CV LAW LIMITED V ARMSTRONG PRESTIGE (WELLINGTON) LIMITED HC WN CIV-2011-485-2042

CV LAW LIMITED V ARMSTRONG PRESTIGE (WELLINGTON) LIMITED HC WN CIV-2011-485-2042 2 February 2012IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2011-485-2042[2012] NZHC 157UNDER the Companies Act 1993IN THE MATTER OF an application to set aside a statutorydemandBETWEEN CV LAW LIMITEDApplicantAND ARMSTRONG PRESTIGE(WELLINGTON) LIMITEDRespondentHearing: 26 January 2012(Heard at Wellington)Counsel: PSJ Withnall - for ApplicantJ.E. Bayley - for RespondentJudgment: 2 February 2012 at 3:30 PMJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment of Associate Judge Gendall was delivered at 3.30 pm on 2 February 2012 under r 11.5 of the High Court Rules.Solicitors: Costa Varuhas, CV Law Ltd, PO Box 13-453, JohnsonvilleRhodes & Co, Solicitors, PO Box 13444, ChristchurchIntroduction[1] Before me is an application by CVLAW Ltd, the applicant, to set aside a statutory demand issued against it by Armstrong Prestige (Wellington) Limited the respondent. The statutory demand in question claims from the applicant the sum of $23,530.85. This is said to be the amount owing under a Sale and Purchase Agreement of a vehicle dated 19 July 2010.[2] The respondent is a dealer in used and new motor vehicles carrying on business largely in Wellington. The applicant is a company as I understand it owned and operated by Mr Costa Varuhas (Mr Varuhas). Mr Varuhas is a barrister and solicitor practising in Johnsonville, Wellington, and as I understand it, he runs this legal practice through and in the name of the applicant company.[3] The applicant's grounds in its application for setting aside the statutory demand are that a genuine and substantial dispute exists as to whether there is a debt owing or due in terms of s 290(4)(a) Companies Act 1993, that this dispute was known or ought to have been known to the respondent and accordingly the issue of the demand savours of oppressive conduct amounting to abuse of process in terms of s 290(4)(c).Background Facts[4] The applicant as vendor entered into the 19 July 2010 Sale and PurchaseAgreement ("the Agreement") with the respondent as purchaser for the sale of its Porsche 911 GT3 motor vehicle. The Porsche was subject to a charge at the time in favour of Mercedes Benz Financial Services Limited (Mercedes) as security for a loan, which the applicant had raised against the vehicle presumably for its original purchase. The respondent agreed to settle and repay this loan debt which amounted then to $203,530.85 as part of the purchase and it did so.[5] As the purchase price for the Porsche stated in the Agreement ($180,000) was less than the cost of discharging the Mercedes debt, the applicant was liable to pay to the respondent on the sale the shortfall amount of $23,530.85. This was recorded inthe Agreement, which simply stated in the payments section, "vendor to pay $23,530.85".[6] It is this debt of $23,530.85 which, as I have noted above, is the subject of therespondent's statutory demand.[7] The means by which the applicant was to satisfy this debt however, and thus whether the debt is in fact due at this point, according to the applicant were both disputed. On this, the applicant claims that the parties agreed to a secondtransaction, referred to in its submission as the "June Agreement", for the applicantto settle the debt by trading in another vehicle it owned, an Audi A4 Cabriolet, for a cheaper replacement Audi. The shortfall amount owed to the respondent, it is said, was to be subsumed in this transaction. In replying to this argument, the respondent contends that although the potential purchase of a Porsche Cayenne and later an Audi was discussed at some time with Mr Varuhas, it did not form part of the Agreement. The respondent maintains that throughout the applicant was liable to pay the shortfall amount in accordance with the simple terms of the Agreement. Although a potential trade-in transaction was discussed, at no point according to the respondent did it agree for liability for this substantial $23,530.85 amount to be satisfied at an indeterminate time in the future and by some other means.