IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE	
CIV-2022-419-139
[2023] NZHC 1256	

BETWEEN	AOTEAROA FORESTS LIMITED
Applicant	
AND	LAND HAUL CONTRACTORS LTD
Respondent	

Hearing:	15 February 2023	
Appearances:	M Kilham for the Applicant KI Bond for the Respondent	
Judgment:	31 May 2023	

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 31 May 2023 at 2 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:
Fee Langstone, Auckland
Braun Bond Lomas, Hamilton

AOTEAROA FORESTS LIMITED v LAND HAUL CONTRACTORS LTD [2023] NZHC 1256 [31 May 2023]

Introduction

[1]	Aotearoa Forests Limited has applied to set aside a statutory demand served on it by Land Haul Contractors Limited. The statutory demand was issued for unpaid invoices for cartage services provided by Land Haul to Aotearoa Forests.

[2]	The grounds for Aotearoa Forests’ application are that:

(a)	Aotearoa Forests has a counterclaim against Land Haul in an amount equal to the amount outstanding under the demand ($272,960.63) for breaches of the cartage contract by Land Haul, relying on s 290(4)(b) of the Companies Act 1993; and

(b)	the demand should be set aside on other grounds because the parties were contractually required to refer any disputes to mediation before pursuing court proceedings and Land Haul has refused or failed to take this step, relying on s 290(4)(c) of the Companies Act.

[3]	Land Haul opposes the application to set aside on the basis that the application was not properly served within the relevant time limits and is therefore a nullity.

[4]	If the application was served in time, Land Haul says the counterclaim alleged is not reasonably arguable as Land Haul had no obligation to provide any minimum level of services and that the “vast bulk” of Aotearoa Forests’ claimed losses in its counterclaim were not caused by Land Haul or were not reasonably foreseeable.

[5]	Finally, Land Haul says the dispute resolution clause only prevents the filing of proceedings, not the service of a statutory demand. However, even if it was required to comply, Land Haul does not accept there is a dispute, so it is not required to go to mediation.

Issues

[6]	The issues are therefore:

(a)	Was the application to set aside properly served and within time?

(b)	If not, can the defects in service be regularised?

(c)	Is it reasonably arguable that the respondent was required to proceed in accordance with the dispute resolution clause rather than issue a statutory demand?

(d)	Is it reasonably arguable that Aotearoa Forests has a counterclaim equal to or greater than the amount of the statutory demand?

Factual background

[7]	In late 2020, Aotearoa Forests obtained the right to harvest logs from the Waingaro Springs Forest (Waingaro Forest) in the Waikato region.

[8]	Aotearoa Forests contracted a forestry manager, a harvesting contractor and a cartage contractor to assist with harvesting and selling the timber from the forest. The forestry manager was Supply & Trade Timber Managers Limited (Supply & Trade). Pursuant to its agreement with Aotearoa Forests, Supply & Trade was paid a management fee to manage the harvest and contractors based on the tonnage harvested.

[9]	From November 2020, Aotearoa Forests engaged A&D Logging Limited (A&D Logging) to provide harvesting services. A&D Logging was a Northland-based harvesting crew who worked together with Alan Forbes Transport Limited as their sole cartage contractor.

[10]	In March 2021, Aotearoa Forests engaged another harvesting contractor, Douglas Logging Limited (Douglas Logging). Douglas Logging recommended the respondent, Land Haul, as its preferred cartage contractor.

[11]	Mr  Sun’s  evidence  for  Aotearoa  Forests  is  that  Land  Haul  and   Douglas Logging had been working together as a team for over a year-and-a-half at a different forest and that Aotearoa Forests engaged Land Haul to cart all or substantially all of Douglas Logging’s harvest.

Cartage contract

[12]	Aotearoa Forests and Land Haul entered a cartage contract sometime between March 2021 and November 2021, the exact date not being relevant to the issues before the Court (Cartage Contract).

[13]	Pursuant to the contract, Land Haul was to transport timber from the harvest site in the Waingaro Forest to various delivery sites around the North Island at agreed cartage rates per tonne. The Cartage Contract was prepared by the forestry manager, Supply & Trade. Land Haul says it provided services to Aotearoa Forests, and was paid, in accordance with the Cartage Contract.

