A AUTOMOTIVE LIMITED v MOTOHAUS AG 2008 LIMITED [2018] NZHC 1064

A AUTOMOTIVE LIMITED v MOTOHAUS AG 2008 LIMITED [2018] NZHC 1064 [16 May 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-2836[2018] NZHC 1064BETWEEN A AUTOMOTIVE LIMITEDPlaintiffAND MOTOHAUS AG 2008 LIMITEDDefendantHearing: 4 May 2018Appearances: A J Steel for the PlaintiffC F L Godinet for the DefendantJudgment: 16 May 2018RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH[1] On 30 November 2017, the plaintiff applied for an order putting the defendantinto liquidation. The claim was based on the defendant's alleged failure to complywith a statutory demand issued under s 289 of the Companies Act 1993 (the Act),demanding payment of the sum of $23,609.94 said to be owing for rent on a propertyat Newton Road, Grey Lynn (the premises).[2] The defendant has filed a statement of defence to the liquidation claim, and ithas also filed an interlocutory application seeking a permanent stay of the liquidationproceeding. The application for a stay was filed three working days after the timeallowed by r 31.11 of the High Court Rules for filing such applications, so thedefendant included in an amended stay application an application for an orderextending the time to file the stay application. The time extension application was notopposed for the plaintiff, and I made an order at the hearing extending the time forfiling the stay application to the date of actual filing of the amended application.[3] The liquidation claim has been advertised, but the defendant has neverthelesselected to pursue its application for a permanent stay, rather than defend the liquidationclaim on the basis of the statement of defence filed.[4] I now give judgment on the defendant's stay application.Background[5] The defendant operates a motorcycle repair business, and acts as a distributerof motorcycle accessories and tyres. Its sole director is Mr Adrian Jordan.[6] In the latter part of 2017, the defendant operated its business from premises inCollege Hill Road, Auckland. Mr Jordan wanted more space, and began looking foralternative premises. He found the premises, and he inspected the premises twice inJuly 2017.[7] The premises are owned by a company called TWM Properties Ltd (TWM).The plaintiff held a lease from TWM, and it was using the premises as an autotransmission workshop, with four vehicle hoists fixed to the floor of the workshoparea.[8] The real estate agent dealing with the matter on behalf of plaintiff was MrAnthony. Mr Jordan concluded that the premises would meet his requirements, andhe told Mr Anthony that he wanted to move in by 1 August 2017. At the time, the 1August date was thought to be achievable, and there were discussions about theplaintiff leaving some chattels, including the rear vehicle hoist, retail counter, a latheand some air lines.The first Agreement[9] Mr Anthony drew up a formal agreement to lease between the plaintiff and thedefendant, and the agreement to lease (the first Agreement) was completed on 12 July2017.[10] The first Agreement provided for a commencement date of 1 August 2017. Thedefendant paid the first instalment of rent ($5,416.66 plus GST) on 12 July. Thesecond instalment, of the same amount, was due on 1 September 2017.[11] The lease was to be in the Auckland District Law Society's form of Deed ofLease, amended in accordance with the first Agreement. The parties were to be boundby the terms, covenants, and conditions in that form of Deed of Lease notwithstandingthat they might not have executed any Deed of Lease.[12] The defendant's use of the premises was to be for "Motorcycle Mechanical andRetail". Certain chattels were to remain in the premises, including a hydraulic hoist,a lathe, and air lines from compressor to outlets. These were to remain the propertyof the plaintiff.[13] The defendant went ahead and made arrangements for the installation of atelephone system, internet, computer, and alarm system for the premises.[14] Mr Jordan said that on 1 August 2017 the plaintiff had not removed all theequipment, gear, parts and machinery that it was supposed to remove from thepremises. Nor had it cleared the cars from the workshop. Vehicle hoists remained inplace, and electrical wiring from the oil tanks was dangling from the ceiling to theworkshop with a sign saying "Danger – live wire". According to Mr Jordan, MrAnthony told him that Mr Browne of the plaintiff would attend to this, as it was asafety hazard.[15] Property of the plaintiff that should have been removed remained in thepremises as late as 10 August 2017, when Mr Jordan met Mr Browne. Mr Jordan saidthat Mr Browne appeared to be in no hurry, despite Mr Jordan urging that it was pastthe commencement date under the first Agreement and that the delay was costing himmoney.The second Agreement[16] Mr Jordan and Mr Browne then agreed to cancel the first Agreement and enterinto a new one. Further time would be allowed for the plaintiff to move outcompletely. Mr Jordan contends that it was essential that he have a firm date to enterthe premises to commence business, and his evidence was that he made that clear toMr Browne.[17] Mr Anthony prepared a further form of agreement to lease, and it was signedon or about 14 August 2017. The new agreement to lease (the second Agreement)used the same standard form.1 It provided for a term of 30 months, and acommencement date of 1 September 2017, and the permitted business use of thepremises remained "Motorcycle Mechanical Retail". The deposit payable under thefirst Agreement was credited to the rent payable under the second Agreement, and thesecond rent instalment was payable on 1 October 2017. None of the chattels agreedto be left in the premises under the first Agreement were included in the secondAgreement, and the following new provision appeared in the second Agreement:13.0 CHATTELS WITHIN THE BUILDINGThe sub-landlord [the plaintiff] agrees that if any chattels that are remainingwithin [the premises] upon inspection for handover on the 31st August 2017shall transfer into the hand of the Head Landlord [ie TWM].The pre-commencement inspection[18] Mr Jordan arranged to inspect the premises on 31 August 2017. He met therewith Mr Stacy McGovern, the director of TWM. Mr Anthony was also present.[19] Mr Jordan said that they were unable to get into the premises. He described achaotic situation, with people trying to remove items, equipment, and parts. He saidthese people left the premises in a mess – there were still live wires that had not beensecured or made safe, and the "danger" sign attached to the wiring was still there.[20] Mr Jordan said that the office area had been destroyed. The counter had beenremoved, and all the hardwiring of the telephone system and cables had been rippedout. Electrical wiring was left exposed on the floor. The communications systems,computer and internet, and alarm monitoring system that the defendant had installed1 The Auckland District Law Society Form of Agreement to Lease, Fifth edition 2012(3).under the first Agreement had been ripped out completely, and were strewn on thefloor.[21] Mr Jordan said that he called Mr Browne immediately, and Mr Brownecommented only: "The builder did it."