ADVANCED ANIMAL TECHNOLOGY LTD V JAMES WILLIAM PIPER TRADING AS PIPERS HC AK CIV 2007-404-004647

ADVANCED ANIMAL TECHNOLOGY LTD V JAMES WILLIAM PIPER TRADING AS PIPERS HC AK CIV 2007-404-004647 31 July 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-004647IN THE MATTER OF Section 290 of the Companies Act 1993 BETWEEN ADVANCED ANIMAL TECHNOLOGY LTD Applicant AND JAMES WILLIAM PIPER TRADING AS PIPERS Respondent Hearing: 23 November 2007 Counsel: M Karam for applicant T Walker & B Henry for respondent Judgment: 31 July 2008 at 9:30amJUDGMENT OF ASSOCIATE JUDGE ABBOTTThis judgment was delivered by me on 31 July 2008 at 9:30am pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy RegistrarSolicitors: Burton & Co, PO Box 8889, Auckland 1001 for applicant Spencer Legal, PO Box 8080, Auckland 1150 for respondent[1] The applicant, Advanced Animal Technology Limited (AAT), is the holder of intellectual property comprising patents, patent applications and trademarks both in New Zealand and overseas. The respondent, James William Piper trading as Pipers (Pipers), has undertaken patent and trade mark attorney work for AAT since 2001. [2] Pipers undertook a substantial amount of work for AAT from late 2003 to mid 2006, registering and maintaining its intellectual property rights. It issued invoices totalling $98,312.66 for this work. AAT failed to pay them. Pipers issued a statutory demand upon AAT requiring payment of these invoices. The demand was stated to be for the sum of $93,312.66 but a list of the outstanding invoices attached to the demand totalled $98,312.66 (the sum of $93,312.66 appears to be a typographical error). Nothing turns on this point though. [3] AAT has applied to set aside the statutory demand. It says that, as a result of an earlier issue over unpaid invoices, a regime was established in July 2003 for Pipers to provide a written quote or estimate for future professional services, and AAT was to make payment in advance on the basis of that quote or estimate. AAT says that Pipers failed to follow that regime in respect of the invoices in dispute, and contests Pipers' authority to carry out the work. Accordingly, AAT says that there is a genuine dispute as to whether the claimed debt exists. [4] Pipers accepts that the costs regime was put in place. It says, however, that it provided written estimates. Additionally it says that the requirement for prepayment of fees was solely for its benefit, and that the parties agreed to vary the arrangement by proceeding in a number of cases without requiring prepayment of all or part of the costs. [5] The critical issue is whether there is a genuine and substantial dispute as to Pipers' authority to undertake the work billed in each invoice. AAT acknowledges that the work covered by nine of the invoices (totalling $9,822.12) was authorised. There is a further issue as to whether it would be unfair to allow the statutory demand to stand (and thus found an application for liquidation) where there is a dispute as to the authority for only part of the work.Background[6] Pipers started acting for AAT in late 2001. By mid June 2003 AAT owed Pipers in excess of $200,000 for its professional services. Pipers issued a statutory demand. Pipers did not pursue that demand after the parties agreed to terms of repayment. AAT paid the outstanding costs in accordance with that arrangement, by 11 July 2004. As part of this arrangement, Pipers stipulated a costs regime for the provision of future professional services. [7] Pipers continued to undertake work for AAT. It comprised both work on disputes with another party over respective patents, and work pursuing patent applications or maintaining patents. Pipers rendered 3 invoices between January and August 2004 in respect of the disputes over revocation of patents, 18 invoices in July and August 2005 in relation to applications for patents made or pursued between September 2003 and July 2005 and further work on the ongoing disputes, and 9 invoices in July 2006 both in relation to patent applications or continuance and in relation to ongoing work on one of the disputes. [8] At the time of rendering its invoices in July 2006 Pipers provided full details of the work and the basis upon which it had been undertaken. It followed this with a formal demand for payment. Following that demand AAT's director, Mr J W Cunningham, advised Pipers that AAT disputed Pipers authority to undertake this work. He referred Pipers back to its stipulation in July 2003 for the basis for any future work, and said that Pipers had not complied with it. Mr Cunningham met with Pipers principal, Mr J W Piper, in mid October 2006 to discuss the outstanding fees. There is a difference of opinion as to the outcome of the meeting. Mr Cunningham says that Mr Piper accepted that AAT had not given authorisation, and agreed to review the position, and come back to AAT about the fees and with a proposal for managing AAT's future work. Conversely, Mr Piper says that Mr Cunningham had agreed to review the accounts with AAT's shareholders (given that AAT was not trading and needed to raise funds from them in order to settle the accounts) with a view to arranging payment by the first quarter of 2007.