MATAMATA TENNIS CLUB INCORPORATED AND MATAMATA NETBALL CENTRE INCORPORATED V GRASSMAN NEW ZEALAND LIMITED HC ROT CIV 2011-463-000639

MATAMATA TENNIS CLUB INCORPORATED AND MATAMATA NETBALL CENTRE INCORPORATED V GRASSMAN NEW ZEALAND LIMITED HC ROT CIV 2011-463-000639 [19 March 2012]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYCIV 2011-463-000639[2012] NZHC 463IN THE MATTER OF an application put Grassman New ZealandLimited into LiquidationBETWEEN MATAMATA TENNIS CLUBINCORPORATED AND MATAMATANETBALL CENTRE INCORPORATEDPlaintiffsAND GRASSMAN NEW ZEALAND LIMITEDDefendantHearing: 15 March 2012Appearances: M Fisher for the PlaintiffsD M O'Neill for the DefendantJudgment: 19 March 2012JUDGMENT OFASSOCIATE JUDGE CHRISTIANSENThis judgment was delivered by me on19.03.12 at 4:30pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors/Counsel:P Hardie, Jones Howden, Matamata – peter.hardie@joneshowden.co.nzDavid Michael O'Neill, Barrister, Hamilton – david.oneill@nzbarrister.com[1] Two issues are raised by Grassman's defence of the plaintiffs' liquidationapplication.1. Whether the statutory demand was served in accordance withthe Companies Act 1993;2. Whether there is a dispute in existence which renders the liquidation proceeding inappropriate.Service of statutory demand[2] Mr Fisher, solicitor of Tokoroa deposes that on 2 September 2011 at 2:45pm he went to 16 Campbell Street, Tokoroa, the registered office of Grassman. Having made enquiries at a neighbouring address he was informed that Mr Whitford, a director of the defendant, operated Grassman from the next door premises at 16 Campbell Street; and that Mr Whitford had used the premises that morning. He then effected service of the statutory demand by placing it under the front door to thepremises at 16 Campbell Street. Later, on 12 October 2011, he effected service ofthe liquidation proceedings. At that time he noted the doors to the building wereopen and he spoke to a male who identified himself as an officer of Grassman andthen served the documents upon him. He said the address he served the liquidationproceedings at was the same when he served the statutory demand earlier on 2September 2011.[3] Grassman's evidence from its director Mr Whitford is that 16 Campbell Street, Tokoroa comprises three businesses with five roller doors and two office doors, upon which there were no signs. Also 16 Campbell Street is occupied by a painter and an engineer (Mr Compain). Mr Compain deposed that Grassman periodically used his front workshop for welding; that on a day in September 2011 he entered the front workshop and found some paper lying on the floor; that he picked it up and intended to drop it off to Mr Whitford of Grassman at his house upon leaving the workshop that day; that he forgot to do this and did not give himthe papers until the end of October 2011 when approached by Mr Whitford asking for information about whether any papers had been delivered to the workshop.[4] Section 289(2)(c) of the Companies Act 1993 (the Act) requires service of astatutory demand upon the company for which it was intended. Section 192 statesthat if an address for service is located in a building occupied by persons other thanthe company then particulars of its location in the building are required to be stated.[5] Section 387(1)(c) states that a document may be served by leaving it at thecompany's address for service or registered office.[6] It is Grassman's evidence is that the statutory demand never came to the attention of the company until after the time for compliance had expired.[7] Mr O'Neill submits that whilst the slipping of the statutory demand documentunder the door was correct, there was no way that the process server could haveknown he had the correct address. Further and because the statutory demand did notcome to Grassman's attention until the time for complying with it had expired –because Grassman had no opportunity to respond to the statutory demand – the Courtshould exercise its discretion by ruling that the proceedings did not come toGrassman's notice. Mr O'Neill relies on authorities in Argyle Estates Limited vBowen Group Limited 1 and Goh v Ridgeview Properties Limited 2.Is the statutory demand claimed disputed/are liquidation proceedingsappropriate?[8] Statutory demands are intended for use where there is no substantial disputeover the debt claimed.[9] Grassman is the New Zealand agent for the supply of a USA manufactured artificial surface for use on tennis courts and netball courts.1 17 PRNZ 57, 67 [33].2 2 High Court, Auckland, 17 July 2009, CIV 2009-404-2749.[10] In November 2010 Grassman was invited to quote for the supply of its product to the plaintiffs. Its terms of supply required the payment of a deposit of half the contract sum of $52,620.33 inclusive of GST.[11] By its letter dated 30 November 2010 Grassman submitted its quote for the supply and installation of its artificial surface product. Two documents were attached to that letter. One (later signed by the parties) contained Grassman'sStandard Trading Terms and Conditions. The other provided a 'production satisfaction guarantee' from the product manufacturer.[12] The former contained the following clause:10. The product comes with a 30 day right of return if found not suitable for either netball or tennis. In such case all money paid will be refunded.[13] The product satisfaction guarantee stated:This is a 30-day Money Back Guarantee against performance satisfaction of your new Flex Court product.Should you not be completely satisfied with the purchased product from Flexcourt, we will refund your money or apply your purchase towards a desired product upgrade offered by Flexcourt International.