[22] Mr Jordan said that he and Mr McGovern went upstairs to inspect the first levelat the premises. The bare flooring was soaked in oil, and the walls were smeared withoil. He said the oil was tracked throughout the entire floor, including the stairs andcarpet to the exit.The defendant cancels the second Agreement[23] On the morning of 1 September 2017 Mr Jordan called Mr Anthony's numberand left a message. Mr Jordan's evidence was that, when Mr Anthony returned thecall, he told him that he was cancelling the second Agreement because the premiseswere not vacant for him to enter and they were not tenantable.[24] According to Mr Jordan's account, Mr Anthony phoned him back about anhour later and told him that the defendant had no right to cancel the second Agreement.[25] The defendant's case is that it was entitled to cancel the second Agreement,and that no rent is owing to the plaintiff. It contends that it was an essential term ofthe second Agreement that the defendant would be able to move in and take possessionof the premises on 1 September 2017, and that the plaintiff breached that essentialterm. Alternatively, it says that the premises were unsafe, or otherwise in such a poorcondition that the defendant was entitled to cancel.Evidence of solvency[26] An affidavit in support of the application for a stay order was provided by thedefendant's chartered accountant, Mr Johnston. Mr Johnston had collated financialinformation for the defendant as at 30 November 2013, and he produced amanagement report as to the defendant's financial performance.[27] Mr Johnston produced a copy of a statement of financial performance and astatement of financial position for the defendant. The statement of financialperformance, for the eight months to 30 November 2017, showed an operating profitof $71,920. The corresponding figure for the 12 month period ended 31 March 2017was a net loss of $457. The statement of financial position as at 30 November 2017showed net assets of $36,170, including stock-on-hand at $198,561 and intangibles of$50,000. Property, plant and equipment were included at $37,787. The statement offinancial position as at 31 March 2017 showed a negative equity of $35,750.Affidavits for the plaintiff[28] A number of affidavits were filed by the plaintiff in opposition to the stayapplication.[29] In his affidavit, Mr Browne said that in the first part of 2017 he decided to closedown the workshop at the premises, and transfer the plaintiff's clients to its workshopin Glenfield. He was happy with the terms of the first Agreement, and shortly aftersigning the first Agreement he began moving stock and equipment out of the premises.[30] Mr Browne said that in late July 2017 he spoke to Mr Jordan and told him thatthere was possibly going to be a slight delay in removing the hoists from the premises.He said that Mr Jordan told him that he was relaxed about that, and it would not be anissue if the plaintiff did not have the hoists and transmission parts (which were storedupstairs) fully moved out by 1 August 2017, as long as the defendant was able to movesome motorbikes into the premises by then.[31] Mr Browne said that he had a call from Mr Jordan on the morning of 1 August2017, in which Mr Jordan complained that two vehicles had been left in the premises,and some transmission parts had been left upstairs. Mr Browne removed one of thevehicles, and made arrangements for the hoists and the gear to be removed within thefollowing week. Mr Browne said that on 7 August 2017 he told Mr Jordan (via MrAnthony) that the hoist removal had been organised, and that Mr Jordan should feelfree to move the second of the two vehicles out onto the street. Mr Browne said thathe did not understand those to be major issues.[32] A meeting with Mr Jordan was scheduled for 9 August 2017 to discussprogress, but it had to be cancelled at the last minute.[33] Mr Browne said that the defendant was offered a credit of two weeks' rent forany inconvenience resulting from the hoists not having been removed. There was noagreement on that, but eventually agreement was reached for the commencement dateof the lease to be deferred to 1 September 2017. Mr Jordan did not want any of theitems the plaintiff had previously agreed to leave in the building as landlord's fixtures.[34] Mr Browne said that after he signed the second Agreement he telephoned MrJordan and told him that the premises would be empty by 31 August 2017. In themeantime, the defendant was left with the keys to the premises, and it moved morethan 30 motorbikes into the workshop at the premises (contrary to a request that thedefendant not move any more items into the premises before 1 September, so that theremoval of the hoists would not be obstructed).[35] Mr Browne said that on several occasions after 11 August 2017 Mr Jordancontacted him complaining about "faulty wiring", and that several lightbulbs he hadinstalled were not working. Mr Browne said that it turned out that Mr Jordan hadinstalled the wrong bulbs.[36] Mr Browne arranged for the reception desk (which the defendant did not want)to be removed by a contractor, and for the contractor to make some minor repairs tothe premises. Unfortunately, during the removal of the reception desk, the contractorremoved some wires from a telephone connection point on the wall. That damagedthe defendant's telephone installation.[37] Mr Browne confirmed that Mr Jordan telephoned him when Mr Jordan was atthe premises on 31 August 2017, and told him that the wiring for his telephone andinternet connections had been damaged in the course of the removal of the receptiondesk. Mr Browne said that this was the first time he had been aware of problems withthe telephone system caused by the builder. He immediately agreed that the telephoneconnection needed to be fixed, and that the plaintiff would meet the cost of the repairs.He said that Mr Jordan shouted at him on the telephone, but eventually calmed downand agreed that the problem could be repaired the following day. Mr Browne said thatMr Jordan and he agreed to speak the next day, and that Mr Jordan agreed that he washappy for an electrician Mr Browne had arranged to have access to repair the lightswitch and the extension cord.[38] Mr Browne said that he went to the premises on 1 September 2017 after he hadheard from Mr Anthony that Mr Jordan had purported to cancel the second Agreement.He inspected the telephone connection. In his view, the damage appeared to be minorand repairable. He and Mr Anthony then went to the defendant's College Hill premisesto discuss the situation, but Mr Jordan was not there. Mr Browne said there was nosign of any preparations having been made to move stock or equipment from thedefendant's College Hill site.[39] Mr Browne sent Mr Jordan a text message at midday on 1 September 2017,confirming that the electrician would replace the light switch and a plug at thepremises at 3.30 pm that day. He asked Mr Jordan for the contact details of histelecommunications people, so that the telephone line could be repaired. Mr Brownesaid that he received no response to the message.[40] Thereafter, attempts were made by Mr Browne and Mr Anthony to discuss thesituation with Mr Jordan and his solicitor, but no progress appears to have been made.On 7 September 2017, Mr Browne sent an email to Mr Jordan about getting access tothe premises to have the telephone line repaired. The email noted that the plaintiff hadhad no response to Mr Browne's earlier text message, and asked for "some feedbackto enable us to rectify please".