SKYHORSE TRANSPORT LIMITED v GREENHILL HOME LIMITED [2022] NZHC 1034

SKYHORSE TRANSPORT LIMITED v GREENHILL HOME LIMITED [2022] NZHC 1034 [13 May 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-887[2022] NZHC 1034BETWEEN SKYHORSE TRANSPORT LIMITEDPlaintiffAND GREENHILL HOME LIMITEDDefendantHearing: 5 May 2022(By AVL)Appearances: H L R McDermott for Plaintiff (by AVL)J A Wickes for Defendant (by AVL)Judgment: 13 May 2022JUDGMENT OF ASSOCIATE JUDGE LESTERIntroduction[1] The plaintiff seeks an order placing the defendant company into liquidationrelying on an unsatisfied statutory demand and evidence filed aimed at establishingthe debt, subject to the demand cannot, be subject to dispute. The application isopposed. It is necessary to set out the steps previously taken by the defendant inresisting the application in order to provide the context for this Judgment.Background[2] On 18 March 2021, the plaintiff served a statutory demand claiming the sumof $43,737.79. The plaintiff is a cartage company whose business includestransporting excess soil from building sites.[3] The defendant, as its name suggests, is a residential property developer and in2020 engaged the plaintiff to transport soil excavated by its employees from buildingsites it was working on.[4] The plaintiff invoiced the defendant based on what it says werecontemporaneous records of each truck load made by its drivers, that record includingdetails of the date, the licence plate of the truck, time of load and type of materialbeing transported. It is common ground that the plaintiff's invoices should be basedon the number of loads carted.[5] The defendant considered there were discrepancies in the plaintiff's invoicesleading to a meeting of the parties on 21 January 2021. In short, the defendant saysthe quantity of material recorded in the plaintiff's invoices is overstated. The defendantsays the quantity of soil to be removed pursuant to the consented excavation plans forits sites do not reconcile with the volume of material claimed to have been removedby the plaintiff.[6] I add here that Ms McDermott, counsel for the plaintiff, suggested thedefendant delayed in disputing the invoices issued by the plaintiff. I do not considerthat a fair criticism when the first two of the invoices in dispute were issued on Sunday20 December 2020.[7] On 28 April 2021, the defendant proposed that the parties agree a procedure toresolve the dispute in a cost effective manner and suggested a civil engineer beengaged.[8] This liquidation proceeding was filed on 7 May 2021.[9] On 27 May 2021, the defendant filed an application to restrain advertising andstay the proceeding and also filed a statement of defence and supporting affidavit.That application was opposed and was heard on 17 August 2021 by AssociateJudge Andrew.Decision of Associate Judge P J Andrew dated 17 August 2021[10] The following paragraphs from Associate Judge PJ Andrew's decision, set outthe essence of the matters in dispute and his Honour's conclusions.1Analysis and decision[19] Greenhill's evidence establishes that a dispute was raised shortly afterits receipt of the invoices. Greenhill has produced in evidence the consentedexcavation plans for the sites form which the earth was carted away bySkyhorse. Both plans, Greenhill says, show a total amount to be excavated as245 cubic metres, of which Greenhill says it retained 60 cubic metres forlandscaping. Greenhill also says that those plans were shown to Skyhorsebefore the statutory demand was issued and sent to Skyhorse's solicitorsbefore these proceedings were issued.[20] In the evidence for Greenhill, an explanation is provided as to howthis amount of earth equates to 31 truckloads. That is based on undisputedevidence that an average truckload contains six cubic metres of material.Greenhill says that 31 truckloads equates to a total charge of somewherebetween $4,960 and $6,820 depending on the tip site used. Greenhill says thatit is due a credit of $4,749.50, being the amount it was overcharged in the priorinvoice it has already paid. By contrast, Skyhorse has invoiced Greenhill for167 truckloads (so Greenhill says) and in the total sum of $43,737.79.[21] Greenhill further points in support of its position to the anomaliesbetween Skyhorse's copies of the tip documents and the tip operators copieswhich Greenhill obtained after it became suspicious of the invoiced amounts.Greenhill says that those documents show extra loads on Skyhorse's copiesonly.[22] Skyhorse's explanation is that Greenhill brought earth from other sitesonto the collection sites. Skyhorse also says that there was never any1 Skyhorse Transport Ltd v Greenhill Home Ltd [2021] NZHC 2182.agreement that the invoices would be based on the landfill or tip documentsor on engineer's reports.