CV LAW LTD V ARMSTRONG PRESTIGE (WELLINGTON) LTD COA CA122/2012

CV LAW LTD V ARMSTRONG PRESTIGE (WELLINGTON) LTD COA CA122/2012 [3 December 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA122/2012[2012] NZCA 564BETWEEN CV LAW LIMITEDAppellantAND ARMSTRONG PRESTIGE(WELLINGTON) LIMITEDRespondentHearing: 15 November 2012Court: Arnold, French and Miller JJCounsel: P S Withnall for AppellantJ E Bayley for RespondentJudgment: 3 December 2012 at 10.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs for a standard appeal on a Band A basis and usual disbursements._______________________________________________________________________REASONS OF THE COURT(Given by Miller J)Introduction[1] CV Law Ltd (CV Law) appeals from a decision of Associate Judge Gendall dismissing its application to set aside a statutory demand.11 CV Law Limited v Armstrong Prestige (Wellington) Limited HC Wellington CIV-2011-485-2042, 2 February 2012.[2] The parties agree that CV Law owes the respondent, Armstrong Prestige (Wellington) Ltd (Armstrong Prestige), $23,530.85 under an obligation assumed in June 2010. They dispute whether payment has yet fallen due.The evidence[3] CV Law, whose principal is Costa Varuhas, owned a Porsche GT3. The Porsche had been financed by Mercedes Benz Financial Services Ltd (Mercedes), to whom CV Law owed $203,530.85, secured by a security interest in the vehicle. In June 2010 CV Law agreed to sell the car to Armstrong Prestige for $180,000. That was not enough to repay Mercedes. On 28 June 2010 Armstrong Prestige paid Mercedes in full and obtained a discharge of its security interest, leaving CV Law with an unsecured obligation to repay the shortfall to Armstrong Prestige.[4] On 19 July 2010 CV Law signed a vehicle sale agreement recording the sale of the Porsche to Armstrong Prestige. The agreement may have been signed on that date because Armstrong Prestige had found a buyer for the Porsche, or because Mr Varuhas was in the dealership at the time, looking for a replacement car. Under the vehicle sale agreement CV Law acknowledged an obligation to pay the shortfall of $23,530.85 to Armstrong Prestige immediately.[5] On 16 August 2010, some six weeks after Armstrong Prestige had paid Mercedes and almost a month after the vehicle sale agreement had been signed, CV Law delivered a cheque for the shortfall to Armstrong Prestige. The cheque had been made payable to Armstrong Prestige, dated 16 August, and signed without endorsing any conditions on it.[6] Not until July 2011 did Armstrong Prestige bank the cheque. It was not honoured. Although it was stale by that time so far as the paying bank was concerned, the reason given for dishonour was that payment had been stopped.[7] The parties agree that when the Porsche sale was negotiated CV Law proposed to buy a used vehicle from Armstrong Prestige more or less immediately, and that this expectation explains the delay in banking the cheque. They disputewhether they varied CV Law's otherwise immediate contractual obligation to pay the shortfall.[8] Ricky Armstrong and Andrew Deans, witnesses for Armstrong Prestige, say that they refrained from banking the cheque as an indulgence to CV Law, believing that Mr Varuhas intended to buy a new Porsche Cayenne to replace the GT3. Later he expressed interest in an Audi. They offered several cars. But time went by, no deal was done, and disillusionment overtook them. So the cheque was presented, CV Law having first been warned what was about to happen.[9] Mr Varuhas maintains that in June 2010 he agreed with Mr Deans that Armstrong Prestige would obtain another car to replace both the Porsche and hisAudi Cabriolet, with the shortfall on the Porsche being "included" in the replacement car's price. The replacement car was to be a used Audi, not a new Porsche Cayenne. Both parties pursued this agreement initially. Armstrong Prestige twice offered a replacement Audi which Mr Varuhas found suitable, only to withdraw the car or unilaterally increase its price at the last moment. Mr Varuhas points to a 2004 Audi A6 Quattro listed at $41,990, which he says he expressed willingness to buy on 26 June 2010 when he was negotiating the sale of the Porsche GT3, only to find that another salesman at Armstrong Prestige had sold it to someone else, and an Audi A5 that he agreed to buy in August only to have an Armstrong Prestige manager demand a higher price than he had negotiated orally with the salesman.