CHATHAM HARDWARE LTD v CHATHAM ISLANDS MANAGEMENT LTD [2023] NZCA 433 [8 September 2023]

CHATHAM HARDWARE LTD v CHATHAM ISLANDS MANAGEMENT LTD [2023] NZCA 433[8 September 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA33/2023[2023] NZCA 433BETWEEN CHATHAM HARDWARE LIMITEDAppellantAND CHATHAM ISLANDS MANAGEMENTLIMITEDRespondentHearing: 22 August 2023Court: Goddard, Whata and Downs JJCounsel: E J Tait for AppellantP R W Chisnall and M R G van Alphen Fyfe for RespondentJudgment: 8 September 2023 at 11.00 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay costs to the respondent for a standard appeal ona band A basis, with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Goddard J)Introduction and summary[1] Chatham Hardware Limited (Hardware) appeals from a decision of theHigh Court declining to set aside a statutory demand served on it by Chatham IslandsManagement Limited (CIML).11 Chatham Hardware Ltd v Chatham Island Management Ltd [2022] NZHC 3227 [High Courtjudgment].[2] CIML is a wholesaler and retailer of diesel on Chatham Island. Hardware isalso a retailer of diesel on Chatham Island. Hardware purchases its diesel from CIML.The statutory demand relates to invoices for diesel supplied by CIML to Hardwarebetween December 2021 and February 2022 totalling $219,885.82 (GST inclusive).[3] Section 290(4) of the Companies Act 1993 provides that the Court may setaside a statutory demand if satisfied that:(a) there is a substantial dispute as to whether the debt alleged and thedemand is payable; or(b) the company appears to have a counterclaim, set-off or cross-demandand the amount specified in the demand less the amount of thecounterclaim, set-off or cross-demand is less than the prescribedamount ($1,000); or(c) the demand ought to be set aside on other grounds.[4] Before the High Court, Hardware argued that the statutory demand should beset aside because there was a substantial dispute as to whether the debt claimed byCIML was payable and/or it had an arguable counterclaim or set-off exceeding theamount specified in the demand. Hardware submitted it was seriously arguable thatthere was a collateral agreement about pricing of diesel supplied by CIML toHardware, which CIML had breached. Alternatively, Hardware submitted that it wasseriously arguable that CIML's conduct breached the Fair Trading Act 1986 and/or theCommerce Act 1986.[5] Associate Judge Johnston rejected Hardware's arguments that it had anarguable defence to the debt referred to in CIML's statutory demand, or an arguablecross-claim.2 Hardware's application to set aside the statutory demand was dismissed.[6] We agree with the Judge that there is no substantial dispute about whether thedebt claimed in the statutory demand is payable. Nor is it seriously arguable that2 At [43].Hardware has a counterclaim, set-off or cross-demand that calls into question theobligation to pay the debt specified in the demand. There is no other reason why thestatutory demand ought to be set aside. The appeal must therefore be dismissed.Background[7] The arrangements for supply of diesel by CIML to Hardware have a lengthyhistory that intersects with broader issues about arrangements for supply of essentialservices to the Chatham Islands. However the relevant facts for present purposes canbe briefly stated.[8] Hardware was established in 1995. It operates a business on Chatham Islandretailing diesel, petrol, fertiliser, garden implements and other hardware items.[9] CIML is a wholly owned subsidiary of the Chatham Islands Enterprise Trust(the Trust). The Trust is responsible for some significant infrastructure and servicesprovided on the Chatham Islands, including the airport, electricity generating assets,and operation of the ports. The Trust is a registered charity established by theNew Zealand Government in 1991. It is required to act in the interests of thecommunity of the present and future inhabitants of the Chatham Islands. It carries ona number of business activities that are consistent with its objectives.[10] Prior to 2009 there were two diesel retailers on Chatham Island, Hardware andChatham Fuels Limited. In 2009 the Trust acquired the diesel retail business ofChatham Fuels Limited, and CIML became a diesel retailer.[11] Prior to 2015 there were two shipping lines providing a service to theChatham Islands, including supply of diesel: Black Robin Freighters Limited(Black Robin) and a shipping line established by the Trust, Chatham Islands ShippingLimited (CISL). CISL supplied diesel to CIML. Black Robin supplied diesel toHardware.