[41] On 8 September 2017, the plaintiff's solicitors wrote to the defendant'ssolicitor making demand for payment of the rent and other amounts said to be owing.The letter threatened enforcement steps if the outstanding lease amounts were not paidby 11 September 2017.[42] The plaintiff received no reply to that letter, and a further letter was sent on 18September 2017. Again, there was no reply to the correspondence.[43] Mr Browne said that he made later attempts to contact Mr Jordan about thelease issues, sending him some text messages about arranging access for smoke alarmtesting, and asking him to pay the rent and outgoings up to date. He never received aresponse to these messages.[44] The plaintiff served the statutory demand on the defendant on 1 November2017. Mr Browne accepted that the correct lease terms were those recorded in thesecond Agreement, but because he did not have a copy of the second Agreement whenthe statutory demand was issued his calculation of the rent and outgoings was madelooking at the first Agreement. As a result, the statutory demand overstated the amountdue in the following respects:(a) no rent was payable for the month of September as this was paid fromthe deposit paid on 12 July 2017;(b) the second instalment of the deposit (being the second instalment ofrent) was not payable until 1 October 2017;(c) no outgoings were payable for the month of August 2017; and(d) the interest calculation set out in the statutory demand was mis-statedas a result of the above issues.[45] Mr Browne said that, while the statutory demand contained those errors, thedefendant was nevertheless then indebted to the plaintiff for $16,031.16.[46] Further affidavits were provided in opposition to the stay application by MrAnthony, Mr McGovern, and Mr Garske, a former employee of the plaintiff.[47] In his affidavit, Mr Anthony gave evidence of a meeting he had with Mr Jordanand Mr McGovern on 24 July 2017. The purpose of the meeting was for MrMcGovern to get to know Mr Jordan. The result was that Mr McGovern was happyto have the defendant as a sub-lessee.[48] Mr Anthony referred to a visit he made to the premises on 31 July 2017. Hefound Mr Browne moving things out of the premises. Mr Jordan was also present, andMr Anthony arranged to meet with him at 8 o'clock the following morning for thehandover of the premises. Mr Anthony confirmed that when he met with Mr Jordanat the premises at 8.00 am on 1 August 2017, two vehicles were still in the premisesand the vehicle hoists had not been removed. He said that Mr Jordan was unhappythat there were still vehicles in the workshop, but was nevertheless able to beginmoving motorbikes into the premises.[49] Mr Anthony said that he met with Mr Jordan again at the premises on 9 August2017. Mr Jordan was unhappy that the hoists had still not been removed, and that anAudi and some transmission parts were still on the premises.[50] Mr Anthony said that when he met Mr Jordan on the premises on 31 August2017 the premises were both vacant and accessible. All of the vehicle hoists and allof the plaintiff's transmission parts and benches had been removed, and both theground floor workshop and the upstairs area had been cleared of tools and parts. Hesaid that in the course of the inspection everyone, including Mr Jordan, acknowledgedthat the workshop was tidy, and that all of the items that Mr Jordan had complainedabout had been removed.[51] As for Mr Jordan's complaints about the upstairs area being saturated with oiland transmission fluid, Mr Anthony said that he did not see any spilt fluids in any areaof the premises. The premises could have benefitted from a thorough cleaning,including the carpets and wooden floors (which were stained with oil), but in MrAnthony's opinion they were no dirtier than might have been expected for premisesused in connection with a vehicle workshop. He said that Mr Jordan did not raise thecleanliness of the premises as an issue during his inspection, although Mr Jordan wasunhappy with the untidiness of the reception area and the damaged telephone wiringthat had been caused during the removal of the reception desk.[52] Mr Anthony denied that the office area had been "destroyed" (Mr Jordan'sdescription in his first affidavit), but he acknowledged that this part of the premisesdid need to be tidied up.[53] Mr Anthony said that he was present when Mr Jordan called Mr Browne aboutthe damage to the telephone wiring. Mr Jordan relayed to him their conversation,including Mr Browne's agreement to get the telephone connection fixed the followingday. The alarm system was still then working.[54] Mr Anthony said that he and Mr Jordan left the inspection on 31 August 2017on the basis that the premises were ready to be moved into the following day. Theywere entirely vacant, other than the motorbikes, a computer and some workbenchesthat Mr Jordan had already moved in.[55] Mr Anthony said that he was extremely surprised when he received MrJordan's call on 1 September 2017 cancelling the second Agreement. He said that MrJordan told him that he wanted to cancel the second Agreement because the "phonelines were a mess," or words to that effect. He denied that Mr Jordan told him that hewas cancelling the second Agreement because the premises were not vacant, orbecause they were not tenantable.[56] Mr Anthony confirmed that he met with Mr Brown at the premises at 10.30 amon 1 September 2017. They put a telephone call through to Mr Jordan, and MrAnthony spoke to Mr Jordan. He emphasised to Mr Jordan that the second Agreementwas legal and binding. Mr Jordan was very unhappy and said he would call his lawyer.[57] Mr Anthony said that he then went to the defendant's College Hill premises tosee if he could talk personally to Mr Jordan. Mr Jordan was not there. Mr Anthonythen went to the premises, where he found Mr Jordan moving motorbikes out of theworkshop area. He said that he asked Mr Jordan to reply to Mr Browne about gettingthe telephone connection fixed, but he was ignored – Mr Jordan continued removingthe motorbikes.[58] A subsequent email from Mr Anthony to Mr Jordan, contending that thetelephone connection issues did not justify cancellation and that the second Agreementwas binding, was met with the response that all communications should be forwardedto the defendant's lawyer.[59] In his affidavit, Mr McGovern described the pre-commencement inspection atthe premises on 31 August 2017. The plaintiff's employees were still then in theprocess of moving some items out, but in Mr McGovern's view the premises wereready for the defendant to move in. All of the vehicle hoists had been removed, andthere were no major chattels or other items left behind.[60] Mr McGovern acknowledged that the premises did look as if they needed somecommercial cleaning, but nothing beyond what could be expected of premises that hadbeen used as a vehicle workshop for 20 years.[61] Mr McGovern went upstairs to look at the area Mr Jordan says was saturatedwith transmission fluids and oil. In Mr McGovern's view, the condition of the upstairsarea did not prevent the defendant moving in and using the premises as a workshop.He did not consider any of the marks or the oil had been freshly spilt.