[14]	The parties’ evidence is that in November 2021 there was a market downturn in the forestry industry. As a result, Aotearoa Forests and Land Haul reached an agreement that Aotearoa Forests would pay 80 per cent of the value of Land Haul’s invoices between November 2021 and February 2022 (inclusive), retaining 20 per cent until March 2022 when it was expected that the market would pick up again. The retained amounts would then be paid on a staggered basis. The parties refer to this as the retention agreement (Retention Agreement) but there is a dispute as to its terms. Aotearoa Forests says it included a condition that Land Haul would work at full capacity once the market returned to normal to make up for the losses incurred in November 2021 to February 2022 to enable Aotearoa Forests to repay the retained sums. Land Haul disputes this and says there were no minimum volume or work requirements in this arrangement or in the original Cartage Contract.

[15]	Land Haul says the Retention Agreement put Land Haul under significant financial pressure impacting its ability to keep trucks on the road. The director of Land Haul, Mr Cory Neems, deposes that as there were no minimum volume or work requirements, Land Haul “would have been able to pull its trucks off to go and complete other paying work”. Despite this, Mr Neems’ evidence is that he continued trying to work with Mr Sun and that they negotiated different payment arrangements over the course of February and March 2022.

[16]	Mr Neems says that he and Mr Sun met on 9 March 2022 and ultimately agreed that Aotearoa Forests would pay $40,000 by 15 March 2022 and the balance of the

February 2022 invoice ($161,635.24) by 20 March 2022. Mr Neems says this agreement is set out in the exchange of emails between himself and Mr Sun, attached to Mr Sun’s affidavit.

[17]	No payment was made on 20 March 2022, so on 21 March 2022 Mr Neems sent a text message to Mr Sun saying “[n]o money, [n]o more trucks”.

[18]	Mr Sun replied to the text and then by email the same day, saying that the 20th was a Sunday and so the payment date would ordinarily move to the 21st, but in any event under the Cartage Contract Aotearoa Forests was not obliged to pay until “between the 25th to 30th of each following month”. Mr Sun said he was trying to pay earlier if possible but that if Land Haul did not supply trucks then it would cause “huge loss to the crews and our incomes.” The email finishes by saying “I again require your supply of trucks to avoid any further losses, thanks.”

[19]	Mr Neems sent an email the following day, 22 March 2022, saying that the Cartage Contract has no clear process regarding termination or minimum/maximum monthly volumes required to be carted by Land Haul. The email then said:
However:
1.	Land Haul  Contractors  Ltd  give  you  notice  of  last  day  of  cartage  22 April 2022.
2.	LHC will commit 4 trucks full-time to the Waingaro operation.

In return AFL will:
1.	Pay February 2022 invoice in full today. ($201,635.24)
2.	Pay remaining retained earnings 30 March 2022. ($26,012.48)
3.	Pay March 2022 invoice 21st April 2022.
4.	Pay April 2022 invoice 21st May 2022.

[20]	There is no reply to this email from Mr Sun, but it appears that Mr Neems sent a text later that day to Mr Sun saying: “What’s going on Sam? Give me a call.”

[21]	On Saturday 26 March 2022, one of Land Haul’s trucks was involved in a fatal accident. Mr Neems sent a text the same day informing Mr Sun about the accident and saying there would no trucks Monday. Mr Neems deposes that Land Haul’s trucks were off the road for the next few days while Land Haul worked through the implications of the crash. Land Haul’s evidence is that by the time the Land Haul

trucks were back on the road, Aotearoa Forests had arranged for alternative cartage contractors.

[22]	Land Haul’s solicitors sent a letter on 12 April 2022 to Aotearoa Forests’ solicitors setting out a table of the amounts outstanding, totalling $377,160.20. This sum included the remaining retained balances from the December  2021  and  January 2022 invoices of $37,161.80 and $28,850.68 respectively, the remaining balance from the February 2022 invoice of $80,817.62 and the total amount due under the March 2022 invoice of $230,330.10. The table records the remaining balances from the December, January and February invoices as being due at the end of the month following and the March 2022 invoice being due on 20 April 2022.

[23]	Land Haul  served  an  initial  statutory  demand  on  Aotearoa  Forests  on  22 April 2022 for $146,830.10 for the balances remaining on the December 2021, January 2022, and February 2022 invoices. This demand was withdrawn following a payment of $44,636 by Aotearoa Forests. This is discussed further below.