[12] In 2015 Black Robin failed. That left CISL as the sole shipping servicesupplying diesel to the Chatham Islands, and CIML as the sole wholesaler of diesel onChatham Island.[13] Hardware began to purchase diesel from CIML. Negotiations took place in2015 and 2016 about what the arrangements for the long-term wholesale supply ofdiesel by CIML to Hardware were. Those negotiations resulted in the parties signinga fuel supply agreement (FSA) expressed to apply from 1 January 2016 for a term ofseven years. The FSA is undated, but was probably finalised and signed inAugust 2016.[14] It was common ground before us that the FSA applied to the diesel supplies towhich the statutory demand relates.[15] The FSA consists of one page of specific terms and conditions, and severalpages of general terms and conditions of supply. The specific terms and conditionstake precedence, to the extent of any inconsistency.[16] Specific condition 14 provides as follows:14. Special Conditions: Diesel Supplies to Hardware will be at full (into store) ongoing fluctuating costs plus $0.05 per litre CIML margin,subject to periodically reviews by CIET Trustees.[17] Further provisions relating to the price payable by Hardware for diesel are setout in cl 4 of the general terms:4. Price4.1 The price payable by the Purchaser for Diesel supplied under thisAgreement shall be set from time to time by CIML in its discretion,and shall be notified by CIML to the Purchaser and such price shalltake effect from the time set out in the notification. CIML's intentionis that the price payable by the Purchaser for Diesel supplied underthis Agreement will be set and notified to the Purchaser at the PriceNotification Frequency (which is, as at the Commencement Date, asset out in Item 8 of the Specific Terms of and Conditions, but whichmay be changed by CIML with immediate effect by CIML givingnotice).4.2 The price shall be the price charged or chargeable from time to timeby CIML to the Purchaser in effect at the time of each order beingconfirmed by CIML.4.3 CIML may engage a third party to develop a pricing model. If CIMLdoes this, the model will then be used by CIML to set the price fromtime to time and will be based on the landed cost of the Diesel toCIML. CIML will provide, on request at reasonable intervals, pricinginformation to the Purchaser if it asks for it. The Purchaser shall haveno ability to have any input into, nor require changes to, any pricingmodel used from time to time by CIPL.4.4 The Purchaser acknowledges and agrees that:(a) CIML has structured its initial pricing model on theassumption, amongst others, that the Purchaser will purchase,under this Agreement, not less than the Minimum AnnualVolume per each rolling 12 month period from theCommencement Date;(b) if the Purchaser fails to purchase not less than the MinimumAnnual Volume in any such 12 month period, then this maydirectly cause CIML loss because of its pricing arrangementswith its suppliers; and(c) if CIML (which must act reasonably and transparently)considers that the Purchaser will purchase less than theMinimum Annual Volume during any 12 month period, or thePurchaser does purchase less than the Minimum AnnualVolume during a 12 month period, CIML may take this intoaccount into its pricing model for determining the Price of theDiesel for future orders made by the Purchaser, to protectitself against any failure on the part of the Purchaser topurchase the Minimum Annual Volume for that 12 monthperiod, provided that CIML is fully transparent with thePurchaser in advising the Purchaser of any changes to thePrice.4.5 CIML shall advise the Purchaser of the price payable from time totime (including any components of the price) and any changes to theprice (including any changes to any components of such amendedprice) for the Diesel payable by the Purchaser to CIML.[18] Clause 5.2 of the FSA's general terms is a "no set-off" clause. It provides that"[u]nless agreed otherwise beforehand, the Purchaser must make payments to CIML,in full and without set off or deduction or withholding".[19] Similarly, cl 5.12 of the general terms requires Hardware to make payments toCIML under the FSA without deductions: The Purchaser acknowledges and agrees that its obligation to pay all sumsdue to CIML under this Agreement and the rights of CIML in and to suchmoneys shall be absolute and unconditional and shall not be subject to anyreduction, set-off, defence, counter-claim or recoupment whatsoever.