SEO AUCKLAND LTD v ANZ AUTO PARTS LTD [2023] NZHC 1534

SEO AUCKLAND LTD v ANZ AUTO PARTS LTD [2023] NZHC 1534 [20 June 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-1853[2023] NZHC 1534IN THE MATTER OF the Companies Act 1993BETWEEN SEO AUCKLAND LIMITEDPlaintiffAND ANZ AUTO PARTS LIMITEDDefendantHearing: 9 June 2023Counsel: G Credo for the PlaintiffJ Loh for the DefendantJudgment: 20 June 2023JUDGMENT OF ASSOCIATE JUDGE BRITTAINThis judgment was delivered by me on 20 June 2023 at 2.30 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors/Counsel:Ebenezer Lawyers, AucklandInder Lynch Solicitors, AucklandSamuel Moore, Barrister, AucklandIntroduction[1] The plaintiff, SEO Auckland Limited (SEO), applies for an order unders 241(4)(a) of the Companies Act 1993 (the Act) placing the defendant, ANZ AutoParts Limited (AAP), into liquidation on the ground that AAP is unable to pay its debtsas they fall due.[2] AAP has failed to comply with a statutory demand issued by SEO and as aresult SEO relies on the statutory presumption of insolvency that arises under ss 287and 289 of the Act.[3] AAP defends the liquidation proceeding on the basis that the debt demandedin the statutory demand is subject to a genuine and substantial dispute. AAP assertsthat it is solvent.Background[4] AAP is a supplier of automotive parts. SEO provides digital marketingservices linked to the Google search engine.[5] In February 2021, AAP engaged SEO to provide marketing services to AAP.The engagement was made orally. It appears that services began in about June 2021.[6] AAP's director, Stephen Butory, deposed in his affidavit that AAP beganmaking weekly payments to SEO on 8 June 2021 for the services provided. Mr Butoryproduced a printout from AAP's bank account which confirms regular weeklypayments of $6,178.00 through until 22 April 2022.[7] In April 2022, the parties' commercial relationship soured. On 23 April 2022,SEO's director, Samuel Yessi, sent a text message to an unspecified person at AAP,which appears to be a response to a query from AAP regarding the effectiveness of theadvertising.[8] Mr Yessi deposed in his affidavit that on 27 April 2022, he received a voicemailmessage on his phone from one of AAP's employees, requesting that the Googleadvertisements cease, at least in respect of AAP's Auckland business.[9] On 30 April 2022, Messrs Butory and Yessi exchanged text messages.Mr Butory's texts made it clear that AAP was requesting SEO to cease all advertising.[10] The various text messages produced by the parties suggest that there weretelephone discussions between the parties' representatives at around this time,although the evidence before the Court does not include any detail regarding thosecommunications.[11] On 6 May 2022, SEO emailed AAP invoice 120 for the regular weekly chargeof $6,178.38. AAP responded with an email requesting "work reports" for all workcompleted since the commercial relationship began. Mr Yessi responded with an emailwhich said:I have spoken to Nixon and we decided to end all the drama and we are onlyowed one invoice I have cancel[led] all the other ones and will not send anymore.If you can please take care of this last invoice [from] last week that we paidfrom our account that will be the last of it.[12] SEO did not immediately pay invoice 120. On 13 May 2022, Mr Yessi senttext messages to an employee of SEO, querying why invoice 120 had not been paid,referring to what he thought was "an agreement" that the invoice would be paid byAAP. Mr Yessi says that he spoke to the wife of another director of AAP, and wasadvised that there was an instruction in place to not pay invoice 120.[13] On 14 April 2022, SEO had issued invoice 106 to AAP, for $6,178.38. SEOpaid that invoice on the day it was received. After Mr Yessi's conversation with thewife of a director of AAP, Mr Yessi arranged for SEO to issue a second version ofinvoice 106, which was for $24,714.08. Mr Yessi says that this was the monthly fee.SEO also issued an invoice dated 18 May 2022 for a further $24,713.50, invoice 125.[14] On 28 July 2022, SEO served a statutory demand on AAP for $51,697.69,being the total of the reissued invoice 106 and invoice 125, together with a penaltycharge of five per cent, which SEO asserts it is entitled to under its terms of trade. Thestatutory demand was signed by Mr Yessi. The statutory demand did not includeinvoice 120.