[8] Indeed, it is also not disputed that Mr Varuhas on behalf of the applicant wrote a cheque dated 16 August 2010 for $23,530.85, the amount of the shortfall and passed this to the respondent. The applicant claims now that this was only intended as a gesture of goodwill and the cheque was to remain unbanked and on file until the intended Audi trade-in was completed. The respondent disputes this and notes that finally, after many unsatisfied demands for repayment of the debt, on 6 July 2011 it did present this cheque but it was dishonoured as the applicant had stopped payment on it. The respondent then served the statutory demand in question on the applicant soon after on 23 September 2011.Counsels' Submissions and My Decision[9] The applicant brings the present application essentially pursuant to s 290(4)(a) Companies Act 1993. This provides that the Court may grant an application to set-aside a statutory demand if the Court is satisfied, that there is a substantial dispute whether or not the debt in question is owing or is due. At the outset I note that questions as to the solvency of the respondent do not seem to be in issue here. Solvency does not appear to be seriously disputed.[10] The principles relating to s 290(4) Companies Act 1993 are well settled. The authors of Brookers Insolvency Law & Practice provide the following succinct summary at para CA290.02:1CA290.02 The general principles applicable to applications under s 290(4) are now well established. These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; (2001) 9 NZCLC 262,605 (Court of Appeal); Fletcher Homes Ltd v Ellis 23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Artchitects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd 3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; (1989) 1 PRNZ 390 (Court of Appeal), are as follows:(a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).(b) The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.(d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances. The obligation is not to1 Insolvency Law and Practice (online looseleaf ed, Brookers) at [CA290.02]; adopted in North Harbour Equine Hospital Limited v Little HC Auckland CIV-2006-404-7585, 19 February 2007 at [17]; Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd HC Auckland, CIV-2008-404-4725, 19 January 2009 at [4] and Trinity Hills Retreat Ltd v Kroehl HC Nelson CIV-2010-442-101, 12 August 2010 at [5].prove the actual claim. Such an obligation would amount to the dispute itself being tried on the application.(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.[11] Effectively, the sole ground advanced by the applicant here for setting-aside the statutory demand seems to be that there is a substantial dispute as to whether or not the debt is due. The addition of a reference in the application to s 290(4)(c) Companies Act 1993 in my view adds little to the applicant's essential argumenthere.Genuine and Substantial Dispute[12] The applicant submits in this case that there is a genuine and substantial dispute under section 290(4)(a) Companies Act 1993 because it says it was agreed that the debt would be settled by way of the second transaction and that has not yet occurred. As a replacement vehicle has never been agreed on and the "June Agreement" was never performed, the applicant disputes that it is liable now for the amount claimed by the respondent in the statutory demand. The applicant does not appear to dispute that it does owe the $23,530.85 debt to the respondent. It maintains however that the date for payment of this debt has not yet arrived.[13] Under all the circumstances prevailing in this case, I must reject these contentions advanced for the applicant. In my view, there can be little dispute here that the debt in question is owing or due now and that the applicant has defaulted in making payment. I reach this conclusion for the following reasons:a. The failure to honour the cheque finally presented for payment on 6 July 2011 gives the respondent immediate recourse to the applicant for the amount stated in the cheque.b. Alternatively, and in any event, the $23,530.85 debt is owing at this time in terms of and on the basis outlined in the 19 July 2010 Agreement and remains unpaid.[14] I now turn to consider the first issue. Under Section 73(1) Bills of Exchange Act 1908, a cheque is a bill of exchange drawn on a banker and payable on demand.A dishonoured cheque creates an immediate right of recourse against the drawer under s 47(2) of the Bills of Exchange Act 1908. The cheque provided by the applicant to the respondent here was presented on 6 July 2011 and dishonoured, rendering the applicant as drawer liable for the amount stated in the cheque.[15] Essentially before me the applicant relied on the defence of conditional delivery of the cheque, which it argues negates this immediate right of recourse. On this, s 21 of the Bills of Exchange Act 1908 provides: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.