[24]	On 25 May 2022, Land Haul served Aotearoa Forests with the statutory demand that is the subject of this application, seeking payment of $332,524.20, being the original outstanding balance of $377,160.20 minus the $44,636.00 paid.

[25]	Aotearoa Forests’ original application to set aside the statutory demand challenged the payment rates used by Land Haul for the Cartage Contract as incorrect. However, following the filing of Land Haul’s notice of opposition, Aotearoa Forests no longer relies on that basis for challenge.

[26]	On or about 30 June 2022 Aotearoa Forests paid $59,563.57 including GST, the amount Aotearoa Forests submits is the difference between the expected value of its counterclaim and the sum claimed in the statutory demand. This leaves an unpaid balance of $272,960.63 owing under the statutory demand.

Was the application to set aside properly served and within time?

[27]	Section 290(2) of the Companies Act requires an application to set aside a statutory demand to be filed and served on the creditor within 10 working days of the date of service of the statutory demand. Pursuant to s 290(3):

No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory demand.

[28]	Land Haul submits that the application to set aside ought not to proceed because Aotearoa Forests failed to serve the application within the required time. Land Haul challenges three aspects of service:

(a)	the mode of service;

(b)	the timing of service; and

(c)	that the affidavit filed in support was served without the exhibit bundle.

Mode of service

[29]	The statutory demand recorded that the address for service for Land Haul was at the offices of the solicitors for Land Haul, setting out the physical address. The application to set aside was instead sent by email to the solicitors for Land Haul.

Timing of service

[30]	Aotearoa Forests’ evidence is that the email purporting to serve the application was sent at around 4.53pm on 9 June 2022, the tenth working day after service of the demand. Land Haul’s evidence is that Land Haul’s solicitor was out of the office that day (and had an out of office reply recording that fact) and that their recollection was that the email was only opened between 5.15 pm and 5.30 pm. This was outside the hours of 9 am to 5 pm set out in r 6.5 of the High Court Rules 2016 (as referred to in r 19.12A).

Affidavit served without exhibits

[31]	Third, the version of Mr Sun’s affidavit sent with the application by email did not include the exhibits. Aotearoa Forests explains that this was because the document was too large.   A copy of the exhibits was provided to Land Haul’s  solicitors on    10 June 2022.

Aotearoa Forests’ Submissions

[32]	Aotearoa Forests submits that these three issues are technical defects and there is no prejudice, so the  Court should exercise its powers pursuant to r  1.5 of the  High Court Rules to cure any issues. In support of its submission that there is no prejudice, counsel points to the fact that Land Haul has now recorded its address for service on its notice of opposition as by email to its solicitors.

[33]	Counsel for Aotearoa Forests further submits that prior to changes to the High Court Rules in 2009, an application to set aside a statutory demand could only be served on a company in accordance with the provisions of s 387(1) of the Companies Act. The Companies Act was considered an exclusive regime so there was no ability for the Court to cure any defect in service through the application of the High  Court  Rules  because  the  issue  was  not  one  of  compliance  with  the   High Court Rules, but with the Companies Act.1

[34]	Aotearoa Forests says, however, that in 2009 two significant changes were made to the High Court Rules:

(a)	rule 19.12A was introduced, providing a standalone method of service for  applications  to  set   aside   statutory   demands   under   the   High Court Rules, with such an application able to be served at the address shown in the statutory demand, in accordance with r 6.5; and

(b)	rule 6.12(1) (previously r 198(1) of the High Court Rules 1986) was amended to provide that “[a] document may be served on a company incorporated under the Companies Act 1993 in accordance with section

1	Livi Investments Ltd v Butler Gilpat Ltd (1998) 11 PRNZ 680 (HC); Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC).

387 of that Act” (emphasis added), where previously r 198(1) provided that “[p]ersonal service of a document on a company …shall be effected by service in accordance with section 387 of that Act” (emphasis added).

[35]	Counsel for Aotearoa Forests submits that the effect of the above changes is that service on a company of an application to set aside a statutory demand is no longer exclusively governed by the Companies Act and the High Court can exercise the discretionary powers in the High Court Rules to cure defects in service.