[23] In evaluating all this evidence, I conclude that Greenhill hasestablished that there is a genuine dispute; the requisite standard, namelya prima facie case of the existence of a genuine dispute on substantial grounds,has been met. Its position is supported by contemporaneous documentationthat includes both the landfill dockets and excavation plans, albeit that thoseare dispute by Skyhorse. There are, as Ms McDermott responsiblyacknowledged, significant issues of credibility and I obviously cannot resolvethose.[11] Associate Judge Andrew recorded the disputed amount had been paid by thedefendant into its solicitor's trust account. An order was made restraining advertisingand staying the proceeding on the condition that the amount paid into the defendant'ssolicitor's trust account remain there pending resolution of the dispute and: " alsoon the condition that the parties take prompt steps to have the dispute resolved".A costs award in favour of the defendant was made on a 2B basis.[12] On 17 September 2021, the plaintiff was served with a sealed order reflectingthe orders made by Associate Judge Andrew. The plaintiff paid the costs awardedagainst it arising from the stay application.Plaintiff seeks to pursue proceeding[13] On 25 February 2022, plaintiff's counsel filed a memorandum with the Courtalong with two updating affidavits. Paragraph 14 of that memorandum stated:Counsel for the plaintiff submits that this matter cannot be resolved throughmediation as the parties are just too far apart and accordingly this mattershould be set down for a hearing.[14] No response to that memorandum was filed by the defendant and in a briefMinute the application to liquidate the defendant was set down for a hearing.[15] No application has been made by the plaintiff to lift the stay. An applicationshould have been made as it would have focused attention on whether the conditionsattaching to the stay have been satisfied or not, in particular on the fact thecondition relating to resolving the dispute applies to both parties.[16] Accordingly, the two issues for me to address are:(i) Should the stay ordered by Associate Judge Andrew be lifted,essentially on the basis that lifting the stay is necessary to permit theplaintiff to proceed with its liquidation proceeding.(ii) If the stay is lifted, whether liquidation is appropriate given the findingsalready made by Associate Judge Andrew, in particular, his finding at[23] of his Judgment set out above at [10] above.Lifting the stay[17] The stay was granted on the condition that the parties take steps to have thedispute resolved. As noted at [13] the plaintiff considers the dispute is not capable ofbeing settled by mediation.[18] The condition imposed by Associate Judge Andrew is not limited to the disputebeing resolved by mediation. The Judge had earlier commented that the proposal bythe defendant that an engineer resolve the dispute seemed a sensible one, however, henoted the plaintiff was opposed to that approach. The Judge noted that another expertmay be a more appropriate candidate but "in any event, this is a relativelyuncomplicated matter that the parties ought to be able to reach agreement on".[19] While agreeing an appropriate dispute resolution process should have beenrelatively straightforward, the dispute between the parties is not without its difficulties.The contract between the parties was oral or discussed over text. Just how muchmaterial was transported will require investigation and findings of fact. A process akinto an arbitration may well be required but again, the parties could have designeda truncated or pared back form of arbitration to make that process cost effective. Anarbitrator would have the power to award costs to the successful party.[20] The unchallenged evidence is that in September 2021, the defendant's solicitorsuggested to the plaintiff's solicitor that the present dispute did not warrant beingbefore the High Court and suggested the matter be referred to the Disputes Tribunal.There was no response.[21] At the Chinese New Year, the defendant's director sent a Happy New YearWeChat message to the plaintiff's director and received no response. On2 March 2022, after the defendant received the plaintiff's memorandum asking for thematter to be set down, the defendant's solicitor invited the plaintiff to adopta pragmatic attitude to resolution and make a reasonable settlement offer. Shortlyafter, the defendant's solicitors again proposed the parties engage a quantity surveyorto calculate the amount of soil that could be claimed for, and that if the plaintiff didnot agree with that proposal, requested the plaintiff advise its proposal for resolvingthe dispute. Again, the undisputed evidence is that no response was received. Whenthe defendant sent a follow-up, the response was that the plaintiff's instructions werefor this matter to proceed to a hearing.