[62] With reference to the "live wiring" referred to by Mr Jordan, Mr McGovernunderstood that to be a reference to a cable hanging from the roof. It needed to havea three-pin plug attached so that it could be used. He said that he had previouslyspoken to Mr Browne about this, and Mr Browne had told him that the power to thecable had been disconnected in the main switchboard to make it safe.[63] Mr McGovern confirmed that Mr Jordan was unhappy that his telephoneconnection had been damaged when the downstairs reception desk was removed. Hesaid that he told Mr Jordan that he should contact Mr Browne to have it repaired. MrJordan then telephoned Mr Browne in Mr McGovern's premises, and Mr McGovern'sunderstanding is that it was agreed between them that the repairs to the telephone linecould be carried out the next day, and that a plug would be installed on the cable.[64] Mr McGovern said that, at the end of the meeting, Mr Jordan told him that hewas going to give it his "best shot" at operating out of the premises.[65] The last affidavit in opposition was that of Mr Garske, an employee of theplaintiff. Mr Garske said that, throughout July 2017, he helped Mr Browne clearequipment, stock and tools out of the premises. He said that Mr Jordan was in thepremises on several occasions during this period, and that there were a number ofdiscussions with him. His evidence was that Mr Jordan said that he was happy for theplaintiff to leave some transmission parts upstairs until it could get them removed. Hesaid that Mr Jordan was not concerned about this, as it would not stop him frommoving in.[66] Mr Garske confirmed that the defendant began moving motorbikes into thepremises, and at that stage he did not seem concerned about the hoists or the twovehicles that the plaintiff had left temporarily in the premises.[67] Mr Garske said that he was present at the premises on the afternoon of 31August 2017 when Mr Jordan and Mr Anthony made their pre-commencementinspection. By that stage, the defendant had already moved a large number ofmotorbikes into the workshop, as well as three bike hoists.[68] Mr Garske confirmed the evidence of other witnesses that Mr Jordan wasunhappy that some telephone wires had been pulled out from a jack point on the wallin the reception area when the reception desk was removed. Mr Garske did not seethis as a major issue, however, as he understood from Mr Jordan that Mr Browne hadagreed to have the problem fixed the following day.[69] Mr Garske said that when he left the premises that afternoon all of theplaintiff's equipment and the hoists had been removed, and the premises were clearand ready for the defendant to complete moving in. The only chattels then left in thepremises were items that had been moved in by the defendant.[70] Mr Garske acknowledged that there was some exposed wiring on the end of anextension cord in the premises. He said this was the result of a three-pin plug fallingoff the cord. The power to the cord had been turned off at the fusebox and the wirewas not live or unsafe. On the question of the upstairs area being saturated withtransmission oil and fluids, he acknowledged that there were some old oil marks onthe walls and the wooden floor, but he denied that these areas were "saturated" withoil.Mr Jordan's reply affidavit[71] Mr Jordan filed an affidavit in reply, to which he attached photographs of thereception/office area taken on 31 August 2017. He said that the telephone connectionsand power outlets (that he had installed) had been ripped out by the plaintiff'scontractor. The live power boxes "removed" from the reception counter/desk wereleft in the centre of the room, with the PABX removed and left on the floor also. Heasserted that this constituted a safety hazard.[72] Mr Jordan also produced photographs of an air conditioning unit and a hotwater cylinder, which were said to show substandard installation and hazardouswiring. He asserted that it was not safe to move into the premises. He producedphotographs showing live wire hanging from the roof of the workshop on 3 August2017. He said that the live wire, which had a notice attached with the warning "LookWarning Live Wire", remained hanging in that position at 1 September 2017. MrJordan said that he telephoned Health and Safety New Zealand on 1 September 2017and advised them of the alleged dangers and hazards. He was told to contact WorkSafeNew Zealand, and he produced a copy of an email from WorkSafe New Zealand dated4 September 2017 confirming that he had had a conversation with an officer atWorkSafe. The email sought further information about the complaint.[73] Mr Jordan denied that he ever agreed that the transmission parts or cars couldbe left at the premises. He said that he understood the plaintiff's reason for the delayin moving the hoists, but the removal of the two vehicles and the parts was anothermatter altogether, as access to the workshop to conduct business was not possiblebecause these items were in the way. He denied ever indicating that he was happywith the cars remaining, saying that it was impossible for him to start his businesswhile they were there.[74] Mr Jordan said that it was he who proposed that the plaintiff have the rest ofAugust 2017 to move out of the premises. He said that he demanded that everythingbe removed, so as to remove any grey areas as to what chattels, fixtures et cetera wereto remain.[75] Mr Jordan said that Mr Browne rang him on 29 August 2017 to say that theplaintiff would be moving out two days early, but by 4.00 pm on 31 August 2017 MrAnthony, Mr McGovern and he were still unable to get into the premises.[76] Mr Jordan denied that the hazardous wiring had anything to do with faulty lightbulbs, as suggested by Mr Browne. He asserted that the plaintiff's contractor haddestroyed the phone system, and not merely removed it. The contractor had pulledout the two telephones/alarm monitoring data connections, and thrown them in therubbish with the modem and the telephones the defendant had installed. Mr Jordansaid that it had taken him seven days to arrange, install, and get the telephone andalarm system up and running.[77] In response to Mr McGovern's evidence that the premises did look like theyrequired commercial cleaning, but nothing beyond what might be expected of spacesthat had been used as part of a vehicle workshop for 20 years, Mr Jordanacknowledged that the premises were in need of commercial cleaning. However, hewent on to confirm his description of the walls and floors as being "saturated intransmission fluids". He contended that the rooms upstairs, which were not in acategory of a workshop, were not usable. Longstanding and fresh spillage oftransmission fluids did not render the rooms more usable.[78] Mr Jordan also contended that Mr McGovern was wrong in his understandingof the seriousness of the cable hanging from the roof (earlier described by Mr Jordanas "live wiring"). According to Mr Jordan, it required more than a three-pin plug tobe attached. Otherwise there would have been no need for the "live wire" warning.Live wires were exposed. Nor did Mr Browne say that the repairs would be done thenext day.