SUPERFURN (NEW ZEALAND) LIMITED V ASHLEY FURNITURE INDUSTRIES INC HC AK CIV-2009-404-2472

SUPERFURN (NEW ZEALAND) LIMITED V ASHLEY FURNITURE INDUSTRIES INC HC AK CIV-2009- 404-2472 7 September 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-2472UNDER the Companies Act 1993 IN THE MATTER OF of a Statutory Demand dated 15 April 2009 BETWEEN SUPERFURN (NEW ZEALAND) LIMITED Applicant AND ASHLEY FURNITURE INDUSTRIES INC Respondent Hearing: 2 September 2009 Counsel: V Fletcher for Applicant N Tetzlaff for Respondent Judgment: 7 September 2009 at 3.30 pmRESERVED INTERIM JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON (Application for setting aside Statutory Demand)This judgment was delivered by me on 7 September 2009 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules Registrar/Deputy Registrar Date .......................... Solicitors: Blackwells, PO Box 9325, Newmarket, Auckland Gaze Burt, PO Box 91345, Auckland[1] The applicant, Superfurn (New Zealand) Limited, is a furniture retailer. It seeks an order setting aside the statutory demand dated 15 April 2009 served on it by the respondent, Ashley Furniture Industries Inc, an American furniture supplier, on 16 April 2009. [2] The application is: a) Made on the ground that the debt (or more correctly part of the debt) in the statutory demand, is disputed. Superfurn accepts it is liable to Ashley in the sum of US$12,000, which remains unpaid. But it denies that it is liable for the balance claimed of US$30,567 and says others who took delivery of the product represented by those invoices are liable; b) Supported by the affidavit evidence of Mr Gapes, sole director of Superfurn, and Mr Hanlon, sole director of a company called Homeline International (NZ) Ltd. Homeline is a furniture importer that acts as Superfurn's import agent for the purpose of consignments from Ashley's. [3] At the heart of Superfurn's contention that there is a genuine dispute about the bulk of the debt is this question:Under the arrangements that have stood for sometime between Superfurn and Homeline where Homeline arranges the importation of product from Ashley, who is liable to Ashley for the contract price? Is it Superfurn or is it the retailer to whom Homeline arranges direct delivery?[4] Superfurn argues that it is liable only on the one invoice for which it says it happened to be the retailer that took direct delivery. It contends that if this is accepted, it should be given a further brief period of grace to pay that invoice before an order is made placing it into liquidation. [5] Ashley opposes the application and has filed one affidavit by way of opposition. That is the affidavit of Mr Kerr, who is Ashley's marketing manager forNew Zealand and Australia. Ashley says there is no genuine dispute about Superfurn's liability for the entire sum and that Superfurn's liability turns on its contractual arrangements with Superfurn, not Superfurn's arrangements with Homeline. It also says Superfurn has been promising to pay the undisputed amounts since April but has failed to do so and that the failure simply reinforces that Superfurn is indeed insolvent. Either way, Ashley argues there is no basis to set aside the statutory demand.Statutory Demand[6] The statutory demand issued by Ashley claims a debt owing and due from Superfurn of US$42,567 in respect of:product delivered for which the following invoices issued: 697272; 552138; 552139; 552141.[7] Mr Kerr has produced copies of these invoices from Ashley, as exhibits in his affidavit. The separate amounts claimed in the invoices are:(a) Invoice 697272: US$12,000 (b) Invoice 552138: US$12,101 (c) Invoice 552139: US$12,015 (d) Invoice 552141: US$ 6,451[8] The first invoice has a date of issue of 22 September 2008 and it is the sum claimed in this invoice that Superfurn accepts liability for as due and owing. The remaining invoices have a common date of issue of 24 December 2008. [9] All four invoices note the same customer number 292000, and all contain a customer purchase order reference that has the prefix SF, an obvious reference to the word Superfurn. In the case of two of the invoices the prefix is SFNZ, an obvious reference to Superfurn's full name, Superfurn (New Zealand) Limited. All record the sale of product to Superfurn NZ Ltd at 190 Jack Lachlan Drive, Beachlands and an instruction to ship to that address. [10] This Beachlands address is the same as the address for Superfurn contained in the international account data sheet Mr Gapes signed and gave to Ashley's justover a year earlier in November 2007. It also appears as the address for Homeline in certain of Homeline's invoices that Mr Hanlon produced in evidence. Similarly, the telephone number given in the account data sheet for Superfurn is the same as that for Homeline on its invoices. Also included in the data sheet is Superfurn's direction to ship products in the name of Superfurn NZ to an address to