[10] Because of these difficulties, Mr Varuhas says, CV Law "voluntarily handeda cheque" to Mr Deans on 16 August as a "gesture of goodwill and as confirmation of [CV Law's] bona fides", on condition that the cheque would be held byArmstrong Prestige unbanked on file pending the trade-in and then returned. He says that Mr Deans accepted the cheque on that basis, and the arrangement thus reached explains the long delay before the cheque was presented. CV Law cancelled it in July 2011 because an employee of Armstrong Prestige warned him that it was about to be presented. He remains willing to complete a trade-in, but Armstrong Prestige has yet to offer him a suitable car, evidently having lost interest in him. We were told that he retains the Audi Cabriolet, which is still available for trading in.Genuine and substantial dispute[11] CV Law moved to set the statutory demand aside under s 290(4)(a) of the Companies Act 1993. Counsel agree that the Associate Judge correctly directed himself that CV Law must show there is arguably a genuine and substantial dispute about whether the debt was due for payment.2[12] Nor is it in dispute that a dishonoured cheque creates an immediate right of recourse against the drawer under s 47(2) of the Bills of Exchange Act 1908. The issue was and is whether the cheque was delivered conditionally, and not for the purpose of transferring property in it. If so, CV Law would have a defence to a claim on the cheque under s 21 of the Bills of Exchange Act:21 Delivery(1) Every contract on a bill, whether it is the drawer's, the acceptor's, or an indorser's, is incomplete and revocable until delivery of the instrument in order to give effect thereto:Provided that where an acceptance is written on a bill, and the drawee gives notice to or according to the directions of the person entitled to the bill that he has accepted it, the acceptance then becomes complete and irrevocable.(2) As between immediate parties, and as regards a remote party other than the holder in due course, the delivery—(a) In order to be effectual must be made either by or under the authority of the party drawing, accepting, or indorsing, as the case may be:(b) May be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the bill.(3) If the bill is in the hands of a holder in due course, a valid delivery of the bill by all parties prior to him so as to make them liable to him is conclusively presumed.(4) Where a bill is no longer in the possession of a party who has signed it as drawer, acceptor, or indorser, a valid and unconditional delivery by him is presumed until the contrary is proved.2 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 299.The High Court decision[13] The Associate Judge did not accept that the cheque may have been delivered conditionally, for three reasons: the cheque was not post-dated, and it was unlikely that a lawyer such as Mr Varuhas would hand it over without some accompanying evidence of the alleged trade-in arrangement; the alleged condition – that the cheque would not be banked at all – contradicted the promise to pay on demand that the cheque represented; and a cheque would not likely be issued on condition that it would never be presented or would be presented only on the happening of some future event that the drawer controlled.[14] In the alternative, the Associate Judge accepted that CV Law was liable under the vehicle sale agreement, which was in writing and provided unconditionally for immediate payment. Any arrangement about future payment in connection with a replacement car was at best informal, there being no agreement as to what vehicle would be purchased, and for what price, and how the shortfall would be built into the price for the new car.The appeal[15] The theme of Mr Withnall's argument was that Mr Varuhas's account is notfanciful or contradicted by the contemporaneous record. On the contrary, it finds support in the fact that the cheque was not presented for almost a year. The criticism that his account lacks contemporaneous documentary evidence might equally be made of the case for Armstrong Prestige, for the parties agree that they were negotiating a trade-in. The better view is that the absence of documentary evidence indicates mutual trust between a car dealer and its good client. Counsel submitted that the evidence crosses the threshold of credibility for purposes of s 290(4), and if accepted at trial it would establish that the cheque was delivered conditionally and that the time for payment of the debt has not yet arrived, so supplying a defence.