[9] In June 2007 Pipers credit controller wrote to AAT requesting a proposal for payment. Mr Cunningham responded immediately, advising that he was preparing a request to AAT's shareholders to support the next phase of its development and address its creditors, and would not be in a position to establish a payment schedule until he had that response. He did not refer to any lack of authorisation. [10] Shortly after that Pipers made a formal demand for payment and a couple of weeks later its credit controller again approached Mr Cunningham requesting a payment schedule. Again Mr Cunningham replied that he was still finalising matters with the shareholders and that it would be late July before he might be able to offer a repayment schedule. Again there was no reference to lack of authority. [11] Pipers issued its statutory demand on 18 July 2007. On 30 July 2007 Mr Cunningham responded to the demand on behalf of AAT, referring back to the challenge to Pipers' authority made in September 2006 and his recollection of the meeting with Mr Piper in October 2006. The present application to set aside the statutory demand followed.Principles[12] The application is brought under s 290 of the Companies Act 1993. It is not in dispute that the Court has a discretion to set aside a statutory demand where there is a substantial dispute as to whether or the debt on which it is based exists or is due. [13] The principles which the Court applies in the exercise of its discretion are well established, and can be found in a number of cases following Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297 (CA). Relevant principles for the purposes of the present application are: a) the onus is on the party applying to set aside the statutory demand to show an arguable case for a genuine and substantial dispute as to the existence of the debt;b) the applicant must go further than mere assertion, and produce material to substantiate the dispute (without necessarily having to fully prove the dispute); c) the governing consideration is whether it would be unfair or create undue pressure on the company to allow an application for liquidation to proceed; d) both the statutory demand and the ensuing liquidation proceeding are primarily directed at the company's solvency, but even if the company shows itself to be solvent the Court will examine any reasons for non- payment: it will not allow a party to refuse to pay for capricious reasons; e) a substantial conflict in evidence on a point material to whether the debt exists or is due is unlikely to be resolvable on the application (and will have to be determined in an ordinary claim) except where the evidence is clearly contrary to contemporary documents or earlier statements of a witness.Acknowledgement of sum due[14] At the time of filing its application AAT acknowledged that some of the costs were payable. It contended that it was unable to determine the sum conclusively, from the information provided by Pipers, but believed it to be somewhere in between $5,000 and $10,000. It said that it was in a position to, and would pay, this sum. [15] During the course of the hearing, and as a result of an affidavit filed on behalf of Pipers shortly before the hearing, counsel for AAT accepted that nine invoices were payable, for sums totalling $9,822.12. Counsel informed me that AAT had only been able to establish the position on these invoices shortly before the hearing, but was in a position to make payment of them immediately. I have taken this into account in my decision.[16] It is worth noting that Pipers saw the need to file a further affidavit following AAT's evidence in reply, and that this further affidavit is a reply. This further affidavit was filed without first seeking leave. Counsel for AAT agreed to the affidavit being read, but asked that its late filing be taken into account by allowing time for payment of the accepted accounts. [17] Counsel for Pipers submitted that this acknowledgement was fatal to AAT's application. She relied on Re Tweeds Garages Limited [1962] 1 All ER 121, 124 in submitting that a dispute as to the precise sum owed was insufficient where it was admitted that a qualifying sum was payable (thus giving the person issuing the statutory demand the status of a creditor). [18] A statutory demand will not be set aside where it cannot be disputed that a qualifying sum is due, subject to any other factors which could make the demand unfair or constitute undue pressure. Although I am sceptical as to whether or not AAT was in a position to determine what was payable prior to receiving the recent affidavit from Pipers, I consider that it ought to be allowed the opportunity to effect that payment. The more significant issue for the present application is whether there are any other sums payable and, if so, whether it ought to be given the opportunity to pay them also. [19] I will come back to the question of whether further sums are payable. As to whether AAT should be given opportunity to pay any such sums, I am also sceptical as to AAT's claim that it is in a position to pay even the acknowledged amount. Firstly, the only "evidence" to this effect is an assertion by AAT's director, Mr Cunningham. Secondly, AAT is not trading and appears to be entirely