[36]	Aotearoa Forests relies on Golden Land Civil Ltd v Baseline Survey Ltd where Associate Judge Bell (in circumstances that Aotearoa Forests submits are very similar to the present case) held that he had jurisdiction to retrospectively cure the otherwise defective service. The application had been served on the company by email to the respondent’s solicitors when the statutory demand itself nominated a physical address for service. Associate Judge Bell held that r 19.12A of the High Court Rules provides a standalone alternative mode of service outside of r 6.12 and s 387 of the Companies Act and so service under r 19.12A must be subject to other general court rules, including the power to grant relief for irregularities under r 1.5.2

Can the defects in service be regularised?

[37]	I do not consider the discretions in the High Court Rules can be relied on to cure the defects in mode and timing of service. Section 387(2) of the Companies Act states that the methods of service in s 387(1) are “the only methods by which a document in legal proceedings may be served on a company in New Zealand.” Section 387 expressly provides that a document in any legal proceeding may be served on a company, including:

(f)   by serving it at an address for service given in accordance with the   rules of the court having jurisdiction in the proceedings or by such means as a solicitor has, in accordance with those rules, stated that the solicitor will accept service.

2	Golden Land Civil Ltd v Baseline Survey Ltd [2021] NZHC 1373 at [19].

[38]	Where a document is served at an address set out on a statutory demand as provided for in r 19.12A, service is still in accordance with s 387 of the Companies Act because such service falls within s 387(f) as it is service at an address given in accordance with the relevant rules of the court having jurisdiction.

[39]	The fact that r 6.12 states that a document “may” be served on a company pursuant to s 387, rather than “shall” as the previous rule stated, does not in my view assist Aotearoa Forests as r 1.4(3)(c) of the High Court Rules expressly provides that the Rules are subject to “any statute prescribing the practice and procedure of the court in a proceeding”. Section 387(2) of the Companies Act expressly states that the methods in s 387(1) are the only methods by which a document in legal proceedings may be served on a company in New Zealand.

[40]	The Companies Act distinguishes between the methods of service for documents in proceedings and documents otherwise. To treat service by email here as if it was service at the physical address for service set out on the statutory demand, as provided for by r 19.12A of the High Court Rules, would make service by email essentially an acceptable method of service pursuant to s 387 when it is clearly not.

[41]	In any event, s 392(1) of the Companies Act provides that for the purposes of ss 387 to 391 of the Companies Act:3

(ca)	a document sent by email is deemed to have been received on the working day following the day on which it was sent.

[42]	Section 392 applies to service at an email address set out in a statutory demand in accordance with r 19.12A of the High Court Rules because such an address falls within s 387(f), and s 392 applies to all methods prescribed by s 387.

[43]	This means that even if the statutory demand had specified the solicitors’ email address as the address at which Land Haul was to be served, service would not have been in time because s 392 expressly deems service to have occurred on the day following the email. Therefore, even if rr 1.5 or 1.9 of the High Court Rules were able

3	Companies Act 1993, s 392(1)(ca) (although this deeming provision does not apply if the person receiving the document proves, through no fault of their own, the document was not received within the time specified (s 392(2)).

to be relied on to cure service by email, rather than physically to the solicitors’ offices, an extension of time would still be necessary. Section 290(3) of the Companies Act prohibits an extension of time being granted for the filing or service of applications to set aside statutory demands. If the application to set aside was not served within time, there is therefore no ability to cure that defect through the application of rr 1.5 or 1.9 of the High Court Rules. Unfortunately, this means the application is not able to proceed.

[44]	It has long been accepted that the time limits for applying to set aside a statutory demand are draconian. Following the introduction of r 19.12A, there has been a divergence of authority with Moonlight Farms Trust Ltd v Powell Land Holding4 and Richard Zhao Lawyers Ltd v Chen,5 for example, confirming the previous approach and Golden Land Civil Ltd v Baseline Survey Ltd6  holding that     r 19.12A creates a standalone method of service enabling the discretions  in  the High Court Rules to be relied upon.  I  agree  with  the  approach  taken  in Moonlight Farms Trust and Richard Zhao Lawyers that the Companies Act continues to provide an exclusive regime for service on companies. As I have stated, service pursuant to r 19.12A fits within that regime through s 387(f).