(emphasis added)[16] The applicant claims here that the cheque was delivered on the condition that it was not intended to be banked but rather was a mere show of good faith on the part of the applicant. I reject this claim. I do not accept that the cheque was delivered only on a conditional basis. For this to be the case, in my view there would need to be something accompanying the cheque as evidence that the respondent was not to bank the cheque while the purchase of a replacement vehicle was ongoing. Thecheque was not post-dated which would ordinarily suggest payment conditional on the passing of time. It is hard to accept that a solicitor, such as Mr Varuhas here would under the present circumstances conditionally tender a cheque to the respondent in the absence of clear evidence or agreement of that condition, all of which as I see it is absent here.[17] In addition, a condition that the cheque is not meant to be banked in this case contradicts the form of the cheque itself. One cannot without more issue a cheque subject to a condition such as this when a cheque is necessarily a promise to pay on demand. Nothing was put in writing in this case to support the applicant's claim thatthe cheque was passed over on a conditional basis only. It is also nonsensical in my view to suggest that a cheque would be issued on the condition that it was never to be met or met only after the happening of some future event, the control of which rested largely in the hands of the drawer.2 This alleged condition is inconsistent with the scheme of the Bills of Exchange Act 1908 and the obligations incurred when drawing and delivering cheques.3[18] The failure to honour the cheque therefore creates an immediate right of recourse to the applicant for the amount stated in the cheque. The debt in question is owing and due by virtue of the delivery of the cheque to the respondent and its subsequent dishonour. As I see it there can be no dispute as to that debt being due. And the fact that the statutory demand does not refer to the cheque itself in requiringrepayment of the debt as "an amount due and owing .... under a Vehicle PurchaseAgreement dated 19 July 2010" in my view is immaterial here. At worst it is a "material mis-description of the debt" under s 290(6) Companies Act 1993 and constitutes a simple "defect" or "irregularity" in the demand saved by s 290(5)Companies Act 1993.[19] For all these reasons, based on dishonour of the cheque, the application to set aside the statutory demand is dismissed. That effectively disposes of the application2 Garrat Enterprises Ltd v Lynds, H Ct, Akld, 27/5/97 M133/197.3 Ibid.before me. Nevertheless, I will now turn to consider the second issue noted at 13(b) above. In the event I am wrong to conclude that the dishonoured cheque is a sufficient ground to dismiss the current application, the respondent also relies here in its opposition on a failure by the applicant to comply with the terms of the Agreement itself. The applicant claims in response however that the Agreement was subject to or supplemented by the earlier "June Agreement" allowing the debt owingto be subsumed into a later transaction between the parties.[20] I cannot accept the applicant's claim in this area as noted above. The "June Agreement" amounts in my view at best only to an informal discussion as to possible future dealings between the parties, involving ways in which further vehicles might be purchased by the applicant to increase commercial benefit to both. There was no consensus as to which vehicle would be purchased, the price of that vehicle, and the way in which the price could be adjusted to subsume the shortfall owed to the respondent. Any such "agreement" is simply too uncertain to delay the repayment date for the debt owing, perhaps even indefinitely. The details of any "June Agreement" arrangement do not absolve the liability of the applicant to pay the amount stated in the Agreement, being $23,530.85. This amount had been outstanding since July 2010, over 18 months ago, and remained unpaid despite several demands for payment. I do not accept there are in reality any disputed questions of fact here, or that the applicant has come near to showing that arguably there is a genuine and substantial dispute in this case that the debt (which it acknowledges does exist) is not yet due for repayment. For these reasons also, the present application must fail. The applicant is liable for the debt and the respondent was entitled to issue the statutory demand.Conclusion[21] Accordingly, the application by the applicant to set aside the statutory demand is dismissed. The applicant is to have until 8 February 2012 to satisfy the demand failing which the respondent may take steps to have the applicant placed into liquidation.Costs[22] As to costs, the respondent has been successful here and I see no reason why costs should not follow the event in the usual way.[23] Costs are awarded to the respondent on this application on a 2B basis together with disbursements as fixed by the Registrar.'Associate Judge D.I. Gendall'