IAG NEW ZEALAND LIMITED v LICHFIELD VENTURES LIMITED (in liq) [2018] NZHC 1092

IAG NEW ZEALAND LIMITED v LICHFIELD VENTURES LIMITED (in liq) [2018] NZHC 1092 [17 May2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2017-409-000971[2018] NZHC 1092BETWEEN IAG NEW ZEALAND LIMITEDApplicantAND LICHFIELD VENTURES LIMITED (in liq)RespondentHearing: 14 May 2018Appearances: H A Evans and K Welsford for ApplicantP Michalik for RespondentJudgment: 17 May 2018JUDGMENT OF ASSOCIATE JUDGE OSBORNEon setting aside applicationThe application to set aside Lichfield's statutory demand[1] IAG New Zealand Ltd (IAG) applies for an order setting aside a statutorydemand issued under s 289 Companies Act 1993.The demand[2] The demand for $1,441,568.38 was issued by 100 Investments Ltd (100) onbehalf of Lichfield Ventures Ltd (in liq) (Lichfield) on 4 December 2017. It is commonground between counsel that the demand is that of Lichfield, and that Lichfield isaccordingly the correct respondent. The demand flows from a residual insurance claimin relation to earthquake damage to a property at 110 Lichfield Street, Christchurch.In the demand, 100 identifies itself as the party entitled to sue in its own right asmortgagee of the property and as assignee of the previous first mortgagee's rights tothe proceeds of the insurance policy. 100 asserts also that it has the right to take actionin the name of Lichfield, being the insured named in the subject insurance policy.The existing proceeding[3] There has been, since September 2016, a proceeding in this Court in which 100seeks judgment in relation to the same insurance claims (and others). In that existingproceeding, the parties recognise that IAG in 2015 made a payment on account ofrepair damage to the then first mortgagee of the property in the sum of $704,508.30.The payment was not accepted as being in full and final settlement of the insured'srights under its policy.[4] IAG defends the claims in the existing proceeding. It asserts that the amountpreviously paid represented the indemnity value and that the insured (or its assignee)is not entitled to further payment. Beyond matters of calculation of the insured'spayment entitlement, IAG pleads four alternative (additional) defences. In particularit asserts: that 100 has no right to sue as it is not the named insured; 100 has not takena valid assignment of the insurance policy in question; the mortgage security (pursuantto which 100 claims rights) was in fact extinguished when the property was transferredto 100 in 2015; and 100 is not entitled to receive any payment under the rights acquiredby 100 when taking an assignment in respect of the mortgagee's General SecurityAgreement.The Court's decision[5] I am satisfied that there is a substantial dispute as to whether or not the debtclaimed by Lichfield is owing. There is a real dispute as to whether the quantum ofinsured damage exceeded the amount of IAG's 2015 payment to the then firstmortgagee. Examination of IAG's alternative defences is unnecessary.The test applied[6] The Court's jurisdiction to set aside a statutory demand is contained in s 290Companies Act 1993. IAG invokes s 290(4), the relevant parts of which reads:290 Court may set aside statutory demand(4) The court may grant an application to set aside a statutory demand ifit is satisfied that—(a) there is a substantial dispute whether or not the debt is owingor is due; or(b) (c) the demand ought to be set aside on other grounds.[7] I adopt, in the exercise of this jurisdiction under s 290(4)(a) of the Act, theseprinciples:(a) The applicant must show that there is an arguably a genuine andsubstantial dispute as to the existence of the debt. Put another way, theapplicant must show that there is a real and not a fanciful orinsubstantial dispute.1(b) The mere assertion that the dispute exists is not sufficient. Materialshort of proof is required to support the claim that the debt is disputed.(c) If such material is available, the dispute should normally be resolvedother than by means of proceedings in the Court's Companies Actjurisdiction.(d) It is not usually possible to resolve disputed questions of fact onaffidavit evidence alone, particularly when issues of credibility arise.2[8] The Court of Appeal has emphasised that the correct approach to the thresholdunder s 290(4) is dictated by the requirement that what is intended to be a summary1 Re A Company [1991] BCLC 737 (Ch) at 740 per Harman J, adopted in AAI Ltd v 92 LichfieldStreet Ltd (in rec and in liq) [2015] NZCA 559 at [22].2 For this formulation of the applicable principles, I acknowledge the editors of Company andSecurities Law (looseleaf ed, Brookers) at [CA290.02(1)].hearing should not be converted into a full-blown trial.3 In Industrial Group Limitedv Bakker, the Court of Appeal said:4... the statutory scheme ... for applications to set aside statutory demands [is]a summary proceeding ... The section calls for a prompt judgement as towhether or not there is a substantial dispute The test may be compared withthe principles in cognate fields such as applications to remove caveats, [and]leave to appeal an arbitrator's award ... The tight time constraints distinguishthe s 290 discretion from that to be exercised on say, a summary judgmentapplication, where the presence of complex legal issues is not necessarily abar to a remedy. As with leave to appeal an arbitrator's award, the hearingshould, in the normal course, be short and to the point. And the judgmentlikewise.