RISK MANAGEMENT HOLDINGS LTD V FUJI XEROX FINANCE LTD HC AK CIV-2007-404-6908

RISK MANAGEMENT HOLDINGS LTD V FUJI XEROX FINANCE LTD HC AK CIV-2007-404-6908 22 May 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-6908BETWEEN RISK MANAGEMENT HOLDINGS LIMITED Applicant AND FUJI XEROX FINANCE LIMITED Respondent Hearing: 22 May 2008 Appearances: Mr A Maclean for Applicant Mr A Hayes for Respondent Judgment: 22 May 2008(ORAL) JUDGMENT OF LANG J [on application to set aside a statutory demand]Solicitors: Kidd Tattersfield Maclean, Auckland Cook Morris Quinn, Auckland[1] In April 2005 the applicant, Risk Management Holdings Limited, entered into an agreement with the respondent, Fuji Xerox Finance Limited, to lease a photocopier. It was a term of the agreement that Risk Management would make monthly lease payments of $1,618.50 in respect of the machine. [2] After it took possession of the photocopier Risk Management made some payments, but these were dishonoured. After approximately five months it made no payments at all in respect of the machine. By early 2007, therefore, the company owed arrears of rental of approximately $35,000 to Fuji Xerox. In addition, it owed Fuji Xerox interest of approximately $14,000 in respect of the late payments. [3] Fuji Xerox says that it terminated the agreement in January 2007. Thereafter, however, the photocopier has remained in the possession of Risk Management and no further rental payments or payments of any other kind have been received from Risk Management since that time. [4] On 31 October 2007 Fuji Xerox served a statutory demand pursuant to s 289 of the Companies Act 1993 on the registered office of Risk Management. The demand required Risk Management to pay a total sum of $103,441.11. That sum comprised outstanding rental, interest, a contract termination fee and outstanding collection and/or commission costs. [5] On 8 November 2007 Risk Management filed this application to set aside the statutory demand. There is a preliminary point that I am required to determine as to whether Risk Management also served a copy of that document on Fuji Xerox. In any event, however, Risk Management now says that the amount claimed in the statutory demand is the subject of a substantial and bone fide dispute. In addition, it says that it has an arguable counterclaim against Fuji Xerox that equals or exceeds the amount claim in the statutory demand. [6] Risk Management contends that the Court should set the statutory demand aside, thereby preventing Fuji Xerox from proceeding further with liquidation proceedings.Preliminary point[7] In order to challenge the statutory demand, Risk Management was required to both file and serve its application within 10 working days of the date upon which the statutory demand was served on it. As a result, Risk Management was required to file and serve its application no later than 14 November 2007. [8] There is no doubt that the application was filed in this Court on 8 November 2007. There is, however, a live issue between the parties as to whether or not Risk Management also served the document on the registered office or address for service of Fuji Xerox. [9] Risk Management relies, in this context, on an affidavit filed by its director, Mr Denis Fetherston. In that affidavit, sworn on 23 January 2008, Mr Fetherston deposes that he "served a copy of the Originating Application to set aside the Statutory Demand and Affidavit of Denis John Fetherston on Fuji Xerox Finance Ltd on the 8 th November 2007". He says that he "served the documents at the Fuji Xerox front desk at Hargraves Street, Ponsonby AUCKLAND.", and that "the documents were handed to the person attending the front desk". He also deposes that that person "was advised that the documents were being served on their company" and that the recipient of the documents replied "that she would hand the documents to her manager". [10] Fuji Xerox says that the Court can effectively disregard the sworn statement of Mr Fetherston regarding the service of the documents on Fuji Xerox on 8 November 2007. It says that a variety of factors call into question Mr Fetherston's veracity, and that the Court should not hesitate to disregard what he says. [11] In support of this assertion Fuji Xerox refers to its own evidence, in which it confirms that it has never found any trace of any document that may have been served on its office on or about 8 November 2007. Fuji Xerox also points to other discrepancies in the evidence of Mr Fetherston.[12] First, it points to the fact that his affidavit refers to an "Originating Application", when in fact the first document that Mr Fetherston filed was styled as a "Notice of Interlocutory Application to Set Aside the Statutory Demand". I am not sure that this point can be taken very far, because the document on the Court file has been amended so that the words "Notice of Interlocutory Application" have been deleted and substituted with the word "Originating". Although there is no evidence either way, it is entirely possible that the Court Officer who accepted the documents for filing advised Mr Fetherston of the error in the documents and that he changed the wording of the document at that point. I note that the ink that has been used to make the amendment is in the same colour as the ink used by Mr Fetherston to sign the document on behalf of his company. [13] Next, Fuji Xerox points to other matters contained in Mr Fetherston's affidavit dated 23 January 2008. That affidavit also deals with the service of an amended originating application that Mr Fetherston filed in this Court on 4 December 2008. In his affidavit dated 23 January 2008, Mr Fetherston deposes that he served the amended originating application on Fuji Xerox on 29 November 2007. [14] I accept that Mr Fetherston's evidence on this point is unlikely to be correct. First, he did not file the document in the Court until 4 December 2007. It is highly unlikely that he would have served the document five days before he had filed it in Court. [15] Secondly, there is before the Court a letter from Mr Fetherston dated 4 December 2007. That letter appears to have accompanied the amended application that Mr Fetherston served on Fuji Xerox. In addition, the evidence from Fuji Xerox is that it did not receive the document until 4 or 5 December 2007. [16] There is a further discrepancy in that the amended originating application states on its backing sheet that it was "served on the defendant on 31st November 2007". That, of course, must be incorrect because there is no such date as 31 November.