Ingenious Limited v AP Chartered Accountants Limited [2024] NZHC 1277 (22 May 2024)

Last Updated: 10 July 2024

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-3067 [2024] NZHC 1277

BETWEEN	INGENIOUS LIMITED Plaintiff
AND	AP CHARTERED ACCOUNTANTS LIMITED Defendant

Hearing:	1 May 2024
Appearances:	A Nair for the Plaintiff Defendant represented by Mr A Price, one of its directors
Judgment:	22 May 2024

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application to set aside a statutory demand]

This judgment was delivered by me on 22 May 2024 at 3 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Nair & Associates, Auckland

INGENIOUS LIMITED v AP CHARTERED ACCOUNTANTS LIMITED [2024] NZHC 1277 [22 May 2024]

Introduction

• [1] Ingenious Limited (Ingenious) applies to set aside a statutory demand made on it by AP Chartered Accountants Limited (AP Chartered Accountants) for payment of a due debt in the sum of $4,260.63 being the amount due and payable in respect of services rendered by AP Chartered Accountants Ltd (the Services).

Background

• [2] AP Chartered Accountants were engaged by Ms Deepika Jindal to assist Ingenious for matters related to taxation, GST, accounting and IRD matters. Ms Jindal signed a letter of engagement as director of Ingenious and in her personal capacity. All instructions to AP Chartered Accountants were made through Mr Gautum Jindal, Ms Jindal’s husband.

• [3] AP Chartered Accountants issued a statutory demand dated 19 December 2023 demanding payment of three outstanding invoices INV-0387, INV-0405, and INV- 0406. Two of those invoices, INV-0387 and INV-0406 have since been paid. INV- 0405 is disputed by Ms Jindal and Ingenious.

Ingenious’ application to set aside statutory demand

• [4] Ingenious seeks orders¹ setting aside the statutory demand dated 04 December 2023 served upon the applicant on 05 December 2023. The grounds on which the orders are sought are:²

(a) there is substantial dispute as to whether all the debts underlying the statutory demand are owing.

(b) Ingenious has paid the undisputed portion of the debt to AP Chartered Accountants, but AP Chartered Accountants’ position is unreasonable;

(c) Ingenious has expressly advised AP Chartered Accountants of the matters it disputes regarding the debt;

¹ Application for setting aside statutory demand dated 14 December 2023 at [1].

² At [2].

(d) in the circumstances of this matter, AP Chartered Accountants’ refusal to withdraw statutory demand despite being offered to be fully paid for (and paid for) the undisputed invoices, is a misuse of the statutory demand regime.

(e) in all the circumstances, the serving of the statutory demand is an abuse of process and oppressive.

Affidavit of Deepika Jindal dated 22 December 2023

• [5] Ms Jindal, sole director of Ingenious, has made an affidavit in support of Ingenious’ application to set aside the statutory demand.

• [6] Ms Jindal states that AP Chartered Accountants has issued a statutory demand based on three invoices — INV-0387, INV-0405, and INV-0406.

• [7] Ms Jindal deposes that the invoice, INV-0405 dated 30 April 2023, for

$2,587.50 does not relate to any work done by AP Chartered Accountants for Ingenious. She says this work was an expert opinion which Mr Andrew Price (the director of AP Chartered Accountants) prepared for a legal matter in the Court of Appeal which does not relate to Ingenious in any way.

• [8] Ms Jindal deposes she has written three times to AP Chartered Accountants offering to pay the undisputed invoices — INV-0387 and INV-0406 — and requesting them to amend INV-0405. She says she asked AP Chartered Accountants to withdraw the statutory demand after paying $1,321.93 for the undisputed invoices as there will be no outstanding amount to be paid.

• [9] Ms Jindal deposes her husband also contacted Mr Price to resolve matters and was unsuccessful.

• [10] Ms Jindal deposes Ingenious has paid the amount $1,321.93 for the two undisputed invoices and attached the three invoices to her affidavit.

Affidavit of Gautam Jindal dated 04 March 2024

• [11] Mr Jindal, husband of Deepika Jindal, has made an affidavit on support of Ingenious’ application to set aside the statutory demand.

• [12] Mr Jindal notes that he is personally involved a matter — CIV 2021-404-2342

— for which he was advised by his counsel to obtain expert opinions from Chartered Accountants and Liquidators. Mr Jindal says he asked Mr Price and Mr McLennan to provide an expert opinion. Mr McLennan provided his expert opinion free of charge.

• [13] Mr Jindal deposes that there was clear communication to Mr Price that he was supposed to pay for his charges. He says that this was communicated during a phone call and in an email. Mr Jindal says Mr Price was aware that he was the litigant in the civil matter in which he was providing the expert opinion and that neither Ingenious nor Ms Jindal were involved.

• [14] Mr Jindal claims there is no doubt that Mr Price knew that the instructions came from him and that he was supposed to pay for his time and attendances. Mr Jindal says that the invoice INV-0405 for $2,587.50 does not relate to any work done by AP Chartered Accountants for Ingenious.