[9] There are, in the existing proceeding, some reasonably complex issues ofinsurance law which, in themselves, may have been found to render the statutorydemand inappropriate. But the glaring difficulty with the statutory demand arises fromthe real dispute which has existed between the parties as to the quantum of theinsured's payment entitlement – those issues have been pleaded from 2016 in theexisting proceeding and continue to be real issues as I now identify.The calculation of the demanded sum[10] 100's solicitors, before issuing the demand, wrote to IAG's solicitors settingout the calculation of $1,441,568.38, (the 16 November letter). The letter is Schedule1 to this judgment. As the letter indicates:(a) Lichfield pursues payment from IAG of the indemnity value for the lossto the insured occasioned through earthquake damage to the propertyat 110 Lichfield Street, Christchurch;(b) An expert appointed by the parties jointly, (Bryan Graham, a quantitysurveyor) had assessed the repair cost for such damage to 22 February2011 at $1,874,000 plus GST;(c) Lichfield's solicitors calculate the amount correctly payable by IAG tobe at least $2,231,498.30 (calculated by reference to figures set out in3 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559 at [22].4 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) PRNZ 413 at [24] – [25].the letter). After then allowing credit for $789,929.92 previously paidby IAG, the balance claimed was $1,441,568.38.The identification of the quantum issue[11] From the time of the first joint memorandum filed by counsel the partiesrecognised that the issues in the litigation included the quantum of the insured'sentitlement.[12] That this has remained an issue between the parties in the existing proceeding,as pleaded, was reflected in Mr Michalik's synopsis, where (having referred to thepleadings) he recorded:Based on these pleadings, 100 says that, for its indemnity sum claim, the issueis whether or not NZI's initial assessment of the correct indemnity sum wascorrect. If there was more to pay, then 100 says that NZI must pay it to 100.[13] In the latter half of 2017, the Earthquake List Judges were case managing theexisting proceeding to readiness for trial. There was a delay in the exchange of expertreporting as to quantum because of difficulties encountered by 100 in obtaining expertevidence on the cost of repairs. At the urging of the Court, the parties reachedagreement on a joint instruction to Mr Graham (who had previously been retained byIAG alone). The Court recorded on 10 August 2017: today counsel advised that they had reached agreement in principle thatMr Graham would be jointly instructed by both parties on the issue of repaircosts but on the basis that neither would be bound to accept Mr Graham'sopinion [14] Mr Graham was then instructed on that basis. He provided his report to counselon 4 September 2017. In the report he revised his estimate of repair costs substantiallyupwards. The figure claimed by Lichfield in the statutory demand is based directly onMr Graham's revised figure. 100 filed an amended statement of claim (in the existingproceeding) adopting Mr Graham's revised estimate.[15] After the filing of 100's amended statement of claim, counsel jointly notifiedthe Court that IAG would be reviewing and considering Mr Graham's report and mightobtain further expert advice with a view to determining whether any issues in theproceeding could be refined as a result of Mr Graham's report.[16] In mid-November 2017 counsel asked the Court to set the existing proceedingdown for hearing. They referred to the fact that IAG was obtaining expert advice onmatters of quantum which it expected to receive in two weeks' time, at which point itanticipated filing any amended statement of defence.[17] The Court, on 30 November 2017, directed trial of the existing proceeding onthe first available date after 12 August 2018. The timetable directions (which remainin place) require 100 to serve its evidence this month (by 28 May 2018) and thedefendant to serve its evidence by 9 July 2018. Mr Michalik informed me during thecourse of submissions that 100 is not on track to comply with the timetable directionfor its evidence – no request has been made for an extension of time. The Court'sexpectation remains that 100's evidence will be served on time.100's reliance on Mr Graham's revised quantum[18] Mr Michalik summarised the basis upon which 100 issued the statutorydemand in his synopsis, stating:Given Mr Graham's status as the sole expert NZI would trust with theirquantum calculations, on whose first revised figures they relied when theypaid what they stood by as the correct indemnity sum, it is hard for 100 tounderstand NZI's rejection of his further revised figures, especially as NZIhad no expert foundation for that rejection.