[20] Clause 10 provides for resolution of disputes. Provision is made fornegotiation, mediation and, if the dispute is not resolved, reference to arbitration underthe Arbitration Act 1996. Clause 10.4 makes specific provision for disputes relatingto payments or an invoice:10.4 In the event of a dispute relating to payments or an invoice, the Partiesshall first submit to the payment dispute process, as follows:(a) the Purchaser must notify CIML within 2 Business Days ofthe receipt of the relevant Diesel of any disputed amount.The Parties shall aim to resolve the payments dispute within5 Business Days of being notified of the dispute;(b) if the invoiced payment amount is partially or fully in dispute,the Purchaser must still pay the total amount of the invoice(including GST) to CIML. If after the dispute resolutionprocedure it turns out that an overpayment has occurred,CIML will refund the amount of any overpayment togetherwith interest at the Default Rate calculated on a daily basisfrom the time of the overpayment until payment of the refund;(c) the Parties acknowledge that the purpose of requiringpayment in full pending the resolution of a payments dispute,rather than allowing the Purchaser to withhold payment in fullor in part, is to avoid CIML suspending further supply of fuelto the Retailer for non-payment while sorting out the disputedamount; and(d) if the Purchaser fails to pay any invoices in accordance withthe terms and conditions of this Agreement, then CIML shallnot be obligated to continue to supply Diesel to the Purchaser,and may suspend for such period as it considers appropriatein the circumstances the supply of all Diesel under thisAgreement.[21] Between 2 December 2021 and 10 February 2022 Hardware placed a numberof orders for diesel, which CIML supplied. Invoices were rendered for a total amountof $219,885.82 (including GST). It is common ground that no payment has been madein respect of those invoices.[22] There is no evidence that any notice disputing the amounts invoiced in thisperiod was given by Hardware under cl 10.4. Hardware did not commence any of thedispute resolution processes contemplated by cl 10 of the FSA at the time the invoiceswere rendered, or subsequently.[23] On 2 June 2022, CIML served a statutory demand for the amount of thoseinvoices.[24] On 15 June 2022, Hardware filed and served its application to set aside thestatutory demand.Hardware's challenge to the statutory demand[25] Hardware's primary argument before the High Court was that at or around thetime the FSA was entered into, CIML and Hardware entered into a collateralagreement to adopt a "Fair Pricing Model". Hardware says that Fair Pricing Modelprovided for CIML to set prices on a basis that would ensure a 19.3 per cent marginbetween the price at which CIML would supply diesel to Hardware wholesale and theretail price that CIML would charge to its retail customers. Hardware says that inrecent years the margin has been substantially below that level, making it difficult forHardware to compete with CIML at retail. That is why Hardware has encounteredsignificant financial difficulties and has been unable to pay CIML's invoices.Hardware disputes the amounts invoiced on the basis that they are not consistent withthe Fair Pricing Model, so are not properly payable.[26] Before the High Court, Hardware's second argument was based on theFair Trading Act. Hardware argued that CIML had made representations about theFair Pricing Model which were false or misleading, in breach of ss 9 and 13 of theFair Trading Act.[27] Hardware's third argument before the High Court was based on the CommerceAct. It is common ground that at the relevant time the Trust and its subsidiaries werethe sole shipper and wholesaler of diesel to the Chatham Islands. CIML, a subsidiaryof the Trust, was one of two retailers of diesel on Chatham Island. Hardware arguedthat the Trust and CIML had taken advantage of a substantial degree of power in theChatham Island market to eliminate Hardware from that market, in breach of s 36 ofthe Commerce Act. Alternatively the arrangements entered into between CIML andHardware had the purpose or effect of substantially lessening competition in a market,contrary to s 27 of the Commerce Act.High Court judgment[28] The Judge began by considering Hardware's primary argument that at oraround the time that they executed the FSA, the parties also entered into a collateralagreement guaranteeing Hardware a margin of 19.3 per cent between the price CIMLcharged for diesel supplied to Hardware, and CIML's retail price. The Judge acceptedthat in recent