those of Mr Ivanov or Leadtone, and the evidence falls short of establishing arguable bad faith or abuse of process on the part of Aerospace affecting those parts of the statutory demand in respect of which I have found that Eagle has no reasonably arguable defence or counterclaim. The Aircraft Lease had been terminated over two months before the statutory demand was issued, and by then Aerospace held Mr Zapisetskiy’s acknowledgement that (subject to Eagle’s counterclaims) $117,021.54 was outstanding under the Aircraft Lease.
[106] In my view, Eagle did not have a sufficient evidential basis to make these allegations against Aerospace. The answer on issue 6 is “no”.
Issue 7 – Should the statutory demand be set aside because of substantial conflicts in the evidence?
[107] In my view there is no substantial conflict in the evidence on those parts of the statutory demand that I have determined should not be set aside. Mr Zapisetskiy acknowledged the outstanding $117,021.54, and to the extent Eagle’s counterclaims have been rejected that has not been because of conflicting evidence. The answer on Issue (7) is “no”.
RESULT
[108] I have found that Eagle has a genuine, arguable defence in respect of the
$39,954.60 claimed in respect of the minimum ASFH, and that it has genuine and reasonably arguable counterclaims for $22,811.42 and $2,469.70. The statutory demand will be set aside to the extent of those sums, and allowed to stand in respect of the balance.
[109] I make the following orders:
Associate Judge Smith
Solicitors: Meredith Connell, Auckland for the Applicant
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