reliant on shareholder funding to meet any costs. There is no evidence from its shareholders that it will meet the accounts as and when they are satisfied that requisite authority was given. Lastly, Mr Cunningham only raised the issue of authority after the 2006 accounts were rendered. He failed to explain why it is that none of the accounts rendered between 28 August 2004 and 28 August 2005 had been paid prior to that. Nor has he offered a satisfactory explanation for AAT having done nothing to establish the circumstances of the instructions and tender payment for accepted accounts in the two years since it first raised the issue of authorisation.Authority to undertake the work[20] Apart from the acknowledged invoices, AAT contends that authority for the remainder of the work is in issue, and that this cannot be resolved in this application. It says that it should be entitled to test Pipers contention that it undertook the work on the basis of oral or continuing instructions, opting not to require prepayment. AAT acknowledges that arrangements were made from time to time which went outside the July 2003 regime, but contends that Pipers needs to show in every case either that it met the terms of the arrangement or that it was expressly authorised to undertake the specific work invoiced. It says that Pipers did not satisfy either requirement in respect of the invoices it is challenging, either because the express authorisation was not given or because the accounts went beyond approved limits. [21] I accept on the evidence before the Court that there were few cases in which the regime of prepayment was followed. I do not accept, however, that I should infer from that that there was no authority to undertake work (as I have already indicated, AAT's director Mr Cunningham accepts this). The question of authority needs to be considered in the context of the ongoing communications between AAT and Pipers. In that respect, I am satisfied that the extensive reporting of work required and being undertaken by Pipers on AAT's behalf supports Pipers' contention that it had AAT's authority for almost all of the work in issues. This extensive reporting included: a) Regular review meetings had been held prior to the July 2003 settlement, and meetings continued afterwards although they were not as regular or frequent as before. This was no doubt a reflection of AAT's wish to limit its costs. For example, there is evidence of meetings in early September 2003, March 2004, September 2005 and March 2006. Pipers say in evidence that these meetings were held to discuss current intellectual property matters, to advise on upcoming deadlines, and to identify matters requiring instructions. That is consistent with the surrounding correspondence and reports which were prepared either in anticipation of the meetings or confirming their outcomes.b) Pipers regularly provided reports on the status of AAT's files, together with cost estimates and instruction checklists. Pipers has produced status reports for the period 15 July 2003 to 15 June 2004, and for the period from 1 September 2004, together with report letters in July 2005, September 2005, March 2006 and July 2006. c) Pipers prepared instruction checklists for AAT to complete (both composite checklists relating to all files being reported, or individual files). Although the evidence contains only one individual checklist signed by AAT, Pipers evidence is that they were sent to AAT (that is not disputed), and there is abundant evidence of discussion and correspondence following the report letters with which these checklists appear to have been sent. d) Pipers appears to have sent reminders for instructions on individual files regularly; it maintained a patent maintenance/renewal chart as a foundation for the above. [22] I will consider the invoices in related groups. They can be helpfully broken down by reference to time of delivery and by reference to work covered. [23] Dealing first with the timing of invoices, there were 3 between 31 January 2004 and 28 August 2004, 18 in 2005 (14 on 28 July 2005, 2 on 28 July 2005 and 2 on 28 August 2005), and 9 in 2006 (8 on 10 July 2006 and 1 on 26 July 2006). AAT accepts one of the invoices rendered in 2004 and 8 rendered in 2005. [24] The "batched" delivery of the 2005 and 2006 invoices appears to be a deliberate decision by Pipers to afford AAT time to build up funds after it had cleared the backlog of fees from 2002/2003. Pipers offered to delay its invoicing in an email sent to Mr Cunningham on 25 March 2004. It said in a comprehensive report letter of 26 July 2005 (with which the bulk of the 2005 invoices were forwarded) that it had delayed invoicing to allow AAT to build up its funds.