[17] All of these factors persuade me that Mr Fetherston is mistaken when he says that he served the documents on Fuji Xerox on 29 November 2007. I consider that it is far more likely that he posted the documents to Fuji Xerox on 4 December 2007, being the date upon which he filed the document in the Court. That would explain why Fuji Xerox did not receive the document until 5 December 2007. [18] Notwithstanding these discrepancies, I am not prepared to put Mr Fetherston's sworn evidence to one side. He has not been called for cross- examination and to that extent his evidence remains unchallenged. Moreover, the fact that he both filed and served the second set of documents on 4 December gives some credence to his assertion that he also filed and served documents on 8 November 2007. [19] For these reasons I am prepared to accept that Mr Fetherston did in fact serve a copy of the originating application (albeit originally styled as "Notice of Interlocutory Application") on the office of Fuji Xerox on 8 November 2007.Grounds for application[20] Risk Management brings the application under s 290(4) of the Companies Act 1993. That section provides as follows:(4) The Court may grant an application to set aside a statutory demand if it is satisfied that— (a) There is a substantial dispute whether or not the debt is owing or is due; or (b) The company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or (c) The demand ought to be set aside on other grounds[21] Risk Management relies on the first two grounds of s 290(4). It says that there is a real and substantial dispute regarding the existence of the debt upon which the statutory demand is based. Secondly, it says that it has an arguable counterclaim exceeding the amount claimed in the statutory demand.Relevant principles[22] The principles which apply to applications such as the present are well established. They can be discerned from cases such as Taxi Trucks Limited v Nicholson [1989] 2 NZLR 297, Fletcher Homes Ltd v Ellis (Unreported, High Court Auckland, M471/99, 23 July 1999, Master Faire), United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; and Rennie v Prospect Resources Ltd (Unreported, High Court, Greymouth, M14/95, 3 November 1995, Tipping J). [23] In determining this case I propose to apply the following principles: a) Risk Management must demonstrate that there is arguably a genuine and substantial dispute as to the existence of the debt. 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) Risk Management must demonstrate that any counterclaim or cross- demand is reasonably arguable in all the circumstances. Again, this will require the production of material, short of proof, to support the alleged counterclaim. e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.Is there a real and substantial dispute regarding the amount claimed?[24] In advancing his argument under this head, counsel for Risk Management contended that his client was entitled to rely on a claim to an equitable set-off that equalled the amount sought in the statutory demand. He submitted that the evidence demonstrated that from an early stage the photocopier had failed to performproperly, and that this amounted to a failure of consideration. As a result, Risk Management was entitled to a claim of equitable set-off in respect of the rental. [25] Counsel contended that Risk Management was entitled to a claim to equitable set-off of the type described in Grant v New Zealand Motor Corporation [1989] 1 NZLR 8 at 11 (CA). [26] There is clearly a dispute between the parties as to whether or not the machine did become unusable as alleged by Mr Fetherston. On this point Mr Fetherston's evidence is as follows:a. [Fuji Xerox] failed to maintain the machine in accordance with the terms and conditions of the contract. In fact it never carried out any maintenance or service of the equipment following the installation and commissioning of the machine. Refer the Machine Service Log Book Exhibit DJ3. b. The performance of the machine fell away very quickly and failed to meet performance criteria the contract was based on. This was despite many phone communications with the Respondent over the situation. Refer Exhibit DJ4. c. The machine became unusable and when we called in an independent specialist to repair the machine unfortunately he was unable to economically repair the faults which included software and faulty parts. The machine became a heap of useless parts and not useable. Refer Exhibit DJ5.