NEW ZEALAND DAIRY PROCESSING LIMITED v SCHENKER (NZ) LIMITED COA CA859/2011

NEW ZEALAND DAIRY PROCESSING LIMITED v SCHENKER (NZ) LIMITED COA CA859/2011 [2 August 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA859/2011[2012] NZCA 343BETWEEN NEW ZEALAND DAIRY PROCESSINGLIMITEDAppellantAND SCHENKER (NZ) LIMITEDRespondentHearing: 24 July 2012Court: Randerson, Wild and Venning JJCounsel: P D Sills for AppellantJ A McMillan and J Marcetic for RespondentJudgment: 2 August 2012 at 11.30 a.m.JUDGMENT OF THE COURTA The appeal against the dismissal of the application to set aside the statutory demand is dismissed.B The appellant is to pay the sum of $377,946.86 to the respondent within 10 working days of the date of this judgment. In default of such payment the respondent may apply to put the appellant into liquidation.C The respondent is to have costs for a standard appeal on a Band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Venning J)Introduction[1] Schenker NZ Limited (Schenker) provided freight forwarding services to the appellant (NZ Dairy). NZ Dairy failed to pay for the services. When Schenker issued a statutory demand to force payment, NZ Dairy applied to set it aside.[2] On 15 December 2011 Associate Judge Gendall dismissed the application to set aside the statutory demand and directed NZ Dairy to pay the sum of $686,514.87 within five working days, failing which Schenker could apply to have NZ Dairy placed into liquidation.1[3] NZ Dairy appeals that decision to this Court.Background[4] On 30 March 2011 NZ Dairy and Schenker entered a Logistics and Warehouse Agreement (the agreement) pursuant to which Schenker agreed to provide freight forwarding services to NZ Dairy. Under the agreement Schenker wasto cart loaded containers of NZ Dairy's product from its principal place of business,Maleme Street Tauranga, to storage to await final clearance before shipping. Schenker also agreed to arrange for the interim storage and management of the containers at the storage facility, and to transport the containers to the port of Tauranga for export.[5] For its part NZ Dairy agreed to "pay SCHENKER's invoices withoutdeduction or set-off within thirty (30) days of the date of the invoice".2[6] Schenker provided services under the agreement to NZ Dairy from April to August 2011. During this time Schenker issued over 50 invoices to NZ Dairy for its services.1 New Zealand Dairy Processing Ltd v Schenker (NZ) Limited HC Auckland CIV-2011-404-5179,15 December 2011.2 Clause 5.2 of the agreement.[7] Despite many demands by Schenker for payment, NZ Dairy failed to pay the amounts claimed in the invoices (apart from two invoices of $89,326.31 for customs duty). On 10 August 2011 Schenker served the statutory demand on NZ Dairy.NZ Dairy's application[8] NZ Dairy sought to set aside the statutory demand on the grounds:(a) there was a genuine and substantial dispute for the purposes of s 290(4)(a) of the Companies Act 1993 (the Act) because it was intended NZ Dairy would only be liable for approximately $50,000 ofthe local costs of Schenker's invoices; and(b) NZ Dairy had a counterclaim, set-off or cross-demand that exceeded such a debt (of approximately $50,000).[9] The application to set aside the statutory demand was supported by an affidavit by Mr Hunter, the finance manager (and, at relevant times, a director) of NZ Dairy. Mr Hunter said that he would have expected the local freight costs from Schenker to be about $50,000. He said that when he first received copies ofSchenker's invoices in June and July 2011 he was shocked at the amount claimedand at the disparity between his projected costs and the amount claimed in the invoices.[10] It was only in a later affidavit, filed in reply to the affidavits on behalf of Schenker, that Ms Po'uhila, another director of NZ Dairy, complained about theservices of Mr Ogden (a manager of Schenker), to support the counterclaim. MsPo'uhila also raised a number of fresh issues in relation to the invoices.The High Court decision[11] Associate Judge Gendall rejected the challenges to the statutory demand. Herejected NZ Dairy's argument that the contract was on an ex works basis and thatNatural Dairy (NZ) Holdings Ltd (Natural Dairy), a Hong Kong registered companyrelated to NZ Dairy, was responsible for the costs of transportation from NZ Dairy'sfactory to China. The terms of the agreement were clear. It was an FOB contract between NZ Dairy and Schenker.