[79] In response to Mr Anthony's affidavit, Mr Jordan repeated his assertions thatthe premises were not vacant and accessible or safe. The motorbikes that were presenton 31 August 2017 were there from a previous attempt by the defendant to move in,under the first Agreement.[80] In response to Mr Garske's evidence, Mr Jordan said that Mr Garske hadattempted to trivialise the "live wiring", and "destruction of the phone system", issues.He denied ever telling Mr Garske that he was "happy" about leaving the transmissionparts upstairs.The Auckland District Law Society form of Deed of Lease[81] Mr Steel produced a copy of this form at the hearing, without objection fromMr Godinet.[82] The following clauses appear to be potentially relevant:Landlord's Maintenance11.1 The Landlord shall keep and maintain the building, all buildingservices and the car parks in good order and repair and weatherproofbut the Landlord shall not be liable for any:(c) Repair or maintenance which is not reasonably necessary forthe Tenant's use and enjoyment of the premises and the carparks.(d) Loss suffered by the Tenant arising from any want of repair ordefect unless the Landlord shall have received notice inwriting of that from the Tenant and has not within a reasonabletime after that taken appropriate steps to remedy the same.Notification of Defects12.1 The Tenant shall give to the Landlord prompt written notice of anyaccident to or defect in the premises of which the Tenant may be awareand in particular in relation to any pipes or fittings used in connectionwith the water electrical gas or drainage services.Access for Works15.1 The Tenant shall permit the Landlord and the Landlord's employeesand contractors at all reasonable times and on reasonable writtennotice (except in the case of emergencies) to enter the premises for areasonable period to inspect and carry out works to the premises oradjacent premises and to install inspect repair renew or replace anyservices where they are not the responsibility of the Tenant or arerequired to comply with the requirements of any statutes, regulations,by-law or requirement of any competent authority. All repairsinspections and works shall be carried out with the least possibleinconvenience to the Tenant subject to subclauses 15.3 and 15.4.15.2 If the Tenant's business use of the premises is materially disruptedbecause of the Landlord's works provided for in subclause 15.1, thenduring the period the works are being carried out a fair proportion ofthe rent and outgoings shall cease to be payable but without prejudiceto the Tenant's rights if the disruption is due to a breach by theLandlord of the Landlord's obligation, under subclause 15.1, to causethe least possible inconvenience to the Tenant.DAMAGE TO OR DESTRUCTION OF PREMISESTotal Destruction26.1 If the premises or any portion of the building of which the premisesmay form part shall be destroyed or so damaged:(a) as to render the premises untenantable then the term shall atonce terminate from the date of destruction or damage; or(b) in the reasonable opinion of the Landlord as to requiredemolition or reconstruction, then the Landlord may within 3months of the date of damage give the Tenant 20 working daysnotice to terminate and a fair proportion of the rent andoutgoings shall cease to be payable as from the date ofdamage.Any termination pursuant to this subclause shall be without prejudiceto the rights of either party against the other.Partial Destruction27.1 If the premises or any portion of the building of which the premisesmay form part shall be damaged but not so as to render the premisesuntenantable and:(a) the Landlord's policy or policies of insurance shall not havebeen invalidated or payment of the policy monies refused inconsequence of some act or default of the Tenant; and(b) all the necessary permits and consents are obtainable,the landlord shall with all reasonable speed expend all the insurancemoneys received by the Landlord in respect of such damage towardsrepairing such damage or reinstating the premises or the building butthe Landlord shall not be liable to expend any sum of money greaterthan the amount of the insurance money received.27.2 Any repair or reinstatement may be carried out by the Landlord usingsuch materials and form of construction and according to such plan asthe Landlord thinks fit and shall be sufficient so long as it isreasonably adequate for the Tenant's occupation and use of thepremises.27.3 Until the completion of the repairs or reinstatement a fair proportionof the rent and outgoings shall cease to be payable as from the date ofdamage.27.4 If any necessary permit or consent shall not be obtainable or theinsurance moneys received by the Landlord shall be inadequate forthe repair or reinstatement then the term shall at once terminate butwithout prejudice to the rights of either party against the other.Suitability38.1 No warranty or representation expressed or implied has been or ismade by the Landlord that the premises are now suitable or willremain suitable or adequate for use by the Tenant or that any use ofthe premises by the Tenant will comply with the by-laws or ordinancesor other requirements of any authority having jurisdiction.No Implied Terms44.1 The covenants, conditions and powers implied in leases pursuant tothe Property Law Act 2007 and sections 224 and 266(1)(b) of that Actshall not apply to and are excluded from this lease where allowed.The defendant's statement of defence[83] In its statement of defence, the defendant contended that it is able to pay itsdebts as they fall due. It referred to the plaintiff's alleged breach of the first Agreementin failing to provide vacant possession on 1 August 2017, and pleaded that the firstAgreement was cancelled, and the second Agreement entered into, on or about 10August 2017.[84] The defendant then pleaded that it was an essential term of the secondAgreement that the plaintiff would provide vacant possession of the premises to thedefendant on the 1 September 2017 commencement date. The second Agreement wasalso said to be conditional upon and subject to TWM giving approval to the sub-leasecontemplated by the second Agreement.[85] The defendant then pleaded that the plaintiff breached the terms of the secondAgreement in the following respects:(a) it failed to provide vacant possession for the defendant to enter thepremises on the commencement date of 1 September 2017, time beingof the essence;(b) it damaged the office area of the premises upon removal of the retailcounter, and left live electrical wiring exposed on the floor;(c) it damaged and rendered useless the telephone system, internet andalarm monitoring installed by the defendant;(d) it failed to make safe the exposed electrical wiring on the premises;(e) it spilled transmission oil and fluids throughout the premises renderingthe rooms on the first floor unusable;[86] The defendant then pleaded that the plaintiff had failed to obtain TWM'sapproval of the sub-lease.