[22] I am not satisfied there has been a breach of the condition by the defendant letalone one that warrants the stay being lifted. I accept that the matter being referred tothe Disputes Tribunal would require the plaintiff to abandon that part of its claim over$30,000.2 However, in order to achieve a cost effective resolution of the dispute, suchmay be a sensible concession.[23] Absent the matter being determined by the Disputes Tribunal, the defendanthad, prior to the matter being considered by Associate Judge Andrew, suggesteda determination by an engineer. Again, the Judge noted that another expert may bea more appropriate candidate, but essentially the Judge was suggesting it would besensible for there to be a ruling on the merits by some independent suitably qualifiedexpert. Whether this is called an arbitration, an expert determination, or the like, doesnot matter, but what was required was the parties to agree to be bound by the outcome.While the parties were free to attend mediation, if the plaintiff considered such wasnot likely to result in settlement, a process that resulted in a binding outcomewas required.2 Disputes Tribunal Act 1988, ss 10(1A)(b) and 14. Ms Wickes, counsel for the defendant,suggested that the dollar limit in the Tribunal would not be an issue if the parties asked the Tribunalto rule on the number of loads carted only. I make no comment whether framing the claim in thatway would permit the Tribunal to determine that issue.[24] Accordingly, with the plaintiff taking off the table recourse to the DisputesTribunal and not wanting the matter to be determined by an expert, it is not clear tome how the plaintiff saw the dispute being resolved.[25] One means of resolving the dispute open to the plaintiff, which does not requireco-operation from the defendant, is for it to issue a claim in the District Court.Associate Judge Andrew's condition also bound the plaintiff. The condition refers tothe parties having to take prompt steps to resolve the dispute and is not limitedto alternative dispute resolution. As the defendant's funds are to be held on trust untilthe dispute is resolved, it too has an interest in the matter being resolved promptly.If the plaintiff considered alternative dispute resolution in whatever form was notpractical, then it should have issued District Court proceedings. Ms McDermottsubmitted the defendant had not engaged in good faith in resolving the matter.However, when asked what options the plaintiff had advanced for resolving thematter, her response was she did not think any had been advanced by the plaintiff.[26] My finding that the stay ought not to be lifted is sufficient to deal with theplaintiff's application to liquidate the defendant and is the basis of it being dismissed.Against the possibility that finding is incorrect, I consider briefly how I would haveapproached the matter had the stay been lifted.[27] To be entitled to an order for liquidation, the plaintiff has to establish that thedefendant is insolvent. A realistic commercial approach to the assessment of solvencyis required, taking an overall perspective of the debtor's financial position. The Courtmust make an objective assessment of all the evidence and determine whether there isa genuine or substantial dispute in relation to the claimed indebtedness or in respectof the defendant's ability to satisfy its debts.3[28] Associate Judge Andrew determined, on the material before him at the time ofthe application to restrain advertising, that there was a genuine and substantial disputeas to the existence of the debt " the issue of insolvency really only becomes3 Owens v Waka Management Holdings Ltd [2016] NZHC 2968.important if the Court is not satisfied there is a substantial dispute about the liabilityfor payment of the debt".4[29] The plaintiff issued a notice requiring the deponent for the defendant to becross-examined on his affidavits. In terms of the key issue of whether the plaintiff hasdemonstrated the defendant is unable to pay its debts as they fall due, that is, it isinsolvent, little emerged from that cross-examination which assisted the plaintiff.[30] Mr Zhang, the director of the defendant company, swore an affidavit referringto the defendant owning a property in Papakura, Auckland. In his affidavit, the addresswas incorrect but that was subsequently corrected. Attached to the submissions forthe defendant was a copy of the title for the property. Ms McDermott had obtaineda copy of the capital value of the property which was $1,500,000. Mr Zhang, in hisevidence, said that the mortgage and caveat against the property secured indebtednessof $950,000.[31] Accordingly, the defendant company on that evidence has equity of $550,000in the property. Mr Zhang went further and said since the time of that valuation, thedefendant company had built five dwellings on the site and hence the defendant'sequity in the property was substantially more than $550,000.