[15] AAP did not respond to the statutory demand. Mr Butory claims that hethought that the demand was not genuine and that it was not followed up due to theabsence of AAP's accountant. In any event, it is common ground that there was noresponse to the statutory demand before SEO issued the liquidation proceeding on15 September 2022.[16] AAP paid invoice 120, for $6,178.38, on 14 November 2022.[17] AAP contends that it owes no debt to SEO on three grounds:(a) The contract had no fixed term and was terminable at will.(b) Alternatively, AAP and SEO reached a compromise agreement inMay 2022 which required AAP to pay one final invoice to SEO,invoice 120 for $6,178.13, which was paid on 14 November 2022.(c) Alternatively, even if AAP was required to give notice of terminationand there is no binding compromise, there is no evidence of a debt due.Legal principles[18] The Court has a discretion to stay or dismiss a liquidation proceeding foundedon a debt that is the subject of a genuine and substantial dispute. Enforcing a genuinelydisputed debt by liquidation may constitute an abuse of process.11 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20] citing Re BayoilSA [1999] 1 WLR 147 (CA) at 156. See also Yan v Mainzeal Property and Construction Ltd (inrec and in liq) [2014] NZCA 190 at [61].[19] A defendant company may raise a dispute in a liquidation proceeding eventhough the company did not apply to set aside the statutory demand on the basis thatthe debt was disputed.2[20] The failure to apply to set aside a statutory demand is a factor that may be takeninto account when the Court considers whether a dispute raised later by the defendantis genuine.3[21] The primary issue in this case is whether AAP has discharged the onus upon itto raise a substantial and genuine dispute in respect of the debt that was the subject ofthe statutory demand.DiscussionTermination of the contract[22] SEO relies on its standard form terms of trade, which run to some 35 pages.SEO argues that these standard terms are incorporated into the contract because itsinvoices state that:By paying this invoice you accept all our T&C please view our full terms andconditions on www.waze.co.nz (any cancel[l]ation or pause of campaignrequires a written notice via email 60 day notice needs to be provided as perT&C[)]Late Payment fee of 5% applies after 7 working days if invoice is not paid.[23] The terms of trade produced by SEO include five separate sets of terms:(a) Waze (SEO Auckland Limited) Communications Terms & Conditionsof Service;(b) Waze (SEO Auckland Limited) Website Terms & Conditions;2 Heron's Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23], [25] and[27].3 See National Finance 2000 Ltd v All Star Cars Ltd HC Auckland M703-IM02, 10 September 2002at [37].(c) Waze (SEO Auckland Limited) PPC Campaign General Terms &Conditions;(d) Waze (SEO Auckland Limited) Search Engine Optimisation GeneralTerms & Conditions; and(e) Waze (SEO Auckland Limited) Designer Graphics / Website ServicesGeneral Terms & Conditions.[24] Mr Yessi does not explain which set or sets of terms he considers to beapplicable to the contract with AAP. Each set of terms includes a provision dealingwith termination on notice:(a) Clause 7.4 in the first set provides that either party may terminate theagreement with 60 days' advance notice in writing. There is no statedconsequence or prescribed remedy for SEO in the event a client cancelsby providing less than 60 days' notice.(b) Clause 13.5 in the second set provides that SEO requires 60 days'written notice via email: prior to expiry of the contract to discontinue Waze (SEOAuckland Limited) services. If there is no written cancellationof service 60 days before the Contract's expires (sic), theContract will restart on exactly the same package, pricing plan,payment method and terms and conditions as originally signedup for.(c) The third, fourth and fifth sets include a provision that is identical to,or near identical to, cl 13.5.[25] It is arguable that cls 7.4 and 13.5 (and the other similar provisions) must beread together. Clause 13.5 contemplates a fixed term contract which would beautomatically renewed for a further fixed term, unless notice of termination wasprovided by AAP 60 days before expiration of the first fixed term. It is arguable thatcls 7.4 and 13.5 are not applicable in the present case because there is no evidence ofan agreed fixed term of the contract.