[25] The nature of the work in the disputed invoices is also instructive. This is because the nature of the work reflects the kind of instruction and consequential authority required. For example, in relation to the litigation defence, AAT was not in a position of control and frequently had to react to steps taken by the prosecution, In general terms it comprises: a) ongoing work in defence of an application by a competitor for revocation of one of its patents, and an application by AAT to revoke the competitor's patent; b) the "National Phase" applications I have just mentioned (instructed in August 2004); c) the responses to the examination on two US patent applications (instructed in September 2003); d) requests for examination in pursuance of two Australian patents (instructed in January 2006); e) costs associated with maintenance of a US patent granted in April 2003; f) follow up on a New Zealand patent application filed May 2003; g) general monitoring of AAT's patent interests between July 2004 and July 2006. [26] It appears from the costs summaries and report letters that Pipers provided estimates for all work being billed, with the possible exception of some of the work on the ongoing litigation, the work to maintain the New Zealand and the one US patent, and the general monitoring work. [27] Although nothing turns on this (in my view) I also note that Pipers provided estimates rather than quotes given that they were endeavouring to forecast the cost of work to be carried out some months in the future, without an understanding of whatqueries might arise, and noting the possibility of changes both in Government fees levied, overseas associates' costs and variation in exchange rates. [28] The issue then becomes whether there is a credible basis for a dispute over authority, on the basis of the contemporary documents in relation to the various matters I have identified: a) Pipers accepts that there is no express authorisation for the defence of the ongoing litigation by AAT's competitor (InterAg/DEC). There are three invoices for this work (070842, 071594 and 072163), totalling $17,579.00, covering the period from August 2002 to July 2006. The bulk of the cost comprises AAT's barrister's fees. The initial authority for representation was given well ahead of the regime put in place in July 2003. Rates of charge were given in the costs summary for the period 15 July 2003 to 15 June 2004. This was not a matter from which AAT could withdraw unilaterally. Correspondence and invoices make it clear that from about 2004 the focus was on attempts to achieve a settlement. The correspondence produced together with Pipers' regular reports show that AAT was kept informed of progress on a regular basis, with meetings from time to time. Pipers and the instructed barrister clearly had authority to continue to act. AAT took no objection to invoicing to 28 July 2005, and knew that work was ongoing with continuing High Court appearances. I do not find any credible basis for dispute of these invoices. b) The ongoing litigation in respect of AAT's application to revoke the competitor's patent is relevant in two respects. First, it demonstrates AAT's acceptance that, notwithstanding the regime put in place in July 2003, it gave authority to undertake work on litigation without prepayment and on oral instructions. An estimate was given for the first of the invoices (070997), and a prepayment of $4,000 made in respect of that. AAT challenges an increase of $280.91 above that invoice, yet has accepted that it authorised two later invoices (071086and 071575) for which there is no evidence of an estimate or prepayment. The second aspect of relevance is that this was litigation which was within AAT's control, and the evidence shows that it elected not to pursue it after initially authorising work (preparation of evidence and statutory declarations) to keep AAT's entitlements alive. I am satisfied that Pipers had authority to undertake the work, and that there can be no credible dispute about the balance due on invoice 070997. c) As I have already indicated, the largest part of the outstanding fees can be attributed to work undertaken in responding to examination reports on two US patents, and in pursuing the "National Phase" application in Australia, Europe and the United States. I am satisfied that AAT instructed Pipers to lodge the response to the examination reports in September 2003. Pipers has produced correspondence confirming faxed instructions in one case (invoice 071529) and unidentified instructions in the other (invoice 071530), which refer back to a request for instructions on 2 September 1993. The work is mentioned in Pipers' costs estimates prepared for the period 15 July 2003 to 15 June 2004. No objection was taken to the accounts when rendered in July 2005. I find there is no credible dispute as to the authority to undertake the work for these invoices (071529 and 071530) or follow-up invoices 072188 (correcting the fees charged by Pipers' US associate) and 172164 (comprising costs primarily of Pipers' US associate in relation to the grant of patent which was reported to AAT on 26 July 2005). d) Similar considerations apply to the invoices for the National Phase applications (071523 – 071528 inclusive and 071159 – 107160). Pipers has produced estimates provided for the costs for this work, and confirmed oral instructions given by Mr Cunningham three days after the estimates were provided. As well as the initial invoices rendered on 28 July 2005 (which were not challenged at the time) I consider that the authorisation extends to additional costs incurredoverseas and rendered to AAT on 10 July 2006. I find that there is no credible dispute in relation to these invoices. e) The next set