times CIML had not priced on that basis. Hardware argued that thisconstituted a breach of the overall contractual arrangements, giving rise to a genuinedispute as to whether the alleged debt is payable.3[29] The Judge considered this argument faced significant difficulties. The FSAdealt with pricing comprehensively, in terms that were inconsistent with the suggestedcollateral agreement. It seemed unlikely to the Judge that these two commercialentities, both of which were advised by solicitors, would have elected to enter into theFSA in circumstances where they had an additional arrangement relating to a criticalmatter such as pricing without including that arrangement in the FSA itself.4[30] The Judge noted that the FSA provides in effect that CIML is entitled todetermine the price at which it sells diesel. Hardware was attempting to rely on acollateral agreement which contradicted core aspects of the parties' writtenagreement.5[31] The key document that Hardware pointed to as evidencing the collateralagreement was a spreadsheet headed "Chatham Islands Bulk Fuels Pricing" which hadbeen exchanged between the parties in the lead up to the execution of the FSA.The Judge considered that on its face this was nothing more than a recitation of theprices that CIML was charging various entities, including Hardware. There wasnothing in this document guaranteeing that Hardware would achieve any particularmargin.63 At [19].4 At [21].5 At [23].6 At [24].[32] Hardware's accountant had calculated that the pricing set out in the spreadsheeteffectively allowed for a margin of 19.3 per cent. On that basis, Hardware argued thatthe parties had agreed that the pricing then in place gave rise to a particular margin,and that that margin was to apply for the duration of the agreement. The Judgeconsidered this argument ignored important terms of the agreement, and was anartificial analysis on which it would be dangerous to place any reliance.7[33] The Judge also noted that on Hardware's case, from the end of 2016 onwardsCIML had breached the alleged collateral agreement by charging for diesel at a levelwhich did not guarantee a 19.3 per cent margin. Despite this alleged breach continuingfor close to seven years, the correspondence between the parties before the Court wasdevoid of any reference to this topic. On the contrary, throughout that time, Hardwarehad continued to order and take delivery of diesel at the prices charged withoutcomplaint, as far as the Judge could see. Hardware's account with CIML had been inarrears frequently. There was correspondence before the Court in which CIMLremonstrated about this, and numerous promises were made by Hardware aboutbringing its account into order provided they can continue to receive diesel to on-sell.But, the Judge observed, the argument now advanced only surfaced following CIML'sservice of its statutory demand.8[34] The Judge acknowledged that Hardware's case received some support fromaffidavits sworn by Mr Smith, who was the chair of the Trust at the time when the FSAwas entered into, and from Mr Pellikaan, who was the Chief Executive Officer of boththe Trust and CIML at that time.9 The FSA was negotiated by Mr Pellikaan on behalfof CIML and Ms Monique Croon on behalf of Hardware.[35] The Judge recorded that both Mr Smith and Mr Pellikaan said in their evidencethat it was their view that the parties had an understanding as to the pricing of fuelwhich was designed effectively to ensure Hardware's viability.107 At [26]–[27].8 At [28].9 At [29].10 At [29].[36] The Judge did not doubt that both held that view. However they were talkingabout their impression of arrangements made between the parties more than sevenyears ago, against the backdrop of an application in which they were no doubtconscious of the position taken by Hardware and the analysis carried out byHardware's accountant. The Judge considered that their impressions were not reliablewhen viewed against the contemporaneous material and the objective considerationsto which he had referred.11[37] The Judge therefore rejected Hardware's argument founded on the existence ofa collateral contract or arrangement.12[38] The Judge then considered Hardware's second argument based on theFair Trading Act. The Judge considered it was predicated on the same contention asthe contractual claim, and he had already concluded that there was no such collateralagreement or arrangement.13 (The Fair Trading Act argument was not pursued onappeal to this Court, so need not be described in detail.)