[12] Next, the Judge rejected the suggestion that NZ Dairy was not aware of the extent of its obligations to Schenker. He found, for example, that NZ Dairy wouldhave been aware that in June 2011 Schenker increased NZ Dairy's credit limit underthe agreement to $401,000.[13] A suggestion there had been a mistake regarding the term of the agreement (which was for two years) was also dismissed as not made out on the evidence and, in any event, was irrelevant to NZ Dairy's liability.[14] A submission that NZ Dairy's liability should have been no more than about$50,000 was not accepted. Schenker had never agreed to that nor suggested its charges would be so limited.[15] The Judge considered the matters raised by NZ Dairy to support its claim of a dispute were no more than assertions and that NZ Dairy had failed to adduce any evidence to support them. By contrast, he noted that on a number of occasions NZ Dairy had tacitly approved the invoices and promised they would be paid.[16] It was not accepted that a payment of NZ$200,000 made by Natural Dairy to a Schenker subsidiary in Hong Kong was in any way relevant. The Judgecategorised NZ Dairy's evidence and submissions on that point as mischievous, noting Natural Dairy had directly instructed Schenker's Hong Kong subsidiary that the funds paid to it were not to be applied to NZ Dairy's account.[17] The Judge then considered NZ Dairy's argument that it had a counterclaim,set-off or cross-demand sufficient to satisfy s 290(4)(b) of the Act. To assist NZ Dairy, Schenker had agreed that Mr Ogden would work from NZ Dairy's officesfor approximately three hours a day to streamline and set up the logistics processes. Mr Ogden provided those services during April, May and June. Schenker charged$6,710.25 a month for those services. Ms Po'uhila suggested Mr Ogden's serviceswere defective in a number of ways.[18] NZ Dairy's argument on this point was rejected. The Judge noted that cl 5.2of the agreement excluded NZ Dairy's right to claim a set-off against the amount owing under the invoices. However, for the sake of completeness, he went on to consider and reject the grounds NZ Dairy purported to rely on to support the claim to set-off. There was no evidence of any kind to substantiate the broad claims NZ Dairy sought to raise and quantification of the applicant's suggestedcounterclaim was entirely absent.The appellant's case on appeal[19] To support the appeal, the appellant seeks to rely on a fresh ground not raised before the Judge. NZ Dairy now says that the amounts owing under the invoices relied on by Schenker were not due and owing at the time the statutory demand was issued on 10 August. NZ Dairy also asserts that it has not received a number of the invoices.[20] Mr Sills again submitted that NZ Dairy had a set-off arising from the management services that Schenker provided through Mr Ogden. He submittedthose management services were not subject to the "no set-off" provision in cl 5.2 ofthe agreement.The respondent's position[21] On the first point, Mr McMillan conceded that, as cl 5.2 of the agreement provided for payment within thirty (30) days of the date of the invoice, the amounts claimed in the invoices issued in July and August could not be said to have been due and owing as at 10 August when the statutory demand was issued. Mr McMillanaccepted that Schenker's claim under the statutory demand should be reduced to the amount supported by the invoices issued in April, May and June of $377,946.86.[22] Mr McMillan submitted that the statutory demand should be amended to that sum and that such an amendment would not cause a substantial injustice.3Mr McMillan supported the Judge's findings in relation to NZ Dairy's inability toclaim a set-off.Decision[23] Apart from the issue of whether, because the point was not raised before the High Court, it can properly be raised on appeal, there is a fundamental difficulty withNZ Dairy's principal argument. NZ Dairy submits that Schenker cannot rely on thestatutory demand because the amount claimed was based on invoices which had not been supplied to NZ Dairy 30 days before the issue of the demand. But the submission is not supported by the evidence, at least in relation to the reduced amount now claimed on the basis of the invoices for April, May and June.