[32] Ms Wickes, counsel for the defendant, noted in her closing submissions thatthe cross-examination confirmed the plaintiff and the defendant had engaged inbusiness over an extended period, indicating that the defendant is not a one ventureentity. The defendant was incorporated on 28 November 2013 and the evidence is thatthe parties first started dealing with each other in 2014.[33] In an opposed liquidation, the burden of proof remains throughout upon theplaintiff to establish the defendant is insolvent, although the evidential onus of proofmay shift as evidence is provided.4 Matamata Tennis Club Inc v Grassman New Zealand Ltd [2012] NZHC 463.[34] The presumption of insolvency created by non-compliance with the statutorydemand becomes less important when there is a finding that there is a substantialdispute between the parties or issue as to whether the plaintiff is due the payment itclaims.5 Of course here, the amount in the statutory demand has been paid into thesolicitors trust account where it remains.[35] The defendant is a property development company which has been tradingsince 2014. The evidence is that its most recent project is the completion of thedevelopment of five dwellings referred to above which it still owns. The plaintiffwould be aware, from its history of working with the defendant, that it had carried outa number of developments. While it is true the defendant has not put its financialaccounts before the Court, the evidence remains that it has substantial equity in thePapakura property referred to.[36] To the extent the cross-examination sought to establish there was not a genuinedispute again, I do not think that the cross-examination advanced the plaintiff'sposition. For example, a theme of the cross-examination was to have the defendant'sdirector accept that the plaintiff's invoices were based on the number of truck loadscarried as opposed to the records of the volume of material dumped known as "billdockets" or "tip dockets' of site excavation plans. However, the point is that while thedirector of the defendant company accepts the plaintiff's invoices are to be based onthe number of loads carried, he refers to the records of the material dumped and theexcavator plans to support his claim that the number of loads recorded in the invoicesis inflated.[37] Another theme of the cross-examination was that, where multiple adjoiningproperties are being developed, it is common practice for soil to be moved from onesite to another until such time as the developer knew what, if any, of the stockpiledsoil is needed for landscaping or other uses. The defendant's director wascross-examined on the basis that, if soil was moved from one site to another, itwould mean the engineer's excavation plans could not be relied on as an accurateestimate of the material to be removed. The defendant's director accepted that5 Matamata Tennis Club Inc, above n 4, at [27] and [28].proposition but I accept Ms Wickes' submission in reply that the cross-examinationdid not move from this high level of questioning to focus on what happened on thesites in issue at this case.[38] While further material has been filed by the plaintiff and responded to by thedefendant, the fact is that material and the outcome of the cross-examination did notprovide an answer to the credibility issues noted in Associate Judge Andrew's decisionat [23] set out [10] above.[39] Accordingly, even if the stay was lifted, the application for liquidation wouldhave been dismissed. While the evidence of solvency is not complete, the evidenceI have points to the company being solvent and the core dispute identified by AssociateJudge Andrew remains.The way forward[40] Resolution of this dispute in part requires credibility findings. The plaintiffcan issue proceedings in the District Court and seek costs in relation to that process inthe ordinary way.[41] The parties could, as I have said, agree to a process that amounts to anarbitration where they agree to hold an informal hearing in front of an independentexpert. They could appoint someone to act as an arbitrator, but on an inquisitorialbasis where that person would be at liberty to make their own enquiries, for example,interview the parties and drivers involved, examine the documents, and come toa decision. The parties could consider an arbitrator who speaks Mandarin, givenI understand that is the first language of the directors of the parties. Alternatively, theplaintiff could accept that not all of its claim will be recoverable and have the matterresolved in the Disputes Tribunal.Order[42] The formal order of the Court is that the informal application to lift the stay isdeclined.Costs[43] There is no reason why costs on this application should not follow the event.[44] Accordingly, there is an award of costs in favour of the defendant on a 2B basiswith disbursements as fixed by the Registrar.__________________________Associate Judge LesterSolicitors:Righteous Law, Auckland (for Plaintiff)Loo & Koo, Auckland (for Defendant)