[14] Grassman's quote was accepted and the deposit was paid. The surface waslaid.[15] The surface laying was completed on 10 June 2011, the balance payment was due to be paid by 6 July 2011. Invoices for payment of the balance were sent.[16] On 4 July 2011 Grassman received an email from the plaintiffs concerning the type of surface laid; it was claimed it was a different product than bargained for; that people particularly children were losing skin off their knees when they fell over on the surface. Relevant parts of the email state:...After discussion with one of the parents on Saturday and running my knuckles over the surface laid and then coming home and running knuckles on the sample I have, there is major differences in the two pieces...The touch surface on the tiles laid is much rougher than what we were shown. I remember rubbing my knuckles on the samples and thinking there may be an issue with plastic burns but certainly running my knuckles over the tiles laid, I would have rejected the surface as it hurts heaps. Our joint committee was puzzled as to how we could of missed the possible harm this surface would cause if fallen on.We now believe the manufacturers have changed their product and may not have advised you. If we were to be cynical we would wonder if the narrower sections were a cost saving initiative.Our committees still believe that it is a good product and ideal to our situation but we want what we ordered and not what was sent. This product is good for a tennis surface but not a netball court.[17] Mr Whitford responded to deny claims of a different surface. Concerning the injury complaints he explained it was inevitable that players falling onto the surface will graze themselves. He offered compromise options for consideration.[18] In its response the plaintiffs stated:...The issue is you are aware, Netball do not want flexicourt and astro is not an option, so we are left with rebound and asphalt. Tennis definitely does not want asphalt. Netball now seem to prefer asphalt (due to cost)....[19] Grassman then received a letter from the plaintiffs dated 26 July 2011 claiming the return of their deposit. The plaintiffs' letter quoted clause 10 asjustification for their demand. There was no reference to the manufacturer's productsatisfaction guarantee. The letter extended its criticism of actual and potential risk from injury. The email concluded:With regards to the letter received 26 July from Grassman..., thank you for outlining possible options to explore. However Netball once again reiterates that they do not find the product is suitable and therefore as stated above, invoke clause 10 of the contract signed [between the parties].ConsiderationsServices[20] In my view, and because of the facts in this case, the authorities of Argyle andGoh do not assist. Argyle was a case about service upon a registered office which itwas known or suspected had been abandoned. Goh was a case about fixing an order for costs.[21] In this case I am satisfied that s 387(1)(c) have been complied with. It is not in dispute that the document was served at the correct address. Of course the Court must accept Mr Compain's evidence that he did not hand the document on to MrWhitford until much later. That should not in the circumstances be a matter that affects the validity of service. The fact that another person also occupies the address of the registered office should not be reason to challenge the validity of service when that was the result of a breakdown in an arrangement between Grassman and its co- occupier.[22] I am of the view therefore that service of the statutory demand was validlyeffected. Further, that because the plaintiffs' statutory demand was not compliedwith Grassman is, by virtue of s 287(a) of the Act, assumed to be unable to pay itsdebts, unless the contrary is proved.Substantial dispute?[23] The plaintiffs' claim for repayment of their deposit relies upon clause 10. As much is clear from its email evidence. They have adopted the position of being entitled to a refund because they say the surface was not suitable for their purposes and therefore their deposit must be returned to them.[24] However, clause 10 does not provide them with the guarantee the plaintiffs say it does. Clause 10 does not provide for a subjective assessment by the purchaser of the surface; rather that the question of suitability ought to be subject to an objective inquiry. The focus of clause 10 is upon whether or not the product is suitable. The evidence before the court indicates completely divergent views between Grassman and the plaintiffs, indeed further than that it appears the netball and the tennis clubs too have divergent views about suitability and quality.[25] Evidence of injuries is inconclusive. Cleary there is potential for injuries of significant kinds when netball is played upon an asphalt surface. Therefore,considerations of injury may require more than a few photographs showing grazes to knees. Also, injury risks are not advanced on behalf of the tennis club which seemed content to consider an option involving retention (or replacement) of the product supplied.[26] In overview it appears a primary consideration on behalf of the netball club involves questions of cost rather than product dissatisfaction. At least as much is arguable.Solvency?[27] In this case and in response to the plaintiffs' liquidation proceeding,Grassman has also applied for an order to restrain advertising and to stay the proceeding. Whilst Grassman has filed evidence in those causes, it must also satisfy the Court as to its solvency. That obligation is created by the service of the statutorydemand and the failure to comply with it does not sidetrack the consequences of s287(a) merely because the defendant company may be able to show there is asubstantial dispute about the claim by a plaintiff of a debt due.