New Zealand Credit Law Bulletin - Vol 4, No 6, May 2004
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- The ins and outs of buying a massage parlour
Not much exciting credit law in this one but we couldn’t leave it out - Setting aside a statutory demand when the debtor is outside the time limit
Dispute resolution process stops debtor company raising dispute at late stage - Setting aside a statutory demand when there’s a counterclaim
Orange juice problems end up in court - An update on things you should know about the PPSR
New mobile phone SMS service for checking securities over cars - Dad will be turning in his grave
Umpteenth case in an ugly family feud
1. The ins and outs of buying a massage parlour
Safari Holdings Ltd v Cook (M 22/03;HC, Wgtn; 23 April 2003)
A sale had been agreed between Bruce Cook and Safari Holdings Ltd for the purchase of La Mirage Massage Parlour in Vivian Street, Wellington. The agreed price was $90,000, conditional on the landlord’s consent to the assignment of the lease. It remained unclear whether the agreement had actually gone unconditional as Safari argued that the landlord’s consent had been granted.
Cook however, believed the consent had not been granted and so tried to cancel the agreement. He then requested the return of the $10,000 deposit he had paid and gave notice that he was cancelling the contract.
In December 2002 Safari Holdings issued Cook a settlement notice which meant that he had to complete the deal under the sale agreement within 12 working days. Cook responded by saying that as Safari had taken no further steps after the cancellation notice had expired he had assumed that Safari were accepting his view that the agreement for sale and purchase was at an end. Cook then served Safari with a statutory demand to try and recover his $10,000. Safari applied to have the statutory demand set aside.
Safari claimed that Cook had made inadequate inquiries as to whether or not the landlord’s consent had been given to the lease transfer. It also argued that a statutory demand was not an appropriate step to take in their dispute.
By the time Safari’s application was heard the premises had been sold at an amount for less than $90,000. Safari indicated that they were going to start proceedings against Cook for the shortfall in the sale price. Cook indicated that he would introduce a cross claim for the return of his deposit.
The court explained that as there was significant factual dispute between the parties, it agreed with Safari that a statutory demand was an inappropriate step. The debt was clearly in dispute and the application to set aside the statutory demand was granted.
Back to top
Information on our current seminars
2. Setting aside a statutory demand when the debtor is outside the time limit
Chateau Raphael Ltd v Meridian Energy Ltd (M4/02 - M7/02; HC, Blenheim; 9 December 2002)
In April 2000 Marlborough Lines installed a substation and underground cable at Chateau Raphael’s orchard and vineyard property. Chateau Raphael then became a customer of Meridian Energy under an energy supply agreement.
There followed a long history of late payments and eventually Chateau Raphael claimed that Meridian had overcharged it. Meridian denied that there was any overcharging. In fact, in December 2001 Chateau Raphael, without disputing the charges, had offered a time payment arrangement for the arrears. Finally on 14 February 2002, Meridian disconnected its electricity supply to Chateau Raphael. Then on 6 June 2002 Meridian served a statutory demand on Chateau Raphael for the outstanding debt of $25,648.92. Chateau Raphael applied (under s.290 Companies Act 1993) to have the statutory demand set aside on 21 June 2002.
The problem for Chateau Raphael was that s. 290 requires the application to set aside to be made within 10 working days, which ran out on June 20. It is also made clear in the Companies Act (s.290(3)) that there is no discretion to extend the time for making such applications. Chateau Raphael argued that the statutory demand had not in fact, been served on them until June 7. The judge however, preferred the evidence of the process server and explained that the owners of Chateau Raphael were probably mistaken as to the date. This was due to the distractions involved in the workload of processing grapes from the company’s vineyard and apples from the orchards as well as the impending birth of their child. As the application to set aside had been made out of time it was dismissed.
Chateau Raphael also applied (under Rule 700K of the High Court Rules) to stay the liquidation proceedings that would and stop those proceedings being advertised. It argued that the disconnection was in breach of its electricity supply agreement with Meridian and caused loss to the company for which it was going to counterclaim. The court however, explained that the provisions in the supply agreement relating to dispute resolution meant that any dispute had to be resolved by a mandatory three-step process including negotiation, formal mediation, and then arbitration. As Chateau Raphael had not taken any of these steps the court concluded that it could not now claim that there was any genuine dispute with respect to the debt. This also meant that the court was not prepared to accept Chateau Raphael’s counterclaim.