[39] The Judge then went on to deal with Hardware's third argument based on theCommerce Act. The Judge said:[42] Accordingly, the thrust of the argument is that [CIML] induced[Hardware] to enter into the same agreement or arrangement as is relied on inthe first and second arguments, and then failed to abide by it. Again, this addsnothing. It is a third iteration of the argument for the existence of theagreement or arrangement that I have already rejected. To the extent that thereis scope for an additional argument based on a more straightforward assertionthat [CIML] deployed market dominance for one or more of the proscribedpurposes identified in s 36 of the Commerce Act, I am not persuaded that thereis any evidence which would support that contention.[40] Hardware's application was dismissed. Costs were reserved.1411 At [29].12 At [30].13 At [36].14 At [44]–[45].Submissions of Hardware on appeal[41] Before us, as before the High Court, Hardware's primary argument was that itis seriously arguable that a collateral agreement was entered into between Hardwareand CIML in 2016 which provided for a 19.3 per cent margin between CIML'swholesale price to Hardware and CIML's retail pricing, for the term of the FSA.[42] Mr Tait, who appeared for Hardware, emphasised that there was evidencesupporting the existence of a collateral agreement to this effect from Ms Croon, whoundertook the negotiations on behalf of Hardware, and from Mr Pellikaan, whoundertook the negotiations on behalf of the Trust and CIML. Mr Smith, the chair ofthe Trust, gave evidence to similar effect. He submitted that in light of this evidence,it was seriously arguable that a collateral agreement had been entered into, and thatCIML had breached that agreement over an extended period.[43] Mr Tait submitted that on a taking of accounts, on a basis consistent with theFair Pricing Model, nothing was owed by Hardware to CIML and a significant sumwas due from CIML to Hardware. Thus, Mr Tait submitted, no debt was owed byHardware to CIML, or at the least there is a substantial dispute as to whether the debtis owing or due, so the demand ought to be set aside.[44] Alternatively, if the Court did not accept that argument, and in particular if theCourt were minded to give effect to the clauses of the FSA precluding set-off, this wasa case in which the demand ought to be set aside on other grounds. The conduct ofCIML and the Trust raised issues as to whether they are in equity precluded fromrelying on the no set-off clauses, as it would be unconscionable for CIML to departfrom the assurances given at the time the FSA was signed by Hardware.[45] Mr Tait also made brief submissions on Hardware's Commerce Act arguments.He argued that the Chatham Islands are a remote but distinct market for diesel. TheTrust controls the shipping and wholesale of diesel. CIML was a retailer of dieselwhich, Mr Tait submitted, priced the retail of diesel on a loss-making basis. The termsof the FSA permitted CIML at any time without restriction to increase its supply price,and compress its margins. If these powers were exercised that would lead toHardware's elimination from the market, and would substantially lessen competitionin the Chatham Islands diesel retail market. Thus, Mr Tait said, the Trust and CIMLhad breached ss 27 and 36 of the Commerce Act. The relevant contractual provisionswere therefore unenforceable against Hardware, pursuant to s 27.Submissions of CIML on appeal[46] Counsel for CIML relied on the Judge's analysis in the High Court judgment.[47] Ms van Alphen Fyfe took us through the background to the FSA and thecontemporaneous correspondence in some detail. She emphasised that there was noreference in any of that correspondence to a collateral agreement of the kind nowasserted by Hardware. To the contrary, the email correspondence reflected a unilateralapproach to pricing by CIML, consistent with the provisions of the FSA. Hardwaredid not explicitly refer to any agreement to a fixed margin at that time, or in anysubsequent correspondence.