be advised on each shipment. These details point to the agency relationship Superfurn has with Homeline and to Superfurn's own role as a supplier who provides product it acquires from Ashley in its own name for shipping, as it directs, to its own customers. [11] There is no suggestion in the evidence that the particular details or instructions given by Superfurn in the account data sheet were not current when Ashely sent out the four invoices. Nor is there any suggestion that Ashley did not send all four invoices to the same designated customer address shown on each invoice, being the address that Superfurn nominated for itself in the account data sheet. It can only be assumed therefore that Mr Gapes knew about the invoices shortly after they were dispatched to Superfurn. Indeed, he produced in evidence a copy of the first invoice, and while he makes the guarded statement that he does not have copies of the 3 disputed invoices, he does not go so far as to deny he knew about them. Nor does he, or indeed Mr Hanlon, claim to have challenged any of the contents of the invoices when the invoices arrived at the account address Superfurn nominated in the account data sheet. Mr Hanlon plainly did know about the invoices and had the opportunity to challenge them when they were received at Superfurn's nominated address, which also happened to be Homelines' address, because he says Homeline prepared invoices to bill each retailer that took delivery of the product represented by the invoices. There is no suggestion that he was not acting within the scope of his authority as Superfurn's agent in doing so. [12] It is against this background that I turn to the basis advanced for Superfurn's contention that it is not liable for the sum claimed in all but one of the invoices.The basis of the dispute[13] Counsel for Superfurn indicated that the basis on which the US$30,567 of the debt is disputed is summarised by Mr Gapes at paragraph 8 of his affidavit sworn on 30 April 2009. He says:Following the order of product made by Superfurn as particularised in Ashley's invoice 697272 dated 22 September 2008 no further product was delivered by Ashley (or Homeline) to Superfurn. The balance of the amount claimed by Ashley is not owed by Superfurn.[14] Mr Gape's claim is elaborated on by Mr Hanlon in his affidavit evidence. Mr Hanlon does so by explaining the relationship between Superfurn and Homeline in its role as Superfurn's importer of Ashley's product. He deposes:For some time now Homeline has acted as one of Superfurn's principal importers of product including Ashley's product. These arrangements have proven to work well. Homeline arranges for the importation of Ashley's product from its factory in China to be imported and delivered directly to the retailer in New Zealand on the basis that the New Zealand retailer is responsible to Ashley for payment. I should note in this regard, however, that payment is made by the New Zealand retailer to Homeline who would then pay the amount due to Ashley. This is the precise arrangement that was in place in respect of invoice number 697272 dated 22 September 2008 for US$12,000 for which Superfurn admits liability to Ashley. [Emphasis added][15] Implicit in Mr Hanlon's explanation is that Homeline's importation of Ashley's product is carried out pursuant to the arrangements it has with Superfurn to act as Superfurn's importer. He indicates under those arrangements, the payment arrangement as between Homeline and Superfurn is that if the product is destined to become Superfurn's product, Superfurn takes responsibility for payment but if another retailer takes direct delivery in New Zealand, Superfurn holds that retailer responsible for payment to Ashley. In each case however, it is Homeline that is the conduit for payment. [16] The relationship between Superfurn and other retailers that forms the basis for this arrangement is touched upon in email correspondence between Homelineand Ashley. This correspondence was produced by Mr Hanlon. It refers to a group of Superfurn retailers and the inference is that Superfurn and its agent, Homeline, purchase product for the group. [17] In his evidence Mr Hanlon also explains that under these arrangements between Superfurn and Homeline the only product Superfurn ordered and took delivery of is the product represented by Ashley's invoice of 22 September 2008 for the sum of US$12,000. But he says the product represented by the other three invoices was ordered and delivered directly to entities known as Furniture World Timaru, Hardings Furniture Wellington, and to Superfurn Rotorua, a separate legal entity. To prove his point he produced copies of Homeline's own invoices that bill Superfurn and the three other retailers for product he identifies as the product in question. Counsel for Superfurn submitted it is on this simple basis that Superfurn says that it is not liable for the further US$30,567 claimed