The one thing that Chateau Raphael had done however, was to pay the whole amount of the disputed debt in to the court. This allowed the court to determine that the company was solvent and so it was not appropriate to make an order for liquidation. The liquidation proceedings were stayed and Meridian was prohibited from advertising them. Meridian and Chateau Raphael were ordered to begin the mandatory dispute resolution proceedings outlined in the supply agreement or to find some appropriate alternative enforcement process.
Back to top
Information on our current seminars
3. Setting aside a statutory demand when there’s a counterclaim
Brownlie Brothers Ltd v Carrathool Slopes Farms Pty Ltd (M21/02; HC, Napier; 18 December 2002)
Brownlie Brothers Ltd is a major supplier of orange juice in New Zealand. It has been purchasing oranges from different sources in Australia for approximately ten years, including Carrathool Slopes Farms Pty Ltd for the last four years. In August 2001 there were indications that the oranges crop in Australia for the next year might be very light. As Brownlie had been in this situation before it decided to try to set in place secure contracts for the supply of oranges from October 2001 to September 2002.
In August and September 2001 negotiations took place between Carrathool and Brownlie that resulted in an agreement to supply 1,500 tonnes of oranges over the next year, all at a price averaged out at $200.00 per tonne. Carrathool supplied the fruit without difficulty at first but in late November 2001 Carrathool said it would not be able to supply at the price of $A200.00 per tonne after December. In fact, Carrathool claimed that there never was any agreement for supply at a price of $200.00 per tonne for the entire year period. Carrathool said it had only agreed to do its best to source oranges at the lowest possible price on a week to week basis, even though the $200.00 per tonne which Carrathool had received in October and November 2001 was above the then market rate for oranges.
The market price subsequently rose above $200.00 per tonne through supply shortages and from early December 2001 Brownlie no longer purchased oranges off Carrathool. Instead, Brownlie was forced to purchase oranges from other suppliers after December 2001 at a rate of $A350.00 per tonne. Brownlies finally ended up purchasing 1,300 tonnes off other suppliers together with some additional oranges off Carrathool at the inflated price of $350.00 per tonne. This cost Brownlies $195,000 more than if they had been supplied at the contracted rate of $A200.00.
This did not stop Carrathool from issuing a statutory demand on 20 August 2002 against Brownlie for $A77,745.20, which was described as amounts due for the juice supplied between January and March 2002 as well as for sixty bins purchased for the supply of that juice. Brownlie applied to have the statutory demand set aside. It argued that although there was no dispute as to an amount owed for juice actually supplied, the amount was subject to a counterclaim as the juice had been supplied at a rate well above the contractually agreed price. The court explained that for a statutory demand to be set aside on the basis of a counterclaim, the counterclaim must be bone fide arguable, and it must have a sufficient link with the admitted debt. While Carrathool continued to maintain that there was inadequate agreement over the terms of the contract, Brownlie argued that the agreement was sufficiently clear. Brownlie also claimed that they could sue Carrathool for damages under s.6 of the Contractual Remedies Act for misrepresentation in addition to its claim for damages for breach of contract. Either of these claims far exceeded the $A77,745.20 claimed in the statutory demand.
The court was left in no doubt that Brownlie had an arguable counterclaim and that it was directly linked to the admitted debt incurred for the supply of replacement fruit. This meant that the statutory demand was set aside and the judge went on to say that “the dispute between the parties … should be determined in other proceedings or even in some other forum”.
Back to top
Information on our current seminars
4. An update on things you should know about the PPSR
It has been almost two years since the Personal Property Securities Act came in to force. The securities register, which the Act established, contains all the information necessary for checking whether or not a potential debtor (person or company) has other property (including his car) already secured. Since establishment, the register has been searched over 2 million times! The website for the Ministry of Economic Development now contains some helpful tips to make searching the Personal Property Securities Register more efficient (see http://news.business.govt.nz/business-update/4147). We have listed them here to help you in your searches:
Debtor Organisation Searching
All spaces, apostrophes, the abbreviated word ‘NZ’ and the word ‘The’ have been removed as part of the search criteria. This means if you enter an incorrect amount of spaces or forget to include an apostrophe in a Debtor Organisation Search your results will not be affected.
* The word ‘Limited’ can be abbreviated to ‘Ltd’ when you are conducting a Debtor Organisation Search.
* An ‘&’ may be used in a Search in place of the word ‘and'.
* Assistance is available when searching in the form of a wild card character. The asterix character (*) is the wild card used within the PPSR system. A minimum of 2 characters must be entered to use the wild card. Putting the * at the end of text tells the system to find all records that start with the text you have entered (e.g. “com*” will return company, committee and community). When the * is positioned in the middle of the text, it tells the system to find all records that begin and end with the text separated by the wild card character (e.g. “com*y” will return company and community). Only one * is permitted per field but it can take the place of one or many characters.