[87] The defendant went on to plead that Mr Jordan gave oral notice of cancellationof the second Agreement on 1 September 2017, and that the defendant has incurredloss and damages arising from the breaches of the second Agreement (those losses tobe quantified at trial).The plaintiff's opposition to the stay application[88] The plaintiff says that no genuine dispute has been raised by the defendant, andthat, as at 22 January 2018, the defendant was indebted to the plaintiff in the sum ofat least $31,467.79. It says that the defendant was not entitled to cancel the secondAgreement on the grounds alleged, and that in so doing it repudiated the secondAgreement. However, the plaintiff has not accepted that repudiation, and the secondAgreement remains on foot.[89] The plaintiff also says that the defendant has insufficient cashflow and currentassets from which to pay its debts as they fall due.Applications to stay liquidation claims – legal principles[90] Rule 31.11 of the High Court Rules provides:31.11 Power to stay liquidation proceedings(1) If an application for putting a company into liquidation is made underrule 31.3, the defendant company, or, with the leave of the court, anycreditor or shareholder of that company or the Registrar ofCompanies, may, within 5 working days after the date of the serviceof the statement of claim on the defendant company, apply to thecourt—(a) for an order restraining publication of an advertisement requiredby rule 31.9 or any other information relating to that statement ofclaim; and(b) for an order staying any further proceedings in relation to theliquidation.(2) The court must treat an application under subclause (1) as if it werean application for an interim injunction and, if it makes the ordersought, it may do so on whatever terms the court thinks just.(3) The inherent jurisdiction of the court is not limited by this rule.[91] There was no significant dispute between counsel over the approach the Courtshould take to the application of r 31.11. The authorities show that the defendantcarries a "heavy"2 onus, of establishing that there is a strong prima facie case of theexistence of a genuine dispute, on substantial grounds.3 The defendant must show"something more" than that the balance of convenience favours the stay. A "genuine"dispute is one that is "real and not fanciful or insubstantial".4 The grounds of thedispute must be "clear and persuasive".5[92] The Courts have been prepared to entertain an application for a stay, eventhough a subsisting statutory demand has not been challenged. However, good reasonsmust be advanced to justify a challenge to the debt under r 31.11 when no applicationwas made under s 290 of the Act to set aside the statutory demand. While each case2 Signs Advertising Limited v CPC New Zealand Limited [2017] NZHC 461 (HC) at [24].3 Nemesis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNZ 379 at385.4 Signs Advertising Limited v CPC New Zealand Limited, above n 2, at [17]; AAI Ltd v 92 LichfieldStreet Ltd (In Rec & Liq) [2015] NZCA 559, confirming Industrial Group Ltd v Bakker [2011]NZCA 142, 20 PRNZ 413 at [24]-[25].5 Nemesis Holdings Limited v North Harbour Industrial Holdings Limited, above n 3, at 385.is to be considered on its particular facts, a defendant who failed to apply to set asidea statutory demand on the ground that the debt is disputed needs to show someexceptional factor to justify its failure to make a setting aside application (that being afactor likely to reflect the existence of a genuine dispute).6[93] A dispute as to only part of a debt does not prevent a plaintiff from proceedingwith a liquidation claim, and is not sufficient to justify a stay.7The defendant's case for a stay[94] Mr Godinet advanced two principal grounds. First, the plaintiff is not a creditorof the defendant. Secondly, the defendant is solvent. I did not understand him to relyon the alleged failure of the plaintiff to obtain TWM's consent to the subleasecontemplated by the second Agreement, and it is in any event clear on the evidencethat TWM consented to the sublease and that the defendant was prepared to proceedwith the second Agreement on the basis of Mr McGovern's oral approval of thedefendant as sublessee.[95] Mr Godinet submitted that the plaintiff is relying on its own inability to providevacant possession and attend to other matters concerning electrical safety, as a basisto establish a debt that would not otherwise exist. He submitted that the defendant hasshown that there is a genuine and substantial dispute on the issue of whether thedefendant validly cancelled the second Agreement. In support, he referred to thebackground of delay, including the agreed cancellation of the first Agreement,submitting that it was an implied term of the second Agreement that time would be ofthe essence for the plaintiff to provide vacant possession on the first day of the termunder the second Agreement.[96] On the question of the defendant's solvency, Mr Godinet relied on MrJohnston's affidavit, submitting that that evidence shows that the defendant is solventwhether one applies a balance sheet test or a liquidity test.6 Aditude Advertising Ltd (in liq) v Techday Ltd [2012] NZHC 1884 at [11].7 Nemesis Holdings Ltd v North Harbour Holdings Ltd, above n 5, at 385, and Maru Industries Ltdv Dan Forbes Construction Ltd (1989) 2 PRNZ 176.[97] Generally, Mr Godinet submitted that the institution and continuation of theliquidation proceeding, notwithstanding the defendant's solvency and the existence ofa genuine dispute, constitutes an attempt to exert undue pressure on the defendant, andsavours of unfairness. He submitted that the liquidation claim should be permanentlystayed, and the plaintiff left to pursue any remedies it considers it has in an appropriateseparate proceeding.Discussion and conclusions[98] Section 37 of the Contract and Commercial Law Act 2017 materially provides:37 Party may cancel contract if induced to enter into it bymisrepresentation or if term is or will be breached(1) A party to a contract may cancel it if—(b) a term in the contract is breached by another party to thecontract; or(c) it is clear that a term in the contract will be breached byanother party to the contract.(2) If subsection (1)(a), (b), or (c) applies, a party may exercise the rightto cancel the contract if, and only if,—(a) the parties have expressly or impliedly agreed that the performance of the term is essential to the cancelling party;or(b) the effect of the breach of the contract is, or, in the case ofan anticipated breach, will be,—(i) substantially to reduce the benefit of the contract tothe cancelling party; or(ii) substantially to increase the burden of the cancellingparty under the contract; or(iii) in relation to the cancelling party, to make the benefitor burden of the contract substantially different fromthat represented or contracted for.[99] In this case, the issues are whether the defendant has shown that there is agenuine and substantial dispute that the plaintiff has breached a term of the secondAgreement (or at the time of the purported cancellation it was clear that the plaintiffwould breach a term of the second Agreement), and whether subparagraph (a) ofs 37(2) applies. (Mr Godinet did not place any significant reliance on s 37(2)(b),which is concerned with the effect of any proved breach on the cancelling party, andthere was in any event insufficient evidence produced by the defendant to establish agenuine and substantial case of entitlement to cancel on any of the s 37(2)(b) grounds).