[45]	In this case, not only was the email not sent in time but the email address used was not the address for service stated on the statutory demand. The application to set aside must therefore be dismissed. Although this result appears harsh, the Cartage Contract contains a dispute resolution clause that may prevent liquidation proceedings being filed in any event. I discuss this further below.

Is it reasonably arguable that Land Haul is still required to comply with the dispute resolution clause in the Cartage Contract before filing liquidation proceedings?

[46]	Clause 16 of the  Cartage  Contract  prevents  either  Land  Haul  or  Aotearoa Forests from commencing any court or arbitration proceedings (other than

4	Moonlight Farms Trust Ltd v Powell Land Holding Ltd [2019] NZHC 861.
5	Richard Zhao Lawyers Ltd v Chen [2015] NZHC 3230.
6	Golden Land Civil Ltd v Baseline Survey Ltd, above n 2.

urgent interlocutory relief) relating to any dispute unless that party has complied with the dispute resolution clause. It states:

16.	DISPUTE RESOLUTION

16.1	No party to this contract shall commence any court or arbitration proceedings (other than urgent interlocutory relief) relating to any dispute (including any dispute as to the validity, breach or termination of this contract or as to any claim in sort(sic), in equity or pursuant to any statute) unless that party has complied with the following this clause 16.

16.2	A party who claims that a dispute has arisen must give written notice to the other party specifying the nature of the dispute.

16.3	On receipt of such notice by the other party, the parties to this contract shall:

(a)	cooperate and use reasonable endeavours to resolve the dispute expeditiously; and

(b)	if they do not within 7 days of the receipt of the written notice (or such further period as they may agree in writing) resolve the dispute, refer the dispute to mediation ("Mediation").

16.4	The Mediation shall be conducted in accordance with the terms of the LEADR New Zealand Inc. Standard Mediation Agreement.

16.5	The mediator shall be agreed between the parties within 5 days of referral to Mediation, or failing agreement by the parties, the mediator shall be selected by the Chairperson of LEADR New Zealand Incorporated.

16.6	If the dispute is not resolved by mediation within 30 days following written notice by one party to the other of the dispute in accordance with clause 16.2 (or such further period agreed in writing between the parties), either party may refer the dispute to arbitration.

16.7	The sole arbitrator shall be agreed between the parties within 10 days of written notice of the referral by the referring party to the other or failing agreement by the parties, shall be appointed by the President of the Auckland District Law Society.

16.8	The arbitration shall be conducted in accordance with the terms of the Arbitration Act 1996. The decision of the arbitrator shall be final and binding on the parties.

16.9	Notwithstanding the terms of this clause neither party shall be prohibited from seeking equitable relief from the Courts.

[47]	Aotearoa Forests submits that the dispute resolution clause is mandatory and has not been followed so if the application is held to have been served within time the

demand ought to be set aside in accordance with s 290(4)(c). Although I have held that the application was not served in time, I consider this question below to assist the parties in next steps.

[48]	Aotearoa Forests submits that the purpose of a statutory demand is to establish insolvency ultimately to support a liquidation application, but Land Haul is precluded from filing liquidation proceedings in reliance on the statutory demand because it has not first complied with clause 16 of the Cartage Contract. Aotearoa Forests says the issue of a statutory demand in these circumstances is therefore an abuse of process and it should be set aside on these grounds.

[49]	From the submissions made, it appears Aotearoa Forests accepts that the service of the statutory demand itself is not the commencing of legal proceedings but rather that the next stage, the filing of the liquidation proceedings, would be. I agree that the service of a statutory demand is not the commencement of legal proceedings.7 If that is the case, it would be difficult to establish it was an abuse of process to serve the statutory demand because technically it is not prevented by the dispute resolution clause.

[50]	However, if the dispute resolution clause has  not  been  complied  with,  Land Haul may not now be able to file liquidation proceedings based on the statutory demand despite the application to set aside the demand being dismissed.