[19] I find, to the contrary, that IAG's position is understandable in the context ofthe existing proceeding, having regard to the basis upon which Mr Graham was askedto provide his further report and the further evidence of dispute which NZI has filed.[20] Mr Graham's opinion is that of one expert. It has not been tested in evidence.While supported by a seven page budget estimate, the narrative explanation of what isincluded is relatively brief (two-and-a-half pages). It contains significantly lessexplanatory information than would occur in a full brief of evidence which a Court attrial would hear.[21] In the way the report was commissioned, it was intended to assist the partiesto seek to narrow or overcome real issues which were recognised to exist. On the basisit was commissioned, it was to be informative, not binding. Its availability would seethe exchange of expert reporting completed and allow the proceeding, if not resolved,to be set down for trial on the pleaded issues (as occurred).[22] IAG elected to take further expert advice. It instructed Craig Weston, whoundertook a costing estimate in a similar format to Mr Graham's. His estimateschedule is exhibited to an affidavit of Mr Weston dated 8 February 2018. In theaffidavit he qualifies himself as an expert. He then speaks to his conclusions.Mr Graham estimated the cost to reinstate the property at $1,874,000 (excluding GSTand professional fees), Mr Weston opines that a more realistic figure is $815,000 plusGST, as calculated in his attached schedule. Mr Weston's and Mr Graham'sallowances differ in relation to some items, in some cases very substantially. Thereare also differences between the two as to whether to include items at all. Mr Westonexplains what he perceives to be the main differences. Most significantly he hasexcluded the cost of reinstating tenants' fit-outs which were included by Mr Graham.A further difference is that Mr Weston excludes repair to floor cracking allowed by MrGraham, Mr Weston finding that the extent of floor cracking was not identified in thedamage documentation.[23] The analysis of each expert's opinion and the consideration of arguments as toincluded costs items appropriately occurs at trial. The Court, in exercising thissummary jurisdiction, is not in a position to embark on that trial exercise. Nor is it ina position to prefer the conclusions of one expert over another on the basis of affidavitevidence, untested in examination and in the absence of all the documentation whichrecords or relates to the underlying damage.[24] For 100, Mr Michalik placed emphasis of the courts' frequent observationsthat, in the statutory demand context, mere assertions are insufficient to establish thata claimed dispute has substance.[25] This case is well removed from those involving mere assertion. At the timethe demand was issued the parties had been in litigation for two years. The identifiedissues included the very issue of quantum. The parties were at the point of having allpleaded issues in the proceeding set down for trial. With the jointly commissionedreport shortly to be received, the parties had reached the point that their futuregathering of evidence would be to enable them to have briefs completed. There wasno expectation of a further exchange of experts' reports. 100's briefs, including thatof Mr Graham if 100 elects to call him as a witness, are due within the next fortnight.IAG then has a normal period within which to finalise and serve its briefs.[26] IAG has been constrained by the issuing of a statutory demand to effectivelyadvance a significant part of the briefing of its new expert, Mr Weston. IAG hascompleted that exercise under the constraints of a summary process. Its applicationfor an order setting aside the demand is supported by evidence which is beyond mereassertion.[27] The identification of issues in the existing proceeding pointed clearly to theexistence of a genuine and substantial dispute as to the existence of the claimed debt.I am satisfied that the revised estimate of Mr Graham, particularly when put alongsidethat of Mr Weston, still leaves in place a genuine and substantial dispute as to theexistence of the debt.[28] The usual means of resolution of such a dispute, through trial (directed to takeplace on the first available date after 12 August 2018), remains appropriate in this case.Costs[29] Costs must follow the event.[30] Counsel signalled that there will be a dispute as to the quantum of costs whichare sought by NZI upon an indemnity basis.Orders[31] I order:(a) The statutory demand issued by 100 Investments Limited on behalf ofLichfield Ventures Limited (in liq) and dated 29 November 2017 is setaside.(b) 100 Investments Limited is to pay the costs of IAG New ZealandLimited together with its disbursements to be fixed by the Registrar.(c) The quantum of costs is reserved, to be determined on writtensubmissions (five page limit). The applicant is to file its submissionswithin five working days and the respondent within five working daysthereafter.Associate Judge OsborneSolicitors:Young Hunter, ChristchurchCanterbury Legal, ChristchurchCounsel: Paul Michalik, Barrister, ChristchurchSchedule 1