• [15] Mr Jindal deposes that he met with Mr Price on 2 October 2023 and informed him that the invoice INV-0405 was issued to the wrong entity. He says Mr Price agreed and said he would look into it. Mr Jindal says Mr Prince acknowledged in an email that there was discussion regarding reissuing INV-0405.

AP Chartered Accountants’ opposition

• [16] AP Chartered Accountants opposes the application on the following grounds:³

(a) Ingenious’ application for setting aside statutory demand is defective as it does not include a signed affidavit (a signed affidavit was however emailed by Ingenious to AP Chartered Accountants on 22 December 2023);

³ Notice of opposition to originating application to set aside statutory demand at [3].

(b) Ingenious’ application for setting aside statutory demand is defective as it does not state the grounds of why the application is being made and the basis of why a substantial dispute is claimed;

(c) there is no substantial dispute as to whether all the debts underlying the statutory demand are owing.

(d) AP Chartered Accountants has a letter of engagement signed by Deepika Jindal in her personal capacity and as director of Ingenious, under which all services were provided under instructions from Gautam Jindal, husband of Deepika Jindal and solicitor of Ingenious Limited;

(e) Over 18 emails were sent by AP Chartered Accountants requesting payment of the outstanding debt since 30 April 2023 all of which were ignored by Ingenious until a statutory demand was issued and only then was a substantial dispute claimed;

(f) Ingenious has no evidence, nor has it provided any evidence, of a substantial dispute;

(g) Point 11 in the affidavit of Deepika Jindal dated 22 December 2023 is disputed as being factually incorrect as AP Chartered Accountants was not and has never been requested to correct invoice INV-0405 issued by AP Chartered Accountants.

(h) Point 11 in the affidavit of Deepika Jindal is inadmissible as evidence as Deepika Jindal was not present at the meeting held on 2 October 2023 between Andrew Price and Gautum Jindal. Deepika Jindal has no authority or ability to make an affirmation of what was discussed during the meeting between Andrew Price and Gautum Jindal on 2 October 2023 and the statement at point 11 is hearsay only.

Affidavit of Andrew Price dated 3 January 2024

• [17] Mr Price, the sole director and shareholder of AP Chartered Accountants, has made an affidavit in support of AP Chartered Accountant’s opposition to set aside the statutory demand. He deposes that he had not had any direct contact with Ms Jindal or met her at any point. He attaches the letter of engagement that Ms Jindal signed as director of Ingenious and in her personal capacity.

• [18] Mr Price states that he was requested by Gautum Jindal, husband of Ms Jindal and solicitor of Ingenious to provide expert testimony in relation to liquidation fees charged by Liquidation Management Limited. Mr Price attaches emails confirming request of this work to his affidavit.

• [19] Mr Price details his attempts for request of payment made to Ingenious and Mr Jindal for the service. He deposes that Mr Jindal repeatedly acknowledged the outstanding invoices and assured him they would be paid shortly. After meeting with Mr Jindal in person in October Mr Jindal requested Mr Price reissue the invoice to another person on a GST zero-rated basis. He declined the request.

• [20] After Mr Price issued a statutory demand on Ingenious on 5 December 2023, he received emails from Ms Jindal claiming invoice INV-0405 was disputed. Mr Price notes that Ms Jindal requested Mr Price reissue invoice INV-0405 but no further details were provided on who Ms Jindal proposed it should be reissued to and when it would be paid. Mr Price deposes that all work he provided to Ingenious and Ms Jindal as requested and instructed by Mr Jindal was provided in accordance with his engagement terms which Ms Jindal signed as director of Ingenious.

• [21] Mr Price claims he was fully entitled to receive instructions from Mr Jindal to provide services and invoice Ingenious for those services. He says that at no point prior to the statutory demand being issued was a dispute claimed in respect of invoice INV-0405.

• [22] Mr Price stays that of the three invoices that comprised the total debt outstanding in the statutory demand, two of them have since been paid and the only outstanding invoice remaining at the present date is INV-0405 for $2,587.50.

Legal principles

• [23] Section 290 of the Companies Act 1993 provides, relevantly:

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.

• [24] The Court has set out the principles relevant to the application of s 290(4):⁴

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 a real and not a fanciful or insubstantial dispute. 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.

• [25] As to s 290(4)(a), the Court is to look at whether a genuine substantial dispute exists.⁵ Mere assertion of a dispute does not suffice, and the applicant must show a fairly arguable basis for it.⁶ In practice, it is required that there be some material short of proof that backs up the claim that the amount is in dispute.⁷

• [26] Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company

4. AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnotes omitted).

⁵ Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.

6. N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] NZCA 183; [2001] 3 NZLR 447 (CA) at [27].

⁷ Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].

must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.⁸

Analysis

• [27] There are two issues to be determined in this judgment:

(a) Whether service of the unendorsed copy of the application to set aside the statutory demand within the 10 working day timeframe, with the endorsed copy being served on AP Chartered Accountants a day after expiry of the 10-day period complies with s 290(2) of the Companies Act 1993. In addition there is a question as to whether service of the application by email complied with s 387(1)(e) of the Companies Act;

(b) Whether there is a genuine and substantial dispute in respect of the debt underlying the statutory demand.