[51]	Land Haul does not accept that the dispute resolution clause applies because it says there is no bona fide dispute. Even if there were, counsel for Land Haul submits that any dispute relates to Aotearoa Forests’ counterclaim and not to the debt that is the subject of the statutory demand. Land Haul says that in such a case the debt itself is not subject to the dispute resolution provision, relying on the Court of Appeal’s

7	Arzan  Investments  Ltd   v   Beresford   Apartments   Ltd,   above   n   1,   at   [21]; Phonographic Performances (NZ) Ltd v Music Systems (Music) Ltd HC Wellington CIV-2006- 485-1270, 2 August 2006 at [6]; Energy Efficient Healthy Homes Ltd v Greenwood Natural Ltd [2013] NZHC 1179 at [12]; and Upright Scaffolding Ltd v Pinnies Painters and Plasterers Ltd [2019] NZHC 1495.

decision in Manchester Securities Ltd v Body Corporate 172108 and the cases referred to there.8

[52]	In Manchester Securities however, the debts in issue were for the payment of levies and a judgment sum, neither of which were subject to the dispute resolution clause in that case.9 The contract in Manchester Securities expressly stated that “no owner shall be entitled to withhold payment of a levy on the basis that the matter is in the process of dispute resolution”.10

[53]	The dispute resolution provision in the Cartage Contract here does not include such a prohibition. Furthermore, clause 7.5 of the Cartage Contract expressly allows Aotearoa Forests to deduct from any payment to Land Haul the amount of any loss suffered by Aotearoa Forests arising from poor loading or failure to comply with any delivery instructions.

[54]	“Dispute” is defined very broadly in clause 16.1 of the Cartage Contract as “including any dispute as to the validity, breach or termination of this contract or as to any claim in sort [sic], in equity or pursuant to any statute.” Furthermore, the dispute resolution clause applies where written notice has been given by “a party who claims that a dispute has arisen.” Whether Land Haul accepts a dispute has arisen is therefore irrelevant.

[55]	Land Haul accepted in correspondence between solicitors in the period between the service of the first and second statutory demands that Aotearoa Forests’ letter of 22 April 2022 could be considered a notice of dispute (see email from K Bond, solicitor for Land Haul, to P Cheng, solicitor for Aotearoa Forests, dated 4 May 2022).

[56]	The dispute resolution clause requires that on receipt of such notice the parties are to cooperate and use reasonable endeavours to resolve the dispute expeditiously and if not resolved within seven days, to refer the dispute to mediation (clause 16.3).

8	Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [34].
9	At [31]
10	At [23].

[57]	In an email dated 29 April 2022 the solicitor for Land Haul stated in relation to withdrawal of the first statutory demand and payment of the $44,636  by  Aotearoa Forests:

…Our client proposes  to  proceed  on  the  basis  that  payment  by [Aotearoa Forests] constitutes acceptance of the terms set out in my email (i.e., that our client will withdraw the current stat[utory] demand and the timeframes for negotiation and mediation in the contract will apply, with our client free to issue another statutory demand after those have expired). Let me know if you think differently. If you agree, I will formally confirm that the statutory demand is withdrawn.

If we are on the same page, I think what that means is that we have seven days to negotiate and if an agreement has not been reached, then we attempt to mediate. As a first step, it would be helpful if you would set out your client’s position on what provisions of the contract it alleges our client has breached.

[58]	The solicitor for Aotearoa Forests replied by email the same day agreeing to that proposal and asking Land Haul to confirm that the statutory demand had been withdrawn. Land Haul provided that confirmation the same afternoon.

[59]	Following  further  correspondence  between  the   parties’   solicitors,   on  13 May 2022 Land Haul’s solicitor sent an email to Aotearoa Forests’ solicitor stating that Land Haul did “not consider that there [was] a dispute”, saying that the issue “seems to be about your client’s cashflow”, and continuing:

Our client is prepared to go to mediation to discuss how the undisputed debt might be paid over time, and perhaps even to offer a small discount, but it sees no value in attending if your client is not going to make an offer to pay something.

Our client does not agree that arbitration is required because there is no arbitrable dispute. Our client therefore intends to issue another statutory demand for the remaining balance of the debt when the 30 working day period set out in the contract expires.

[60]	Counsel for Land Haul submits that this was not a flat-out refusal to go to mediation but rather that Land Haul would attend mediation but that it needed to involve discussion about payment over time. In my view it is at least reasonably arguable that this is a refusal to go to mediation (although further evidence would be required to allow proper determination).

[61]	Therefore, even though the application to set aside the statutory demand cannot proceed, it appears reasonably arguable that Land Haul is still required to comply with the dispute resolution clause (potentially as varied in correspondence between the parties) before filing liquidation proceedings.