of invoices (071161 and 071162) concerns work undertaken in relation to a request for examination on Australian patents. Pipers has produced evidence in the form of email exchanges between 26 January 2006 and 15 March 2006, and its report letter of 20 March 2006, that estimates were provided and instructions given for this work (initially orally and then confirmed by email). I again find there is no credible dispute in relation to authority for these invoices. f) This leads me to invoices 071538 and 072165 relating to completion of a New Zealand patent and maintenance of a US patent respectively. The costs in relation to the New Zealand patent (071538) appear to relate to steps taken to complete the grant of an application filed on 8 May 2003 and Pipers' report to AAT. Although there was an earlier estimate provided for this work (in the file costs summary from 1 September 2004) there is no explicit authorisation for the follow up work. However, there is evidence that it resulted in the issue of the New Zealand patent, and I consider that this cost would be authorised as part of the original authorisation to present and pursue the application. AAT's failure to challenge the invoice when rendered on 2 August 2005 supports my view that there is no credible dispute to it. g) Invoice 072165 relates to renewal of a US patent (being primarily Pipers' US associates' costs on a patent issued in April 2003). There may be an issue as to whether this was authorised. This work is included in the instruction checklist given to AAT in March 2006. Pipers' report letter of 10 July 2006 notes the renewal is due by 30 June 2006 and requests payment in full in order to action renewal. AAT says that it was reviewing the cost efficacy of renewing all of its patents. It may be that this is one patent which it did not wish to renew. I have to accept that there could be a credible dispute to it.h) The last invoice is for Pipers' ongoing monitoring for the period July 2004 to July 2006 (invoice 072166). In its evidence Pipers says that Mr Cunningham requested reports from time to time. There is documentary support for this, and Mr Cunningham does not challenge the statement. As I understand it he simply questions whether Pipers was entitled to bill for it in the absence of express authority to incur fees for such work. I regard a request for updated information as express authority to incur the costs of monitoring and reporting. I do not find any credible dispute in respect of this invoice. [29] It is significant that with one exception (reference in an email in January 2006 to AAT's Board querying authorisation for work on one unidentified file) lack of authority was not raised until the 2006 invoices were rendered. In particular, it was not raised in response to work on ongoing litigation nor in relation to the work on "National Phase" applications in Australia, Europe and the United States, nor the work responding to examination reports on two US patents. [30] The central dispute in this application is whether Pipers had authority to undertake the work of which they have billed AAT. In relation to this, AAT claims that Pipers (through its principal Mr J W Piper) acknowledged that there was an issue over authorisation in a meeting held on 12 October 2006. Mr Piper challenges this, but AAT contends that the difference cannot be resolved on this application. I do not consider it necessary to do so. The meeting took place three months after the last of the invoices was rendered. There could be a number of explanations for Mr Piper's alleged undertaking to review the invoices and the authority for them. I do not regard even AAT's version of the outcome of the meeting as an admission of lack of authority. In my view the issue of authority is capable of being determined by reference to contemporary documents. Considered in that light, the contention that Mr Piper agreed that was an issue over authority lacks credibility in most cases.Decision[31] I find that there is no credible dispute as to whether the costs claimed in Pipers' statutory demand were authorised, with the sole exception of the costs ininvoice 072165. This is not a case where I am unable to reach a conclusion on the alleged dispute as to authority. The alleged dispute is not credible given the contemporary documentation and AAT's delay in taking issue with the accounts. [32] I am prepared, however, to allow AAT the opportunity to pay the accounts before the statutory presumption applies, given the late filing of Pipers' last affidavit (even though I note that most of the critical supporting documentation had been filed earlier, and appears to have been given to AAT first on 7 July 2006). [33] I make the following orders: a) AAT's application to set aside the statutory demand is dismissed. b) The time for AAT to comply with the demand is extended to 13 August 2008. The demand will be met by payment of the sum of $96,312.66 (without prejudice to Pipers' entitlement to pursue a separate claim for the balance of $2000).Costs[34] As the successful party Pipers is entitled to its costs of and incidental to this application on a 2B basis together with disbursements as fixed by the Registrar. __________________________Associate Judge Abbott