[100] I accept that the reality is that the defendant needed to show a genuine andsubstantial case not only on breach of the second Agreement, but also on breachsufficient to justify cancellation. A breach entitling the defendant to damages wouldnot suffice, as the defendant's obligation under the Deed of Lease was to pay the rent"without any deductions or set off "8[101] On s 37(2)(a), Mr Godinet submitted that the parties had impliedly agreed thatthe performance of the terms allegedly breached by the plaintiff was essential to thedefendant.[102] The first factual issue is whether the plaintiff breached the second Agreementby failing to provide vacant possession to the defendant on 1 September 2017. MrSteel referred to Cumberland Consolidated Holdings Ltd v Ireland, a decision of theUnited Kingdom Court of Appeal on the interpretation of the phrase "vacantpossession" in the context of an agreement for sale and purchase of land.9 The caserelated to the sale of a warehouse, and during the negotiations for the sale and purchaseof the warehouse the appellant had undertaken to remove certain rubbish from thewarehouse. A small part was in fact removed, but the greater part, which was sufficientto preclude the respondents from using the property in the way and for the purposethey intended, was left behind. The issue was over the respondent's entitlement torecover the costs of removing the rubbish at their own expense.[103] In delivering the judgment of the Court, the Master of the Rolls, Lord Greene,noted that the right to actual unimpeded physical enjoyment is comprised in the rightto vacant possession. The existence of a physical impediment to such enjoyment, to8 Form of Deed of Lease, cl 1.1.9 Cumberland Consolidated Holdings Ltd v Ireland [1946] 1 All ER 284 (CA) at 287.which the purchaser did not expressly or impliedly consent, should stand in nodifferent position to an impediment caused by the presence of a trespasser. "Physicalimpediment" to the purchaser's ability to exercise the right to vacant possession didnot mean that any physical impediment would do: it had to be an impediment whichsubstantially prevented or interfered with the enjoyment of the right of possession ofa substantial part of the property. The Court noted that such cases would be rare, andwould be likely to arise only in exceptional circumstances.10[104] Mr Steel also referred to a decision of Needham J in the Supreme Court of NewSouth Wales, in Point Glebe Pty Ltd v Lidofind Pty Ltd.11 Again, the case was oneinvolving rubbish left on certain properties which were the subject of an agreementfor sale and purchase. A director of the purchaser inspected the properties onsettlement date, and claimed to have found a large quantity of rubbish and a numberof items of furniture on the property, and that there was evidence of an occupant stillin possession. The vendor then purported to terminate the contract.[105] Needham J referred to the principle applied by the Court of Appeal inCumberland Consolidated Holdings, but on the facts did not consider that the rubbishleft on the properties constituted a substantial impediment to the undisturbedenjoyment of the properties, noting the observation of Lord Greene in CumberlandConsolidated Holdings that "such cases will be rare".12[106] In this case, there are difficulties with the defendant's submission that theparties expressly or impliedly agreed that time would be of the essence for theprovision of vacant possession on 1 September 2018. First, there does not appear tobe any such express provision in the second Agreement or in the ADLS form of Deedof Lease. Secondly, the new cl 13 that was added in the second Agreement appears tohave expressly contemplated that chattels might be left on the premises, at least at thetime of the pre-commencement inspection on 31 August 2017. If there were chattelsleft there, TWM was apparently to be responsible for them. If time for vacantpossession on 1 September 2017 was to be of the essence, it seems unlikely that the10 At 287.11 Point Glebe Pty Ltd v Lidofind Pty Ltd (1988) 5 BPR 97,366.12 Cumberland Consolidated Holdings Ltd v Ireland, above n 9, at 287.plaintiff would have left itself open to the possibility that the defendant might cancelbecause TWM did not take the chattels that were left on the premises on 31 August2017. It seems more likely that the intention was that if any chattels were left at thepremises on 31 August 2017, then, at least as between the plaintiff and the defendant,that was not to be the plaintiff's problem.[107] There are also difficulties with the defendant's submission that it has raised agenuine and substantial argument that vacant possession was not in fact available to iton 1 September 2017.[108] The Court of Appeal decision in Cumberland Consolidated Holdings showsthat the test will be a difficult one to meet where the issue is rubbish left at thepremises, and in this case the defendant has not explained how, and the extent towhich, any material left at the premises by the plaintiff prevented it from using thepremises for the permitted use. The defendant already had approximately 30motorcycles and three workbenches on the premises, and subject only to the issue ofgetting the electrical connections working safely it is not clear how the defendantwould have been unable to carry out at least mechanical repair work in the premisesimmediately on 1 September 2017.[109] On the evidence available to me on the stay application, I am not satisfied thatthe defendant has put forward a strong prima facie case on the "failure to providevacant possession" issue, or that there is any evidence that the plaintiff has been guiltyof abusing the process of the Court in commencing and pursuing the liquidation claim.I also take into account on the abuse of process issue that the defendant had ampleopportunity to put its arguments to the plaintiff, but it appears to have chosen to remainsilent. It ignored communications from the plaintiff in the early stages after thepurported cancellation, and it made no application to set aside the statutory demand(notwithstanding that its failure to do so clearly called for some explanation13). Whilethose choices do not preclude the defendant from contending at the hearing of thesubstantive liquidation claim (or indeed in support of the stay application) that thereis a genuine and substantial defence on the merits, I think they can properly be taken13 Aditude Advertising Ltd (in liq) v Techday Ltd, above n 6, at [11].into account on the issue of whether the plaintiff has been applying improper pressure,or otherwise abusing the process of the Court, in commencing and prosecuting theliquidation claim.[110] Nor am I satisfied on the evidence so far produced that the defendant has showna strong prima facie case of substantial and genuine dispute on the "untenantable" partof its case for a stay.