• [28] I deal with each of these issues in turn.

Service of the application

• [29] Mr Price submits Ingenious’ application to set aside the statutory demand was not served on AP Chartered Accountants within the 10 working day period required in s 290(2) of the Companies Act 1993.

• [30] Section 290(2) provides a fixed deadline of 10 working days for any company served with a statutory demand both to bring an application to set aside the demand and also serve that application on the creditor. Section 290(3) provides that no extension of time may be given for bringing or serving such applications, although the Court may extend the time for compliance with the statutory demand.

8. N F Global Ltd v Sky Capital Management Ltd, above n 6, at [40], citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd [2005] NZHC 1255; (2005) 18 PRNZ 97; Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2000] NZCA 230; [2001] 1 NZLR 272 (CA) at 274–275.

• [31] In this instance, the statutory demand was served on Ingenious on 5 December 2023, and an unendorsed copy of the application to set it aside was served on AP Chartered Accountants on 14 December 2023 (within the 10 working day limit). An endorsed copy of the application to set it aside was then served on 20 December 2023 (one day outside the 10 working day time limit), the service being by email.

• [32] Mr Raj, for Ingenious, submits that the application was served within the requirements of s 290(2) of the Companies Act, relying on the decision in Hyro Australia Pty Ltd v Commissioner of Inland Revenue⁹ where Associate Judge Gendall concluded that in the circumstances of that case an application to set aside a statutory demand was filed and served in time. The circumstances were that the application was filed in the Court within the 10 working day time period, but the respondent only received an unendorsed copy of the application within the 10 working day time period. The endorsed copy of the application was received by email after the expiry of the 10 working day period. However, importantly, it was noted by Associate Judge Gendall that the applicant had received an acknowledgment from the respondent upon the respondent’s receipt of the unendorsed copy and that acknowledgement was received within the 10 working day time period. The Associate Judge concluded that due to the acknowledgment, the applicant could rely on s 387(1)(e) of the Companies Act 1993 that service of the demand had been properly completed “in accordance with the agreement made with the company”.

• [33] In the present instance no such acknowledgment was provided by AP Chartered Accountants.

Conclusion in respect of service of the application

• [34] I am of the view that service of the application has not been made in accordance with s 290(2)(b). In my view, the situation is analogous with the situation described by Associate Judge Gendall in the Hyro Australia decision (absent the respondent’s acknowledgement) where he said:¹⁰

9. Hyro Australia Pty Ltd v Commissioner of Inland Revenue HC Wellington, CIV-2011-485-1953 (16 December 2011).

¹⁰ Above n 1, at [25]-[27].

• [25] At best the respondent received an unendorsed copy of the application on [a date within the 10 working day period] but an endorsed copy of the application was only received by the respondent by email on [a date after the 10 working day period had expired].

• [26] Service of the application, thus was probably not carried out in a strict sense within the methods expressly provided for in s 387 of the Companies Act. That section in the absence of agreement or otherwise, does not permit service by email.

• [27] Nor in any event was service completed in that sense in time within the 10 working day period after service of the statutory demand on the applicant. This required service by [a date within the 10 working day time limit] and the applicant seems to acknowledge that in a technical sense this did not occur.

• [35] While Associate Judge Gendall went on to hold that in fact the demand was filed and served in the time, his decision was dependent on the fact that there was a written acknowledgment of the application from an officer of the respondent within the 10 working day period. This is absent in the present case, and in my view makes the Hyro Australia decision entirely distinguishable from the present case. Section 290(3) provides that no extension of time may be given for bringing or serving the application. On that basis, I conclude that the invalid service of the application within the 10 working day period is sufficient to dispose of the application.

• [36] Even if I was to take the view that service of the unendorsed copy of the application within the 10 working day period was sufficient for the purposes of s 290(2)(b), service by email is only valid under s 387(1)(e) of the Companies Act if “by agreement with the Company.” Mr Raj submitted frequent previous correspondence with AP Chartered Accountants by email was sufficient for an implied agreement that AP Chartered Accountants could be served by email. I do not accept that the previous course of dealing by correspondence is sufficient to constitute an agreement for the purposes of s 387(1)(e). Consequently, service of the application was not valid under s 387(1)(e).

Whether there is a genuine and substantial dispute in respect of the debt

• [37] As a result of the conclusion I have reached in relation to the service of the application, it is not necessary to consider whether there was a genuine dispute as to the debt underlying the statutory demand.

Result

• [38] As a result of the conclusions I have reached at [35] and [36], Ingenious’ application should be dismissed.

Orders

• [39] I make the following orders:

(a) Ingenious’ application to set aside the statutory demand issued by AP Chartered Accountants is dismissed; and

(b) as the successful party, AP Chartered Accountants are entitled to costs on a 2B basis and disbursements as fixed by the Registrar.

................................... Associate Judge Taylor