by Ashley. [18] Underlying the submission is the contention of Mr Gapes and Mr Hanlon that Ashley was in some way party to these payment arrangements between Superfurn and Homeline and bound by them. Effectively they contend that Ashley accepted that it would look to payment from the retailer that took direct delivery. They rely on a meeting that took place on 21 January this year when they say Mr Kerr was told who the other customers were. [19] Ashley denies the suggestion it knew about these payment arrangements or that it was party to them. Mr Kerr says he knew there were retailers in a group with Superfurn, but that Ashley's position is that its customer was Superfurn. He says while Ashley was happy to deliver to Superfurn's instructions it was Superfurn that placed the orders with it and Superfurn who is liable to pay for them. Mr Kerr's deposes that payment terms were agreed with Superfurn in December 2007 and were set out in the account data sheet. Those terms allowed for credit of up to US$75,000 and required payment within 30 days. He deposes that:Between late 2007 and 2008 Superfurn made orders for delivery of furniture, which Ashley has fulfilled. Ashley issued invoices for the relevant sums. All invoices were made out to Superfurn. Superfurn paid all invoices within this period with the exception of the invoices that are outstanding.[20] I am unable to accept that Superfurn has raised a genuine dispute about the invoices. On the evidence as it stands I can only conclude that it is liable with respect to all four. [21] First, it is appropriate to set out the relevant legal principles.The Law[22] The application is made in reliance on s 290(4)(a) of the Companies Act 1993. It states:The Court may grant an application to set aside a statutory demand if it is satisfied that – (a) There is a substantial dispute as to whether the debt is owing or is due.[23] The principles to be applied are well established. Suffice it to note: a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. b) The mere assertion that 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) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise. [24] It is helpful also to recall, on the issue of what constitutes a substantial dispute, that in the event there is a conflict of evidence the court's enquiry will be to whether the assertions made pass the threshold of credibility: Focus International Export Ltd v Honeywell Limited HC AK M134-IM99 28 May 1999 at paras [6] –[8].Decision[25] Mr Hanlon contends that under the arrangements that have stood for sometime between Superfurn and Homeline the payment arrangement between them, that the ultimate retail customer taking direct delivery would be responsible for payment to Ashley, means that Superfurn is liable on only one invoice. [26] Mr Hanlon produced a set of Homeline's invoices which counsel submitted are proof of his contention, presumably to show direct delivery occurred. [27] Assuming for the moment that Mr Hanlon's contentions are correct, then Superfurn would be liable on at least two Ashley invoices. This is because it is clear on the face of at least two of Homeline's invoices that delivery of the Ashley product, represented by the corresponding Ashley invoices, was to Superfurn. The first of the Ashley invoices in question is that for which Superfurn admits liability. The delivery address in that case is recorded in Homeline's corresponding invoice as 22 Ormiston Road, East Tamaki. The second of the Ashley's invoices is invoice no. 552141 for US$6,451. It is for product said to be represented by Homeline's invoice for product ordered by Superfurn Rotorua. However, the Homeline's invoices does not show a direct delivery address for Superfurn Rotorua. It shows Superfurn's delivery address as 22 Ormiston Road. There is a further difficulty in treating this invoice as one that substantiates Superfurn's position. The invoice is dated 17 December 2009 which pre-dates, by a week, the date on the invoice originating from Ashleys. There is no explanation offered as to how the Homelines' invoice can be treated as an invoice dealing with the identical product when the invoice originating from Ashley had yet to be created. [28] I therefore do not accept that Superfurn's evidence in relation to this invoice passes the threshold of creditability. It is not evidence that Superfurn Rotorua took direct delivery of the product in Ashleys' invoice 552141. [29] However the real issue does not turn on who took direct delivery of Ashley's product. It is, as counsel for Superfurn acknowledged at the hearing, who thecustomer was that Ashley contracted with, and what were the contractual terms between that customer and Ashley with respect to payment. [30] There are a number of factors that indicate that the customer was in each case Superfurn. Those factors include Superfurn's instructions to Ashley in its account data sheet; the absence of