[24] As this was not an issue in the High Court, the evidence concerning delivery of the invoices was limited. However, such evidence that there is, supports a positive finding that the invoices were delivered regularly in the course of business.[25] Mr Bohm, Schenker's managing director, said that, as soon as the serviceswere provided, Schenker issued invoices. Mr Ogden also confirmed that Schenkerposted those invoices to NZ Dairy's physical address in Tauranga.[26] Mr Hunter's affidavit makes no reference to the issue, other than referring ina general way to the invoices being provided in June and July.[27] Ms Po'uhila deposed that, when Mr Ogden asked her in mid June why NZ Dairy had not paid Schenker's invoices, she said she had not received anyinvoices. However, that is readily explainable. The invoices were sent to NZ Dairy's factory in Tauranga, rather than Ms Po'uhila's office in Auckland. Even so, Ms Po'uhila went on to accept that Mr Ogden bought a bundle of invoices to her office in response to her request. So by mid June at the latest, Ms Po'uhila had allthe invoices issued up to 8 June 2011.3 Section 290(5).[28] Mr Sills was left to submit that there was no evidence the invoices issued after 8 June had been sent to NZ Dairy. He suggested that the invoices for 20 June and later had not been received. He argued the demand should be reduced by a further $263,725.75. But as noted, while Ms Po'uhila says she did not receive theinvoices at her office in Auckland, the evidence supports the finding the invoiceswere regularly sent to NZ Dairy's factory address in Tauranga.[29] Apart from Mr Bohm's evidence of Schenker's practice, there is also a letter from a Ms Lam of NZ Dairy to Mr Bohm on 20 July 2011 in which she states:Just about an hour ago, Wilson and I found that your invoices for May and June are still at the factory and have not been submitted to our Auckland office. ...[30] That is consistent with Mr Bohm's evidence that Schenker's practice was toforward the invoices to the factory. Then there is the evidence of Mr Khan,Schenker's credit Manager. He says that from 25 May 2011 a credit controller wasin email communication with NZ Dairy about overdue invoices. We consider there can be no doubt the outstanding invoices were delivered to, and received by, NZ Dairy, shortly after they were issued.[31] Mr Sills also sought to construct an argument based on the notice provision in the agreement which required all notices or communications to be in writing and to be sent by courier, registered mail, hand or fax and addressed to NZ Dairy, PO Box 9166, 20 Maleme Street, Greerton, Tauranga 3142, New Zealand. Mr Sills noted that the invoices were addressed to the physical address of 20 Maleme Street rather than the PO Box.[32] There is no substantive merit in that submission for a number of reasons. First, the clause is more readily interpreted as relating to the service of formal notices under the agreement rather than regular invoicing. Next, even if the clause applies, it refers to both a post office box and a physical address. There was no requirement to send the invoices to both the post office box and the physical address. Delivery to either would be sufficient. The evidence is that the invoices were sent tothe physical address (which was NZ Dairy's main place of business). Finally, even ifthe invoices were required to be sent to the PO Box, the onus still remains on NZDairy to establish that it did not receive the invoices: Yates Building Company Ltd vR J Pulleyn & Sons (York) Ltd.4 NZ Dairy cannot establish that.[33] The first ground of appeal is not made out on the evidence.The counterclaim issue[34] There are two principal difficulties with NZ Dairy's reliance on a counterclaim based on Schenker's allegedly defective management services.[35] The first and fundamental difficulty is that any counterclaim, set-off or cross- demand is excluded by the express terms of cl 5.2. As this Court confirmed inBrowns Real Estate Ltd v Grand Lakes Properties Ltd,5 a contractual no set-off provision precludes a party from setting aside a statutory demand in reliance on a counterclaim, set-off or cross-demand. The fact the counterclaim here is based on the claim the management services Schenker provided through Mr Ogden were defective, as opposed to being based on the freight forwarding services under the agreement is irrelevant. The whole point of the no set-off provision in cl 5.2 is to prevent NZ Dairy from raising any set-off, (no matter what the basis for it might be)in response to Schenker's claim for payment of its invoices. The clause is notlimited to counterclaims, set-offs or cross-demands arising out of the services under the agreement. There is no need to read the clause down or to limit it in that way.