[27] Mr Fetherston's claim that the machine quickly became unusable is rejected by Fuji Xerox. It points out that it does not have any record of Mr Fetherston complaining about the state of the machine. The records maintained by Fuji Xerox show that it received only one complaint in respect of the machine. This was received in May 2005, shortly after the machine had been installed. Fuji Xerox says that it attended to the problem and nothing further was heard from Mr Fetherston about it. [28] Mr Fetherston is unable to provide any material to support his claim that he contacted Fuji Xerox on numerous occasions to complain about the condition of the machine. He relies, however, on an invoice that he obtained from another company that he called to fix the machine. He says that this invoice shows that themaintenance company was unable to fix the machine and that it thereafter became unusable. [29] I have to say that I find it difficult to accept Mr Fetherston's evidence on this point. First, it is not supported by any independent evidence. Secondly, the only invoice that he did produce was issued in September 2007, well after the point at which Fuji Xerox says that it terminated the contract. Thirdly, it is clear from evidence that has been produced that Risk Management did in fact use the machine on a reasonably regular basis until at least December 2006. Fuji Xerox has issued an invoice to Risk Management in respect of the photocopying charges that relate to the machine. These are apparently charged on a "per page" basis. The records show that the machine was in regular use between April 2005 and December 2006. On that basis this material does not support Mr Fetherston's assertion that the machine quickly fell into a state of disrepair to the extent that it was unusable. [30] The most compelling evidence on this point, however, is the log maintained by Fuji Xerox of communications that it had with Mr Fetherston and with the debt collection agency that Fuji Xerox has engaged to recover the outstanding rental. The log begins in June 2005, by which stage payments had already been dishonoured. The contacts between Fuji Xerox and Mr Fetherston make it clear that Mr Fetherston repeatedly apologised for the fact that his payments had been dishonoured. He also made repeated promises that the account would be brought up to date within a short time. These assurances continued right up until 7 March 2007, some two months after Fuji Xerox had terminated the lease. [31] The log records the following discussion between Fuji Xerox and Mr Fetherston on 7 March 2007:Dennis Fetherston@xtra.co.nz phone 09 4491 573 has called to try and sort out all of the owed debt. It has been logged with baynet – he has got a loan approved but he needs to get this cleared first also refinancing personal property to raise $400,000.00 He is hoping to be able to deal to the arrearsHe advised that business became difficult as the phone was disconnected He is going to put a proposal thru to me in order to try and move the situation forward – I advised that I would be needing to discuss with my manager tjf[32] It is noteworthy Mr Fetherston does not raise any hint of dissatisfaction with the machine at any stage between July 2005 and March 2007. It seems incomprehensible to me that he would not have raised this as an issue at some stage during the conversations if he had a genuine concern regarding the condition of the machine. The nature of the discussions are such that I infer that Mr Fetherston had no complaints whatsoever about the machine, and that his sole concern lay in rectifying the situation that had arisen in relation to the outstanding rental payments. [33] For these reasons I am not satisfied that Mr Fetherston has established, to an arguable standard, the existence of an equitable set-off against the claim for outstanding rental. It seems to me that he has raised the alleged problems with the machine well after the event, and as a means of avoiding payment and persuading the Court that the statutory demand should be set aside. I therefore reject his argument that the demand should be set aside on the basis that he is arguably entitled to a claim for equitable set-off.Does Mr Fetherston have a counterclaim that equals or exceeds the amount claimed in the statutory demand?[34] Mr Fetherston says that he has a counterclaim against Fuji Xerox for more than $100,000 as a result of the problems that he has experienced with the machine. He does not, however, explain how this figure is made up or even the essential facts upon which the counterclaim is based. He does not produce any documents such as invoices from independent contractors to demonstrate that he has met the cost of repairs on the machine. Neither has he produced any material to suggest that the failure of the leased machine has caused him to incur costs in having his photocopying done by some other source or by means of another leased machine. [35] The Court, therefore, has no possible means of knowing how Mr Fetherston's counterclaim is made up. Moreover, it seems to me that, even on the best view ofmatters from Risk Management's perspective, the sum of approximately $49,000 must have been owing as at January 2007. This comprised the outstanding rental for the period between April 2005 and January 2007, together with interest thereon. It seems to me that it would be highly unlikely that Mr Fetherston would be able to establish a counterclaim that would come anywhere near this amount. [36] As I have already indicated, it is incumbent on an applicant to provide material, albeit short of proof, to support an assertion that it has a counterclaim against the issue of a statutory demand. In the present case I am left with nothing more than Mr Fetherston's bare assertion that his company has a counterclaim of more than $100,000 against Fuji Xerox. [37] In those circumstances I cannot conclude that Risk Management has made out an arguable case for the existence of a counterclaim that equals or exceeds the amount claimed in the statutory demand.Result[38] For these reasons the application cannot succeed and is accordingly dismissed.Costs[39] Fuji Xerox seeks costs on an indemnity basis in reliance on a term of the rental agreement. This requires the lessee of the machine to meet all collection and legal costs including solicitors' costs on a solicitor and client basis incurred in recovering payment of any amount due under the agreement. The clause clearly applies to the present proceeding.[40] On that basis I direct that costs are to be paid on an indemnity basis. Should any issue arise between the parties as to the reasonableness of the costs claimed, that issue can be determined by me following the receipt of memoranda from both parties. Lang J