[48] Mr Chisnall emphasised that only part of the debt claimed in the statutorydemand is subject to the purported dispute. What Hardware was alleging was,essentially, overcharging. There was no dispute about the portion of the debt that wasnot purportedly overcharged. Mr Chisnall submitted that there is an establishedpractice of setting aside a statutory demand only to the extent that it is defective.15There is no injustice to a company in requiring it to pay the uncontested part of astatutory demand.16[49] To the extent that Hardware raises allegations in relation to overcharging onother invoices, or under the Commerce Act, Mr Chisnall submitted that these arecounterclaims that do not relate to the debts claimed in the statutory demand.He submitted that these claims lack merit, but that even if they were arguable the effectof the "no set-off" clauses in the FSA (cls 5.2, 5.12 and 10.4) was that reliance on these15 HSK Trading Limited v Carter Building Supplies Limited [2021] NZHC 1897 at [15], citingUnited Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA).16 At [15].counterclaims was precluded. Mr Chisnall referred to the decision of this Court inBrowns Real Estate Limited v Grand Lakes Properties Limited, which said:17 by raising the counterclaim in response to the statutory demand, Browns isseeking to justify the non-payment of the rent. In so doing, Browns are inbreach of clause 3.1 which prohibits withholding of rent (and any otherpayments due under the lease) on any account. Associate Judge Osborne wascorrect to conclude that the clause at issue in this case precludes this.[50] As this Court explained in Browns Real Estate, the efficacy of a no set-offprovision would be undermined if statutory demands could be set aside under s 290(4)on grounds a commercial party had by contract expressly agreed could not be raised.18A no set-off clause would normally result in the court's discretion being exercisedagainst an applicant in those circumstances.19DiscussionCollateral agreement?[51] We agree with the Judge that it is not seriously arguable that Hardware andCIML entered into a collateral agreement along the lines now claimed by Hardware.[52] As the Judge explained, the collateral agreement contended for is inconsistentwith the terms of the FSA. Specific condition 14 provides for diesel supplies toHardware at landed cost plus a fixed margin of 5 cents per litre, subject to periodicreviews by the Trust. This clause provides for unilateral reviews by the Trust andCIML of the price charged. It does not identify any limits on the freedom of CIML toset the price for diesel at those reviews.[53] The specific conditions are tailored provisions entered into betweencommercial parties, recorded concisely on a single page. If there was an agreementthat a particular margin would be maintained between the price charged by CIML toHardware and CIML's retail price, one would expect to see it recorded here.17 Browns Real Estate Limited v Grand Lakes Properties Limited [2010] NZCA 425,(2010) 20 PRNZ 141 at [14].18 At [16].19 At [17].[54] The claimed collateral agreement is also inconsistent with cl 4 of the generalterms. Clause 4.1 confirms that CIML is free to set the price for diesel from time totime in its discretion. There is no reference to any guaranteed margin for Hardware.[55] Hardware placed considerable emphasis on cl 4.3. But that clausecontemplates a pricing model being developed by a third party: there is no suggestionthat was done in the present case. And it is quite clear from cl 4.3 that any modeladopted by CIML could subsequently be modified; hence the reference to "any pricingmodel used from time to time". Hardware agreed it was not entitled to have any inputinto, or to require any changes to, any model used by CIML.[56] Thus even if the spreadsheet exchanged in 2016 was an in-house substitute fora third party model — and there is no correspondence to suggest it was — the partieshad not agreed that CIML would be required to continue to apply any such model forthe duration of the FSA.[57] The second difficulty with Hardware's collateral agreement argument is thatnone of the contemporaneous email correspondence before the Court makes anyreference to a guaranteed margin for Hardware. The parties exchanged emailcorrespondence about pricing in 2015 and 2016, over the time at which the FSA wasentered into. It is in our view wholly implausible that a binding agreement to thiseffect could have been entered into between Hardware and CIML without anyreference to such an agreement appearing in the parties' correspondence.[58] To the contrary, there is email correspondence in August 2016, the month inwhich it appears the FSA was signed, that is inconsistent with a collateral agreementof the kind now asserted. An email from Mr Pellikaan to Ms Croon sent on 17 August2016 records that he "will be trying to discuss a policy for price setting for Hardwarenext week during our Board Meeting, but have no idea how that will fall". Ms Croonresponded the same day, saying:Pending Trustee's short term decision until the end of December, is there aclear way for future price setting for the Hardware by way of a policy, as thereare possibly going to be Trustee changes and eventually CEO changes and thiscould leave Hardware in a vulnerable position.Let me know if this will work.