[36] Mr Sills then sought to argue that at least the three monthly invoices of$6,710.25 each for Mr Ogden's services should be deducted as they had not beenissued under the agreement but rather had been rendered under the separatearrangement for the provision of Mr Ogden's management services.[37] However, the answer to that submission again lies in the contractual arrangements. Clause 2.2 of the agreement provided that:Services provided by SCHENKER to CLIENT not specifically set forth in the Exhibit A will be provided only if both Parties agree in writing to the4 Yates Building Company Ltd v R J Pulleyn & Sons (York) Ltd [1976] 1 EGLR 157 (CA).5 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141.exact nature of such additional services and SCHENKER's additionalcharges, if any, to apply to the provision of such services.[38] Mr Ogden's services were provided and charged by Schenker to NZ Dairy. The arrangement for Mr Ogden's services was agreed by an exchange of emailsbetween Mr Ogden and Ms Po'uhila dated between 26 and 29 April 2011. As such,the services provided by Mr Ogden were provided under the agreement, as extended by the further written agreement recorded in that exchange.[39] Further, the invoices issued by Schenker relating to Mr Ogden's servicescontained the following provision:All work, services, transport and any arrangement carried out in relation to these instructions is strictly in accordance with the Standard Trading conditions of Schenker (NZ) Limited printed overleaf or otherwise availableon any of Schenker's original documentation.On the right-hand margin each invoice provided:All transactions are subject to our trading conditions which are available on request.[40] Schenker had previously made its trading conditions available to NZ Dairyby a letter of 21 March 2011. Clause 9.1 of Schenker's trading conditions provides that:The Customer shall pay to the Company in cash, or as agreed, all sums immediately when due without deduction or deferment on account of any claim, counterclaim or set-off.[41] It follows that NZ Dairy had contracted not to pursue any counterclaim, set- off or cross-demand against Schenker's invoices either for its freight forwarding services or for Mr Ogden's services.[42] Although that is sufficient to resolve the matter, we also agree with AssociateJudge Gendall's analysis that there is no substantive merit in the proposed heads of counterclaim. The proposed counterclaim for product damage is not substantiated in the evidential material before the Court. Nor is the complaint in relation to shipping delays. The complaint that Mr Ogden's services were defective is, as the Judgeobserved, no more than an assertion.[43] Next, as the Judge observed in relation to the complaint concerning theloading of containers, Schenker's explanation is substantive and there is no evidencefrom NZ Dairy to justify its contentions to the contrary. As to delay, Schenker'sevidence is that, as soon as approval was given by the authorities, it arrangedshipment within a matter of a few days. Finally, there is no evidence to support thecomplaint that NZ Dairy incurred costs as a result of shipping documents lost byMr Ogden or Schenker.[44] For the sake of completeness we record we also agree with the Judge that, even if NZ Dairy could establish some form of viable counterclaim, there has beenno attempt to quantify it.Result[45] The appeal against the dismissal of the application to set aside the statutory demand is dismissed. We make an order in accordance with s 291(1) of the Act that NZ Dairy is to pay the sum of $377,946.86 to Schenker within 10 working days of the date of this judgment. In the default of such payment Schenker may apply to put NZ Dairy into liquidation.Costs[46] The respondent is to have costs for a standard appeal on a Band A basis plus usual disbursements.Solicitors:Hornabrook MacDonald for AppellantChapman Tripp, Auckland for Respondent