[62]	If mediation is not successful, it may be sensible for general proceedings to be filed, rather than liquidation proceedings, to avoid wasted costs. The court has a discretion whether to liquidate a company and may not do so where an applicant’s claim to be a creditor is to the extent of any counterclaim, set-off or cross demand seriously in doubt (or may stay the proceedings to allow that to be determined).11 I discuss the alleged counterclaim below.

Counterclaim

[63]	Where an applicant is seeking to set aside a statutory demand on the basis of a set-off or counterclaim, and the quantum of the counterclaim is in dispute, the applicant must be able to point to evidence showing that it has a real basis for the claimed set-off or counterclaim.12 In Manchester Securities Ltd v Body Corporate 172108, the Court of Appeal held an applicant must show “clear and persuasive grounds” for a set-off, rather than mere assertion.13 In addition, the applicant must show that the amount of the set-off is equal to or more than the amount claimed in the statutory demand.14

[64]	It is clear from the evidence that there is a genuine dispute as to the terms of the Cartage Contract. The first special condition in part one of the Cartage Contract states “this contract does not contain any minimum volume or work commitments as the volume harvested in any one period is not guaranteed.” Land Haul submits that it is clear from the context that “volume” refers to what Aotearoa Forests provides and “work” refers to what Land Haul provides, so neither party is required to commit to any minimum amounts.

11	See discussion in Insolvency Law (online ed, Thomson Reuters) at [CA241.04].
12	Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at 275.
13	Manchester Securities Ltd v Body Corporate 172108, above n 8, at [27] (footnotes omitted).
14	At [28].

[65]	By contrast Aotearoa Forests submits the first special condition is included for the protection of Aotearoa Forests but does not allow Land Haul to reduce its work under the contract. Aotearoa Forests relies on the terms of the “Agreement” section as supporting this interpretation, as set out on the first substantive page of the Contract. The wording of this clause is as follows:

[Land Haul] agrees to dispatch and transport logs from a loading point to a delivery point in accordance with the terms of this contract and any other associated instructions as may be issued by or on behalf of [Aotearoa Forests] from time to time.

[66]	The definitions section of the Cartage Contract does not  clearly  support Land Haul’s submission in relation to the use of the words “volume” and “work” as the definition of “Actual Volume” states that it means “the actual total volume of work by region allocated by the Company”. There is no separate definition of “Volume” and the definition of “‘Service’ and/or ‘Work’” does not clarify matters.

[67]	Even if the contract did distinguish between “volume” and “work” as submitted by Land Haul, other clauses in the contract suggest that the agreement was not that either party could provide logs to haul or cart logs as they pleased. The remaining special conditions include that Aotearoa Forests retains the right to amend cartage volume targets at its sole discretion and that Land Haul will be required to report monthly to Aotearoa Forests on key performance indicators determined by Aotearoa Forests from time to time. In addition, the final special condition allows Aotearoa Forests to bring in a third-party contractor to clear backlog  caused by  Land Haul falling behind in the required uplift for a period of 5 days but only following notification in writing to Land Haul. Clause 13 of the Contract provides for an indemnity by Land Haul but no corresponding indemnity by Aotearoa Forests and clause 14 records that in the event of any market downturn in the forestry sector, Aotearoa Forests shall have the right to require Land Haul to slow down or cease providing services for a period until a correction in the market occurs and Land Haul shall have no claim against Aotearoa Forests for any slowing or cessation of production. These clauses at least make it reasonably arguable that there were minimum requirements for Land Haul contrary to Land Haul’s submissions.

[68]	In addition to the interpretation of the Cartage Contract being in dispute, the terms of the variations agreed in November 2021 and potentially in March 2022 are also in dispute.

[69]	Land Haul appears to accept in its evidence that a Retention Agreement was reached in November 2021, although Mr Neems disputes that there was any requirement to work at maximum capacity. This is not a matter capable of determination in a summary proceeding as there is a conflict in the evidence between the parties on this point. If there was a term agreed requiring Land Haul to work to maximum capacity, as alleged by Aotearoa Forests, then it appears reasonably arguable that the alleged losses suffered by Aotearoa Forests may have been caused by Land Haul’s actions or were reasonably foreseeable.