[26] This is consistent with Mr Yessi's evidence for SEO. Mr Yessi deposes thatwhen he became aware that AAP was not going to pay any further invoices, he was"forced to pull the pin [on] the campaign with Google", and that he took this action toprevent SEO incurring further costs. SEO did not proceed on the basis that the contracthad been renewed. It is arguable that the contract was able to be terminated at willand that AAP's text messages on 30 April 2022 were effective to cancel the contract.The compromise agreement[27] Alternatively, AAP has a strong argument that SEO's rights were compromisedby an agreement made in May 2022, including terms that SEO would immediatelycease providing services to AAP; SEO would issue a final invoice being invoice 120;and AAP would pay that invoice.[28] SEO's counterargument appears to be that any compromise agreement wasrepudiated by AAP when AAP indicated that it would not pay invoice 120, and thatany compromise agreement was cancelled by SEO by its conduct in issuing a statutorydemand for the re-issued invoice 106 and invoice 125.[29] However, it is arguable that there was a binding compromise agreement inMay 2022 which was not validly cancelled by SEO before AAP performed itsobligations under that agreement by paying invoice 120 on 14 November 2022. Therewas accord and satisfaction.[30] The affidavits of Messrs Butory and Yessi, and the text messages that they eachproduced, are strongly suggestive of other telephone discussions and communicationsbetween the parties which are not yet in evidence, and which will be relevant to theultimate determination of the issue of accord and satisfaction.Insufficient evidence of a debt due[31] Even if SEO was entitled to cancel the compromise agreement, and did so byits conduct in issuing the statutory demand, it is not clear that SEO is entitled to anyfurther payment from AAP. AAP paid invoice 106 in its original form. SEO ceasedproviding services in early May 2022.[32] Mr Yessi says that the services which were the subject of invoices 106 and 125had already been provided, and that invoice 125 represented the cost of the campaignfor May 2022. SEO has not produced copies of the reissued invoice 106 orinvoice 125. If invoice 106 was re-issued for the month of April 2022, then it fails toaccount for the three payments of $6,178.38 that AAP had made to SEO in April.Mr Yessi's averment that services had already been completed for May is notsupported by any documentary evidence.[33] I find that the debt claimed by SEO is the subject of a genuine and substantialdispute. It is an abuse of process for SEO to attempt to recover a disputed debt by thisliquidation proceeding.Solvency[34] I do not need to determine solvency, given my finding that it is an abuse ofprocess for SEO to enforce a genuinely disputed debt by this liquidation proceeding.[35] Other than SEO's reliance on the statutory demand, there is no other evidencebefore the Court to support a finding that AAP is unable to pay its debts as they falldue, or is otherwise insolvent.[36] Mr Yessi deposed that the trading relationship commenced with AAP payingmonthly amounts to SEO, and that this was changed to weekly amounts because AAPadvised that it could not afford to pay the costs for the services monthly. Nodocumentary evidence was produced to support that assertion, and I place no weighton it.[37] I note that the payment history produced by AAP shows regular weeklypayments from 22 April 2022, with no indication of any default.Costs[38] SEO was justified in filing the liquidation proceeding, given AAP's failure torespond in any way to the statutory demand. However, once AAP filed its defence andMr Butory's affidavit, SEO had the option to discontinue the proceeding. Its failureto do so constituted an abuse of process. AAP is entitled to costs on a 2B basis, butsubject to a deduction of one day, to reflect the unnecessary costs that SEO incurredin filing the liquidation proceeding and the first call (steps 49 and 50 in sch 3 to theHigh Court Rules 2016).Result[39] The liquidation proceeding is dismissed.[40] The plaintiff shall pay costs to the defendant on a 2B basis and in accordancewith the direction above in para [38], together with disbursements as fixed by theRegistrar._________________________Associate Judge Brittain