[28] These considerations become less important in the outcome of a finding that there is a substantial dispute between the parties about whether or not the plaintiff is due the payment it claims.[29] The issue of a statutory demand raises a presumption of insolvency if thedemand is not met. But it does not provide proof that the debt is due for suchquestion is still open for proof upon a proceeding for appointment of a liquidator.[30] I do not think the statutory demand process is necessarily relegated toobscurity because a defendant company asserts the existence of a substantial disputeabout whether the debt is due.[31] Mr Fisher provided a solution possibility. He submitted that if the Court adopted a view that Grassman had an arguable case for a substantial dispute and therefore that such dispute ought to be heard in another Court rather than in theCompanies Court, then this Court should as a condition of refusing any liquidation application invite the defendant company to show that it could secure payment of or compound security for the claimed debt, or otherwise ought to demonstrate objectively its solvency to the Court.[32] In correspondence between solicitors Grassman was invited to prove itsinsolvency. The plaintiffs' solicitors indicated what information would be required.There was no agreement upon the point.[33] In this proceeding Grassman has provided an affidavit from a Mr Bertelsen of Auckland, chartered accountant. He is a director of the company (BHW) which is the accountant for Grassman. He deposes:4. Based on draft accounts prepared for Grassman to 31 March 2011, it is my opinion that the company meets the solvency test set out under the Companies Act namely: -(a) That it can pay its debts as they become due.(b) The value of the company's assets is greater than the valueof its liabilities, including contingent liabilities.5. BHW has processed Grassman's accounts for the period 1 April 2011– 1 October 2011 and can confirm that Grassman is solvent in accordance with the Companies Act as described above.[34] The plaintiffs have responded with an affidavit from Mr D Lee a chartered accountant of Matamata. He offers evidence as an expert. He comments that Mr Bertelsen is not independent of Grassman, that the information Mr Bertelsen relies upon is not disclosed and is unverified; and that the information in question is current only to 1 October 2011.[35] This liquidation proceeding was filed in October 2011; it involves the parties'dispute over a period of months preceding that time. There is nothing since that indicates a need for the Court to require an investigation of claims of insolvency.[36] For present purposes the Court is content to rely upon the statements of Mr Bertelsen noting that whilst they are made with respect to the financial position of a client, they are made nonetheless by a person who has professional responsibilitiesand in that respect has provided evidence to a Court for which he would be accountable if that information was incorrect.[37] To the extent that insolvency should affect a Court's decision once it wasfound there was a matter of dispute that ought to be heard in another Court, the position in this case is resolved by the Court's acceptance of Mr Bertelsen'sevidence.Conclusions[38] The Court is satisfied the server of the statutory demand made adequateinquiries and sufficiently identified the premises to which the document wasdeliverable. It was delivered to the address at the registered office of the company.It was received by a person who shared with the plaintiff the use of the premises.Although there is acceptable evidence that it was not received by a director ofGrassman until after that date the notice expired, the clear evidence was that thestatutory demand was served upon Grassman on 2 September 2011.[39] There is evidence of the substantial dispute between the parties over theplaintiffs' claim of a payment due. The debt is not repayable simply because the plaintiffs have made a demand for repayment of their deposit within the 30 day warranty period. It will require an objective assessment to determine if, as the plaintiffs claim, the product was not suitable for the purpose for which it was supplied.[40] Liquidation proceedings are not just about issues of insolvency although insolvency must be proved if an order for liquidation is to be made. Proof of insolvency can be assumed if a company fails to respond to a statutory demandserved upon it. But, the Court should expect sufficient proof of insolvency eventhough there is an issue before it upon a defending company's claim of there being asubstantial dispute about whether any debt is payable. But the issue of insolvencyreally only becomes important if the Court is not satisfied there is a substantialdispute about liability for payment of the debt. In that case the Court shouldconsider the evidence of solvency available. It might even adjourn to obtain furtherevidence of a reliable kind to support a defendant company's claims of its solvency.Result[41] The plaintiffs' liquidation proceeding is dismissed. In that outcome Grassman's applications for stay and restraint of advertising become redundant.[42] Costs are reserved. Mr O'Neill for Grassman advises that last week Grassman has filed a proceeding before the District Court to recover the balance it says is due from the plaintiffs on its contract for supply. In the circumstances costsupon the dismissal of the plaintiffs' liquidation proceeding shall be fixed in theoutcome of the District Court proceeding.Associate Judge Christiansen