You can now conduct a Debtor Organisation Search through a link (the “Charges -- PPSR” Tab) once you have located the company on the Companies Office website www.companies.govt.nz. That will provide up to date information about security interests registered against that particular company.
Debtor Person Searching
When you are conducting a Debtor Person Search you must enter the person’s name correctly. The system will look for an exact match to all the search criteria entered. The minimum search criteria that have to be entered are Surname and First name. If you do choose to enter more than that in to the search fields the extra information must also be absolutely correct.
A Wild Card Character (the *) can also be used for a Debtor Person Search.
Motor Vehicle Searching
When conducting a Motor Vehicle Search you must enter one of either the Registration Number, VIN or Chassis number. You can enter more than one search criteria (e.g. Registration Number and VIN) as the system will look for any securities that match either one of the search criteria. This will help in situations where the registration plates may have been changed (e.g. personalised plates).
* No Wild Card character can be used.
You can also use the mobile phone SMS service “Txt B4 U Buy”.
• Select the write message option on your mobile phone
• Start your text message with the numbers “01”
• Enter the car’s registration number, e.g. “abc123”
•Where possible, enter a “?” and then the VIN
So the message looks like: “ 01abc123?1111111111111111111 ”
• Send the text message to FIND (3463)
• All it costs is the price of two text messages
The Ministry (which looks after the PPSR) will then automatically send you a text message which will indicate if there is a registered security over the vehicle or not.
Back to top
Information on our current seminars
5. Dad will be turning in his grave
West v Official Assignee (CP 1/2001; HC, Wanganui; 28 May 2003)
On 16 January 1984 Lionel West’s father died. Lionel was executor and trustee of the estate. The will said part of his estate was to be divided among his three children – Lionel and his two sisters. This included a piece of land in Raetihi which was transferred to Lionel, as executor, in 1984.
On 6 July 1991 Lionel was adjudicated bankrupt. His one-third interest in the Raetihi property vested in the Official Assignee (OA). The OA got an independent valuation on the land which valued it at $32,000 which was less than the government valuation. Lionel’s sisters (Julia and Rita) expressed an interest in buying his share but they could not pay the valuation figure. After some negotiations with the OA the sisters agreed to purchase Lionel’s share of the land for $8,000.
After three years in bankruptcy, Lionel was discharged in 1994 and he made an offer to the OA for his share of the property. However, by this time the agreement to sell to his sisters had been made (although they did not pay the OA until March 1995). Lionel refused to transfer “his” share of the land to his sisters. The sisters applied for, and were granted, a court order transferring the property into their names. Eventually the sisters had to apply to the Tenancy Tribunal to gain possession and to have Lionel evicted by the police.
Lionel claimed that the sale of his interest in the land – at an undervalued price and after he had been discharged from bankruptcy – was a fraud on the OA’s part. He sued for $400,000 in damages. He also claimed that court officials had deliberately altered documents. He said they had done so in order that a stay of proceedings (that he had tried to get) could be delayed to allow the property to be vested in his sisters. Lionel claimed another $200,000 damages for this. He also sued the Police and the Tenancy Tribunal!
The claims against the Department for Courts and OA were struck out by a Master of the High Court. Lionel appealed and the matter was heard by a Judge of the High Court. (The claim against the Tenancy Tribunal did not proceed. The Police appear to have ignored the matter.)
The judge had to decide whether there was any reasonable cause of action against the OA and the Department for Courts. The question was: at the time the land was sold, did Lionel have an actual interest in the land or only an undefined share in “the remainder of his father’s estate?” If it was only an undefined share, the OA couldn’t actually get at the land to sell it.
The judge was satisfied that at the time the OA agreed to sell the land, Lionel’s one third share in the estate had passed to the OA. However, it did not automatically follow that Lionel also owned an interest in the land which had also passed. Assets don’t belong to a beneficiary of an estate until the estate has been administered. Accordingly, Lionel’s allegations (if proved at trial) were enough to give rise to an arguable claim.
The judge eventually found that the allegations against the OA did not amount to fraud but could give way to a claim that the OA was negligent. Therefore he recommended that Lionel reformulate his claim bearing in mind what the judge said on the issues.
However, the judge struck out the claim against the Department for Courts for two reasons. First of all, there was no loss that could be claimed as a result of this action even if it was proved to be true. This was because the order vesting the property ultimately came from the court. Secondly, the allegations were not accompanied by the sufficient degree of evidence required for such serious allegations.