any suggestion in the evidence that those instructions were ever changed; and Superfurn's appointment of Homeline to act as its agent with Ashley. They also include the total absence of any evidence of substance from Superfurn or Homeline that points to any contractual relationship at all between Ashley on the one hand and the other entities that Superfurn contends are responsible for the three disputed invoices. Had there been such a relationship, then it is to be expected that Mr Hanlon would have produced, as he did for Superfurn, copies of payments Homeline arranged on their behalf through the ASB or some other bank, to Ashley. As nothing of that nature has been produced, it can only be assumed that there was no such arrangement with Ashley. [31] There is a further and defining factor that shows that Superfurn's position is hopeless. It is the acknowledgement of Mr Hanlon (whose evidence is endorsed by Mr Gapes), that it was not until a meeting held on 21 January 2008 that Ashley knew who its customers in the disputed orders were. [32] In his evidence about the meeting, Mr Hanlon stated that it took place between Mr Kerr, Mr Gapes and himself and its purpose was to discuss the three orders placed with Ashley on 24 December 2008. He deposes:It was explained to Mr Kerr at this meeting that these orders would be taken by customers other than Superfurn. Mr Gapes left the meeting at this time once it was established that these orders had nothing to do with Superfurn. There was obviously no reason for him to remain any longer. I then provided Mr Kerr with details of the customers for this product including their names and these details were written down by Mr Kerr in his note book. Contrary to what Mr Kerr says in his affidavit the fact is that he has been aware of the identity of the recipients of the three orders of the product since this meeting.[Emphasis added][33] This statement indicates that there was an arrangement between Superfurn and Homeline pursuant to which these orders would be taken by customers other than Superfurn. But the statement does not substantiate that Ashley knew and was party to this arrangement when the orders were made or that there was some legal estoppel or other basis established which subsequently bound Ashley to the arrangement. The clear inference, indeed acknowledgement, is that Mr Kerr did not know about this particular payment arrangement or the identity of the recipients of the orders, until this meeting took place. In the face of this evidence, the assertion that Ashley was somehow party to the agreement between Superfurn and Homeline does not pass the threshold of credibility. [34] For these reasons, I do not accept that Superfurn has raised a substantial dispute about its liability for the invoices. [35] In reaching this view I do not overlook that there are some statements in Mr Kerr's own evidence that lack credibility. [36] Mr Kerr denied dealing with Homeline. He said:I also dispute that Homeline arranges for the importation of Ashley's products.[37] Mr Kerr denies knowing the nature of Homeline's involvement with Superfurn yet copies of an email exchange between Mr Hanlon and Mr Kerr produced by Mr Hanlon in his reply affidavit indicate that this assertion is not correct. I also do not overlook that Mr Kerr says in September 2008 he requested clarification of "who would be paying as he was aware some shipments were being sent to Superfurn related parties" and he was told invoices should be made out to Superfurn. He deposed:This was quite reasonable as Superfurn had facilitated payments for all shipments that had been sent to third parties in the past.[38] However, this evidence is not sufficient to raise a substantial dispute about Superfurn's liability for the orders that Homeline clearly made on its behalf. It is simply evidence of Mr Kerr's understanding he had "that Superfurn had its own arrangement with Homeline and/or the third party retailers of the furniture".Result[39] For the above reasons I am satisfied that the entire debt claimed in the statutory demand is not the subject of a substantial dispute and I propose to dismiss the application for an order that the statutory demand issued by Ashley be set aside. For that purpose, I adjourn the application to the liquidation list on 9 September 2009 at 2.15 pm, as I indicated I would at the hearing. If the entire or part of the debt has not been paid by that time, Ashley is to certify what the amount of outstanding debt is. If sufficient part of the debt remains outstanding to justify an order, the parties can expect that there will be an order made under s 241(4) of the Act putting Superfurn into liquidation. [40] In the meantime, this judgment is issued as an interim judgment, on the basis that a final judgment will be issued on 9 September 2009. I will also deal with the issue of costs at that time. ___________________________ Associate Judge Sargisson