[59] On 26 August 2016 Mr Pellikaan sent an email to Ms Croon recording that theTrust Board had discussed the diesel pricing strategy earlier that day during itsmeeting. He said:Today it was today resolved that, as of 1 September 2016, CIML is to chargeHardware at a margin of $0,05 per litre on top of the total landed cost to[CIML] based on the attached cost schedule from our accountants, which thatwas sent to at time of our negotiations for Hardware to become a wholesalecustomer of the CIML/Trust. This policy is officially set by the Trusteesand will remain until such a time when Trustees see the need to review it again.Obviously the pricing will still fluctuate at different intervals as diesel costprices vary on an almost a two daily basis, but the margin of $0,05 will beconsistently applied.[60] These exchanges are consistent with the FSA. They reflect a freedom on thepart of CIML to set price unilaterally. There is no suggestion of any agreementgoverning pricing, let alone an agreement to maintain an agreed margin betweenCIML's wholesale and retail prices.[61] The spreadsheet that Mr Pellikaan sent to Ms Croon in the course of theirnegotiations in 2016 (which appears to be the "cost schedule" referred to inMr Pellikaan's 26 August 2016 email) refers nowhere to a guaranteed margin of19.3 per cent for Hardware. Hardware's accountant has calculated that that is themargin that was reflected in the pricing shown in that spreadsheet at that time. But thismargin has been derived from the figures shown in the spreadsheet: there is nosuggestion that it was built into the spreadsheet. To the contrary, the spreadsheetappears to proceed on the basis of allocation of relevant costs to different categoriesof customer, with margins of a specified amount (in cents per litre) applied to thosecustomers. The margin of 19.3 per cent that is contended for appears to be an artefactof the pricing structure at a particular moment in time, which was not hard-wired intothe pricing structure, and which would inevitably vary as the cost of diesel or otherinputs changed.[62] Another factor that points strongly against the existence of any contractuallyagreed margin is the absence of any reference to such an agreement over the followingsix years. Hardware says that a 19.3 per cent margin was maintained for all or mostof 2016, but eroded after that. If there was a commitment along those lines, designedto ensure that the Trust could not reduce the margin available to Hardware, it is whollyimplausible that this would not have been invoked on multiple occasions from 2017onwards.[63] Nor — a related point — was there any challenge to the invoices that are thesubject of the statutory demand at the time they were rendered, as required by cl 10 ofthe FSA.[64] The high point of Hardware's case is the evidence from Mr Pellikaan andMr Smith, referring to a fair pricing model adopted in 2016. But Mr Pellikaan'sevidence does not go so far as to say that there was a contractual commitment to acontinuing margin for Hardware for the duration of the FSA. Mr Pellikaan refers tobeing aware of a clause in the agreement that was eventually signed that envisagedthat a fair pricing model would be developed. That is presumably a reference to cl 4.3.He says he had authority from the Trust to develop such a model. He told Ms Croonthat he would develop a fair pricing model and told her that it would be put in placeand would apply during the existence of the FSA. He exhibited, as a copy of the fairpricing model, the spreadsheet of prices charged at that time.[65] That evidence does not suggest that there was a binding contractualcommitment to apply the approach set out in the spreadsheet for the duration of theFSA. Even if the spreadsheet was a model of the kind contemplated by cl 4.3 — whichseems problematic, as it was not developed by a third party — it was quite clear fromthat clause that CIML was free to modify any such model. And, as already mentioned,there is no evidence to suggest that this spreadsheet was constructed on the basis of ahard-wired margin between the wholesale price to Hardware and the retail pricecharged by CIML. If there was a commitment to the approach shown in thespreadsheet, that approach would have required a cost allocation coupled with a fixedcents per litre margin for Hardware, not a guaranteed percentage margin.