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Statutory Demands - Recent Court Cases

Last month the newsletter focused on statutory demands and the dangers of using the procedure if a genuine dispute exists about the money owing. To recap, a statutory demand can be served on a company for the amount of the debt owing.  If not paid within 15 days the creditor can apply to the High Court to place the company into liquidation. If a dispute exists that the debt is owing, the debtor can apply to the High Court within 10 days after service of the statutory demand to have the statutory demand set aside.

Three recent cases out of the High Court and Court of Appeal demonstrate the dangers of using the statutory demand process improperly.

AAI Ltd v 92 Litchfield Street Ltd (In Receivership and Liquidation) [2015] NZCA 559
Litchfield owned a property damaged in the Christchurch Earthquakes.  AAI was it's insurer for material damage.  Litchfield claimed it had settled it's insurance claim with AAI and issued a statutory demand for what it said was the agreed settlement sum.  AAI applied to set aside the demand.In the High Court AAI was unsuccessful and applied to the Court of Appeal.  The Court of Appeal allowed the appeal finding on the evidence provided that AAI had shown that there was a substantial dispute whether the list Litchfield claimed was owed.  The Court of Appeal held that the statutory demand procedure should not have been used and was an abuse of the procedure.  Litchfield was ordered to pay AAI costs in both the High Court and Court of Appeal.

Point to Point Holdings and Colslarder Ltd [2016] NZHC 1420
Colslarder Ltd, a painting company, issued invoices to Point to Point Holdings a construction company for painting to properties being developed by Point to Point Holdings.  Point to Point Holdings applied to set aside the demand on the basis that Colslarder Ltd’s work was unsatisfactory and so the money was not owing. Point to Point Holdings also said it had engaged a contractor to remedy Colslarder Ltd’s work and this cost would be claimed by Point to Point Holdings  against Colslarder Ltd. The High Court set aside the statutory demand and ordered Colslarder Ltd to pay costs to Point to Point Holdings on the basis that Point to Point Holdings had established it had a defence to liability and a counterclaim that exceeded Colslarder Ltd’s entire claim.

G K Fyfe & Associates Ltd v Parkers Business Solutions Ltd [2016] NZHC 2082 
In this case Parker's had been Fyfe’s accountants in relation to an investigation of Fyfe’s affairs by the Inland Revenue Department.Fyfe paid a number of Parkers invoices and then stopped when it became concerned about Parker's charges. Parkers issued a statutory demand in relation to its unpaid invoices and Fyfe applied to set it aside. The High Court set aside the Statutory Demand commenting that a more extensive conflict of views between the two main witnesses for each party might be difficult to find. It held that it was plain that there is a significant dispute over liability to pay Parker's outstanding invoices.On the subject of costs the High Court in a second decision relating to the question of what costs Parkers Business Solutions Ltd should pay, ordered a 30% increase on the usual scale of costs holding that it was not appropriate for Parkers to have maintained its opposition to Fyfe’s application once it had Fyfe’s evidence.  On this basis an uplift in the usual costs awarded was appropriate.

These cases clearly demonstrate the dangers of using the statutory demand procedure where a dispute exists that the money is owing.