[16] Mr Bayley responded that the Associate Judge might properly take a commonsense and robust approach, discounting the claim that the debt could not berecovered pending a deal to which CV Law need never commit. The actual transaction was fully documented in the vehicle sale agreement for the Porsche. Counsel submitted that Mr Varuhas has not deposed to any oral communication to Mr Deans under which the latter accepted the alleged condition, but merely asserts that the alleged agreement exists. It is hardly likely that a solicitor would hand over a cheque without recording such a condition in some way.Discussion[17] For present purposes the question is simply whether it is fairly arguable that as at September 2011, when the statutory demand was issued, the debt was not yet due for payment. We will assume without deciding that if the parties had agreed to delay payment, the cheque may have been delivered conditionally for purposes of s 21 of the Bills of Exchange Act.[18] When Mr Varuhas agreed to sell the Porsche GT3 and Armstrong Prestige repaid Mercedes, both parties expected that CV Law would purchase a new car from Armstrong Prestige and anticipated that the shortfall would be sorted out in that transaction. They also expected that the trade-in would be agreed quickly. Consistent with that, CV Law assumed an immediate obligation to pay the shortfall when signing the vehicle sale agreement on 19 July.[19] By 16 August, however, the trade-in had not been agreed, contrary to bothparties' expectations. That delay led to the cheque's delivery, an act which stronglyevidences not only that the obligation to pay had fallen due but also that it was being honoured. To deliver a cheque is to confer upon the holder control over its presentation for payment. Like the Associate Judge, we find implausible Mr Varuhas's explanation that the cheque was delivered only to show good faith, and on condition that it would never be banked. If that were true, the cheque was an empty gesture, scarcely likely to afford the payee the intended comfort. And because the cheque documented a present commitment to pay, one would expect such condition to be documented too.[20] However, we prefer to focus on the alleged contractual arrangement under which payment has not yet fallen due, more than two years after the event. It is most plausibly characterised as a variation of a contractual obligation assumed by 28 June 2010, and confirmed on 19 July 2010, to pay the shortfall immediately, but our conclusions would not differ if it were analysed as a condition of an agreement entered in June, as Mr Varuhas maintains.[21] This arrangement suffers from uncertainty in several respects: the car to be supplied by Armstrong Prestige is unknown; its price cannot even be guessed at; the role to be played by the Audi Cabriolet is unsettled; there is no way of knowing how the shortfall will be included in the transaction; and it is impossible to know whenthe obligation to pay will fall due. All of these elements require CV Law's expressagreement, leaving no room for the implication of reasonable terms even if a court could identify them.3 Further, the discretion that this alleged arrangement wouldconfer on CV Law must alter the parties' bargaining positions when it comes to theprice of any replacement car, for Armstrong Prestige would experience a strong incentive to surrender value in exchange for repayment of the shortfall.[22] Mr Withnall resisted the proposition that this alleged arrangement is no contract at all by pointing to the Audi A6 Quattro that Mr Varuhas was willing to buy in June 2010 and assuring us that CV Law will still accept something similar. But on analysis that is merely an assurance that Mr Varuhas will act in good faith when choosing a car. The subject matter and price would still require his agreement. Indeed, his evidence about the Audi A6 Quattro confirms that. He does not depose that he agreed to buy the car at all, or at the price offered, but says that he was happy with its specifications and agreed to inspect it, and that it would be included in negotiations over the price of the Porsche GT3.[23] For these reasons we conclude that even if the evidence of Mr Varuhas is accepted for present purposes, the alleged arrangement is wholly uncertain. Thatbeing so, such arrangement could not vary CV Law's obligation under the vehicle3 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA).sale agreement to pay the shortfall at once. There is no genuine and substantial dispute about payment.Decision[24] The appeal is dismissed. The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.Solicitors:CV Law Limited, Wellington for AppellantRhodes & Co, Christchurch for Respondent