[111] If vacant possession was available to the defendant on 1 September 2017, itappears on the evidence produced that there were provisions in the Deed of Lease thatthe defendant could have invoked to address the claimed defects (including the allegedsafety defects associated with the electrical wiring). First, cl 12.1 of the Deed of Leaserequired the defendant to give the plaintiff prompt written notice of any relevantdefects with the premises of which the defendant was aware, in particular "in relationto any electrical services." There is no evidence of the defendant having givenany such written notice before the defendant purported to cancel the lease on 1September 2017. And under the Deed of Lease the landlord was not in any event tobe liable for any losses suffered by the tenant as a result of any want of repair or defect(for which the landlord was responsible), unless the landlord had received writtennotice from the tenant of the defect or want of repair, and had not within a reasonabletime after that taken appropriate steps to remedy the defect or want of repair.14[112] In this case, the evidence is that the plaintiff (notwithstanding the absence ofwritten notice) arranged for an electrician to attend at the premises at 3.30 pm on 1September 2017 to replace the light switch and a plug, and that it was also agreed(between Mr Browne and Mr Jordan) in the course of the pre-commencementinspection that arrangements would be made to have the defendant's telephone systemrepaired on 1 September 2017.1514 Deed of Lease, cl 11.1(d).15 Mr Browne's evidence was that he and Mr Jordan agreed on the telephone on 31 August 2017 thatthe problem with the telephone connection would be repaired the following day. Mr Jordan didnot appear to challenge that evidence in his reply affidavit, and nor did he challenge MrMcGovern's evidence that it was agreed on 31 August 2017 that the repairs to the telephone linecould be carried out the next day, or Mr Anthony's evidence to the same effect. Mr Anthony notedthat the alarm system was still working on 31 August 2017.[113] On the issue of the electrical wiring, Mr Browne's evidence was that Mr Jordanhad agreed in the course of their telephone conversation on 31 August 2017 that hewas happy for the electrician Mr Browne had arranged to have access to repair thelight switch and extension cord. In his reply affidavit Mr Jordan did not expresslydeny that he had made an agreement in those terms with Mr Browne – he simplyaccused Mr Browne of trying to minimise the issue, saying that a qualified electricianwould be needed to make safe the live wires lying on the reception floor area. Hedenied that Mr Browne told him that the repairs would actually be carried out the nextday (as Mr McGovern understood to be the case).[114] The defendant provided no evidence of the extent of any electrical work thatmight have been required to render any live wires in the reception area safe, and I amunable in those circumstances to conclude that the issue was as serious as thedefendant now contends. And it seems improbable that the electrician Mr Brownelater arranged to call at the premises on 1 September 2017 to replace the light switchand plug would have left any dangerous live wires if Mr Jordan had drawn them to hisattention.[115] Notwithstanding the telephone discussion between Mr Browne and Mr Jordanon 31 August 2017, the defendant purported to cancel the second Agreement on themorning of 1 September 2017 without any further communication between the parties,and it declined to facilitate access to the premises to allow the repairs to be carried out.[116] I do not consider this to be even arguably close to a "total destruction" situationas described as cl 26.1 of the Deed of Lease, where the premises could be consideredto have been "untenantable". There was no warranty that the premises would besuitable for the permitted uses,16 and the defendant has failed to provide sufficientevidence of the respect or respects in which it says it would have been unable tocommence business operations in the premises from 1 September 2017 if it had chosento do so.[117] Nor am I persuaded that the evidence relating to the alleged oil saturation onthe upstairs level of the premises reaches the threshold that would justify an order16 Deed of Lease, cl 38.1.staying the proceeding. Mr Jordan had made a number of inspections of the premises,and he must have known the condition of the upstairs level before 31 August 2017. Itis not at all clear from his evidence that the condition of the premises worsenedbetween the time the second Agreement was signed and the time the defendantpurported to cancel the second Agreement. And if the plaintiff was under anyobligation in this respect, the oil staining or "saturation" would have been a "defect"that the plaintiff should have been given the opportunity to remedy. (I do not considerit reasonably arguable that any lack of cleanliness of the premises went to the issue ofwhether vacant possession was available on 1 September 2017).[118] I do not consider that the errors in the statutory demand affect the position onthe stay application. I accept the plaintiff's submission, based on the NemesisHoldings Ltd and Maru Industries Ltd cases, that a dispute as to only part of a debtdoes not prevent a plaintiff from proceeding with a liquidation claim, and is notsufficient to justify a stay.[119] Mr Johnston's evidence does not in my view assist the defendant. The questionof a defendant's solvency in a liquidation proceeding is primarily concerned with itsability to pay its debts as they fall due for payment, and I do not think Mr Johnston'sevidence of apparent balance sheet solvency as at 30 November 2017 addresses thatissue. Even the issue of balance sheet solvency may be questionable where the assetsare said to include $50,000 for "intangibles" (presumably a figure for goodwill, whichmight or might not have value, and might well not have value, if it turned out that thedefendant had a liability to the plaintiff that it could not meet). I note too that therewas apparently a negative equity position as at 31 March 2017.[120] While an operating profit of approximately $72,000 is reported for the eightmonths to 30 November 2017, the trading result for the year to 31 March 2017 appearsto have been no better than break-even, and I do not think I can take much from MrJohnston's evidence on the important question of the defendant's liquidity, and inparticular its ability to pay the plaintiff if it were liable to the plaintiff for anysignificant sum.[121] In summary, I am not persuaded that Mr Johnston's evidence on the solvencyissue, considered with the other apparent difficulties in the defendant's case, take thecase to the level where I would be justified in staying the liquidation claim.Result[122] The defendant's application to stay the proceeding is dismissed. Costs areawarded to the plaintiff on a 2B basis, with disbursements to be fixed by the Registrar.[123] The case is to be included in the next convenient liquidation list after 25 May2018, for the purpose of allocating a fixture for the hearing of the liquidation claim ona defended basis, and giving directions for the filing of any further affidavits andwritten submissions.[124] I record that my decision to refuse the defendant's stay application has beenmade on the evidence available on the stay application, and my view that the defendanthas failed on that evidence to discharge the heavy onus on it to justify the making of astay order. The defendant is not precluded by this judgment from producing furtherevidence or submissions in its defence of the liquidation claim (including on thequestion of whether a genuine and substantial defence to the plaintiff's claim exists),at the substantive hearing.Associate Judge Smith