[66] Similarly, the evidence of Mr Smith is expressed in general terms. He refersto a fair pricing model negotiated between Ms Croon and Mr Pellikaan which he says"was to continue throughout the existence of the [FSA]". But he does not suggest thatthere was any contractual commitment to the application of that model, as distinctfrom an indication by CIML that it intended to adopt the approach reflected in thespreadsheet. And he does not suggest that there was a commitment to a fixedpercentage margin for Hardware for the life of the FSA.[67] Mr Pellikaan and Mr Smith are doing their best to recollect events that occurredsome six years before they swore their affidavits, without (it appears) reference to anycontemporaneous files or correspondence. Their evidence is expressed in generalterms. Bearing in mind the fallibility of human memory, we consider that a safer guideto what was actually agreed by the parties is found in the written agreement that theysigned, and their contemporaneous correspondence. Nothing in that contemporaneousmaterial provides any support at all for an agreement along the lines for whichHardware now contends.Arguable Commerce Act case?[68] Hardware's arguments based on the Commerce Act were not developed in anydetail. The s 27 argument did not identify specific provisions of the FSA that weresaid to breach s 27: the provisions of the FSA all seem inoffensive on their face. At therisk of stating the obvious, terms providing that CIML has the ability to review priceunilaterally do not harm competition. There was no identification of the relevantcounterfactual: in particular, there was no evidence about what price CIML wouldhave charged to Hardware, and to its retail customers, in the absence of the relevantprovisions. There was no evidence to suggest that CIML could have economicallysupplied Hardware at a price materially below the retail price it charged from time totime. An argument that CIML should have charged more to its retail customers, toensure Hardware enjoyed a larger margin to fund its business activities, would faceobvious difficulties from a competition perspective. There was no expert evidence tosupport any of these arguments. We do not consider that the s 27 argument sketchedby Mr Tait is seriously arguable.[69] We readily accept that CIML has a substantial degree of market power in oneor more relevant markets on Chatham Island. But the argument that CIML breacheds 36 was not supported by any of the fact evidence and expert evidence, or legalanalysis, that would be required to show there is a seriously arguable case that CIMLhad used that market power for a proscribed purpose under s 36. In particular, therewas no evidence to support the assertion that CIML systematically set retail pricesbelow cost. Nor was there any evidence that CIML had set out to compress the marginavailable to Hardware in order to eliminate Hardware from the market. It is difficultto understand why CIML and the Trust would seek to act in such a manner, havingregard to the Trust's community-oriented purposes and its governance andaccountability arrangements. There was no direct or indirect evidence to suggest thatit did in fact do so.Conclusion[70] It follows that we do not consider that it is seriously arguable that the debtclaimed in the statutory demand is not payable. Nor is it seriously arguable that thereis a counterclaim or set-off or cross-demand of some kind under the Commerce Act.[71] There is considerable force in CIML's argument that the statutory demandshould not be set aside by reference to any counterclaim in respect of amounts invoicedoutside the period to which the statutory demand relates, or by reference to any claimunder the Commerce Act, in light of the no set-off provisions in the FSA. But we neednot address that argument in any detail, in the absence of any seriously arguablecounterclaim.[72] Finally, we are not persuaded that the statutory demand ought to be set asideon other grounds. In the absence of any serious argument that there was a collateralagreement of the kind contended for, or that there have been breaches of theCommerce Act by CIML, there are no "other grounds" that could justify setting asidethe statutory demand.[73] The appeal must therefore be dismissed.Result[74] The appeal is dismissed.[75] The appellant must pay costs to the respondent for a standard appeal on a bandA basis, with usual disbursements.Solicitors:Macalister Mazengarb, Wellington for Respondent