[70]	In addition, the correspondence relied on by Land Haul as evidencing the agreement it says was reached on 10 March 2022 does not clearly show such an agreement. Mr Sun’s email response on 10 March 2022 to the early payment agreement proposed by Mr Neems stated:

Kevin still waiting few invoices coming in the next few days for Feb, until then can’t give you 100%, but I guess 99% from my end should be ok, we will do our best to suit your dates to make sure you [are] well covered from your ends too.

[71]	Mr Sun’s email on 21 March 2022 following the “no money, no more trucks” text from Mr Neems supports the position that he only agreed to try to make payment by 20 March 2022, not that Aotearoa Forests agreed to make payment by this date.

[72]	Counsel for Land Haul submits that Mr Sun accepted in his first affidavit that an agreement was reached but then attempted to correct that in his reply affidavit. This appears to be a matter for cross examination given the wording of the contemporaneous emails rather than an issue that could be determined in a summary context.

[73]	As already referred to above, clause 7.5 of the Cartage Contract allows Aotearoa Forests to deduct from any payment to Land Haul the amount of any loss suffered by Aotearoa Forests arising from the failure to comply with delivery

instructions. There appears to be an argument that the failure to provide trucks could be interpreted as a failure to comply with delivery instructions.

[74]	Two heads of loss are claimed by Aotearoa Forests in respect of its counterclaim:

(a)	lost revenue during March and April 2022 in the amount of $61,962.87 (including GST); and

(b)	increased rates that Aotearoa Forests agreed to pay its new forestry site manager of $210,997.75 (including GST).

[75]	Land Haul concedes in its submissions that if it was found that there is a reasonably arguable case that it had breached its obligations to Aotearoa Forests then the loss of revenue set out at [74(b)] above is of a type that is properly claimable. However Land Haul does not accept the quantum claimed because Land Haul says it is based on unachievable cartage rates. Mr Sun’s evidence on this point is that for the first 12 months of the contract Land Haul was generally transporting 10 loads of logs per day and that losses are claimed on this basis. Mr Neems disputes this but, again, this is not a matter that is capable of resolution on the evidence filed.

[76]	Land Haul submits the second head of loss is not loss that was caused by anything Land Haul did and so is not claimable from Land Haul. This submission in part relies on whether the termination of the contract of the forestry  manager, Supply & Trade, was a step that Aotearoa Forests took voluntarily or one  that Supply & Trade would have taken regardless. There is a dispute in the evidence as to whether Aotearoa Forests terminated Supply & Trade’s contract or if, in fact, Supply & Trade terminated the contract itself. Again, this is not a dispute that can be determined on a summary basis.

[77]	In my view, however, Aotearoa Forests has put sufficient evidence before the Court for its counterclaim to be more than a mere assertion. Issues remain as to the quantum of its loss including whether the net present value of the losses claimed would

be the relevant figures rather than the amounts currently claimed, but that would be a matter for a full hearing.

[78]	Because of the view I have reached in relation to the timing of the statutory demand, I do not need to reach a final view on whether there is a reasonably arguable counterclaim or whether there is sufficient evidence that the counterclaim is for an equal or greater amount than the statutory demand.

[79]	As I have said above, however, it appears reasonably arguable that Land Haul is required to attend mediation before it files liquidation proceedings. If mediation is not successful, Aotearoa Forests’ counterclaim may be a matter relevant to the exercise of the Court’s discretion whether to appoint liquidators as it may call into question Land Haul’s claim to be a creditor. To avoid wasted costs, I encourage the parties to make every effort to reach a resolution at mediation (or otherwise) or to bring general, rather than liquidation, proceedings to determine the amounts owing.

Result

[80]	Aotearoa Forests’ application to set aside the statutory demand is dismissed. Although I am not required to determine the issue in the context of this application, it appears reasonably arguable that Land Haul is still required to comply with the dispute resolution clause of the Cartage Contract before filing liquidation proceedings.

Costs

[81]	I have dismissed the application to set aside the statutory demand but on a technical basis for failure to comply with time limits. My preliminary view from a costs perspective is that both parties have achieved a measure of success. I ask the parties to confer and only if costs are not able to be agreed to file memoranda, on behalf of Land Haul within 20 working days and Aotearoa Forests within a further 10 working days (with leave to seek extensions if nearing agreement).

Associate Judge Sussock